NGEN Proposal Is Poster Child For What’s Wrong With DoD’s Acquisition Reform Strategy

In May, the U.S. Navy released a massive, 1,100 page request for proposals (RFP) for the Next Generation Enterprise Network (NGEN) IT program. NGEN will provide secure data and information technology services, such as data storage, email, and video-teleconferencing for around 700,000 users at 2,500 Navy and Marine Corps locations around the world. The new program is designed to replace the current Navy-Marine Corps Intranet (NMCI) as well as serve as the bridge to a futuristic Naval Networking Environment. A contract award is expected early next year on the first five-year, $5 billion increment of NGEN. The total cost for NGEN is estimated to be approximately $50 billion through fiscal year 2025.

So far, so good. Except the Navy chose a contracting and management approach for the RFP that raises serious questions regarding the ability of both the government and the winning contractor team to achieve NGEN’s objectives and price targets. The Navy was unhappy with the NMCI contract because the system was managed by a single contractor team that included a number of proprietary elements in the overall architecture. The Navy allegedly complained that it did not have sufficient visibility into the costs of individual services and that NMCI constituted a closed architecture which did not allow for the rapid integration of new and cheaper technologies.

The new RFP divides the overall work into two major parts, enterprise services and infrastructure, and 38 services. There are two huge contractor teams competing for this prize; both could win a portion of the overall effort with work on the individual services competed as task orders. Even more daring, the Navy has the option to take work away from the contractor team and put it out for competitive bid. Were this not enough change and uncertainty to inject in the process, the Navy will serve as the overall program manager, a job it hasn’t done for more than a dozen years.

The NGEN proposal also reflects many of the themes in the Department of Defense’s (DoD) current acquisition reform strategy. According to the responsible Navy Program Office, the paramount goal of the new program is cost savings. Not only is NGEN being bid as a firm-fixed-price contract but the award will be made on the basis of a standard called “low-price technically acceptable” (LPTA) proposal. The Navy’s argument for this approach is that everything they are asking for is readily available commercially so price should be the determining factor in awarding the contract. I have previously written here on the potential pitfalls associated with the LPTA standard as it will affect the overall health and capabilities of defense IT companies as well as the consequences for the government customer. When this standard is used for a massive, global, military system with its unique security and response requirements the risks grow.

NGEN is a poster child for what is wrong with DoD’s approach to acquisition. The Navy set out to save money so it simply asserted that this new approach will achieve this goal. This is not my conclusion but the result of a Government Accountability Office (GAO) analysis of the program. GAO reviewed the analysis of alternatives the Navy conducted and concluded that “the cost estimates for the respective alternatives were not reliable because they were not substantially accurate, and they were neither comprehensive nor credible.” That was bad enough. The Navy then compounded the problem by choosing a contracting approach that was not even one of the four alternatives it had analyzed but that emphasized increased competition as the main club for beating down the program’s cost. Ironically, in GAO’s opinion, the current NGEN strategy is “riskier and potentially costlier than the alternatives analyzed because it includes a higher number of contractual relationships.” Even the Navy acknowledges that its approach will cost nearly $5 billion more than the next costly alternative in the short run. GAO concluded that “By selecting an approach that carries greater relative schedule and performance risks than other alternatives and that is being executed against an unreliable program schedule, the department increases the risk that its approach will lead to future cost overruns.” In other words, an attempt to implement DoD’s strategy for reducing the costs of defense programs appears headed to increasing those very costs.

The Navy responded to the GAO report by tweaking its NGEN strategy. But all the fundamental issues identified by GAO were still present in the RFP released this past March. The two teams competing for the reward represent best of breed companies with enormous experience in large defense IT projects. Without a doubt, they will do their utmost to deliver what the Navy needs at the best price possible. The question is whether this will be enough given the structural problems inherent in the Navy’s NGEN strategy, the service’s hunger for cost savings above all else and the inevitable difficulties that will arise as the Navy attempts to redevelop atrophied program management skills while overseeing one of the most complex defense IT projects ever conceived.