Defense contractors slide into homeland security business

Large, traditional defense contractors have easily remade themselves to be homeland security providers since the September 2001 terrorist attacks. But none appear to have made drastic changes that would redefine their core businesses.

"We didn't really reorganize the company for this," said Steve Carrier, vice president for business development and strategic planning at Northrop Grumman's Information Technology division. The company's approach is different but was not "knee-jerk," he said.

"We and others of the DoD contractors are really in the perfect position to bring [homeland security] technologies to bear," Carrier said. For years, the industry has been providing to the Defense Department and the intelligence community physical and cyber security services that can be used for domestic security, such as protection of networks, interoperability and network-centric operations.

For instance, Northrop Grumman previously had worked on ways to guard against disruption of computer systems in the United States, under the rubric of "information assurance." Now, the intelligence community has allowed the company to bring some of its secret technologies into declassified use, or "from the black world into the white world," as Carrier put it.

One example is information assurance software called InfoShield, used to protect desktop computers by monitoring traffic in and out. Other such technologies include chemical and biological detection systems, and geographic information systems.

Shaping The Homeland Strategy

Companies generally have shaped their homeland security efforts around the structure of the new department. For instance, Raytheon created a distinct homeland security business area with a focus on four areas in line the department: intelligence and information analysis/infrastructure protection, border and transportation security, emergency response, and science and technology.. Hugo Poza, senior vice president for homeland security at Raytheon, said the company's plan is to sell solutions to the customer, not products, so it partners wherever necessary to reach the best solution. For example, when it recently won a contract for an emergency command center with the port of Houston, it included in the contract a well-connected local architecture and engineering contractor.

Raytheon opened its homeland security division, based in Falls Church, Va., in June 2002. Other related divisions are technology services in Reston, Va., and intelligence-information systems in Garland, Texas. But all of the company's strategic businesses help provide homeland security tools. At the outset, Poza thought that all homeland security operations would be under his roof, but he soon saw that each company sector had a strong part to play.

Not long after Sept. 11, Lockheed Martin pulled together an integrated product team led by the strategic development department, according to James Wrightson, vice president for strategic planning. It met several times in the first year before the corporation held a strategic planning session in early summer recognizing the importance of the area.

A homeland security business council, cutting across the enterprise, was founded to try integrating the capabilities of the company to work together on homeland security solutions. The defense unit's focus on command, control, communications, computers, intelligence, surveillance and reconnaissance was at the top of its capabilities list, Wrightson said.

Now, Lockheed Martin sees its market as three-pronged: defense (including international sales), homeland security and civilian IT. The company, with 30,000 IT staff, has been the biggest supplier of IT to the federal government for the past eight years.

Northrop Grumman follows the broad areas that the federal government has identified in its homeland security strategy. These include: intelligence and warning, transportation security, supply chain management, domestic counterterrorism, protecting critical infrastructure, defense against catastrophic attack, and emergency preparedness and response. Based on those areas, the company did an inventory of its capabilities and came up with a list early in 2002.

The company has created an integrated product team across the company, which Carrier chairs, aimed at getting "one voice, one message" to the customer, he said. Company representatives take the company inventory to the customers.

The company also has recently opened a demonstration center near the Pentagon in Arlington, Va., where its vendors and those from competitors exhibit technologies in order to show how they integrate. The company typically invites federal colleagues, such as senior Homeland Security officials, out to its demonstration center and nearby laboratory.

Lockheed Martin set up a temporary demo center in Arlington last year, but now does demonstrations within each business area as it used to.

Companies like Northrop Grumman and Lockheed Martin had sales personnel for most of the 22 agencies that were placed into the new Homeland Security Department. These employees stayed with the accounts as they moved.

In addition, some senior company executives have good contacts in those agencies. For instance, Charles Archer, Northrop Grumman's vice president for homeland security business development, was an assistant director at the FBI before joining the company, and has former colleagues from the Justice Department who moved to Homeland Security. "This is very much a relationships business," Carrier said.

Security Laws Offer Potential Goldmine

Post-Sept. 11 security-oriented laws also have created a boon for the companies as they require identity systems, such as biometrics. Many companies offer border security technologies and are trying to leverage their experience and existing contracts.

One reason for not completely redefining a company might be that the homeland security funding has not yet begun to flow like Defense or intelligence money does. Almost all of Homeland Security's fiscal 2003 budget of nearly $38 billion has gone toward personnel and operations, not procurement, Carrier noted. And the slow progress of creating a new department has caused some frustration among companies.

Lockheed Martin is "philosophical" on the time the department's setup is taking, said Wrightson. "We knew it would be a crawl, walk, run activity," he said. "We knew it would be a long-run endeavor." Much of what is needed is to integrate existing systems of the 22 agencies, which is time-consuming, he said.

Lockheed sees the big contracts coming with larger systems endeavors in the future, such as the border entry-exit system, Wrightson said.

Poza called the homeland security market is "about as fluid as any market you can think of-things change rapidly."

"In our world, following the money trail is a big deal," Carrier said. "It's very hard to follow the money trail in a new department." In addition, it is hard to predict how congressional oversight will affect the department, as it is still forming, he said. Yet another problem is the lack of indemnification against liability for homeland security product and service providers like they have with Defense contracts, Carrier said.

Nevertheless, the companies like the look of the future. "The '04 budget looks a lot more upbeat," Carrier said. And companies have projects with years remaining that can carry them through the startup period at the new department.

Raytheon did $38 million in homeland security business in 2001, $106 million in 2002, and expects to triple that by the end of 2003, Poza said. "There is no doubt in my mind this is an extremely high growth area," he said.

Raytheon has developed a fully decked emergency response vehicle that it expects to catch on when the money finally arrives. It has received more than 360 expressions of interest in the $250,000 vehicle, but so far, has sold 16.

Poza said the chaos of the department's setup should subside in three or four years. "I think we're starting right now to get more order in that chaos," he said.