CSC Team Wins $2 Billion NSA ContractCSC Team Wins $2 Billion NSA Contract

Hurt by a slowing demand for systems-integration and consulting services in the public sector, Computer Sciences Corp. turned to the federal government for work, and scored big. A team of service providers led by the $10 billion IT services company Tuesday won an outsourcing contract from the National Security Agency that is potentially worth $2 billion over 10 years.

Under the terms of the NSA project, code-named Groundbreaker, CSC's Eagle Alliance team--which comprises CSC, General Dynamics, Keane Federal Systems, Logicon, and Omen--will take the lead in providing secure and non-secure telephony and network services, distributed computing services, and enterprise and security management of the non-mission IT infrastructure at NSA headquarters and surrounding offices. The team is expected to begin work by November.

Eagle Alliance outbid one team that included EDS and WorldCom and a second team that included AT&T, IBM, and Lockheed Martin. CSC will also transition about 750 NSA employees into the various companies within the Eagle Alliance.

The outsourcing contract is significant because it lets the agency refocus assets on its core responsibilities, which include gathering intelligence and protecting U.S. national security-related information systems, NSA director Lt. General Michael Hayden said in a press release. The NSA is an agency within the U.S. Department of Defense that is responsible for protecting U.S. information systems and producing foreign intelligence information.

The NSA's large contract indicates that the federal government is embracing outsourcing to commercial service providers, says Robert St. Jean, a senior JP Morgan analyst. The reason for this can partly be attributed to efficiencies gained by outsourcing the management of certain systems, but another factor is the government's aging workforce. St. Jean says the Office of Personnel and Management anticipates that by 2004 about 32% of the federal workforce will be eligible for retirement and another 21% will be eligible for early retirement. By winning this contract, CSC sets itself up for more work from the federal government, since the government is more likely to award contracts to service providers with "relevant prior experience," St. Jean says.

Under the terms of the contract, General Dynamics will handle telephony and networks and Keane Federal Systems will manage distributed computing and enterprise management support. Other companies, such as ACS Defense, BTG, CACI International, Compaq, Fiber Plus, Superior Communications, TRW, Verizon, and Windemere, will handle the project's delivery, systems integration, and ongoing management components.

St. Jean points out that before Tuesday's announcement, the size of the contract was believed to be closer to $5 billion over 10 years. He speculates the $2 billion contract could indicate that the NSA is keeping a larger portion of the IT work in-house or that CSC has lowered its bid to keep from losing the contract, or a combination of both. Last October, the Navy and Marine Corps awarded a five-year, $4.1 billion contract to a team of service providers led by EDS, with an option of three more years that could bring the value of the contract up to $6.9 billion. CSC was part of a team that lost a bid for that contract.

CSC has a history with the NSA. In September 1998, the NSA awarded CSC an outsourcing contract valued at $10 million over three years. Under the terms of the deal, CSC was to maintain daily computer system operations and provide development support services for software enhancements, configuration management, hardware, and software installations and upgrades. The contract also called for CSC to hire 40 NSA employees, the first time the government had transferred personnel to the private sector as part of an outsourcing project. The employees had the option of joining CSC, or one of its subcontractors, Data Procurement Corp. or Data Computer Corp.