Andersen Turns Heads in Fed Market

Andersen Turns Heads in Fed Market

By Nick Wakeman
Staff Writer

Andersen Consulting is using its commercial consulting expertise to elbow its way into the crowded $26 billion federal marketplace.

Long successful in the commercial high-tech arena, Andersen is now applying skills that have vaulted it to the pinnacle of the international services market, to the federal sector.

"The reason we are excited about coming into this market, and the reason we've grown, is that the federal government has recognized the transferability of commercial best practices," said Stephen Rohleder, the new managing partner of Andersen's federal business.

So far the Chicago-based firm's method has met with success: federal revenues rose to $97 million in 1997, up from $33 million in 1995.

Rohleder sees even more green for 1998. In an interview soon after his Dec. 4 appointment to the top federal post, he predicted the federal slice of Andersen could reach between $200 million and $300 million by 2000. The company's overall revenues were $5.3 billion in 1996.

Andersen's rise in the federal market has not gone unnoticed. "Their name comes up a lot," said Tom Meagher, an analyst with Ferris, Baker Watts, Baltimore. Both large and small integrators are increasingly facing Andersen as a competitor in the government market, he said.

On Rohleder's 1998 shopping list are a handful of competitive opportunities Andersen will pursue. They include the lucrative Internal Revenue Service Prime Integration contract to modernize the tax system, which is estimated to be worth $2 billion to $8 billion.

For that effort, Andersen is on a team headed by Lockheed Martin Corp., Bethesda, Md., and Electronic Data Systems Corp., Plano, Texas. The request for proposals is expected to be released in January.

Andersen Consulting's Federal Business Breakdown
Defense Department - 40%
Civilian Agencies - 45%
Business Process Management - 15%
Estimated 1997 revenues: $97 million

As a prime contractor, Andersen will bid for parts of the Postal Portfolio project calling for contractors to help the U.S. Postal Service develop new systems in seven areas including mail handling, marketing and human resources. An RFP for the series of contracts was issued in November and awards are expected by late February. Market research firm Input of Vienna, Va., values the postal project at $3 billion.

Andersen also will bid as a prime on the Air Force's Financial Information Resource System contract to modernize its budgeting and financial management systems. An RFP is planned for release in February for the project. Market research firm Federal Sources Inc. of McLean, Va., estimates it is worth about $35 million.

Andersen also is on the Lockheed Martin team chasing the Army Wholesale Logistics contract to modernize support services for the Army Materiel Command. That project could be worth $1 billion, according to Federal Sources. An RFP is expected in April.

"The common thread if you look across all of those projects is that there are large transformational change opportunities," Rohleder said. Andersen will pursue projects where agencies plan to restructure, change business practices and use technology. "Those are the type of complex business problems we want to help solve," he said.

The Postal and IRS projects are especially attractive because they offer "a chance to touch the U.S. citizen," he said.

Providing what Rohleder calls "citizen-centered services" is a trend that started several years ago in the commercial sector, he said.

"Customer needs and requirements are what will drive the organization," he said. "That is the focus that the federal government should have."

Andersen is also trying to interest the federal market in value-based contracting, where companies assume some of the risk in a project but also can reap greater returns, he said.

"We saw this start in the commercial sector three or four years ago in the logistics area," Rohleder said. Typical projects dealt with warehousing and inventory control where the contractor would build a system designed to create cost savings. The contractor's pay would be tied to those savings, he said.

"We replicated that and took it to the state arena," Rohleder said. Andersen's shining example is the California Franchise Tax Board project the company won in 1994 to redesign the state's income tax system. The new $60 million system is expected to collect an additional $144 million in uncollected taxes over six years as well as another $3.8 million in operational savings.

"I think the federal marketplace sometimes looks at the states as an incubator of new technology and processes," Rohleder said. "The trend right now is for that type of arrangement to roll into the federal marketplace."

While Rohleder has high hopes for value-based contracting, others are not so sure it will be widely accepted by federal agencies.

"Some agencies are saying, 'Yeah, that's the way to go,' but to do it right takes a lot of time and effort," said Robert Dornan, senior vice president with Federal Sources. With services being sold on the General Services Administration schedule and indefinite-delivery, indefinite-quantity contracts with multiple winners proliferating, "a lot of agencies seem more interested in instant gratification," he said.

"You've got a tug of war going between doing it right [value-based contracting] and instant gratification," he said.
"Right now it seems like [the latter] is winning."

The government often sees value-based contracting as a risky proposition, because it means turning over control of business processes to the contractor, said Linda Cohen, an analyst with the market research firm, Gartner Group, Stamford, Conn.

For an agency to try something new and possibly risky, the top leadership has to buy into it, such as what is apparently happening at the IRS, she said. "With Charles Rossotti [the new commissioner and former chairman of American Management Systems Inc., Fairfax, Va.], the IRS contract may turn into something innovative," Cohen said.

"The federal government is hesitant [about value-based contracting] because no one has really done it yet," Rohleder said. "One way to change that mindset or cultural thinking is to reward employees who actually do take risks and deliver value."

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