General Dynamics and Computer Sciences Corporation: Outsourcing the IS Function (C)193-146

Appendix A:

Information Technology Services Agreement

The Information Technology Services Agreement between General Dynamics and Computer Sciences Corporation was built on the framework established in the Terms Sheet (above). Below is a summary of the clauses in the final contract which are amplifications and additions to the provisions in the Terms Sheet.

In the contract, "Division" was used to refer to General Dynamics in general or the particular business division of GD executing the contract; in the summary below, "the Division," "GD,' and "General Dynamics" are used interchangeably.

Information Technology Services

Scope of Work CSC will acquire all of the assets of GD's DSD (including real estate, computer hardware, and certain licensed software), except software and development systems for software installed directly in GD products, equipment used in product simulation facilities, and licensed application software assets, for the purpose of providing information technology services to the General Dynamics aerospace and defense business units with required and satisfactory service levels and efficiency. CSC will provide to GD, and GD will obtain from CSC, all of GD's requirements for Information Technology Services (except as noted above).

As long as there is no material negative impact on functional requirements or service levels, CSC is entitled to manage all resources utilized in providing service to GD as CSC deems appropriate, including relocating Data Centers, personnel, equipment, and other resources.

GD acknowledges that CSC may provide information technology services to third parties, provided that GD will maintain a priority position with regard to the services to be provided by CSC. CSC will not permit the performance of services for other customers to interfere with its meeting performance standards for GD.

To request services from CSC, GD must submit a "Work Authorization Form" consistent with previous policy in the Data Systems Division.

Performance Level Minimum performance standards are outlined in "Attachment B" of the contract. (See Exhibit A-1 for a sample page from "Attachment B" which shows the level of detail included.) These standards will be reviewed and may be modified from time to time, and at least annually, by mutual agreement.

Performance standards will be based on performance levels attained by GD's DSD organization prior to outsourcing. CSC will be entitled to verify the accuracy of these performance levels for a period of one year from the execution of the contract. If CSC is able to demonstrate a discrepancy between the contract performance standards and the actual performance levels achieved by DSD in its final year, the contract performance standards will be adjusted to reflect the actual performance levels achieved by DSD.

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Exclusions from Performance Standard If degradation in performance results from defects or errors in software licensed by GD to CSC or failure by GD to license or make available software or computer hardware utilized in providing information technology services to GD, such degradation in performance will not constitute a failure by CSC to meet performance standards.

If a service or resource reduction is requested by GD and approved and implemented by C.SC, GD may request a restoration of previous service within 14 days, and CSC will restore services at CSC's cost; if such a request is made after 14 days, costs will be restored at GD's expense. If a service or resource reduction is requested by CSC and approved by GD, GD may request a restoration of previous service within 90 days, and CSC will restore services at CSC's cost; if such a request is made after 90 days, costs will be restored at GD's expense.

Third-Party Projects; New Projects General Dynamics acknowledges that in describing a task or project requirement to CSC, GD may not require CSC to adopt any specific approach to performing the project, and may not require specific, named suppliers or subcontractors. In specialized cases, however, GD reserves the right to name suppliers or subcontractors that are uniquely qualified to provide the specialized, unique, key, or critical services. Such services will be managed as non-rated costs to be reimbursed at cost-plus to CSC.

In connection with services being performed by a third party with which CSC or the Division has contracted, C.SC will provide the third party with all reasonable cooperation and assistance requested by the Division, including effecting the integration of third party services with the services then being performed by CSC. In connection with any systems or software development being done by a third party, subject to appropriate confidentiality protection, CSC will provide the third party: (1) full access to facilities and systems utilized in providing service to GD, and (2) information regarding the operating environment, system constraints, and other parameters applicable in order for the third party to develop the system so as to be compatible with other systems being operated by CSC as part of the GD services.

This cooperation will be provided only if and to the extent that CSC's ability to perform services for GD is not adversely affected.

If GD requires or desires an information technology product or service that is not being provided by CSC at that time, the Division shall provide the request to CSC in writing, and CSC will have the exclusive right to provide or procure such product or service. If CSC elects not to provide or procure the product or service, GD may procure the product or service from any other source, without limitation.

Limited Agency CSC will be the agent of General Dynamics only to the extent required to provide the services in the contract. With telecommunications services in particular, CSC shall act as the agent of GD only to perform those functions that are reasonable, appropriate, necessary, or advisable to ensure that GD receives all necessary telecommunications services for the performance of IS services. C2~ is not authorized under this agency appointment to terminate, substantially modify, or take any action that would constitute a breach of any of the telecommunications agreements without first obtaining the written consent of General Dynamics or the Division.

Licensed Software GD will grant CSC the right to use software programs, computer tapes, database information, and other similar assets.

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Rights of Access to Facilities and Shared Software

During the terms of the agreement, GD and CSC will each provide the other access to information technology services, equipment, facilities, and related furnishings necessary to perform the services in this contract. The parties agree to cooperate with each other and will act reasonably and in good faith in coordinating the ongoing use by one party or space and related utilities and services provided by the other party.

Work Authorizations or similar written documents will be used to authorize changes to occupancy use, including space allocation and charges.

CSC Use ofDivision Space CSC will have the right to use, enjoy, and occupy such space and related utilities and services to the same extent as any other Division of GE) occupying such space. CSC's rights will be materially similar to those enjoyed by DSD immediately prior to the inception of this contract.

Charges for CSC Occupancy Charges for space and related utilities and services will initially be the rates typically charged to DSD prior to the execution of this contract, with any increase limited to CPI on inflatable costs up to 2.3% in 1992, and 6.5% in each calendar year thereafter. CSC will be entitled to verify the accuracy of these charges by review of the historical data reflecting DSD occupancy charges for the 10-month period immediately preceding the inception of this contract.. If CSC is able to demonstrate discrepancy between the current charges and the historical data, appropriate adjustment will be made.

Policies Relating to CSC Occupancy At all times during the period CSC uses space and related utilities and services in any Division facilities, CSC shall comply with the customary and reasonable policies governing access to and use of the facilities, provided however, that such policies do not discriminate with respect to CSC or its employees, agents, or contractors.

Changes to CSC Space Requirements CSC may notify GD at any time that it requires less space than it is allocated, and within 30 days after such a request, it will be allocated less space. If CSC determines that it requires additional Division space and services to provide full service to GE), CSC shall make a written request to the Division, setting forth the amount of additional space required, the reason for the additional space, and the intended use of such space. The Division will provide additional space, subject to availability. In no instances will the Division be required to provide such space if it is not reasonably available.

Division Use of CSCSpace and Related Furnishings CSC will continue to provide to GD access to and use of the space and related furnishings and utilities at CSC's premises as were being provided to or used by GD prior to the execution of this contract.

Disposition of Property In the event of disposition by sale, lease, condemnation, or otherwise of existing General Dynamics property that CSC is occupying, GD may provide written notice to CSC to vacate the affected property. CSC will cooperate with GD in vacating such premises as promptly as practical, but in no event will CSC be required to vacate the premises on less than 90 days' notice. General Dynamics shall be responsible for all reasonable costs to CSC attributable to any such relocation. Any reduction in performance of services by CSC while relocating under these conditions shall not be considered a breach of this contract.

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Transition

Cooperation and Assistance The parties shall cooperate in arranging for an orderly, effective transition of operational control of the Data Centers from General Dynamics to CSC, and will provide each other reasonable access to premises and personnel to enable an effective transition of the services to be performed.

Account Executives CSC and the Division shall each appoint an Account Executive who will have overall program management responsibility for monitoring CSC's performance of services and addressing performance deficiencies. Account Executives shall meet upon the request of either party for the following purposes:

  • To develop and implement problem recovery plans and solutions, in the
    event that noted deficiencies in performance by CSC are not resolved.
  • To review CSC's performance, coordinate the provision of services to the
    Division, and discuss future Division requirements.
  • To ensure that adequate personnel are available and are provided the proper tools, training, and support necessary to meet performance requirements.
  • To modify service order intervals, maintenance, response times, and performance standards by which the services will be measured and managed.
  • To serve as the principal interface between Division and CSC with respect to all issues relating to the services provided.
  • To review Division responsibilities and any failure by Division to conform.
  • To discuss rate and pricing issues.
  • To discuss and affect any other program management issue that may arise.

In the event that the Account Executives are unable to resolve any issue, the CSC Account Executive shall refer that issue to a person at the appropriate level of CSC management necessary to resolve the issue. In the event that the issue cannot be resolved at this level, or after 30 days, the Account Executives shall refer the issue to the Operating Oversight Board (see below).

Account Executives shall mutually agree on the identity and designated tasks of certain key employees, and such employees shall not be replaced or reassigned by CSC without just cause and approval by the GD Division.

Service modifications If a Division wishes to request modifications in the services provided by CSC, the Division must submit the request in writing. CSC will promptly provide the Division with good-faith estimates of the cost (if any) and will advise as to the most cost effective means of implementing such requested modifications. CSC is responsible for implementing modification requests, and GD is responsible for paying for the modifications.

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Mutual cooperation Each party agrees to provide all cooperation reasonably necessary to effect additions, modifications, relocations, and removals of equipment, facilities, and personnel requested by the other party.

Fees and Pricing

Fees / Cost Centers Fees to be charged by CSC to Divisions will be determined on the basis of cost center accounting and a resource consumption billing methodology (outlined in the Terms Sheet, above). Data Center Overhead would be allocated among the cost centers as a percentage of total costs, according to the methodology used at DSD. There will be four categories of cost centers as described in the Terms Sheet: Fixed Rated, Fixed Rated ("Banded") Volume Threshold, Adjustable Rated, and Non-Rated.

New Services When a new service is required to be provided by CSC to a Division, the service will be established initially as a Non-Rated cost center. Within the first year of operation, each new service will be reevaluated and assigned, by mutual agreement of CSC and the Division, to one of the categories of Rated or Non-Rated cost centers on a permanent basis.

For certain specific, unique, direct contractual business opportunities, CSC agrees to cooperate with the Division to develop a specially modified rate structure.

Use of Assets General Dynamics agrees to use productively those assets acquired by CSC in the purchase of the Data Systems Division and directly billed in the Non-Rated and Adjustable Rated cost centers for an initial three-year minimum period, unless the parties agree that disposal of any such asset is in their mutual interest.

General Dynamics agrees to use productively those assets acquired by GSC after January 1, 1992 and directly billed in the Non-Rated and Adjustable Rated cost centers for the initial three-year period, and at rates agreed to between the parties at the time, unless the parties agree that disposal of any such asset is in their mutual interest

The Division will give CSC at least three months' prior notice if it intends to discontinue any service or the use of any equipment.

CSC will apply the same asset depreciation schedule that DSD or the Division applied immediately prior to the commencement date of the contract, provided that this methodology would be in compliance with government regulations.

Good-Faith Efforts For rates that require negotiation, the parties will make a good faith effort to complete such negotiations on a timely basis. Until an agreement is reached, billing shall be continued at the most recent prior billing rates. Once an agreement has been reached, the agreement will be retroactive to the date when the rate revision was first necessitated.

Changes in Service Requirements Substantial and material changes in existing service requirements formally requested by a Division will require renegotiation of cost center classifications and/or a redetermination of rates or costs. Examples of substantial and material changes include a cost center change, program termination, or a significant savings from the acquisition of new technology.

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Incentive Fee CSC shall be paid an incentive fee for implementing actual and substantiated cost reductions from annual projected direct Non-Rated and Adjustable Rated costs, as follows: In calendar year 1992 (the first year of the contract), CSC shall be paid incentive fee payments equal to 100% of the actual first-year annualized cost savings in excess of $1.8 million in the aggregate for all serviced GD Divisions. In calendar year 1993, and subsequent years, CSC shall be paid incentive fee payments equal to 75% of the additional actual first-year annualized cost savings. For savings beyond the first year of realization, General Dynamics will receive 100% of the savings.

A reduction in planned acquisitions made at a Division's direction are not considered a cost savings by CSC. Incentive fee payments are to be included as part of a Division's total payments for the purpose of determining whether minimum payment provisions have been satisfied (see below).

Molt-Favored Client CSC will not charge any higher rate to the Division with respect to aparticular information technology service than CSC is charging to any other client in substantially the same circumstances.

Written RepresentationCSC will deliver annually to the Division a written representation that the rates charged for the prior year were reasonable and competitive. This written representation will also include an analysis and summary of those cost savings that CSC has achieved over the costs for services supplied by DSD. General Dynamics is permitted to disclose such analysis and supporting documentation to authorized U.S. auditors, if required by auditors to do so. A Division shall reimburse CSC for the amount of any extraordinary expenses incurred in connection with the preparation of such analysis and written representation.