Industry Week in Review – October 2, 2015
Aerospace & Defense Update
With the CR passed, Congress will now shift its focus towards passing the 2016 defense authorization bill, despite rumblings that the newly proposed bill will be vetoed in the White House. Supporters of the bill argue it provides authorization to spend money on many programs during this uncertain geopolitical landscape, while those opposing believe it disincentives a deal that eliminates the spending caps from the Federal budget.
Frank Kendall, the Pentagon’s acquisition chief, says the Department of Defense (“DoD”) is worried about the consolidation of the defense industry and individual prime contractors having too much influence. Under the current law the Pentagon does not have the ability to address competition, an implication of these mergers, which could lead to a future where the DoD can only choose from two or three large suppliers for all major weapon systems. As prime contractors become larger and more influential, they become less incentivized to continue striving for high levels of innovation. Although Kendall did not mention any specific deals, his announcement comes at a time when the Department of Justice recently approved Lockheed Martin’s purchase of Sikorsky, the largest domestic producer of military helicopters. While no actions to date have been taken to halt this trend, Kendall expects more serious discussions between the Pentagon and Congress to occur over the next few months.
Government Technology Solutions Update
Monday marked the release of new design standards for Federal websites, aimed at increasing traffic and reducing inefficiencies. Currently, government websites often lack intuitive navigation and uniformity that benefit users accessing multiple services. Whereas previously each agency built digital tools under their own unique programs and brands, the new push aims to eliminate this compartmentalized design approach and instead set one style guide to cut costs and standardize the layout and user interface across websites. The idea was the result of direct collaboration between 18F, the agile software development shop within the GSA, and the United States Digital Service, a government management consultancy within the Office of Management and Budget. The primary goal of this new standard is to align the tools provided on Federal websites with the needs of individuals accessing them while simultaneously driving down long-term costs by standardizing the process.
The General Services Administration (“GSA”) has released a draft Request for Proposal (“RFP”) for its Veterans Technology Services (“VETS 2”) Governmentwide Acquisition Contract (“GWAC”). The current iteration of the VETS vehicle began in 2007, and is set to expire in 2017; GSA officials are looking to gather feedback from the industry on the draft RFP well in advance of the expiration to prepare the next generation VETS 2 vehicle. VETS 2 is expected to have a $5 billion ceiling, and a five-year base period plus an additional five-year option for contractors selling at least $500,000 during the base period. The new vehicle will focus on IT services offered by service-disabled veteran-owned small businesses (“SDVOSB”) with the seven key solution areas of : (i) Data Management; (ii) Information and Communication Technology; (iii) IT Operations and Maintenance; (iv) IT Security; (v) Software Development; (vi) Systems Design; and (vii) New and Emerging Technologies. The new vehicle aims to support both the SDVOSB contractors, as well as agencies looking to meet their set-aside requirements.
As cloud technologies play an increasing role in Federal agencies infrastructure, spending on cloud computing has tripled between 2013 and 2014, and is expected to see another significant increase in 2015. Cloud spending on software-defined data services reached $2.5 billion in 2014, with only four agencies including Education, Health and Human Services, Veterans’ Affairs, and Housing and Urban Development, accounting for 45% of that spending. Given the quick growth in use of cloud computing, some departments still face challenges implementing new systems, and many agencies, including the Department of Defense (“DoD”), have raised concerns over cloud security. The Defense Information Systems Agency (“DISA”), previously the exclusive cloud broker for the DoD, has recently allowed agencies to partner with commercial providers; however a recent report found that 83% of DoD respondents suggested that security was a challenge when migrating to the cloud. DISA’s role is to provide standards to help guide agencies’ decisions as cloud spending adapts to become an integral component of operations.
Big Movers
Boeing (Up 1.2%) – Shares were up this week in response to an announced deal with India for 37 military helicopters worth $3 billion.
Comtech Telecommunications (Down 18.6%) – Shares were down this week as it missed FQ4 estimates and announced guidance for FY16 below consensus analyst estimates.
Transactions
Addtech Components AB to acquire RECAB Embedded Computers AB, a provider of innovative embedded computer systems for demanding applications to OEM customers. The terms of the deal were not disclosed.
LGS Innovations acquires Axios, Inc., a provider of communications and signal processing solutions and mission support services for the Department of Defense and Intelligence communities. The terms of the deal were not disclosed.
