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Is HP Holding the Navy Hostage?

The U.S. Navy's intranet is a massive network, second in size only to the internet itself. It serves 700,000 sailors, Marines, and civilians on 400,000 computers in 620 locations.

U.S. Sailor standing on deck of a ship
Source: U.S. Navy
U.S. Sailor standing on deck of a ship

But critics say the system, called the Navy Marine Corps Intranet (NMCI), is slow, expensive, and not even owned by the Navy.

"The Navy cut a deal in which it doesn't own any of its own computers, doesn't own the rights to its networks, and the tools that its sailors and Marines use everyday to communicate—the Navy doesn't own," says Noah Shachtman, who's written a scathing critique in Wired.

Ten years ago, the Navy decided to outsource IT and consolidate a hodgepodge of communications networks into one system. Electronic Data Systems won the five-year, $4 billion contract. EDS has since been bought by Hewlett-Packard, and the five-year contract was stretched to ten years and $10 billion.

The contract was successful in consolidating the Navy's far-flung, diverse computer systems, no easy feat. The system is also quite secure. But Shachtman reports that sailors and Marines complain about long downtimes, slow tech response, and antiquated notions like 50 MB of email storage (Gmail has 150 times that).

Then there are the costs. Here are a few reported by Wired:

  • $2,500 a year for an average workstation (50 MB email, 700 MB network storage)
  • $4,100 a year for a "high-end graphics" workstation
  • $9,300-$28,800 for a classified Ethernet port, depending on location
  • $11,800 per incident to clean up "data spillage" of classified material onto an unclassified network
  • $5 million spent in 2008 to wipe data from 432 "compromised computers"--"almost 10 times the cost of simply destroying the affected machines and replacing them with new ones."

"Sailors are caught in this retro environment because of this lousy deal the Navy signed," says Shachtman. "The anger towards NMCI in the Navy and Marines community is palpable, and it's almost unlike anything I've ever seen in a military project." This YouTube video illustrates some of the frustration.

Change is on the way.

The Navy is now trying to build a new intranet, called NGEN, that will allow the fleet to own its own network, and will break up the system into five parts which will be bid out competitively. However, the Navy (meaning taxpayers) have started paying HP a new $3.4 billion contract to help transition to the new system over the next four years and buy back ownership of the network.

Loren Thompson of the Lexington Institute thinks the new system may be worse than the old one. "It's the most secure network the Navy has. Getting rid of it doesn't make a lot of sense." He's also concerned that the new system "is going to be full of seams and discontinuity, so it will be easily exploited by hackers."

HP would not comment for this story, but the computer giant has admitted that NMCI got off to a rough start. However, it says customer satisfaction surveys in 2009 show 90 percent of users now pleased with the network. The Navy says there are a variety of reasons why computers its members use at work are not like the gadgets they use at home. Security is paramount, and bandwidth is expensive, especially bandwidth on a ship.

As for NGEN, the Navy is currently getting information from the IT industry about how best to proceed, and HP may end up bidding for some of the new work. The first part of that "new work" will be a contract for network security—not providing it, but testing it. A so-called "Red Team" will be hired to test NGEN and see where it's vulnerable.

While Loren Thompson thinks NGEN is a waste of money, Noah Shachtman has talked to Navy personnel who can't imagine things could be any worse. One civilian employee told him, "HP is holding the Navy hostage, and there isn't a peep about it. We basically have two recourses: pay, or send in the Marines."

Watch for upcoming reports from Jane Wells and other CNBC correspondents on-air and online in our "The Fleecing of America" series, focusing on the federal budget, government spending, and the use of your tax dollars.

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