News Column

Two Views of Contract Success

Page 2 of 1

By Andrea Siedsma

December 2000 - Integrated Information Technology Corp. (IITC) may end up doubling its work force in the next year. The military contractor, based in Greenwood Village, Colorado, specializes in information technology services for systems integration, military satellites, and information security. Seventy employees already have been added this year – for a total of 150 – and the company has plans to expand into Ohio, Virginia, Arizona, Illinois, and Utah.

Why the breakout success? Francisco Garcia, IITC’s founder, president, and CEO, made a conscious decision last year to go after large military contracts as a subcontractor rather than as a prime contractor. As a result, the firm has been awarded more than $50 million in contracts just since March.

Although IITC still does prime contracting work, Mr. Garcia has found that winning subcontracts is easier for a firm his size.

“We have played on both sides of the fence,” he says. “But those [military] contracts are so large that we can’t go after them by ourselves.”

IITC is a subcontractor for companies such as Harris Corp., Lockheed Martin, OAO Corp., Lucent Technologies, Hughes Electronics Corp., and Science Applications International Corp. The company also does work for the Air Force, the U.S. Army, and federal agencies such as the IRS and Defense Information Systems Agency.

In October, IITC began work on a $28 million contract with Harris Corp., under which IITC will provide technical support and waste-management services for the Air Force Space Command’s Operational Space Surveillance System. IITC also is working on a $2 million, five-year engineering and installation services contract from OAO Corp.

IITC is part of a team that will provide information technology services to federal agencies under the General Services Administration’s Federal Technology Service Millennia contract. Raytheon is one of the prime contractors for the 10-year contract, which could reach $25 billion.

“We have become very creative in how we maximize the opportunities within the government,” says Mr. Garcia, a retired U.S. Air Force captain who specialized in software development and satellite communications. “There’s a real future [in military contracting] if you can identify niches. If you do that, you’ll have a reason for them to come to you.”

Business has not always been so good for IITC. Mr. Garcia launched the firm in 1991 with $1,000. Initially, he was a one-man show, handling the accounting, marketing, business development, and engineering by himself. He had five employees by the time he netted his first contract from Colorado Springs-based Command Sciences Corp. the following year. The $1 million, five-year contract, which called for IITC to install systems and engineering communications links for the U.S. Air Force Space Command, enabled the company to take on four more employees.

IITC hired another 30 people in 1993 as a result of a $4 million, two-year software development contract from Lockheed Martin Corp. Four years later, the company’s fortunes took a turn for the worse.

“It seemed that the military was bundling all the contracts we used to chase after, so we had to change our approach. But we did not react fast enough,” says Mr. Garcia, named one of Denver’s “Top 40 Under 40” by the Denver Business Journal.

The slow reaction resulted in the layoff of 10 people and a decline in annual revenues from $8 million to $6 million. Mr. Garcia tried his hand at commercial work, but it wasn’t in the cards.

Hence the company’s new focus on military subcontracting. Today, IITC is number 34 on the “Colorado Technology Fast 50,” a list of the state’s 50 fastest-growing technology companies. Washington Technology magazine has ranked IITC among the nation’s top ten 8(a) companies.

The company still faces challenges as a small military contractor, however.

“Most small businesses don’t have the marketing staff that a Lockheed, a Hughes, or a Boeing has,” says Mr. Garcia, who has a degree in chemistry and electrical engineering. “Most of our marketing is done with our existing people who play a bunch of different roles. And most large businesses think they don’t need help from a small business. Some massive egos are involved, so it’s hard to get in to see them. When they do see you, they usually give you the scraps.”

To better enable small businesses to compete for federal contracts, the U.S. Small Business Administration last year placed a limit on the bundling of federal procurement contracts.

“These rules are an important step forward for small government contractors, for taxpayers, and for the government itself,” says SBA Administrator Aida Alvarez. “Government agencies – and, more importantly, the taxpayers who support them – save money when small business is a viable participant in the federal procurement marketplace. The competition holds down prices.”

According to the SBA, small businesses net about $40 billion per year in federal contracting. Overall federal contracting averages $180 billion per year.

Some companies are trying to be more sensitive toward small military subcontractors. For example, Texas-based EDS plans to subcontract out about 40 percent of its five-year, $4.1 billion contract to design and implement the Navy/Marine Corps Intranet (NMCI). The contract, the largest government IT pact ever, comes with an additional three-year option, boosting its value to more than $6.9 billion.

Although the government and some prime contractors have vowed to make life a little easier for subcontractors, Mr. Garcia believes more needs to be done.

To snag more important technical contracts from the big defense players, IITC has taken advantage of the U.S. Defense Department’s Small Disadvantaged Business (SDB) program, which requires at least 5 percent of total defense contracts or subcontracts to be awarded to small disadvantaged companies. Mr. Garcia believes the Defense Department should put more pressure on larger defense contractors to comply with the SDB program.

“I hate getting work because I’m an SDB. I want to get work because of my technical capability,” Mr. Garcia says. “We are starting to work with large companies and a couple of them are saying, ‘OK, we believe you can do the job.’”

Despite the challenges, Mr. Garcia plans to continue pursuing government work.

“Where else can you win a $35 million contract? You can’t do that in the commercial world as a small company,” he says. “We’re going to continue to identify niche areas so we can work for the government and so the large prime contractors need and want us.”

Roberto Contreras, founder, president, and CEO of Tech Electronic Systems Inc. in Pomona, California, says fair pricing is the key to gaining federal contracts. His 9-year-old company, which develops low-cost equipment for airplanes, submarines, and ships, expects $3 million to $6 million in fiscal 2000 revenues. The 14-employee company operates out of a 12,000-square-foot facility, but plans to purchase another building this year.

“It’s been a good year,” he says. “Government contracting can be very profitable. You will be successful as long as you give them fair prices.”

Mr. Contreras, who has been involved in military work since the age of 19, launched Tech Electronic Systems using $250,000 he saved from a well-paid senior executive position with Lear Siegler’s Astronics division. His company, which began with two employees, captured its first contract nine months later. The $100,000 contract called for the company to develop a pilot weapons delivery system for the Air Force.

Like IITC, Tech Electronic Systems successfully weathered some lean times toward the start.

“One of the things I learned was how to maintain my overhead at a minimum,” says Mr. Contreras, who worked several months without pay. “I had to make sure there was a way to continuously have a contract or work order in progress so I could maintain a stable income. It was not easy.”

The contract situation began to stabilize four years later as Tech Electronic Systems began to diversify its product line. The company’s technology products range from weapons delivery systems to aircraft simulation systems. Tech Electronic Systems also has increased its business by becoming a subcontractor to giants such as Lockheed Martin, Northrop Grumman, L3 Corp., and Bell Helicopters and has received contracts from the Air Force, Navy, and Army.

Although large companies dominate the industry, Mr. Contreras says there is ample room for smaller military contractors like his company.

“I’m competing at a level that is 100 times higher than mine. The people I compete with are multibillion-dollar firms. But I can say I have found acceptance among these large corporations and the military.”

Tech Electronic Systems currently is fine-tuning its technology for commercial applications, such as Cybersphere, a virtual reality game that simulates aerial combat.

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