CSC To Buy Federal OutsourcerCSC To Buy Federal Outsourcer

The buddy network has always mattered in Washington, but it's even more important these days as the federal government increases its outsourcing of IT projects.

In the past, the government picked outsourcers and integrators that offered solutions specific problems. Today, before it releases money, the Office of Management and Budget requires a business case from government agencies to show how a solution fits within the federal enterprise architecture. Therefore, IT outsourcers that have existing relationships with federal agencies have an advantage in knowing how systems fit within the federal enterprise architecture as new projects are bid, says Howard Stern, senior VP at Federal Sources, a federal IT market-research firm. "The incumbent has the advantage," he says.

That's why Friday's announcement that Computer Sciences Corp. will acquire federal IT outsourcer DynCorp in a $950 million bid to win more outsourcing contracts brought on by the government's homeland security needs makes sense.

One of the likely attractions to CSC was DynCorp's existing relationship with the Transportation Safety Administration, the new agency charged with protecting the nation's airports and airliners from terrorists. DynCorp is a major subcontractor in a TSA outsourcing deal with Unisys Corp. that provides wide area network security. "The quickest and fastest way to establish a presence in an agency is by acquiring someone who has that," Stern says. "The government marketplace is always one of relationships in terms in getting in front of the right people."

The CSC-DynCorp merger could signal the beginning of a consolidation of federal IT contractors as outsourcers and integrators need to demonstrate that they have the muscle to pull off projects and compete against top IT government integrators and outsourcers such as EDS, IBM, Lockheed Martin, and Northrop Grumman. CSC's top brass doesn't disagree. In announcing the merger, CEO Van Honeycutt sees his company "seizing an opportunity to significantly strengthen our leadership position in the U.S. federal marketplace, augment our capabilities to support the requirements of the new Homeland Security Department, and respond to the federal government's initiative to increase its reliance on service providers."

With 23,000 technical employees and yearly revenue of $2.3 billion, DynCorp focuses on the large defense, security, and civil markets. Services include systems and network integration, high-tech range operations, global defense logistics and maintenance services and contingency support, homeland security services, and infrastructure management of critical defense assets.

CSC, with $11.4 billion in annual revenue, will fold DynCorp into its federal-sector unit, which employs some 15,000 people and is based in the Washington suburb of Falls Church, Va. When the deal is completed, CSC estimates it will generate $6 billion in yearly revenue from the federal government, with 38,000 people serving the U.S. government globally, placing it in the top 10 of federal IT outsourcers.

The deal requires government approval. CSC expects to complete the merger by the end of March.