The Department of the Navy is a large and complex organization with a wide range of mission operations and supporting business functions. For example, the Navy has about 350,000 active duty officers and enlisted personnel, 130,000 ready reserve, and 175,000 civilian employees. Navy’s fleet operations involve approximately 280 ships and 4,000 aircraft operating throughout the world. Further, the Navy’s annual operating budget is about $120 billion and is used to fund such things as ship and aircraft operations, air depot maintenance, and Marine Corps operations. The department’s primary organizational components are the Secretary of the Navy, the Chief of Naval Operations, and the Commandant of the Marine Corps. The structural relationships among these components are summarized later and in figure 1. Secretary of the Navy: Department of the Navy headquarters recruits, organizes, supplies, equips, trains, and mobilizes, naval forces. Among other things, this includes construction, outfitting, and repair of Navy and Marine Corps ships, equipment, and facilities. It also includes formulating and implementing policies and programs. Naval and Marine Corps Operating Forces: The operating forces commanders and fleet commanders have two chains of command. Administratively, they report to the Chief of Naval Operations, and are responsible for providing, training, and equipping naval forces. Operationally, they provide naval forces and report to the appropriate Unified Combatant Commanders. The operating forces include a variety of organizations with diverse missions, such as the Atlantic and Pacific Fleets, Naval Network Warfare Command, and Naval Reserve Forces. Naval shore establishment: The Navy shore establishment includes facilities and activities for repairing machinery, electronics, ships, and aircraft; providing communications capabilities; providing training; providing intelligence and meteorological support; storing repair parts, fuel, and munitions; and providing medical support. It consists of organizations such as the Naval Sea Systems Command (which includes shipyards), Naval Air Systems Command (which includes aviation depots), Space and Naval Warfare Systems Command, Navy Personnel Command, Naval Education and Training Command, and the Office of Naval Intelligence. The Navy’s many and dispersed organizational components rely heavily on IT to help them perform their respective mission operations and business functions. For fiscal year 2006, the Navy’s IT budget was about $5.8 billion, which included funding for the development, operation, and maintenance of Navy-owned IT systems, as well as funding for contractor-provided IT services and programs, such as NMCI. The Assistant Secretary of the Navy for Research, Development and Acquisition is responsible for Navy acquisition programs. Reporting to the Assistant Secretary are numerous entities that have authority, responsibility, and accountability for life-cycle management of acquisition programs within their cognizance. These entities include certain program managers, system command, and program executive officers. The Navy Chief Information Officer (CIO) is responsible for developing and issuing IT management policies and standards in coordination with the above Assistant Secretary, the system commands, and others. The Navy CIO is also responsible for ensuring that major programs comply with the Clinger-Cohen Act (1996) and for recommending to the Secretary of the Navy whether to continue, modify, or terminate IT programs, such as NMCI. NMCI is a major, Navy-wide IT services program. Its goals are to provide information superiority—an uninterrupted information flow and the ability to exploit or deny an adversary’s ability to do the same—and to foster innovative ways of operating through interoperable and shared network services. The program is being implemented through a multiyear IT services contract that is to provide desktop, server, infrastructure, and communications-related services at Navy and Marine Corps sites located in the United States and Japan. Through this contract, the Navy is replacing independent local and wide area networks with a single network and related desktop hardware and software that are owned by the contractor. Among other things, the contractor is to provide voice, video, and data services; infrastructure improvements; and customer service. This type of contract is commonly referred to as “seat management.” Generally speaking, under seat management, contractor-owned desktop and other computing hardware, software, and related services are bundled and provided on the basis of a fixed price per unit (or seat). In October 2000, the Navy’s goal was to have between 412,000 and 416,000 seats operational by fiscal year 2004. As of June 2006, the Navy reported that about 303,000 seats were operational at about 550 sites. According to the Navy, initial delays in meeting deployment schedules were due to underestimates in its existing inventory of legacy applications that needed to be migrated to NMCI. Subsequent delays were attributed to developing and implementing a certification and accreditation process for all applications, as well as legislation requiring certain analyses to be completed before seat deployment could exceed specific levels. The number of seats at each site ranges from a single seat to about 10,000. These sites include small sites, such as office facilities located throughout the United States, and large sites, such as shipyards and air depots, which use unique software to assist in repair work. Various organizations in the Navy are responsible for NMCI management and oversight (see fig. 2). The Program Executive Officer for Enterprise Information Systems (PEO-EIS) along with the NMCI Program Manager are responsible for NMCI acquisition and contract management. The program is also overseen and supported by several groups. One is the Navy’s Information Executive Committee, which provides guidance for, and oversight of, NMCI and other information issues. The committee is made up of CIOs from a range of Navy commands, activities, offices, and other entities within the Navy. Another is the NMCI Executive Committee, which includes representatives of the heads of a broad cross section of organizations throughout the Navy, and the contractor. Its mission is to help in the review, oversight, and management of the Navy’s implementation of NMCI, as well as to assist in identifying and resolving process and policy impediments within the Navy that hinder an efficient and effective implementation process. Additionally, the Network Warfare Command (NETWARCOM) and the Marine Corps Network Operations and Security Command (MCNOSC), are the two entities primarily responsible for network operations management in the Navy and Marine Corps, respectively. The Navy CIO is responsible for overall IT policy. On October 6, 2000, the Navy awarded a 5-year contract for NMCI services to a single service provider—EDS—for an estimated 412,000 to 416,000 seats and minimum value of $4.1 billion. The original contract also included a 3-year option for an additional $2.8 billion in services, bringing the potential total contract value to $6.9 billion. The department and EDS subsequently restructured the contract to be a 7-year, $6 billion contract with a 3-year option for an additional $2.8 billion beginning in fiscal year 2008. Following further contract restructuring and the Navy’s decision to exercise the 3-year option, the total contract period and minimum value is now 10 years and about $9.3 billion. Figure 3 illustrates the value of the NMCI contract. The NMCI contract type is commonly referred to as seat management because pricing for the desktop services is based on a fixed price per “seat.” Seats include desktop computers, as well as other devices, such as cellular phones. Pricing for these seats varies depending on the services provided. For example, having classified connectivity, mission-critical service, additional user accounts, or additonal software installation increases the amount paid per seat. The NMCI contract is performance-based, which means that it contains monetary incentives to provide services at specified levels of quality and timeliness. The contract includes several types of incentives, including incentives tied to SLA performance, and customer satisfaction surveys. The contract currently specifies 23 SLAs divided into three tiers: 100 SLAs, 200 SLAs, and 300 SLAs. The 100 tier is referred to as base agreements, the 200 as transitional agreements, and the 300 as additional agreements. Examples of agreements for each tier are provided below. 100—End user services (SLA 103) 200—Web access services (SLA 206) 300—Network management services (SLA 328) SLAs are further categorized as enterprisewide, site-specific, or both. Unlike site-specific SLAs, enterprisewide SLAs are not analyzed on a site- by-site basis. See table 1 for a list of agreements organized by tier and category. Each agreement has one or more performance categories. For example, SLA 102 has 1 performance category (Network Problem Resolution), while SLA 107 has 3 performance categories (NMCI Intranet Availability, Latency/Packet Loss, and Voice and Video Quality of Service). Collectively, there are 51 performance categories. Each performance category has specific performance targets that the contractor must reach in order for the category to be met. An example of a target is providing e-mail server services to users 99.7 percent of the time that they are supposed to be available. The contract currently specifies two levels of performance to be used in determining, on a site-by-site basis, what performance-based payment incentives, if any, EDS will earn in a given quarter (3-month period). If either of these levels of performance is not met, the contractor is to be paid 85 percent of the amount allowed under the contract for each seat that has been cut over (i.e., is operational). 1. Full payment. To achieve this level for a given seat, the contractor must meet 100 percent of the applicable SLAs for that seat, and 50 to 90 percent of the planned seats at the site must be cut over. Meeting a quarterly agreement is defined as performance at or above the applicable target(s) for either (1) 2 out of the 3 months preceding an invoice or (2) the current month of the invoice.