By Nick Wakeman

Michael Solley didn’t want to take an early retirement when Computer Sciences Corp. bought Nichols Research in 1999. Solley, who was executive vice president of Nichols, saw growing opportunities in the Pentagon’s plans to modernize aircraft and other weapons systems.

Heavily courted by other companies, Solley found the right fit at MTC Technologies Inc. in Dayton, Ohio. The company was small, about $70 million in annual revenue, but loaded with capabilities.

“We have some good guys here that really understand the platforms and know how to upgrade and modernize them,” he said.

But what the company lacked was an overarching strategy to pursue procurements that might take a year or more to win, he said. So when Solley joined MTC as its president in March 2000, he brought with him a long-term plan for expanding the company beyond its traditional customers.

The payoff came a year and a half later when MTC won one of six spots on the $7.4 billion Air Force Flexible Acquisition and Sustainment Tool contract. Suddenly, MTC’s growth rate nearly doubled and now ranges from 30 percent to 40 percent a year.

“That was a life-changing event,” said Solley, who now is MTC’s chief executive officer as well as president.

Since the win, MTC’s revenue jumped from $70.3 million in 1999 to $118.5 million in 2002, and it raised $44 million in an initial public offering of stock. MTC makes its debut this year on Washington Technology’s Top 100 at the No. 96 spot.

While MTC’s success has been dramatic, the company is by no means alone. Many firms on the 10th annual ranking of government information technology contractors are reporting stellar years.

A year and a half into the war on terrorism, two years into the push for more collaboration through e-government and outsourcing, and just weeks after fighting and winning a war in Iraq, the government relies more on its IT contractors today than ever before.

From behemoths such as Lockheed Martin Corp., which captured the No. 1 spot for the ninth year in a row, to smaller companies such as MTC, the government market is rich with opportunities focused on homeland security, defense transformation, e-government and outsourcing.

Market research firm Federal Sources Inc. of McLean, Va., is predicting that federal spending on information technology will rise from $58.7 billion in 2003 to $64.4 billion in 2005, an annual growth rate of nearly 5 percent. FSI and Eagle Eye Inc. conducted the analysis of General Services Administration data to create the Top 100 rankings.

The movement of companies in the rankings illuminates several trends driving the federal market, including the importance IT plays for defense companies. They hold six of the top 10 spots on the list. The torrid pace of mergers and acquisitions also continues to impact the rankings. For example, L-3 Communications Corp., New York, muscled its way to No. 12, up from No. 28 in 2002, thanks in part to several acquisitions it has made in recent years.

And, of course, Northrop Grumman Corp., Los Angeles, at No. 2 is positioning itself to challenge Lockheed Martin for the top spot, following Northrop’s acquisition of TRW Inc., a Top 10 company last year.

The deal-making isn’t confined to the top players. In 2002, there were 79 acquisitions, and so far this year there have been 31 deals, according to the investment banking firm Houlihan Lokey Howard & Zukin, Los Angeles.

Companies are positioning themselves for where executives, government officials and analysts see the government spending its money: homeland security, intelligence and defense.

“That’s where the stepped up growth is perceived to be,” said Jerry Grossman, managing director at Houlihan Lokey’s McLean, Va. office. “The growth in defense and homeland security spending has several more years to run.”

Lessons from war

When President Bush took office in 2001, Defense Secretary Donald Rumsfeld quickly began talking about transforming the Defense Department. What he envisions relies heavily on information technology to foster the ability of the services to work together and share information and command and control structures — in short, greater agility and lethality.

The military successes in Afghanistan and Iraq, where many of the concepts of network-centric warfare got their first test in battle, will only bolster Rumsfeld’s attempts to push through his changes, according to executives and analysts.

“Clearly, modern technology and the new technologies of warfare, much of them information technologies, have proven to be a very powerful and differentiating asset for the United States,” said David Langstaff, president and CEO of Veridian Corp., Arlington, Va., and No. 22 on the list.

For government contractors, the push for transformation means growth opportunities will come from building information systems, such as command and control, intelligence and logistics support, rather than systems that drop bombs or shoot missiles.

“The days of buying thousands of everything are probably gone. … You don’t need more platforms, just more operability,” said Ken Dahlberg, executive vice president of General Dynamics Corp.’s information systems and technology group. The Falls Church, Va.-based company came in at No. 7 on the Top 100.

Defense planners and the large defense companies are thinking more “holistically about how to tie capabilities together, and that is what gives emphasis to information architecture and thinking about the whole system, rather than just components,” Langstaff said.

Major contracts to watch in the coming year include the Army’s Warfighter Information Network-Tactical contract, which will integrate communications networks used for planning and carrying out joint missions. Lockheed Martin and General Dynamics are leading competing teams for the $6.6 billion contract.

“Most of us have been seeing our requirements shift toward the network-centric side of the issue, where a single platform is probably less important than the whole concept of the information flow,” said Vance Coffman, chairman and CEO of Lockheed Martin.

Executives also are expecting new opportunities to come out of the lessons learned from the conflicts in Afghanistan and Iraq, just as the earlier Gulf War triggered shifts in defense spending and planning. Issues sure to be examined are continued improvements in communications and information sharing, addressing friendly fire problems and enhancing interoperability among the services and U.S. allies.

“The first war in Iraq made it clear that we could be much more efficient and bring our weapons to bear more rapidly,” said Ernst Volgenau, president and CEO of SRA International Inc., Fairfax, Va., the No. 32 company on the list. Surveillance, recognizance and intelligence gathering systems had to be improved, and they had to be connected to command and control systems.

The challenge then was not just improving the process, but also convincing the officers and soldiers in the field, he said.

“I doubt there are many nonbelievers now,” Volgenau said.

The war at home

“The focus on homeland security is clearly an important trend for our nation and affects our market very heavily,” said David Karlgaard, CEO, president and chairman of PEC Solutions Inc., Fairfax, Va. The company saw its ranking rise 31 places, from 73 last year to 42 this year.

Major new contracts were awarded in the homeland security arena last year, including the $1 billion prize to build the IT infrastructure for the Transportation Security Administration, won by Unisys Corp., No. 20. TSA also awarded a $490 million contract to a team led by Lockheed Martin to roll out security equipment and systems at the nation’s airports.

On the radar screen for many companies is the Homeland Security Department’s Visitor & Immigrant Status Indication Technology contract for tracking non-citizens entering and leaving the country. The agency has $380 million budgeted in fiscal 2003 to start the project. The request for proposals is expected in May.

Titan Corp., San Diego, has more than 60 homeland-security-related projects, up from just 10 before the Sept. 11 terrorist attacks, said Chairman and CEO Gene Ray. Titan is No. 15 on the Top 100 list. “It’s being in the right markets at the right time,” he said.

But for homeland security efforts to work, information sharing is critical, and that has only raised the importance of systems integration and the role of systems integrators, executives and analysts said.

“If you tally up all the money the government has spent on IT and engineering services, you find you have this huge, installed base of technology, but not a lot of it was integrated,” said Joseph Kampf, president and CEO of Anteon International Corp., which landed at No. 14 on the list.

“The market is now moving toward integrating as much of the installed base as possible. You need the current government service contractors to do that,” Kampf said.

The business case for integration

The Bush administration, through the Office of Management and Budget, has been an active proponent of integrating information systems, both for homeland security and to further e-government projects and eliminate redundant systems. Mark Forman, OMB’s administrator of the Office of E-Government and IT, has been a vocal standard bearer, pushing the concept of business cases and enterprise architectures, key components of the President’s Management Agenda.

“If you want to understand the market, you really have to understand OMB. They are the single biggest force in the market today,” said James Kane, president and CEO of Federal Sources.

Increasingly, funding is being tied to an agency’s ability to show how it’s IT spending meets the agency’s mission. As a result, agencies are hiring contractors to help them map their systems and analyze how the spending relates to the mission.

“Business case analysis makes good sense. Anybody who is considering substantial investments in information technology ought to do that type of thing,” said SRA’s Volgenau.

“Part of most of our jobs today is not only to implement a specific system but to design it so that it fits an agencywide architecture,” Karlgaard said.

Helping agencies develop business cases or mapping an agency’s architecture likely will never be a large business for contractors when measured in dollars, Volgenau said, “But it is certainly important, and it is growing.”

Editor's note

For more data on all 100 companies, see the expanded online Top 100.

To see the Top 100 as it appeared in the print edition of Washington Technology, view the list in PDF format.

View top companies by industry sector

Senior Editor Nick Wakeman can be reached at nwakeman@postnewsweektech.com.