Aerospace & Defense Update
On Monday night, President Trump announced the U.S. will be sending additional troops and aircraft to Afghanistan. The revised strategy could include as many as 3,900 additional troops that will be deployed “down to a tactical level” to better support the Afghan military. The increased U.S. military support in Afghanistan will keep pressure on the Taliban to cease the fighting and bring negotiated peace with the Afghan government. The additional troops will also play a critical role in counterterrorism missions to quell the rise of the Islamic State and Al-Qaeda cells in the region. The Trump administration does not plan to publicly announce a withdrawal date or disclose any finite numbers on troop deployment levels.
According to top Pentagon budget official David Norquist, the Pentagon is prepared to operate under a short-term continuing resolution (“CR”) at the end of September if Congress is unable to pass a defense budget. Although Norquist stated he prefers there not to be a CR, the continuing resolution is likely due to the focus on healthcare reform this summer and Congress’ inability to reach a consensus. Additionally, Congress must work out large items such as the debt ceiling, new infrastructure, and tax legislation once lawmakers return in September. The last extended government shutdown occurred in October 2013 and delayed military pay and benefits to service members.
Government Technology Solutions
The Social Security Administration (“SSA”) awarded CGI Federal, Leidos, and Northrop Grumman a 10-year, $7.8 billion IT services contract for new hardware and software, as well as associated services. Leidos will perform this work through the legacy Lockheed Martin Information Systems & Global Solutions business. The contract includes two base years and eight one-year options with specific bid ceilings for each business. CGI, Leidos, and Northrop Grumman are eligible for up to $2.4 billion, $2.3 billion, and $3.1 billion in task orders, respectively. The contractors’ focus on system development lifecycles is expected to help the SSA achieve its goal of increasing the use of automation in IT systems.
CliniComp International, a San Diego-based commercial electronic health record (“EHR”) vendor, has filed a lawsuit against the Department of Veterans Affairs (“VA”) arguing that Secretary David Shulkin broke Federal contracting rules by issuing a sole-source contract to Cerner for updating the VA’s EHR system. The VA issued the sole-source contract to address its reportedly urgent need for crossover capabilities with the Department of Defense, which is currently utilizing Cerner software for its own EHR overhaul. CliniComp, who currently holds smaller EHR contracts with both the VA and DoD, argues that it will take Cerner six to eight months to negotiate the terms of the sole-source contract. They claim that this is plenty of time for the VA to instead compete a contract under accelerated full-and-open competition. Additionally, CliniComp contends that the overall risky nature of this contract and the work performed could be mitigated by a multiple award contract. CliniComp’s agency-level protest was already dismissed earlier this month, but it is yet to be determined how this current lawsuit will proceed.
Rockwell Collins (up 3.7%) – Share prices were up this week after merger discussions with United Technologies Corp. advanced, making it more likely a transaction could be reached.
BAE Systems (up 3.0%) – Share prices were up this week after the company unveiled a next-generation hardened single-board computer for space-based use.
Arlington Capital Partners has acquired Shoreview Industries portfolio company Tex Tech Industries, Inc., a provider of composite fiber and fabric products used in ballistics protection and fire-retardant thermal acoustic insulation. Terms of the deal were not disclosed.
Clarus Corp. has acquired Sierra Bullets, LLC, a provider of high-quality bullets for both rifles and pistols used for distributors, law enforcement agencies, and industry original equipment manufacturers. The deal is worth an estimated $79 million.
Platinum Equity Holdings has agreed to purchase Exponent Private Equity portfolio company Pattonair, a provider of distribution and supply chain management services for aerospace and defense markets worldwide. Terms of the deal were not disclosed.