When Department of Veterans Affairs officials need information technology, they go shopping, but not at typical electronics' stores such as Best Buy or Circuit City. They use a procurement program designed to deliver big discounts for bulk purchases.

It's a contracting vehicle nicknamed Peaches 2, structured only for the VA. The contract has become so successful that officials are planning to begin the next generation of the program before the current one expires.

Industry leaders are watching closely as VA officials develop the new contract. Although the Procurement of Computer Hardware and Software-2 (PCHS-2) contract, will run two more years, it is quickly reaching its $1.37 billion cap, said Edward Meagher, the VA's deputy chief information officer.

"Peaches 2 [has been] a huge success," he said. "We simply see the end in sight a little earlier than we expected. We are going to reach the ceiling sooner."

VA officials learned lessons from the first contract and adjusted the second so it is more focused on the VA's needs, said Bob Repp, vice president of national programs for MPC Computers, one of four prime contractors on the vehicle.

The first PCHS contract was a governmentwide vehicle that any agency could use by paying a 1 percent fee to the VA. Officials decided to restrict the use of Peaches 2 to VA buyers. The third version will have similar restrictions.

In the first contract, MPC sold products to the Marine Corps and other agencies. "As good as those dollars were, the VA lost focus on their own requirements when they opened it up to other agencies," Repp said.

The Peaches 2 contract "has done exactly what it was designed to do," he said. "The VA gets very good prices. The market dictates competitive prices, and…there is healthy competition with the four primes." The other prime contractors are GTSI, Hewlett-Packard and Apptis, formerly PlanetGov.

Those contractors have agreed not to sell any goods or services to other agencies for less than the prices they charge the VA, said Repp, whose company sold more than $100 million worth of products to the VA in 2004. Company officials will bid on Peaches 3, he said.

As of February, VA officials had purchased $937 million worth of computer goods for more than 160 VA hospitals and other facilities, already approaching the ceiling even though the contract will not expire until 2007, Meagher said.

As a result, he said, VA officials plan to award Peaches 3 in June 2006, after opening competition early in 2006.

Although VA officials primarily use the contract to buy desktop computers, it also is a source of digital imaging equipment. Instead of X-rays, some medical employees rely on digital images that can be easily transferred from one computer to another across any distance using the right technology.

"We are not looking for this to be Wal-Mart," Meagher said. "We want to limit this to a finite number of devices that meet our needs."

"PCHS 2 proves, based on the volume of business that's gone through this contract so quickly, that if you construct a good contract for such commodities and manage it well, you can have great success," said Harold Gracey, a former CIO at the VA.

"VA, like any large enterprise, can gain great advantage not only in original purchase price but also in maintenance and support costs by standardizing around some well thought-out specifications for hardware and software," Gracey said. "They can get their contractors to step up and pay attention to quality performance in the original delivery and support across the huge, 1,000-site VA system."

VA officials require all of their facilities to purchase hardware and software through the contracting vehicle because it reduces costs and standardizes much of the VA's equipment. They also require purchasing officers to buy solutions for the VA's IT needs rather than focus on specific brands.

The contract allows a very large, geographically decentralized organization like the VA to conduct business more effectively, said Kathy Conrad, senior vice president of the Jefferson Consulting Group, an acquisition consulting firm.

"Large agencies like [the VA and the Defense and Treasury departments] can get very good discounts when they make a significant commitment," said Fred Thompson, Unisys' practice director for e-government and former assistant director for consulting and marketing in Treasury's Office of the CIO.

Meagher said VA officials want to apply lessons learned from Peaches 2 when they create the next contract, a move that the VA's IT managers will likely welcome. According to a survey conducted by CDW Government analysts during IPIC 2005, three out of every four federal IT managers would prefer more rather than fewer contracting vehicles.

Some procurement experts say federal officials should proceed cautiously in awarding single-agency contracts. An expanding mandate for cross-agency collaboration, manifest in initiatives such as the federal enterprise architecture and lines-of-business projects, will have more influence on how agency officials manage their business, said Max Peterson, vice president of federal sales at CDW-G.

"As federal enterprise architecture continues to influence enterprise IT strategies, lines of business will span multiple agencies and procurement authorities," he said. The architecture "might not end single-agency vehicles, but it will undoubtedly influence their structure."