Keeping America safe
Virginia companies are snagging major federal contracts to protect the homeland. And they’re developing new tools to fight terror.

by Garry Kranz
for Virginia Business
September 2006

Jack Hermansen always believed in the power of his company’s name-recognition software. But if the chief technology officer needed a clincher, it arrived via e-mail on Sept. 13, 2001, two days after terrorists slammed jetliners into the World Trade Center towers and the Pentagon. Sent by a U.S. Immigration and Naturalization agent, its message was pleading.
“ He said, ‘How much does it cost, when can you get it here, and have you broadened the coverage of names?’” recalls Hermansen.

His Herndon company, then known as Language Analysis Systems Inc., provides patented computational-linguistics software that enables extensive data searches about particular individuals.

Hermansen packaged the software and dashed it off to the INS. Soon after came the results: INS agents used the application’s powerful searching capability to quickly identity some 9/11 terrorists and trace them to Florida, where they had enrolled in flight-training schools. It was an epiphany for Hermansen’s small defense contracting company. “That’s when we all realized this was not some academic exercise, but that it had tremendous value,” says Hermansen.

Apparently IBM agreed, acquiring the company earlier this year and changing its name to Global Name Recognition.

Seldom have Virginia’s defense contractors moved with such speed and sense of purpose. As the United States prosecutes the global war on terror and hunts down potential enemies within its borders, Virginia firms are assisting in the fight. They are developing innovative technologies that enable government security and military agencies to identify and track known terrorists, choke off their money supplies and communicate information more seamlessly about potential threats to national security.

In fact, on the fifth anniversary of 9/11, Virginia’s homeland security industry has grown more over the last five years than any other industry in the commonwealth. Largely in response to the government’s broadened focus on homeland defense, Virginia companies have created 50,000 new information technology jobs. Plus, they have started more than 300 economic development projects, worth $1.66 billion in new investment, according to the Virginia Department of Economic Development.

Proximity to the nation’s capital, especially to defense and intelligence agencies, gives Virginia an advantage over most states. Defense contractors, and other Virginia firms, are capturing lucrative defense contracts to provide a host of high-tech services: from systems integration to secure communications networks and specialized applications. Contractors include huge conglomerates such as General Dynamics Corp. as well as smaller firms serving special niches.

The growth has occurred despite the fits and starts that characterized the federal procurement process during the 2003 organization of the Department of Homeland Security (DHS). In 2004, Virginia defense firms received a total of more than $2 billion in procurement contracts from the new federal agency, or about one-third of all contracts awarded, according to the Consolidated Federal Funds Report of the U.S. Census Bureau. That is about a 40 percent increase from 2003, when Virginia companies captured about $1.43 billion in contracts. By 2005, some government contractors were reporting record profits.

Foiling other threats
Getting a piece of the federal pie isn’t the only motivation, though. Booz Allen Hamilton, a global IT consultancy headquartered in McLean, is on a mission to bring down terrorists. Three Booz Allen employees died at the Pentagon on 9/11. The event serves as motivation for its Virginia work force of nearly 10,000 people, many of whom are former members of military and intelligence agencies.

Booz Allen is fighting back the best way it can, by foiling other would-be threats. As part of a $250 million DHS contract, Booz Allen is partnering with about a dozen other companies (all but one from Virginia) to help develop and deploy systems that would prevent attacks involving chemical, nuclear, and biological weapons and explosives. “The attack [on 9/11] was something that affected our organization up and down the ranks,” says Dennis O. Doughty, Booz Allen’s managing director for global functional capabilities. “There’s a high degree of patriotism and love of country among our employees, and a desire to do what we can to make a difference in its defense.”

To execute such contracts, Booz Allen expects to create as many as 4,600 new jobs in Virginia during the next several years, paying average salaries of $79,000. Already since 2004, 1,400 newcomers have joined Booz Allen as part of a $133 million expansion of its facilities in Fairfax County. Doughty says a disproportionate number of the new employees will provide critical services and support to defense, intelligence and homeland security agencies.

Patriotism also runs high at SRA International Inc., a Fairfax-based defense contractor that went public three years ago. Its technology is being used to help overwhelmed intelligence analysts solve the problem of “info glut,” having too much data and not enough time or resources to thoroughly examine it all. SRA provides a proprietary hardware platform and automated computational-linguistics software that enables users to quickly pull out specific items of data from reams of gathered intelligence.

“ The ability to share information between the national level down to the state and local levels is especially key to having an effective program that stops terrorist-type activities early in their life cycle,” says Pat Burke, senior vice president and director of SRA’s command and control, communications and intelligence sector.

In July, SRA snagged a DHS contract that could be worth as much as $42.2 million during the next four years to provide “strategy and execution support services” to the agency’s Office of Interoperability and Compatibility. SRA also recently began providing support and data analysis for the Smart Border Alliance, a DHS initiative involving numerous companies to create a tighter entry-and-exit system for use at more than 400 ports, airports and border crossings.

CEO Renato DiPentima says SRA will hire 400 to 500 new full-time workers in 2006, roughly half of whom will provide specialized expertise in some facet of homeland security. That is in addition to about 1,200 to 1,300 new workers hired during each of the past three years. The new positions are needed to keep pace with the company’s growth. In 2005, SRA set records for contract awards and revenue, reporting a 43 percent increase in revenue to $881.7 million.

Even military hardware makers are getting in on the action. For decades General Dynamics in Falls Church made its name as a leading manufacturer of armored tanks, submarines and destroyers. Although those platforms still account for the lion’s share of its business, General Dynamics has diversified by providing information services and technology to the government in the areas of tactical communications, intelligence analysis and professional services.

In June, the company completed a $2.2 billion acquisition of systems integrator Anteon International Corp. of Fairfax, including most of its 9,600 workers. The move enables General Dynamics to compete for several new pieces of defense work. One involves a Homeland Security presidential directive to develop commonly readable biometric identification cards for federal employees. Another centers on providing modeling, simulation and war-games tactical training to soldiers getting ready to fight in Iraq and Afghanistan.

“ All these segments are high-growth sorts of things where General Dynamics can apply its major strengths to do a good job on the program and generate a good profit,” says Roger Baker, the firm’s vice president for federal/civilian agencies.

The single largest DHS award — an eye-popping $550 million — rests with Rosslyn-based Integrated Coast Guard Systems (ICGS). The 200-employee company was formed in 2002 as a joint venture of Lockheed Martin Corp. and Northrop Grumman Corp. ICGS is overseeing construction and delivery of new deepwater assets for the Coast Guard, commonly known as the Integrated Deepwater System. ICGS won the right to manage the initial phase of the performance-based contract from 2002 to 2006 and recently won a second award term through 2011. The project is rebid every four years or so.

The massive contract calls for new deepwater assets, including a new fleet of ships and maritime patrol aircraft, to be purchased by the Coast Guard during the next quarter century. ICGS serves as prime contractor, managing a sprawling ring of about 600 subcontractors scattered across more than 40 states. Highlighting the undertaking is construction of a new 418-foot-long National Security Cutter, known as USCGC Bertholf, scheduled to enter service in 2007. “This will be the most capable surface ship the Coast Guard has ever owned and operated,” says Leo S. Mackay Jr., ICGS’s president and a former Top Gun-qualified F-14 pilot.

Indeed, the cutter will be about 40 feet longer than its predecessor and feature a displacement of 4,300 tons. That’s about the size of a midsize cruise ship. Illustrating the Coast Guard’s increasing role in homeland security, it will feature a greater array of aviation facilities, command-and-control electronics and intelligence capabilities. Up to eight Bertholf-class cutters could be produced by 2012. Northrop Grumman Ship Systems in Pascagoula, Miss., is building the high-tech vessel, with program managers in Rosslyn overseeing timetables and cost schedules.

Along with the Bertholf, ICGS also is producing a new medium-range maritime air patrol craft. The Spanish-made CASA CN-235 plane will be equipped with forward-looking infrared radar and other critical systems used for sea surveillance. As many as 36 aircraft could be built during the life of the contract.

While new deepwater assets are under construction, ICGS has been busy modernizing the Coast Guard’s existing fleet, upgrading access to classified intranets inside defense, intelligence and security agencies. This reflects the Guard’s stepped-up role in intelligence gathering, surveillance and collaborating with other departments in DHS, says Mackay.

Enough business to go around
Virginia companies that provide high-end, secure communications systems also are getting a chance to shine. Bantu Technologies in Falls Church, for instance, is zeroing in on one of the sore points raised by the 9/11 Commission: government’s inability to rapidly and easily communicate information across various networks.

Specifically, Bantu has implemented its instant-messaging software across different enterprise portals used by the Army, Navy and Air Force. Bantu’s technology provides the underlying communications platform that lets military leaders rapidly and securely exchange data. The company’s technology is designed to adhere to the military’s stringent security requirements.

Equally innovative is McLean-based Tenix America, a subsidiary of Australian company The Tenix Group. The Virginia firm finished its fiscal year in June with year-over-year revenue growth of about 500 percent, a spurt that will probably lead the company to add about a half dozen employees during 2007. President Sam Maccherola, although declining to disclose revenue, says his firm’s homeland security business produces about 10 to 15 percent of its entire operations.

Tenix sells a data diode, similar in size and shape to a small DVD player, to numerous DHS agencies. It is the first company to receive the highest level of certification from the National Security Administration after tests proved its software could guarantee the security of classified information. Known as EAL 7, the certification permits Tenix to market its product with a “100 percent guarantee that data cannot leak back down” and be seen by unauthorized users, Maccherola says.

Virginia’s critical mass of defense contracts is prompting some localities to make homeland security a linchpin of economic development. Defense companies in Arlington County received DHS contracts worth more than $818 million during 2004, or roughly 30 percent of the total procurement for the Washington, D.C. area, according to a recent Virginia Tech study. To capitalize on their edge, Arlington economic leaders are studying various ways to nurture existing defense companies while luring new entrants. Strategies include waiving gross receipts taxes for a few years for qualified defense companies.

Along those lines, the Fairfax County Economic Development Authority has opened a new office in Palo Alto, Calif., to help high-tech firms in Silicon Valley explore potential federal contracting opportunities here.

But the state’s homeland security industry is not confined to Northern Virginia. Virginia Beach is marketing itself as “Pentagon of the South” in hopes of attracting more defense contractors. Virginia Beach economic development officials like to point out that Hampton Roads is home to the U.S. Navy’s Atlantic fleet, 98,000 active-duty military personnel, and seven of the 10 largest military commands in the U.S.

What does the future hold?
Yet, there are some dark clouds on the horizon. Three years after 22 federal agencies moved under the DHS umbrella, the counterterrorism agency is being criticized for wasteful spending. Some lawmakers are calling for tighter reins on private contracts after a congressional report in July noted that half of the money spent on contracts in 2005 was awarded without competitive bids. Altogether, the U. S. government spends more than $40 billion a year on homeland security, double the amount spent prior to 9/11.

Another problem: since much of their work for the government is highly sensitive, defense contractors worry about finding enough job applicants who can pass the government’s rigorous requirements for obtaining security clearances. Being unable to fill jobs rapidly could threaten future contracts.
“ It’s like running out of iron ore in the middle of the Industrial Revolution,” says SRA’s DiPentima. “Except that this is a knowledge revolution, and we’re running out of knowledge workers.”

SRA relies on employee referrals for about 40 percent of new hires, says DiPentima, and also is broadening its reach to recruit candidates outside Virginia. Compounding the problem in Northern Virginia are home prices soaring well above income growth. Addressing that issue is costing companies money. Booz Allen, for instance, is sweetening relocation expenses and other amenities to persuade out-of-state recruits to move here.

Besides rising home prices, Northern Virginia faces another hurdle: What happens when federal contracts begin to dry up? Observers sense that already may be happening, noting that government spending is bound to moderate soon, after several years of massive investment. John McClain, deputy director of the Center for Regional Analysis at George Mason University in Fairfax, says companies throughout Virginia, and especially in Northern Virginia, should be exploring other commercial applications for their technologies.

“We’ve been great beneficiaries of this ramp up in federal spending during the past 15 years. By the same token, if federal policies or spending philosophies change, which they could, we could suffer the most impact,” says McClain.

Last month’s foiled plot to blow up U.S.-bound trans-Atlantic flights was a grim reminder of the war on terror. The U. S. government needs more than bombs and guns. Increasingly, it needs high-tech intelligence systems and tools that deliver information quickly to the battlefield. Virginia firms are stepping up to supply the goods.