2008: In Review | A year of turmoil and uncertainty

Security, tight budgets and contract protests dominate our look back at 2008

It's customary in December to compile
a list of the most important or
newsworthy stories for the past 12
months and assess their possible
holdover effects on the coming year.
Perhaps more than most years, 2008
has been tumultuous and was capped
by the historic election of Barack
Obama as the 44th president of the
United States.

We asked a number of government
contracting experts to select their top
stories of 2008 and, if they wished, do
a little prognosticating for 2009. Here
are their thoughts.

TIGHT BUDGETS, GREATER OVERSIGHT

Valerie Perlowitz
, senior vice president
at ATS Corp.

With the tightening of federal government
budgets, we find ourselves scrimmaging
for fewer operations and management
dollars as new starts decline.

Couple that situation with a voracious
appetite for oversight and the
cost of doing business with the government
might become prohibitive even
to the largest players in the industry.
The final leg on this stool is the
increase in protest activity, now available
at the task-order level.

The government is still the largest
buyer of information technology products
and services, and that trend will
continue. It has been the industry partners
working alongside their government
counterparts that have enabled
the government to leverage technology
to make the mission of service to the
people a reality.

It would be a shame to continue to
tighten the noose by creating more regulations
when what really is needed is
more open communication between
government and industry on how to
solve those issues and deliver more
value to the citizens.

WEAK ECONOMY, RETIRING WORKFORCE

Jim Leto
, chief executive officer
of GTSI Corp.

This year, we've seen a weakening
economy, a retiring workforce and the
need to continue to use IT to help federal
agencies meet the needs of citizens.
With the workforce
expected to
shrink further next
year and many with
institutional knowledge
retiring from
government, there
will be new opportunities
for the contracting community
to step up to the challenges on our side
of the partnership.

In the Obama administration, we
should expect more use of technology
and a keener focus on elevating chief
information officers and their employees
throughout the government.

CYBERSECURITY, STRONG M&A ACTIVITY

Ed Casey
, chairman and CEO of Serco Inc.

The federal government initiatives and
announcements on cybersecurity
throughout 2008 make IT security a
governmentwide, multiyear priority.
Contractors with information assurance
expertise will have increased
opportunities to assist the government
in developing and deploying security technologies that protect information
and data from adversaries.

The government's cybersecurity initiative
will also require IT thought
leadership in identity management,
IPv6, infrastructure with built-in security
and secure information sharing
across agencies.

There were more than 60 merger
and acquisition announcements in the
federal government IT space in 2008.
Although the market is still accommodating
large IT deals, such as Hewlett-
Packard's acquisition of EDS Corp.,
most buyers were focused on niche,
growing markets, such as cybersecurity,
intelligence solutions and health
care IT.

Those areas are expected to see
growth in 2009 and beyond. With the
equity capital markets effectively
closed to new initial public offerings,
expect strong, well-capitalized companies
to drive consolidation in the
absence of other exit opportunities for
founders and private investors.

SMALL BUSINESSES UNDER ATTACK

Mark Amtower
, founding partner
of Amtower and Co.

The erosion of small-business programs
was demonstrated by the
demise of the Small Disadvantaged
Business Concern program. Moreover,
a Government Accountability Office
protest ruling against the Navy could
have ramifications in 2009.

The ruling focused on the "rule of
two" available to small businesses that
can bid on task or delivery orders. The
ramifications could arise from a point
raised by the Navy about whether the
corresponding Federal Acquisition
Regulation section applies to the placement
of task and delivery orders under
multiple-award contracts. In the Navy's
view, set-aside requirements apply only
to initial contract awards, not to orders
under multiple-award, indefinite-delivery,
indefinite-quantity contracts.

GSA ALLIANT PROTEST

Shiv Krishnan
, president and CEO
of Indus Corp.

Earlier in 2008, Judge Francis Allegra
of the U.S. Court of Federal Claims
ruled that the General Services
Administration's decision to award the
Alliant contract to 30 companies was
flawed and ordered the agency to reevaluate
the proposals. That decision
affected the plans of several federal
agencies to issue task orders worth millions
of dollars for IT services through
the Alliant contract. The impact on
industry was significant in terms of
resources spent to bid the contract,
build teams to pursue
the potential task
orders and deal with
subsequent delays
due to the court's
decision.

Small Business
Administration regulations
that came into effect in July
2007 negatively affected mergers and
acquisitions in the federal IT industry
in 2008. The regulations required larger companies acquiring government
contractors with small-business set-aside
revenue to certify that they were
no longer small businesses.

That created a significant risk for the
larger business acquiring a small business
because the agency that awarded
the small-business contract could cancel
it after the acquisition and award it
to another small business, thus
decreasing the value and attraction of
the small business and [leading to]
dramatically reduced M&A activity in
the IT sector.

INFRASTRUCTURE IT VULNERABILITIES

Mark Kagan
, research manager at
Government Insights

The South Ossetia war in August was
not a particularly high-tech conflict,
but it revealed many serious shortcomings
in Russia's command-and-control
capabilities. But the cyberwar waged
against Georgia before and during the
war ? coming on top of the May 2007
cyberattacks against Estonia ? was
another alarm bell for U.S. security
officials about government and critical
infrastructure IT vulnerabilities.
Many of those attacks were carried
out by Russians using hacking tools
easily found on the Internet.

Some of the major lines of business
? particularly financial management,
information systems security and
human resources management ?
began showing some real traction and
benefits in 2008. The associated
shared-services offerings will continue
to extend beyond single acquisitions
and single government entities, saving
IT investment dollars while improving
citizen services.

The success of those lines of business,
which will continue under the
new administration, will ultimately
mean fewer opportunities and less revenue
for vendors, but they ultimately
will also mean more efficient and cost-effective
government activities and
services.

SECURITY, SECURITY, SECURITY

Susan Zeleniak
, group president
of Verizon Federal

The most significant developments in
federal government contracting in
2008 can be summed up quite simply:
security, security and security.

It continues to play an increasingly
large role in federal procurements.
From managed security services to
identity management, agencies more
than ever are looking for comprehensive
end-to-end solutions and the associated
expertise to help them effectively
secure their information resources.
From the perspective of GSA's
Networx program, the big story of the
year was the Homeland Security
Department's OneNet award. As the
largest and most comprehensive program
to date on the Networx contract,
OneNet will enable DHS to combine
the wide-area networks of its 22 separate
agencies onto a single IP network
while providing highly secure communications
to nearly 5,000 agency sites
worldwide.

Of course, the other major security
initiative has been the Office of
Management and Budget's Trusted
Internet Connections program. That
initiative is intended to reduce
the number of Internet gateways from
several thousand to approximately 50.
Fewer gateways will help improve
network security and enable more
effective intrusion detection and
prevention.

ECONOMIC CRISIS, TRUSTED INTERNET CONNECTIONS

Warren Suss
, president
of Suss Consulting Inc.

The economic crisis is
the No. 1 IT story of
2008. The $700 billion
bailout and
recession-driven tax
revenue declines will
force agencies to cut, consolidate and
optimize. Going forward, the crisis will
disrupt the IT marketplace, creating threats to established incumbents and
programs.

It will also create openings for
aggressive newcomers who can deliver
more for less with better technologies,
improved efficiencies and innovative
business models.

The requirement for agencies to consolidate
their Internet connections and
centralize monitoring for cyberattacks
represents the dawn of a new era in federal
cybersecurity policy, investment
and control. The Trusted Internet
Connections [initiative] is a response
to growing cyberattacks and reflects the
growing power of the intelligence community
over federal cyber decisions.

The new get-tough approach to
cybersecurity might extend into the
state, local and commercial market
segments.

GREEN IT, HEALTH CARE REFORM

Lee Carrick
, president of Perot Systems
Government Services

The movement toward green IT in the
federal space has received much attention
this year.

Published reports say the government
might save
more than $1 billion
in energy costs in the
next five years by
implementing green
technologies at data
centers and employing
energy-efficient
computers.

In fact, increasingly, agencies and
departments are complying with a
2007 executive order that requires
replacing old equipment with
Electronic Product Environmental
Assessment Tool-registered products.
We've seen a number of our agency
customers reduce their energy costs
and output by consolidating their IT
infrastructures.

Another noteworthy story that arose
from the presidential campaign and
will bear watching in 2009 is
President-elect Barack Obama's plan
to transform health care through the
implementation of health IT and his
pledge to invest billions of dollars in IT
to broaden access, reduce costs and
improve quality of care.

If successful, the overall implementation
will boost contracting opportunities
and revenues.

David Hubler (dhubler@1105govinfo.com) is
associate editor at Washington Technology.

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