Very few individuals choose to make a transition from engineering to business. However, according to Nuhad Karaki, the executive vice president and chief operating officer of Inceptre Corporation, the hard work and integrity he learned from studying engineering played an essential part in making him the executive he is today.

We had the opportunity to interview Nuhad about his unique background and his role and successes at Inceptre. Here is what he had to say:

Can you tell us a little bit about your background?

From a very early age, my parents emphasized the importance of family, religion, work ethic, and integrity.  Integrity was weaved into all of life’s lessons:  if something was worth doing, then it was worth doing the right way, without any shortcuts.  Keep it simple and be true to yourself.

Upon arriving in the U.S., I devoted myself to completing my undergraduate and graduate degrees in Engineering (from University of Colorado in Boulder) and Business (MBA from Denver University).  The systematic skills and processes I learned in the Engineering classroom, along with my Jesuit upbringing, shaped the way I think about and analyze problems today: sometimes to the dismay of my family and friends.

For my entire professional career, I have been focused on improving processes, expanding and growing companies, and providing executive level leadership for both the private and public sectors. I consider it an honor and privilege to hold a very high U.S. Government security clearance and even prouder that my current company provides input and solutions to extremely vexing national security issues.

What was a key point in your career that helped you get to where you’re today?

A pivotal point in my career was when I decided to focus on my business degree and enter the business world.  Although I excelled at engineering and use many of its tenets today, my passion was centered on the business world.

What does your firm focus on and how does your role impact the organization?

Our company is a solution provider to multiple government agencies and provides Systems Engineering and Technical Assistance (SETA) support to the U.S. intelligence community.  We are well diversified and also provide subject matter expertise in the language areas and IT support to the IC and DOD.

My role is to provide executive management to the company while establishing corporate objectives, define the strategic plan and vision, align operations, and position and lead the company for growth to the next level. A key accomplishment has been my ability to maintain long-lasting relationships with key partners and stakeholders throughout the private and public sectors.

Can you describe your relationship with ACG National Capital? How has being a member factored in your career?

I consider my relationship with the ACG National Chapter to be excellent.  I have attended many meetings and seminars, introduced key speakers to events, and developed long lasting friendships.  The friendships developed have benefited me tremendously, and I enjoy the opportunity to connect people in meaningful ways.

You were recently elected to the ACG National Capital Board of Directors. What are your ambitions and/or expectations while serving on the board?

As a board member, I am focused on advancing the strategic goals and vision of the chapter.  As I mentioned earlier, people are the key to solving problems and ultimate business success.  I will continue to bring excellent speakers to important events and utilize my vast network of contacts in the private and public sectors to solve problems.

Any final stories or anecdotes you’d like to share?

Integrity and hard work are key. As a young teenager, I asked my father to buy me a car.  Rather than buy me the car, he sent me to the middle-east (one of his key construction projects) to perform manual labor at a plant in triple digit temperatures.  He introduced me to a very large construction foreman by saying:  “Abdul – this is my oldest and favorite son who will be working for you this summer.  If you treat him like my son, you will be fired”.  Well, he worked my tail off that summer, but I learned the lesson that hard work pays off when I received the car.

By The McLean Group

Given US federal budget uncertainties and volatility in the geopolitical climate, large and small companies alike in the defense and government services sector spent early 2011 focused on their core competitive advantages and taking steps to exploit them in the marketplace. Such strategic divestitures as Lockheed Martin’s sale of PAE and Northrop Grumman’s spin-off of Huntington Ingalls (both discussed below) helped companies hone their core strengths and alleviate potential Organizational Conflicts of Interest (OCI), while providing cash for future targeted acquisitions to reinforce those capabilities, customer relationships and access to key contract vehicles in selected areas.

Meanwhile, buyers envisioned significant growth opportunities in divested assets that might enable them to operate more efficiently and/or grow more rapidly on a standalone basis. Corporate assets deemed superfluous by current owners constituted an ideal opportunity for acquirers seeking to take their firms to the next level. To paraphrase an old saying, “one company’s excess is another firm’s treasure.”

Click here to read more from The McLean Group’s Defense and Government Services Spring 2011 update related to M&A activity analysis, private equity activity, subsector highlights and more.

By: Rose Wang, President and Chief Executive Officer at the Binary Group, Inc.

Last month, the ACG National Capital Chapter held an Emerging Growth Business Roundtable for CEOs of government contractors. Participants were limited to C-level executives at companies with 5-250 employees only. 

The event theme was, “growing the business,” and focused on how the government purchases products and services and what influences their purchasing decisions. The concept was to help these small, emerging growth government contractors better capture large contracts from the federal government. 

In addition to the usual ACG National Capital thought leaders and business experts, the roundtable featured three incredible speakers: 

• Don Beery: the CEO at Plus Point Partners and a business growth expert
• Stan Soloway: the President of the Professional Services Council
• Edwin Miller: Chairman at Callis Communications, CEO at 9Lenses, Managing Partner at (i)SAGE and serial entrepreneur

One of the topics that was on the mind of many of the government contractors in attendance, and that Don, Stan and Edwin were able to help address, was the current trends impacting the federal acquisition process. Many contractors are concerned about the ways in which the acquisition process is changing and how it could influence their ability to sell into the government. 

Currently, there are two very large GWACs that are currently in the process of being renewed, SEWP and CIO SP3. These two government wide contracts are extremely influential since the Office of Management and Budget is looking at them as the model for all government wide acquisition contracts (GWAC) in the next two years. 

However, the very existence of large contracts such as GWAC contracts and indefinite delivery indefinite quantity (IDIQ) contracts could be in doubt. 

GWAC contracts are nothing more than hunting licenses which provide a government contractor with the ability to pursue business with various government agencies. Historically, GWAC contracts have been detrimental to small, emerging growth government contractors since they require a significant investment of time and resources to acquire and don’t guarantee that any business will result. 

In contrast to large government contractors, which have significantly more funds, resources and manpower to spend in the acquisition of a GWAC contract and subsequent pursuit of task order business, small government contractors simply can’t afford to make such a large investment and not receive any business in return. 

It’s for this reason that the Department of Defense (DOD) is moving away from large buys and large contracts of this nature. However, this move doesn’t come easy for the government. 

Two decades ago, there was a move towards large contracts, such as GWACs, to reduce the need for extensive acquisition workforces and to help the government save money. It’s now illegal to bundle contracts and government agencies are shifting away from large contracts, but they don’t yet have the acquisition workforce needed to make it happen. 

With a strained acquisition workforce, it’s increasingly important that government contractors go the extra mile to make sales. The contractors have to know their sales targets and understand the internal buying culture of the targets. 

This move away from bundling and consolidated contracts isn’t the only major change currently facing the federal acquisition process. There’s also a new and increasing push for transparency for both prime and sub contractors. 

This can be very detrimental for small and emerging growth companies which are often the sub on large government contracts. These private government contractors simply aren’t used to having to disclose the amount of information that the government requires. Information like executive pay is suddenly required of subs that previously could hide behind the prime on a contract. This means that smaller contractors have to be more careful with compliance issues and manage their internal systems much closer. 

The ability of small government contractors to land large government contracts is increasing as bundling and GWAC contracts begin to be pushed aside. However, the stress on these contractors to sell to stressed acquisition workforce at federal agencies and manage their internal processes in light of increased transparency could be detrimental for the emerging growth professional services company moving forward. 

In out next Emerging Growth Business Roundtable, we’ll once again visit the topic of winning business from the federal government. The focus of the next event will be on winning smaller government contracts, especially from the prime contractors. The event is open to ACG members that are CEOs at emerging growth companies.  Click HERE for more information.

In previous posts, we’ve discussed the impact that the current state of the economy is having on the government contracting industry. With the government facing large budget deficits and seeking to trim back spending wherever possible, they’ve looked to defense budgets and defense acquisition processes as places where they can possibly save money and cut costs.

As a result, the government contracting space is expected to face some lean years and even experience a consolidation similar to what occurred when defense spending cuts took effect in the 1990s. Many pundits expect large government contractors to begin to acquire smaller government contracting companies that enable them to bid for niche business that they previously didn’t have the capabilities to compete for, such as network security.

With the business opportunities for government contracting companies shrinking, many of the small and medium-sized government contractors are banding together to ensure their survival.

In October, an organization called MissionLink was profiled in the Washington Post. The organization is an invitation-only forum designed to foster collaboration, knowledge sharing and innovation among national security focused government customers and the CEOs and decision makers at defense, intelligence and national security companies.

By providing a forum for knowledge and best practice sharing among the chief executives at defense related companies, MissionLink is expected to help strengthen defense companies to survive the challenging economic environment facing the government contracting community.

MissionLink’s membership comprises the chief executives from a wide range of small and medium-sized government contractors. Each year, participants will be graduated and new government contracting leaders will be added.

Many of the companies involved on MissionLink’s board should look familiar, they’re members of ACG National Capital. In fact three quarters of the members are based right here in the DC region.

MissionLink is an incredible example of an industry banding together to share best practices and knowledge to survive in what will be a trying and difficult period of reduced government spending. It’s also a testament to the business savvy and know-how of the National Capital region.

The US Department of Defense (DoD) has a problem.  Given the global supply chain, how can the Pentagon protect its sensitive trade secrets and technology from slipping into foreign hands? How can the Pentagon also ensure that key components to weapons and other national security systems are not compromised?  Given the reliance of our nation’s largest prime government contractors on offshore partners within the global supply chain, ensuring technology protection and supply chain continuity is a complex challenge.

To address these concerns, a relatively obscure provision in the 2011 Defense Authorization Act (S. 3454) known as Section 815 has been proposed.  To better manage supply chain security risks, Section 815 would empower government bureaucrats to subjectively cut suppliers out of the DoD supply chain if they were deemed a risk.  True, some legitimate security risks would be eliminated, but at what cost to small business suppliers competing in an open market, large prime contractors trying to reduce costs and operate efficient supply chains, government agencies dependent on these contractors, and ultimately the US taxpayer that pays for all of the above.

But there is more to worry about than just the potential cost.  Typically, bidding disputes are subject to review by the Government Accountability Office.  However, perhaps the most troubling aspect of Section 815 is the lack of transparency of decisions to disqualify bidders and also a potential prohibition of bid protests, providing little to no accountability or remedy to contest wrongful determinations.  The government claims it cannot provide transparency without revealing classified national security information, which is a fair point.

An article in The Wall Street Journal reported that Section 815 will allow government agencies to set qualification requirements for contractors, consider supply-chain risks along with other factors such as cost and qualifications, and broadly allow government officials to exclude suppliers as they believe necessary.

Section 815 is not a small measure and will affect many tens of billions of dollars in government spending.  All of the major prime government contractors rely on international suppliers who may, under this provision, become excluded from the supply chain.  Scott Amey makes several good points on this topic in his blog post on Project On Government Oversight (POGO).

Although Section 815 powers appear overreaching in their current form, there does seem to be a fundamental need for additional risk management.  Overall globalization of the supply chain has many positive aspects including increased competition, efficiency, and cost reduction.  However, such globalization also allows potential adversaries expanded opportunity and access to critical national security and weapons systems. 

This “national security vs. open-market competition” issue begs an analogy with the  “airport security vs. privacy concerns” debate that is occurring now as well.  The world is changing rapidly and security is a complex, ever-changing issue.  How does America protect its citizens while maintaining core freedom and capitalism values?

Investors were not kind to publicly traded government services companies in Q3 2010. In fact, you could say these companies took a beating from their investors. The federal services space took the brunt of it, with pricing down 19%, while defense prime contractors declined 5%. Even worse, valuation multiples are at the lowest levels in the past decade.

While this sounds like a lot of ‘glass half empty’ perspective, it isn’t all bad news. Recently ACG National Capital member Jean Stack of Houlihan Lokey wrote an article in Washington Technology regarding mergers and acquisitions in the government services sector. She, like so many others, predicted the M&A pace will remain strong into 2011 even though the industry has experienced downward momentum in pricing. Why? Companies and investors are cautious about organic growth prospects and are looking at M&A opportunities in order to support growth.

Between the Obama Administration increasing federal insourcing, the Department of Defense scaling back its spending, and the winding down of military efforts in Iraq, an increase in M&A activity among government contractors seems imminent. Especially since 2010 is already shaping up to be one of the strongest years for industry consolidation. This will definitely continue well into 2011 as more public companies are targeted for acquisitions by larger prime contractors and private equity sponsors are emboldened by relatively inexpensive public pricing.

However, for these deals to truly support long-term growth, companies must reconsider the “buying for size” mentality and focus on acquiring new capabilities, contract vehicles, and customer relationships in areas that are perceived budgetary priorities.

The current economic outlook for defense contractors may not be all positive, but the market is primed for aggressive M&A activity and consolidation. For small and medium-sized companies with competencies in growth markets like cybersecurity, this negative turn can end up having very positive consequences.

Despite the market cooling off, there’s a hot front of M&A activity on the horizon. What do you think the market will look like when things cool back down?

By Jason Rigoli, Principal at the White Oak Group

Social media has been a hot topic among companies in the national capital region. Many executives are aware of social networks like Facebook and LinkedIn, the microblogging platform, Twitter, and social bookmarking sites, like Digg and Reddit. They know these sites are the future, and that their companies should be represented in them, but they’re not always sure how or why.

These social networks have significant value for businesses in the national capital region. They enable companies to share their thought leadership, interact directly with existing customers and even identify and enter prospects into the new business pipeline. They extend the face-to-face networking that is the businessmen’s bread and butter past the happy hour, meet-and-greet or panel discussion and into cyberspace.

It’s this very ability, and their potential for future growth, that has the valuation of social networking companies like Facebook and Twitter so high, regardless of their actual revenue. This is also why the niche social networks in and around the nation’s capital are both acquisition targets, and drivers of M&A activity within the Beltway right now.

Many of our readers may be familiar with GovLoop, a social network launched by former federal government employee, Steve Ressler. GovLoop is essentially a Facebook or LinkedIn for the federal government. A place where federal employees, contractors and other federally-minded individuals could meet, interact and discuss the hot topics and best practices impacting government agencies and employees. The company, which was founded and based in the D.C. metro area, was acquired by GovDelivery, a company based out of Minnesota that is the world’s leading provider of government-to-citizen communication solutions.

The acquisition of GovLoop is just one example of niche social networks within the national capital region being acquired. But there are others.

Deltek, an enterprise applications software and solutions company based in Herndon, Va., added mySBX, an online network for building and managing partners, in December 2009. The acquisition of mySBX led to the launch of govWin, a purpose-driven network that helps contractors drive revenue growth. govWin enables government contractors to work together to collaboratively bid on government contracts and collectively innovate new technologies and solutions to problems facing their industry.

The acquisitions didn’t end there for Deltek, however. Due to unprecedented growth of their govWin platform and increasing demand, the company began looking to add functionality and features to the platform. As a result, Deltek recently acquired INPUT, Inc., for $60 million in an all cash transaction. The addition of INPUT, Inc., which provides market intelligence, analysis and consulting to help companies develop government business, will bring additional content, a vendor verification system and online events to the govWin online community of contractors.

These handful of acquisitions in a relatively short timeframe are evidence that companies are seeing value in social networks. The addition of GovLoop has given GovDelivery increased awareness in the public sector while simultaneously supplementing their core value proposition by providing them yet another channel for distributing government information. The acquisitions of MySBX and INPUT. have significantly increased Deltek’s offerings beyond back office software systems. These aren’t head-scratching acquisitions, they add value to the acquiring companies and there are very clear and obvious advantages to them.

But not only are these social networks acquisition targets. They’re also drivers of corporate growth and M&A activity.

With the federal government looking to rein in spending and the defense agencies, specifically, looking to cut back on expenses, the government contracting space is expected to see a sharp drop in revenue in the near future. This is a stark contrast to the past decade, where 9/11 and simultaneous wars in Iraq and Afghanistan led to unprecedented defense spending.

As we’ve discussed recently in the blog, the end result of this movement to cut government expenditures will be consolidation in the government contracting space. Large contractors will be fighting harder than ever for even smaller contracts and looking to add niche capabilities such as cybersecurity via acquisition. This will lead to small, niche government contracting companies getting acquired by the big defense companies.

But where will they be finding these niche companies? It’s safe to assume that online networks like govWin will play a large part in the large defense contractors identifying acquisition targets. Companies that may have been identified via govWin as a prime or sub on a government contract could very well turn into an acquisition target.

The fact is, social media and social networking are disruptive technologies. Companies that offer niche social networks are becoming hot commodities due to their ability to add capabilities and value to large corporations. But, they’re also capable of driving M&A activity by extending networking to cyberspace and allowing executives to meet and discuss deals outside of the traditional business environment.

Social media is becoming a force for corporate growth in the national capital region. How has your company used social media? Have you looked to acquire a social media company? Used social networks to identify an acquisition target? Drop us a comment and let us know.

Now if you’ll excuse me … an old friend from high school just friended me …

By Jason Rigoli, Principal at The White Oak Group

Last month, the Small Business Administration (SBA) confirmed what many small business owners already knew … the government is not meeting its small business contracting goals.  Historically, Congress has mandated a 23% goal for small business contract awards, but sadly that goal has never been met by the federal government.

According to a recent article in Inc. magazine, in fiscal 2009, small businesses across the nation won a record $96.8 billion in federal contracts. This is an increase of more than $3 billion over fiscal 2008, according to the U.S. Small Business Administration’s most recent scorecard.

However, it still was not enough to reach the 23% goal set by Congress since the $96.8 billion represents 21.9% of federal spending.

Several government agencies including the U.S. Office of Personnel Management, U.S. Agency for International Development, and the National Science Foundation all received failing grades for their lack of contract awards to the small business community.

With the new backdrop of budget austerity, I am not optimistic the goal of 23% small business utilization will ever be reached. Why? Because agencies are working to reduce their contracting workforces in order to boost their own workforces. For example, the Department of Defense plans to reduce the contractor workforce by more than 10% per year for each of the next three years. Will the DoD limit these cuts to the large prime contractors? I doubt it.

What do you think? Is the federal government doing enough to support small businesses? Please drop us a comment and let us know.

By Jason Rigoli, Principal at The White Oak Group

A week or so ago, Lockheed Martin, the global security company that designs and develops technology systems, products and services for the government, offered its executives an early retirement package with the intention of streamlining and reducing their overall workforce.

The program was put in place as part of a larger movement to reduce costs in light of ongoing cuts to defense spending that has already seen the company divest two business units and drastically reduce expenditures.

The overall result? 600 executives walked out of the door. That’s about 25% of the company’s executive workforce.

The media has made a huge deal about this early retirement program, and the sheer number of executives leaving. They’re looking at the executive exodus and comparing it to rats leaving a sinking ship, escaping Lockheed as defense spending budgets are slashed and the Department of Defense (DoD) analyzes and changes the way it does business with government contractors.

It’s true that as the DoD strives to cut costs, they are looking to the contractor community to do the same. Secretary Robert Gates has instructed the defense contracting community to reduce overhead and thus reduce the rates they are charging the government for their services and products.

He has also made it clear that he expects to cut the contractor workforce by 10% annually for the next three years. Most of these cuts will be in domestic intelligence analysis positions and in “advisory-type” positions, but since 9/11 these service categories have grown to encompass the largest number of contractors in the space.

Both of these trends will have a chilling effect of the growth of defense and intelligence service providers for the foreseeable future and will impact growth for defense contractors. However, it is not a sinking ship. This is an inflection point.

The days of 10% to 15% organic growth for the large prime contractors and 20% to 30% for the smaller ones is over. The defense and intelligence budget is no longer getting bigger so companies will need to work harder and unseat an incumbent to get new contracts and increase their piece of the pie.

Although these government contractors aren’t sinking, they will see long-term impacts from the reductions in defense spending. Increased competition means tighter margins and tighter margins mean less earnings and a decrease in organic growth. This can and will lead to a general reduction in the value of publicly traded defense contractors. What could potentially result is a new increase in merger and acquisition activity in the government contractor space as these publicly traded prime contractors look to M&A to fill a hole in their growth rate.  

The end result of this dynamic industry shift could be an increase in the value of smaller contractors as prime contracts deploy the tremendous amounts of cash they have accumulated over the last decade.  

The defense contracting community has experienced similar circumstances in its history, including the late 1970s / early 1980s and again in the early 1990s. It was during these challenging times that the giants of the industry were established.

So, the executive exodus from Lockheed shouldn’t be taken as a sign of a coming apocalypse in the government contracting space. Granted, reductions in defense spending and recent actions taken to make the DoD more efficient can and will negatively impact the organic growth of defense contractors, the market will survive and potentially see a new round of consolidation and corporate growth through M&A.

By Manik K. Rath and Tamara Jack, LMI

In the 20^th century, projecting U.S. power meant having a large military presence in Europe and East Asia, and the ability to strike distant enemy nation-states. Today, projecting power means knowing when and where an asymmetric and sometimes furtive enemy will strike, before anything happens. Today’s enemies may be nation states, failed states, terrorist groups, or individuals, hence intelligence gathering has become increasingly important in projecting power.

Given the volume and complexity of the intelligence that can be gathered, the intelligence agencies have come to rely on intelligence contractors to provide innovative solutions, resources and skill sets to deal with such unique problems. Thus, despite the overall decrease in mergers and acquisitions in the last year, the volume and valuation of deals involving companies that contract with the intelligence agencies has remained relatively strong.

It has occurred to us that very little has been written in the mergers and acquisitions literature on the unique considerations to executing such transactions. M&A deals involving intelligence contractors are more complicated due to special issues associated with doing classified work. Below we discuss top things to understand when undertaking the acquisition of such a company.

The Intelligence Community. Led by the Director of National Intelligence (DNI), the U.S. Intelligence Community (IC) is a body of 16 different federal government agencies and organizations with a defined mission of dealing with national security issues.

The Security Classification. The U.S. security classification system safeguards critical military, foreign policy and intelligence data and information. For the purposes of understanding the basic structure of this complex regime, the following information is relevant: 

• The Department of Defense (DoD) manages the largest industrial security program;
• Several other intelligence agency’s manage their own security programs;
• The DoD classification system has three levels:
  • Confidential
  • Secret
  • Top Secret
• Additionally, there are nine other protection categories

In order for individuals or companies to gain access to classified data, the U.S. government must first authorize such individuals and companies through the security clearance process. For individuals, this process is called Personnel Security Clearance (PCL); and for companies this process is called Facility Security Clearance (FCL).

Security Clearances. Companies interested in acquiring intelligence contractors, must be familiar with the National Industrial Security Program (NISP) and the National Industrial Security Program Operating Manual (NISPOM) and NISPOM supplements. NISP is monitored by the Defense Security Service (DSS). DSS is charged with ensuring NISP compliance by the DOD and other federal agencies contractors. Further, contractors with access to agency top secret programs with “special compartmentalized information” status (SCI), must be familiar with additional regulations, independently administered by such agencies. These may include the CIA’s Director of Central Intelligence Directives (DCI-Ds).

For personnel security clearances, generally, the company must demonstrate to the government’s satisfaction that there is a need for such employees to have access to classified information. The company can demonstrate this need if the employee will be working on a classified contract, or if the employee in question is a Key Management Personnel (KMP). Generally, KPMs are individuals with control over the company, such as owners, partners, officers, and directors.

For facility security clearances, a government agency or another cleared contractor must sponsor a company by showing a definite, classified procurement need. This sponsorship is accomplished by a sponsorship letter which the government agency or the sponsoring contractor submits to the applicable security office.

Classified Assets and Clearances. During the due diligence phase of the deal, the buyer should be looking at the classified contracts it is acquiring, target’s employees with security clearances, as well as understanding any special contractual requirements associated with the target’s involvement in the classified space.

The buyer must start with the “Contract Security Classification Specification” on Form DD 254, issued by the government for each classified contract. The DD 254 sets security classification and applicable safeguarding requirements. Also, the DD 254 will provide much needed information on whether the buyer is equipped with the personnel and any facility safeguards required to continue the classified work post-closing.

M&A activities affect the company facility security clearance. Accordingly, the parties to the deal must comply with the NISPOM requirements associated with such M&A activities. These include: submitting a “notification of change” letter to the Cognizant Security Agency (CSA), obtaining CSA approval for any new cleared facilities or for the transfer of sponsorship of the existing facility security clearance, and examining any requirements related to physical security of the building, hiring of new personnel, the need for any special telecommunications connections for transmitting Secret and Top Secret data, and the need to create special rooms for storing and handling classified information, called Sensitive Compartmented Information Facilities (also known as SCIFs, or Special Access Program Facilities).

The above steps should be underway during the due-diligence and integration planning phase, and completed or nearly completed during the post-closing integration phase.

We have provided an overview of a few special considerations associated with M&As involving intelligence agency contractors. Such companies operate within a very complicated space of the U.S. industrial security regime. Special understanding of this regime and the associated requirements will help the parties to advantageously complete the deal and ensure successful post-closing integration.