Riding value to the top

SAIC takes the No. 1 federal integrator spot with a spate of acquisitions, contract wins

As the prospect of a major boost to this year's federal information technology budget fades further into the realms of the impossible, IT companies have made "value" their mantra. And the chant is loud at employee-owned Science Applications International Corp.

SAIC's 42,000 employees "have always been very critical to us because they can demonstrate extremely strong past performance," said John Warner Jr., SAIC corporate executive vice president and director of the company's systems integration division.

"The federal government makes more awards these days on the basis of ‘best value' than on simply ‘best price.' If you can demonstrate strong past performance, you can provide the credibility that you are, in fact, giving the best value."

SAIC has certainly demonstrated strong performance on Federal Computer Week's list of the top 20 systems integrators, climbing from third place last year to first place this year. In fiscal 2000, the company amassed $706.8 million in federal integrator revenue, compared with $492.1 million in fiscal 1999, according to the research firm Eagle Eye Publishers Inc.

In this year's ranking, SAIC switched places with Lockheed Martin Corp., which slid to third place with federal IT integrator revenue of $555.5 million, according to Eagle Eye Publishers' calculations.

Buying Spree

Most analysts speculate that the change in positions is due to the acquisitions and divestitures that are normal in an increasingly competitive marketplace — and SAIC has been on a buying spree lately.

After taking Internet domain-name registrar Network Solutions Inc. public in the fall of 1997, SAIC bought Bell Communications Research Inc., a telecommunications and networking company that it renamed Telcordia Technologies Inc. Two years later, it took another acquisition run, buying up six small technology companies in a row starting in January 1999. The spree ended in June 1999 with the purchase of Boeing Information Services Inc., a 1,200-employee systems integrator whose revenue came almost exclusively from federal contracts. This past April, SAIC acquired three business units of Maxwell Technologies Systems Division.

The Boeing Information Services purchase added not only technical expertise to the SAIC employee roster — 70 percent of the Boeing Co. subsidiary's employees were engineers or technicians — but also major service contracts with the Defense Information Systems Agency; NASA's Goddard Space Flight Center, Kennedy Space Center and Stennis Space Center; and the Navy's China Lake, Calif., research facility.

The new addition also brought with it a $972 million contract to develop the Army's Reserve Component Automation System, a worldwide IT architecture for Army National Guard and Reserve units that included the installation of 60,000 workstations, 6,000 servers and more than 850,000 pieces of telecommunications equipment at about 3,850 sites in the United States, Guam, American Samoa, Germany, Saipan and the Virgin Islands. Deployment of that system was completed March 16, almost a year-and-a-half ahead of schedule.

"If SAIC is up and Lockheed Martin is down this year, I would think that those acquisitions would account for most of it," said Phil Kiviat, president of the Kiviat Group, a sales consulting firm in Potomac, Md.

"The only other explanation would be if one company had a high ‘win' ratio and the other a high ‘loss' ratio for contract awards," Kiviat said. "But nobody's going to have those numbers because nobody advertises that they've lost most of the jobs they've gone after."

SAIC also has been following a strategy calling for it to branch out into federal agencies where it has not traditionally been active, Warner said. During fiscal 2000, the company was awarded an $81 million contract to provide hardware, software and support services to the Agriculture Department's Risk Management Agency, and a $70 million contract with the Education Department to manage and support EDNet, the department's IT infrastructure.

In addition, the company has been pursuing expanded business with its current customers in other

civilian agencies such as NASA, the Environmental Protection Agency, the Department of Health and Human Services, and the Justice Department. In January, SAIC won a three-year, $20.1 million contract to provide IT services to NASA headquarters in Washington, D.C., under the Outsourcing Desktop Initiative for NASA (ODIN) contract. SAIC also provided more than 4,500 workstations and 3,000 printers to Health Care Financing Administration offices in 25 cities in fiscal 2000 under another ODIN contract worth $11 million.

Making its Name in the Federal Market

Most companies enter the federal market after establishing themselves in the private sector. Not SAIC. The company was founded in 1969 "with the federal government being our only customer," Warner said. "The federal government's business was obviously extremely important to us then, and it continues to be so today."

He also credits the company's internal management processes for its recent high marks on performance. "You need to have the right quality people and the right teams, but you also need training programs for these individuals and procedures set up to differentiate yourself as a competitor when you put in a proposal," he said. "We put a lot of emphasis on that."

Several recent contract wins have proved that the focus on training and internal management is right on target, Warner added. After years of serving as a subcontractor on contracts with the U.S. Army Simulation, Training and Instrumentation Command (STRICOM) in Orlando, Fla., SAIC put together a team of its own last November and won a contract for war games and automated simulations support under the $4 billion STRICOM Omnibus Contract.

In June, SAIC led another team in winning a STRICOM contract potentially worth $38.5 million for systems integration work on the Army's One Semi-Automated Forces Objective System program.

Last month, an SAIC team won an estimated $1.25 billion contract award from the U.S. Air Force to provide services under the Flexible Acquisition and Sustainment Tool program, which is aimed at improving Air Force fleet readiness. Most of the other team members are small businesses, woman-owned businesses, and historically black colleges and universities.

In May, SAIC received its third consecutive Dwight D. Eisenhower Award for Excellence from the Small Business Administration. Eisenhower award winners, chosen from a pool of 2,500 contractors, are recognized for using small disadvantaged businesses and woman-owned small businesses as suppliers and subcontractors. In fiscal 2000, SAIC subcontracted more than $345 million — or more than 10 percent of its federal government revenues — to small businesses.

"We team with large corporations, but we also like to put the team together that we believe provides the best value for the customer," Warner said.

Browning is a freelance technology writer in the Washington, D.C., area.

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