Government Contract Vehicles: Life Line or Fault Line

The ultimate goal of the U.S. Department of Defense’s space mission is to place capabilities in space in support of national defense and the warfighter. The U.S. Defense Information Systems Agency (DISA), which procures communications services for the Pentagon, has 11 premier contract vehicles. Three of these are space segment contracts: Enhanced Mobile Satellite Service (EMSS), the Defense Information Systems Network Satellite Transmission Services-Global (DSTS-G) and the Mobile Satellite Service (MSS).

What U.S. government contract vehicles have provided the best value for the customer and can they serve as examples for future contract vehicles? What is DISA thinking about regarding the similarities of these processes and the inclusion of commercial satellite communications into the transformational Communication Architecture as it crafts its acquisition strategy? How does DISA plan to capitalize on the similarities and synergies in these areas as it evolves contracts which maximize an architecture requiring a greater degree of coordination in funding, designing, building, launching and operating and therefore allow the government to have quicker access to space-based capabilities with greater flexibility while lowering costs?

A spokesperson for the National Security Space Office says, “The overarching objective is to effectively acquire commercially available services to best support of Department of Defense missions. The synergy we are collectively striving to achieve is optimization and balance between the performance measures of effectiveness, military utility, affordability, technical feasibility, responsiveness and assuredness in the communications and network systems used by the U.S. military for the delivery of the information services our warfighters employ to achieve mission success. … Changes in policy to capitalize on the stated similarities and synergies will continue to closely collaborate with the [National Security Space Office], the [Transformational Communication Architecture] architect and the broad range of stakeholders that together comprise the U.S. National Security Space community including our international partners from other nations, in the design, development and evolution of the Global Information Grid.”

Contract Vehicles — Favor Or Fault?

Bandwidth is a new bullet on the battlefields of the IP-centric battlefield architecture. The Pentagon relies on a sophisticated software to model the spend analysis as it applies to bandwidth. The realities of how contract vehicles view risk as well as the current strategy of the methods to aggregate purchases, leverage the buying power of the government and to take advantage of multiyear contracting was not a key past requirement in the support of the military net-centric warfare commitment. If a satellite operator looses a satellite it could very well be the factor in losing a battle. The Department of Defense’s proprietary contracts for the Wideband Global Satcom (WGS) system, Advanced Extremely High Frequency (AEHF) and Mobile User Objective System (MUOS) are cost-plus incentive fee and award contract with a defined period of performance awards.

DISA tries to best refine its approach for planning, procuring and managing commercial satellite communications services. In 2001, the DSTS-G contract empowered three small minority businesses — Arrowhead Space and Telecommunications Inc., Spacelink International and Artel Inc. — to act as consolidators and provide communications through the primary contract vehicle to buy commercial bandwidth and services. The original idea was to encourage competition in providing commercial satellite communications to the Pentagon. The U.S. General Accountability Office (GAO) has said previously that the current approach is too costly and unwieldy to meet the military’s operational needs, and today, two of these original DSTS-G companies have been acquired by global interest — Caprock acquired Arrowhead and Finmeccanica acquired DRS, which previously had taken control of Spacelink. Small companies are concerned that an ongoing review of the way the Department of Defense procures commercial satellite services is driven in part by large satellite fleet operators who want to squeeze the smaller players out of a growing market.

David Cavossa, vice president, operations at Arrowhead Space and Telecommunications, says, “Several GAO reports have shown that the government is very happy with the DSTS-G contract vehicle. On the average, the contract saved 20 percent by not dealing directly with the operators. The United States government really likes to use two-tier competition. When the government needs something from a supplier, they want the suppliers to compete with each other and the second level of integrators in between and amongst each other.”

Ron Seward, vice president of business development at Artel, the remaining independent small business that is part of the DSTS-G, says the current contract “is a very efficient way for the government to fulfill their requirements in a competitive fashion. They play a significant role in our revenue creation. Because of the fluctuations in supply and demand, we have not seen any standard rates from satellite operators.”

The contract vehicles do work and “create competition for Department of Defense requirements, and that is good and I have seen improved implementation times as a result of them,” says Kay Sears, president of Intelsat General Corp. According to the Department of Defense’s “Commercial Satellite Communications Service, Spend Analysis and Strategy Report,” published in June 2006, these contracts are perceived to offer pricing below market, but ”pricing has risen since 2005 approximately 18 percent on average since 2005 for DSTS-G task orders,” says Sears, and larger operators see a change in operations as a way for the Pentagon to procure these services more efficiently and cost effectively. “The DSTS-G mostly consist of about 80-plus percent only of pure bandwidth capacity,” says Sears. “The global war on terror has been the primary acquisition need, specifically for the flying of [unmanned aerial vehicles]. These are driving huge amounts of bandwidth demands. The contract vehicle structure now needs to be changed dramatically. As an operator of the largest satellite fleet and the largest supplier of bandwidth to the military and the Department of Defense, it is very important for Intelsat to have a direct relationship with the Department of Defense.”

Michael Bristol, vice president of TeleCommunication Systems Inc.’s (TCS) Government Solutions Group, says, “DSTS-G has restricted competition. This has created a monopoly for a very long time, to where all managed bandwidth services in the Department of Defense goes through DSTS-G.”
“Supply and demand are the real arbiters of pricing,” says Sears, citing the U.S. General Services Administration’s (GSA) Satcom 2 contract as an example of what does not work. GSA awarded contracts to 24 companies in May 2007 to provide next-generation satellite communications systems to U.S. government military and civilian agencies. Among the companies available to provide services under the $750 million contract are: Americom Government Services Inc., Arrowhead, Artel, AT&T Corp., DRS, EDS Corp., Hughes Network Systems, Intelsat General, Stratos Mobile Network Inc., TCS, Telenor Satellite Services and ViaSat Inc. The contract also included a small business set-aside component for satellite professional support services. “Too many players were awarded the contract,” she says. “This contract required customers to review too many bids, limited pricing flexibility existed, it created a need to constantly change in order to address customized customer requirements, the contract elapsed the time to modify, which does delay service implementation, and there was a lack of understanding with the government operator and vendor service offerings.”

But military use of commercial satellite communications is not going away and may actually grow, so the contracts need to work. Ric VanderMeulen, vice president and general manager, government satcom at ViaSat, says, “These government contract vehicles have the advantage of pre-qualifying sources, which reduces acquisition schedule and cost. In general, they also introduce an intermediary, which adds an additional markup. The principle is that the cost savings is greater than the additional markup. Another important consideration is the quantity of pre-qualified sources. These considerations are the cost of pre-qualification multiple sources and how that could affect full and open competition becoming limited competition.”

An example of a good contract for the government is the U.S. Army’s $5 billion Worldwide Satellite Systems (WWSS) contract awarded in 2006, says Bristol. Under the indefinite delivery/indefinite quantity contract, six vendors, including TCS, provide turnkey commercial satellite systems and associated support services for satellite terminals, including all hardware, software, services and data to operate the terminals. “On WWSS, the dollar volumes are larger but the margins are significantly thinner,” he says. “We have to get major wins on these contract vehicles. It is the best value for the government, because they do procurement one time and downselect from a dozen choices to a handful, and as they have delivered orders over the contract, the effort to award would be a very small fraction if they did full and open. Secondly, these large contracts with these small competitors become knife fights. Then it does cost as much for the government to procure but they get great bargains. Sixty-five percent of our corporate revenue comes from the U.S. government, and Department of Defense contract vehicles make up about 25 percent to 33 percent of that number.”

Government Contract Vehicles: Life Line or Fault Line

Contract Vehicles — Favor Or Fault?

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