To the ranks of billion-dollar federal contracts for fighter jets and vaccine development, add cloud computing to the list of Uncle Sam’s most hotly contested procurements.
The biggest names in the tech business are believed to be in the running for a piece of General Services Administration contracts capped at $2.5 billion to provide cloud-based email accounts for federal workers across departments.
“We got healthy competition coming in for it — the usual players you would suspect and others, as well,” David McClure, the GSA’s associate administrator of the Office of Innovative Services and Technologies, told POLITICO. “That, to me, indicates there is a healthy market and a great deal of interest.”
It’s also an indication of something else: The newest battleground for tech firms competing in the cut-throat arena of government contracting is the cloud, where Internet-based services can displace mainframes and other expensive hardware.
The competition is being fueled by a White House policy adopted in December that requires agencies to replace formerly custom-designed legacy computing systems with cloud-based solutions. Such services offered by the private sector are often lower in cost than buying hardware and software.
A throng of tech firms is lining up — and in some cases, throwing each other under the bus — for the chance to sell services accessed over the Internet to the government. The federal cloud play has helped pave a path for innovative tech companies like Google and Amazon, which have limited government experience, to land federal contracts in a sector long dominated by entrenched firms and huge telecommunications companies.
As a result, it’s set the stage for a showdown of new technology contractors versus old.
Established tech providers — including AT&T, Microsoft, IBM, Dell, HP and Verizon — find themselves vying for cloud contracts with upstart Internet firms like Salesforce.com. In addition, some of the government’s largest defense contractors, including Lockheed Martin and Raytheon, now offer their own cloud products.
“Everyone is jockeying for position,” said Deniece Peterson, an analyst for government contract consulting firm Deltek. “We’re getting to that stage where competitiveness in the federal market is increasing significantly.”
It’s still too early to determine winners in the federal cloud space, experts say. But this much is crystal clear: The stakes are high — sky-high.
The Obama administration set a target to spend roughly $20 billion, more than a quarter of the total estimated federal information technology budget, to move systems across the government into the cloud, though analysts said it will take years to reach that figure.
Nonetheless, there’s still a wealth of federal contracts up for grabs.
The GSA’s May solicitation for up to $2.5 billion in cloud computing contracts is a prime example. Those awards — which will give agencies a government-wide vehicle to bid for cloud-based email services — won’t be made until a pair of bid protests lodged with the Government Accountability Office are resolved, McClure said.
The GAO has set Oct. 17 as the date for its decision, according to the agency’s online bid protest docket.
Tech companies that battle hard in the marketplace are taking no prisoners when to comes to the procurement battle royal. Google, for example, sued the federal government, alleging the bidding process for a $59 million contract to move 88,000 Department of Interior users to the cloud favored rival Microsoft.
Cloud providers are also seizing on momentum created by the administration by beefing up their presence in Washington.
Salesforce.com, a California-based firm that boasts it now sells cloud-computing services to half of all Cabinet-level agencies, said its federal sales team is “healthy and growing,” in part because of the federal focus on cloud computing.
“We continue to ramp up. Everyone agrees that government adoption of the cloud is inevitable,” said Dan Burton, Salesforce.com’s senior vice president of global public sector.
Amazon launched a D.C. office about 11/2 years ago for its cloud-computing division, which is called Amazon Web Services. The company followed that late last year by hiring away one of Microsoft’s top federal point people, Teresa Carlson, and creating a new position for her to lead its cloud-computing push in the public sector.
The firm’s Washington-based sales team now is “dramatically expanding” to meet increasing demand from federal clients, said Adam Selipsky, vice president of product management and developer relations for AWS.
“Our focus on federal has increased significantly,” Selipsky said.
IBM also chalks up cloud computing as one of its burgeoning government sectors.
And Verizon earlier this year shelled out $1.4 billion to buy Terremark, an established government cloud provider, to give it a stronger foothold in the market. Cloud computing now is one of the company’s three best-selling services to the government, said Susan Zeleniak, group president of Verizon Federal.
The company doesn’t name federal clients, but online documents show its Terremark subsidiary was recently awarded a $3.9 million base contract to provide a suite of cloud-based services to help states create the first phase of health insurance exchange technology models.
The cloud has also opened up new government avenues for lesser-known companies.
“If I have five years of experience with cloud computing that’s the same, if not more, than a Fortune 100 company,” said David Lucas, the chief strategy officer for GCE, a small Reston-based firm that supplies the Labor Department with a cloud-based financial management system.
In its simplest form, cloud computing is generally characterized as a combination of technologies and computing services that can be delivered via the Internet, instead of from a direct connection to a server.
The Obama administration’s “cloud-first” policy requires federal agencies to move three IT services to the cloud within 18 months of its December launch.
Former federal Chief Information Officer Vivek Kundra preached the gospel of the cloud louder than just about anybody in the administration, but he departed for academia in August. Newly minted CIO Steven VanRoekel, a former Microsoft executive and managing director at the Federal Communications Commission, has inherited that role.
“It’s going to take a serious change agent and someone to keep their foot on the gas to keep the momentum going under these budgetary conditions,” said Deltek’s Peterson.
In May, the administration announced plans for 78 cloud projects for the largest 25 federal agencies. Web hosting and email top the list of projects.
For example,the Department of Homeland Security is planning to award a contract soon to a cloud-computing provider to host the agency’s array of public websites.
The Department of Agriculture tapped Microsoft and Dell for a contract worth $27 million to move its 120,000 government workers to the cloud.
This summer, GSA migrated its entire 17,000-person staff into a cloud-based email system using Google’s services and expects to save $15.2 million over five years.
But email and website hosting alone won’t allow agencies to reap the cloud’s full cost savings, experts say. And the reluctance of some agencies to deploy more mission-critical applications to the cloud because of cybersecurity and other concerns could drag down the market size.
Deltek’s Peterson estimates federal spending on the cloud will increase from about $600 million to $1.7 billion from fiscal years 2011 to 2016.
That’s a far cry from the administration’s forecast of spending $20 billion, but Peterson noted “$1.6 billion or $1.7 billion — that’s nothing to sniff at.”
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