Silicon Graphics Illustrates Contracting Issue

(MoneyWatch)  Earlier this year the U.S. Department of Defense signed a contract with Silicon Graphics to buy several supercomputers. DoD has a program where they buy a few of these each year to support various applications. They try to buy from different vendors in order to maintain a diverse base as well as get the systems that match their needs.

Computerworld Security writes about the fact that as the contract was being signed Silicon Graphics was going under and eventually was purchased by Rackable Systems. The sale was only for $25 million, but the contract with DoD was for $40 million.

The Defense Department felt that despite the problems the company was having that it was still viable and would perform to the contract requirements. Now it is monitoring the situation with the sale and how it will relate to performance.

Normally when the government awards a contract one of the criteria is that the company be able to prove its ability to meet the production schedule. In this case it seems that there was a chance that this would not be possible due to the financial situation of Silicon Graphics. The companies have also to submit reports on their status regularly. There are also databases of past performance by companies that assist the contracting officers and the source selection authority in making the determination of who gets the award.

In this case the government seemed confident that Silicon Graphics would be able to meet the contract despite their unsteady financial situation. It has happened in the past that a company did go under while involved in a contract, or where unable to meet the contracted goals. In this case the government may terminate the contract and look for another supplier.