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M&A: SRA to Acquire Era Corporation

Summary:
On April 30,2008, SRA International Inc. (NYSE: SRX), announced plans to acquire Era Corporation, a privately held Reston-based company that specializes in advanced technologies for air traffic management, airport operations, military, and security markets. Financial terms of the transaction were not disclosed.

GovWin's Take:
SRA gains a prime contract to grow its footprint in a key civilian agency – NASA. In FY07, SRA had under $2 million in prime obligations from NASA contracts (source: GovWin FPDS Vendor Profiles). The Era acquisition adds a position on the NASA's Flight Critical Systems Research (FCSR) contract. While Era has won less than $1million in task order awards since the contract's start in FY06, SRA has a ceiling of $35 million to work with and thus lots of upside potential. Over half of Era’s FY07 prime dollars come from that NASA contract.

With a small percentage of Era's revenue coming from federal prime contracts (source: GovWin and FPDS), SRA is also gaining customers outside of its federal sweet spot in its march towards the goal of $5 billion by 2012. Era prime contract obligations have decreased over the last few years from $1.4 million in FY01 to $0.5 million in FY07.

SRA International’s last acquisition was completed on August 9, 2007, with the purchase of the Constella Group, a Durham, NC, based company specializing in global health consulting services.

More Details of the Transaction: company press release

Can the Words of Hank Williams Save Illinois' Governor?

While it's unlikely that Gov. Blagojevich will be impeached without formal charges against him, vendors should not underestimate the significance of even the mention of such proceedings. If he is unable to lift the cloud of accusations soon, his administration will be brought to a standstill.

If some state legislators have their way, embattled Illinois Governor, Rod Blagojevich (D), will face impeachment proceedings as a preemptive strike against likely corruption charges. Blagojevich has been accused or running a "pay-to-play" operation, soliciting contributions from those seeking appointments within his administration. He has also been tied to a kickback scheme that apparently left even his own father-in-law out in the cold. At the end of the day it's hard to tell if the impeachment move is truly related to the alleged misdeeds or if it is political payback for the governor's rough handling of the legislature since assuming the governorship.

Blagojevich has been predictably (yet compassionately) defiant, showing up unannounced at a prayer breakfast and invoking the lyrics of Hank Williams' "Men with Broken Hearts" in his defense.

"You never stood in that man's shoes or saw things through his eyes
Or watched with helpless hands while the heart inside you dies.
...
So help your brother along the way no matter where he starts
Because the same God that made you made him too,
These men with broken hearts."

M&A: Lockheed Martin acquires Eagle Group International

Summary of deal:
Lockheed Martin Corporation [NYSE: LMT] announced on April 28, 2008 its acquisition of Eagle Group International, LLC., an Atlanta, Georgia based provider of logistics, information technology, training and healthcare services to the U.S. Department of Defense. Financial terms of the transaction were not disclosed.

GovWin’s Take:
This acquisition will offer Lockheed Martin's current customers the reputation of Eagle Group's exceptional suport of its customers' critical missions. "The acquisition of Eagle Group extends our logistics and business process outsourcing capabilities, strengthens our relationships with several key Army customers, and enhances our support for military force modernization and reset imperatives," said Bob Stevens, Lockheed Martin's Chairman, President and CEO. "We're confident that this acquisition will create value for our customers and our shareholders." Eagle Group International prime contract obligations increased from $85,890,000 in FY 2004 to $113,573,000 in FY 2007 with $59,385,000 obligated to their GSA Logistics Worldwide Schedule GS10F0397N for administrative management and general management consulting services. Eagle’s largest customer by far is the US Army with $95,187,000 obligated in FY 2007 (source: GovWin and FPDS).

The acquisition is the second for Lockheed Martin in four months. Lockheed Martin's last acquisition was December 20th, 2007 with the purchase of PercepTek, Inc., provider of advanced autonomous software technologies.

More Details of the Transaction: Lockheed Martin acquires Eagle Group International

Colorado's $18.9 Billion 2009 Budget -- Increases Spending by 6%

Even though Colorado is one of 23 states that are projecting revenue shortfalls in 2009, Governor Ritter's signs a budget bill that raises state spending by 6% and adds 1,334 new employees to the state payroll. Building Blocks for Health Care Reform gets funded as do several other technology projects.

Yesterday Governor Bill Ritter signed the fiscal 2009 budget into law. It increases general fund spending by 6%, or $431 million, and adds 1,334 new state employees. Meanwhile, legislative economists predict a decrease in revenues of $693 million over the next 5 years.

Several lawmakers seemed unhappy with the process this year, which included much partisan bickering, but little change. Rep. Cory Gardner (R-Yuma) said, "I think it's time we upgrade the budget process, Colorado Budget 2.0." The Joint Budget Committee spend months putting the budget together but the House and Senate have only two weeks to debate and pass the budget bill. Gardner suggested moving to a biennial budget cycle.

So what's in it for technology vendors?

  • Department of Corrections -- $54,369 to enable the Parole Board to convert its paper-intensive decision process to electronic documents which can be security signed and transmitted.
  • Office of the Governor -- $349,353 to acquire components and software to mitigate critical network security risks through centrally managed firewalls, intrusion detection systems and antivirus protection.
  • Department of Health Care Policy and Financing -- $5.5 million to begin the process of centralized eligibility determinations that will streamline the Medicaid and CHP+ application process.
  • Department of Public Health and Environment -- $654,000 to operate and enhance the Colorado Immunization Information System (CIIS).
  • Department of State -- $749,846 for information security related activities, $900,000 for administering voting systems certification and $520,000 to replace the department's outdated accounting system to better process applications received electronically
  • Department of Personnel and Administration -- $7.9 million for the Digital Trunked Radio System so that counties on the Western Slope can obtain needed software and system upgrades.
  • Department of Public Safety -- $1.2 million for the new Alamosa Troop Office Regional Communications Center. Part of this capital expanse will be used to relocate and update the existing radio infrastructure.
  • Department of Revenue -- $7.8 million for the Colorado Integrated Tax Architecture (CITA), which replaces the current tax system with a single, integrated system.

Also included in the budget was $25 million for the governor's Building Blocks for Health Care Reform package, which includes several technology initiatives including centralized eligibility determination for Medical and CHP+, the state's Children's Health Insurance Program (CHIP) and the web-based Report Card on Health Insurance Companies.

Still to be enacted is the the Colorado IT Consolidation Plan, which is SB 155.

The Pressure is On: California Receives $213.6 million for Congestion Pricing

New York City fumbled with Congestion Pricing and missed out on $354 million in federal funds. California happily makes a home for the leftover money with Congestion Pricing for downtown Los Angeles. The plan includes plenty of IT potential......

On April 25, 2008, $213 million in federal transit funds aimed at relieving congestion in urban areas was warmly received by California Governor Arnold Schwarzenegger, Los Angeles Mayor Antonio Villaraigosa, and California Department of Transportation and Metropolitan Transportation Authority officials. These funds will be focused in the Los Angeles region in an effort to enhance speeds on three log-jammed freeways by 2010.

What Work Will be of Interest to GovWin Members?

GovWin member will be interested in the following work related to Congestion Pricing:

  • Wireless communications
  • Sensing technologies
  • Video vehicle detection
  • Electronic toll collection
  • Emergency vehicle notification systems
  • Computational technologies
  • Signal management
  • Electronic ticketing
  • Wireless metering

The Argument at Hand: Does Congestion Pricing favor wealthy commuters?

One of the main reasons why New York City's Congestion Pricing model sank is because most politicians involved felt that wealthy Manhattanites were the overwhelming beneficiaries of the proposed plan. It is almost undeniable that Los Angeles will experience similar opposition but it has been stated that 'Congestion pricing benefits all because it provides more options to commuters from all walks of life. Each commuter may select which mode makes the most sense to her or him in terms of cost and travel time. At certain times of day, the least expensive travel options--ride sharing and transit--may also be the fastest.' The initial benefits of Congestion Pricing focus on increasing the speeds of traffic within a region by implementing a High Occupancy Toll (HOT) lane which varies per the congestion level of a highway and vehicle passenger occupancy. Also, the longer term benefits of the model will help enhance the modes of transportation typically used by less affluent citizens. Although LA's structural and financial dynamic is significantly different than that of New York City's where Manhattan is vital to the area's entire economy, the LA project will have the ability to serve as a model to the majority of other urban centers throughout the country as most cities are also working to make their downtown more vibrant and livable.

Continued Utilization of Congestion Pricing

The 'Building America's Future' coalition which seeks renewed federal investment in the nation's aging infrastructure was established by Governor Schwarzenegger, Pennsylvania Governor Edward Rendell and New York City Mayor Michael Bloomberg in January 2008. In February, 13 more governors from across the nation joined the coalition. This indicates the potential of Congestion Pricing throughout the country.

GovWin is already tracking the related Los Angeles Congestion Pricing initiative with Opportunity 47632 and has identified the primary points of contact overseeing this effort within the Los Angeles region.

Read the related articles for a more in depth look at the LA Congestion Pricing situation:

Los Angeles County Metropolitan Transportation Authority Congestion Reduction website

Daily Breeze: Feds OK Grant for Toll Roads

Los Angeles Times: MTA Votes for Tolls on Some Carpool Lanes by 2010

Video and article of LA's acceptance of the $213 million in federal funds

Watch This: Implications of OMB’s Management Watch List

Remember in elementary school when the teacher used to write a name on the board for disruptive behavior as a public facing deterrent? As a common recipient, I remember this well. So, when the Office of Management and Budget (OMB) releases its Management Watch List (MWL) for programs weak in certain management areas, I can understand both the motivation to do so and the motivation to correct the program. Late last week, OMB released the first list of programs since the MWL totals were published in February and found a 19% reduction in listed programs. Presumably, these federal officials had acted quickly to correct the weaknesses and effectively, their names had been erased off the federal blackboard. And, even with many other oversight bodies affecting federal programs (Congress, Government Accountability Office and the Inspector General,) OMB manages to ensure that the Management Watch List and High Risk Lists are taken seriously.

What's more, the two lists are related and, according to OMB, impart a sense of urgency as "federal agencies go to great lengths to resolve" the noted weaknesses. Any program still on the MWL at the end of the fiscal year will graduate to the High Risk List for a full year. This has two main deterrents; first, the High-Risk List carries quarterly reporting on program's project management and earned value management (EVM) status, and second, the increased public visibility means the agency or program manager is now considered a member of the federal "Hall of Shame."

Since February 2008, some agencies have had greater success removing troubled programs from the Management Watch List. As the deadline is the end of the Fiscal Year, it stands to reason that the number of programs on the list will continue to drop until September 30, 2008 when the lists are finalized. In 2QFY08, only one agency, the Department of the Interior, increased the number of programs on OMB's MWL list (+ 4). As many as 11 agencies decreased the total programs included on the MWL. The top five agencies with success in removing MWL programs year to date include:

  1. Treasury with the removal of 37 programs
  2. DoT with the removal of 16 programs
  3. Education with the removal of 16 programs
  4. HHS with the removal of 14 programs
  5. DHS with the removal of 10 programs

To be removed from the MWL, the program must satisfy all the MWL criteria which include categories like: project management, security, enterprise architecture and certification/accreditation. Out of 810 Major IT Investments, 585 were included in the OMB's MWL in February 2008. The number is currently 473 and is expected to continue to decrease as program officials try to correct weaknesses prior to the start of FY09.

Below are a few examples of programs which remain on the MWL:

  • Next Generation Air Transportation System (NextGen)
    • Agency: Transportation
    • Status: Umbrella Program
    • Summary: With many component RFPs and requirements, NextGen is anticipated to provide solutions in areas like information assurance, navigation systems and even weather modeling.

  • Medicare Integrity Program Safeguard Contractor Recompete (MIP PSC)
    • Agency: HHS
    • Status: Umbrella Program
    • Summary: This CMS program was assessed to be weak in several areas including security and the procurement for these services via geographical Zone is on-going.

  • Detention and Removal Operations Modernization (DROM)
    • Agency: DHS/ICE
    • Status: Umbrella Program
    • Summary: As OMB evaluates this ICE program, program leadership is also planning to fulfill component requirements throughout FY08.

  • Western Hemisphere Travel Initiative (WHTI)
    • Agency: DHS/CBP
    • Status: Awarded
    • Summary: With all the aspects of WHTI and other federal agencies involved, DHS has had weaknesses in evaluation criteria and practices as well as program management problems according to OMB.

  • Defense Integrated Military Human Resources System (DIMHRS)
    • Agency: DoD/BTA
    • Status: Awarded
    • Summary: Awarded to Booz Allen in 2007, DIMHRS houses a high volume of sensitive information on DoD and military personnel.

  • Net Enabled Command Capability (NECC)
    • Agency: DISA
    • Status: Pre-RFP
    • Summary: As DISA prepares the much anticipated and carefully crafted NECC requirement, the OMB evaluates all aspects of the program's management and reporting. NECC was included for both program specific and agency-wide criteria.

  • Defense Message System Sustainment (DMS-S)
    • Agency: Air Force
    • Status: Awarded
    • Summary: OMB evaluated this DoD-wide program which is operated by Lockheed Martin through a ten-year, $750 million contract with the Air Force.

Often times, programs which have already been awarded and are under performance require OMB's attention as though are the programs most in need of management review and recommendations. These are just a few examples of the many programs which are currently attracting program leader's attention in an effort to lower the number of vulnerable programs.

M&A Activity: EADS North America acquires PlantCML

Summary of deal:
EADS North America has acquired PlantCML, a California-based provider of emergency response solutions from private equity fund Golden Gate Capital for approximately $350 million. PlantCML offers call management and radio dispatch products for emergency call centers,  emergency notification services, computer aided dispatch applications and mapping services. EADS North America is a subsidiary of European Aeronautic Defence and Space Company (EADS) NV.

GovWin's Take:
This acquisition will help EADS enter the professional mobile radio solutions market. "Bringing PlantCML into our business portfolio further enhances EADS North America’s capabilities in ensuring the homeland security of the United States,” said Ralph D. Crosby, Jr., chief executive officer of EADS North America. EADS prime contract obligations decreased from $8,180,000 in FY 2006  to $2,378,000 in FY 2007 with $1,661K obligated to their GSA Schedule 70 contract GS35F0417K for ADP facility management, other ADP services, and tech rep services/communication equipment.

With average revenue trailing three years at $37 million as of July 2006 (source: GovWin Small Business Directory), and with $89M in revenue as of government fiscal year 2007 (source: GovWin and FPDS), PlantCML has been growing quickly in commercial and state & local markets, but not in federal work. PlantCML had less than $200K of prime federal work in FY 2007. The consideration of $350 million reflects of price of nearly 4x revenue given FY07 revenue of $89M.

EADS joins other large European defense companies QinetiQ Group PLC and BAE Systems PLC with frequent acquisitions in the U.S government market.

More Details of the Transaction: EADS buys PlantMCL

Agency Budgets Stuck in the Middle of Presidential Elections

With the appropriations process just underway on the 2009 budget and the 2010 budget request due just three weeks after the new President is inaugurated, agencies will have to wait until 2011 for a new President to kickoff major new initiatives and reshape the budget to reflect his or her priorities.

Let's start with the 2009 budget. President Bush submitted his budget in February as scheduled. Congress is coming off completing a budget resolution that establishes the framework for the appropriations work on the '09 budget. As in prior years, industry should expect delays carrying the negotiations well into the 2009 budget year.

For the 2010 budget, the President has informed agencies through an OMB Memorandum that they will not be required to submit a formal budget. Instead, steady state figures will be provided to the new President and be left to square it away once in office. This most likely means that the President's budget request for 2010 will not be submitted by the February deadline traditionally established for the President's budget. Further, due to the time constraints and the time required to transition to a new Administration, the new President will not have time to bake in his or her major initiatives.

That brings us to 2011. This is the first budget cycle in which the new President will have the opportunity to recast the budget to reflect his or her priorities. As a result, agencies and the vendors that serve them will have to manage to the status quo for some time to come.

DHS - Hand Over Your Transition Plan, Or Else

Last June, Shane Harris of Government Executive.com wrote an article titled, "Homeland Security could face transition problem." In it he described an election night party held by top DHS officials. At one point in the evening, when it seemed like Sen. Kerry could take the Presidency, he describes a sudden realization among the group that DHS had no transition plan. Who was going to keep the department running until the new administration came in?

Fast forward to 2008. DHS contracted with the Council for Excellence in Government to help develop a transition plan, Secretary Chertoff assembled an Administration Transition Task Force, and DHS recently announced that career civil servants have been named to acting posts within those components that have political appointees running the show.

It sounds like a lot of progress has been made since that night in 2004. Why then is the House Homeland Security Committee threatening to subpoena DHS for its transition documents? DHS' Acting Deputy Secretary Paul Schneider appeared before lawmakers, telling them that DHS' plan was better developed than any other agency. Committee Chairman Bennie Thompson and Rep. William Pascrell would beg to differ, but seeing comprehensive transition plans could put the matter to rest.

DHS provided the Committee with a 7-page presentation outlining the department's transition plans. Pascrell and Thompson have given DHS until May 23 to submit all of the documents, including program information, budget projections, and any other transition planning information.

Considering the fact that governments are highly vulnerable to terrorist attacks during a change in leadership, the resistance to information sharing is puzzling.

Is Procurement Reform Gaining Momentum?

GovWin held its 6th annual MarketView conference yesterday, where I presented highlights from our new report, "Industry Leaders' Guide to the 2008 Administration Transition" (Click here to access the report). I talked briefly about our determination that, due to the upcoming administration transition and the current government environment, major procurement reform is unlikely until well into the next administration. However, we do foresee lots of incremental changes happening as an effort by Congress to get the momentum going before the new administration comes in. On April 23, we saw this happening with the three contracting reform bills passed by the House.

Although the House passed three contracting reform bills, there is one in particular that should cause contractors alarm. The Contractors and Federal Spending Accountability Act of 2008 requires the government to maintain a database of information regarding:

• Any civil or criminal proceeding, or any administrative proceeding that results in both a finding of fault and payment of restitution

• All federal contracts and grants that were terminated due to default

• All federal suspensions and debarments

• All federal administrative agreements entered into to resolve the suspension or debarment proceeding

• All final findings by a federal official that the contractor is not a responsible source

The provision requires any contractor bidding on a federal contract to disclose all of the information above. Any contractor with more than one judgment within any 3-year period would be automatically ineligible for a government contract.

Representative Tom Davis had problems with this bill from the start, and added his statement to the records. One of his concerns spoke directly to the problem of timing – any information going into the database about proceedings could have a "blacklist" effect on contractors before final decisions have been made. He noted:

"..the publication of information contained in administrative agreements made in connection with a proposed debarment or suspension raises concerns. When these agreements are executed, the debarment proceeding is not concluded--there is no decision to debar."

There are others issues as well. Does it establish fair criteria for the information to ensure that it's used properly? What if the information is not relevant to the immediate proposal? Are contracting officers (COs) adequately prepared to make judgments based on the information, which could be highly complex?

While the concept of a centralized database is beneficial, we may see some unintended consequences. With contracting officers using this information in the source selection process, what are the chances that we'll see in increase in protests in the future?

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