1,001 Ways to Buy PCs

hen the federal government began buying PCs in large quantities during the 1980s, the Air Force led the way with its series of desktop procurements. For each of five multiyear buys, the Air Force spelled out its needs in massive requests for proposals, took months to evaluate the voluminous responses, awarded contracts and then defended its actions when the unsuccessful bidders formally protested the selections. Once the protest cases were resolved, which could take months, Air Force PC buyers were required to make their purchases through the current Desktop contract. Delivery took weeks, sometimes months.

This process is neither efficient nor easy to comprehend, but over more than a decade it has delivered about a million PCs to military units worldwide. Now the Desktop V contract is winding down, and decision-makers at the Air Force Standard Systems Group in Alabama are weighing whether to take the first steps toward a Desktop VI contract. "We are working to have a follow-on to the DT-V contract in place prior to the expiration of the current DT-V vehicles," SSG Executive Director Robert Frye said in a May statement. "The acquisition strategy, contract vehicle type or name have not been determined at this time." But longtime observers of the federal information technology buying scene are expecting the Air Force to conclude that the era of the big desktop buy is over.

If they're right, the Air Force will join other federal agencies in giving offices the latitude to buy the products that suit their needs when they're ready to buy. Several factors could drive the Air Force to abandon its multiyear contracting strategy:

• The difficulty of keeping the agreed-upon products up to date. This is a period of rapid improvements in computer technology, with some product cycles lasting a matter of months. Locking into a standard configuration for years is a mistake, and the "technology refreshment" process spelled out in the contract can stand in the way of upgrades.
• Falling prices in the open market. The Air Force and other agencies that chose one or two desktop computer suppliers got good deals in the early days, when the lure of sales volumes in the hundreds of thousands of units prompted PC makers to offer their products at very low prices. But lately hardware prices have been going down at a rate approaching 20 percent annually, so it
  doesn't make sense to lock in prices.
• Product standardization. When the Air Force undertook Desktop I, the evolution of PC technology was unclear. There were more operating systems to choose from, more variations in storage and display systems, and so on. It made sense for the Air Force to specify what kind of systems its units should buy. Now there is widespread agreement on plug-and-play compatibility among PC components, and buyers are savvier. Detailed PC specifications can be counterproductive. Meanwhile, the Pentagon has been pushing the services to buy more commercial off-the-shelf (COTS) products, rather than adhering to unique military product specifications.
• The availability of other purchasing vehicles that are simpler and easier to use. Agencies are under pressure to cut back their contracting staffs and overhead costs, so they can't undertake as many complex procurements as they did in the past. Although Frye's statement suggests there will be some kind of corporate Air Force contract for PCs, it could be a blanket purchasing agreement (BPA) tied to the General Services Administration's Federal Supply Schedule program, or conceivably an endorsement of some other agency's contract as the preferred acquisition channel for the Air Force.

Some BPAs are replacing what would have been conventional procurements a couple of years ago. For example, a team led by Digital Equipment Corp. recently won a Justice Department BPA contract to upgrade and expand the Justice Consolidated Office Network (JCON). The contractors will supply hardware, software and integration services over a maximum of five years. The JCON II BPA could be worth $50 million.

Hold It Right There!

BPAs have become so popular, in fact, that the Navy and Air Force both cracked down on their use late last year. "If multiple activities issue BPAs for similar products . . . volume purchasing power is reduced for everyone, and the duplication of effort results in the unnecessary consumption of scarce DoN [Department of the Navy] resources," Rear Adm. Richard T. Ginman wrote in a memo directing Navy units to use the service's online IT catalog when possible, rather than undertaking a new BPA.

The Air Force this spring lifted a moratorium on BPAs after a service team reviewed the policy issues associated with the buying technique. One issue that had been raised was the need to ensure small businesses are not shut out of the procurement process. Another issue that has surfaced in the Air Force and elsewhere is the possibility that buying through the BPA schedules can lessen competition for IT sales.

For purchases over $2,500, buyers are supposed to check at least three vendors' schedule offerings to make sure they're getting the best deal for their agencies. But under the streamlined procurement rules now in effect, it's easy enough to pick out a single schedule vendor and negotiate a deal worth millions that's in effect a forbidden sole-source buy. In April, the Office of Management and Budget cautioned agencies to avoid this error.

But BPAs remain popular, and as a consequence, business is booming for the GSA IT schedule, now consolidated into a single set of contracts. Federal agencies bought $2.8 billion worth of products and services through the Federal Supply Service IT schedule last fiscal year, and already this year they've almost topped that figure. "We feel we'll probably be close to $4 billion" at the end of September, says William N. Gormley, assistant FSS commissioner for acquisition.

Gormley touts the speed of GSA schedule buys. Three years ago, he says, the typical agency needed 268 days to make a PC buy, and one notorious IT acquisition took nine years to complete. Now buyers can get delivery off the schedule in a maximum of 60 days, and in some cases as little as a week. "We live in a microwave society," Gormley quips. "Everybody wants it fast. You don't even have time to use the broiler anymore."

Computer sellers agree their customers are interested in speedy delivery. As happened often in pre-streamlining days, there's a danger that "you may order something and it will be out of date by the time it's delivered," says Gail Bergantino of Select IT, a "virtual store" operated by Unisys Federal Systems. Select IT, which sells many brands of hardware and software, promises to deliver a fully configured PC within five days.

Philip R. Kennett, who heads federal PC sales for Digital Equipment Corp., talks about "blink and they're gone procurements." They put pressure on his sales staff to keep apprised of customer needs, he says.

Freshness Sells

The increasing importance of rapid procurement is evident when Bob McFarland, vice president of federal sales and marketing for Dell Computer Corp., discusses his company's business strategy. "First and foremost," he says, "we're able to get the freshest product to our federal customers."

Dell prides itself on turning over its inventory at least every seven days, a tactic that gives customers better value, he says. One example: A 233-megahertz Pentium II processor, the chip at the core of some Dell PCs, cost Dell $500 early this year, but by December the price will have dropped to $400. Dell can keep buying the same chip for less money and pass the savings along to customers, McFarland says. Other PC makers might have bought several months' supply when the price was high, he says, and their customers can't reap the benefits of the persistent deflation in the PC marketplace.

Sixty percent of Dell's federal sales are through the GSA schedule, according to McFarland, who adds: "To us, the schedule is the best value for the government." The fit between Dell's direct-sales marketing and the GSA schedule is supported by the numbers. As of the end of April, Dell was the No. 1 IT vendor on the schedule, with sales of $284.6 million so far in fiscal 1998.

But older procurement vehicles such as indefinite-delivery, indefinite-quantity (IDIQ) contracts, epitomized by the Air Force Desktop contracts, aren't going away, McFarland says. Dell sells its PCs through more than 60 IDIQ contracts.

"With an IDIQ, you have the benefit of negotiated discounts," says Tricia Reneau, marketing director of Vanstar Government Systems Inc. She cites the example of the Army's PC-2 contracts, which she says are giving buyers brand name PCs at prices 22 percent below schedule and provides for delivery in 25 days. "You have to be a very crafty consumer to order from GSA," she adds.

Vanstar's Army PC-2 contract is open to most other federal agencies. When procurement reformers began encouraging agencies to buy from one another's IT contracts, they unleashed a monster of sorts. Now agencies are learning to market their contracts with slick presentations, four-color brochures and snazzy World Wide Web sites.

Their motive: fees, usually less than 5 percent, that the originating agency tacks onto the invoice as a handling charge. Agencies aren't allowed to make a profit on this service to other agencies, but they can spend part of the revenues on marketing and on program improvements.

Among the most aggressive marketers of PCs to other agencies is the National Institutes of Health, which did $86 million in business from other agencies in the first seven months of this fiscal year on its Electronic Computer Store II program alone. (NIH's IT services program did another $89 million during the same period.) Some observers say NIH has made buying from its contracts easier than using the GSA schedule.

Shopping on the Web

NIH ECS II buyers now are required to buy via the Web, using software that lets them get quotes from vendors on specific offerings. It is different from the shopping-cart-on-the-Web metaphor embodied in GSA's Advantage Web site and many other online shopping services. GSA has found it difficult to get vendors to post and maintain electronic catalogs of their schedule offerings, which is the way GSA aims to populate Advantage.

Of the 4 million GSA schedule items in all categories including IT, only about 355,000 are on Advantage. "Our intention is to get all our items on Advantage, because that's what our customers are asking for," says FSS' Ed O'Hare. One forthcoming Advantage enhancement will give vendors more space in which to describe their products and terms of sale.

Meanwhile, many vendors are opening or upgrading their own Web sales sites, perhaps because the federal sales leaders are selling that way. Although Vanstar's Reneau says a survey of 200 buyers found little interest in online ordering, her company soon will offer it. Digital's Kennett says Web ordering is "an exploding growth area" for his company.

Web sites increasingly allow customers to configure their own PCs, giving them more choice. Dell, for example, offers more than 10,000 system configurations.

SMAC Data Systems Inc., a growing PC manufacturer in Gaithersburg, Md., recently launched its Web site with an emphasis on allowing buyers to customize their orders.

Impulse Buying?

Online sales can be a mixed blessing. Some question whether the buyer gets enough guidance and information. "Unless you know exactly what you want, you can unwittingly be comparing apples and oranges," says Steve Charles, a partner in the Immix Group, a McLean, Va., consulting firm. Terms and conditions often are not spelled out on Web sales sites, he says, and important details about factors such as technical compatibility with other systems may be missing.

With so many choices and difficult comparisons confronting PC buyers, there's a new movement to eliminate much of the buying conundrum. Called seat management, it is expected to become widely available to federal agencies through GSA and NASA this summer. With seat management, agencies contract for provision of computing services. As with old-fashioned telephone services, the seat management contractor supplies the equipment, the software and the means to link them through networks, as well as maintenance and user assistance. Agencies pay for services to each desktop for a year.

In federal IT circles, opinions are mixed about whether seat management will take off. The high cost of operating and maintaining one PC in an office setting for a year has been much publicized, but when it's a single line item in their budgets, agency executives may resist paying the piper, preferring to keep the costs muddy.

Some doubting Thomases view seat management as a trendy label for leasing, which may be taking off slowly after years of talk. Leasing PCs has worked well for agencies such as the Census Bureau, but there is little sign of high-volume leasing ahead.

On the other hand, it seems to some agency managers that they have every one of those 10,000 PC configurations under their own roofs. Seat management aims to rationalize and simplify PC administration, and it probably can help agencies overcome the shortage of qualified technical support staff. One major benefit it may offer: ridding agencies of their storerooms full of discarded old PCs.

As a result of the changes in PC acquisition and the push for speed, agencies now have more up-to-date inventories of desktop computers than ever before, it is widely believed. And in most cases they found substantial discounts over normal retail prices. "The price pressures [on vendors] are going to continue for some time," predicts Ashok Mehan, president and CEO of SMAC Data Systems. "The customer is king right now."