CSRA Faces Risk on Up to 15% of Revenue From Merged CSC-HPELaura Criste and Kevin Brancato
CSRA Inc. faces intensified competition for five of its federal government contracts after former parent Computer Sciences Corp. merges with the enterprise-services arm of Hewlett Packard Enterprise Co.
Contracts at risk include Enterprise Computing Services ($250 million), Alliant ($200 million), IT-70 ($152 million), ITES-2S ($68 million) and Encore II ($21 million). Combined, annual obligations from these contracts make up about 15% of CSRA’s estimated $4.3 billion in annual revenue.
Bloomberg Government forecasts all but one of the recompete contracts to be awarded in just over a year and a half: the new health information technology component of IT-70 by October; and Alliant 2 and ENCORE III by October 2017. The NGEN II and ITES-3S contracts should be awarded by January 2018, while the ECS contracts won’t expire until 2020.
Computer Science’s acquisition will close by March 31,
2017. HP Enterprise has competed with CSRA on some of the contracts, and both CSRA and the combined entity will likely bid on recompetitions, most of which are underway. For other contracts, HPE and CSRA have been two of many bidders.
The federal market is far more important for CSRA than HPE-CSC, which was obligated about $1.1 billion in fiscal 2015 on six major at-risk contracts. That’s 4% of a predicted $26 billion in total combined revenue for HPE and CSC. HPEs contracts at risk include $716 million on NGEN, $109 million on Alliant, $105 million on ECS, $79 million on IT-70, $48 million on ITES-2S, and $10 million on Encore II. HPE’s fiscal year runs from November to October, which is different from CSRA’s April to March fiscal year. CSC has no federal work, according to the terms of the November 2015 spinoff and merger involving CSC and SRA Inc.
While contract obligations, reported by the federal government, don’t immediately turn into company-reported revenue, the ratio of obligations to revenue made in the same time period is a solid guidepost on which to evaluate trends. .
(Laura Criste is a federal market analyst with Bloomberg Government where Kevin Brancato is the director of government contracts research)