Troop support is KBR's bread and butter
KBR has built a multibillion-dollar business by supporting troops in Iraq and Afghanistan, but more competition is expected as military priorities shift.
Logging more than 1 billion labor hours and supporting more than 100,000 troops are impressive feats at any time. Add growing revenues by the double digits amid an economic downturn, and it’s a wonder KBR Inc. isn’t laughing all the way to the bank.
Perhaps that’s because despite shining moments in 2008, challenges lie ahead for 2009.
With the help of the $23 billion Logistics Civil Augmentation Program (Logcap) III contract, under which KBR’s Government and Infrastructure business unit has been supporting troops operating in combat zones since 2001, G&I earned $7 billion in revenue in 2008, a 15 percent increase compared to the previous year. The company won $197 million in task orders in 2008 through the Central Command Multiple Award Task Order contract.
Overall, the company made $11.6 billion last year, helping it earn the No. 6 spot on the Top 100 list, with $5,467,721,429 in prime contracting revenue.
But financial success is only part of the picture, said William Bodie, interim president of G&I. He credits G&I’s managers with helping KBR achieve higher retention rates in 2008 than in 2007 through training and initiatives to boost employee morale.
And that help is crucial to the unit working under Logcap. Formerly a sole-source contract, Logcap IV is a $150 billion, multiple-award contract awarded in 2007 under which KBR competes for task orders with DynCorp International LLC and Fluor Intercontinental Inc.
“It’s going to be a more competitive year where they actually have to now competitively bid on contracts, at least against Fluor and DynCorp,” said Will Gabrielski, an analyst at Broadpoint AmTech. “As long as they continue to execute well under their contracts, they’re going to continue to win awards in the Middle East, and they’re pretty well entrenched.”
Bodie agrees. “When you’re talking about the delivery of fuel and food and shelter to troops that are deployed in the field, you can’t have a mission failure,” he said. “KBR has never experienced a single mission failure in that over 1 billion man-hours of work we’ve done in Iraq and Afghanistan and Kuwait in service to the U.S. military in the last five years.”
However, President Barack Obama’s focus on moving troops out of Iraq and into Afghanistan will create challenges, Gabrielski said. “The main piece of the government business that really drives the top-line number [at KBR] is the Logcap contract,” he said. “The troop count generally in Iraq is a good determinant factor for how they’re going to perform in a given year.”
G&I is prepared, too, said Bodie, who took over the unit from Bruce Stanski at the end of March. “We’re also trying to help with the transition that the government is making from a very intensive contingency combat environment to something that’s more along the lines of a sustainment environment,” he said.
To that end, KBR is focusing on programs for training, rebuilding the Iraqi infrastructure, shutting down bases and bringing troops home.
The U.S. economy also is an issue for 2009. “We have an administration that’s very focused on in-sourcing key parts of the defense budget, and they’ve been pretty vocal with respect to targeting contracts and large procurement programs and services programs,” Gabrielski said. “KBR has been the single biggest beneficiary of all the outsourced [Defense Department] work since 2001, so I think that would be a pretty significant change under this administration versus the past administration.”
Bodie said the company realizes that the demand for services conflicts with the amount of national resources available to invest in them.
“Our customer is looking for more value for their money,” he said. “There’s a greater emphasis on multiple-award contracts. You’ve got to be able to, as a contractor, respond very rapidly to many different types of requests for proposals.”
“If that’s the way the government is moving forward, we’re going to respond,” Bodie added. “We’re going to organize ourselves so that we can maximize our service offerings to the military and maximize our chances of success.”
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