EDS grabs Navy contract worth $6.9 billion

As previously reported by CNET News.com, EDS and four other companies were vying for the contract, dubbed the Navy-Marine Corps Intranet, or NMCI. The project will tie together some 360,000 Navy and Marine personnel by giving them access to a common intranet and multiple databases.

Analysts have said the Navy contract won by Plano, Texas-based EDS marks the largest government outsourcing deal ever awarded.

The contract won by EDS came in significantly under the expected $10 billion cost. The initial contract is for about $4.1 billion and comes with a guaranteed minimum three-year option period worth approximately $2.8 billion, bringing the total contract value to $6.9 billion, the Department of Defense said.

EDS' partners on this effort include Raytheon and WorldCom. The Navy is asking that 35 percent of the contract fee go to small-business team members.

The contract includes providing the computers, phones, fax machines and anything else related to providing faster voice, video and data communications.

Other companies that vied for the contract were Computer Sciences, IBM Global Services and defense contractor General Dynamics. Contenders for the NMCI project have been working for more than a year to win the bid.

Navy Secretary Richard Danzig said maintaining the existing Navy and Marine Corps computer networks is now costing $1.6 billion a year, according to The Associated Press. Some of the savings will be used to buy more sophisticated encryption systems to improve the security of the computer system, Danzig said, and the means of monitoring activity on the computers will be improved.

Hundreds of Navy civilian workers who are information system specialists will have to take new jobs, Danzig said.

Other subcontractors include Cisco Systems, Wamnet, Dell Computer and Microsoft.

"It gets the government out of the business of owning and operating information technology systems, and instead transfers that function to a fee-for-service contract with private industry," Deputy Secretary of Defense Rudy de Leon stated to the Associated Press.

EDS lost a major contract last year, when Connecticut nixed negotiations with the company for an estimated $1.5 billion outsourcing contract to privatize the state's computer systems. The closely watched deal was riddled with challenges for both sides, such as tackling complaints from an angry union, a long bureaucratic review, and intense public scrutiny. The job is now being completed through smaller contracts with EDS and other companies.

EDS was founded in 1962 by Ross Perot, who sold his interest in EDS to General Motors for more than $700 million.

News.com's Noel Wilson contributed to this report.