The Titans

fter six years in England, it was time for Donald Brown to come home.

The vice president of strategic information technology consulting for Computer Sciences Corp., a systems integration firm headquartered in El Segundo, Calif., Brown had pulled a long tour of duty with the company's division in the United Kingdom. Then, in the summer of 1997, Mike Laphen, the head of CSC's business division who was hunting for opportunities at the Internal Revenue Service, called Brown about a contract on the horizon at the agency. The IRS wanted to hire a team of technology firms to modernize all its information technology systems, and it was looking for a prime contractor to come forward and gather a winning cast of companies to do the job. A 15-year bonanza worth $5 billion to $7 billion, the deal would also mean massive publicity for the successful bidder. Laphen asked Brown whether he might be interested in crafting the company's bidding strategy.

Brown remembers thinking the plan sounded "like something made just for us to bid." On a contract this big, he says, "you have to decide if you're brave enough or stupid enough" to make a play for it. Brown got on a plane and headed for Washington.

Systems integrators such as CSC control the federal technology market by winning the kinds of huge, high-profile deals that compelled Brown to return home. Market observers and executives estimate that at least 30 percent of all the money agencies spend on information technology each year is snatched up by only a handful of companies, including CSC, Northrop Grumman, Lockheed Martin, Electronic Data Systems Corp. and others. Their fortunes depend not on winning a few contracts a year, but on closing deals on millions of dollars worth of contracts every day. Over the past five decades, the companies have learned to work the system-and one another-to maintain their positions atop a mountain of contractors.

The fact that nine integrators rank in the Top 10 in Government Executive's most recent annual list of leading technology contractors is noteworthy, because most of the companies don't actually build anything. Integrators are best known for leading teams of other companies in competitions for multibillion-dollar technology contracts like the one at the IRS, and for multimillion-dollar pacts that arise annually. Integrators form armies made up of software and hardware manufacturers, business consulting firms and niche technology companies to cover every conceivable aspect of a contract. As one executive boasts of his firm, "We can do everything."

Federal technology vendors might have a fairly lucrative business selling to agencies on their own, but even such industry darlings as computer-maker Compaq know that to score long-term contracts, they must team up with the integrators that install-and often manage-their products and services inside an agency.

These days, though, it seems that every company wants to be not just a partner, but an integrator. The term has an air of sophistication, says Steve Carrier, vice president of business development and strategic planning at Northrop Grumman Information Technology, which acquired a slew of companies over the past year to strengthen its already formidable position in the integrator market. In March, Northrop Grumman launched a hostile takeover bid of systems integrator TRW of Cleveland.

Contemporary systems integrators evolved from the defense and aerospace contractors that sprouted up in southern California after World War II and built the technology systems that propelled the United States in the space race of the 1960s. The first integrators, such as Boeing, pulled together disparate technologies and made them work together in single structures, such as aircraft. As the military-industrial complex grew, it spawned today's integrators. By virtue of their historic connections to the federal government, integrators are more entrenched in the technology market than any other companies.

Being There

Most integrators make their money from three types of contracts. First, there are the multiyear deals worth billions of dollars, commonly called annuity contracts because a company counts them as dependable revenue. Next come the mid-tier contracts worth tens to hundreds of millions of dollars, often signed for only one year. And finally, there are a variety of governmentwide acquisition contracts (GWACs)-each awarded to dozens of companies that compete for subsequent orders that agencies issue under the contracts-and a set of contracts called the technology schedules, managed by the General Services Administration's Federal Supply Service. Nearly 3,000 technology companies hold prenegotiated schedules that allow them to sell directly to agencies with only a few days' turnaround. The GWACs and technology schedules have forced integrators to evolve into more customer-focused organizations, company executives say. Prior to the acquisition reforms of the 1990s that gave birth to the new contracts, integrators were structured much like government bureaucracies, a collection of stovepipes that did business with their own proprietary set of agencies and didn't strategize across the corporation.

But as reform changed the government, the integrators changed, too. No longer could the companies rely on their reputations and old contracts to keep them at the top. The companies were doing a huge amount of business, says Northrop Grumman's Carrier, but "all of the sudden [the government] comes out with a new rule book . . . .We had to reinvent ourselves."

Companies adapted to the new purchasing landscape by putting more feet on the street, sending marketing and sales forces into agencies to develop more contacts. Business development teams came to rely on such intelligence to spot new opportunities before they became public or before the agency fully developed a contract. "You needed to be there," inside the agency, says Pat Ways, who leads business development in the civilian agencies for CSC. "If you weren't there, you weren't in the act."

Life At The Top

CSC's defense division wins a contract worth $250 million or more every two to three months, Yerks says. But it also closes $250,000 to $2 million in business every day through GWACs and schedules. That means the company writes bids as fast as it wins them. At the firm's San Diego office, writing teams crank out two proposals for GWAC and schedules contracts each day. "It keeps you awake at night sometimes," Yerks says.

The stakes-and the returns-are just as high for other integrators. Northrop Grumman won at least $657 million in government business in fiscal 2000 just through GWACs and schedules, according to Federal Sources Inc., a McLean, Va., technology market research firm. EDS of Plano, Texas, the prime contractor on the high-profile Navy Marine Corps Intranet contract to electronically unify the Navy and Marine commands, sold $726 million through the GWACs and schedules the same year. More than 25 percent of all schedule and GWAC dollars went to integrators in fiscal 2000. But integrators depend on the entire spectrum of federal business, not just governmentwide contracts, to stay alive.

Inside Job

However, when an integrator sees an opening where no incumbent exists, it swoops in. Such was the case when CSC's civilian team went after and won a $223 million task order issued under a GWAC last October to provide technology and network support to the Health and Human Services Department's National Library of Medicine. The company had no presence in the agency before, so it found a firm that did. CSC asked AAC Associates Inc., a Vienna, Va., network firm that had worked for the library from 1983 to 1997, to be its subcontractor, Ways says. AAC had credibility that CSC badly needed. AAC paved the road, and CSC won the business.

Agencies are supposed to try to compete task orders among at least three qualified contractors, but because companies are reluctant to challenge entrenched competitors, firms often find they can dig their way into an agency and influence the acquisition process to win future business. Indeed, gaining an inside position is the key to success for integrators, says Ira Kirsch, federal sector president at Unisys, which has made a strong play in recent years to be seen as an integrator, not a technology manufacturer. Like an integrator, Unisys tries to offer agencies a menu of GWACs and schedule contracts in order to avoid the lengthy bidding process and formal requests for proposals.

"That's our primary goal, to avoid the RFP process," Kirsch says. If a company has credibility and holds a range of governmentwide contracts, it's easier to get an agency to buy direct. Kirsch says Unisys scored a software implementation contract at GSA's Federal Technology Service last year through the company's technology schedule by having a close relationship with the agency.

Yerks says selling through GWACs and schedules is the wave of the future. Eventually, huge integration projects won't operate through individual multibillion-dollar contracts, he says. Agencies will award work on a piecemeal basis, giving contracts to several companies through the GWACs and schedules in order to keep competition high and prices low.

But while contacts are key, sending people into an agency to influence the contracting process doesn't make a company an integrator. In fact, observers say, even the ability to integrate technology doesn't set the firms apart from the rest of the crowd. Many have asked exactly what makes an integrator an integrator. The answer lies in the influence integrators exert outside the agency. When bidding on large, heavily competed contracts, integrators show their true colors in how they play with other companies.

The Mating Dance

The companies began courting and warring immediately. Initially, says CSC's Brown, Andersen Consulting, now called Accenture, said it would make a play to become a prime contractor. But four hours after stepping off his plane from England, CSC's Brown met with representatives from Andersen, telling them he wanted Andersen's highly respected business consultants on CSC's team, which planned to go head to head with a rival alliance forming behind Lockheed Martin. According to industry sources, the IRS also desperately wanted Andersen to work on the project.

Thus began the period, common in such large contracts, that Ways calls "the mating dance." Through informal channels, officials from different companies talk with one another and survey the landscape. The prime contractors, almost always integrators, look at the field and decide who they want to dance with, and the nonprimes try to determine which one of their suitors has the best shot at winning. Brown says the process has all the intrigue of a detective story.

In the case of the IRS modernization, speculation abounded in the summer of 1997 over which integrators would make a play for the prime seats. Brown recalls that most believed Andersen, Lockheed Martin, CSC and TRW were the only companies that could pull it off. TRW was the IRS incumbent, but individuals close to the competition thought the company had fallen out of favor with the agency.

As the primes continued to shake out, one key player, IBM, still hadn't joined a team, Brown says. Both Lockheed Martin and CSC coveted IBM for its rich experience consolidating data centers, which would be a key component of the IRS project. IBM held out for a "very, very long time" Brown says. Ways, an ex-IBM employee, pressed the company as much as he could. But ultimately, says Brown, it was CSC partner Unisys that finally convinced IBM to join CSC's camp.

Andersen eventually backed down from its quest to be a prime, as did TRW, some say after the IRS called the company and said Andersen's insistence on trying to be a prime was keeping such companies as IBM from joining a team. The agency wanted to get on with the show. Lockheed Martin and CSC were left as the finalists to lead the effort.

In the case of contracts as huge as the IRS modernization, once teams form, employees of the would-be prime contractors who are experts in the nuances of federal procurement form "capture teams" that meticulously comb through every requirement in an agency's request for proposals. The capture teams know the company's strengths, and they find the parts of the contract that play to them.

Each company has its own way to review a contract's requirements and decide whether and how the firm will bid. Unisys, for instance, divides deliberations into a "yellow" phase, where the value of the business is assessed, and a "green" phase, when the firm makes a decision on whether to bid. Other capture teams work in similarly segmented ways, refining a bid and running it by other executives and experts in the firm until it's pitched just right. During this process, integrators try to identify a discriminator-a single selling point the firm will play up to set its team's bid apart from the competition. On the IRS contract, Ways and Brown say CSC put its money on its belief that the agency was looking for a proposal to change the way it did business, rather than a classic technology integration.

The IRS modernization blueprint, developed over two years, called for a complete business overhaul, not just a plan to integrate databases and desktops, say Ways and Brown. CSC didn't think Lockheed Martin had the capacity to perform the kind of outsourcing that such a soup-to-nuts job would require. By writing a bid slanted to that business angle, CSC believed it would win the contract. It did, in December 1998.

Integrators approach the delicate partnerships that lead to such victories on a case-by-case basis. It's not uncommon for an integrator to team up with a company on one contract and at the same time compete against it on another.

I Wanna Be Like You

Unisys is one example. The company has a history of building and deploying technology systems for a number of agencies. But Kirsch says it became clear in recent years that the firm needed to be something more. "We were not king of the hill," he says. Unisys decided it needed to be seen as an integrator. Kirsch points out that while the company still has a manufacturing core, 75 percent of Unisys' federal business is in services. He's been pushing hard to promote that fact.

Ron Ross, president of Compaq Federal, says he's patterning his company's business strategy-to sell solutions, not just hardware-after the strategy the integrators use. Ross knows the integrator culture well; he served as president of the defense and intelligence division at CSC for 15 years. "There's nobody that's going to walk into the federal space and become a Top 10 integrator in a short period of time," Ross says. Rather than try to supplant existing integrators, Ross says companies should find ways to make themselves more valuable as partners. "A partner will invest people, time, money and energy into shaping the offering to the customer," he says. Compaq has entered into exclusive partnerships on contracts with CSC, most notably for the National Security Agency's Groundbreaker outsourcing pact. That logic goes against the grain of integrator culture. Integrators will happily take the role of subcontractor to another prime if it fits their business needs, but they usually don't pledge their loyalty to any one company. But the model seems to be working well for Compaq. The firm ranks among the top three computer and hardware manufacturers in the federal market.

Ross says one of the most appealing aspects of the integrator business model is also one of the most challenging. Since the firms are constantly booking business through multiyear contracts, they have to spread revenue expectations out over the length of a contract, a process known as backlogging. An integrator can determine with reasonable certainty when a certain percentage of work on a multiyear contract is likely to occur, and hence how much revenue the company will earn. If the firm has a good understanding of its GWAC and schedule business, it can predict when customer orders are going to arrive. Ross says it isn't a science, but it's not a guessing game, either.

When Ross was at CSC, he says his division typically had a 40 percent to 45 percent backlog to lean on in a given fiscal year. But companies still face tremendous pressure to go out and book more revenue for the next year, Ross says. Multiyear contracts peak somewhere in the middle of their life span. Toward the end, as less work is done, less money comes in.

Ross wants to sell solutions and hardware through the integrators because they control the multiyear contracts. "My challenge is to find $33 million worth of business every week to make my numbers," he says. Integrators can provide that kind of revenue and give Compaq a comfortable backlog.

New integrators must beware of the risks of playing in the high-stakes market, executives say. A $300 million company bidding on a $600 million contract is betting the farm, Yerks says. "If you mess it up . . . it's a going-out-of-business scenario," he says. That's why small firms tend not to act as primes on big integration projects, he adds.

Being a successful integrator these days "means looking at every deal in a fairly ruthless way," says Jack Mathias, a senior principal at technology consulting firm and software manufacturer AMS of Fairfax, Va. The company has been aggressive in its strategy over the past year, and has hit some rough patches. AMS is being sued for $350 million by the board that runs the federal Thrift Savings Plan, which alleges that AMS mismanaged the TSP contract. But that hasn't diminished the eager firm's desire to be seen as an integrator. Vice President Cathy Hirsh says AMS has always viewed building contacts in an agency as the key to winning. "Networking never stops," she says. "You have to be out in the market. You have to be perceived to be there."

The fact that so many companies want to be known as integrators, even when integration isn't their only business, leads market observers to question whether the term "integrator" has outlived its usefulness. Many argue that it's more accurate to simply call the top companies what they are-giant technology contractors that eclipse their competitors.

As companies evolve, so does the landscape of the technology market. The terrorist attacks of Sept. 11, for example, created a new homeland security apparatus. Throughout the contracting ranks, integrators and their partners are scrambling to set up homeland security divisions and to predict where the still-nascent market will go. Executives agree that the future is unclear, but signs indicate integrators have good opportunities with their existing clients in the Defense Department and intelligence agencies. Business is also brewing in new civilian organizations such as the Transportation Security Administration, which started a hunt in February for an integrator to oversee the implementation of more than 1,700 explosive-detection machines to scan luggage at every airport in the nation by the end of the year.

The only competition integrators seem to have is each other. Most companies stay out of each other's way as much as possible. But eventually, Northrop Grumman's Carrier says, integrators cross paths and, with huge demands and ever-increasing expectations, they go to battle.

"The competitive atmosphere here is vicious," Carrier says. But "the payoff is fantastic."

Source: Eagle Eye Publishers Inc. analysis of data reported by agencies to the Federal Procurement Data Center.