Anchors Aweigh

Navy's marketplace for professional services may set example

It turns out that the vanguard of e-marketplaces may not be a flashy upstart dot-com, but the U.S. Navy.

The service has named 21 contractors to compete for contracts on its first e-marketplace — a bazaar that will focus only on services. The Naval Sea Systems Command, or NavSea, quietly opened SeaPort at several weeks ago with hopes of awarding up to $300 million worth of contracts annually.

It is, by all accounts, the first marketplace devoted exclusively to procuring professional services, rather than materials or a combination of both. That has caught the interest of both an insurer and a steelmaker, said Capt. Kurt Huff, deputy director for contracts. They want to see how the Navy uses SeaPort to obtain design, financial management, logistics and program management services, then borrow the Navys tactics for their own e-marketplaces.

"They want to take our concept and lay it on top of hard goods," Huff said.

More and more companies are wondering how to extend their e-commerce to services, analysts and industry officials said.

"Services are kind of the next frontier," said Jupiter Media Metrix analyst Tim Clark. "Its a lot harder to do."

The benefits are strategic, said Diana Jovin, president of CascadeWorks, a San Francisco start-up founded to enable electronic procurement of services. Not only can companies save money by automating service procurement, they can also better track performance and manage relationships with service vendors, Jovin said.

NavSea originally wanted to create the exchange to track its own spending on professional services — which takes place through 350 or more contracts with more than 80 contractors. The need became more acute when Congress cut $250 million, marked for such spending, from its budget.

The 21-company pilot group is drawn from NavSeas 80 contractors. By allowing them to bid against one another for work, NavSea expects contract savings to be 5 percent per year for the life of the contract. SeaPort will make NavSeas spending processes more efficient and, for the first time, will provide intelligence on its spending patterns, Huff said.

Commerce One won a five-year contract to host the marketplace for $2.8 million. SeaPort will also use the e-business consulting services of IBM and Computer Sciences Corp.

The exchange works with a link to Exostar, the aerospace and defense e-marketplace. NavSea posts requests for quotations and reviews proposals on SeaPort. The contracts are actually awarded on Exostar.

The required mix of services can vary from bidder to bidder within the same procurement. Negotiating prices for services requires more back-and-forth than for physical goods.

The Navy has also developed ways for bidders to submit multiple alternate bids on the same project. This lets NavSea consider a greater variety of contracts — for example, the choice of one $100-per-hour star consultant or two $60-per-hour consultants, one with related specialty experience.

Government procurement rules prohibit the kind of flexible dialogue that takes place in the private sector. Trying to work around that, NavSea came up with this method.

"The thing that bothers me is we by fiat are having contractors determine what they think is best value when I want to be the guy who does that," Huff said.