Computer Sciences Snags NSA Contract

$2B, 10-year deal marks first big win for CSC in a year, but some say fulfilling promises will be tough

Computer Sciences Corp. was scrambling to up the value of a newly won, multibillion-dollar federal contract late last week, a day after the contracts announcement sent the companys stock price plummeting.

The IT modernization deal with the National Security Agency calls for a CSC-led team, dubbed the Eagle Alliance, to provide telephony and network services, distributed computing, and enterprise and security management at NSA headquarters and other offices in and around Washington.

The aim of the outsourcing contract is to modernize the NSAs IT infrastructure, making it more efficient and less expensive to manage, CSC officials said in El Segundo, Calif. The ITI, as the NSA calls its current infrastructure, is a mishmash of incompatible systems.

The deal, originally announced as a $2 billion, 10-year contract, disappointed industry analysts, who had expected the contract to fetch as much as $5 billion. The news sparked a stock sell-off in the hours before CSC released earnings news that showed a 50 percent drop in the services companys first-quarter earnings.

Van Honeycutt, CSCs chairman and CEO, issued a statement last week saying the contract could indeed be worth $5 billion "if the scope is expanded, as anticipated."

The contract takes effect in November, at which time 750 NSA employees will be hired by the Eagle Alliance team, officials said.

Despite the public nature of the government-sector deal, CSC and NSA officials declined requests to provide further details of the contract.

CSC has partnered with Northrop Grumman Corp. subsidiary Logicon Inc. and will be joined in the project by subcontractors including General Dynamics Corp., Keane Federal Systems Inc., Compaq Computer Corp., Verizon Communications Inc., Omen Inc., and other technology and service providers. The Eagle Alliance team edged out a team led by AT&T Corp. and OAO Technology Solutions Inc.

The NSA deal marks the first big win for CSC since its $3 billion contract with Nortel Networks Corp. last year.

Analysts say CSC wont have an easy time fulfilling its promises to the NSA. While such complex contracts give the winner great visibility, they can also be a huge headache to manage.

"To manage an agencys entire IT assets, keep it running and keep people happy is a huge task. It takes layers of relationship building, assimilation of employees and management of a complex process on top of that," said Rishi Sood, an analyst at Gartner Inc., in Mountain View, Calif.

The contract also represents a growing interest by the federal government in outsourcing desktop and distributed systems management. "We expect over the next three years to have at least three more major multibillion-dollar contracts," Sood said.

Not unlike its predecessor, the Navy-Marine Corps intranet contract awarded last fall to Electronic Data Systems Corp., the CSC pact requires 25 percent of the work to go to small businesses.