Northern Va. vendors see growing influence of feds

Outsourcing, performance-based contracting and the Year 2000 - and beyond - are playing a major role in shaping the rapidly expanding information technology market in the Washington, D.C., area, according to federal and industry executives taking part in a roundtable discussion last week.

High-tech companies are crowding into the Dulles Corridor, a region in Northern Virginia that stretches west from Tysons Corner along the Dulles Toll Road.

Not only are more start-ups emerging, but increasing numbers of established technology companies are replacing their single representatives stationed in the area with entire offices as the business opportunities in the federal market grow, according to participants of the roundtable, which was moderated by Alex Tomaszczuk, a partner at the law offices of Shaw Pittman Potts & Trowbridge.

If this move continues, Northern Virginia will quickly outpace the Silicon Valley as the place to be for IT professionals, panelists said.

However, the federal market is subject to a number of conflicting pressures, some that threaten to push vendors out of the market and others that create opportunity, they said.

For example, the growing willingness of agencies to consider outsourcing IT services to industry involves both kinds of pressures.

Outsourcing has become a larger issue as downsized federal agencies turn to industry to provide the IT backbone and services traditionally done in house, said Dennis Fischer, commissioner of the General Services Administration's Federal Technology Service.

The number and success of the contracts recently created at GSA, including the $25 billion IT services Millennia contract and the $9 billion Seat Management desktop outsourcing contract, attest to the need for IT services and outsourcing, Fischer said.

The increasing focus on services is creating a better environment for vendors and the government as the new and deeper relationships between agencies and their contractors focus on evaluating vendors on the performance and results they achieve on a contract rather than price, said Yong Kim, president and chief executive officer of User Technology Associates Inc. (UTA).

But this close partnership also could lead to a company's downfall, said James Fontana, vice president and corporate counsel of Wang Government Services Inc., which just won an $88 million Seat Management task order for the Treasury Department's headquarters.

Treasury's task order is the first Seat Management award outside GSA, which manages the contract, and it will be scrutinized very closely because many agencies still are wary of completely outsourcing their desktop functions, Fontana said. The Seat Management contract focuses on shared responsibility and risk, but if this implementation appears to fail, much of the blame will end up on the contractor, not the agency, he said.

Bob Dornan, senior vice president of Federal Sources Inc., expressed the concern that this type of big-contract, high-pressure atmosphere could force smaller companies, which many growing areas depend on, out of the market.

New Tech, New Opportunities

However, at the same time, new technologies involving the Internet are creating a lot of opportunities for start-ups and other companies, some vendors believe.

In the past, the government required very specialized technology that only a few well-trained people could provide, said Carleton Jones, former president of Vanstar Government Systems Inc. Now there are many opportunities for anyone to create or grow a company that can provide a key service to the government, he said.

With the focus on the Internet and the digital government, anyone with some experience can design a World Wide Web site. Someone without a technical background can prove to be more valuable than someone who has spent his whole life in IT when it comes to helping an agency change to meet the new structure of the Web, Jones said.

But this commercial-practices atmosphere also means that a lot of big-name companies are more willing to take on the risk and lower margins of working with the government because of the potential for a piece of those multibillion-dollar pies, said Maryann Hirsch, senior vice president at Federal Sources.

The Year 2000 problem also has been a key growth factor for companies, as UTA can prove, having grown more than 7,000 percent in 1998, Kim said. And although the Year 2000 itself is rapidly approaching, there is no reason to think that the great amount of money that federal agencies have been spending - more than $7 billion, by some estimates - will dry up.

Dornan pointed out that the number of systems designated as mission-critical by agencies shrank as the deadline for the Year 2000 approached, and he believes that many agencies still are going to have a lot to fix and plenty of work for companies come January 2000.

All these pieces add up to an environment in which established and new technology companies can flourish, panelists agreed. And in this day of using commercial products and practices, a good market means a good situation for government, Fischer said.