Contracting Rules Could Help Software Firms

Boosted by Acquisition, Deltek Hopes to Cash In on Project Management Needs

Kevin Parker compares Deltek's software to a business's dashboard. (Courtesy Deltek - Courtesy Deltek)

New federal contracting requirements could spur a niche market for software firms specializing in project management, as smaller contractors are forced to install more sophisticated systems to track their government work.

This month the government broadened its regulations for contractors on providing detailed cost analyses and projections on short- and long-term projects. Companies accustomed to reporting costs using standard products such as Microsoft Excel must now develop systems that let government officials monitor the long-term progress of the entire project.

The new rules, requiring the use of what are known as earned value management systems, effectively put smaller contractors and subcontractors under the same cost scrutiny as Lockheed Martin Corp., Northrop Grumman Corp. and other major firms.

Although the Defense Department has required its contractors to use the software for years, the new requirements will apply to many more federal agencies, potentially affecting thousands of contracts.

Deltek Systems Inc., a Herndon management software firm, is hoping to carve out its place in the contracting software realm by acquiring C/S Solutions Inc. of California. The deal, to be announced today, gives Deltek control over both ends of cost analysis: the company's internal costs and the government agency's ability to track costs on specific projects.

"It's like having a dashboard for running your own internal business," said Kevin Parker, Deltek's chief executive. "Typically you're not just looking at 90 days' worth of business. If you've been running a project for the federal government for four or five years, you need to know how much progress you've made and how much progress you need to be making."

Deltek has 11,000 customers, not all of which use the earned value software, and Parker expects the merger to provide an additional 500 clients.

The company acquired another earned value software company, Welcom, in March.

The cost-reporting regulations would not be across the board -- each agency sets the bar for the value of a contract subject to such scrutiny. The Defense Department, for example, sets the bar at $20 million for fixed-cost projects, while the Energy Department requires all contracts of more than $5 million to be managed with the software, Deltek said.

Although it is a niche market, Deltek has several competitors. Primavera Systems Inc., based outside Philadelphia, has been selling earned value software longer than Deltek.

"It's stronger competition, obviously because there's a stronger company behind it," said Richard K. Faris, Primavera's chief technology officer, referring to the merger. "But acquisitions are always tricky."

"A lot of the professional services companies are already familiar with the process, because they may have done it for the Department of Defense," said Ray Bjorklund, senior vice president at Federal Sources Inc., a McLean-based market research firm that specializes in government contracting. "But more or less these things are going to be learned and spread around the contracting world."