Some contractors find success in state and local work


Bruce L. Caswell, president and general manager of health services, left, with David Walker, chief financial officer, at Maximus’s offices. Work for state and local governments accounts for about 65 percent of company revenue. (Jeffrey MacMillan/JEFFREY MACMILLAN)
April 21, 2013

Many government contractors view state and local work as a waste of time involving small dollars and difficult, ever-changing regulations.

But for several area companies, this business is proving fruitful, particularly as federal spending shrinks.

Herndon-based DLT Solutions, which is known as a reseller of computer hardware and software but also provides professional services, saw double-digit revenue growth in 2012.

And the company’s state and local business grew faster than federal work, said Rick Marcotte, DLT’s chief executive, chairman and president.

For instance, DLT won work with Colorado’s health benefit exchange to provide Oracle software that will help the state set up its health insurance marketplace, Marcotte said.

At Reston-based Maximus, state and local work provided a boost, too. The company has long depended significantly on this business, which makes up about 65 percent of its revenue.

Health insurance exchanges and Medicaid program expansion and modernization are a key source of growth, said Bruce L. Caswell, president and general manager of the company’s health services segment. Maximus specializes in managing health and human services programs, from processing applications to providing job placement support.

In its most recent earnings report, the company said its profit for the three-month period ended Dec. 31 reached $21.3 million, up about 20 percent from $17.7 million in the same period a year earlier.

As state budgets rebound, Caswell said there’s pent-up demand for technology modernization.

“I’m surprised I haven’t seen as many ... classic defense contractors coming down market into state and local,” said Caswell, noting that he has seen more commercial companies enter the field.

But many contractors have had bad experiences with state and local work. Some of the most prominent troubled contracts have been with this type of business.

McLean-based Science Applications International Corp., for instance, settled its way out of CityTime, a time-keeping program it ran for New York City but was labeled “a massive and elaborate scheme to defraud the city” by the U.S. Attorney’s Office for the Southern District of New York.

Falls Church-based Northrop Grumman had its own troubles when Virginia’s information technology infrastructure — managed through a partnership with Northrop — went down for almost a week, hitting state services from driver’s licenses to tax refunds.

And state and local work tends to take longer and require more work, as bid proposal staffers grapple with different requirements and terms.

At the state level, “there are not these multi-state, large blanket purchasing agreements,” like the kind used by the federal government, Caswell said. “So the transaction costs can be more substantial.”

Michael S. Lewis, managing director of consulting firm the Silverline Group, said companies that want to win state and local work typically have to spend more to do so.

“It’s very difficult for a larger firm to transition to a state and local environment where every single municipality has its own way of doing business,” he said. “The companies that want to play a more significant role in that domain must invest more aggressively in their bid and proposal and business development back-office.”

As DLT braces for a tougher 2013, Marcotte said the company is hardly walking away from federal work, but it is planning for more growth in its state and local business.

“Our bet on state and local in 2013 is a bigger bet,” he said. “We’re putting more chips on that.”

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