EDS Fixed-Price Follies

The U.S. Navy and Marine Corps hired EDS to build a single, secure network, but unexpected complexities have left the project at sea. (Baseline)

To Marine Corps Sgt. Marco Garcia, the Navy Marine Corps Intranet sounds like a great project, in theory. "They sold me on it," he says, when he attended training in December on the new network. "The transition itself, though, seems to be a problem."

Turns out, that assessment is an understatement. The project being deployed under the management of Electronic Data Systems (EDS) has been a headache for all involved. Navy planners originally thought they would hire an outsourcer in 2000 and have an upgraded and secure network in 2001. Now the conversion of nearly 350,000 computer "seats" has slipped to at least 2005.

Meanwhile, EDS is suffering because its billing depends on meeting required service levels and on the number of computer desktop and laptop workstations, or seats, deployed. Despite winning whats said to be the largest federal information- technology contract ever, worth as much as $8.8 billion, EDS has recorded a net loss of $1 billion on the venture so far.

Sgt. Garcia, responsible for supporting information systems for the logistics unit at his base in New Orleans, is frustrated that delivery of new Navy Marine Corps Intranet (NMCI) computer equipment keeps being delayed, and he cant order replacements in the meantime.

Despite the "intranet" name, NMCI involves more than setting up private Web sites. While deployment of personal-computer seats is a measure of the project, it also includes servers, data centers and help desks. Overall, NMCI aims to unify and standardize Navy networks, most of which were established years ago by base commanders who procured their own computers and hired their own contractors.

With NMCI, the Navy established a master contract. EDS is also responsible for overseeing other major participants, including Microsoft, Dell, Cisco, MCI, Wam!Net and Raytheon, and smaller subcontractors.

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For the most part, the NMCI contract excludes the tactical networks used aboard ships or by Marines deployed to combat zones. In other words, NMCI is for what the Navy calls "shoreside" networks, primarily at bases in the continental United States.

EDS seems to have badly underestimated the complexity of the project in its eagerness to be the low bidder, committing to accomplishing the project at a fixed price without an adequate understanding of the obstacles ahead. "I think they should have known better," says Lorrie Scardino, a Gartner Inc. analyst who follows the outsourcing market.

Mike Koehler, a former Delta Air Lines technology vice president who joined EDS in January and is assigned to help straighten out the project, agrees its "shameful" that the company let itself and its client believe this was just another project. "This is by far the largest distributed environment Ive ever seen and EDS has ever seen. Things that in a normal environment we would have been able to deal with become magnified at this scale and size," says Koehler, the enterprise client executive for NMCI at EDS. "Grains of sand become mountains."

Next Page: The pitfalls.