N/MCI: Buyers Beware

WASHINGTON (07/24/2000) - The Navy/Marine Corps Intranet will pay more than 50 percent more per seat during the first year than the estimated average cost during the first year of the contract, according to a Navy report to Congress issued late last month.

In addition, other commands could end up paying more for information services than they currently do, the report concluded.

The Navy/Marine Corps Intranet is a multibillion-dollar program that would replace a hodgepodge of two dozen Navy and Marine Corps networks with a seamless network owned and operated by a single contractor.

In what Secretary of the Navy Richard Danzig called a "full-spectrum report" on the benefits of N/MCI, the Navy acknowledged that the Naval Air Systems Command (Navair), which will test the intranet, "is unfairly penalized because they pay nearly 50 percent more per seat." The command would pay $8,900 per seat compared to the average cost of $5,773 per seat for the rest of the Navy.

Likewise, other Navy units that have reduced costs for information technology services through their own initiatives "may find that the seat cost of the selected vendor is higher, and affordability will become an issue," the study concluded. Officials from the Navy and Navair could not be reached for comment.

The Navy delivered the report, along with a detailed business case analysis, to Congress June 30 after lawmakers threatened to withhold money from the program unless the Navy could prove that its plan complied with federal regulations and made fiscal sense.

However, rather than conduct a pilot project before awarding a contract, as some experts suggested, the Navy plans to use the first year of the five-year contract as its test case for base- and local-area network services and desktop services. Wide- and metropolitan-area network services will not be included in the pilot.

The first year also will not include voice services. The Navy has delayed voice services until late in fiscal 2002 or early 2003 "to keep pace with industry's transition of quality voice over Internet protocol," according to the Navy study.

Therefore, the 27,000 users at Navair will share the $2.42 million first-year price tag - or 5.5 percent of the $4.4 billion yet-to-be-funded, first-year requirement for the entire 485,000 users envisioned under the intranet contract.

The per-seat cost is high during the first year because the winning vendor will not be able to spread the fixed costs of the contract across the five-year life of the deal, the Navy concluded. Without a pilot, it would be impossible to fund the shortfall and "would effectively delay" the N/MCI contract until fiscal 2002, the report states.

Olga Grkavac, executive vice president of the Information Technology Association of America's Enterprise Solutions Division, said there is nothing magical about what the Navy plans under N/MCI. "This is not experimental in terms of the private sector," she said. "All four of the primes have done this.

The only people it's new to is the Navy."

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