Leidos has Navy NGEN contract 'in our pipeline'

The Navy's $3.5 billion NGEN contract recompete is coming soon. Leidos' CEO tells investors "it is in our pipeline."

Leidos' merger with the former Lockheed Martin Information Systems and Global Services segment last year brought work as a teammate to prime contractor DXC Technologies on the large Navy and Marine Corps IT services contract known as NGEN.

At its scale as the largest government services contractor, analysts have speculated whether Leidos would seek to throw its weight around and try to score takeaway wins from their competitors. The potential five-year $3.5 billion Next Generation Enterprise Network contract due for award in 2018 and currently held by DXC Technologies could offer Leidos that opportunity. 

Leidos CEO Roger Krone hinted at his company's interest in NGEN to investors Wednesday and confirmed the contract is "in our pipeline" with no further details on how it could pursue the award.

"We'll make some decision whether we want to go up against DXC, whether we want to team and how we want to go forward," Krone said at the Citi 2017 Industrials Conference in Boston.

The next NGEN version is up for recompete is one that DXC's predecessor Hewlett Packard Enterprise won the first in 2013. DXC inherited NGEN through the merger of Computer Sciences Corp. and the HPE Enterprise Services business that held the contract.

Krone's comments echo that of Leidos business development leader Gerry Fasano to Washington Technology as part of WT's annual Top 100 rankings of the largest federal prime IT contractors. While declining to name the opportunity at the time, Fasano said the larger Leidos can bring qualifications from both sides to bid on a large Navy IT program.

On the synergy front, Leidos is seeking $1.2 billion in cost synergies from the merger by 2019 through real estate and back-office consolidation along with $425 million in revenue synergies for opportunities not available before the combination. Fasano touted Leidos' new cost structure as a pure play services operation versus IS&GS' position in a larger platform-focused business at Lockheed.

Chief Financial Officer Jim Reagan himself previewed Leidos' takeaway strategy with investors in a February earnings call with analysts, saying Leidos would not simply look to maintain its scale or win new business.

"One of the things that we're looking at increasingly are opportunities to take work away from our competitors that wouldn't be possible without the improvement that we've got to our cost structure and our bid structure," Reagan said.