DOD pay-per-use IT contracts worth up to $700M
Rather than buying computer servers that typically operate at less than half their capacity, the Defense Department will soon begin paying only for computing power it uses.

The Associated Press/WASHINGTON


OCT. 18 6:35 P.M. ET The U.S. Defense Information Systems Agency next month will begin placing orders on pay-per-use computing contracts worth up to $700 million it has awarded to four companies, including industry heavyweights Hewlett-Packard Co. and Sun Microsystems Inc.

Under pacts awarded earlier this month, the companies will install and maintain 5,000 servers at 17 locations around the world, said Alfred Rivera, the DISA official in charge of the program. 

The contractors, which are all guaranteed at least $200,000, will own and maintain the servers. Known as "utility computing," the practice is already used by cable, telecommunications and financial services companies. Now the government is jumping on the bandwagon.

"If we can't get more scalable and more efficient then shame on us," said John Garing, DISA's director for strategic planning and information.

DISA, which supplies information technology and communications support to the president, vice president, secretary of defense, military services and combatant commands, began looking at the concept as early as 2000 and used it in mainframe computer programs through 2004, Garing said.

"It's on the leading edge of where the government might be heading," said Ray Bjorklund, chief knowledge officer at Federal Sources Inc., a research and consulting firm in McLean, Va.

Palo Alto, Calif.-based printer and personal computer maker HP was awarded two separate deals worth up to $440 million over eight years that cover the HP-UX, Microsoft Windows, Red Hat Enterprise Linux and Novell SUSE Linux operating systems.

"It gives them the opportunity to throttle up and throttle down," said Tim Sheahan, vice president and general manager of HP Federal.

The pact with server and software maker Sun Microsystems Federal Inc., in McLean, Va., covers the Solaris operating environment and is worth up to $125 million.

Vion Corp., a Washington-based storage and server provider, will manage IBM's AIX operating system for DISA under a pact worth up to $25 million. The deal with Apptis Inc., based in Chantilly, Va., covers IBM's z/OS and z/VM operating environments and is capped at $110 million.

DISA plans to begin placing orders next month for the Air Force and Defense Finance Accounting Service, which have volunteered to be early adopters, Rivera said.

Bill Vass, president and chief operating officer at Sun Federal, said it was the company's first pay-per-use deal with a government customer and "the more they use, the more they save," because the price decreases as volume increases.

And DISA plans to expand its capacity-on-demand use. The agency next month plans to award a similar $700 million, eight-year deals for data storage, Rivera said.

Shares of HP dipped 5 cents to end at $39.01, while IBM gained $2.87, or 3.3 percent, to end at $89.82, both trading on the New York Stock Exchange.

Sun added 5 cents to close at $5.20, Microsoft Corp. gained 8 cents to $28.52, Red Hat rose 5 cents to $19.07, and Novell Inc. slid 7 cents to $6.11, all trading on the Nasdaq.