Sperry Corp., last week's winner of an unusual competition for $476.2 million worth of new Air Force computers, is preparing for the May installation of the first of the 153 devices--and looking to the losing bidders for some of the 2,000 persons it expects to hire to work on the huge contract.
Joseph J. Kroger, president of the computer systems operations division of Sperry, says "it's a very good possibility" that the company will raid the teams assembled by Burroughs Corp. and its contractor, Planning Research Corp. of McLean. "We suspect they have some very good talented people we would be interested in," Kroger said.
People are not all the losing companies may give up. Stock in both companies dropped on the New York Stock Exchange Friday, a day after the contract was awarded, as Wall Street registered its displeasure with the losers. The loss is a blow for Burroughs, which had been hoping to use the contract--known officially as Phase Four--as a stepping stone to an increased role in government data processing supply, and had set up a special team to compete for it.
Burroughs has had nothing to say about the Air Force's decision on the contract, which followed a 45-day "computeoff" during which the Sperry and Burroughs teams "There were a lot of pluses and minuses on both sides. Basically, we felt that both vendors could have fulfilled the mission." --Russell D. Hale had to put their entries through thousands of tests. The competition--which the Air Force claims cut the contract's cost by at least $300 million--is a relatively new concept in contract bidding. The Army recently let a $600 million basic computer contract under the same format.
A PRC spokesman said he was not surprised that Sperry might look to the Burroughs-PRC team for talent, since it had experience with the new Air Force system's needs as a result of the computeoff.
PRC said it had 230 persons working on the contract in Jacksonville, Fla., who would have to be transferred or laid off because of the Air Force's decision. "We expect that we're going to try to place as many of them as possible on PRC projects," the spokesman said. "Those we don't retain we will help find other employment."
Meanwhile, the Air Force revealed that Sperry had underbid Burroughs by more than $50 million, and indicated that that was the major determinant in awarding the contract to Sperry. Officials also said they were more confident in Sperry's ability to meet the stringent installation timetable for the equipment. But it appeared that on a technical basis, the two teams were evenly matched.
"There were a lot of pluses and minuses on both sides," said Russell D. Hale, assistant secretary of the Air Force for financial management. "Basically, we felt that both vendors could have fulfilled the mission."
The computeoff concept is designed to wring a computer system out of the competing suppliers that will operate as advertised and be as free as possible of glitches that could later cause cost overruns. The competing teams set up prototypes of their entries and operated them much as they will be operated in real life. They then were judged on the basis of technical and cost factors.
Hale said the Air Force's estimate of a $300 million-plus saving had been based on the service's estimate of what the computer system would have cost under traditional bidding. "Essentially, what we've done, through the competition, the winning vendor has come in well below what we'd estimated, and in fact what he'd estimated," Hale said. Sperry's Kroger said, "Obviously, I discounted to get this bid."
While Sperry and its subcontractor, Computer Sciences Corp., will reap the benefit of the $476.2 million in revenues from the contract--a figure that could rise substantially when contract extensions and expansions are counted--Burroughs and PRC will have to do without those revenues. The resulting impact on the companies' earnings were apparently the reason for Friday's selloff of the companies' stocks. Burroughs lost 62 cents to $47.62 and PRC was off $1.12 to $11.87. Both stocks had been rising in recent days amid growing anticipation of the contract decision.
For PRC, the failure to win a share of the Air Force contract is the second such blow in the past several weeks: it had earlier been part of a consortium of companies that lost a bid for a large National Aeronautics and Space Administration contract to provide a variety of ground-support services for the space shuttle.
And last week, the company said revenues in its second quarter had dropped 3 percent--although earnings rose 27 percent--as the recession had its effect on the company.
A PRC spokesman said the long-term effect of the Air Force decision is unclear, although it is not expected to have a substantial effect on this year's results.
"We're concerned, we're disappointed, but it's not the end of the world," the spokesman said. "Obviously, it was a big one, but there will be other big ones coming along."