2007: Who's who in the state and local market

State and local heavyweights step into the ring to vie for large deals

How we got the numbers

Washington Technology's list of top systems integrators in the state and local market was compiled by Federal Sources Inc. of McLean, Va.

Because few companies provide revenue figures for their state and local work, FedSources obtained its information using a variety of sources. These include research and analysis of public-domain information, such as annual reports, Securities and Exchange Commission filings, and press releases, as well as discussions with knowledgeable representatives within the market and the companies themselves.

FedSources, a subsidiary of Washington Management Group Inc. of Washington, offers intelligence on the public-sector technology market. Its clients include government contractors and several state and federal agencies.

Market Facts & Figures

Average annual growth rate: 4.7 percent

IT spending growth in billions

2007$48.5

2008$50.6

2009$53.0

2010$55.6

2007 Spending by market segment in billions

$9.7 Administration & finance

$8.8 Human services

$7.6 Transportation

$7.5 Public safety

$5.4 Health

$4.3 Criminal justice

$2.1 Natural resources

$2.1 Public works

$1.0 Other

SOURCE: Gartner Inc.


Who's Who among state and local integrators

More than $1 billion

Affiliated Computer Services Inc.

EDS Corp.

IBM Corp.

$500 million to $1 billion

Accenture Ltd.

Deloitte & Touche USA LLP

Maximus Inc.

Northrop Grumman Corp.

Unisys Corp.

$300 million to $500 million

BearingPoint Inc.

CGI Group Inc.

$100 million to $300 million

Ciber Inc.

Computer Sciences Corp.

Science Applications Intl. Corp.

"We gave them a solution that not only met their immediate needs, but also gave them a platform for addressing other things over time." ? Todd Ramsey, IBM

Rick Steele

"The state's position on funding would not permit us to successfully operate the program." ? David Moskovitz, Accenture

Rick Steele

We see [DMV work] as a way to establish a beachhead with respect to identity security or secure citizen services." ? Francis Meyer, Unisys

Rick Steele

A recent battle in Texas between IBM Corp. and Northrop Grumman Corp. for a data center consolidation deal had the appearance of a great showdown between two heavyweights of the state and local market.

Big Blue won the bout in November 2006 and took home the 10-year, $863 million prize. The company won by staying focused and applying some hard-learned lessons, said Todd Ramsey, general manager of global government and education at IBM.
"We lost Virginia and San Diego County [to Northrop] a year ago," Ramsey said. "We learned from those experiences."

One key to the company's successful Texas bid was finding a way to go beyond the requirements in the solicitation, Ramsey said. "We gave them a solution that not only met their immediate needs, but also gave them a platform for addressing other things over time," he said.

Those kinds of insights set apart the top companies selling technology solutions and services to state and local governments from the rest of the field. The 13 largest integrators on the annual Washington Technology State & Local Who's Who list have annual revenues that range from $100 million to more than $1 billion.

These companies take on groundbreaking projects such as the one in Texas where contractor and state employees work side by side to merge data centers, process Medicaid claims, determine eligibility for public assistance and handle other major responsibilities.

These giants of the state and local market are solidly entrenched and integrated with the local economy, said Ray Bjorklund, senior vice president and chief knowledge officer at Federal Sources Inc. That market research firm in McLean, Va., compiles the Who's Who rankings for Washington Technology.

The top companies work hard to cultivate relationships with a customer base that relies on them to fulfill the expanding roles and functions of state and local government, Bjorklund said.

State and local information technology spending will grow at an average annual rate of 4.7 percent, from $48.5 billion in 2007 to $55.6 billion in 2010, according to market research firm Gartner Inc. The sectors with heavy spending include administration and finance, human services, transportation, public safety and health care.

After budget shortfalls forced state governments to postpone large modernization and transformation projects several years ago, states have rebounded and their budgets have stabilized once again, according to analysts and industry officials.

"More and more states are operating with a surplus budget," said Tom Burlin, executive vice president and chief operating officer of the Government Solutions Group at Affiliated Computer Services Inc. "I wouldn't say the market is flush with money, but it is certainly much healthier than it was coming into 2006."

Other executives agreed. "A lot of long-term, pent-up demand is finally coming to fruition," said Mike Keating, vice president of U.S. west and state and local government at CGI of Fairfax, Va., a unit of Montreal-based CGI Group Inc. "Compared to two years ago, the pipelines are more robust, and the activity is faster."

Targeted opportunities

IBM and two other companies, ACS and EDS Corp., continue to collect revenue that exceeds $1 billion annually from their state and local government sales. In addition to its Texas IT outsourcing win, IBM also garnered a 10-year, $1.1 billion win in Indiana at the end of 2006 to help determine the eligibility of application requests for public assistance.

EDS derives the major share of its state and local sales from health care-related work. This work traditionally consists of modernizing Medicaid management information systems and processing Medicaid benefits. The company performs Medicaid-related work in 19 states.

One of its biggest wins last year was a six-year, nine-month contract worth $308 million from the Florida Agency for Healthcare Administration to modernize the state's Medicaid system. The company snatched the contract from incumbent ACS, its chief competitor in the health care space.

"That was our number one targeted pursuit," said Barbara Anderson, EDS' vice president of state and local business.

However, ACS was by no means left ailing in the health care realm. The company has Medicaid-related work in 33 states and is a key subcontractor to IBM on the Indiana eligibility contract. "We are feeling a lot better now that we have a hand in one of the very visible engagements," Burlin said.

ACS expects to see between 15 and 19 major Medicaid system opportunities over the next 11 1/2 years, Burlin said. "While the big fiscal-agency contracts are heating up, we also are seeing customized solutions for managed care, pharmaceutical management and so forth," he said.

However, ACS, EDS and IBM face tough competition from a company whose sales are rising rapidly in the market and nearly broke the $1 billion threshold this year. Accenture Ltd. proved it could prevail in a clash of titans when it competed against IBM and won a contract in 2005 from the Texas Health and Human Services Commission to run the state's eligibility and enrollment services for health care and public assistance programs.

But the company suffered a setback earlier this month when the state decided to terminate the outsourcing project. It was the latest twist in a downward spiral that began when Texas officials announced a new strategy in December 2006 designed to allow the state to keep some functions that it originally agreed to let the Accenture-led contracting alliance perform.

"The state's position on funding would not permit us to successfully operate the program," said David Moskovitz, managing director of Accenture's state and local client group. He said Accenture is turning the project back over to Texas at a point where it is stable and well-performing, and it has achieved significant progress toward modernization of eligibility services by expanding the channels of access available to citizens.

Even with the latest development in Texas, Accenture shows a knack for addressing the next wave of initiatives in both the federal and the state and local government space, said Rishi Sood, research vice president with Gartner. "They have been at the top of their game in identifying key market trends," Sood said.

Another important win for Accenture last year was a five-year, $199 million deal to run California's public employees' retirement system. Accenture's team will build a service-oriented architecture that will allow the state to deliver more services via the Web.

"In terms of a bold new space for us, and for starting to see the next generation of pension systems, [the California Public Employees' Retirement System] is very exciting," Moskovitz said.

Better leverage

Northrop Grumman is another company whose state and local sales are climbing steadily. The company began work on three large, innovative projects last year, said Hugh Taylor, president of the company's Commercial, State and Local Group. In fiscal 2006, Northrop Grumman won a seven-year IT outsourcing contract with San Diego County worth more than $660 million and a 10-year, $1.9 billion statewide IT outsourcing contract with Virginia. The company also won a five-year, $500 million contract last year from New York City to build a wireless, broadband public safety communications system.

Before last year's loss to IBM, Northrop Grumman held the Texas data center contract for seven years. The defeat was a disappointment, but the company has other work involving applications support and desktop management in Texas, Taylor said.

"It was one that just got away from us," he said of the recompete. "But we still have a sizeable presence in the state."

The Virginia contract entails modernizing the state's technology infrastructure, a concept that is capturing the attention of other state governments, Taylor said. However, opportunities of that magnitude will not unfold immediately because other states will watch to see how early adopters fare before trying the same approach, he said.

In the meantime, Northrop Grumman will continue to bring its experience in the defense and federal-civilian markets to bear in the state and local market. The company is particularly interested in projects such as public safety and driver's licensing, and motor vehicle department opportunities arising from the Real ID Act of 2005, Taylor said.

Although Northrop Grumman has capitalized on its core competencies in the state and local market, the company must broaden its presence in domains other than public safety to continue growing in the market, said Gartner's Sood.

The company might do this by pushing into human services, taxation or transportation, he said. "They have to play in one of those three segments to be considered in the top tier of the state and local government vendors," he said.
Taylor agreed. "We really need to get into the applications side and the missions of different agencies," he said. "Those are things we are working on."

Stiff competition

Along with IBM, EDS and Accenture, Northrop Grumman can also expect to face other powerhouses in the state and local market such as CGI, Deloitte & Touche USA LLP, Maximus Inc. and Unisys Corp. All four have done substantial work in health and human services, and Unisys is well-entrenched as a provider of driver's licensing solutions.

Given its experience in building and maintaining large information systems and its emphasis on security solutions, Unisys is the integrator to beat when it comes to work related to the Real ID Act.

The Real ID Act is expected to produce opportunities for systems integrators to build new databases and revise driver's license processes as states comply with the requirements of the federal law. Contractors could see opportunities totaling about $500 million over the next several years to address the needs of state motor vehicle administrations, said Francis Meyer, vice president and general manager with Unisys' North America Public Sector, Global Public Sector.

The company is developing comprehensive driver's licensing systems for four states, Meyer said. Of the five to seven solicitations expected this year, Unisys hopes to win at least four, he said.

Motor vehicle administration work is a critical opportunity for integrators like Unisys because that application touches almost every citizen in the state. "We see this as a way to establish a beachhead with respect to identity security or secure citizen services," he said.

In these situations, it's frequently the rapport established with the customer that wins contracts and makes or breaks deals.

"You have to demonstrate a real understanding of customer issues and show you are a valued and trusted partner," IBM's Ramsey said. "They want someone who will stand tall with them."

Deputy Editor William Welsh can be reached at wwelsh@115govinfo.com.

Web Extra

Join Deputy Editor William Welsh for an online forum 11 a.m. March 29 at
www.washingtontechnology.com. Welsh will discuss his cover story as well as trends and opportunities in the state and local market.

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