The merger of Hewlett-Packard and EDS could offer federal contracting officials an easier transition into performance-based acquisitions as government agencies struggle to define a performance-based acquisitions strategy.
Some procurement experts say Hewlett-Packard’s planned purchase of Electronic Data Systems for $13.5 billion will likely help the hardware giant better position itself to win performance-based services contracts.
The companies have signed an agreement outlining the deal, and both boards of directors have approved it. The companies expect the sale to close in the second half of the calendar year.
EDS is a services provider, and HP is one of the largest suppliers of PCs, servers and other hardware. Both companies have major customers in the federal government.
Procurement expert Alan Chvotkin said the merger of HP and EDS would put HP among a select few companies with General Services Administration schedule contracts — along with Lockheed Martin, Dell and Cisco Systems — that are in a position to win performance-based contracts.
“The merger would signal to me that [HP] sees an opportunity to expand GSA schedules,” Chvotkin said, executive vice president and counsel at the Professional Services Council, which represents professional and technical services providers in the government market.
Agencies still struggle with performance-based contracting, even though the concept has been around a long time. Historically, contracting officers have generated lists of components and services to buy. Under performance-based contracting, agencies instead communicate the outcome they want and let the chosen contractor team figure out the best way to achieve it. Service-level agreements, under which the contractor commits to delivering minimum levels of service or suffer penalties, aid in managing such contracts.
About 38 percent of services contracts were performance based in fiscal year 2007, according to figures from the Office of Management and Budget. That amount was 7 percent short of OMB’s target of 45 percent. Paul Denett, administrator of OMB’s Office Federal Procurement Policy, said this year OFPP expects 50 percent of agencies’ services contracts to be performance based.
Reasons for the shortfall are varied, officials say. In a April report, the Treasury Inspector General for Tax Administration cited a lack of education, guidance and training as primary reasons for the slow adoption of performance-based contracting at the Internal Revenue Service.
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