$7-Billion-Pact Awarded to EDS

Shares of EDS jumped on Monday following the award of a landmark intranet contract from the Navy Marine Corps late last week.

The announcement marks the largest federal information technology contract in history, valued at more than $4.1 billion for five years. With an additional three-year option, the contract is valued at more than $6.9 billion.

“This contract signals a major shift in the way the Navy Marine Corps use technology to become more efficient, and we expect other federal agencies to follow suit,” said EDS Chairman and CEO Dick Brown. “Beginning with this contract, the federal government is well on its way toward employing the best practices from the commercial sector to improve defense readiness while increasing savings for American taxpayers.”

Yet in a conference call Monday morning, Brown said that, while his firm is “elated and gratified” by the agreement, it was not surprised. Brown said the deal was not an upset win because EDS had been planning it for quite some time.

Still Goldman Sachs, which had been monitoring the deal, said the play was actually a huge surprise as it said EDS beat out such favorites as CSC, and IBM Corp.

“This is an important win for 2 reasons,” a statement issued by the investment team said Monday. “It puts EDS
on track for a blow-out year in new bookings, adding more evidence of a pending reaccel in revenue growth.[It also] boosts EDS’ profile in the federal market, particularly in positioning for similar contracts to be awarded by the Army & Air Force. We’ve raised our 12-month price target to $55 from $48, implying 15 percent upside from the stock’s after market level on Friday.”

The company’s stock gained 14 percent in early Monday trading.

Through the agreement, EDS and its partners with the Navy Marine Corps will improve the onshore information technology services for Department of the Navy civilians, sailors and marines. Through consolidation, enhanced technology and enterprise-wide centralized management, this performance-based contract will increase the quality of service at the 300 Navy Marine Corps bases throughout the U.S., Iceland, Puerto Rico, Guam, Hawaii and Guantanamo Bay, Cuba, while at the same time significantly reducing costs.

In addition, the Information Strike Force will subcontract 40 percent of the work to small businesses and minority- and women-owned businesses.

“This is a great triumph for EDS, the Navy Marine Corps and the American taxpayer,” Brown said. “The Navy Marine Corps will receive world-class voice, video and data services through a Department of the Navy-EDS partnership that will improve their information technology abilities and overall readiness. The services also will be secure as a result of implementing cutting-edge information assurance tools and processes. In addition, the American taxpayer will see greater productivity and reduced costs.

EDS’s Program Director Rick Rosenberg brokered the deal with the Navy. He said from the conference call that EDS had forged several deals with major companies to offer services, security and connectivity. Thus far, Raytheon Co. will lend it security solutions, WorldCom will present connectivity, and others such as Cisco and Microsoft will provide services.

Brown said he felt EDS, which does 14 percent of its total business with the government branches such as the Department of Justice, the Department of Energy and Medicaid, will be able to pave the way for a new, large-scale wave of intranet outsourcing. The Navy will essentially be using EDS equipment, from desktops to connectivity devices.

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