DHS Procurement May Disadvantage Small Contractors

The Department of Homeland Security (DHS) is centralizing its technology procurement process into two massive contracts worth $48 billion over the next decade, a move some smaller IT firms say could exacerbate the advantage large contractors already enjoy in winning DHS business.

First announced in mid-August, the Enterprise Acquisition Gateway for Leading Edge (EAGLE) project will award up to $4.5 billion in IT services contracts in fiscal 2006, which began Oct. 1, according to Marcus Fedeli, research manager at Input, a Reston, Va.-based government market research group.

“This will be beneficial for vendors because it will make it easier for them to bid,” said Fedeli, who expects the changes will help attract smaller IT vendors that might have been reluctant to bid on DHS contracts before. And, he said, it will help DHS “get some cost savings.”

EAGLE will allocate in a single year three times the $1.49 billion that DHS spent on outsourced IT services in fiscal 2004, according to Input. Altogether, the DHS — which now comprises 22 separate agencies merged together after the 9/11 terrorist attacks — spent about $6 billion on technology last year.

DHS is also releasing a $3 billion contract for IT equipment under a program called First Source. The program, combined with EAGLE, replaces an earlier procurement program that ended in 2004 after being criticized as too complex.

Bids for work under the First Source contract must come from firms with 150 employees or fewer. EAGLE will also set aside work for smaller firms and ask large companies to try to subcontract as much as 40 percent of the work they get to smaller businesses.

At least one contractor worries that in the new era of single sourcing by the DHS, small firms will get muscled out even faster than they do now.

“Certainly, federal IT contracts are plentiful, but they tend to go to the big boys,” said Robert Clime, president of Delta Security Technologies Inc., a $4 million, 40-employee firm in Alexandria, Va. Delta has provided security certification services as a prime contractor to both the U.S. Navy and the Department of Veterans Affairs. Competition for work in the EAGLE contract will be fierce, and many worthy smaller firms will be locked out, he said.

“Although we are pleased to be given this opportunity to compete amongst our small-business counterparts, there are never enough of these opportunities to go around,” he said. “It seems that the federal government remains committed to offer the majority of the cybersecurity work to big business.”

Input’s Fedeli disagrees. “There are some prime contracts aimed at the large companies, but there are small-business set-asides and ways for small guys to team up with big guys. So it’s a win-win for both,” he said.

If history is any guide, lucrative contracts will continue to be concentrated among a few companies. Of the money the DHS spent last year on outsourced services, almost half, 48 percent, went to one of 10 firms, according to Input. Those 10 firms were led by Computer Sciences Corp., which earned $119 million, General Dynamics Corp., which won $91.4 million, and Lockheed Martin, which won $90.5 million.

Further details on EAGLE contracts are likely to emerge Oct. 18, when the DHS will hold two informational sessions in Washington for interested bidders. Bids for EAGLE are due by Oct. 31.

Up to $250 billion in federal IT contracts are floating around, according to Input, with $70 billion in contracts expected to be awarded in the current year. That includes two governmentwide acquisition contracts, Alliant and Networx, put out by the General Services Administration. They are worth up to $50 billion and $20 billion, respectively, over their lifetime.

By Eric Lai, Computerworld