Back in Business

PricewaterhouseCoopers LLP has been pedal to the metal, increasing staff
in its


government group tenfold over the last 11 months, in an effort to quickly
rebuild its government business.

PwC sold its consulting business to IBM Corp. in 2002 for $3.5 billion,
but in July 2004, Carter Pate, a managing partner in


, moved to


to reinvigorate the company's federal practice. It was after PwC did a study
on the growth, market size and opportunities for business in the federal sector
that the company asked him to restart the federal practice, he said.

With new federal group offices in




, the staff has grown from 40 to 400, and the federal practice is hiring a
significant number of new people every week as it continues to expand, Pate

PwC's federal practice focuses on offering government agencies advisory
services in financial management, risk and compliance, operational
effectiveness, program management and security and data management. PwC does
work for nearly every chief financial officer in civil and defense agencies,
Pate said.

PwC, which has its


headquarters in

New York

, is one of the Big Four accounting firms and specializes in assurance, advisory
and tax services for public and private clients. The federal market is of
growing importance to these firms.

Like PwC, Deloitte & Touche USA LLP also is pushing its audit and
accounting services in the federal sector. Capgemini, whose predecessor was
French technology services firm Cap Gemini, in 2000 acquired the consulting unit
of accounting company Ernst & Young LLP. Capgemini has a U.S. government
solutions division, which sells IT consulting services in health, finance,
logistics, human resources and technical services consulting, such as enterprise
architecture and knowledge management.

All of these companies want to take advantage of the government
market's security. The federal market and, generally, the whole public-sector
market are countercyclical to business demand fluctuations in the commercial
sector, said an executive at one of PwC's competitors. The government market
"provides revenue stability for the whole consulting business. It's steady
state," the executive said.

PwC retained its federal government audit business when it sold its
consulting operations to IBM, but the business sat in limbo for more than two
years because it wasn't part of PwC's strategic direction, and because the
company was trying to digest the rules established by the Sarbanes-Oxley Act,
Pate said.

Among PwC's government clients are the Defense Department, IRS, Social
Security Administration and Veterans Affairs Department. PwC was one of 20 firms
that won a three-year contract worth about $978 million from the Defense
Department to conduct full-scope audits of department components' financial
statements. The contract also can be used for audit readiness assessments of key
department financial management systems.

PwC has a five-year, $4.5 million contract from the IRS to help develop a
unified, cross-division strategy and provide support for succession planning for
key leadership positions.

For VA, PwC has a contract worth $9.6 million to complete studies over 13
months at 18


sites for the Capital Asset Realignment for Enhanced Services program. The
program lets VA expand its outpatient services, giving veterans greater access
to them.

Also at VA, PwC also is working on a $3.6 million project for to evaluate
problems with the department's Core Financial and Logistics System.
BearingPoint Inc. provided the nationwide system to track inventory and
finances, but it was besieged with problems during its test run at St.
Petersburg, Fla.-based Bay Pines VA Medical Center, one of the 
largest veterans' hospitals in the country. VA pulled the plug on the
$472 million project last year.

Last December, PwC started its assessment of the system's financial and
logistics processes to identify gaps in federal financial and systems management
regulations and select designs that would improve operations, increase
standardization and set the basis for departmentwide system implementation.

  Pate declined
to discuss which pending contracts PwC is planning to pursue, but said the firm
will chase major restructuring programs in the federal market.

PwC does not provide IT services or systems integration work, in part
because of a non-compete agreement it has with IBM. The firm also made a
"tactical decision" not to offer the services, because the market for them
"is saturated and has a high failure rate," Pate said.

Unlike Accenture LLP and BearingPoint, the systems integrators PwC runs
up against in the federal market are not competitors, Pate said.

But as it restarts its federal practice, PwC might find its growth
potential limited if it does not build a systems integration and IT services
practice, an executive with a competitor said.

Ultimately, PwC "could be a strong competitor in management consulting
and business advisory services ? but only as a tier-two or -three company,"
the executive said. PwC "can never achieve tier-one or a strong tier-two
[level] if it is not in the systems integration business because of the size of
those companies." 

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