What were 2012's top issues and trends?
When I look back at 2012, I see a year that had probably three years worth of significant trends and happenings. This is my top 12 list, and it's a combination of commentary and year in review. I'm sure there are a few I've missed, so don't hesitate to correct me or add your own.
Low price, technically acceptable contracting
Few issues bring the moans and groans of low price, technically acceptable contracting, which goes by the acronym LPTA. As the government has tried to find ways to lower its cost, its contract evaluations have increasingly come down to price shoot outs. Many contractors claim it kills innovation. It also undermines the advantage incumbents have traditionally had on recompetes.
Low price contracting is going to be here for the foreseeable future. Or, at least, until projects begin to fail and fall short of expectations.
It was a shocker when the news broke that Science Applications International Corp. would split into a high-end science and technology company, and a separate technical services and IT company. Both will be publicly traded. Many have complained that SAIC is pushing all of its low-margin business in the spin-out, while the higher margin work stays together.
SAIC has maintained that the split will open new opportunities for both sides of the business. We’ll have to wait to see if that strategy bears fruit.
Sequestration and the fiiscal cliff
I’ve come to hate this topic because it is a manufactured crisis that only serves to rub salt in the wound of a weak economy, and add more uncertainty to an already tough to predict government market.
As I write this, we are still teetering on the edge of the fiscal cliff. Will there be end of the year heroics?
I think everyone accepts budget cuts, but do we need to do it with an axe hanging over our heads? Apparently so.
Lockheed CEO-in-waiting scandal
Just weeks away from assuming the reins as the new CEO of Lockheed Martin Corp., Christopher Kubasik was fired for having an affair with a co-worker. That was amazing enough. That Lockheed moved so quickly also is noteworthy. In one fell swoop, the company investigated the allegation, fired Kubasik and then named his replacement, Marillyn Hewson, who was to be chief operating officer. The whole thing could be a case study for how to quickly put a scandal behind you.
This contract could be the poster child for all that is wrong with procurement. There have been delays, and when awards were made, there were massive protests. The Air Force has had to extend and raise the ceiling on NetCents I to cover the gap before the new contract is fully online.
We come to the end of 2012 with just two portions out of seven up and running. The 2013 National Defense Authorization Act calls for more, for the Air Force to create a plan to make the maximum number of awards and create on and off ramps. Perhaps that will get the program untracked.
Not much needs to be said here, but if there has been a year where more companies had layoffs than this year, most people don’t remember it. You can lay the blame on the dysfunctional budget process, the weak economy, less spending in Iraq and Afghanistan or a changing business model, but the reason why doesn’t really matter if you were one of the unlucky ones.
We’ve seen plenty of retirements and new CEOs and other senior leaders this year. Starting at the top of the Top 100 here is a start of the companies with new leadership:
Lockheed Martin – Marillyn Hewson, CEO
Northrop Grumman – Linda Mills, chief operating officer
General Dynamics – Phebe Novakovic, CEO
Hewlett-Packard – Meg Whitman, CEO, Marilyn Crouther, senior vice president and general manager of HP Enterprise Services, public sector. (Technically Crouther took the post in December 2011, but that’s close enough to this year.)
Computer Sciences Corp. – Mike Lawrie, CEO; David Zolet, leader of public sector
Harris – Bill Brown, CEO, Jim Morris, president of Integrated Network Solutions
Dell – George Newstrom, general manager, Dell Services Federal
BAE Systems – DeEtte Gray, president of BAE Systems Intelligence and Security Sector
CACI International – Dan Allen, CEO
SRA International – Deb Alderson, COO
Accenture – David Moskovitz, CEO federal services
U.S. Investigations Services – Sterling Phillips, CEO
Artel Inc. – Ted Hengst, CEO
I’m sure I’ve missed some, and I know there were plenty of changes among companies outside the Top 100.
Some changes, I think, were made because companies were trying to energize their growth with new leadership; others were simply the results of retirements; nonetheless, it’s a remarkable transition to see take place.
Computer Sciences Corp. has perhaps been the most active here at the end of the year, selling both an IT staffing business and its credit services business, but up-and-down the market, we’ve seen companies shedding businesses to fine tune their portfolios. For sellers, it’s an opportunity to focus resources, and for the buyers, it’s a chance to build out lines of business and gain market share. We can probably expect more of the same in 2013.
Shifting business model
Cloud computing and data center consolidation are changing the go-to-market strategies of large systems integrators, as well as hardware and software vendors. Customers are only going to increase their buying around everything-as-a-service. This will continue to disrupt companies built on billable hours, as well as business models based on licensing fees.
This shift started to gain momentum in 2012, and will only accelerate from here on.
CSC and HP go into turnaround mode
Computer Sciences Corp. and Hewlett-Packard Co., two pioneers of the IT industry, had a tough 2012, and brought in new leadership at the top in order to right the ships. As the year comes to a close, HP has seen calls for it to break up, as it writes off most of the value of its huge Autonomy acquisition, and its stock price slips even lower. CSC, meanwhile, is ending on a positive note, as it moves forward with a turnaround plan that includes shedding non-core assets, and renegotiating poor performing contracts.
We’ll watch for more moves by both companies in 2013.
End of Deepwater
The program to modernize the Coast Guard’s fleet with new high-tech cutters, and the retrofitting of older vessels with new technology and capabilities, came to a quiet end in January 2012, when the service dropped the Deepwater name after spending $27 billion, and only reaching 25 percent to 50 percent of its goals.
Almost the entire history of the program was marked by cost overruns and disappointment, and it spelled the end of the lead systems integrator model of contracting. The Coast Guard took over that role in 2007, when it fired the prime contractor, Integrated Coast Guard Systems, a joint Lockheed Martin-Northrop Grumman venture.
Sale of GTSI
I’ve followed GTSI since I started covering the government market, and I watched it grow to a $1 billion a year business, before turning south. I often thought that GTSI was held back because it was publicly traded. Those quarter-to-quarter demands for results made it difficult for the company to change quickly. In June, the company was acquired and taken private. Now, it is part of Unicom, a large California holding company, and should have the resources and time to rebuild itself.
Posted by Nick Wakeman on Dec 21, 2012 at 7:24 PM