Smooth Sailing Eludes NMCI

EDS works to keep its huge outsourcing deal with the Navy on course as schedules slip and costs rise.

The largest and most complex it outsourcing deal in history is living up to that billing. Now into its third year of building the modern NMCI (Navy Marine Corps Intranet), Electronic Data Systems Corp. continues to unravel decades of antiquated technology, dozens of incompatible processes and an almost-uncountable number of rogue applications that were serving as the organizations administrative IT system.

The work has been slow going. By most accounts, the Navy is pleased with EDS progress, and officials said NMCI is already saving the government nearly $1.2 billion a year.

But the delays have put EDS, of Plano, Texas, well behind schedule and well off its projected revenue collections for the project. The resulting cash crunch, which forced EDS to take a $334 million write-off in the first quarter as a result of NMCI, has raised questions about whether EDS overpromised on the deal and can manage to stay the course and see NMCI through to completion.

"There were not enough people around who really understood that this was an enterprisewide solution," Al Edmonds, president of EDS Government Solutions unit, said of the drafting of the $7 billion NMCI deal.

Complicating the work has been the unexpected discovery of more than 100,000 applications, some of them decades old, rogue tools installed by users and being used to communicate and run important day-to-day Navy business.

Old applications in nearly one-quarter of the seats cannot be transferred to new Windows 2000 machines, forcing EDS to install, in NMCI parlance, "dual desktops," leaving sailors and Marines with two PCs on their desks. The Navy and EDS have narrowed the number of applications in use to 35,000 thus far, but the pair still has more application rationalization ahead before the migration of those that make the final cut can begin.

To date, some 5,000 applications have been certified on NMCI. Ultimately, the goal is to reduce the number of applications to around 2,000, but getting participants in numerous departments to agree to change their software tools has eroded some user support, officials said.

Also slowing progress on NMCI is additional technology testing imposed by the Department of Defense. EDS is currently transitioning about 4,000 seats per month, and that figure is expected to rise this summer now that some of the hurdles are being overcome, officials said. Initially estimating that NMCI would integrate about 200 networks, Navy officials now say it will touch as many as 1,000.

The drain on resources is also jeopardizing EDS finances at large.

"[NMCI] is dragging an otherwise-strong portfolio of contracts down," said EDS Executive Vice President and Chief Financial Officer Bob Swan. Swan added that the problems with the deal stemmed from "insufficient due diligence [in a] push to close the deal."