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The Navy Marine Corps Intranet, which was awarded to Electronic Data Systems Corp. three years ago, has become a spectator sport, not only for Congress but also for a variety of public and private entities. Several states, other military branches, the Internal Revenue Service and even some EDS competitors have studied the project to better understand so-called outsourcing megadeals.
“We picked up early on the problem with the applications,” said Col. Mark Barnett, chief of the Information Infrastructure Modernization Division in the U.S. Armys CIO G6 office, in Crystal City, Va. “One of the other things we picked up on from the NMCI and these efforts is the need for a foundational business case to develop the support you need.”
The Army is carrying out a consolidation and infrastructure rationalization project similar to NMCI, dubbed Network Enterprise Technology Command, or Netcom, but it has opted to take on the project internally.
“We look at all Army networks and systems from foxhole to factory as critical to the future of supporting war fighting. We agree there are sourcing strategies where we will rely on industry partners for clearly defined services,” said Barnett. “Mail and messaging in the U.S. might be something we would source out, but wed like to own the infrastructure.”
The lessons other outsourcers are learning from NMCI include a change in the accounting of such deals. Hewlett-Packard Co., for example, no longer does percentage-of-completion accounting. “You will see a move away from that. It has caused problems for some of these vendors. You end up having that large potential for a fairly large write-off if things change dramatically,” said Chris Ambrose, an analyst at Gartner Inc., in Gaithersburg, Md.
That accounting change applies to the more compartmentalized but still-whopping $3 billion outsourcing deal with Procter & Gamble Co. that HP Services won over EDS in April. However, the selection had nothing to do with EDS troubles with NMCI, according to Linda Clement-Holmes, director of infrastructure services at P&G, in Cincinnati.
Other lessons that outsourcers and their customers must learn in such large deals include keeping better track of IT assets, said Gartner analyst Bruce Caldwell. Caldwell pointed out that large contracts are still being signed.
Ambrose recommended that outsourcers and their customers spend plenty of time upfront on risk assessment and creating a mitigation plan. Then its important to invest in the organizational structure required for the scope of the project and put the “right governance model in place,” he added.
Such advice isnt lost on officials at EDS, where an internal audit dubbed the circumstances surrounding the development of the NMCI contract a “significant deficiency.”
EDS Chief Financial Officer Bob Swan said a number of efforts to learn from and rectify the mistakes in NMCI are under way at the Plano, Texas, company, including increased operational and financial reviews, new contract drafting and approval protocols, better communication with client representatives, and a reorganization of staff handling the project.