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Hewlett-Packard Beats CSC for $3.5 Billion Navy Contract

Hewlett-Packard Co. (HPQ) won a contract valued at as much as $3.5 billion to run the U.S. Navy’s communications network, the largest single information-technology project in the federal government.

The Navy selected Hewlett-Packard’s team over a group of contractors that included Computer Sciences Corp. (CSC) and Harris Corp. (HRS) The agreement calls for managing the Navy’s 800,000-user intranet through 2018, according to a Defense Department announcement today.

Hewlett-Packard, based in Palo Alto, California, has operated the Navy’s network since 2008. It is the company’s biggest federal contract, accounting for almost 40 percent of its $2.6 billion in prime, or direct, contracts in the year ended Sept. 30, according to Brian Friel, an analyst at Bloomberg Industries.

“The victory allows HP to maintain its position as one of the top IT services companies in the federal government,” Friel said. “It’s become hyper-competitive, and they’re showing they can keep their market share.”

Today’s award won’t bring the same benefits to Hewlett-Packard, partly because the Navy has scaled down and competition has driven down the price, Friel said. HP’s orders will fall 37 percent under the new contract compared with the current agreement, he said.

HP’s Team

Hewlett-Packard’s team for the so-called Next Generation Enterprise Network includes Lockheed Martin Corp. (LMT), International Business Machines Corp. (IBM), AT&T Inc. (T) and Northrop Grumman Corp. (NOC)

“We know the technology, we know what it takes to operate this massive and highly complex IT environment, and we now embrace the opportunity to help build a better enterprise network and continue the uninterrupted delivery of secure and reliable IT services,” said Marilyn Crouther, senior vice president and general manager of the U.S. public sector for HP Enterprise Services.

The award gives the Navy an affordable way to modernize its network and meet cybersecurity challenges, Sean Stackley, the Navy’s assistant secretary for acquisition, research and development, said today at a Pentagon press conference.

“We got what we aimed for,” Stackley said.

The team led by Falls Church, Virginia-based CSC and Melbourne, Florida-based Harris includes General Dynamics Corp. (GD), Verizon Communications Inc. (VZ) and Dell Inc. (DELL)

Evaluate Options

Heather Williams, a CSC spokeswoman, said the company planned to evaluate its options.

“While this is not the outcome CSC hoped for, we’re proud of our team and the next-generation technology solutions we put forth,” Williams said in an e-mail.

Jaime O’Keefe, a Harris spokeswoman, said in an e-mail that the company “offered a cost-effective solution with the right technology, and our team had valuable experience with the Navy, all of which gave us confidence in our proposal.”

Harris has “a robust federal sales pipeline, and we will compete aggressively for new opportunities,” O’Keefe said.

The announcement on the contract came after the Navy on June 24 fired Captain Shawn Hendricks, the officer who had been leading the competition, citing the results of an inquiry into an “improper relationship.”

A Navy official who asked not to be identified discussing the matter said the relationship was with a female contractor, without providing the name of her employer.

Hendricks’s dismissal “was in no way related to any contracting decisions with the programs he oversaw” and there “was no compromise of procurement-sensitive information,” Sarah Flaherty, a Navy spokeswoman, said in an e-mail.

Stackley said the circumstances of Hendricks’s firing didn’t represent a conflict of interest.

No one “associated with one of the bidding teams was involved in that instance,” he said.

To contact the reporters on this story: Nick Taborek in Washington at ntaborek@bloomberg.net; Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editor responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net

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