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The Honolulu Advertiser
Posted on: Saturday, March 25, 2006

Navy deal for data network extended

By David Koenig
Associated Press

PLANO, Texas The Navy said yesterday that it has extended by three years a multibillion-dollar contract under which Electronic Data Systems Corp. is building a communications network for the Navy and Marine Corps.

The extension, through September 2010, will add an estimated $3.1 billion to the contract, which previously was worth about $8.8 billion in revenue but has proved to be a cash drain for EDS.

The Navy also agreed to pay EDS $100 million to settle the company's complaints against the service, some of which stemmed from the job being more complex than EDS originally believed. The Navy will get a 15 percent discount on work stations.

Other terms of the contract, including a method of determining the buyback value of equipment that EDS bought for the Navy, were also changed.

The Navy could have walked away from EDS next year and invited other companies to run its network, but yesterday's decision was not surprising. EDS executives had hinted for several months that they expected to win an extension. Negotiations began about a year ago.

EDS president Jeffrey M. Heller said the extension validated the company's view that it has improved its work for the Navy.

EDS finally broke even on the contract during the fourth quarter of last year. Still, executives say it has helped EDS land other work, notably a $4 billion deal to build a similar network for the British Ministry of Defense.

The Navy and Marine Corps network covers 290,000 work stations at more than 1,000 sites. EDS said the network stopped 20 million unauthorized access attempts and eliminated 70,000 computer viruses last year.

Navy officials had complained about the level of spam and other problems on the network, and EDS was behind schedule for upgrading work stations. But last year, customer-satisfaction scores improved, which helped EDS win incentive payments.

The Navy contract, EDS' largest government deal, was seen as a coup when it was awarded in 2000 at an original value of $6.9 billion in revenue. However, EDS soon found that revenue was outstripped by costs, as the company struggled to transform the Navy's aging computer programs into a faster and more secure network. Along the way, Congress also imposed tougher testing requirements.