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.”
Future realities of Commercial Satellites
DISA’s commercial satellite communications contract mechanisms must support the evolving and projected needs of the warfighter. Seward has seen a new focus for improvements for government and military contract improvements as to capabilities, processes and timeliness. “In the past 18 months, there have been significant changes to the DSTS-G contract as well as to the government’s internal processes. All of this has resulted in improvements for the end users,” he says. In 2009, DISA will explore contract mechanisms to replace the MSS and DSTS-G contracts as they near the end of their 10-year life, though “DISA does not foresee any changes to the existing commercial satellite communications contracts at this time,” a DISA spokesman says. According to Sears, “the key contracts in the future will be the Future Commercial Satellite Services Acquisition to be awarded in 2010 with overlap of DSTS-G’s flexible and best value contract vehicle and the Navy Commercial Broadband Satellite Program contract, which supports X-band with high data rate.”
Trevor Haak, director of business development for Americom Government Services, says, “Fundamentally, we would like to see an integrated [military satellite-commercial satellite] strategy, architecture, planning and budgeting process and in addition, where possible, see defined requirements, mission, operations and for each contract to provide provisioning against those requirement appropriately. This will allow the operators to customize their fleet and business arrangements to meet the Department of Defense requirements in a more efficient and effective manner.”
Bristol says, “More waivers to the DSTS-G for customers buying integrated solutions that are beyond the scope of DSTS-G would make DSTS-G an ideal contract vehicle.” But Cavossa disagrees. “It is artificial, this two-tier economic model. It is not only the DSTS-G, but the U.S. government tends to buy through resellers who add value. You have a value-added integrator and/or value-added reseller that is more focused on the government customer. … All the combined satellite operator’s revenue that comes from the Department of Defense is less than five percent. The government likes to work with a value-added reseller whose government revenue is close to 100 percent. The 818 report (the Spend Analysis report) made that an open and shut case,” he says.
Patricia Cooper, President of the Satellite Industry Association, stated that “The bigger future prospect is that satellite operators would directly partner with the Department of Defense on the space segment hosted payloads.” Americom Government Services has been awarded a contract to launch and build the Commercially Hosted Infrared Payload Flight Demonstration program for the Air Force. Robert Demers, senior vice president, Americom Government Services, says, “Much of the capacity is funded by a supplemental budget. You cannot do long-term contracts. The philosophy of the Department of Defense has changed regarding commercial for right now. They are seriously thinking about how commercial satellite communications fits into their architecture. Therefore, the normal question is, ‘How will the government fund for this additional capacity, on a regular basis versus on an ad hoc basis?’ So we see an evolutionary process happening in the government in terms of operations, mission requirements that, of course, flows into the budgetary process as well.”
Contract Vehicle Realities
The key questions are what role will the commercial satellite sector play and what is the role that WGS, AEHF and MUOS will play? Commercial operators have been told that they will be a very important part of the Pentagon and future military capacity needs, and reports by DISA and the Assistant Secretary of Defense for Networks and Information Integration show a gap in military satellite communications capacity. “The bad guys are not going away for the foreseeable future,” says Bristol. “You cannot predict that the winding down in Iraq will be permanent and no hotspots will ever emerge again. A need for Department of Defense bandwidth capacity will be in demand for a very long time,” he says.
“We do not want to turn our fleet into military satellites because that is really not our role, but there are added security features that we need to engage in directly with the Department of Defense,” says Sears. “So it an investment question. … We can get a military capability in orbit in 24 to 28 months. That is not what they can do in the military.”
So the question that needs to be asked by the commercial satellite communications providers, military and the Department of Defense is what must be the right resource capacity and how to encourage a dialog through a direct contract vehicle structure? The Pentagon’s role for the commercial satellite players needs to be clarified. Will it be a permanent mix of commercial and military satellites and if so, what will be the mix? Operators wish to have direct contracts but are unwilling to take the risk of setting aside reserve capacity for the Pentagon, and the Pentagon is unwilling to take the risk to pay for advanced capacity. Two of the DSTS-G operators no longer are small businesses, and there still there seems to be a need for a buffer relationship, so the mix of types and numbers within that contract may need to be changed.
There are missing pieces on the global net-centric warfare contract puzzle board that must be found in order to insure a lifeline for warfighters. â–