Top 100: The challenge to stay on top
Contractors face uncertainty with tight budgets, procurement woes and a lame-duck administration
- By Nick Wakeman
- May 09, 2008
Duane Andrews, chief executive officer at
QinetiQ North America, has seen years like
2008 before. Agencies have faced tight budgets
in the past, and every shift from one presidential
administration to the next ? even within
the same party ? means contractors must
weather a period of uncertainty.
But having been through this before doesn't
make it any easier for QinetiQ and other companies
on this year's Top 100. "We are certainly
in a year that is going to be very disruptive to
the normal acquisition system," said Andrews,
whose company ranks No. 24 on the Top 100
with $855.8 million in prime contracting revenue
in fiscal 2007.
To continue to grow in today's market, Top
100 companies are forging closer customer
ties, streamlining internal operations and
chasing emerging opportunities. All of this is
happening against a backdrop of tight budgets,
shifting buying patterns and increased oversight
of government operations.
"Tight budgets are always a two-edged
sword," said Linda Mills, corporate vice president
and president of the information technology
sector at Northrop Grumman Corp., No. 3
on the Top 100 with $7.9 billion in prime contracts.
"The pressure to do more with less
drives demand for IT because IT drives productivity.
On the other hand, it can slow new
system starts."THE HUNT FOR OPPORTUNITIES
Although most companies are bullish on their
prospects in the market, budget documents for
fiscal 2009 show spending holding steady.
An analysis of government budget documents
by market research firm FedSources
shows that the Defense Department will have
only 21 new initiatives worth $2 million in
2009. Civilian agencies will have 85 new initiatives
worth $156 million. FedSources analyzed
Exhibit 53s that agencies file with the Office of
Management and Budget and DOD's IT-1
Report, which it uses to disclose its IT spending
"New programs are hard to come by," said
Phil Nolan, chairman, president and CEO at
Stanley Inc., No. 48 with $363.6 million in
prime contracts. "If you are going to grow, it is
more about being able to position yourself to
take market share and beat the incumbents."
Nolan called it one of the biggest challenges
in the current environment.
"Some [agencies] are not going to move forward
in a transition year," said Ellen Glover,
executive vice president of management and
technology solutions at ICF International Inc.,
No. 93 with $145.4 million in prime contracts.
But if new initiatives are sparse, there are
plenty of continuing priorities that agencies
need to address.
High on Lockheed Martin Corp.'s list is helping
customers with challenges involving cybersecurity,
the war on terrorism, interoperability
and a dwindling talent pool, said Linda Gooden,
executive vice president of the Information
Systems and Global Services sector. Lockheed
Martin is ranked No. 1 with $13.4 billion in
prime contracting revenue.
Homeland security, intelligence, command
and control systems, and complex IT support
are other important areas, Andrews said.
"I'm trying to concentrate on the more complex
problem sets, where you really have to
bring new technology to solve a particular customer
problem," he added.
As agencies try to live within their budgets
and make their operations more efficient,
opportunities for outsourcing projects are
"Agencies are looking for someone who can
bring new innovations in terms of how they
process the work and how they can effectively
manage the workforce to get the work done,"
Nolan said. "That is why they hire us."
Lee Carrick, president of Perot Systems Inc.'s
government services division, agreed. His company,
which is ranked No. 41 with $457.8 million
in prime contracts, won the $400 million
Education Department Utility for Communications,
Application and Technology contract
to provide IT infrastructure services. Under
the 10-year contract, Perot owns and operates
"This is a very large agency that wanted to do things a little differently," Carrick said. "We are seeing
that in a couple other areas."
Health care and green IT also might fuel growth,
Agencies have begun talking about their carbon
footprint. "We've started to see some interest at DOD,
and [the General Services Administration] has a
green initiative," she said. "I think that perhaps after
the election, we'll see even more."PROCUREMENT STRUGGLES
One government challenge on the minds of many Top
100 executives is the plight of government procurement
shops. Mismanaged and poorly performing
programs put pressure on agencies and contractors
"Everyone understands that this is a problem,"
Nolan said. "These guys do a great job with the workforce
they have got, but without a doubt, they can use
The retirement of government workers who have
domain and technical expertise is a growing concern,
Carrick said. "As people retire and leave government,
we're losing skills."
Glover said she has seen instances in which a government
contracting officer chose a procurement strategy
that hadn't been approved by the agency's program
"That's an indication that the acquisition workforce
is overworked and doesn't have the resources that they
need," she said. "They are plunging forward and doing
things the best way they know how."
There also is growing concern ? voiced in a series of
Government Accountability Office reports ? about
contractors performing acquisition management support
work instead of government employees handling it.
"They can't solve this problem overnight because
there is no way to build this expertise," Andrews said.
"But what they can do is better manage their support
contractors." That means hiring technical support contractors
and not using the same vendors to build the
system, he added.
Contractors that can provide technical support
while avoiding conflicts of interest could build a strong business around that
service, Andrews said.MARKET ADJUSTMENTS
It is not just agencies that are
looking for greater efficiency.
Several companies on the Top
100 are implementing structural
changes to their operations.
L-3 Communications Corp. ? No.
8 with $3.9 billion in prime contracting
revenue ? recently consolidated eight divisions
into five to streamline its services operations,
said Les Rose, president of L-3 Enterprise
IT Solutions, one of the new divisions. The company
was seeking to align its services with its
"The L-3 Services Group reorganization is
definitely an indication of the future, where we
potentially will have to reduce the number of
operating organizations," Rose said.
Within three months of hiring Jim Duffey to
run its U.S. government business, Dell Inc. ?
No. 15 with $1.7 billion in prime contracts ?
restructured its government group. Different
units now focus on homeland security and intelligence,
civilian agencies, DOD, systems integration,
state and local government, education, and
"[Early] indications are they will have accomplished
more in covering the marketplace than
was covered before," Duffey said.
Lockheed Martin consolidated two sectors
more than a year ago and is seeing that realignment
pay off with wins such as the nextgeneration
fingerprint system for the FBI, said
Gooden, who runs the new Information Systems
and Global Services sector.
One motivation behind the realignment was
to keep the business focused on its customers
and build in more agility, she said.TRANSITIONS AHEAD
Agility is paramount for many executives as the
presidential election approaches.
"There is no doubt that [the market] is
going to be very dynamic over the next two
years with a new administration and seeing
where their priorities will take us," Nolan said.
Several executives said that no matter which
party wins the White House or controls Congress,
there will be no quick exit from Iraq and
Afghanistan. "It is just not practical," one said.
With many resources going to those conflicts,
the new administration and Congress will be
faced with tough choices, not the least of which
is how to manage the budget deficit as the
demand for domestic spending increases.
"Services are the things that the government
needs to get their job done day in and day out,"
Nolan said. "The big-ticket items [such as
weapons systems] are at higher risk and might
provide the means by which discretionary funds
are freed up to go to other priorities."
Company executives are following the issues on
the campaign trail and talking as much as possible
with their customers to gauge their needs.
"You have to stay attuned to all you can and
develop contingency plans," Andrews said.
Only the election and time will answer some
of the questions on executives' minds, such as
what the new administration will focus on, what
kind of domestic programs will become priorities,
and what the mix of spending will be
between defense and civilian agencies.
"Things will shape up pretty quickly" after the
election, Carrick said. "We just need to be ready
to move, then we'll really find out how agile we
are."Nick Wakeman (firstname.lastname@example.org) is
editor-in-chief of Washington Technology.