Northrop Grumman Corp. and CGI-AMS have been selected by the Commonwealth of Virginia to spearhead a 10-year, multibillion-dollar initiative to transform its information technology.

Northrop Grumman beat out International Business Machines Corp. to create the new technology system, while CGI-AMS outbid IBM to design the enterprise applications -- those central to running state government -- that will operate on the system.

Both contracts require final approval by Gov. Mark R. Warner (D). The completed Northrop contract was sent to Warner last week; final terms of the CGI-AMS deal are still being negotiated, with a goal of sending it to Warner this month.

The project is the result of the Public-Private Education Facilities and Infrastructure Act, a law Virginia passed three years ago that altered the bidding process to give contractors more room to propose creative ideas and solutions.

Northrop Grumman's information technology operation in McLean is up for a 10-year contract valued at $1.9 billion to modernize Virginia's 1980s-era IT infrastructure and services. The project requires the winning bidder to create jobs in Southwest Virginia and to offer options for state employees who transfer to Northrop's payroll as part of the project.

The contract, which was recommended to the governor by the Virginia Information Technology Investment Board, includes an option for a three-year renewal. It includes hardware, networks, services and staff for mainframes, servers, desktop and laptop computers, voice and data networks, operating systems, e-mail, security, and help desk and data center facilities.

If Virginia had not pursued the transformation initiative, the state would have spent $200 million over the next 10 years to support "an increasingly outdated and expensive infrastructure," James F. McGuirk II, chairman of the state IT investment board, said in a statement.

CGI-AMS of Fairfax was selected in early October to negotiate final terms of the enterprise applications initiative. The potential value of that contract has not been made public.

To prepare for the applications contract, the state and the competing companies collected information on the state's administrative, financial, human resource and supply chain management processes across 46 state agencies earlier in the year.

Northrop Grumman of Los Angeles has about 125,000 employees and net sales in fiscal 2004 of $29.9 billion. CGI-AMS is part of CGI Group Inc. of Montreal.

Ethan Butterfield is a staff writer with Washington Technology. For more details on this and other technology contracts, go to www.