Former CSRA CEO: Amazon's CIA win changed the market and JEDI could too

Amid what seems to be endless federal market mergers and acquisitions, former CSRA CEO Larry Prior pointed to one landmark contract win five years ago by a then-perceived outsider in the government landscape as a needle-mover that forced rethinks of overall strategies including for M&A.

During the Washington Technology Power Breakfast event Friday, Prior singled out Amazon’s upset win in 2013 of the $600 million private cloud computing contract with the CIA as an event that “absolutely, fundamentally changed the marketplace.”

Set aside the fact that Amazon eventually won out after a court battle involving a disappointed bidder in IBM and that the competition for the CIA “C2S” contract also included Microsoft and AT&T. As Prior pointed out, the CIA’s acceptance of commercial cloud made it more acceptable for other agencies to move in the same direction.

That award led government IT contractors to rethink their strategy of partnering and even competing with commercial companies like Amazon and its counterparts, Prior said.

“There’s a whole variety of things going on as people react to it,” he said. “The tech stack from what you could do with your data and your processing and compute in the cloud has changed everything.

“Government has been slower to adopt. (CSRA) tended to always do hybrid IT in a multi-cloud environment and see customers making different choices, but that is a powerful force. I would layer instantly on top of it everything around machine learning and (artificial intelligence).”

CSRA’s extensive network of commercial partnerships -- with Amazon and many of the CIA contract bidders -- and skill sets in cloud and other advancing technologies was what attracted General Dynamics to make its blockbuster deal in April for CSRA.

Prior of course recently led CSRA through that sale to GD for $6.9 billion in cash in a deal with an enterprise $9.7 billion value including debt. That deal put General Dynamics roughly level with Leidos on the government IT scale food chain at around $10 billion each.

Where CSRA and other government IT players have tried to gain competitive advantage in particular is the services piece on top of the infrastructure component. That includes everything from managing the data in that infrastructure to the applications on top of it, even as commercial IT firms increasingly gain a foothold in the federal market.

“I’ve not stopped thinking about the impact of Amazon in the marketplace both as we’ve worked harder to team with them but also as we’ve just learned the competitive landscape around them,” Prior said.

So could the Defense Department’s $10 billion “JEDI” cloud infrastructure contract -- currently under a pre-award protest by Oracle -- have a similar impact on the market and dealmaking activity as the CIA cloud award did? Particularly as Amazon is seen by analysts and observers as the favorite to win this big-ticket procurement?

“For all of us who have deployed hybrid IT and multi-cloud for customers, we’ve done different vehicles to do that (but) this one is just so big,” Prior said of JEDI. “It’s put itself way up on the skyline and it feels like a battle of a titans.

“When you’ve got an Oracle and an Amazon squaring off, a lot of us just want to get out of the bursting radius and be prepared to support customers whichever way they go.”

Federal systems integrators have to be prepared to “bring the optimum solution to your government customer” from wherever it comes, Prior added. That aligned with CSRA’s strategy to “love them all” with respect to commercial partnerships, he said.

And this approach of vast collaborations might fit into the notion of scale that has underpinned so many government market deals like GD-CSRA and the merger two years ago this week of Leidos and Lockheed Martin’s former IS&GS services business.

“If you’re a smaller company you may have to pick one,” Prior said. “If you’re a much larger company, you can segment your business and team with four or five of these (commercial) providers.

“But if you’ve got a contract like JEDI… that’s going to change the landscape a lot and I can’t predict how yet.”

Prior did offer attendees a prediction on what is to come with respect to government market dealmaking. Expect “another wave of consolidation” to come even amid the current “summer lull,” as he described it.

“I think under the surface there’s a lot going on,” Prior said. But the Aug. 2 deal by Alion Science and Technology to buy MacAulay-Brown and cross the $1 billion-scale threshold is in indication that “game’s on,” he said.

Leidos could also “go bigger in terms of scale, Prior said. "We're just beginning… to consolidate this marketplace."

CACI International more recently moved the needle through its addition of the former CSRA Navy systems engineering business, which General Dynamics was required to divest. CACI is taking a more proactive approach to finding capability-based acquisition possibilities, as its CEO Ken Asbury described this week to WT.

Behind these deals of course is the overall budget increases -- particularly defense -- that include new technology investments. That coupled with overall economic strength has spurred aggressive merger activity to scale up and grab a share of that growing spending pie.

Prior started a new role in July as an operating executive for The Carlyle Group’s aerospace, defense and government services team to advise them on investments and operations.

He also joined the board of directors last week at national security analytics company Novetta, which is in the Carlyle portfolio.