Contract vehicles take center stage under continuing resolutions

Positions on contract vehicles grew in importance during the early part of the decade amid overall defense spending declines and the government has for the most part not looked back from relying on them.

That dependence might get even more pronounced the longer the government operates on a continuing resolution with the one in place now slated to expire Nov. 21.

During Parsons Corp.’s third quarter earnings call Tuesday, CEO Chuck Harrington told investors that brand new awards would largely off the table for agencies in a nod to the often-repeated phrase “no new starts” that explains a CR landscape.

But Harrington sees the usage of indefinite-delivery/indefinite-quantity contracts as another matter.

“A year-long CR would see probably an uptick, in my opinion, of IDIQ task awards and a reduction, obviously an elimination of new contract awards in most if not all cases,” Harrington said during Parsons’ third call with analysts since its initial public offering in May.

While CRs do freeze spending levels at the prior fiscal year’s levels, they do not change the global environment agencies like the Defense Department in particular deal with.

“We don’t think the threats to our nation’s safety reduce because we have a CR, so we think the additional investments being made by China, Russia, Iran, North Korea etc. just continue unabated, Harrington said.

“In the areas of missile defense, cybersecurity, investments in space, we think that those will find ways of continuing to be funded and the beauty of having a large number of multi-award and single-award IDIQ contracts is they are the vehicles that allow you to continue in that environment.”

Centreville, Virginia-based Parsons scored some key third-quarter wins of spots on those multiple-award IDIQs that Harrington spoke of: $968 million Navy C4ISR installation contract, a $427 million Air Force software research-and-development vehicle and a $750 million national security mission program with a classified customer.

On the single-award front, Parsons also secured a $590 million task order to help U.S. combatant commands test and roll out new technologies for cyberspace operations. That award was made through the governmentwide Alliant 2 contract vehicle agencies use for many large IT services and solutions procurements that sometimes exceed $1 billion.

Parsons had other news to share on Tuesday outside of its third quarter financial results. Effective immediately, Chief Operating Officer Carey Smith has added the additional title of president and will oversee the company’s effort to realize more synergies between its federal solutions and critical infrastructure segments.

Smith joined Parsons in 2016 as president of the federal business, then became chief operating officer in 2018 when the company combined its federal and critical infrastructure businesses to pursue more opportunities seen as a convergence of both areas.

The critical infrastructure business provides design and engineering services for physical and digital infrastructure projects in support of federal, state, municipal and highly-regulated industry customers.

Third quarter revenue of $1 billion set a company record and was 5 percent higher than the prior year period when including acquisitions, while the organic growth rate was 1 percent. Parsons also reported a record $89 million in third quarter adjusted earnings before interest, taxes, depreciation and amortization expenses.

As of Sept. 30, Parsons has a book-to-bill ratio of 1.2x on a trailing 12-month basis to indicate the rate at which the company adds contracts to its backlog versus drawdowns to book revenue.

One more ratio to watch is that of Parsons’ debt-to-adjusted EBITDA, which stands at 0.4x. That matters in terms of monitoring the financial resources Parsons has to make its next acquisition after three deals within the past two years: Polaris Alpha, OGSystems and more recently QRC Technologies.

“The pipeline remains robust, we continue to see great companies come out who are looking for options. We have continued to talk to companies that are in our supply chain that support our customers,” Harrington said.

“Our plans for capital allocation are to continue our trend of acquisitions in the near term.”

About the Author

Ross Wilkers is a senior staff writer for Washington Technology. He can be reached at Follow him on Twitter: @rosswilkers. Also connect with him on LinkedIn.

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