Small Firm Offers Big Help to Reach Y2K Finish Line

Year 2000

Bust or Bonanza
Companies Cash In as Government Races the Clock

By Richard McCaffery

Opportunities for companies to help the government make needed software fixes should snowball during the next 16 months as agencies race to make their systems compliant with the millennium date change, analysts and industry officials say.

"The government has reached a point where they don't have enough people, and they need to bring them in to make sure the work is being done," says Sheila Andahazy, year 2000 deputy director for the defense group at Computer Sciences Corp., El Segundo, Calif.

So far, there has been less year 2000-related work than industry anticipated, says Harris Miller, president of the Information Technology Association of America, Arlington, Va., an industry trade group with 11,000 member companies.

"I don't know whether it means ultimately we overestimated the amount of work to be outsourced, or the government is just further behind than we thought. I suspect it's the latter," Miller says.

Either way, it's a welcome change for many companies.

Consider Lockheed Martin Information Support Services Co., which works exclusively with the federal government. Three years ago, the Bethesda, Md., company created a year 2000 unit, trained a dozen employees to use year 2000 tools and formed partnerships with product vendors such as software companies. Despite an intense marketing campaign, little year 2000 federal work emerged, and the company stopped aggressively pursuing such work last summer.

"We really backed off," says Linda Renfro, company president. "Where many of us thought there would be a surge of new work, it has really been a combination of [agencies using] in-house resources, existing services and deferring other projects."

Renfro says year 2000 assessment and remediation work generated about 4 percent of the company's $250 million in revenue last year. Of its 2,000 employees, 152 are working on year 2000 projects. But that number has soared from just 20 last fall.

Recently there's been a sharp increase in indefinite delivery, indefinite quantity tasking orders, Renfro says. Since last fall, Lockheed Martin Information Support Services has added four orders for year 2000 work to its five-year, $250 million national telecommunications contract at the Environmental Protection Agency's data center in Raleigh, N.C.

And the company has added up to 10 tasking orders for year 2000 work - half of them in the last six months - to its 10-year, $400 million contract at the Department of Energy's Hanford, Wash., plant.

Industry stands to reap greater year 2000 rewards in the coming year thanks to several factors. They include the fast approaching deadline for making the requisite software repairs and increased government attention to the problem. For the past several years, leading U.S. lawmakers' calls for immediate action fell on deaf ears.

Year 2000 Drumbeat

A steady stream of congressional hearings on the problem and lawmakers demands for the administration to address the issue more forcefully led President Bill Clinton in February to name John Koskinen, a former Office of Management and Budget official, to serve as the government's year 2000 czar.

Since then, government scrutiny of agencies' progress in making their year 2000 software fixes has intensified and yielded more business opportunities for the private sector.

The widespread year 2000 software flaw could imperil thousands of computer systems around the world, causing systems to process data incorrectly or crash altogether. It could lead to problems ranging from missed Social Security payments to rejected credit cards.

Perhaps no organization on Earth is more vulnerable to the year 2000 bug than the U.S. government, given its reliance on computers. Its 24 major agencies have 7,336 mission-critical computer systems and millions of lines of code to examine. In its May report, the Office of Management and Budget estimated it will cost $5 billion to fix the problem - a figure far below most analysts' estimates.

In a formal speech July 14, Clinton called the software bug "one of the most complex management challenges in history. ... We need literally an army of programmers."

As chairman of the President's Council on the Year 2000 Conversion, Koskinen has worked to coordinate repair efforts among agencies and raise awareness of the issue globally through outreach work with industry groups and other nations.

On July 28, the council kicked off its campaign to heighten awareness of the problem among industry sectors. And Clinton recently sent Congress draft legislation requesting immunity from lawsuits for organizations sharing year 2000 information.

But a handful of agencies are behind schedule, according to quarterly reports published by the Office of Management and Budget, and others are causing OMB officials concern. OMB accelerated its repair schedule in January and expects all agencies to have implemented year 2000 fixes by March 31, 1999.

Rep. Steve Horn, R-Calif., who has been issuing a quarterly report card in which he grades agencies' progress, gave the government an F in June. Not only are many of the government's major agencies behind, their pace seems to be slowing, says Horn. The lawmaker, one of the most vocal in Congress on the year 2000 issue, wants the agencies to submit weekly updates to OMB.

Six agencies have identified systems that are behind schedule or will not meet the March 31, 1999, deadline. They are the Agency for International Development and the departments of Defense, Education, Energy, Health and Human Services and Transportation.

Business Uptick

By far, the lion's share of year 2000 work has gone to contractors that already hold agency contracts, industry officials say. They include companies such as Computer Sciences Corp., Lockheed Martin, and Unisys Corp., Blue Bell, Pa. Executives from all three companies say they have seen an increase in task orders and fully expect that trend to continue.

Jerry Cranfill, year 2000 project manager for Unisys Federal Systems, says opportunities for additional companies are increasing as the General Accounting Office pushes for outside sources to review progress.

"Independent verification and validation is, by definition, not your existing contract work," he says. "You need a third-party view."

No one knows how much year 2000 work is being handled by the private sector. The OMB doesn't track this contracting, and agencies aren't required to break out year 2000 purchases.

But analysts agree contracting will grow sharply as the government enters the testing phase of the project. "The peak is going to occur over the next nine months," says Maryann Hirsch, senior vice president for consulting at Federal Sources Inc., McLean, Va. "And you're
going to see year 2000 work in the year 2000."

Brian Haney, an analyst at Input, a Vienna, Va., research firm, estimates it will cost
the government $10.9 billion to fix its computers and predicts $8.1 billion will go to contractors.

Hirsch says the government will farm out 80 percent to 85 percent of its year 2000 work.

Federal Sources estimates it will cost the federal government $5 billion to fix the glitch.

Koskinen says he wouldn't be surprised to see some increase in contracting as wide-scale testing begins, but notes agencies are far enough along to have contracted for most of what they need.

"There was some concern six months ago we were going to run out of contractors. In fact, when I started, some people said it must mean the government's not doing enough because it's not using every contractor in sight," he says.

What has happened, he says, is agencies have used their internal resources effectively.

"They have taken contractor resources normally used for modernization or upgrading and applied them to this process."

Out In Front

Agencies are using widely different approaches to fixing the problem. Take the Department of Energy, which is contracting 100 percent of its year 2000 work, and the Social Security Administration, which will complete 95 percent of its work in-house.

"We basically have an in-house project going," says Kathy Adams, assistant deputy commissioner for systems at the Social Security Administration. The agency, which will spend $42 million fixing its computers, has 700 programmers. All of them will have worked on the year 2000 problem by the time the project is completed, because most of the work is being done alongside routine chores and maintenance, Adams says.

The agency is far ahead of most of its peers. It started fixing its computers in 1989, and 289 of its 308 critical computer systems are compliant. Adams says the agency plans to have all its systems certified compliant by Jan. 1, 1999.

This is where contractors have helped. Social Security brought in computer specialists from OAO Corp., Greenbelt, Md., to develop testing procedures, Adams says.

In addition, Renfro's division of Lockheed Martin has been working with the agency for five years. Renfro says the number of workers dedicated to Social Security fluctuates from 10 to 50, and that it's the company's biggest year 2000 assignment to date.

The Department of Energy has made progress since OMB's May report but remains behind OMB's schedule, according to Howard Lewis, acting chief information officer at the agency.

Of the sprawling department's 411 critical systems, nearly 50 percent have been renovated, up from 34 percent in May. Lewis says the department will meet the March implementation deadline for all but six systems, which will be fixed no later than October.

The Energy Department, which is spending $236 million fixing its code, has 12,000 government employees and 108,000 contracted employees. More than 90 percent of the department's year 2000 work force is composed of incumbent companies working under existing contracts, Lewis says.

For example, a division of Westinghouse Electric Corp., Pittsburgh, operates information systems at the department's Savannah River site and is handling its conversion work. "Even at headquarters, we have contractors," Lewis says.

Nevertheless, the number of contractors could rise sharply as testing, verification and validation kicks into high gear. One reason for this - and one of the most frustrating aspects of the problem - is the need to retest entire systems whenever new elements are introduced, Lewis says.

For example, whenever a company updates information about a product's compliance - a daily occurrence - system engineers must retest to ensure programs haven't been corrupted.

"I'm very concerned about the integrated testing that needs to be done," Lewis says. Many systems "that we have signed off on as compliant will require integrated testing."

The recent surge of activity has encouraged some year 2000 entrepreneurs to seek government work anew.

Dave Ghosh, founder and chief executive officer of Ravel Software Inc., San Jose, Calif., initially didn't want to sell products to the government "because of the red tape." So he sold his products to government integrators, such as Science Applications International Corp., San Diego, and Electronic Data Systems Corp., Plano, Texas.

Now he's scrambling to get a General Services Administration schedule. Ghosh says revenues will more than triple this year. He expects $22 million in total sales, up from $6.2 million in 1997.

"Government business is really going to go up," Ghosh says. "Those [agencies] really have to move fast."


There's been less year 2000 work than anticipated, says
Harris Miller of the Information Technology Association of America,
meaning "we overestimated the amount of work to be outsourced,
or the government is just further behind than we thought."


John Koskinen, the government's year 2000
czar, says agencies have used their internal
resources effectively to remedy the millennium bug.
"They have taken contractor resources normally
used for modernization or upgrading and
applied them to this process."


Rep. Steve Horn, R-Calif., who has been
issuing a quarterly grade on agencies' year 2000
progress, gave the government an F in June.
Not only are many of the government's major
agencies behind, their pace seems to be slowing, he says.

Steps to Compliance

Upcoming milestones for government agencies racing to beat the millennium clock.
Milestones set by the Office of Management and Budget.

Aug. 15 Quarterly report due from all major government agencies on year 2000 progress.
Sept. 30 Agencies must have completed system renovation.
Nov. 15 Quarterly progress report due.
Jan. 30 1999: Agencies must have completed system validation work.
Feb. 15 1999: Quarterly progress report due.
Mar. 31 1999: Agencies must have implemented year 2000 compliant systems.

Yardeni Waves Year 2000 Flag

Edward Yardeni, chief economist at Deutsche Bank
Securities Inc.,
has caused a stir with his predictions about international readiness for the year 2000 software crisis.

Depending on who you talk to, he's either a year 2000 alarmist or one smart guy who will soon be saying, "I told you so." In his view, there is a 70 percent chance of a global recession because of fallout from the impending computer glitch.

Yardeni wants to see an international alliance funded with an emergency budget of $100 billion to deal with the problem. He also wants world leaders to adopt a plan to mandate a holiday for the first week of the new millennium.

It's hard to ignore his track record. Yardeni, who holds a Ph.D. in economics from Yale, was one of the first economists on Wall Street to predict the length and breadth of the market's current bull run.

After realizing last summer that much of Wall Street viewed the year 2000 problem as an investment opportunity rather than an impending crisis, he testified before Congress, grilled government and industry leaders and set up a Web site.

Yardeni, 48, talked about his crusade in an interview with Washington Technology staff writer Richard McCaffery.

WT: Is your position too extreme?

Yardeni: With my position, the worst that can happen is nothing, in which case we made some preparations that weren't necessary and cost some money, and we can all breathe easy. But with so much at risk, I don't understand why we are going to go into this thing completely blind, unaware and unprepared.

Look, I'm not kidding myself. Nobody's going to adopt my strategic plan just because I said so. On the other hand, we need to think along these lines.

WT: You are now forecasting a global recession?

Yardeni: A wicked recession. Real gross domestic product could fall 5 percent from crest to trough over a 12-month to 24-month period starting in 1999.

WT: What exactly would cause the recession? A panic?

Yardeni: Whatever is going to fail is going to fail at exactly the same time. That's an unusual situation in human history. It could be a number of minor little failures or a few minor ones and one major one, but you have to be a naive optimist to believe there are going to be no failures. Inevitably, there are going to be some major disruptions. It's a domino effect.

WT: Will the year 2000 problem cause stock markets to tumble?

Yardeni: I'm looking for a 30 percent drop in the stock market, with a peak somewhere in 1999 and going into 2000.

WT: What did you think of President Clinton's July 14 speech about the issue?

Yardeni: It was extremely important because it legitimized the issue, especially with editors who have the ultimate say about what stories get written. We've since seen a huge increase in coverage. But it was a small step for mankind when what we need is a giant leap. In many ways, it's way too little, way too late.

WT: Was the message weak?

Yardeni: We really need the involvement and leadership of the president. He's appointed John Koskinen [chairman of the President's Year 2000 Conversion Council], who is doing a great job but whose role is somewhat limited.

We need a lot more people working at it on different levels. We need someone focusing on contingency and disaster recovery planning. We need somebody to use whatever powers of persuasion the United States has as a preeminent power to get other countries to take this a lot more seriously. We could have everything fixed and still suffer a global recession if other countries don't get moving.

WT: Has Koskinen done a good job?

Yardeni: Yes, but he's just one side of the Rubik's cube. He doesn't even have a staff. He's trying to coordinate the efforts of the entire government.

There's a lot his council needs to know that they don't. They don't really have any sense of where we are with the electrical power grid and what sort of progress is being made in the private sector to ensure there are no disruptions.

Koskinen himself has admitted he's very concerned about the pace of progress overseas. I don't think that's something we should be laid back about. We should be proactive.

WT: Are you more worried about the lack of progress overseas than in the federal government?

Yardeni: My concerns are multifaceted. Last fall, I was waving the caution flag about the Federal Aviation Administration, the Internal Revenue Service, foreign governments, domestic businesses. I'm still worried about everything.

WT: Which federal agency concerns you most?

Yardeni: The Defense Department. They have the most computers to fix and are the farthest behind.

WT: The Government Accounting Office is pushing for more oversight of the government's remediation efforts. Do you support this?

Yardeni: We need answers, and we're not getting them. Some independent organization should be validating the data these agencies are providing and should be offering a second opinion on whether the government has properly chosen mission-critical systems.

WT: What will you do Dec. 31, 1999?

Yardeni: I'll be home. I'm not going to go away. I'm not going to run for the hills - there will be too many survivalists out there.

Lisa Quinones

Small Firm Offers Big Help to Reach Y2K Finish Line

A little company in Pittsburgh has built a big database to help corporations cross the year 2000 hurdle. "We searched long and hard to see if anyone was doing this," says Kevin Weaver, Infoliant's executive vice president. "What we've got here is relatively unique."

The privately held company, a spinoff from Pittsburgh-based PC Solutions, has compiled a database of more than 15,000 desktop products from 200 manufacturers. Its online library lists compliant and non-compliant products, information on how to make those products safe and ways to contact manufacturers and related Web sites.

"We expect to hit 20,000 products this summer," says Weaver, whose product database has doubled since April. "We don't know where it will level out."

John Logan, chairman of market research firm Aberdeen Group Inc., says 3,000 firms worldwide are offering year 2000 products and services.

Problem is, "80 percent of them just can't do what they promise," says Logan, who has been researching year 2000 products and services since 1994. He rates Infoliant's database top notch after a review in May, citing its solid research and daily updates on product compliance.

The latter is the key, he says, because it's impossible for program managers to keep up with the changing statements made by suppliers.

Infoliant's focus on desktop products and regular updates should help it carve a niche, Logan says.

Weaver got the idea to build a database in 1996 while working for PC Solutions, a consulting company doing year 2000 work for a local law firm. When finished, Weaver had his database foundation: 600 distinct computer products representing the computer systems of just one midsized company.

He pitched his idea to Louis Lind, president of PC Solutions, now Infoliant's co-founder and president. "We should be everywhere Bill Gates is," says Lind.

"Our real objective for 1998 is to figure out how to mass market the product," Weaver says.

Infoliant has teamed with three distributors to move the product through the sales channel: Dempsey Business Systems, Orlando, Fla.; Netlan Inc., New York; and C.W. Electron Enterprises, Arlington Heights, Ill.

-Richard McCaffery

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