GAO audit recommends EDS contract be revoked

FRAMINGHAM (01/06/2004) - An US$860 million IT services contract awarded last August by the U.S. Department of Housing and Urban Development to Electronic Data Systems Corp. should be revoked and rebid because errors were made in the bid award process, according to an audit by the U.S. General Accounting Office.

In a 12-page recommendation released last month, the GAO ruled on a complaint that had been filed by Orlando-based Lockheed Martin Information Systems (LMIS), which held the previous HUD IT services contract. LMIS, which since the complaint filing has been renamed Lockheed Martin Simulation, Training and Support (LMSTS), alleged that HUD misevaluated the business proposals from the two companies and "made an irrational source selection decision," according to the GAO.

HUD had put out a request for proposals for IT services, including information processing, telecommunications, storage, maintenance, upgrading, backup and operation of all computer hardware, and systems management for an initial period of one year, with nine one-year options.

"We find that, because of the errors in the agency's source selection decision discussed above, there is no basis to find that the award determination in favor of EDS at a cost premium of (amount deleted by GAO auditors) is supported by the record. Accordingly, we recommend that the agency reopen the acquisition and engage in discussions, obtain revised proposals, evaluate those proposals consistent with our findings (being sure to apply a consistent standard in evaluating the two proposals) and make a new award determination."

The GAO recommended that the EDS contract be terminated if the Plano, Texas-based company fails to be judged as offering the best deal after a second bid review process.

Nettie Johnson, a spokeswoman for LMSTS, said her company is satisfied with the GAO ruling. "The GAO has recommended that HUD reopen the acquisition, obtain revised proposals from Lockheed Martin and EDS, re-evaluate the revised proposals and make a new award decision. We are hopeful that HUD will fully implement GAO's recommendations in order to ensure the integrity of the process and make the best value decision for customers and taxpayers."

Kevin Clarke, a spokesman for EDS's federal government group, said that his company has been working to transition HUD's IT systems to EDS since August and that the process is expected to be completed next month. "We remain confident that our solution will remain the best option for HUD," Clarke said. EDS will continue to provide services until the matter is resolved, he said.

The GAO report was critical of the EDS contract award on several counts.

"The record reflects numerous instances where the agency either unreasonably reached conclusions relating to the EDS offer in light of the language included in the proposal (for example, in the areas of single sign-on access and the provision of Oracle database software), or apparently failed to thoroughly evaluate the proposals critically, and in a manner that would have revealed inconsistencies or deficiencies in what was being offered," the report said.

"We find the agency's conclusions troubling in light of its evaluation of the LMIS proposal," the GAO said.

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