Small Government, Big Business

he federal market provided lucrative opportunities for contractors in 1999, as vendors tapped into the outsourcing needs of a slimmed-down government. Agencies now rely on private companies to do significant portions of their workloads. NASA, for example, buys off-the-shelf satellites rather than designing and building its own. The Energy Department depends almost exclusively on contractors to clean up nuclear waste. And many agencies use outside groups to maintain and provide support for their computer networks.

The $185 billion pie of large prime contracts for goods and services grew slightly from $182 billion in fiscal 1998. The Defense Department accounts for 67 percent of the contracts, up from 65 percent in 1998. Of the civilian agency purchasers, the Energy Department led with $15.6 billion in contracts, followed by NASA with nearly $11 billion. The General Services Administration was the next-largest purchaser, with nearly $7 billion in contract awards.

The top five contractor powerhouses-Lockheed Martin, Boeing, Raytheon, General Dynamics and Northrop Grumman-remained in their positions. These companies, which do most of their government work for DoD, accounted for nearly $50 billion in federal contracts in fiscal 1999. Lockheed alone represented more than a third of that amount.

Among the most notable changes among the top 20 contractors is the jump of two Energy Department contractors, Morrison Knudsen and BNFL. Morrison Knudsen rose from number 74 in fiscal 1998 to 15th place in 1999, while BNFL jumped from position 106 in 1998 to number 23 in 1999. The shift largely reflects the March 1999 purchase by the two firms of Westinghouse Electric, which was the eighth-largest contractor in 1998.

BNFL's position may be lower on next year's ranking because DOE recently terminated a contract awarded to the company in August 1998. BNFL was to design, build, own, operate and finance a waste vitrification plant at DOE's site in Hanford, Wash. The company said it could do the job for $6.9 billion. But in April, BNFL revised its price tag to $15.2 billion, a move Energy Secretary Bill Richardson called "outrageously expensive and inadequate." DOE plans to conduct an expedited competitive bidding process for the job and make a new award by the end of 2000. The other major shift on the list is Honeywell, which was 17th in fiscal 1999, up from 94th the previous year. The change reflects the December 1999 merger of Honeywell and Allied-Signal, which was ranked 14th in 1998. Although the merger was completed after the end of the fiscal year, both companies' federal contract commitments for fiscal 1999 have been combined under the Honeywell label. Allied-Signal no longer appears on the list.

Slightly higher in the ranking is Computer Sciences, up to 11th from its fiscal 1998 place of 16th. CSC is likely to remain high on the list: In December 1999, the company won a 10-year, $680 million contract to modernize the Army's wholesale logistics operation. CSC will use best commercial business practices and associated technologies to generate efficiencies.

The Bechtel Group climbed from 21st to 13th place. In September 1999, the company won a $3 billion contract to manage and operate DOE's Idaho National Engineering and Environmental Laboratory.

Earlier in the fiscal year, a Bechtel-led team of contractors also won a seven-year, $306 million contract to build a facility for destroying mustard gas containers now stored at DoD's Aberdeen Proving Ground in Maryland. Aberdeen houses more than 1,800 containers-each holding an average of 1,787 pounds-of mustard agent. Other members of the Bechtel team include Battelle Memorial Institute, Horne Engineering and Upper Chesapeake Medical Services.