Ernst Volgenau was there at the beginning, when the Pentagon's Vietnam-era "whiz kids" helped create Washington's government contracting business. The founder of SRA International Inc. watched in the late 1990s, when many of his company's engineers and technicians left for fatter paychecks and stock options in the dot-com world.
And he was there for the success of recent years, when the tech bubble burst, the dot-com defectors streamed back and Wall Street discovered the allure of contractors like SRA.
"I think government contracting has improved a great deal in that time period. It's . . . much more like the commercial world than it was in the 1980s," Volgenau said in an interview Friday, a day after announcing that he was stepping down as chief executive. Volgenau said he will remain involved with Fairfax-based SRA as chairman, but he will step back from day-to-day operations of the company he founded in the basement of his Reston home in 1978.
After a 20-year career in the Air Force and two years directing the inspection and enforcement activities of the Nuclear Regulatory Commission, Volgenau's course as an entrepreneur was set by an assignment at the Pentagon.
Volgenau, a passionate technologist who earned a doctorate in electrical engineering during his military service, spent several years in the 1960s working under Robert S. McNamara and a team of tech-savvy aides who were nicknamed the "whiz kids." They became known, and blamed by critics, for their role in managing the expanding war in Vietnam. But the group's immediate mission was to use computers to make military dollars go further.
In 1970, five members of that team, including Ivan Selin and Charles O. Rossotti, founded American Management Systems Inc., a pioneer in defense contracting that helped inspire younger entrepreneurs, including Volgenau.
When Volgenau decided to start his own company, venture capitalists weren't clamoring to invest in Washington's government-oriented businesses. Volgenau's start-up capital was the money he had saved while working for the government and supporting a family with three daughters, and loans he took out against the family's home.
To build a track record, SRA started out offering consulting services as a subcontractor. Its first contract came from Volgenau's old mentors at AMS.
"My contracts were small contracts of $10,000 or $20,000 each. Our objective was to do a good job on a little job and then maybe the customer would give us some more," Volgenau said. At the end of its first year, SRA had six employees.
By the mid-1980s it began bidding on, and winning, its own contracts with the government. Volgenau said he cannot recall the details of those first contracts, but he remembers what big events they were for the company.
For much of the defense-contracting industry, there were lean times after the Cold War and the Persian Gulf War, as military spending fell off.
"You had to stick to it and take advantage of the opportunities that were available," said Edward H. Bersoff, former chief executive of BTG Corp., one of Volgenau's peers and competitors. "It was not a pleasant time."
But SRA continued to grow as Volgenau pushed his staff to learn and offer the most advanced technical services to customers. Unlike some competitors, SRA kept its focus on technology, from installing early computer systems in the 1980s, to developing data-mining software and building electronic military control centers today. Defense and national security always has been a prime focus, but SRA also worked for civilian agencies.
Volgenau said he always intended for SRA to go public eventually. In 1996 he and his team began to explore the possibility with investors. Government service companies, it turned out, could not capture Wall Street's imagination at the time. "We valued our shares pretty highly, so we decided against it because they were not going to pay for our shares what we thought we were worth," Volgenau said.
If contractors were largely ignored in the mid-1990s, they were all but forgotten by the end of the decade as Internet frenzy climaxed. Many of the company's younger employees were lured away by Internet start-ups, Volgenau said. "So much of the intellectual intensity was going into dot-com companies. It became en vogue to talk about paradigm shifts: The old was out and the new was in."
SRA continued to grow in relative obscurity. When the dot-com bubble burst, the contracting sector became the latest darling of investors. SRA employees had just finished training military personnel to use a Navy command center they had built at the Pentagon when an airliner hit the building on Sept. 11, 2001. They lost the command center and several close associates in the military.
The terrorist attacks of 9/11 created greater demand for technology in the defense, intelligence and homeland security markets that now account for 62 percent of SRA's revenue. And when the company approached the public markets again, it received a much warmer reception. SRA raised $103.5 million in its initial public offering in May 2002.
The purpose of the IPO was to allow SRA to make a few choice acquisitions, Volgenau said. But unlike that of many of its competitors, SRA's growth has been mostly internal. In its 26 years, the firm has bought only three companies.
Before 2003, SRA had never won a contract worth more than $100 million. That year it won three such contracts and has since won two deals worth more than $300 million each. Last November it won a $328 million contract to provide technology support to the U.S. Agency for International Development, and in September it was awarded a $341 million contract to do similar work for the Federal Deposit Insurance Corp.
For its fiscal year ended June 30, SRA, which now has 3,500 employees, posted a $38.9 million profit and $615.8 million in revenue.
Volgenau says his company's core values are "honesty and service," and he tells his senior executives to ignore its stock price. But it has risen significantly since its debut at $18 a share. On Friday, SRA stock closed at $53.76 a share.
Throughout his career, Volgenau said, the government contracting market has always been competitive, but it had become more so in the past 10 years as more companies entered the field and new government buying methods put increased focus on contractor performance.
"In the old days the government had big ponderous procurements. It took many months to get a contract awarded and sometimes there were protests," he said. "Under the new system of task orders, if you don't perform, the government has a lot more flexibility to fire you."