Taking stock at CSC

Officials at Computer Sciences Corp., rocked by recent stumbles with several major federal contracts, are gearing up to bid on more high-profile work, fully intent on solving the company's problems and protecting its long-standing reputation as an industry leader.

Trouble surfaced in recent weeks on modernization projects for the Internal Revenue Service and the FBI.

Cost overruns and missed deadlines have plagued the IRS project, which is in its fifth year. Last month, the agency commissioned four separate studies to analyze the problems while Todd Grams, IRS chief information officer, promised that the agency will make changes to get the project back on course.

Also last month, General Services Administration officials announced that CSC had missed the deadline for the third and final phase of the FBI's massive Trilogy modernization effort. As a result, the planned Dec. 13 deployment has been postponed while officials at GSA, CSC and the FBI work to finish the project.

The company also lost a contract renewal to SRA International Inc. for the U.S. Agency for International Development.

But there have been wins.

CSC last month won a spot as one of 10 companies eligible to compete for task orders under the Department of Veterans Affairs' Global Information Technology Support Services contract, a $3 billion, eight-year, indefinite-delivery, indefinite-quantity vehicle. In October, company officials announced that CSC had won a task order worth up to $88 million to provide system maintenance and support on a Homeland Security Department project.

Yet experts warn that problems in contracts can arise for many reasons, many of which may not be the contractor's fault.

"The environment in which CSC is operating is very complex and the government's rules are very arcane," said Jonathan Aronie, a partner in the Washington, D.C., firm Sheppard, Mullin, Richter and Hampton LLP. "It's possible that these things have nothing to do with CSC."

In high-profile contracts, though, it's crucial for contractors to perform as flawlessly as possible, said Steve Kelman, a professor of public administration at Harvard University's Kennedy School of Government. Performance quality is especially critical now because Congress is watching closely and procurement policies are in flux.

"Particularly in this environment of heightened attention to contracting issues, I think it is absolutely incumbent on any vendor serving the federal marketplace to not just go an extra mile, but to go many extra miles to deliver and perform for the government customer," he said. "This is a very sensitive time for the procurement system. There are some dangers that we could move backward in government/industry collaboration. To miss a deadline on a high-visibility contract related to homeland security damages the whole procurement system."

Austin Yerks, president of business development for CSC's federal sector, pledged that the company will deliver for both the FBI and the IRS. On Trilogy, the company met all deadlines for the first two phases of the project, he said.

"So we're a little bit late on the last one," he said. "The FBI is a tremendously important customer."

Yerks, an Army veteran and former CSC senior vice president, took over the 42,000-person federal operation this summer. He said the company is still making some internal adjustments to absorb DynCorp, which CSC acquired in March. During the next few months, the company will move the administration of some contracts to the proper business units, which will improve efficiency but will not require moving employees.

Yerks said the missed FBI deadline was because of poor communication and miscues. "You have to have the right people at the right place to make decisions at the right time," he said. "That got a bit out of alignment on [the part of] both parties."

In a separate interview, Michael Laphen, CSC president and chief operating officer, stressed that what matters is how a company reacts when problems arise. Some companies will pull out the contract and say the problems were not its responsibility. CSC will get the job done successfully, he said.

Officials at CSC and the IRS are already working on changes to that project, based on preliminary findings from the studies. IRS officials made several recommendations that CSC is implementing, Laphen said.

"I think it is fair to say that they were all constructive inputs," he said. "I think it is also fair to say that it was unanimous that the programs should continue. There are some things we can do differently and should do differently. We are currently working with the IRS to make those changes to our approach."

Still, Yerks is aware of the importance of past performance when a company places a bid for new work. A smart company will try to overcome any diminished public image with substance, not flash, he said.

CSC must "fix the problem as fast as we possibly can," he said. "It's not time for finger-pointing. You overcome it with performance."

However, he said the company should get credit for performing well — if not perfectly — on such extraordinarily complex and broad projects. "Past performance is an exceptionally important thing," he said. "But there is a degree of difficulty involved. If I'm late on the delivery of a system that's larger than anyone's ever done before, I should still get a B."

Government sometimes treats past performance as though it's a race in which everyone starts at the same line and runs the same course, he said. But CSC's customers are largely able to factor in the degree of difficulty.

"It's amazing how mature our customers are," he said. "As long as you're giving it your best, you're not going to get killed. You can be wounded, but nobody is going to kill you."

During the next quarter, CSC officials plan to bid on new contracts worth $7 billion, which includes DHS' U.S. Visitor and Immigrant Status Indicator Technology system. Yerks identified several of the upcoming contracts as especially important for the company to win, but said US-VISIT is a particular prize.

"US-VISIT is going to define our position in the market for the next 10 years," he said.

Government procurement analysts and industry insiders said that CSC cannot afford to underestimate the potential impact of apparent snafus with high-profile projects.

But companies have suffered such losses before and bounced back. Several industry sources pointed to American Management Systems Inc. In 1999, Mississippi officials abruptly canceled a contract with AMS and sued the company over problems with a tax revenue system. Two years later, the Federal Retirement Thrift Investment Board fired the company from the Thrift Savings Plan modernization project. The company settled a lawsuit related to that contract this summer.

Despite those setbacks, AMS recovered, said Ray Bjorklund, senior vice president of market intelligence and chief knowledge officer at Federal Sources Inc. "People were saying, 'AMS is falling apart.' Unfortunately, these two black eyes came one right after another," he said. "It had people questioning AMS' performance, but in general AMS is doing quite well."

Another analyst, who asked not to be identified, said that agency officials are aware that as contractors consolidate through mergers and acquisitions, the pool of companies capable of handling large jobs is shrinking. "It's not like there are a hundred companies that can do it properly," the analyst said. "You don't want to get in the position where you are so slapping the wrist of one contractor that [no other company] wants to push the envelope."

High-profile lapses can filter into a contracting officer's thinking, Bjorklund said. The past-performance information "has to be taken in the proper context by the agency that is to award the new contract, but things like that, it unfortunately tends to subconsciously affect the decision-making process of the government," he said. "Maybe this is a rational response, because if there is any fact or appearance of fact to suggest that a vendor may not perform well under certain circumstances, that's adding risk."

Christopher J. Dorobek contributed to this report.


CSC makes telecom bid

Computer Sciences Corp. plans to launch a new initiative to market telecommunications services to federal agencies next year. It is a market that firms are entering as telecom services grow more complex, according to telecom industry analysts.

Once just a matter of setting up local and long-distance telephone services, telecom now includes data services, wireless communications, network administration and emerging technologies such as voice over IP, said Austin Yerks, president of business development for the federal sector at CSC. As a result, traditional telecom firms are increasingly unable to satisfy all of an agency's needs.

"Companies like ours are going to move in," Yerks said.

CSC gained abilities in the area when it acquired DynCorp in March. DynCorp had previously acquired the information systems division of GTE Corp. Because of that, CSC can offer managed network switches and telecom integration services, Yerks said.


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