Top 100: The challenge to stay on top

Duane Andrews, chief executive officer atQinetiQ North America, has seen years like2008 before. Agencies have faced tight budgetsin the past, and every shift from one presidentialadministration to the next ? even withinthe same party ? means contractors mustweather a period of uncertainty.But having been through this before doesn'tmake it any easier for QinetiQ and other companieson this year's Top 100. "We are certainlyin a year that is going to be very disruptive tothe normal acquisition system," said Andrews,whose company ranks No. 24 on the Top 100with $855.8 million in prime contracting revenuein fiscal 2007.To continue to grow in today's market, Top100 companies are forging closer customerties, streamlining internal operations andchasing emerging opportunities. All of this ishappening against a backdrop of tight budgets,shifting buying patterns and increased oversightof government operations."Tight budgets are always a two-edgedsword," said Linda Mills, corporate vice presidentand president of the information technologysector at Northrop Grumman Corp., No. 3on the Top 100 with $7.9 billion in prime contracts."The pressure to do more with lessdrives demand for IT because IT drives productivity.On the other hand, it can slow newsystem starts."Although most companies are bullish on theirprospects in the market, budget documents forfiscal 2009 show spending holding steady.An analysis of government budget documentsby market research firm FedSourcesshows that the Defense Department will haveonly 21 new initiatives worth $2 million in2009. Civilian agencies will have 85 new initiativesworth $156 million. FedSources analyzedExhibit 53s that agencies file with the Office ofManagement and Budget and DOD's IT-1Report, which it uses to disclose its IT spendingplans."New programs are hard to come by," saidPhil Nolan, chairman, president and CEO atStanley Inc., No. 48 with $363.6 million inprime contracts. "If you are going to grow, it ismore about being able to position yourself totake market share and beat the incumbents."Nolan called it one of the biggest challengesin the current environment."Some [agencies] are not going to move forwardin a transition year," said Ellen Glover,executive vice president of management andtechnology solutions at ICF International Inc.,No. 93 with $145.4 million in prime contracts.But if new initiatives are sparse, there areplenty of continuing priorities that agenciesneed to address.High on Lockheed Martin Corp.'s list is helpingcustomers with challenges involving cybersecurity,the war on terrorism, interoperabilityand a dwindling talent pool, said Linda Gooden,executive vice president of the InformationSystems and Global Services sector. LockheedMartin is ranked No. 1 with $13.4 billion inprime contracting revenue.Homeland security, intelligence, commandand control systems, and complex IT supportare other important areas, Andrews said."I'm trying to concentrate on the more complexproblem sets, where you really have tobring new technology to solve a particular customerproblem," he added.As agencies try to live within their budgetsand make their operations more efficient,opportunities for outsourcing projects areemerging."Agencies are looking for someone who canbring new innovations in terms of how theyprocess the work and how they can effectivelymanage the workforce to get the work done,"Nolan said. "That is why they hire us."Lee Carrick, president of Perot Systems Inc.'sgovernment services division, agreed. His company,which is ranked No. 41 with $457.8 millionin prime contracts, won the $400 millionEducation Department Utility for Communications,Application and Technology contractto provide IT infrastructure services. Underthe 10-year contract, Perot owns and operatesthe infrastructure."This is a very large agency that wanted to do things a little differently," Carrick said. "We are seeingthat in a couple other areas."Health care and green IT also might fuel growth,Glover said.Agencies have begun talking about their carbonfootprint. "We've started to see some interest at DOD,and [the General Services Administration] has agreen initiative," she said. "I think that perhaps afterthe election, we'll see even more."One government challenge on the minds of many Top100 executives is the plight of government procurementshops. Mismanaged and poorly performingprograms put pressure on agencies and contractorsalike."Everyone understands that this is a problem,"Nolan said. "These guys do a great job with the workforcethey have got, but without a doubt, they can usemore resources."The retirement of government workers who havedomain and technical expertise is a growing concern,Carrick said. "As people retire and leave government,we're losing skills."Glover said she has seen instances in which a governmentcontracting officer chose a procurement strategythat hadn't been approved by the agency's programmanager."That's an indication that the acquisition workforceis overworked and doesn't have the resources that theyneed," she said. "They are plunging forward and doingthings the best way they know how."There also is growing concern ? voiced in a series ofGovernment Accountability Office reports ? aboutcontractors performing acquisition management supportwork instead of government employees handling it."They can't solve this problem overnight becausethere is no way to build this expertise," Andrews said."But what they can do is better manage their supportcontractors." That means hiring technical support contractorsand not using the same vendors to build thesystem, he added.Contractors that can provide technical supportwhile avoiding conflicts of interest could build a strong business around thatservice, Andrews said.It is not just agencies that arelooking for greater efficiency.Several companies on the Top100 are implementing structuralchanges to their operations.L-3 Communications Corp. ? No.8 with $3.9 billion in prime contractingrevenue ? recently consolidated eight divisionsinto five to streamline its services operations,said Les Rose, president of L-3 EnterpriseIT Solutions, one of the new divisions. The companywas seeking to align its services with itscustomers."The L-3 Services Group reorganization isdefinitely an indication of the future, where wepotentially will have to reduce the number ofoperating organizations," Rose said.Within three months of hiring Jim Duffey torun its U.S. government business, Dell Inc. ?No. 15 with $1.7 billion in prime contracts ?restructured its government group. Differentunits now focus on homeland security and intelligence,civilian agencies, DOD, systems integration,state and local government, education, andhealth care."[Early] indications are they will have accomplishedmore in covering the marketplace thanwas covered before," Duffey said.Lockheed Martin consolidated two sectorsmore than a year ago and is seeing that realignmentpay off with wins such as the nextgenerationfingerprint system for the FBI, saidGooden, who runs the new Information Systemsand Global Services sector.One motivation behind the realignment wasto keep the business focused on its customersand build in more agility, she said.Agility is paramount for many executives as thepresidential election approaches."There is no doubt that [the market] isgoing to be very dynamic over the next twoyears with a new administration and seeingwhere their priorities will take us," Nolan said.Several executives said that no matter whichparty wins the White House or controls Congress,there will be no quick exit from Iraq andAfghanistan. "It is just not practical," one said.With many resources going to those conflicts,the new administration and Congress will befaced with tough choices, not the least of whichis how to manage the budget deficit as thedemand for domestic spending increases."Services are the things that the governmentneeds to get their job done day in and day out,"Nolan said. "The big-ticket items [such asweapons systems] are at higher risk and mightprovide the means by which discretionary fundsare freed up to go to other priorities."Company executives are following the issues onthe campaign trail and talking as much as possiblewith their customers to gauge their needs."You have to stay attuned to all you can anddevelop contingency plans," Andrews said.Only the election and time will answer someof the questions on executives' minds, such aswhat the new administration will focus on, whatkind of domestic programs will become priorities,and what the mix of spending will bebetween defense and civilian agencies."Things will shape up pretty quickly" after theelection, Carrick said. "We just need to be readyto move, then we'll really find out how agile weare."