E-BUSINESS SPECIAL REPORT
The E-Business of Homeland Security

The question on many IT executives' minds is: What can my company gain from this reorganization?

Enormous Opportunity

As a result of the transition that will begin January 1st, there is enormous opportunity for companies to aid the DHS in building and refining its internal IT infrastructure, and to contribute technologies to the department's overall effort to improve national and Internet security.

Specifically, President Bush's 2003 budget has earmarked $722 million for initiatives to share information and intelligence across federal departments and among federal, state and local governments. And research firm IDC has estimated that nearly 5 percent of the department's $38 billion 2003 budget will go toward external spending on hardware, software and IT services .

Companies Get into the Act

Department of Homeland Security chief information officer Steve Cooper told news sources earlier this fall that his office had already spoken to more than 1,000 companies about leading-edge technology that had not yet been commercialized and that could be used to further the DHS' mission.

At present, only a handful of IT organizations have won major contracts directly with DHS, largely because a portion of the department's budget for new IT infrastructure spending is frozen until it finalizes its enterprise architectural plan, Gartner (NYSE: IT) vice president French Caldwell told the E-Commerce Times. However, additional major contracts have been inked with various agencies within DHS.

For example, Caldwell pointed to UK-based Autonomy, which won a contract in October with DHS to provide software that analyzes multisource information. Using natural language to help investigators better describe what they are tracking, the system can locate patterns and clusters of words. The application will enable government officials to monitor suspected terrorist groups and create a consolidated terrorist watch list.

Unisys on a Roll

Also, Unisys (NYSE: UIS) announced in September that it had won a $1 billion contract with the Transportation Security Administration, a part of DHS, to develop an IT and telecommunications infrastructure for 429 domestic airports and more than 180 other locations. The TSA effort aims to secure transportation systems throughout the United States.

Computer Sciences Corp. (CSC) was subcontracted by Unisys for $50 million of the contract, which eventually will include securing railways, highways, transit systems, maritime operations and pipelines.

Unisys also garnered a $1.23 million biometrics research and development support contract with the Department of Defense in October. That contract calls for the company to develop a three-dimensional identification program that will help authorities better match images already on file for visa and passport applications and access controls.

To aid in that effort, the company tapped AcSys Biometrics; researchers at the University of California at San Diego and Columbia University; Identix (Nasdaq: IDNX) ; Genex Technologies; and Geometrix.

Areas of Potential

Caldwell told the E-Commerce Times that he believes drawing up the service contract for the DHS is one of the department's next major hurdles, and leading vendors are jockeying for prime position. Smaller organizations stand a greater chance of inking a deal if they partner with larger firms, he noted.

Such companies as SAIC, EDS, CSC, Northrop Grumman (NYSE: NOC) and Lockheed Martin (NYSE: LMT) are in the strongest position to win homeland security federal contracts, according to IDC program manager Jocelyn Young. "They are the ones that have a broad portfolio of capabilities and services and a broad mix of partners that they can work with to meet the homeland security need," she told the E-Commerce Times.

Young expects the department will sign contracts in two phases. Within the first year, the focus likely will be on setting up an internal IT infrastructure , including e-mail, secure collaboration technologies, such as Web and videoconferencing, and decision support applications.

After that, Young anticipates that the DHS will focus on three key areas: biometrics, such as fingerprint scanning and fraud protections; data mining ; and Geographic Information Systems, or GIS.

Government as a VC

"The challenge for the DHS is that a lot of the technologies they need is in startups, and emerging technologies are in the small to mid-sized firms, and those aren't very visible to them," Gartner's Caldwell noted.

At least one program, started in 1999, could help. In-Q-Tel, a CIA-funded venture capital company, searches for technologies produced by startups, universities and established companies that could aid in intelligence gathering.

Although Caldwell noted that In-Q-Tel may not be the complete answer to the government's needs, "it is a model for us to look at and ask how might we do this, and how might we encourage VCs to invest in technologies that would improve homeland security."

The DHS' Cooper told news sources that the 2003 budget also includes $12 million for pilot projects and $8 million to complete a national enterprise architecture. In 2004, the total allocation for those two program areas will increase to $28 million.

Clearly, homeland security contract opportunities are many and varied. Savvy IT companies will want to prepare now to submit proposals as funds are freed up for spending purposes. Billions of dollars are at stake -- and in this economy, that is nothing to sneeze at.