Top floor, please

TechTeam Government Solutions Inc. is too big to be small and too small to be big. To overcome that dilemma, the company is resorting to acquisitions and strategic partnering to become a tier-two government contractor.Its parent company, TechTeam Global Inc. of Southfield, Mich., originallywas an outsourcing company serving Fortune 1000 clients. After diversifying into Europe, it decided to enter the government market, said Dennis Kelly, president at TechTeam Government Solutions.So TechTeam Global bought Digital Support Corp. and Sytel Inc. in 2005 and merged them to create TechTeam Government Solutions, of Chantilly, Va. But it took several strategic moves to get TechTeam through the feds' door.For one, when Kelly joined TechTeam in November 2005, the parent company had no board members with government experience."We thought having some really solid Air Force credentials on our board made a lot of sense," Kelly said, because the new company inherited Digital Support's contract to operate the Air National Guard's secure network."We recruited John Jumper, who was then chief of staff of the Air Force, and Jim Roche, a former secretary of the Air Force and a Northrop Grumman executive," Kelly said. They play no role in the company's day-to-day operations, "but they're accessible and available to help" by providing insight on government policy issues and where growth, shortfalls or challenges are likely to occur.To broaden its footprint in the federal market, TechTeam in June bought NewVectors LLC, a Defense Department contractor. The Ann Arbor, Mich., company had been the for-profit unit of nonprofit research organization Altarum Institute and specializes in business transformation, logistics, and modeling and simulation services.About 90 percent of NewVectors' business involves helping DOD run its business systems and introducing commercial best practices, said Deane Stanley, senior vice president of TechTeam and leader of the NewVectors division.The company added about 170 employees and $34 million in annual revenue to TechTeam GS and put the company in a better position to offer information technology services to a broader customer base, Kelly said. "It was a perfect fit for us strategically."TechTeam Government Solutions is now the largest business unit in TechTeam Global. "We're somewhere between $80 million and $85 million in revenue in the government business. We're looking to get to that $100 million [revenue] threshold," Kelly said, and would not rule out more acquisitions in the future. "Both TechTeam Government Solutions and its parent company remain interested in making strategic acquisitions."Once at that revenue plateau, Kelly said, TechTeam will be able to move up to tier two "because in the tier-three space, frankly, we're slugging it out with small businesses, and we're not a small business."A number of factors ? size, capabilities, contract role ? influence the tier classification in government contracting. A tier-two company generally has revenues of $50 million to $999 million, a healthy mix of prime contracts and subcontracts, and depth in core business areas.But tier two is not without problems, especially since the government IT market migrated to a bipolar structure, said Jerry Grossman, managing director at the investment banking firm Houlihan Lokey Howard and Zukin, in McLean, Va. "There are solid opportunities for the large and small [companies], but significant challenges in the middle."Grossman said most small businesses are fundamentally mismatched because they don't have the human resources, sales force, management expertise and capital to compete with the larger companies."As they move beyond small size into the arena of full and open competition, they face competitors with more skills, more money, more experience, more name recognition and more technology exposure," he said. With no small-business preference programs to help them, new tier-two companies are "moving up to the high wire with no net."Kelly said he wants the company to reach $100 million in revenue within three years, and a secondary goal then will be to make Washington Technology's Top 100 list of the largest federal contractors. "We're close," he said, because NewVectors "gave us some critical mass."And that mass is coalescing. "Our business development group is integrating now," said Bob Burleson, vice president of business operations and finance at TechTeam. "Everybody is learning what each other has to offer and how we can take advantage of the cross-selling opportunities."Although Burleson foresees a small reduction in the accounting department's employees in Ann Arbor, he said there will be no similar reduction in engineering or contracting because NewVectors has brought some major contracts to TechTeam GS.Partnering with Computer Sciences Corp., NewVectors recently won a six-year, $628 million Expeditionary Combat Support System management consulting contract for Wright-Patterson Air Force Base in Dayton, Ohio.NewVectors also has a contract with DOD's Business Transformation Agency, Stanley said. "It's an agency that's less than a year old that was formed to pull together enterprisewide business systems so that they could in fact conform to a business architecture that the department has been committed to for the last five years."TechTeam's biggest civilian clients include the Federal Emergency Management Agency, Drug Enforcement Administration and National Institutes of Health. "I think if we can bring some of NewVectors' expertise over to NIH, they might be interested in some of their offerings," Burleson said.Even before the NewVectors purchase, TechTeam GS was making moves to grow. The company joined the Dimensions International Inc. team in February as one of the contractors on the Army's Field and Installation Readiness Support Team contract that has a potential total value of $9 billion. TechTeam will provide IT support for Dimension International's logistics solutions.In addition, TechTeam entered into a joint venture with six other midtier government contractors to qualify for the General Services Administration's new $50 billion Alliant contract. The company took this tack because its annual revenues are too high to go after the $15 billion Alliant Small Business contract. Both awards are expected to be announced this summer."That's our go-to-market strategy," Kelly said. "Collectively the combined companies have about a half-billion in revenue."Kelly said the company is positioned for a growth year, but he acknowledged that 2007 will not be a banner year for federal contracting. "I don't think anybody around the Beltway is realizing the organic growth that they had anticipated."In another move, TechTeam GS was one of the first to embrace the Information Technology Infrastructure Library, an IT services quality standard that Kelly said is expected to become International Organization for Standardization 20000, replacing ISO 19000."We now have one-third of our people trained in ITIL, and we're continuing that certification," he said. "It dovetails very nicely with performance-based contracting," a growing government requirement.At press time, Kelly was waiting to hear the results of a government bid TechTeam submitted with another company where the ITIL standard was strongly set forth. "It was an absolute requirement that you have it," he said, "and that you have people certified at the practitioner level, which is a very high standard in the ITIL training framework."