AP News, December 28th, 2006
Military contractor L-3 Communications Holdings Inc. filed a protest with the Government Accountability Office over the loss of a $4.65 billion contract to provide translators to the Army, the watchdog agency said Thursday.
The New York-based company filed the protest on Friday with the GAO after announcing last week it had lost a five-year contract to provide linguistics services, including deployment and sustainment of translators and translation technologies to the U.S. military in Iraq, Afghanistan and Guantanamo Bay, Cuba. The pact went to Global Linguistics Solutions, a joint venture formed by DynCorp International Inc. and McNeil Technologies.
Six representatives from the company were debriefed by the Army's Intelligence and Security Command, INSCOM, last Wednesday, according to Mary Ann Hodges, a spokeswoman for the Army.
The company had five days after the briefing to file a protest, said Michael Golden, a GAO spokesman. An L-3 spokeswoman confirmed the company filed the protest, but declined further comment.
L-3 was widely expected to receive the multiyear deal as the incumbent contractor. The current pact runs through March, but analysts speculate a protest could extend its life to perhaps as late as June. L-3 inherited the contract when it bought Titan Corp. in 2005.
The department also awarded a contract worth up to $730 million to Thomas Computer Solutions to provide translators and linguists in Afghanistan and a contract worth up to $66 million to Calnet to provide similar services at Guantanamo Bay, Cuba.
Gregory Lagana, a spokesman for DynCorp, declined to comment.
Wall Street analysts expected L-3 to protest the surprise award, saying such action could delay DynCorp's start on the program or could lead to a short extension of the contract for L-3, said Robert Spingarn, research analyst at Credit Suisse Securities.
Goldman, Sachs & Co. research analyst Richard Safran predicts the contract could be delayed up to three months.
"It's been kind of unusual for companies to be so bold with filing protests," said Ray Bjorklund, a chief knowledge officer at Federal Sources, Inc., a research and consulting firm in McLean, Va. "But for a company who has been an incumbent on a rather decent revenue cash-flow type contract, they are very anxious to make sure that they've covered all the bases."
Analysts have suggested L-3's loss of the deal was not due to cost, but as a result of past performance by the Titan Group before it was acquired by L-3.
"It is possible that L-3 believes this notification in past performance was unfairly held against them during the re-compete," said Safran.
In 2005, Titan Group received a "cure notice" from the Army expressing performance concerns over the handling of its linguistics contract. Cure notices indicate the company's activities or exchanges have not been successful.
"It is a possible indicator because it does reflect past performance, good or bad, and past performance is typically taken into consideration when awards are made by the government," said Bjorklund.
L-3 could contend it has proactively worked to preclude future cure notices and has taken corrective action in order to reinstate the contract.
"Just because L-3 has now purchased Titan doesn't give them any waiver of accountability," said Bjorklund.
Linguistic services account for an estimated 4.1 percent, or $550 million, of L-3 sales. A renewal in the contract was expected to generate more than $600 million in revenue for L-3 in 2007, said Joseph Nadol, III, research analyst at JPMorgan Securities Inc.
Last week, L-3 lowered its 2007 earnings-per-share guidance by 15 cents to a range of $5.45 to $5.55, from previous guidance of $5.60 to $5.70. Analysts expect a profit of $5.60 per share, according to a Thomson Financial poll.
The company now expects revenue between $12.9 billion and $13.1 billion, compared with previous guidance of between $13.4 billion and $13.6 billion.
Shares of L-3 Communications fell 2 cents to $81.67 in morning trading on the New York Stock Exchange. DynCorp slipped 27 cents to $16.18 on the NYSE.
