9/11 Aftermath

Five years later, terrorist attacks continue to influence the government IT industry

Major Homeland Security Opportunities

Program: Enterprise Acquisition Gateway for Leading Edge (Eagle)

Mission: Consolidate and standardize IT spending for Homeland Security Department

Value: $42 billion over seven years

Status: Awarded to 25 large businesses and 31 small businesses

Program: Secure Border Initiative Network (SBI-Net)

Mission: Create comprehensive border surveillance system

Value: $2 billion over five years

Status: Award pending; teams led by Boeing Co., Ericsson Inc., Lockheed Martin Corp., Northrop Grumman Corp. and Raytheon Co. are competing.

Program: Integrated Wireless Network (IWN)

Mission: Integrate federal agency wireless networks

Value: $10 billion over 15 years

Status: Award pending

Program: Homeland Security Presidential Directive-12 (HSPD-12)

Mission: Deploy biometric identification cards for federal employees and contractors

Value: Undetermined

Status: Task orders pending

Program: Transportation Workers Identification Credential

Mission: Deploy biometric ID cards for transportation workers

Value: $1.2 billion

Status: Award pending

Sources: Companies involved, Homeland Security Department, Federal Sources Inc., Input Inc.

Northrop Grumman Corp. executive Bruce Walker was attending a conference in Northern Virginia when aides rushed into the room and told him that the Pentagon was under attack by terrorists. It was shortly before 10 a.m. on Sept. 11, 2001.

The impact of the news was immediate and profound. Nearly everyone in the room had work or family ties with people at the military complex 20 miles away.

"There was shock and horror," Walker said. "It was a very chilling experience."

What followed was a growing sense of the urgent need to prevent additional attacks on U.S. soil. That sudden emergence of homeland security as a top priority also transformed the companies and careers of Walker and other federal contractors.

In the months after 9/11, realigning government to fight terrorism was "chaotic and a real eye-opener," said Walker, now vice president of strategic planning for homeland security for Northrop Grumman. Federal defense contractors and systems integrators wanted their expertise to be part of the solution, he said. "We wanted to see how we could leverage our experience to make sure that [these attacks] would not happen again," he said.

At Northrop and other systems integrators, new homeland security business units were born, and divisions rearranged to address new national priorities: information-sharing, preparedness, emergency communications, infrastructure protection and identity management, among others.

Computer Sciences Corp. reorganized its intelligence, security and enforcement units into a single division to better serve the federal government in its new homeland security role, said Jim Schaeffer, president of the federal sector. BearingPoint Inc. also set up a homeland security office.

Five years later, those realignments remain in effect and homeland security remains a major focus for systems integrators. The Homeland Security Department continues to mature and is beginning to deliver large contracting opportunities.

The path from 9/11 has been ambitious, and not a little bumpy, but the road ahead may be a bit less rocky.

"The numbers have not materialized as quickly as people expected," said John Slye, homeland security analyst for market research firm Input Inc., Reston, Va. "There was a period of big buzz ? lots of talk, but no action. But in the next five years, there are still significant opportunities. It will be more targeted growth."

Growth will likely be steady for the next five years, agreed J.R. Reagan, managing director and solutions leader for security and identity management at BearingPoint. But, he added, "there are still a lot of problems to be solved."

In the summer of 2001, systems integrators were bemoaning the stagnant economy and recent demise of many dotcom companies. Amid such turmoil, government contracts were an oasis of stability. Within hours of the Sept. 11, 2001, strikes, the national mood shifted. The perception was that federal spending on intelligence, physical security systems, information-sharing, emergency communications and other homeland security needs would rise drastically.

Stock prices for systems integrators since then have reflected those perceptions: Lockheed Martin Corp.'s stock price has risen from $36 per share at closing Sept. 10, 2001, to late August's price of $84 per share, adjusted. Over the same period the share price for Boeing Co. rose from $40 to $77; for CSC, from $34 to $47; General Dynamics Corp., from $35 to $69; Northrop Grumman, from $38 to $66; and Raytheon Co., from $23 to $47.

Congress in the fall of 2001 rushed money to New York and Washington. The White House quickly stood up a homeland security office and pledged money for first responders. In March 2003, the Homeland Security Department began its first full fiscal year with a budget of $29 billion. This year its budget is $31 billion. The FBI, Health and Human Services Department, National Security Agency and other agencies also are spending antiterrorism dollars.

A sizable share of the new funding has been for high-level IT services, including integrating networks and systems for information-sharing; beefing up intelligence and establishing new databases for tasks such as documenting immigrants and visitors to the United States and for screening passengers at airports. Further priorities include updating command and control systems and emergency operations centers, setting up emergency communications, and initiating sophisticated public health surveillance efforts.

Some of the most high-profile of the major IT programs are Trilogy and the Terrorism Threat Integration Center at the FBI; Trailblazer at the National Security Agency; U.S. Visit, the Homeland Security Information Network and Homeland Security Operations Center at DHS; and BioSense at Health and Human Services.

After 9/11, "the government put in a lot of money for intelligence and command and control systems for 3-4 years," said Steve Carrier, a former vice president of business development for Northrop Grumman, who is now retired. "There was a huge uptick."

Some of DHS's new units, including the Information Analysis and Infrastructure Protection directorate, had little or no IT to start with. "We were working three shifts a day to put in an effective IT system environment at the [DHS] Nebraska Avenue complex," Northrop Grumman's Walker said.

double-clutching giants

Defense contractors such as Boeing, Lockheed Martin, Northrop Grumman and Raytheon were able to move quickly into homeland security because they had the available personnel and technology.

Homeland security, with its emphasis on information-sharing and interoperability rather than weapons hardware, is "a high-profit service area," Input's Slye said. "You're dealing with a higher profit margin. Traditional defense contractors have moved into the niche. Integrators are able to thrive because they offer a broad solution set," he said.

"All the big defense contractors worked on acquiring IT capabilities; they already had the ability to manage big contracts," said James Lewis, director of technology and public policy at the Center for Strategic and International Studies think tank in Washington.

The evolution of DHS has not been steady, however. The new department has been whipsawed by changing priorities, turf battles, aging infrastructures and serious privacy concerns. While the initial push for information-sharing has continued, and border and immigration programs such as the U.S. Visit are going strong, other high-profile IT projects, including Secure Flight to prescreen passengers at airports, have not gotten off the ground.

Hurricane Katrina blew in a wave of renewed concerns about preparedness and emergency communications, and attacks in London and Madrid have focused attention on shortcomings in rail security and surveillance.

Compounding those factors is the department's creation from 22 agencies by congressional mandate. "When you stand up a new agency, all the processes and policies are just being created, and there is a lot more uncertainty about how to do business," said CSC's Schaeffer.

New attitude

On the other hand, the upheaval arguably has led to innovations. Some small-business executives believe that post-9/11 systems integrators are more open-minded about reaching out to them.

Before 9/11, the attitude of large federal contractors toward small business was more conquering than cooperative, said Richard Shie, senior vice president of corporate marketing for Physical Optics Corp. in Torrance, Calif., a small systems integrator and maker of optical technologies.

After 9/11, by contrast, Shie said, "people realized we need an integration of a variety of systems and technologies. Systems integrators are much more aggressive now at reaching out to small businesses."

Today there are several ongoing homeland security projects to establish basic IT architectures and systems, primarily to improve information-sharing and reduce stovepiped or separate pods of activity.

The most watched contracts, however, are for groundbreaking new programs that use and integrate new technologies. Most prominent among these is the Secure Border Initiative Network, a comprehensive border surveillance system that is one of DHS Secretary Michael Chertoff's top priorities. The contract is expected to be in the $2 billion range. Five teams, led by systems integrators Boeing, Ericsson Inc., Lockheed, Northrop and Raytheon, are competing for the award, which is expected within weeks. Much of the money will be spent on cameras, sensors and network integration.

The fate of SBI-Net is a bellwether for future homeland security spending at a time when federal budgets are being squeezed. "The big question is what will happen with SBI-Net," Input's Slye said. "Everyone is watching it like reality TV, wondering what will happen next."
More contracting activity is expected for systems integrators in the next several years for global homeland security in Europe and Asia; for state and local investments in information-sharing and preparedness; for private sector infrastructure protection; and for public health monitoring of the pandemic flu and other diseases.

Five years after those terrible events, their impact is still felt.

"Everyone has fundamentally changed," Northrop Grumman's Walker said. "People in the United States are now sensitized to the fact that the threat is there."

Staff Writer Alice Lipowicz can be reached at alipowicz@postnewsweektech.com.

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