A new breed of contractors emerges in a tougher market

When executives from a large systems integrator met recently with a federal customer seeking to solve an IT problem, the customer wasn’t interested in talking about technology. The government official wanted to know how the company’s commercial clients were dealing with a similar problem. “It wasn’t about some unique technology out there in the future,” one of the company executives said. “The client was interested in what our commercial clients are buying.”

The point is that the federal customer wanted to investigate a more nimble, commercial approach to dealing with the problem — finding a quick solution and just getting it done. “It’s about agility, and it’s about execution,” the executive said. “The companies that possess those skills are the ones that are going to succeed going forward.”

The story serves to underscore an ongoing and perhaps irretrievable shift in the government market. By all accounts, the day of the colossal — and colossally expensive — government IT project clanking along over many years and perhaps eventually grinding to a complete halt is receding into history. A new project management strategy is emerging, and companies will need to adapt to win government contracts.

“I think your average federal chief information officer, chief technology officer and procurement official now recognizes that the kind of Soviet-style, five-year-plan megaprogram for their agency doesn’t deliver the goods,” said John Hillen, president and CEO of Global Defense and Technology Systems. “In the main, agencies are going to move away from the super program that solves every problem and instead say, ‘Let’s move the ball down the field and put points on the board where we can.’ ”

Indeed, Jeffrey Zients, the Office of Management and Budget's chief performance officer and deputy director for management, outlined a plan last year for a new model that includes agile, modular approaches to managing IT projects, breaking them in manageable pieces and demanding from contractors “functionality every few quarters, not every few years.”

The old shipbuilding approach to implementing IT systems that has left in its wake the wreckage of many huge government projects is giving way to the new agility model supported by Zients and federal CIO Vivek Kundra, Hillen said.

“We’ve seen the last shot of the Industrial Age being fired at those massive projects,” said Hillen, a former assistant secretary of State for political and military affairs. “Technology allows for new efficiencies from very discrete and quick projects. When you layer on top of that the mixed record of the huge programs and the budget constraints these days, the average government official is going to say, ‘You’re telling me I can make progress with discreet technologies applied in smaller and quicker programs? I’ll take it.’ There is less of an emphasis on scale and more on discreet solutions that can provide the kind of value that scale used to.”

Those discreet solutions include more virtualized environments, cloud computing and mobile computing technologies, Hillen said.

Renato DiPentima, retired president and CEO of SRA International Inc., agreed that the big-bang project strategy is over.

“The great big programs — don’t ask me any questions, spend the money, and in three or four years, I’ll tell you what you have — are not going to happen,” said DiPentima, who has observed the evolution in the government IT market for more than 40 years from both the federal side and contractor side of the IT contract trenches.

He said the government will still award high-value IT contracts — in the range of $200 million to $300 million or more — but “the winners of those programs are going to have to propose an agile, rapid-development, incremental process with a quick initial operating capability and regularly scheduled pieces.”

For midsize government contractors such as Global Defense and Technology Systems, the shifting government market means new opportunities. The market benefits “aggressive, midsize companies that are big enough to be a credible prime contractor on serious pieces of work and yet are not so big that they might get bogged down with a lot of the baggage that comes along sometimes with a really big company,” Hillen said. The strike zone for midsize contractors is the ability to focus skills quickly in specialized areas of technology, he added.

The advantages of pure scale matter less in a market that demands economies of skill and rapid development, Hillen said. “I don’t think the [government] customer is going to be wowed by the fact that [a company] has 20,000 people doing everything from satellite launches to data center management,” he said. “It’s mostly going to be skill and capability based.”

Meanwhile, are large, traditional systems integrators now at a disadvantage in the shifting sands of the government market? Size doesn’t matter if companies — large, midsize or small — embrace the agility model and sell customers on their ability to quickly meet their mission goals, sources say.

“Companies that understand their clients and their missions and are able to apply innovation to solve these mission problems are the ones that are going to succeed,” said Dave Zolet, president of business development at Computer Sciences Corp.’s North American public-sector unit. “Part of it is having insight into the future — the road map of innovative technology through the commercial world. And part of it is having solutions on the shelf ready to pull out and apply.”

Zolet pointed to CSC’s just-launched BizCloud, a private cloud service that can be ready for workloads in 10 weeks, as an example of the kind of rapid-deployment technology that OMB is pressing for and that government customers will want. “Execution, execution, execution — that is the key for companies that are going to succeed,” he said.

Leif Ulstrup, president of CSC’s federal consulting practice, said the company, recognizing the emergence of demand for software as a service on the commercial side, used the agility model several years ago when it set up a small team to focus on SaaS technology and hone the skills to work with clients in a fast-changing market.

“You have to have a bit of a rock-and-roll culture to bring that expertise to the clients because the clients who are adopting these new technologies are expecting a quick turnaround,” Ulstrup said.

Zolet said he was bullish on the ability of large systems integrators to continue to evolve in the government market. “I’m not a doom and gloomer for the big systems integrators,” he said. “They continue to adapt. It’s really about understanding how to apply technology to solving the mission problem. It’s just that technology is going to be deployed much more rapidly" and continually upgraded.

DiPentima said many leading systems integrators are already experienced in the incremental-deployment model. “They know how to do that stuff,” he said. “You’re talking about first-class companies that have a many-decades record in taking on big programs.”

In addition, the big systems integrators will still be the prime contractors on the big awards, DiPentima said. “I don’t know that the day has come that the government is going to give a $300 million project to a $25 million company,” he said. “Some of these programs will still be of that size, and it’s not going to happen. There are many fine $25 million to $50 million companies, but they’re going to participate on [government contracts] as partners with larger companies.”

Ray Johnson, senior vice president and CTO at Lockheed Martin Corp., the government’s largest IT contractor, said “agility is at the core of how [the company] is doing business in this new environment of constrained budgets and increasing demands.”

Johnson said Lockheed Martin relies on its large base of technically skilled employees to give the company a competitive edge in the changing government market. “In a high technology industry like ours, employees are the innovation engine,” he said. “Our 66,000 engineers and scientists embody our strategic competencies.”

CSC also is stressing the talents of its employees to develop an economies of skill response to new realities in the government market. “We’re developing more and more talent on everything from infrastructure as a service to developing applications on these platforms — and also integrating other skills,” Ulstrup said. “You can’t just be a cloud person. You had better be a cloud person and understand cybersecurity. The intersections of these various disciplines are going to be very important going forward.”

Zolet added, “We’re investing in our people to make sure they have the capabilities and skills they need to interface with their clients, as well as our technology partners and providers, in the new world order.”