State and Local Opportunities Open New Avenues To Federal Integrators
Ignoring the $38.1 billion state and local infotech markets is no longer a viable strategy for infotech companies with federal experience
It used to be that companies dedicated to mastering the $26 billion federal information technology market didn't worry too much about their state and local business.
To companies prospering in the federal infotech market, the idea of pursuing contracts in a fragmented state and local marketplace with multiple sets of procurement rules was a concept few business development managers were eager to tackle.
Nevertheless, the devolution of federal programs and funding is fueling considerable growth in state and local spending on information technology products and services, and the notion of ignoring the $38.1 billion state and local infotech market is no longer a viable strategy for infotech companies with federal experience.
With spending in the nation's overall state and local infotech markets expected to reach $46 billion in 2000, compared to $30 billion predicted for the federal infotech market, Washington area infotech companies, in particular, are joining a mad scramble to secure a position in this fast-growing segment of the information technology industry. The move into state and local markets is considered necessary to the survival of companies that have largely built their business through the federal market.
Infotech industry analysts say Washington area companies and others with significant experience in the federal infotech market bring the skills and the savvy to state and local markets that will enable them to become dominant players within a few years. "The Washington-based information technology companies have a significant amount of value to offer to state and local governments. One traditional field of expertise is their ability to support large-scale information systems integration," said Tom Davies, vice president of Federal Sources, a market research company in McLean, Va.
"The other strength of Washington-based companies is their support of large-volume procurements, such as the indefinite-delivery, indefinite-quantity contracts at the federal level," Davies added.
Davies said that although companies with federal infotech experience bring considerable value to the state and local marketplace, the geographical dispersion and diversity of those markets continue to pose a challenge to the federal infotech systems integrators. That means companies that are serious about state and local markets must develop highly focused business plans and invest substantial resources to become competitive, according to Davies. He said growth in the state and local infotech markets ballooned from $31.5 billion in 1994 to $38.1 billion in 1996. Infotech spending in the states and localities will reach $42 billion in 1997, Davies said.
Companies specializing in business re-engineering for government agencies will do well with state governments, Davies said. "States are looking for companies to assist them with re-engineering their business processes and help them realize more efficiency," he said. Business process re-engineering is widely viewed by states as a means to increase government productivity without having to spend funds on additional employees and resources.
Davies added that companies with federal infotech experience are also well-positioned to assist municipal and county governments with 24-hour government service projects. "Local governments are the pioneers in electronically delivering services to the citizens," Davies said. He added that the movement to automate government services for citizens so that services can be accessed by home computer and electronic kiosks is roughly 10 years old and will continue to grow in cities and counties.
"Because of the grant money going to the states, federal infotech companies cannot afford to ignore the state and local markets," said Lynn Bateman, managing editor of the Alexandria, Va.- based publication, Government Contract Advisor.
Citing dilemmas in the state government marketplace, Bateman said procurement regulations vary from state to state, making it difficult for companies accustomed to competing solely in the federal infotech markets. "When you go out to the states, their infotech markets often operate under idiosyncratic rules," Bateman said.
Bateman noted that state and local regulations often provide local companies preferential treatment. She said Washington-based infotech companies may need to develop teaming arrangements with local suppliers to secure state and local contracts. "Companies with federal experience often have a lot of experience with keeping their partner's feet to the fire," she said.
Marshall Mandell, corporate vice president of business development for Reston, Va.-based DynCorp, said his company has recently formed a subsidiary, DynCorp Management Resources LLC, to pursue state and local business opportunities. The subsidiary, 85 percent of which is owned by DynCorp and 15 percent by a Washington company with experience in state governments, is now concentrating on state governments in California, Texas, Mississippi and Florida. "Block grants give states more flexibility with their spending," he said.
Mandell says DynCorp currently handles $1.4 million in state-based contract work, business secured prior to the formation of the company's new subsidiary. Over the past two years, DynCorp has opened offices in each of the four states where its subsidiary will do business. Mandell predicts that state and local business for DynCorp Management Resources will reach $100 million over the next five years.
"Expansion into state and local business is a part of our overall diversification strategy. We can't solely rely on federal business," Mandell said.
Mandell said that DynCorp's track record of operating facilities for the federal government will prove attractive to states that are actively privatizing public institutions and services. He cited DynCorp's experience with running facilities for the U.S. Department of Energy and managing seized assets for the U.S. Department of Justice as examples of federal work that may translate well to state privatization efforts. Texas and Mississippi are states with aggressive privatization programs, according to Mandell.
Gary Brown, director of sales at BTG Inc., Vienna, Va., said working with an individual state government is "a different animal than the federal market." Brown said state regulations and guidelines add a level of complexity that infotech companies with federal experience had previously avoided.
"It's like dealing with 50 different animals or markets of other countries," he observed. "Some of them are using federal [General Services Administration Schedules], others are not. Some of them mandate that you have a state office, others [do] not."
Brown said state and local business accounts for 5 to 10 percent of BTG's current revenues. However, he predicted it would grow to 20 to 25 percent of BTG's total business over the next 18 months. BTG has heavily pursued state and local business opportunities for about two years, and company officials are optimistic their efforts will pay off, according to Brown. "We've been putting a lot of resources on the state and local side," he said, referring to BTG satellite offices in Southern California, Colorado, Illinois and Texas. Brown expects BTG to open more satellite offices in Arizona, the Northeast and the Pacific Northwest.
Brown said BTG has begun to advertise its capabilities in regional trade publications as part of its marketing campaign for state and local business. He added that direct mail advertising and participating in infotech regional trade shows are also part of BTG's state and local marketing efforts. The promotions enable BTG to secure immediate turnaround and task-order assignments from state governments, according to Brown.
Brown believes BTG can sell itself to state and local governments based on the company's comprehensive offerings. He said by offering services such as training, equipment installation, environmental remediation and other technical solutions, BTG leverages its full range of skills. "The end user can deal with one company, and we can take care of whatever they need," Brown said.
Some area companies are basing their state and local strategies on their track record in delivering specific technology solutions rather than with wide-ranging products and services. Charlotte Adams Bonnette, business development director at Sentel Corp., Alexandria, Va., said her company is using its experience in electromagnetic engineering and spectrum management to pursue contracts with state and local law enforcement agencies. Sentel, which has extensive experience with electromagnetic engineering and spectrum management because of its work with the Defense Department, is positioned to assist local police and fire departments in developing and managing sophisticated personal communications systems. "Internally, you have to have a clear focus on what technology you can push in the local markets. You have to know where you're going with that technology," Bonnette said.
Gene Kakalec, vice president of business development at Grumman Data Systems, Herndon, Va., said gaining access to state and local markets has required Grumman to promote specific product and service lines. He said Grumman is pursuing the document imaging business because it is widely demanded by states and localities. "Though infotech budgets are growing in the states, state officials are trying to save money with new technology," Kakalec said.
While several Washington area infotech companies are new to state and local infotech markets, companies that have long toiled in those markets are counting on their experience to keep them competitive with newer entrants. American Management Systems, Fairfax, Va., has provided infotech services and consulting to state and local clients for 20 years, according to Mark Andrews, AMS vice president for state and local government. "The way to develop high-quality solutions for clients is to achieve real industry expertise," he said. Andrews added that AMS has worked with more than 300 state and local clients, which include state agencies in 46 states, over the past two decades.
Andrews predicted that AMS' state and local practice, which is growing faster than its federal business, will continue to see growth rates of 20 percent annually over the next few years. State and local business has varied from 15 percent to 20 percent of total AMS business during the past 20 years, according to Andrews. He pegged the current state and local portion of AMS business at 20 percent. AMS has 6,500 employees and had $700 million in revenue in 1995.
AMS has developed its strongest core infotech solutions in financial accounting systems, tax systems and human services, according to Andrews. Those strengths, he said, are complemented by software solutions adaptable from jurisdiction to jurisdiction. "We can develop important parts of the puzzle for clients and prove that they have already worked for others," Andrews said.
Solutions originating from AMS' commercial or federal practices have great value for its state and local practice, Andrews said. Such solutions provide tested, innovative products and services, he said. "One thing AMS brings to the state and local markets is the experience of working across a range of industries. We've adapted solutions from our commercial side and have migrated them into the state and local sectors," Andrews said. AMS conducts roughly 60 percent of its business with commercial clients and 40 percent with government clients, according to Andrews.