Computer Sciences Corp. took a calculated risk last year with its $950 million acquisition of the 26,000-employee DynCorp. Folding one thriving enterprise into another sometimes can hurt more than help, but after more than 12 months together, the two companies are proving to be a winning combination.

"The DynCorp buy recommitted CSC to the federal market," said Bob Kipps, director of Houlihan Lokey Howard & Zukin's Aerospace, Defense and Government Group in McLean, Va. "It was a bold move in a marketplace they had largely ignored. They increased their IT and homeland security presence, and positioned themselves for a lot of international growth.

"Even though their commercial business has continued to struggle, they've managed to ride out the commercial IT storm," Kipps said.

With the DynCorp buy, CSC beefed up its expertise and manpower, which underscores its ability to handle some of the government's biggest awards -- capabilities enjoyed by just a handful of its largest competitors.

Since 1994, DynCorp International has supported civilian policing missions in Europe, Asia, Africa, the Middle East and the Caribbean under the purview of a variety of international bodies, including the United Nations. Now, according to the terms of a State Department contract, worth $1.75 billion if all options are exercised, CSC/DynCorp is handling, among other duties, new-recruit training at the Iraq Police Academy.

The deal consummates the first of three planned contracts under the State Department's $6 billion Civilian Police Program, which aims to bolster international civilian-policing operations in post-conflict areas around the world.

DynCorp will compete for task orders to provide law enforcement personnel and logistics, management and construction services to support justice authorities and agencies during international peacekeeping missions and security operations.

CSC said DynCorp will recruit as many as 2,000 U.S. law-enforcement specialists to serve overseas in yearlong policing missions.

"We have 13,000 employees involved in security-related services overseas, in the Balkans, Afghanistan, Kuwait and Iraq," said Austin Yerks, president of business development for CSC's federal-sector unit. "Clearly, building the Iraq Police Academy wasn't anticipated last year. The geopolitical situation has affected us in a positive way."

Although CSC's federal business accounts for only 40 percent of its overall revenue, government-derived income continues to expand at a healthy 10 percent to 12 percent a year, according to Yerks. The company plans to bid on roughly $35 billion in anticipated awards.

Although the federal outsourcing push has languished during the war in Iraq, Yerks said he expects modest acceleration. As government's desire for modernization increases, the federal sector will continue to turn to contractors to fulfill capabilities it lacks internally.

"Major outsourcing procurements are another 12 months in the future," Yerks said. "It's been a challenging year: Iraq and a pending election. There aren't a lot of dramatic developments, not a lot of big starts. People focus on what they have, not on what they'd like to build."

Nevertheless, several big awards last year and this year have pushed the value of CSC's 12-month contract bookings to about $9 billion.

One large award that could amount to more than $1 billion involves providing helicopter flight training simulators and related aviation support activities to the Army Aviation Center at Fort Rucker, Ala. Under the Flight School XXI contract, CSC will help the Army maximize its use of computer-resident training while lowering the training's costs. CSC will provide, manage, operate, maintain and upgrade a suite of flight simulators to prepare a new generation of aviators for combat.

Over the past six years, CSC has provided similar services at Fort Rucker under the Joint Test and Evaluation Contract.

Oct. 1, 2003, CSC began a joint venture with Jacobs Engineering Group Inc. and General Physics Corp. to provide operations, maintenance and information management support to the Air Force Materiel Command's Arnold Engineering Development Center at Arnold Air Force Base, Tenn., and at the center's Hypervelocity Tunnel Nine in White Oak, Md. The 12-year contract is valued at $2.7 billion if all options are exercised.

Jacobs Engineering is the managing partner of a joint venture called Aerospace Testing Alliance (ATA). CSC holds 37.5 percent of ATA's voting shares and will realize that portion of the profits, but will not consolidate the joint venture's revenue.

In early July, CSC made public 63 previously unannounced government contracts and subcontracts valued at approximately $835 million. The agreements include 51 contracts from federal government clients and 12 subcontracts awarded during the second quarter of CSC's fiscal year.

The agreements range in value from $130,000 to more than $128 million, and vary in length from three months to 17 years. Twenty-two of the awards are from civil agencies, and the Defense Department accounts for 29 of the primary accords.

"It used to be that the government side for CSC was the forgotten stepchild," said Kipps of Houlihan Lokey. "Commercial markets continue to be soft. The federal business has been CSC's life preserver over the past year."

Yerks said he believes that modernization and military force transformation initiatives will grow. The company is well positioned to take advantage of both trends, he said. CSC has contracts to provide administrative and logistical services for 10 large military bases and stands ready with a blend of capabilities it can deliver upon request, he said.

"We address multiple markets with multiple capabilities," Yerks said. "We run from the high end -- IT engineering, modernization and networking -- to growth at [military] base engineering and support services. It's a little bit of everything."

Not all has been successful, however. The company endured some harsh criticism from the IRS for delays in a multibillion-dollar project to modernize the agency's IT systems. It also faced delays in an FBI contract. And the fallout from relatively flat government IT spending could spread more widely than CSC anticipates.

Nonetheless, Yerks said the expected $60 billion the government will devote to IT spending in 2004 is "a very large number, and huge from a net-dollar perspective."

Given the company's contract win rate of between 85 percent and 90 percent, Yerks said he expects CSC to realize its fair share of the bounty.

— James Schultz