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Experts estimate that about $20 billion in homeland security and intelligence funds will be spent through contracts and grants at the federal, state, and local levels in fiscal year 2006. Companies that want to compete for these dollars will do best if they educate themselves both about Department of Homeland Security (DHS) priorities and about contracting processes.

Priorities. Just as companies must understand client needs in the private marketplace, business executives must understand what the government wants for its homeland security dollars before they can successfully compete for them. Recently, the focus of where funding dollars will be directed has shifted.

“It’s more toward prevention and less toward preparedness and response,” says James Carafano, a senior fellow for national security and homeland security at The Heritage Foundation.

“There’s more growth in intelligence, early warning, and domestic counterterrorism than in other areas—which I think is appropriate. If you do your analysis of where you get your biggest bang for your security buck, it’s really in preventing the terrorist attack from happening in the first place,” says Carafano.

One of the best examples of this change in philosophy is in port security, Carafano says.

For example, the $150 million in FY 2005 funding to bolster port security focused on strengthening security around the facility, instead of on stopping questionable shipments from entering the port.

“The best way to secure a port is to keep things out of the port to begin with,” Carafano says.

As part of the DHS’s efforts to push border security farther out, the departmentis spending more than $300 million to prescreen high-risk cargo at foreign and domestic ports, improve information databases on shippers and strengthen the supply chain process.

Significant funding continues to go toward technology development both at ports and elsewhere. To reduce the risk of chemical and nuclear threats being imported, for example, DHS spends more than $100 million annually on purchasing and researching advanced technologies to screen containers for weapons of mass destruction, concentrating on gamma and neutron detection.

Detection technology is just one security tool. Information has become more important than ever, specifically about who is shipping what from where. More than $25 million is spent annually to strengthen integration of computer systems to identify suspect cargo shipments between shippers, freight forwarders, and manufacturers.

But equipment is not the only answer for end users in the field. Opportunities also exist for former military, police, fire, and emergency response professionals, many of whom are working with government to provide help with development of training exercises, vulnerability assessments, and strategy.

Unitech is one such firm that navigated the waters to a successful port security contract. The firm, originally consisting of six former Coast Guard officers and maritime experts, won a $300 million contract in 2003 to run 22 port security assessments for the state of South Carolina.

Success in that contract led to Unitech joining Project Seahawk, a $60 million Department of Justice project started in March 2003 to build the nation’s first port security command and control center at the Port of Charleston, South Carolina. The project integrates intelligence and information databases from 47 federal, state, and local agencies to screen cargo for radiological, chemical, and biological weapons.

Through solid performance, contract flexibility, and good marketing, the company then won a $7 million, three-year contract in November 2004 with the Transportation Security Administration (TSA) to conduct antiterrorism and crisis training at 24 major seaports across the country.

“We’ve taken jobs of all sizes and shapes” to build the qualifications and the performance record needed to go after bigger contracts, says Fred White, director of homeland security for Unitech. “Some of the folks I’ve talked to, especially the larger companies, aren’t willing to do that,” he says.

Port security is just one aspect of homeland security, of course. Other areas where private business may have skills that fit the government’s needs include IDs (the government wants to develop electronic passports with biometrics), surveillance technologies for border crossings, explosives detection systems for airports and other critical facilities, and intelligence integration and fusion capabilities, just to name a few.

“There is a desperate and urgent need to come up with business intelligence software applied to intelligence,” says Scott Greiper, senior analyst of global security for the investment firm C. E. Unterberg, Towbin.

“The National Security Agency told me that they will be spending hundreds of millions of dollars, if not in the low billions of dollars, in the next few years to develop this capability on their own, or they’ll be looking to invest in incubators that help find these young emerging companies that do this type of business,” says Greiper.

While the federal government is the most obvious source of potential homeland security contracting opportunities, companies should also monitor the streams of grant funding funneling through state and local governments. Nearly $3.5 billion is available annually in grants to supply police, firefighters, and emergency responders with equipment and programs, such as ambulances, pump trucks, breathing apparatus, communications systems, fitness activities, buffer zone plans, and training programs.

For example, Congress provided $715 million for the Assistance to Firefighters Grants in FY 2005. The U.S. Fire Administration disburses the money directly to fire departments, who then decide how to allocate it. However, the grant program has stoked controversy due to vague guidelines on how fire departments should spend the money.

“Because it’s so large and because it’s open to every fire department in the country—large and small and to people who are sophisticated and unsophisticated—it’s open to some amount of abuse,” says Michael Paddock, CEO of Grants Office, LLC.

Processes. Understanding the shape of homeland security is the first step, but companies must also be knowledgeable about the contracting process.

The good news is that “there’s more of a concreteness of what’s expected” from companies doing business with DHS than in the early days, says Darryl Moody, senior vice president of homeland security and intelligence for BearingPoint. The Virginia-based consultant and systems integrator firm has nearly 80 contracts with DHS.

The following tips are a good starting point for potential bidders.

Get registered. Every company seeking a government contract must be registered to do business. The paperwork process is unexciting, but it is necessary.

To begin, companies need to identify their product or service through a North American Industry Classification System (NAICS) code and the General Service Administration’s Federal Supply Industry Classification (FSC) code.

Companies also need a Dun & Bradstreet number—basically an identification number for a company—for which there is no charge.

To be awarded a contract from any federal civilian or military agency, a company needs to be listed in the Centralized Contractor Registration (CCR) system. That system also holds information on procurement and financial transactions, which companies will need to know.

Companies should also know the legal regulations for federal procurements in the Federal Acquisition Regulations (FAR). (For more on FAR, see related article, page 96.)

Companies that wish to supply products and services across the federal landscape can register with GSA’s Federal Supply Schedule. The GSA awards the contracts to vendors based on a negotiated price for a product or service. The requirements and clauses in the contracts are standardized and the government will negotiate “a fair and reasonable price,” says John Pavlick, who specializes in government contracting with the Venable, LLC law firm in Washington, D.C.

Any agency can contract with the company simply through a purchase order, thus making the process “efficient and flexible” for the government, he says. Contract listings last for five years and can be rolled over for up to 20 years.

The government has also enhanced efforts to assist small disadvantaged businesses by creating a distinct certification based on economic factors, geographic location, and race. Companies can explore information and registration through the Small Business Administration (SBA).

Any small business should contact the SBA for information, Pavlick says. The agency provides resources on its Web site for companies to develop a point of contact.

Lastly, the government is pushing electronic registration processes in order to do away with the cumbersome paper process. The Online Representations and Certifications Application (ORCA) is designed as a central repository for a company’s certifications and can be accessed by any federal agency.

Locate opportunities. The second step toward getting a contract is to know what’s out there that your organization is eligible for.

There are several Web sites that provide directories for this information. The best is FedBizOpps, a portal for government procurement opportunities valued at more than $25,000.

If you know which agency you wish to target, visiting that Web site is a good idea. Web sites usually contain contact information for the contracting office and supply a wealth of information on top agency priorities and various programs. This could be very helpful if an agency requires companies to apply to be placed on a qualified vendors list.

State governments have similar online resources that detail various grant programs for which contractors can supply products or services. Each state will have a specific office for contracting; companies should identify the proper official or organization responsible for homeland security.

Local governments, however, remain inconsistent with online information, so companies have to do a lot of groundwork to stay abreast of the latest contract opportunities.

Government agencies have developed small-business utilization offices to deal directly with small companies. Those offices have agency-specific contract opportunities.

Companies can also use relationships with industry associations and task forces to locate opportunities for their products within targeted communities, such as firefighters.

For example, Morning Pride Manufacturing, a producer of firefighting equipment, is working with Project Heunnecessary material. Contractors should include only requested materials and present information concisely.

But companies also should remember that the agencies are allowed some flexibility with contracts. For example, Unitech drew up a thorough solution for the TSA proposal, including how it would perform assessments, indicate vulnerabilities, carry out training, conduct the exercise, write an evaluation, and complete a reassessment.

“We broke it into modules, so that if we were giving them more than they wanted, they could very easily just extract that module and the pricing for that module,” says White. “As it turned out, that’s exactly what happened. They didn’t feel they needed the assessment or the training piece, they just wanted the exercise and the evaluation.”

Past performance is important to contract officers, so companies should emphasize a track record of good performance, if they have one.

Unitech was able to leverage its experience at the state level to win contracts with two major federal agencies because its past performance left a mark of dependability, White says. “Those contracts became our past performance and qualifications to go after TSA’s port security contracts,” he says.

Consider scope. Another important step for any company looking at a solicitation is to understand the scope of the contract proposal. DHS concentrates on working with systems integrators or consortiums of companies that can provide a range of solutions, rather than bidding out small projects one by one.

This strategy favors prime-contract integrators such as Lockheed Martin, The Boeing Company, and BearingPoint for major projects. Those primes then find subcontractors that offer products and services needed to complete the project.

To fit into this framework, a small business must know how to market itself. Smaller businesses that have unique products or services to offer should not only approach DHS with their proposal, they should also pitch their solution to large systems integrators that are prime contractors. These companies may then want to include them on their team of subcontractors.

DHS is making this teamwork approach a national priority through its mentor-protégé program. Through March, the program had initiated 47 agreements where a larger business provides technical, managerial, and financial assistance to a small company in an effort to improve products and services, says Kevin Boshears, director of small and disadvantaged business utilization at DHS. The government sets a goal annually to sign 40 percent of its contracts with small businesses.

The program is open to smaller companies, minority-owned businesses, small disadvantaged businesses, and women-owned small businesses, to name a few.

Companies not fully prepared to enter contracting services on their own can benefit from mentoring. Working as a mentored subcontractor minimizes the risks and liabilities involved with being a prime contractor.

Price realistically. Companies not wanting to create possible problems for themselves are forewarned to base their pricing structure competitively, but also realistically. Underbidding a contract just to win can have significant ramifications. Over the course of a contract, there may be frequent increased requirements. Those requirements bring with them unanticipated costs that the company may not be able to pass on to the government.

Get clearances. Recently, DHS discovered that a company providing cleaning duties at a national defense subcontractor site was employing nine illegal aliens. These workers used false Social Security numbers and residency cards to obtain employment. The case highlights the growing concerns about proper security clearances for employees of government contractors.

Thus, a company that wants to compete for high-security projects must also consider the requirements that it and its employees will be expected to meet in that environment. That means raising the bar on background checks, and it may mean having more employees with security clearances.

Unfortunately, “At this point, it’s still taking a year or more for someone who does not have a clearance to obtain one,” says Evan Lesser, director of Clearancejobs.com, a Web site that tracks job openings for more than 28,000 professionals holding active or current clearances.

Contracting firms could see marked improvement in the clearance process by later this year, however. As part of the Intelligence Reform Act of 2004, Congress stipulated that a single agency become responsible for granting clearances. The Office of Personnel Management has been given the task of streamlining the efforts, which should be enhanced by the substitution of electronic applications for paper.

The single-agency approach will allow clearances to be transferred from one government agency to another. For example, an employee with a Department of State clearance would be able to seamlessly transfer to DHS without having to undergo the same clearance approval process for the new agency.

“That’s something that hasn’t happened in the past,” Lesser says. “Now one investigation is all that’s required. This is definitely helping out the private sector because they are starting to see these results. They’re not going to have to make candidates wait as long, and they’re going to be able to staff projects a little bit sooner.”

But the private sector also needs to be careful about which candidates it sponsors for clearances. There are clearly some triggers for investigators to deny a clearance, including insufficient financial funds, bankruptcy, bad-check writing, a criminal history including jail or prison time, drug use, and sometimes even excessive foreign travel.

Get stakeholder support. One of the best sales pitches a company can offer is positive comments from satisfied customers or other stakeholders who play a part in a successful contract. In a world so new as homeland security contracting, receiving a positive recommendation through support letters from other pertinent stakeholders can only help a contractor’s cause.

But you must pick your letter writers wisely. A contractor should make sure that the recommendation is consistent with the goals of the contractor and with the contract, says Paddock. So don’t get a client to write about how your company helped them with inventory control if you are trying to pitch your product as a counterterrorism measure.

Fulfill the contract. The original agency solicitation contains all the required clauses. Thus, although certain terms and conditions could be negotiated after the award, the solicitation itself generally becomes the contract by which the winning company must abide.

A company should know how much time it has to begin service after the contract has been awarded. If a company is not attentive to that detail and fails to begin service on time, the government can say the company has not fulfilled a material term of the contract and could terminate the firm even before the project gets started.

The beginning of the contract is comparable to a honeymoon period, Pavlick says. The agency and the contractor will get to know one another much better during that time, but it’s up to the company to be prepared to have people and equipment in place.

Changing the contract. It’s not uncommon for the government to ask a contractor to make adjustments to the statement of work during the duration of a contract. That usually means the contractor is entitled to extra compensation. Sometimes contractors will give a little in order to get a little back, but a contractor needs to be attentive to when extra tasks begin to take up too much time or money, Pavlick says.

For example, an agency may ask a security guard service to have guards check the locks on doors while they are on patrol, even though it wasn’t in the contract. Most contractors wouldn’t balk at this minor request.

If an agency asks a service to place two guards at a station instead of one, however, the company should discuss the cost implications right away instead of letting it slide until the end of the contract. Otherwise, “the government will say you never complained about it, and you end up with this expanded mission and you’re not getting paid for it,” Pavlick says. “You can still file a claim, but it’s harder to do after the fact and the larger the money issues, the more difficult it is to settle.”

Keep meticulous records. Most contracts demand performance documents from contractors either monthly or every several months. Thus, after winning a contract, contractors must keep timely and accurate records of any performance or financial metrics that the funding source may require.

Build a relationship. While subcontractors tend to contribute only a piece to the entire puzzle of a contract, they are rewarded with the opportunity to introduce themselves to other companies that could prove beneficial for future relationships.

In the case of Unitech, working on Project Seahawk gave them the chance to meet three other companies that they eventually partnered with on the TSA port security contract. “We all went in as individual contractors and came out as a team,” White says.

In that regard, contracting companies should keep in mind that when they are fulfilling reporting requirements to give a funding source timely performance and financial records about a project, that is also an opportunity to build rapport. It opens an avenue of communication and can be used to build a strong relationship with contracting officers, useful for future projects.

In addition, while being careful not to overstep any ethical lines, expressing thanks and inviting your funding source to special events related to the contract are appropriate relationship-building tactics that could in turn build goodwill that could lead to unexpected opportunities in the future.

Another good tactic is to gather and gauge feedback from the users of products and services. These first hand sources could provide just the right information that could help your company improve its product or service to better meet the government’s needs.

Share your success. Similar to spreading goodwill with the funding source, a successful contractor should also share its success with other potential users and collaborators. Bidding conferences and industry sessions can be good venues to provide exposure and to network with contract officers and personnel from other organizations that could become valuable future contacts.

Unitech has joined with its fellow contractors to market itself together at trade shows to present a single solution to government agencies. Hence, the potential funding source has the opportunity to meet all the players from a team, while the companies split the costs of booth rental and advertising.

Even as this article was being finalized, another in a stream of announcements about funding grants being made available was issued by DHS—in this case $140 million in transit security grant money to be used for devices that can prevent and detect explosives or biochemical and radiological or nuclear agents.

The opportunities are clear but the path to success can be daunting. Companies with the potential to fulfill these and other security needs with their own products must first master the government’s contracting processes.

Eric Grasser is assistant editor at Security Management.