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Computing is key force in war on terror

June 23, 2003
By Robert Lemos

As far as Matt Calkins is concerned, ensuring that government agencies have the right technology can be the difference between life and death.

After the Sept. 11, 2001, terrorist attacks, U.S. intelligence agencies and the FBI were widely criticized for not recognizing the threat despite myriad clues. Many industry veterans believe that better technology could have significantly increased the chances of detecting information that might have prevented the disaster.

"We had the right data," says Calkins, CEO of systems integrator Appian, a company involved in several contracts with agencies that make up the newly created Department of Homeland Security. "What Homeland Security and Washington have to figure out is how to get the right data to the right person."

Easier said than done. Even by beltway standards, the Department of Homeland Security is a dauntingly complex bureaucracy, a massive enterprise that attempts to combine 22 agencies and nearly 180,000 employees into a cohesive operation that can keep the country safe.

"The question is how do we bring all those resources together and strengthen that capability without breaking anything," says Sallie MacDonald, a senior executive in the Directorate of Information Analysis and Infrastructure Protection, one of the five major divisions making up the security department.

The solution will depend in no small part on the myriad companies Homeland Security will hire for all manner of technological work needed to improve national security.

The department has allocated $3.75 billion for information technology in fiscal 2004, and is expected to spend more than $11 billion through 2005, according to data from research company FSI. Among civilian agencies, only the Department of Health & Human Services has a larger budget.

Initial projects will include systems for mining data from collections of unsorted electronic documents and databases, biometric identity cards and checkpoints for critical workers, and systems for regulating passage over national borders.

New technology will directly affect visitors to the United States, as well as federal employees and workers who transport goods, control utilities or have access to critical infrastructure. It will also, of course, touch employees of the department itself.

The tech overhaul marks a notable departure from the past, when, unlike their military counterparts, civilian agencies had not often been the source of large contracts involving security technology. Priorities changed drastically in all quarters of government on Sept. 11.

"What wouldn't have happened is all these other government departments saying, 'My God. We have to move, and we have to move fast,'" says Stephen Humphreys, who joined security software maker ActivCard as its chief executive a month after the attacks.

The company, which manufactures software for "smart" identification cards, saw its military customers double the number of cards they issued--to nearly 11,000 a day--and obtained contracts with the Internal Revenue Service, the Energy Department, the Secret Service and other civilian agencies after the terrorist attacks.

Annual revenue for Fremont, Calif.-based ActivCard jumped more than 34 percent, to $41 million, last year. "For the first time, we can see 10 years into the future and know where the next 50 million cards will go," Humphreys says.

A different way to solve problems
Others have won even larger infrastructure projects. Unisys was hired to create a procurement system that will let bidders on a given contract propose ways to solve a problem rather than simply provide pieces to a solution already set by the agency.

The deal awards $245 million--and potentially more than $1 billion--to Unisys and its partner companies on the project. (Traditionally, the federal government has given contracts to larger companies that in turn subcontract work to smaller businesses.)

"These are the guys that win the billion-dollar contracts," says Brian Ruttenbur, security-market analyst for investment firm Morgan Keegan. "The government gives them $2 billion and says, 'Solve this problem.'"

Government security projects are even more important to smaller companies.

"When Lockheed Martin, Northrop Grumman or Unisys win a big contract, it helps boost their revenue by 2 percent," Ruttenbur says. "When some of these smaller companies win a contract, they double or triple their numbers."

Case in point: Homeland Security projects made up more than 80 percent of last year's revenue for InVision Technologies, which creates hardware and software to detect explosives in luggage. The company's revenue leaped from $23 million in the last quarter of 2001, to $220 million for the last three months of 2002.

In addition to the federal initiative, security measures are being undertaken at the regional level across the country.

"There is an opportunity at the department, but there is also opportunity to support programs at the state level, at the city level and at the community level," says Steve Perkins, a senior vice president for security at database maker Oracle. Perkins adds that enhancing security at the local level could be as large a market for technology companies as the big federal projects. "Most of homeland security and first response does take place at a local level," he says.

And sometimes projects require that government bodies at different levels work together. Guarding the nation's borders, for example, involves both state and federal government.

Homeland Security has earmarked $500 million to improve border security systems. Representatives of the department's Border and Transportation Security Directorate would not comment on specific proposals, but several analysts believe that a laser tag system, similar to those in use on toll roads, would be the eventual technology of choice.

Another high-profile project will be a secure identity card for transportation workers, which will be issued to truck drivers, dock workers, railroad employees and anyone transporting cargo across borders. "You can't stop them from moving something that's bad, but if you know who is moving what, people are far less likely to (knowingly) move something that is bad," ActivCard's Humphreys says.

Enlisting help from universities
Within U.S. borders, federal security efforts will affect the academic world as well. The Cyber Security Research and Development Act has set aside almost $900 million over the next five years to investigate new research technologies.

Another $803 million has been requested by Homeland Security for joint programs with the private sector to research, develop and install new technologies. About $350 million more will be used by the department to fund the Advanced Research Projects Agency and support research and development aimed at protecting the nation's borders and critical infrastructure, or the software, hardware and facilities responsible for running key parts of the U.S. economy and public works. The agency will be separate from a similar military organization known as the Defense Advanced Research Projects Agency, or DARPA.

Those familiar with such projects note that the cost of maintaining complicated systems often exceeds the price tag of the technology. "The technology is going to be a big chunk of the bill, but making the technology work is going to be at least as big a chunk," says Mike Theime, director of special projects for the International Biometric Group consultancy.

In spite of the enormous budgets on the table, analysts caution against any expectations of a broad high-tech boom based on security alone.

"It's no bonanza," says Ray Bjorkland, chief knowledge officer for Federal Sources, a research company specializing in government markets. "A lot of companies have anticipated that there would be a windfall."

For new biometric sensors on visas and identity cards, for instance, only a handful of companies will get contracts. "There are 150 biometric companies, but there aren't going to be 150 winners," IBG's Theime says. "I would say that five to seven companies are going to come away with what's going to be awarded."

Much of the Homeland Security budget will not even be seen for a while. By mid-April, according to some reports, the department had assessed only about half of its computers and other information technologies. Steve Cooper, the department's chief information officer, has said repeatedly that evaluation of current information technology assets would not be completed until this month at the earliest. Others point to August and September as a more likely time frame for the majority of contract money to be made available.

Yet companies are hopeful. Those that have worked with government contracts predating the Sept. 11 attacks know well that infinite patience is required when dealing with the federal procurement process.

Appian, for example, is quite familiar with long waits, because of its experience with the notoriously Byzantine bureaucracy of the U.S. military.

The company, which has created intranets for the Army, Navy and Marines to connect soldiers to administrative information, has been hired to create a disaster-management information site for the Federal Emergency Management Agency--one of the many entities now under the Homeland Security umbrella.

"Homeland security is a multimillion-dollar business for us today," Appian's Calkins says. "And I see it being a far bigger business for us in the near future."