Federal Cloud Megadeals Spur Competition and Litigation
Several federal agencies have now launched giant deals for cloud technology, and the high stakes involved have vendors on edge. "I am somewhat surprised at the magnitude of some of the contracts being issued, particularly the Interior Department's potential $10 billion program, even though it was awarded to multiple vendors," said Tomas O'Keefe, a senior analyst at immixGroup.
The U.S. Interior Department has embarked on a major transition to cloud technology that could result in its spending US$10 billion on the program over nine years. DOI selected 10 vendors to participate in the program last May, and since then the vendors have been announcing definitive contracts with the department.
"This move is central to transforming our overall IT capabilities, which we expect to result in benefits of $100 million each year from 2016 to 2020," Andrew Jackson, the department's deputy assistant secretary for technology, information and business services, said in a commentary on the program last week. "The approach we've chosen also allows us to speed up our acquisition process, which in turn allows us to leverage this technology more quickly," he said.
DOI is just one of a few federal agencies that have now launched such megadeals involving cloud technology. Others have been initiated by the Central Intelligence Agency and the Defense Information Systems Agency. The business potential of these outsize deals has been underscored by a couple of contract litigation cases indicating the intense competition for the projects.
Big Projects Could Indicate Trend
The emergence of these megadeals may indicate an evolutionary step to more comprehensive cloud projects at the federal level and demonstrate that the technology can be deployed for a greater range of uses than relatively prosaic functions such as email.
"I am somewhat surprised at the magnitude of some of the contracts being issued, particularly the Interior Department's potential $10 billion program, even though it was awarded to multiple vendors," Tomas O'Keefe, senior analyst at immixGroup, told the E-Commerce Times. "I am a little skeptical that the DOI program will reach the full potential value of the contracts, but considering the security requirements necessary for both the DISA and CIA cloud projects, deals of this size could easily be expected."
These big projects may simply reflect a greater realization of cloud potential, including the replacement of existing and highly expensive government-owned computing power with the incremental, on-demand, or "by-the-drink" rates inherent in cloud-based services.
"Agencies are viewing the cost of ownership differently and are considering modernization, interoperability, scalability and maintenance," Kyra Fussell, senior research analyst at Deltek, told the E-Commerce Times.
Considering the high cost of operating and maintaining conventional government-owned capacity, "it's not surprising that agencies are looking to leverage cloud computing to leapfrog their system technology," she said. "While some of these cloud awards have high spending ceilings, it's important to look at those investments in a larger context that includes the community they support, the period of performance, and any advantages of implementing a cloud service rather than a new build or modernizing an existing system," she added.
Here is a rundown of several cloud megadeals.
U.S. Interior Department: The department's Foundation Cloud Hosting initiative reflects an ambitious across-the-board application of cloud technology, indicating confidence that the cloud can be used for a broad range of functions. The project involves storage services, secure file transfer services, virtual machine services, database hosting services, Web hosting services, development and test environment hosting services, and SAP application hosting services.
The primary vendors selected by DOI are Autonomic Resources, CGI, Lockheed-Martin, Unysis, IBM, Smartronix, Verizon, AT&T, Global Technology Resources and Aquilent. Through partnering arrangements with the prime contractors, many other IT vendors may get a piece of the action. DOI will award specific task order contracts for components of the program.
A significant side note regarding the intense competition for these major contracts is that Century Link/Qwest challenged DOI's management of the procurement. However, the General Accountability Office upheld DOI in a ruling issued last May. Century Link then appealed to the U.S. Court of Federal Claims, essentially contending that DOI presented unreasonably vague and insufficient criteria to provide a fair basis for selecting vendors. In late July the court dismissed Century Link's allegations.
Central Intelligence Agency: This spring the CIA selected Amazon Web Services for a potential $600 million cloud project. As the result of a protest filed by IBM, the CIA decided to revise the procurement, solicit new proposals from both IBM and AWS, and make a new award decision. AWS has now asked the U.S. Court of Federal Claims to essentially prevent the CIA from seeking new proposals and in effect proceed with the original decision.
Legal details are scant as AWS filed the case under seal. AWS acknowledged it had filed an appeal but declined to provide other details. "We believe strongly that the CIA got it right the first time," said the company in a statement provided to the E-Commerce Times by spokesperson Kerri Catallozzi. "Providing true cloud computing services to the intelligence community requires a transformative approach with superior technology. We believe that the CIA selected AWS based on AWS' technically superior, best value solution, which will allow the agency to rapidly innovate while delivering the confidence and security assurance needed for mission-critical systems. We look forward to a fast resolution so the agency can move forward with this important contract."
The court agreed with IBM that the company has a "substantial chance" of receiving the award and on July 25 it granted IBM permission to intervene in the case.
The project requires the use of commercially managed cloud computing services that can be implemented throughout the entire federal intelligence community. Functions include Infrastructure-as-a-Service whereby the vendor would be responsible for networking, storage, servers and virtualization, and the intelligence agencies would be responsible for the operating system. The CIA also required the ability to automatically scale usage either up or down depending on requirements.
Defense Information Systems Agency: DISA is considering the use of commercial cloud service providers for IaaS and associated IT support services. The project conforms to a congressional mandate to migrate certain IT functions from department-owned and -operated data centers to cloud computing services "generally available within the private sector." DISA's requirement covers cloud-based storage, virtual machine use, databases and Web hosting. The estimated value of the multiyear, multiple vendor project is $450 million. The agency hopes to issue a formal contract request by Sept. 30.
A New Normal in Procurement
It may be a stretch to consider such big-ticket, eye-popping contracts as routine, but such projects may become part of a "new normal" mix of contracts ranging in size.
"While I believe we will still see large awards like the ones mentioned, I also think we'll see a large number of smaller awards made for individual cloud projects," Alex Rossino, a principal research analyst at Deltek, told the E-Commerce Times. s. "This is how agencies will channel some contract dollars to small businesses.
"The other thing to keep in mind is that these large awards were intended to serve the needs of multiple customers," Rossino pointed out. "Interior's Foundation Cloud Hosting proram is a contract vehicle with a ceiling value of $10 billion, but this ceiling does not mean the department will spend the entire amount -- just that it has the ability to spend to that limit if required."
The CIA and DISA projects have a similar goal in the sense that each will provide a centralized cloud capability for multiple government units. In the case of the CIA, the vendor would be tasked with providing infrastructure and computing power for the entire intelligence community.
"From that perspective maybe $600 million is not as much as the individual agencies within the intelligence community could have spent if they'd each procured their own solutions," Rossino said.
"The DISA cloud contract will not be consumed by one specific project," Shawn McCarthy, research director at IDC Government Insights, told the E-Commerce Times. "It is a contract from which DoD programs and services can buy cloud services. So we are very much likely to see small incremental projects taking advantage of the available cloud services, once the contract is awarded."
In McCarthy's view, the DISA effort is something of a harbinger in federal cloud procurement.
"That," he concluded, "was one of the reasons we see federal cloud spending ramping up again in fiscal 2015."