Fee-for-Service Model Lowers Upfront Costs

Examples of this business model are found in the maritime security area. Take vessel tracking service radar and law enforcement surveillance radar.  Both may be watching the same critical waterway, but one is interested in the safe navigation of larger vessels, while the other may be interested in the unknown “small, dark targets.”

In a fee-for-service system, the same radars could provide data as desired to different customers simultaneously. Data can be priced to provide only the information required. The acquisition cost of the system, maintenance and any repairs, and site upkeep becomes the responsibility of the service provider, who has every incentive to ensure the radar is well cared for and maintained to factory specs. If the system goes down, the customers don’t pay.

Some agencies have used federal port security grants to pay for new systems, but the purchase price usually doesn’t include long-term maintenance or support. If the agency selects a less-than-optimal system, or when the system becomes obsolete, they’re stuck with it.

Perhaps the strongest argument for fee-for-service radar data is the fact that one radar can provide customized data to multiple customers, so the provider can deliver more service for less cost. For example, a series of radars in an area like Puget Sound may have a Coast Guard vessel tracking customer that needs to monitor commercial shipping traffic, and law enforcement entities like Coast Guard, Customs and Border Protection, state and local authorities, and the Canadian government, who could share the cost of a higher resolution feed to detect and track suspicious vessels. The data feeds differ in the processing, but the basic radar signals can be the same.

Jim Moore, vice president for command control and sensors for Terma North America, says the company’s solid-state radars are used for coastal surveillance, port and waterways management, airport surface movement, and perimeter security. All connect to a standard IP network, so they can connect with existing networks or displays. 

A single sensor can support multiple operations such as an air picture and a marine picture at the same time, or a vessel traffic picture, optimized for large shipping traffic, while also providing a law enforcement picture for detection and tracking of small contacts.

“If we have multiple customers accessing the data, we can significantly dilute the cost for all of them, depending on how may customers we have,” Moore says. “There’s no upfront acquisition cost. We do all the maintenance and ensure the system has all the latest upgrades.”

There are many examples of fee-for-service. “Offering the software-as-a-service model lets us provide customers with a stronger solution that requires less risk, less time and a much lower upfront investment,” says Steve Dryden, president and CEO of the Mariner Group, which makes port security and maritime situational awareness systems. “This eliminates a lot of the headache behind technology purchasing decisions like hardware specifications and maintenance terms. So instead of customers waiting a year or more to see their current need met, we can have a solution up and running for them in a matter of days.”

Since 9/11, many ports have received security grants to purchase systems such as wide area surveillance systems. The availability of those grants has been reduced, making it increasingly difficult to pay for large-scale projects with a single grant. According to Ray Hollida of Innovative Signal Analysis, a service could be an allowable expense if requested by an eligible applicant and the need is justified. “This is great news for ports whose port security grant funding has shriveled by 75 percent, but still have the need to deploy large-scale systems.”

According to James Soon, president of Zycraft Pte Ltd. in Singapore, a provider of manned and unmanned maritime security technologies, the need to commit to a capital outlay can be prohibitive. One of the company’s unmanned surface vehicles is used to escort shipping through high-risk areas.

“Depending on the complexity of the USV and the nature of the task, users may be more comfortable with a fee-for-service approach to use USV instead of outright purchase,” says Soon. “A fee-for-service approach ensures that the responsibility of operating and maintaining the USV resides with the contractor.”

The approach allows the user to “try before you buy,” Soon says.

“Some of our customers would benefit if they could use their operating budgets instead of investing in an acquisition program for new hardware and software,” says Jens Maaløe, CEO of Terma A/S. The value in a radar is not the antenna or the transmitter but the “data from the radar that we can provide to our customers.”

Edward Lundquist is a retired Navy captain and principal science writer for MCR Federal.

Topics: Business Trends, C4ISR