By Cynthia L. Webb
washingtonpost.com Staff Writer Thursday, October 17, 2002; 12:00 AM
Technology contractors have been banking on a bigger pot of federal gold ever since the Bush administration said the tech industry would be indispensable to post-September 11 national security. And while politics, bureaucracy and the lengthy procurement cycle have kept much of that money under wraps, many firms in the sector remain optimistic that the cash will flow soon.
"Folks are still waiting and most folks are optimistic. ... [But] until all the significant spending that people have been hearing about comes to pass, then people are still going to be anxious," said David Nadler, a government contracts attorney and partner at Washington law firm Dickstein, Shapiro, Morin & Oshinsky LLP.
The Sept. 11 attacks and the ensuing war on terrorism prompted the White House to plan new technology spending as the federal government redoubled efforts to improve cybersecurity, acquire high-tech weaponry and integrate diverse computer systems.
Industry players anticipated a flood of information technology spending to appear as early as last spring and summer, but some companies that sell technology products and services to the government say the surge has yet to occur, save for a handful of major contracts and follow-on deals to existing contracts.
A wave of new technology contracts now isn't expected until January or even later next year, according to federal market experts. It will be the first quarter of the calendar year "before you see money falling," said Ray Bjorklund, vice president of consulting services at Mclean, Va.-based IT market research firm FSI.
"Even when the floodgates do open, it will be a trickle and a small one at that," said Nitsan Hargil, a senior research analyst of Friedman, Billings, Ramsey Group Inc., in New York. Hargil covers network and security firms like VeriSign Inc. and Symantec Corp. -- the very firms that are among those lining up to tap into the government's cybersecurity needs.
"We are in a very confusing time," said Olga Grkavac, executive vice president of the Information Technology Association of America. "[The] industry response is that we're watching it and trying to react as much as possible."
The Bush administration pegged a hefty $52.5 billion of the fiscal year 2003 budget toward information technology and services -- up from $44.9 billion in 2002. While the federal government's fiscal year began on Oct. 1, Congress has yet to complete work on the budget and might not finish completely until after Election Day.
Congress also has not completed legislation to create a new Department of Homeland Security, which would oversee a large portion of the administration's technology spending. As Congress continues to spar over the bill, the White House Office of Management and Budget has stepped in to monitor technology spending by seven of the 22 agencies slated to become a part of the new department.
The OMB implemented a review process largely to avoid duplication of software and other products if the different agencies come together under the same umbrella, said OMB spokeswoman Amy Call. "I don't think spending has been held up significantly," she said, answering criticisms from some in the industry who maintain the OMB review has slowed the contracting process.
Spending on the Edges
While policymakers continue to set priorities, many government IT firms are focusing on existing contracts or bidding for the few major projects on tap, including the Immigration and Naturalization Service's Exit-Entry system to track foreign visitors and the Transportation Security Administration's Explosive Detection System/Explosive Trace Detection general contractor program.
"A certain amount of spending has been happening, it's just been happening quietly," said Payton Smith of Chantilly, Va.-based IT research firm INPUT. Smith said some "quiet" rewards are being doled out to single contractors related to national security work.
But with the budget discussions and debate over the Department of Homeland Security still underway, "we are kind of in a wait-and-see mode," said Smith, who manages INPUT's public sector market analysis services.
"There's still a certain amount of optimism that there's a fair amount of money out there to be had, but I think a kind of realism associated with the fact that the money is not going to be pouring out all at once," Smith said.
Integic Corp., a Chantilly, Va.-based software integrator that works with the Federal Emergency Management Agency and other departments, is involved in several prototypes and pilots for government agencies. But Integic chief Robert E. LaRose said his company isn't betting on a short-term big boost in federal spending. Instead, many of the new initiatives from the government that will spur new opportunities for Integic and others are likely going to be part of a three-year rollout, he said.
Quest Software Inc., an Irvine, Calif.-based firm that maintains a public sector group in Rockville, Md., is eyeing opportunities related to upgrading federal agencies' data storage and computer operating systems, as well as consolidating servers. There likely will be a big jump in federal spending on security for computer systems and applications to connect the different systems of the various branches, said Paul Garver, vice president of Quest's public sector group. Quest clients include the Treasury Department and the Army.
However, Garver said Quest is not seeing new spending so far, and has experienced delays with some planned contracts because of the continued delay in formalizing the new Department of Homeland Security. "The general mood right now is one of optimism, but at the same time, until the budgets are finalized and IT plans are formalized, [there's] a little bit of apprehension right now," Garver said.
Big Fish Still Swimming
Networking activity has not slowed down even as the government continues to weigh spending priorities.
Jon Korin, executive director of strategic development of Northrop Grumman Information Technology in Herndon, Va., said more firms than usual have been calling him and asking how they can partner with his company on contracts.
"I think there is spending, but it's coming gradually. It's not coming in one big, fell swoop," Korin said.
He said spending should spur growth in the sector over the next couple of years, including key opportunities like secure information sharing, wireless communications and applications that target system interoperability.
"I think someone again maybe got a little too excited about all the rhetoric, so it got between a high level of rhetoric and 'show me the money.' But I think it is coming," Korin said.
For the long-established players in the government technology sector, the current delays aren't too problematic.
Tom Oles, vice president of business development of Lockheed Martin Information Technology, said spending appears to be at a normal pace. The biggest pipeline for deals is defense- and homeland security-related services, he said.
"There are still a number of opportunities that are moving forward in these organizations that we think are going to happen over the next 12 to 18 months, so we are actively pursuing those," Oles said.
Computer Sciences Corp., an industry giant with $3 billion in federal sales last year, has also seen "a slowness in getting the homeland security stuff going," according to Pat Ways, president of business development of CSC's Federal Sector unit in Falls Church, Va. CSC is targeting the Exit-Entry program, with almost $400 million for initial funding of the system, among other programs.
But at the same time, Ways said CSC is "not lacking for things to go after." He said his team is meeting with government clients to "to continue to track what's going on and be ready for it when it happens."
For some firms, the current delays are frustrating. "[A] lot of the smaller companies are struggling because ... they don't have the resources to hang on as long as the big guys do," Dickstein, Shapiro, Morin & Oshinsky attorney Nadler said.
One example is ORION Scientific Systems, a Newport Beach, Calif., company that develops software that agencies and the intelligence community can use to analyze terrorism groups among other applications.
"I thought they'd come out of the gates hard charge and they seem to spending much more on trying to get their organizations in place than trying to get any kind of technology in place," said Jim Moore, director of ORION's corporate development, based in Tysons Corner, Va.
