Raytheon wins Army training pact worth up to $11.2b
Firm says deal marks 'milestone' for efforts in key business area
Raytheon Co. won a competition yesterday to become prime contractor for an Army training equipment and services program worth up to $11.2 billion over the coming decade, making it potentially one of the largest awards ever for the Waltham defense contractor.
Under the contract, Raytheon will lead a team of subcontractors that will support live training exercises at Army bases in the United States and overseas, virtual training with simulators, and computer modeling using game-like representations of war conditions worldwide.
The program, called Warfighter Field Operations Customer Support, or Warfighter FOCUS, consolidates the management of three expanding Army programs, including live training run by the Raytheon Technical Services Co. For that program, Raytheon has 1,100 employees working out of an office in Orlando , Fla., and Army bases around the globe. The company said it will realign its staff to handle the new contract but doesn't expect additional hiring in the short term.
Nonetheless, company officials hailed the new business as a victory in their efforts to move up the Pentagon food chain by serving as prime contractor and systems integrator for more programs. Raytheon's team, which includes Computer Sciences Corp. in El Segundo, Calif., and 64 other business partners, edged out a rival team that was led by General Dynamics Corp. and included two other giant contractors, Lockheed Martin Corp. and Northrop Grumman Corp.
"This win represents a milestone for our efforts in mission support, which is one of our key markets," said Raytheon vice president Rick Yuse , who is president of Raytheon's technical services unit.
Raytheon, which won its current live training services contract in 1999, manages a far-flung training environment for the Army. At combat training centers in California, Louisiana, and Germany, for example, Raytheon equips soldiers, tanks, Humvees, and Bradley fighting vehicles with networked laser tags before war games, and then compiles and analyzes data collected in the exercises for detailed reviews.
The value of Raytheon's live training contract was initially estimated at $400 million over seven years. But the value more than doubled over the course of the contract as training needs increased with the mobilization and deployment of troops in Afghanistan and Iraq.
For the Army, one major goal is cost efficiency. The service said it expects to save about $568 million over the life of the contract by streamlining program management and supply chains under Raytheon. Thousands of companies are now involved in Army training programs.
Another aim is "interoperability," creating systems that will work together in live and electronic Army training exercises, said Russ McBride , program manager for the Army's program executive office for Simulation, Training & Instrumentation in Orlando. "We're evolving more and more to training systems that can't be pigeon holed into one domain . This positions us with a fully integrated contractor workforce with critical skills across all the domains."
Technical services business is prized by defense companies because it is considered less vulnerable to military spending cuts than big-ticket weapons systems, said Paul Nisbet , a defense analyst for JSA Research Inc. in Newport, R.I. Nisbet suggested the Warfighter FOCUS contract could become even more valuable as the Army moves to its planned Future Combat Systems program, which will introduce more complexity into the training of soldiers on the battlefield.
"Raytheon beat out some pretty formidable competitors," Nisbet said. "This is the kind of contract that would probably not be hurt if there was a drop in defense spending. Training is high priority as long as there's a war on terror, and I think that will go on for a long time."
Still, shares of Raytheon slid 60 cents, or 1.06 percent, to $56 on the New York Stock Exchange yesterday as financial markets retreated amid fresh concerns about housing and inflation.
Most of Raytheon's other large multi year programs are defense systems like the Patriot missile, the Zumwalt-class destroyer combat systems, and ASEA radars for fighters and bombers. While Raytheon doesn't break out the value of those ongoing programs, each is worth billions of dollars to the aerospace and defense company.
The potential $11.2 billion value for the Warfighter FOCUS program is considered a 10-year ceiling. Raytheon and Army negotiators are still hammering out details of the initial award, which is expected to be worth about $3 billion. The new program will take effect on Nov. 1 after a transition period in which Raytheon will assume oversight of a virtual training program now managed by its partner Computer Sciences, and of the computer modeling known as "constructive training" run by General Dynamics.
Mike Edwards , program manager for the Raytheon-led team, known as the Warrior Training Alliance, said some General Dynamics employees may be rebadged to continue working on their computer modeling for Raytheon.
"The concept is to centralize program management and decentralize operations in the field," he said.
Robert Weisman can be reached at weisman@globe.com. 