Duane Andrews, chief executive officer at QinetiQ North America, has seen years like 2008 before. Agencies have faced tight budgets in the past, and every shift from one presidential administration to the next — even within the same party — means contractors must weather a period of uncertainty.

But having been through this before doesn’t make it any easier for QinetiQ and other companies on this year’s Top 100. “We are certainly in a year that is going to be very disruptive to the normal acquisition system,” said Andrews, whose company ranks No. 24 on the Top 100 with $855.8 million in prime contracting revenue in fiscal 2007.

To continue to grow in today’s market, Top 100 companies are forging closer customer ties, streamlining internal operations and chasing emerging opportunities. All of this is happening against a backdrop of tight budgets, shifting buying patterns and increased oversight of government operations.

“Tight budgets are always a two-edged sword,” said Linda Mills, corporate vice president and president of the information technology sector at Northrop Grumman Corp., No. 3 on the Top 100 with $7.9 billion in prime contracts. “The pressure to do more with less drives demand for IT because IT drives productivity. On the other hand, it can slow new system starts.”

THE HUNT FOR OPPORTUNITIES
Although most companies are bullish on their prospects in the market, budget documents for fiscal 2009 show spending holding steady.

An analysis of government budget documents by market research firm FedSources shows that the Defense Department will have only 21 new initiatives worth $2 million in 2009. Civilian agencies will have 85 new initiatives worth $156 million. FedSources analyzed Exhibit 53s that agencies file with the Office of Management and Budget and DOD’s IT-1 Report, which it uses to disclose its IT spending plans.

“New programs are hard to come by,” said Phil Nolan, chairman, president and CEO at Stanley Inc., No. 48 with $363.6 million in prime contracts. “If you are going to grow, it is more about being able to position yourself to take market share and beat the incumbents.”

Nolan called it one of the biggest challenges in the current environment.

“Some [agencies] are not going to move forward in a transition year,” said Ellen Glover, executive vice president of management and technology solutions at ICF International Inc., No. 93 with $145.4 million in prime contracts. But if new initiatives are sparse, there are plenty of continuing priorities that agencies need to address.

High on Lockheed Martin Corp.’s list is helping customers with challenges involving cybersecurity, the war on terrorism, interoperability and a dwindling talent pool, said Linda Gooden, executive vice president of the Information Systems and Global Services sector. Lockheed Martin is ranked No. 1 with $13.4 billion in prime contracting revenue.

Homeland security, intelligence, command and control systems, and complex IT support are other important areas, Andrews said.

“I’m trying to concentrate on the more complex problem sets, where you really have to bring new technology to solve a particular customer problem,” he added.

As agencies try to live within their budgets and make their operations more efficient, opportunities for outsourcing projects are emerging.

“Agencies are looking for someone who can bring new innovations in terms of how they process the work and how they can effectively manage the workforce to get the work done,” Nolan said. “That is why they hire us.” Lee Carrick, president of Perot Systems Inc.’s government services division, agreed. His company, which is ranked No. 41 with $457.8 million in prime contracts, won the $400 million Education Department Utility for Communications, Application and Technology contract to provide IT infrastructure services. Under the 10-year contract, Perot owns and operates the infrastructure.

“This is a very large agency that wanted to do things a little differently,” Carrick said. “We are seeing that in a couple other areas.”

Health care and green IT also might fuel growth, Glover said.

Agencies have begun talking about their carbon footprint. “We’ve started to see some interest at DOD, and [the General Services Administration] has a green initiative,” she said. “I think that perhaps after the election, we’ll see even more.”

PROCUREMENT STRUGGLES
One government challenge on the minds of many Top 100 executives is the plight of government procurement shops. Mismanaged and poorly performing programs put pressure on agencies and contractors alike.

“Everyone understands that this is a problem,” Nolan said. “These guys do a great job with the workforce they have got, but without a doubt, they can use more resources.”

The retirement of government workers who have domain and technical expertise is a growing concern, Carrick said. “As people retire and leave government, we’re losing skills.”

Glover said she has seen instances in which a government contracting officer chose a procurement strategy that hadn’t been approved by the agency’s program manager.

“That’s an indication that the acquisition workforce is overworked and doesn’t have the resources that they need,” she said. “They are plunging forward and doing things the best way they know how.”

There also is growing concern — voiced in a series of Government Accountability Office reports — about contractors performing acquisition management support work instead of government employees handling it.

“They can’t solve this problem overnight because there is no way to build this expertise,” Andrews said. “But what they can do is better manage their support contractors.” That means hiring technical support contractors and not using the same vendors to build the system, he added.

Contractors that can provide technical support while avoiding conflicts of interest could build a strong business around that service, Andrews said.

MARKET ADJUSTMENTS
It is not just agencies that are looking for greater efficiency. Several companies on the Top 100 are implementing structural changes to their operations.

L-3 Communications Corp. — No. 8 with $3.9 billion in prime contracting revenue — recently consolidated eight divisions into five to streamline its services operations, said Les Rose, president of L-3 Enterprise IT Solutions, one of the new divisions. The company was seeking to align its services with its customers.

“The L-3 Services Group reorganization is definitely an indication of the future, where we potentially will have to reduce the number of operating organizations,” Rose said.

Within three months of hiring Jim Duffey to run its U.S. government business, Dell Inc. — No. 15 with $1.7 billion in prime contracts — restructured its government group. Different units now focus on homeland security and intelligence, civilian agencies, DOD, systems integration, state and local government, education, and health care.

“[Early] indications are they will have accomplished more in covering the marketplace than was covered before,” Duffey said.

Lockheed Martin consolidated two sectors more than a year ago and is seeing that realignment pay off with wins such as the nextgeneration fingerprint system for the FBI, said Gooden, who runs the new Information Systems and Global Services sector.

One motivation behind the realignment was to keep the business focused on its customers and build in more agility, she said.

TRANSITIONS AHEAD
Agility is paramount for many executives as the presidential election approaches.

“There is no doubt that [the market] is going to be very dynamic over the next two years with a new administration and seeing where their priorities will take us,” Nolan said.

Several executives said that no matter which party wins the White House or controls Congress, there will be no quick exit from Iraq and Afghanistan. “It is just not practical,” one said.

With many resources going to those conflicts, the new administration and Congress will be faced with tough choices, not the least of which is how to manage the budget deficit as the demand for domestic spending increases.

“Services are the things that the government needs to get their job done day in and day out,” Nolan said. “The big-ticket items [such as weapons systems] are at higher risk and might provide the means by which discretionary funds are freed up to go to other priorities.”

Company executives are following the issues on the campaign trail and talking as much as possible with their customers to gauge their needs.

“You have to stay attuned to all you can and develop contingency plans,” Andrews said.

Only the election and time will answer some of the questions on executives’ minds, such as what the new administration will focus on, what kind of domestic programs will become priorities, and what the mix of spending will be between defense and civilian agencies.

“Things will shape up pretty quickly” after the election, Carrick said. “We just need to be ready to move, then we’ll really find out how agile we are.”

Nick Wakeman (nwakeman@1105govinfo.com) is editor-in-chief of Washington Technology.