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Electronic Contracts: Where It’s At! 


by Joshua A. Kutner 

About three years ago, the Defense Department set the ambitious goal of turning 100 percent of its contracting paperwork into a digital system. This was supposed to have happened by January 1, 2000, under Defense Reform Initiative Directive 46. Obviously, it did not.

The department, however, as of March 15, 2000, had reached the 78 percent mark overall-with the Army at 88 percent, Navy at 53 percent and Air Force at 61 percent, according to a report presented to then deputy secretary of defense, John J. Hamre.

Now, the department has set another goal for December 31, 2000, of which it says "all aspects of the contracting process for major weapons systems will be paper free."

Though the department has made strides to rid itself of the unnecessary clutter that paper creates, there still remains a significant amount of paper contracts taking up large amounts of space in offices throughout the Pentagon.

One method of taking on this paperless contracting endeavor was the establishment of a new procurement process under Defense Reform Initiative Directive 47. This directive calls for a common, integrated procurement system throughout the department.

Information technology now available makes it possible for Pentagon contract managers to easily keep track of their spending through the Standard Procurement System (SPS), a software package that allows all participants to check on the status of a contract. Contracts are written and executed through software provided by American Management Systems (AMS), an information technology and consulting company, headquartered in Fairfax, Va.

Michael Dow, AMS vice president for government e-commerce solutions, described "end-to-end integration" as "taking all these interesting pieces to the electronic commerce puzzle and tying them together and providing that end-to-end integrated view to the department."

AMS is in the third option year of its 10-year contract to provide its Procurement Desktop Defense, or PD2, system to the U.S. military services. Currently, the system is online for 20,000 users at approximately 700 locations around the globe. If the Defense Department chooses to exercise the remaining seven option years, which appears most likely, the system is expected to reach a scope of 40,000 users at more than 1,000 sites.

AMS earns annual revenues of about $1.5 billion, according to Dow. The company provides 60 percent of its business to the private sector-telecommunications firms, banking institutions, and insurance companies-and 40 percent to the public sector-the Defense Department and other government agencies.

Dow recently sat down with National Defense, at the Joint Electronic Commerce Program Office's Electronic Commerce Day 2000, in Washington, D.C., to talk about PD2, and where it is headed.

The contract initially was awarded in April 1997, by the Defense Logistics Agency. Today, funding comes from the newly formed Defense Contract Management Agency, said Dow. Although the software is relatively user-friendly, Dow said, AMS is contractually obligated to provide all of the training for the system.

"I think, [PD2] is the first of its kind within the Defense Department that is a commercial software product that standardizes both the software and the process around a business function" that has the magnitude of acquisition and logistics. "... An unprecedented program like SPS certainly is a challenge. And I think [through] bringing a standard system to all of the services, which have many existing systems, and working through all the processes that each service uses, we are very pleased with the results" so far, said Dow.

PD2 is designed to provide total visibility of the contracting process, he said. This means that all intended parties can have access to information on contracting transactions. Dow cited previous situations where items, such as computers, would be purchased, and not everybody involved would be informed. SPS provides information to all of those affected by the purchase-the buyers, the bookkeepers, and those who will receive the delivery, to name a few.

Dow said he expects that the system will mature as the customer's needs change. Since PD2 is a joint system, all the military services must agree on necessary improvements or additions.

"We're working in partnership with the Defense Department to see where things need to go and should go," said Dow. "One of the things that was established for SPS is what is called the JRB, or Joint Requirements Board. And that's got representation from each of the services and all the [defense] agencies."

The JRB determines what technological advances are needed for SPS.

Its work for the Defense Department in the electronic procurement arena has helped AMS find potential corporate partners that also are familiar with defense contracts and have capabilities that could enhance electronic procurement. This had led to some recent AMS business decisions and strategic partnerships.

Companies, such as FreeMarkets Inc., recently have put a unique spin on contracting by offering reverse auctions designed to drive prices down (Point-and-Click, p.41, June 2000). Seeing the implications of these auctions, AMS formed an alliance with FreeMarkets that allows the Defense Department to participate in the auctions through SPS.

The company also has partnered with Ariba Inc. Together, they offer the AMS/Ariba G2B eCommerce solution, which publishes a contract as a catalogue, said Dow. By this, he means that when an item's price is negotiated and eventually purchased, the item will be entered into the catalogue for future purchases at that negotiated price. "It provides better leverage and creates huge potential dollars savings," said Dow.

Most recently, AMS announced that it will use Siebel eBusiness Applications, from Siebel Systems Inc., to power its Acquisition Customer Care System (ACCS), SPS's customer service center. Using Siebel Call Center and Siebel eService customers will be able to receive customer service handling, workflow management, customer profiling and customer self help.

Additional information about PD2 is available at

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