With CSRA in tow, GD watches how JEDI 'shapes out'

General Dynamics is roughly three weeks into its acquisition of CSRA and has called out an item of interest to the combined IT services business: the Defense Department’s massive “JEDI” cloud contract.

During GD’s first quarter earnings call with investors Wednesday, CEO Phebe Novakovic said the contractor will “see how all that shapes out” with respect to the potential $10 billion, single award JEDI contract that could see a final solicitation come out in early May.

Responses to the second draft solicitation are due to DOD by April 30 before they can issue a final request for proposals. DOD is also required to give Congress two reports by around May 25 that explain its approach for JEDI including the rationale for single versus multiple awards.

With CSRA in the fold, General Dynamics’ IT services business now has the $498 million milCloud 2.0 contract with the Defense Information Systems Agency. DISA is seeking to connect DOD networks with commercial cloud infrastructures in a private deployment model through that contract.

The scope for JEDI is much larger in that DOD wants both platform- and infrastructure-as-a-service, which implies a nearly all-in-one approach even with transition and migration services outside of that contract’s scope.

But Novakovic told analysts on the earnings call that milCloud will a key part of that as General Dynamics decides on how it sees JEDI.

“(GD/CSRA) anticipates teaming with a number of our traditional teammates as we look at JEDI, but milCloud will have to be an important part of whatever happens with conversion of the overarching DOD network, so we’re comfortable in where we are,” Novakovic said.

Prior to the acquisition, CSRA boasted an extensive network of partnerships with commercial cloud vendors like Amazon Web Services and Microsoft Azure. Those connections were part of GD’s rationale for undertaking the transaction.

But as Novakovic pointed out, GD’s IT services arm already touts “strong partnerships in place from our folks who live in the IT services business today (and) some ‘nontraditional’ guys have been with us for years. … So I see this as well within our normal experience set.”

JEDI would also seemingly fall under the umbrella of larger opportunities that neither GDIT nor CSRA could pursue on their own but can be better positioned for as a combined organization with greater scale, just as defense and IT modernization looks poised to increase.

Market executives and observers are fairly certain that both AWS and Microsoft Azure are favorites to win the single award JEDI contract as a prime bidder, should DOD’s approach stay that way.

But the requirements for JEDI are slanted against pure-play government IT services companies pursuing the contract as a prime. Bidders currently have to show that less than half of their total revenue comes from federal contracts, which knocks out federal systems integrators.

It could very well be that federal IT services players decide to partner with a commercial cloud vendor as part of an alliance- or joint venture-type teaming arrangement, should the Pentagon proceed on JEDI being a single award versus a multiple provider selection.

DOD has stated in both drafts requests for proposals and via public comments by key officials they are open to any single prime, team, joint venture or alliance as long as they can meet the requirements of the contract.

During the call with investors, Chief Financial Officer Jason Aiken also explained that CSRA will add $3.6 billion in revenue to General Dynamics IT's $4.5 billion in sales projected for this year. The transaction closed on April 3 in conjunction with the first quarter's end.

As previously noted, General Dynamics will split up the information systems and technology group into a pair of separate segments starting in the second quarter: GDIT will be one segment, and the Mission Systems unit that makes communications hardware for defense and space agencies will be its own segment.

Aiken said the company expects Mission Systems revenue for this year of $4.8 billion-$4.9 billion. The midpoint of that range implies almost 8-percent annual growth and would represent a pickup in activity from a somewhat sluggish 2017 amid a change in administration and general procurement disruptions.