The Ties That Blur

he days when a government agency simply paid a company to do a particular job are disappearing. Now agencies form partnerships with teams of contractors to provide solutions to large-scale problems. And agencies form partnerships with each other to seek contractors' solutions. In some cases, contractors even are seeking solutions from agencies. As an example of the complexities of civilian agency contracting, consider how San Francisco-based Bechtel Group has been raking in environmental and engineering business from the Energy Department. At the beginning of fiscal 2000, Bechtel took over operation of Energy's Idaho National Engineering and Environmental Laboratory after incumbent contractor Lockheed Martin decided to stop running the facility. The shift helped increase the value of Bechtel's work with civilian agencies from $875 million in 1999 to $2.1 billion in 2000. But Bechtel wasn't the only winner. Its partners, BWX Technologies of Lynchburg, Va., and a consortium of seven western universities, get part of the $3 billion, five-year contract as well. When Energy took away Lockheed's contract to manage the agency's Oak Ridge, Tenn., nuclear plant last fall, the $2.5 billion, five-year contract also went to Bechtel-and partner BWX. Bechtel has been joining forces with other contractors to compete for and win even more of the Energy Department's environmental and engineering business. After Energy fired BNFL as its contractor for a proposed radioactive waste treatment facility in Hanford, Wash., last spring, Bechtel and Boise, Idaho-based Washington Group International (formerly Morrison Knudsen) took over. Bechtel also teamed up with Science Applications International of San Diego to best incumbent contractor TRW to run the proposed Yucca Mountain waste storage site in Nevada. If the site gets built, the contract will be worth $3.1 billion over five years. While Bechtel was winning business on the strength of its partnerships, health care giant AmeriSource Distribution won a big chunk of the government's pharmaceutical business, thanks in part to a partnership among the Veterans Affairs Department, the Bureau of Prisons and the Indian Health Service. Pooling their buying power, the agencies ordered $1.4 billion in pharmaceuticals from the company in 2000, up from just $530 million the year before. To see how the changing federal market further blurs the lines between suppliers and buyers, look at the recently privatized U.S. Enrichment Corp. USEC signed contracts to provide enriched uranium services worth about $800 million to the Tennessee Valley Authority. That deal puts USEC on the list of top government contractors for the first time. TVA, in turn, inked a deal to provide electricity to USEC's Paducah, Ky., enriched uranium production plant for the next 10 years. And finally, some of the uranium that the USEC processes at the Paducah plant comes from the Bechtel-BWX-run Energy Department plant in Oak Ridge. The Energy Department continued to lead the list of civilian agency purchasers in fiscal 2000, with $16.9 billion in prime contracts worth $25,000 or more. NASA came in second, with $10.9 billion in contracts. In all, civilian agency spending rose 17 percent last year, from $61.5 billion in 1999 to $71.7 billion in 2000.