The Contractor Elite

bfriel@govexec.com, ksaldarini@govexec.com

1. Lockheed Martin

Last year was not Lockheed Martin's best. For the behemoth contractor, 1998 was dotted with high-profile disappointments, from major contract losses to missile and rocket launch failures. But many of the disappointments were countered by successes; and in the federal arena it's hard to say you had a rough year when you did more than $18 billion in business.

In the air, failures occurred in both the Titan IV and Theater High Altitude Area Defense (THAAD) programs. Since August last year, three Titan IV rockets have malfunctioned. One exploded after launch and two sent the satellites they were carrying into the wrong orbit. Meanwhile, the THAAD program's antimissile missile missed its target for the fifth time in 1998, followed by a sixth failure in early 1999.

Fortunes looked better this spring, however, as the Titan IV had a successful launch and THAAD recorded its first hit, restoring some confidence in the beleaguered programs.

On the ground, Lockheed lost a $1.1 billion Air Force contract for depot work to a public-private team from Boeing and Utah's Ogden Air Logistics Center in September. But Lockheed adopted the public-private strategy for a separate $10 billion Air Force contract for depot work, joining forces with Oklahoma's Tinker Air Logistics Center. The Lockheed- Tinker team went on to beat out Pratt and Whitney for the contract this winter.

At the Energy Department, long- standing dissatisfaction with the way Lockheed has managed the Idaho National Engineering and Environmental Laboratory led the department to put the laboratory contract out for bids at the end of the year. Gaithersburg, Md.-based Bechtel will replace Lockheed as the facility's manager.

Meanwhile, DOE extended Lockheed's contract to manage the Oak Ridge National Laboratory in Tennessee by 15 months, until June 2001, while the department rethinks its management strategy for all its labs.

Lockheed also lost the high-profile competition for the IRS tax systems modernization project, a 15-year effort that could be worth at least $2 billion. The IRS chose Computer Sciences Corp. The Navy's pivotal multi-function radar (MFR) prototype contract also ended up in Lockheed's loss column, as Raytheon took home that prize.

But Lockheed had its share of wins in 1998 as well.

In September, Lockheed beat out rival Boeing for a $3.4 billion, 10-year contract to run NASA's communications and data collection for human space flights, satellites and planetary exploration missions. Lockheed continues to partner with Boeing on NASA's shuttle operations, as their United Space Alliance joint venture continues to take on more of NASA's business. USA's six-year contract is worth about $8.5 billion and growing.

Lockheed and Boeing also split the $3 billion Air Force Evolved Expendable Launch Vehicle program in October. Lockheed's share is worth about $1.15 billion.

Overall, Lockheed's mixed performance on new contracts in 1998, along with low sales of the C-130J cargo plane and ongoing criticism of cost overruns in the F-22 fighter program, had some observers wondering whether the 170,000-employee company had finally overextended itself. In October, Vance D. Coffman, Lockheed's chairman and chief executive officer, defended his company's strategy of diversification.

"Competitiveness in today's very robust marketplace is determined not by the size of aggregate sales, but by the base of sales within lines of business and the ability to draw upon a range of technologies that would enhance the marketability of one's products," Coffman told the Council on Foreign Relations. "As such, our consolidation efforts in the past were to generate increased base and access to a broader set of technologies."

Despite its failed attempt to merge with Northrop Grumman last year or to acquire the U.S. Enrichment Corp. from the federal government, Lockheed announced in September its intention of buying satellite giant Comsat, as Lockheed positions itself as a commercial space services company.

But Wall Street has been none too happy with the company's performance, and the Pentagon called in company officials for a weekend meeting earlier this year to discuss performance problems.

In June of this year, Coffman conceded to Defense Daily that Lockheed may be stretched as far as it can be, and talk circulated in the industry that the company is looking to shed operating divisions worth about $1 billion.

2. Boeing

The largest aerospace company in the world suffered a series of crushing ego blows in 1998. Still giddy from its highly touted mega-merger with McDonnell Douglas in 1997, Boeing's bubble burst last year with headlines about exploding rockets and lost contracts. Net earnings of $1.1 billion put Boeing in the bottom quartile of S&P 500 companies for profitability.

"Last year was very challenging, and it was an experience that I never intend to repeat," CEO Philip M. Condit said at Boeing's annual shareholder meeting in April.

Last August, Boeing took a hit when its $225 million Delta III rocket launch blew to pieces. Eight months later, a second Delta III failed to put a communications satellite into proper orbit. But the company is still vying for a top spot in the commercial launch business for telecommunications satellites-a goal that prompted its marriage with McDonnell Douglas, making it heir to the Delta family of rockets.

Boeing also had to hand over $10 million to the U.S. government in October 1998 to settle allegations of wrongdoing in its Sea Launch program. The State Department accused Boeing of violating arms export laws in the $500 million project, which will allow Norwegian, Russian and Ukrainian business partners to inexpensively launch satellites from a converted oil rig. The fine was the largest ever leveled under the Arms Export Control Act.

Boeing took swift action to address its problems last year, starting with a shake-up at the top. A new management team of company outsiders took charge, looking to shore up poor-performing businesses. The company's business units were restructured into three groups: commercial, military and space.

Boeing suffered a big loss to Lockheed Martin on a 50-plane order from the Greek government for fighter jets. The Greeks chose Lockheed's F-16 over Boeing's F-15 in a $1.4 billion deal. As a result, Boeing announced it would cut about 7,000 jobs at its St. Louis plant, which manufactures the F-15.

Not all the news was bad in 1998. Boeing won more than $5 billion in contracts for military aircraft maintenance, logistics support and training systems. Two more big boosts came in space and communications contracts. Boeing was awarded the Air Force's Evolved Expendable Launch Vehicle contract and was also selected to lead the National Missile Defense (NMD) program, designed to protect the U.S. long-range ballistic missiles. The missile defense contract is valued at $1.6 billion over three years. The program was launched two months late, but Boeing officials say the NMD team is still on track to meet its goals for next year, when a decision on whether or not to deploy the system will be made. The Clinton administration pledged more money to the project early in 1999, but Boeing's performance will determine whether it gets those dollars.

Meanwhile, work continues on the United Space Alliance, a Boeing/Lockheed Martin joint venture to operate the space shuttle program and manage other operations for NASA. A major effort to update the four shuttles is under way.

Boeing is also the prime contractor on the International Space Station, a 15-nation joint venture, operating under a deal valued at $9.8 billion until 2004. Two of 40 rocket launches necessary to assemble the orbiting laboratory have already been completed. In July 1998, more than $900 million in additional work was added to the program as part of Phase II of the contract. The project has been clouded by Russia's financial woes and unexpected cost overruns. As a result, Boeing has lost at least $128 million in performance bonuses it could have earned.

Boeing is also competing to develop the Joint Strike Fighter, which could ultimately be worth nearly $1 trillion. The competition will replace seven military aircraft and involve an initial order of 3,000 airplanes.

3. Raytheon

Raytheon, which means "light of the gods," shone in 1998. The heavyweight in defense electronics nearly doubled in size in 1997 when it acquired Texas Instrument's defense business and merged with Hughes defense. As a result, the company's Defense Department sales increased 21 percent in 1998 from the previous year, while its electronics division saw a 65 percent increase in sales, to $14.8 billion.

But those gains did not come without costs. In fact, as a result of recent acquisitions, Raytheon has taken on debt estimated at $11 billion. Last year, Raytheon employees paid the price, as the company cut 9,000 jobs. Raytheon also eliminated 3.3 million square feet of excess facility space. The reorganization saved Raytheon approximately $440 million in 1998 and left only five layers of management between top and bottom-level employees.

Incoming Raytheon Chairman Dan Burnham hopes all the internal rewiring will improve the company's share value. "The share price has held while others in the industry have fallen, but I would stress that this is a marathon, not a 100-yard dash," Burnham told Jane's Defense Weekly in March.

The company launched an extensive training program aimed at improving cost efficiencies last year. Dubbed "Six Sigma," the program will eventually train 1,200 experts in cost-savings techniques and 25,000 support specialists.

Buoyed by its acquisitions, Raytheon reported it had a 74 percent win rate in contract competitions in 1998. The Navy awarded Raytheon a contract valued at $800 million to develop a lower-cost, more flexible version of the Tomahawk cruise missile. The contract is for more than 1,300 missiles over five years, with production slated to begin in 2001. Up to 15 percent of the Navy's inventory of Tomahawks were launched at Iraqi targets in early 1999, and the supply was further depleted by NATO bombings in Yugoslavia. With strong demand and short supply, production of the weapon is likely to increase.

Raytheon's joint standoff weapon, guided to its target by the Global Positioning System, was used for the first time in combat in 1999. Its success was a good omen-the company's contract with the Navy for the weapon is worth $134 million, with provisions for more than $600 million of follow-on options over the next three years.

Raytheon had a surprise win in late 1998 when Boeing, the lead contractor for the National Missile Defense Program, chose Raytheon to build the exoatmospheric kill vehicle over its own company's team. The sophisticated warhead would destroy an incoming missile aimed at the United States and is considered the most complex aspect of the National Missile Defense Program.

Raytheon also joined forces last year with the shipbuilding division of Litton Industries to offer concept designs for the next-generation DD 21 destroyer. The company will eventually compete to design more than 30 ships.

On the other hand, as the top subcontractor for the Army's Theater High Altitude Area Defense (THAAD) missile contract, Raytheon has shared in recent bad press about the weapon's performance. THAAD missiles failed to hit their targets in six consecutive tries before a successful test earlier this year.

In the international market, Raytheon scored a $1.1 billion contract from Greece last year for Patriot missile batteries. The company will complete work under the contract by the end of this year, with smaller contracts likely to follow. Company officials hope to continue to push Patriot products internationally. In fact, they have already factored in a $1 billion sale of Patriot missiles to Egypt into Raytheon's financial projections.

4. General Dynamics

With its purchase of National Steel and Shipbuilding Co. (NASSCO) of San Diego in November, General Dynamics became the owner of three of the six private shipyards that do Navy work. The company would have controlled four yards if the Pentagon earlier this year hadn't shot down its $1.4 billion bid for rival Newport News Shipbuilding.

That effort, along with General Dynamics' failed bid for armored vehicle maker United Defense last year, showed the company's appetite for acquisitions has yet to be satisfied. In fact, earlier this year, GD announced its plans to acquire business jet maker Gulfstream for stock worth about $5 billion and GTE's government information systems division for about $1 billion in cash.

General Dynamics is still half the size it was at the beginning of this decade, when it began a mad sell-off that saw its annual revenue fall from $10.2 billion in 1990 to $3.1 billion in 1995. The company's revenue climbed back up to nearly $5 billion in 1998. Last year alone, GD's defense business shot up from $2.1 billion to $3.7 billion.

With NASSCO, Bath Iron Works in Maine and Electric Boat in Groton, Conn., General Dynamics continues to be a dominant submarine and ship builder for the Navy. The company's other main business line, tank building, also rolls on, as GD gears up to build an expected 1,000 Advanced Amphibious Assault Vehicles (AAAVs) for the Marine Corps by 2005.

The Gulfstream acquisition puts General Dynamics back in the air seven years after selling its Cessna Aircraft division to Textron Inc., and six years after selling its jet fighter business to Lockheed.

The GTE acquisition is the latest in a string of information technology buys. General Dynamics' IT division supports work on the company's naval and armored vehicle contracts.

The acquisition strategy is designed to help the company weather the ongoing squeeze in the Defense marketplace. The Navy is on course to reduce its fleet from 600 ships in its Cold War heyday to around 300, and in order to keep its shipbuilding base alive, it splits work between GD and Newport News. For example, last September, GD's Electric Boat won a $4.2 billion contract to build four Virginia-class submarines. But the work will be divided with Newport News.

Bath Iron Works, meanwhile, is developing a design concept for the DD 21 next-generation destroyer. Mississippi's Ingalls shipyard, owned by GD competitor Litton Industries, is developing a competing design. But whichever design the Navy chooses, Bath and Ingalls will split construction of the expected 32 ships.

That cooperation-competition model promises to rule the shipbuilding business for years to come; Bath is also splitting work on 12 new LPD-17 transport ships with Louisiana's Avondale shipyard, which was acquired by Litton in 1999.

The LPD-17s will carry the Marines' AAAVs, which are being built at a General Dynamics facility in Woodbridge, Va. GD also continues to work on upgrades to the Army's M1A2 Abrams tank, and will be producing a derivative of the tank, the Wolverine Heavy Assault Bridge, for the Army.

Meanwhile, General Dynamics and Boeing continue to slosh through a legal dispute with the Defense Department over the 1991 cancellation of the Navy's A-12 attack plane program. A federal judge awarded the companies a combined $1.8 billion in February 1998. But an appeals court in July sent the A-12 case back to trial for the fifth time since the companies first filed suit.

5. Northrop Grumman

With sales down $250 million and net income cut in half from 1997 to 1998, Northrop Grumman officials admitted they had failed to meet their financial objectives last year. "Quite simply, we did not perform up to our expectations on several key programs," Chief Executive Officer Kent Kresa said in the company's annual report.

Northrop Grumman's failed merger with Lockheed Martin was the low point of the year, but the company also ran into financial difficulties on the Joint Surveillance Target Attack Radar System (JSTARS) and the Directional Infrared Countermeasures program.

In addition, Northrop Grumman didn't build any B-2 bombers in 1998. The company delivered the final bombers to the Air Force in 1997, which saw combat for the first time this year over Yugoslavia in Operation Allied Force. Northrop will still get several hundred million dollars a year in maintenance work on the B-2 fleet, but it was no surprise that the company's Air Force business dropped from $2.6 billion in 1997 to $1.4 billion in 1998.

Despite financial difficulties, the JSTARS program, which refurbishes aircraft with moving ground target tracking systems, is moving ahead. Northrop has provided the Pentagon with four Joint STARS aircraft so far. Pressure is building for Congress to fund a total of 19 aircraft, rather than the 13 now funded, since NATO decided not to buy any of the aircraft.

Northrop is upgrading its EA-6B Prowler electronic jamming aircraft, which saw action in Yugoslavia, as well as its E-2C Hawkeye early warning aircraft. Northrop is also helping Boeing build the Navy's F/A-18E/F Super Hornet.

While aircraft is still big business for Northrop, the company sees the biggest chunk of its future in electronics and information technology. For example, Northrop expects its IT division, Logicon, to double in size in the next five years. In 1998, Logicon had $1 billion in sales.

Logicon's biggest win of last year came in August, when NASA and the Air Force selected Space Gateway Support, the division's joint venture with two other companies, for a 10-year, $2.2 billion contract to consolidate facilities management at the Kennedy Space Center and Cape Canaveral Air Station.

While, 65 percent of Logicon's business is with the Defense Department, the IRS is also a big Logicon customer. The company is part of the team that will modernize the IRS tax systems.

Northrop's radar business also continues to hum, with work on systems for the F-22 fighter, the Apache helicopter, and other weaponry that depends on high-tech sensors.

6. University of California Systems

For the first time since the Manhattan Project 56 years ago, the University of California is facing the real threat that it may lose its management contract for two of the nation's three nuclear laboratories.

UC's contracts to run Los Alamos National Laboratory in New Mexico and Lawrence Livermore National Laboratory in California expire in 2002. Asked earlier this year whether UC's contract was in danger, Energy Secretary Bill Richardson told reporters, "Unless there are overriding circumstances, we'll put everything up for bid."

With allegations on Capitol Hill of a 20-year campaign by China to steal nuclear weapons secrets from the UC laboratories, the laboratories' managers came under attack for a lack of security measures at Los Alamos and Lawrence Livermore.

"Shouldn't we fire a contractor who behaves this way?" Rep. John Dingell, D-Mich., asked at a House Commerce Committee hearing earlier this year. Other lawmakers echoed Dingell's criticism, as did the General Accounting Office.

One problem, GAO said, was that the Energy Department's contract with UC, which contains 188 performance measures, contains no such measures related to counterintelligence efforts. Overall, security performance measures account for just 5 percent of UC's evaluation standards, GAO said in a recent report (RCED-99-159).

Observers also pointed to an inherent incompatibility between the academic freedom a university fosters and the national security concerns that go with nuclear research.

The university, through spokespeople, pledged to work with the Energy Department to improve security at the labs. UC also defended its labs as hotbeds of innovation and some of the best science in the world.

Even congressional critics concede that the labs employ extremely talented researchers and scientists. At Lawrence Livermore, for example, scientists developed a seismologic system to detect violations of the Comprehensive Test Ban Treaty around the world. Scientists at Los Alamos recently developed an engine with no moving parts.

But UC should not be able to walk away from the Chinese spying scandal with a slap on the wrist, critics say. One immediate change Congress is considering is repealing a law that exempts the university from paying fines for safety and security violations at the labs. UC has avoided $425,000 in fines since 1996, according to GAO.

Earlier this year, University of California President Richard Atkinson ordered a review of security measures at the labs.

UC also manages the Lawrence Berkeley lab for DOE, which handles unclassified research.

7. United Technologies

United Technologies decided to clean house last year. The company sold its dusty automotive division just weeks after acquiring aerospace components maker Sundstrand Corp. for 4.3 million.

As a result, United Technologies strengthened its foundation. In 1998, for the fifth year in a row, earnings per share rose 20 percent or more, and revenues grew nearly 6 percent. And Sundstrand, which gets about 40 percent of its sales from government contracts, should help UTC land more big federal contracts.

Pratt and Whitney, United Technologies' aircraft engine division, started off the year with a bang, capturing a contract valued at $1 billion over eight years to overhaul the engines of the Air Force's C-17 aircraft. Pratt and Whitney will work under the contract in a unique partnership with United Airlines, one of the first times the military has relied on private industry for maintenance support of an entire aircraft system.

Pratt and Whitney also captured a five-year, $450 million contract from the Air Force to service F-15s and F-16s and another deal worth almost $1 billion for F119 engines for two F-22 fighter test aircraft. The company also will get part of the $3.6 billion Congress has approved for 15 new C-17 aircraft, whose engines are manufactured at a Pratt and Whitney plant.

Like other major defense players, Pratt and Whitney is hard at work on the Joint Strike Fighter program. The aircraft, which is designed to replace fighters for the Navy, Air Force and Marines, will be powered with Pratt and Whitney engines. The deal should bring in big revenues for the company-estimates are in the $20 billion range. The four engines Pratt and Whitney has designed are in the test phase.

United Technologies' aircraft division, Sikorsky, continued development last year of the Comanche armed reconnaissance combat helicopter in conjunction with Boeing. While the Pentagon has been forced to push its plans to purchase the aircraft into the future, Sikorsky continues to make progress. The second Comanche prototype successfully completed its first flight. The Army is eventually expected to purchase more than 1,200 Comanches at $14 million each.

United Technologies also ushered in new leadership recently. Karl Krapek, who had headed Pratt and Whitney, was named president and chief operating officer in late June. In addition to focusing on its aerospace business, Krapek said he intends to lead the company through a major restructuring effort already under way. United Technologies cut 8,000 jobs last year and launched a quality training program. Company officials say they are on track to meet their goal of saving $750 million on costs and price reductions from suppliers by next year.

8. Westinghouse Electric

This is the last year Westinghouse will appear on the top 10 contractors list. In March of this year, Morrison-Knudsen, a Boise, Idaho-based engineering firm, and British Nuclear Fuels, a state-owned nuclear fuel processor, completed their purchase of Westinghouse and split it up into three smaller companies.

The sale culminates a long series of events that resulted in the creation of a large company with an identity crisis. In 1995 Westinghouse bought CBS Inc., the television broadcasting company. The following year, the Westinghouse/CBS venture was separated into two divisions in order to allow the company to focus on the commercial sector. Now CBS has sold the remainder of Westinghouse, washing its hands of federal contracts and nuclear reactors.

One spinoff, Westinghouse Electric Co., responsible for the company's commercial nuclear power business, is now fully owned by British Nuclear Fuel. The second division, Westinghouse Government Services, which will handle defense-related government operations, is now owned by Morrison-Knudsen. Among its contracts, the division manages nuclear weapons and waste sites for the Energy Department and designs nuclear reactors for the Navy's nuclear submarines. The government services division is expected to generate $5 million in profits annually for Morrison-Knudsen.

The third company, Westinghouse Government Environmental Services, is jointly owned by Morrison-Knudsen and British Nuclear Fuel.

The entire deal took more than nine months to broker and was valued at $1.1 billion. "We've worked under a lot of uncertainty in the last few months, and we are really glad it's over," Westinghouse president Charles W. Pryor Jr., told The New York Times after the deal was finally completed.

One reason for the length of the sale was the U.S. government's reluctance to allow foreigners to buy an interest in the American nuclear weapons industry. But the structure of the deal, with the split of Westinghouse operations, alleviated that problem.

The Westinghouse sale increases the size of Morrison-Knudsen by roughly 20 percent and moves the company to the forefront of the nuclear industry. The sale is expected to generate an additional $300 million annually in revenues for the company.

Morrison-Knudsen officials say the new organization will be more effective in bidding for larger government contracts. In fact, it started off by going after a six-year, $10 billion Energy Department contract to operate the Idaho National Engineering and Environmental Laboratory in eastern Idaho.

That bid failed, but Morrison-Knudsen CEO Dennis Washington insists the new division "is second to none in its ability to serve its most strategic client, the Department of Energy."

The sale also gives Morrison-Knudsen access to the AP 600, a Westinghouse nuclear reactor design that is expected to be used to replace older reactors nearing the end of their life spans. The company also gains control of the Savannah River complex, for which Westinghouse was the Energy Department contractor. Westinghouse has managed the site since 1989 and has two years left on a five-year, $6 billion contract to run the facility.

9. Litton Industries

Like Popeye downing a can of spinach, Litton Industries tried to instantly transform itself from wimpy bystander to beefy powerhouse earlier this year. Litton's surprise bid to purchase Newport News Shipbuilding would have catapulted the company almost overnight to the No. 1 position among the nation's shipbuilders.

The unsolicited bid to buy Newport News, along with an effort to purchase Avondale Industries, another shipbuilding firm, surprised many industry experts. In recent years, Litton had remained on the sidelines while other industry players made aggressive acquisitions. The Litton bids also were unexpected because General Dynamics had been forced to drop its effort to acquire Newport News. The Pentagon opposed the merger on antitrust grounds.

Government's opposition doomed Litton's bid as well, even though Litton's proposal would have combined three shipyards that do not compete with one another for Navy contracts. The proposal wouldn't "receive the necessary approval," Litton chairman Michael R. Brown said. Litton's Ingalls Shipbuilding subsidiary, in Mississippi, primarily builds destroyers and large amphibious assault ships. Newport News makes nuclear-powered aircraft carriers and submarines, and Avondale builds smaller-scale ships.

Nonetheless, the merger with Avondale did go through. The new organization, combining Ingalls and Avondale, will be called Litton Ship Systems.

Last year, Litton's Ingalls Shipbuilding subsidiary won several key Defense contracts. The Navy awarded Litton a pact valued at $2.5 billion to build up to eight more Aegis guided missile destroyers. And work continues on the design of the Navy's next-generation destroyer. Litton is working with Raytheon to compete for the $20 billion contract involving 30 ships. This year, Congress approved advanced funding for an eighth multi-purpose amphibious assault ship Litton builds for the Navy. If authorized, the contract could be worth about $1 billion. Under another Navy program, Litton will develop tactical radar jamming receivers for the Navy's EA-6B Prowler aircraft. The total potential value of the program exceeds $400 million.

Litton is focusing on acquisitions to build its other core businesses. The company purchased TASC Inc. for $432 million in April 1998, positioning itself as a competitor in the national intelligence IT market. Soon after Litton acquired TASC, it became a major subcontractor on work for the National Imagery and Mapping Agency.

Litton also made plans to become a bigger force in the federal systems integration market. As a first step, the company shifted the focus of its advanced electronics division from supplying components to integrating electronic systems for military and commercial customers.

Litton hopes to become a leader in systems development for navigation, guidance and control and for electronic warfare. In one major contract, the company will supply avionics valued at $1 million per plane for the Eurofighter program. The program has four participating nations that are expected to buy about 620 aircraft.

Litton will also supply an integrated avionics system for the Marine Corps' Super Cobra attack helicopter and the Huey utility helicopter in a deal that could bring in more than $600 million in revenue.

Litton's interactive weather system designed for the National Weather Service received federal approval for installation last year. The company expects to install more than 150 of the systems by the end of this year.

In 1998, Litton's overall sales went up 5 percent, to $4.4 billion in revenues.

10. Science Applications International

To celebrate its 30th birthday this year, Science Applications International Corp. landed itself on the Fortune 500 list for the first time. This is also the first year SAIC has appeared on Government Executive's list of the top 10 federal contractors.

The company's march to the upper echelon of federal contracting began in 1969, when Robert Beyster, a former Los Alamos National Laboratory research scientist, started his own company to win federal research contracts. SAIC's first two contracts were from the Los Alamos and Brookhaven national laboratories.

As a manager at defense contractor General Atomic, Beyster was frustrated at how management decisions there were driven more by outside shareholder concerns than by the needs of scientific research. Beyster decided to make his company employee-owned, rewarding his employees based on how much business they brought to the company. In SAIC's first year, Beyster's share of the company's ownership went from 100 percent to 10 percent. The company grew steadily over the years, picking up more and more federal business, primarily from the Defense Department.

SAIC is now the largest employee-owned high-technology company in the United States-and the only privately held company on our list of top 10 contractors.

Last year alone, the company's revenues grew from $3.1 billion to $4.7 billion.

In 1998, SAIC won a $1.3 billion contract to continue to manage the Defense Military Health Service's information systems. SAIC is the prime systems integrator for the National Imagery and Mapping Agency, where SAIC is helping create a single integrated information system for managing military imagery intelligence data.

The company's other defense business lines include data warehousing, modeling and simulation, setting up training centers, and research and development.

On the civilian information technology front, SAIC landed spots on two potentially lucrative General Services Administration contracting vehicles. SAIC will be seeking agency task orders on GSA's $9 billion seat management contract and its $25 billion information technology services contract, ANSWER.

The Immigration and Naturalization Service tapped SAIC to oversee a $400 million overhaul of the agency's management and information systems. SAIC also provides technology management services to the Environmental Protection Agency.

Overall, SAIC's Defense Department business went up 13 percent in 1998, and its civilian agency business increased by 25 percent. With its acquisition of Boeing's $300 million-a-year government information technology division this year, SAIC promises to continue its march up the list of top federal contractors.

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