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HP may face more competition for Navy’s network contract

By Nick Taborek,

Hewlett-Packard may have to fend off more bidders to keep its largest U.S. government contract, a $1.5 billion-a-year deal to operate the Navy’s communications network.

The Navy is widening the competition by reducing a key requirement on the Next Generation Enterprise Network, known as NGEN. Companies with experience operating a network with at least 40,000 computers will be allowed to bid, down from the initial minimum of 100,000, Steven A. Davis, a Navy spokesman, said in a Dec. 27 e-mail.

The original threshold of the contract, valued at as much as $7.5 billion over five years, might have limited the field to no more than four eligible companies, the Navy said in October. Those companies may have included large network operators such as Lockheed Martin and Northrop Grumman. By lowering its demands, the Navy may be able to attract more bidders, including smaller government contractors.

“When you cut the threshold for bidding by 60 percent, it potentially changes the whole complexion of the competition,’’ said Loren Thompson, a defense analyst at the Lexington Institute, an Arlington-based research organization.

While the decision by Navy officials will give the government more options, it will “also increase the risk that they will pick a company that doesn’t have the requisite knowledge,’’ Thompson said in a Dec. 19 phone interview.

Low marks

The Navy is holding its first competition since 2000 to choose one or two contractors to run its intranet, which connects about 400,000 computers and other devices used by about 750,000 Navy and Marine Corps personnel.

In 2000, Electronic Data Systems, a Plano, Tex., company founded by Ross Perot, became the network integrator for the Navy and Marine Corps. HP, the world’s largest maker of personal computers, acquired EDS in 2008.

The Navy and Marine Corps network got low marks from users and met just three of 20 performance targets in a 2006 review by the Government Accountability Office, Congress’s investigative arm.

“Those early years were painful, for both the Navy and EDS,’’ said Ray Bjorklund, chief knowledge officer at Deltek, a federal market analysis company based in Herndon.

The contract has brought EDS and HP $9.5 billion in revenue in the past 11 years, according to data compiled by Bloomberg. HP received a $3.4 billion award last year to supply the services until the transition to NGEN is completed in 2014.

HP, based in Palo Alto, Calif., declined to comment for this article, spokesman George Thompson said. As recently as October, though, it opposed relaxing the requirement on the bidder’s experience with large networks.

“HP would agree that the bar should be set at the highest levels to ensure that whichever vendor is selected for NGEN, they have managed a network of similar size and complexity,’’ Bill Toti, HP’s vice president of Navy and Marine Corps accounts, said in an Oct. 28 e-mail to Bloomberg News.

More competitors

In addition to HP, two companies have said they plan to submit NGEN bids: Computer Sciences Corp., a consultant and technology services provider based in Falls Church, and Harris Corp. of Melbourne, Fla.

The Navy’s decision to make the NGEN requirements less restrictive is “entirely appropriate,’’ Cynthia Gagnon, who leads Harris’s NGEN effort, wrote in a Dec. 27 e-mail statement.

Harris, a communications equipment and services company that is a subcontractor to HP on the Navy contract, has experience managing networks of at least 100,000 devices, she said.

CSC was unable to provide an immediate comment, spokeswoman Heather Williams said in an e-mail.

Dell, Vion Corp. and Apptis, a unit of San Francisco-based URS Corp., are also among companies that may benefit from the Navy’s decision, said Robert Guerra, a partner at Guerra Kiviat, a federal sales consulting firm based in Potomac. He cautioned that the Navy isn’t “going to risk this thing’’ by selecting a company without network experience that’s comparable to the leading contractors.

The Navy postponed releasing its request for proposals this month and now plans to begin the competition no earlier than the end of January. The delay in the network contract allows the Navy to “further solidify the requirements,’’ the Navy’s Davis said in a Dec. 15 e-mail.

The Navy expects the network contract to reduce its current intranet costs of about $1.5 billion a year, most of which is spending on contractors. That estimate would bring the contract’s maximum value to $7.5 billion for five years, lower than the Navy’s October estimate of as much as $10 billion during five years.

— Bloomberg Government

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