Booz Allen Hamilton Inc. and other leading government contractors are facing a series of uncertainties this year.
There are tight budgets, a new administration in January and growing skepticism of contractors on Capitol Hill.
For Booz Allen, there is also deciding whether to keep its commercial and government businesses together or break up the company.
“We do a lot of work across a broad spectrum,” said Ralph Shrader, chairman and chief executive officer of the McLean, Va., company that ranks No. 11 on the Top 100 with $2.4 billion in 2007 prime contracting revenue.
“While the diversity of our business base has served us well, we need to evaluate what the best organizational structure is to serve diverse bases,” he said.
Shrader, who has been CEO since 1998 and has put together a string of years with double-digit growth, said the Carlyle Group investment firm is a potential buyer. But he emphasized that the separation would happen only if it were in the best interest of the firm.
“The operating models to serve the U.S. government are dramatically different than those for the commercial market,” he said. “We are by nature a management consultant — it’s our job to examine opportunities — so we’ve been doing it for ourselves.”
Shrader downplayed as hype concerns from some industry observers that a new administration would make radical changes in critical market segments such as the intelligence arena.
“Early in my [34-year Booz Allen] career, when we were a smaller organization with fewer clients, we were much more fearful about administration changes,” he said. “My experience tells me there may be changes in personality and priorities, but there will still be a very strong need for the kind of services we provide.”
Shrader is equally bullish about large, complex, industry-managed defense contracts. Congress has passed legislation banning, beginning in 2010, any so-called lead systems integrator arrangements. Major projects — such as the Coast Guard’s Deepwater led by Lockheed Martin Corp. and Northrop Grumman Corp. and Future Combat Systems managed by Boeing Co. and Science Applications International Corp. — have run into trouble.
Although Booz Allen has done some similar integration work, especially developing requirements for Defense Department space programs, Shrader said the increased congressional oversight can only benefit both government and industry. “It’s something we welcome.”
But such oversight might signal a reboot of defense space systems, which in recent years have been vexed by cost overruns, technical failures and schedule slippage. “Outcomes have been so disappointing in some cases that DOD has had to go back to the drawing board,” the Government Accountability Office reported in March.
“I’m not sure it’s a problem with the way the requirements are being written or with execution,” Shrader said. “My perception is we’re not dealing with requirements problems but with implementation problems.
On the implementation side, obviously there have been issues and disappointments.” But, he added, “that’s an area where we’ve not been affected greatly as a contractor.”
