Alexandria Company Nabs $1B Contract

Tiny VSE Corp., of Alexandria, Va., pulled out all the stops to win a U.S. Navy contract potentially worth more than $1 billion over the next 10 years. In response to the news, the day after the contract was announced, VSE's stock soared from $16 to $26.50 on the NASDAQ stock exchange - approximately a 66 percent jump.

The company's experience and the program management plan are the two main reasons Webster believes VSE won the award. Under the terms of the contract, valued at $202 million for the first year, VSE will provide engineering, technical and logistics support to foreign governments that purchase or lease U.S. ships. The government has nine yearly options to renew. VSE, the prime contractor, and Booz-Allen &amp Hamilton, the primary subcontractor, have formed a new division, BAV, to administer the contract, according to Webster. Personnel from both companies, as well as from the other 10 subcontractors will staff the new division.

Since a low of $6 in 1992, VSE stock has slowly been creeping up, but it isn't followed closely by many people, said Calvin Koonce, a member of VSE's board of directors and president of Koonce Securities, a Bethesda, Md., brokerage company. In the last year, the low has been $11.50 and the stock's value has been on a slow ascent.

The stock is a little too small to follow, and has had a rather lackluster growth record in the past, but this contract may change that, said Bill Loomis, an analyst with Ferris, Baker and Watts.

An announcement last September that VSE had won the U.S. Army Intelligence Omnibus Contract, from which it would gain roughly $166 million, caused little market reaction, Koonce said.

However, VSE has told people that they are bidding many larger contracts - several of which are yet to be awarded - and that may have had an impact on the stock purchase.

Between 70 and 80 contractors had teamed and were competing for the procurement, said Jim O'Sullivan, a contracting officer with the Navy. Seven other bids were submitted.

The company's 1,200 employees, who own 40 percent of the stock, are one of the main beneficiaries of the Navy contract and resulting spike in stock prices, said Webster. The corporate officers and board of directors hold another 30 percent of the stock, said Jack Jarman, VSE's business manager for the contract.

Once the ships have been turned over to the foreign nation, they are under no obligation to return to VSE for maintenance.

Yet Jarman expects they will, and compared it to the feeling of security and reliability an auto owner gets when they take their new auto back to the dealership for maintenance.

The biggest benefit to VSE from this contract is the potential for overseas work, he said. Currently, much of the firm's business comes from providing engineering, management and testing services to the U.S. military.