OAO's Fortunes Soar With NASA Win

By Nick WakemanOAO Corp.'s growing reputation as a leader in desktop outsourcing services to the federal government has spawned buyout inquiries from a handful of potential suitors in the United States and abroad, company executives said.Last month, the privately held Greenbelt, Md., firm was selected to provide desktop services to more than 25,000 users at four NASA centers. That task order - part of NASA's Outsourcing Desktop Initiative (ODIN) contract and potentially worth $500 million - comes just one year after it won a $200 million contract to provide similar services to 7,000 users at NASA's Jet Propulsion Laboratory.Those NASA wins are crown jewels that have made OAO very popular with companies on the prowl for acquisitions, said Cecile Barker, chief executive and founder of the company, which had about $196 million in revenue in 1997. Combined, the JPL contract and ODIN task order should bring in $50 million to $60 million a year at their present level. But the ODIN win also potentially can be used by the United Space Alliance, a Lockheed Martin/Boeing joint venture to operate the space shuttle. Thus, the seat management contract wins could be worth $100 million a year, he said. "That's why I say this thing is a potential $1 billion contract for us," Barker said. If the Space Alliance decides it wants "to take all their desktops and network and outsource them, they can put it under our task order," he said.The latest task order from the National Aeronautics and Space Administration has sparked the interest of companies "that want to penetrate the federal market for desktop outsourcing. And they see purchasing OAO as a way of doing that," said Barker, who founded the company in 1973. Six companies have inquired about a possible sale in just the last two weeks, he said. Two are European IT companies looking to break into the U.S. federal market; the other four are U.S. companies, he said. OAO, which should reach $213 million in 1998, has shown steady growth since 1995 when annual revenue stood at $60 million, Barker said. All of OAO's revenue comes from the government market."I don't have any intention of selling at this point, but as any smart businessman [would do], if the right opportunity presents itself, you have to listen to it," said Barker, who credits a coin toss for his decision to leave Grumman Aerospace and open OAO. In 1996, Barker spun out OAO's commercial business into a separate, publicly traded company, OAO Technology Solutions Inc. of Greenbelt, Md. Barker serves as vice chairman of the commercial business, which is expected to have about $102 million in 1998 revenue.It is no surprise that OAO's profile has been raised with its contract wins, said John Allen, vice president of Quarterdeck Investment Partners of Los Angeles. "At their size, they've got to be one of the more attractive properties out there," Allen said.Barker said the calls about buying the federal business have been exploratory. "My standard answer has been, 'Well, make me an offer,' " he said. "Frankly, most of them are waiting for us to give them our financials so they can do due diligence, and we haven't done that because I haven't reached that point yet."William Loomis, an analyst with Legg Mason Inc. of Baltimore, said the NASA wins have made OAO a major player in what is seen as one of the hottest government markets: outsourcing. Nabbing two of the first large, federal desktop outsourcing contracts gives OAO good prospects in the long term, because the government is relying more on past performance, Loomis said. "If you don't win some of the early ones, you'll be at a disadvantage," he said.Indeed, OAO's early success with the Jet Propulsion Lab contract helped it win the outsourcing contract with NASA's four space flight centers - Kennedy, Johnson, Stennis and Marshall, said Jeanne O'Bryan, NASA project manager. OAO had the lowest price and the best technical and business solution, she said. But experience also played a role."JPL shows they do have experience providing similar services in a similar environment," she said. "It shows they understand the mission of the government."To win the NASA task order, OAO beat out the other ODIN winners, including much larger players such as Boeing Co., Computer Sciences Corp., DynCorp, Federal Data Corp. and Wang Global."Some of the others have a much bigger track record [for desktop outsourcing] on the commercial side, but OAO arguably has as much or more experience on the federal side," Loomis said.In addition to the NASA contracts, OAO also counts among its recent wins a contract in August to provide help-desk services to the World Bank, and a $180 million, nine-year contract with the Air Force to provide space planning and architecture support, systems engineering and testing for the North American Aerospace Defense Command (NORAD) and U.S. Space Command systems and missions.Barker gives most of the credit for his company's success to his three senior vice presidents - Robert Lohfeld, Edward Warrell and Phil Davis. "Government agencies are asking for best value at the lowest cost, and these guys have gotten very adept at doing this," Barker said. "Writing the best proposals, providing the best solutions and finding a way to do it economically is what has made us successful."Building partnerships with other companies also has been a key, Barker said. For the NASA ODIN contract, OAO put together a team that includes Compaq Computer Corp., Fujitsu, Hewlett-Packard Co. and IBM Corp. "Our team gives us the four major hardware manufacturers in the world and access to all of their labs, capabilities and methodologies," he said.OAO also is on IBM's team that won a spot on the General Services Administration's Seat Management contract, a nine-year, $10 billion contract that eight companies won in July.Barker's company, which started life as an 8(a) firm and graduated in the early 1980s, does not plan to rest on its laurels, he said. OAO is pursuing several other large contracts, including GSA's Acquisition and Support for Worldwide End-user Requirements contract, which will be worth about $4.7 billion to eight winners. That contract award is expected to be awarded by year's end.OAO also plans to bid on the Army's $700 million Total Engineering and Integration Services contract when that procurement comes up for bid in 1999. That contract is expected to have multiple winners.So while the suitors may come calling, Barker said he is maintaining his focus on growing his business. "We're in an interesting period with an exciting future," he said.