1. Provide common user services and platform services through consolidation of infrastructure and existing software licenses.
2. Provide two private clouds: an unclassified DoD cloud and a classified DoD cloud.
3. Improve end-user device access by migrating end-user applications to the cloud and migrating end-users to a Virtual Desktop Interface (VDI) environment.

1. Develop methods, when using commercial cloud service providers, which protect data in transit and at rest, authenticate users, and apply appropriate access controls.
2. Provide virtual container technologies supporting secure unclassified operating environments on a wider variety of approved end-user devices.
   

1. Move to a commercial-government hybrid cloud computing environment with DoD retaining the identity provider role.
2. Improve service interoperability across core, intermediate and tactical edge environments.
   

Since February 2013 the media has focused considerable attention on the cancellation of the DoD-VA joint effort to develop a new Integrated Electronic Health Record (iEHR). Focusing on iEHR, however, misses the point that out of the $1.3B proposed FY 2014 development budget for the Military Health System (MHS), the iEHR represents a paltry $64M. Approximately $423M will be spent on medical technology development, advanced concepts development, and medical products support, making those the true areas of business opportunity.

In today’s climate of ongoing federal budget cuts, government contractors can be forgiven for feeling unsettled.  The good news is that the fiscal climate has stabilized somewhat, allowing us to peer ahead for potential business opportunities.  One of the areas attracting vendor interest is in military health.  Both the DoD and Department of Veterans Affairs have made the creation of an Integrated Electronic Health Record (iEHR) a priority.  Therefore, iEHR gets the lion’s share of media attention.  The iEHR initiative is only one aspect of Defense Health Programs (DHP), however, so this post will provide a high-level look at the shape of the DHP budget situation and where vendors might want to focus their business development efforts in the months ahead.

Starting with what remains of FY 2013, funding for the DoD’s Military Health System (MHS) in the 2013 Consolidated Appropriations Act (CAA) provided $32.7 billion, a $16 billion drop from the $48.7 billion called for in the President’s FY 2013 Budget Request.  The funding in the 2013 CAA represented a stunning 38% cut in the MHS’ budget, which received $52.8 billion in fiscal 2012.

Despite these cuts, the 2013 CAA also provided up to $16 billion for contracts for the remaining 5½ months of fiscal 2013.  This includes $522 million for TRICARE/MilHealth procurement until the end of September 2015 and $1.3 billion for TRICARE/MilHealth RDT&E until the end of September 2014.  Digging into the RDT&E number we find the following top 10 priorities outlined in the FY 2014 DoD Budget Request.

As we can see from this list, proposed RDT&E funding for iEHR in fiscal 2014 amounts to $64 million.  This is the issue that everyone is so narrowly focused on.  Meanwhile, there are potentially several larger pools of money that very few people are paying attention to.  For example, the proposed budgets for Medical Technology Development and Medical Products Support/Advanced Concept Development equal approximately $423 million.  Then there is the $43 million budget for basic IT Development not related to TMIP-J.

These budget areas are where opportunity at MHS can be found.  For the last few years $2.4 billion worth of MHS/TRICARE IT and concept development requirements have flowed through the Defense Systems Integration, Design, Development, Operation, and Maintenance Support (D/SIDDOMS) III contracts.  These contracts expire in December 2013 and the MHS has already stated that a follow-on contract vehicle will not be put into place.  This means that contracts for IT and concept development requirements like those listed on the TRICARE Acquisition Forecast will be competed in other ways, providing opportunities for large and small businesses alike. The TMA acquisition forecast for FY 2013 shows $225.4 million in planned procurements, equivalent to 43% of the procurement budget provided through FY 2014.  This suggests that ample procurement dollars have been provided to move ahead with a number of the technology acquisitions that are listed in the forecast.

Lastly, readers will notice that in my focus on the procurement of technology requirements I have not mentioned the $72.5 million budgeted for Medical Program-Wide Activities.  Assuming these activities comprise program management, acquisition support, and other professional services, I believe most of those budget dollars will find their way into task and delivery order contracts competed among holders of the Tricare Evaluation Analysis and Management Support (TEAMS) contracts.  A quick look through the TMA Acquisition Forecast for FY 2013 shows that the projected value of requirements which fall under the TEAMS scope of work equals $201 million out of $225 million.  This leaves $24 million in pure IT requirements available for competition in FY 2013.  Keep in mind that these are just the requirements listed on the TMA acquisition forecast.  More IT efforts are likely in the pipeline.

By now everyone has probably read about the recent $45 million sole source award that the Defense Information Systems Agency (DISA) recently made to the Alliance Technology Group for Large Data Object Storage (LDOS).  The Justification and Approval (J&A) notice for the award states that ATG will provide DISA with a scalable storage solution the development of an intelligence, surveillance, reconnaissance (ISR) cloud.  The resources ATG will provide can store hundreds of billions of objects for ISR uses across DoD networks, including “Wide-Area Motion Imagery (WAMI), Standard and High-Definition (HD) Full-Motion Video (FMV), HyperSpectral, Laser Imaging Detection and Ranging (LIDAR), Electro-Optical/Infra-Red (EO/IR) and Synthetic Aperture Radar (SAR) data formats.”  The breadth of data objects to be stored is interesting, as is the fact that DISA is building an ISR cloud, but to me the real importance of this notice lies in what it says about the challenges the DoD faces in trying to handle big data.  Many of these challenges are themes that have appeared in FIA’s blog posts and reports for the last year.

The Strain of Big Data

In a moment of candor, DISA admits in the notice that it “cannot provide the Storage Cloud in its Defense Enterprise Computing Centers (DECCs) due to the physical size of the necessary hardware” required.  Similarly, DISA states that “it does not have the funding … to purchase the required hardware or storage facility.”  DISA also admits in the notice that the new ISR cloud requires increased bandwidth that the agency cannot provide: “Alliance Technology Group is the only contractor with the ability to provide the ISR Cloud Solution with bandwidth at a secure and accessible location.”

Here is the crux of the challenge in three short sentences.  DISA lacks the physical space it needs for a large investment in hardware, it lacks the money to buy the hardware, and it lacks the bandwidth capacity required for ISR data analysis.  In this blog post from October 2012, I made the case that big data is a game changer in the federal IT market, not because of the technologies that will be used to exploit it, but because it acknowledges that the exponentially growing demands of data management have outstripped the limited resources agencies have to handle it.

Visualize if you will all of the data that the DoD accumulates as a large sea.  The level of the water is rising.  Then picture the resources the DoD has to handle that data as a system of dikes used to hold back the sea.  Occasionally the dikes are opened to relieve the pressure.  Nevertheless, the sea level beyond continues to grow.  This is the big data challenge facing the DoD and other federal agencies and the timing could not be worse.  The challenge is rising at precisely the moment when the fiscal resources required are not available.  The challenge of big data is not an “efficiency” problem, it is an overwhelming volume, variety, and complexity problem that requires smart governance and, more importantly, increased investment in infrastructure (commercial or government), analytical capabilities, and trained personnel.

Turning to the Cloud

Having recognized the challenge, DISA is doing the only thing that it can – it is turning to commercial cloud providers to provide the capacity it requires.  In this case the capacity is storage and bandwidth.  The J&A makes clear that DISA anticipates the LDOS ISR Cloud will exceed 1 Exabyte within one year and may exceed 3-4 Exabytes in three to four years.  DISA is being optimistic here.  Neither the DoD nor the Intelligence Community have any intention of limiting the amount of data taken in.  Go to any DoD event on big data and you will hear speakers say that they want to keep every bit and byte because they never know what will be important in the future.

Takeaways

All of this means the following.  Vendors need to offer secure cloud storage solutions, big data analytics (preferably as a cloud service), and related cloud service solutions that meet the DoD’s security requirements.   A recent memo issued by Navy CIO Terry Halvorsen makes this latter point explicitly.  This J&A award to Alliance Technology Group is the tip of the iceberg.  There is a tsunami of contract dollars building to address the DoD’s big data needs.  These contract dollars will flow into modernized and optimized infrastructure – like the new DISN Optical Backbone that DISA intends to build – as well as new database software called out in the FY 2013 National Defense Authorization Act (NDAA), new processing capacity, new storage capacity, and the personnel services required to make all of this go.  The only thing holding back the big data spending tsunami is the fiscal crisis.  This is causing procurement to dribble out in small awards here and there.  However, even with imposed fiscal restraint the path ahead is clear.  The DoD and all federal agencies eventually will be forced by necessity to contract out the big data services they require to cloud providers.  The call has gone out in this DISA J&A.  Can you hear it?

 

Now the budget is in the hands of Congress, which has historically appropriated more for IT than what the President requests. With fiscal priorities clashing and sequestration impacts now being felt across the market, federal IT could weather the current fiscal storm in relatively good shape.

Today President Obama delivered a $3.8 trillion spending plan to Congress which includes a $1.2 trillion request in discretionary funding levels and nearly $82 billion for information technology for FY2014.  The budget focuses on jobs creation, economic growth and to strengthen the American middle class.

The budget proposal also includes $1.8 trillion in additional deficit reduction measures over 10 years to reach a total deficit reduction of $4.3 trillion.   The proposed deficit actions would reduce the deficit to 2.8%of GDP by 2016.

Additionally, the budget proposes $400 billion in cuts to health programs including Medicare.  Savings and cuts would come from negotiating better prescription drug prices, fighting waste and fraud, and requiring the wealthiest seniors to pay more.

The table below shows the FY2013 enacted budget levels and the proposed FY2014 levels.

Other budget highlights:

• Includes $50 billion for upfront infrastructure investments to invest in repairs to highways, bridges, airports, transit systems, and to encourage innovative infrastructure projects 
• Invests in in education reforms and training with a commitment to early childhood education
• Simplifies the tax code and raises $580 billion for deficit reduction by limiting tax benefits, but not raising tax rates
• Creates new “ladders of opportunity” to ensure that hard work leads to a decent living by developing pathways to jobs and partnering with communities to rebuild after the recession 
• Includes $200 billion in savings from other mandatory programs, such as reductions to farm subsidies and reforms to retirement benefits 
• Proposes $200 billion in discretionary savings from both defense and non-defense programs 
• Offers $230 billion in savings from changes in the way the government calculates inflation for annual cost-of-living adjustments for benefits programs

Information Technology

The president’s budget proposes nearly $82 billion in IT funding, a 1.8% increase from the FY 2013 CR and a 2.1% increase over FY 2012 estimated level.

IT-related budget highlights:

• $575 million in savings is anticipated from DoD Data Center Closures. 
• $324 million is being cut from the DoD’s Global Hawk UAV program. 
• $22 million is being cut from Computer and Information Science and Engineering Research Programs at the National Science Foundation; CISE is the organization responsible for promoting R&D on big data.  NSF’s budget takes big hits for its small size, which will affect grant spending on technology R&D.  
• $81 million is being cut from the DoD’s Precision Tracking and Space System, which is part of Ballistic Missile Defense at the Missile Defense Agency. 
• $38 million in savings related to the Joint Polar Satellite System is anticipated at the Department of Commerce. 
• $29 million in savings is anticipated from IRS Business Systems Modernization at the Treasury. 

All told, the president’s budget request includes 215 cuts, consolidations, and savings proposals, which according to the administration, are projected to save more than $25 billion in FY2014.  The budget proposal outlines the administration’s priorities and proposed methods for generating more revenue, cutting costs, and reducing the deficit.  However, it joins competing budget plans in the House and Senate.  Serious Capitol Hill budget negotiations are not likely to take place until this summer.

• GFEBS – Accenture’s GFEBS Support Contract # N0010404AZF12 officially expires in June 2015
• GCSS-A – Northrop Grumman IT’s, GCSS-A Support Task Order # 1, ITES-2S Contract # W91QUZ07D0005 officially expires in September 2017
• IPPS-A – Booz Allen Hamilton’s System Integration Services for IPPS-A Task Order # 2Y09, ITES-2S Contract # W91QUZ06D0019 officially expires in June 2013. A follow-on contract for Increment II is being competed now.
• LMP – CSC’s Wholesale Logistics Modernization Contract # DAAB0700DE252 officially expires in December 2016.

 

If this simple analysis holds even close to reality the potential remaining total contract obligations across all federal departments and agencies could be over $300 billion in Q3 and Q4, or 70% of total FY 2013 contract obligations. The second half of fiscal 2013 could potentially see federal contract dollars really flow.

• FY 2013 dollars obligated under PSC M181 Operation of Government-Owned/Contractor Operated Facilities is equal to 42% of the total average dollars obligated in FYs 2011 and 2012.
  
• The lowest percentage of FY 2013 dollars obligated so far is under PSC R499 Other Professional Services.  This is equal to 23.5% of the total average dollars obligated in FYs 2011 and 2012.
  
• The highest percentage of FY 2013 dollars obligated so far is under PSC 9660 Precious Metals Primary Forms.  This is equal to 57% of the total average dollars obligated in FYs 2011 and 2012.
  
• The percentage of dollars obligated to date under technology PSCs D399 Other ADP & Telecommunications Services, R425 Engineering & Technical Services, and 7030 ADP Software equal 31%, 25%, and 50% respectively, suggesting that spending on technology solutions will remain robust.

• The DoD has obligated only 15% of the contract dollars that it historically spends under PSC R425 Engineering & Technical Services.
  
• Defense agencies have obligated only 13% of the contract dollars that they historically spend under PSC D399 Other ADP & Telecommunications Services.
  
• Defense agencies have obligated only 31% of the contract dollars that they historically spend under PSC R499 Other Professional Services.
  
• Defense agencies have obligated only 19% of the contract dollars that they historically spend under PSC R706 Logistics Support Services.

Note: GovWin IQ login is required to view the reports at the Opportunity ID hyperlinks below. 

In some cases, agency officials indicated that sequestration is not expected to have an immediate impact on their contract. Future delays in funding, however, could be a possibility. Certainly, agencies are prioritizing programs, complying with mandates and, in some cases, restructuring their efforts. Program cancellations, however, seem to be in the minority.