WT Business Beat

SI makes blockbuster deal for most of QinetiQ North America

The SI Organization has made two acquisitions since it spun out of Lockheed Martin in 2010. Both were good solid deals but not the kind of blockbuster it is trying to land now.

The company is planning to buy virtually all of QinetiQ North America as QNA’s British parent looks to downsize its U.S. operations and back away from the American services market.

The SI is paying $165 million for QNA’s Services and Solutions Group includes everything except for the Cyveillance, a cybersecurity firm QNA acquired in 2009. The company will pay an additional $50 million as part of an earnout based on performance as of March 2015.

According to a financial presentation from the British QinetiQ Group plc, the North American services group had about $800 million in 2013 revenue. All of that business minus $20 million attributed to Cyveillance and some other product business is going to the SI Organization.

In addition to Cyveillance, QinetiQ is keeping its product business in the United States including the Talon and Dragon Runner robots, Q-Nets, which protect against rocket propelled grenades, and SWATS, which wearable systems that track the sound of gunshots to locate snipers, a QinetiQ spokesman said.

QinetiQ North America will continue as an entity but will have a new board and will be led by Andy Rogers, currently executive vice president and general manager of QNA’s technology solutions group.

The SI Organization is picking up about 2,800 employees and after the deal closes will have about $1.3 billion in annual revenue.

“The acquisition of QNA/SSG accelerates the SI’s vision to be a leader in the design, development, integration and operation of complex, mission-critical information systems across the government,” said SI CEO Mac Curtis.

The deal expands SI’s coverage into adjacent markets in the Defense and Homeland Security departments as well as NASA and civilian agencies, Curtis said.

“QinetiQ North America SSG has an exceptional, customer-focused team, and we are excited to welcome them to the SI’s family,” he said in a statement.

Curtis became CEO of the SI Organization in May 2013, and this is the first acquisition under his watch. He came to the company after a very successful run at Vangent, a company he led through several acquisitions as he grew the company before selling it to General Dynamics in 2011 for $960 million.

As with most divestitures, the sale of most of QNA is a tale of two companies.

QinetiQ Group plc once saw the U.S. market as a high flyer and an important growth area, but the budget constraints have taken a toll. The company took a write down of $430 million in May 2013.

In its presentation announcing the deal, QinetiQ executives described the U.S. business as not fulfilling a strategic growth role. It lacked scale and synergies with the rest of the group. It also added governance costs because as a foreign-owned company in the United States, it had to abide by certain regulations.

Executives said that the sale would create a stronger, more focused QinetiQ. In short, the U.S. business was a distraction for both management attention and resources.

But for the SI Organization, QinetiQ’s unwanted business is a crown jewel. It effectively doubles the size of the company and adds customers and capabilities.

The 2,800 employees include engineers, scientists and other professionals with mission critical knowledge of defense, homeland security and NASA customers.

The deal will allow SI to deliver more technology-enabled solutions in areas such as cyber, analytics, software development and IT.

While QinetiQ reported that the business had dropped 13 percent in the first half of its fiscal 2014, it’s still a substantial business, and it is great price for SI.

The deal has to clear standard regulatory approvals and likely will close by the end of June.

Posted on Apr 22, 2014 at 10:54 AM0 comments

Has the Air Force dodged a bullet with NetCents 2 protests?

The number of protests over the Air Force’s small business awards for the NetCents 2 Network Operations and Infrastructure contract has grown to nine.

But the good news for the Air Force is that no new protests have been filed since April 14, and out of 17 potential protesters (losing bidders), only nine have filed protests.

Yes, that is more than half, but it’s a manageable number. It indicates to me that this set of NetCents 2 awards isn't a disaster. The 12 winners announced March 27 for the $5.8 billion contract might be a defensible set of awards.

We’ll have to watch to see what the Air Force does now, but nine protests points to a relatively quick resolution.

My choice would be to see the protests run their course with a decision by the Government Accountability Office because I’d like to get some insights into the Air Force decision making processes.

But the smarter course for the Air Force might be to take a corrective action that adds the protesters to the contract. That would get NetCents 2 NetOps up and running the quickest.

We’ll know in a few weeks what direction the Air Force will go in. They have 30 days to file a response to the protests. Usually, they take a corrective action before that deadline if they are going to take a corrective action at all.

For the record, the protesters to date are:

  • Pragmatics Inc.
  • Furtron Inc.
  • CDO Technologies Inc.
  • D&S Consultants Inc.
  • Tribalco LLC
  • VMDn LLC
  • EMW Inc.
  • Abacus Technology Corp.
  • Intelligent Decisions Inc.

Intelligent Decisions filed the first protest, followed by Abacus, D&S Consultants and EMW Inc.

The rest of the protests were all filed April 14.

Posted on Apr 22, 2014 at 1:22 PM0 comments

Are contractor-customer relationships getting better or worse?

Pick your poison – budget cuts, sequestration, a government shutdown, lowest price contracting – all in all, the government contracting market has been going through a rough time the last few years.

As we explored what government executives thought of contractors in our latest Insider Report – Government IT Contractor Partnering: The Customer Perspective – the relationship between contractors and customers was always top of mind.

We’ve already explored several aspects of the study, with a focus on where companies can improve to better serve customers and gain a competitive advantage over their peers. See our "More Analysis" sidebar.

A lot of my writing to date has focused on what contractors are doing wrong, which in a way might misrepresent the findings. There is good news as well.

Take for example, the question we asked about whether government executives felt it was getting harder or easier to work with contractors.

Only 19 percent said it was harder: 16 percent said it was somewhat more difficult, and 3 percent said it was much more difficult.

Nearly half – 49 percent – said the relationship had stayed about the same.

That’s not bad at all.

I also have to think that the trend line is positive in that 7 percent said working with contractors had become much easier, and 25 percent said it had become somewhat easier.

That’s 32 percent who see the relationship headed in a positive direction, 13 percentage points better than the 19 percent who say it is headed in a negative direction.

From that question, we explored why it was easier and why it was harder.

The budget topped the reasons given for why the relationship has become harder. There’s not much that contractors can do about that, but some of the other reasons offer some action items to consider.

We received many comments that focused on performance and delivery concerns as well as technical competence and skills.

One respondent complained that project managers don’t understand their own offerings, which hindered the ability to successfully complete the project.

Another said that contractors have become more profit-driven and aren’t held in check enough by government personnel.

“The same contractors have worked with the agency for so long that they act like employees and don’t seem to have an urgency about providing what is expected,” a third wrote.

Others blamed contracting rules that have made the procurement process less flexible. Budget cuts also have created barriers between contractors and customers.

On the positive side, government executives said they see contractors that have increased their knowledge and understanding about processes and customer needs.

“We have educated contractors on our procurement process, and they have adapted their processes to fit,” one respondent wrote.

Contractors also won praise for their use of technology to improve deliver.

“Our organization is now able to meet its mandate with the right tools and systems setup by the contractors,” another wrote.

Those kinds of comments have got to make you feel good.

By looking at the "why easier" and "why harder" questions side by side – we put them both on the same page – you can draw lessons from survey respondents who have a positive view and from those who have a negative view.

My four takeaways:

  • Focus on delivery
  • Understand customer processes
  • Don’t get complacent
  • Understand the mission

Again, as with much of the other findings in this report, a focus on the basics first will carry the day with your customers.

Up next, I’ll look at some of the reasons cited for why projects fail and answer the question of the single most important thing contractors can do to please their customers.

Posted on Apr 21, 2014 at 10:23 AM0 comments

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