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Services giants vie for $10 billion deal

Four heavyweights in the professional services ring are vying for a government defense contract worth an estimated $10 billion that could be awarded as early as next week.

Four heavyweights in the professional services ring are vying for a government defense contract worth an estimated $10 billion that could be awarded as early as next week.

The bidders, which include services giants Computer Sciences (CSC), Electronic Data Systems (EDS) and IBM Global Services and defense contractor General Dynamics, have submitted their proposals and are anxiously awaiting a decision from the U.S. Navy and Marines.

"We're just waiting for the phone to ring," said Tom Booth, a spokesman for Falls Church, Va.-based General Dynamics. General Dynamics builds ships and marine systems as well as land and sea combat systems.

The winning bidder will have little time to savor the victory: The Navy and Marines hope to begin construction of a new intranet system Oct. 1.

Analysts and contenders say the project, dubbed "Navy-Marines Corps Intranet," or N/MCI, would mark the largest government outsourcing contract ever awarded.

The N/MCI project would entail the development and maintenance of a government intranet that would link about 100 existing networks worldwide, according to Navy spokeswoman Jane Alexander. She added that the contract will be awarded to one primary contractor and will not be divided among the four bidders.

Historically in the information technology outsourcing world, government contracts take longer to negotiate and are much more complex than standard commercial contracts. Contenders for the N/MCI project have been working for more than a year to win the bid.

Last year, Connecticut nixed negotiations for an estimated $1.5 billion outsourcing contract with Plano, Texas-based EDS to privatize the state's computer systems. The closely watched deal was riddled with challenges for both sides, such as tackling complaints from an angry union, a long bureaucratic review and intense public scrutiny. The job is now being completed through smaller contracts with EDS and other companies.

Further complicating the contract award process is the death of Rep. Howard Bateman, R-Va., who was chair of the House Subcommittee on Military Readiness. Bateman's death may delay the Navy's decision date by a few days, according to a source. Before it can be passed, certain issues related to the N/MCI project still need to be hammered out within the Defense Authorization Bill. Bateman was part of the House-Senate conference committee on that bill.

Though a winner has yet to be revealed, Merrill Lynch analyst Stephen McClellan says CSC may have the inside track. In recent research notes, McClellan said CSC has a "higher likelihood" of winning because of its extensive experience and good track record with federal outsourcing deals.

The El Segundo, Calif.-based company has landed several government outsourcing contracts in recent months, including a 10-year deal with the U.S. Army. If CSC wins the N/MCI project, McClellan noted that it could boost his current forecast of 18 percent to 19 percent revenue growth for the company's fiscal year 2002.

Rivals EDS, IBM Global Services and General Dynamics also operate practices devoted to the government sector.

Robert St. Jean, an analyst at J.P. Morgan, said he believes CSC and EDS are the leading contenders. "Both have stronger resumes in bidding on (government) deals," he said. "I'd be surprised if either IBM Global or General Dynamics wins it.

"This will be a material event for whichever company wins the contract."

The Navy said the winning contractor will provide the computers, phones, fax machines and anything else related to providing faster voice, video and data communications.

Once the estimated five-year deal is completed, it will tie together some 360,000 Navy and Marine Corps personnel, giving them desktop access to a common intranet and multiple databases.

Alexander said the new, single network will tie all the information from the Navy and Marines together and will give people access to human resources or personnel records from any location, even when a sailor is on deployment.

Each bidder has selected a group of partners for its team. For instance, EDS' partners on this effort include Raytheon and WorldCom. The Navy is asking that 35 percent of the contract fee go to small-business team members.