Amid market resilience, SOSi's CEO highlights two overhangs to consider

In conversations with federal contracting industry executives, I increasingly hear workforce culture as an item of concern from the coronavirus pandemic.

That worry centers around the longer-term effects of colleagues being geographically dispersed due to social distancing guidelines even if they are virtually connected. Work and relationships simply are done differently if everyone is remote.

Add SOS International CEO Julian Setian into the mix of those who believe that not all of the changes since March are for the better, though necessary until COVID-19 starts to be rolled back.

“Right now we have about 30 percent of our staff voluntarily coming in and heavily weighted toward the senior executive team,” Setian told me last month. “We’re trying really hard to create a robust virtual community, employee engagement activities, things that reinforce culture and cohesion in the face of being totally disconnected.

“The first couple of months felt very cozy and fun, almost like were at summer camp. When you’re six months in, it starts to grind people down on an individual basis and it definitely has a negative impact on organizational performance, no question in my mind.”

It should be noted that company offices are not necessarily closed to employees, though many rules and protocols are in place that are described here.

Any larger-scaled return to the office for Reston, Virginia-based SOSi will happen as guidelines from the Centers for Disease Control and Prevention change. But Setian told me he also wants to “not be first, not be last” in rolling out whatever the post-pandemic work environment looks like.

That eventual return to work will have each employee’s individual situation in mind however. Setian said he is “very sympathetic” to those who have children attending remotely or with pre-existing conditions that mean extra caution is needed.

A second industry-wide watch item of concern Setian mentioned as worth considering is the effects of continued delays in the government making new contract awards.

Proposal activity has not slowed down during the pandemic but contracting officers at agencies are hesitant to take the final step in many instances, whether that be because of COVID-related priorities or broader political uncertainty though the presidential election outcome looks more certain now.

“The government is really gun shy about making big awards requiring complex transitions overseas when we don’t really know how long the travel restrictions are going to last,” Setian said.

While Setian conceded to understanding the delays, he also offered this: “In some cases, the government could be slightly more courageous in the interest of maintaining the continuity of the services and products that are being delivered by the contracting community.”

Companies depend on the continued cyclicality of contracts given they have a start and end date, so bids for new work have to be put in as the current book of business runs off.

Awards not happening in a timely fashion results in completely new spending calculations for each company and SOSi is no different than larger or smaller firms, Setian cautioned.

Then with less money being injected into the ecosystem through awards, Setian sees banks starting to reassess their portfolio and liquidity situation with respect to companies they work with.

“If this goes on for another year, I think it’s going to be very problematic for the industry,” he said.

That means SOSi has tempered its expectations somewhat for its 31st year in business after turning the big 3-0 late last year. But the firm’s strategy to move up the food chain of technology-related work in areas like artificial intelligence and machine learning goes on.

One move happened in June, when SOSi acquired a minority stake in the speech recognition and machine translation company Applications Technology more widely known as AppTek. This is a deal of a different variety for SOSi, which is one of the government market’s more serial acquirers with five deals closed over four years.

SOSi will act as the exclusive reseller of AppTek’s products to government agencies and both firms will jointly develop solutions. Setian indicated that SOSi went down the partial ownership path versus an outright acquisition of AppTek to let the latter continue to be itself in being a commercial company.

“I didn’t want that to stop, I wanted to be able to partake in that success, but also didn’t want to change the culture of that organization,” said Setian, who will join AppTek’s board of directors.

“Their interest is getting back into the government market and making an investment there, but not necessarily allowing it to divert their attention away from the commercial market because there’s so much opportunity and things move faster on the commercial side.”

Both SOSi’s most recent outright acquisition of NorthStar Systems in February and the AppTek deal should also be thought of differently than from the usual playbook of acquisitions to gain new customers or contract vehicles, according to Setian.

They are instead about incorporating new data analytics, AI and other language processing capabilities -- including those from the commercial world -- into current programs to shape future opportunities and customer thinking.

“It’s going to take some time to get them integrated into our government contracts and operations, but I definitely think we’re at the cutting edge with some of the work we’re doing and represents where the hockey puck is going,” Setian said.

“As time goes on, I think it will just pull us up the value chain, increase our street cred in the industry and put us in a position where we can start developing and selling products for the government rather than just providing services.”