Companies continue to enter the homeland security marketplace and that market is solid but there are plenty of impediments to getting business and doing business with the Department of Homeland Security (DHS), industry officials say.
“I want to emphasize that we still think this is a great market,” Mark Shaheen, managing director of the Civitas Group, a consulting firm in the homeland security area, says at a recent conference sponsored by the Homeland Security & Defense Business Council.
“We see people consistently entering this market, whether it’s through the M&A (mergers and acquisition) that we do, whether it’s through strategy work that we do, so I don’t think there’s any doubt whether this is still a vibrant and robust and growing market.”
While the market may be seen as robust, it’s not without a host of challenges, including difficulty working with DHS.
The relationship between industry and DHS is “fair” at best and there needs to be a more open and robust dialogue between the providers of security products and services and the various DHS customers, various panelists at the conference say.
Interaction with DHS is “fair on a good day,” Shaheen says. Shaheen and his colleague David Howe, CEO of Civitas, say that DHS is still a “start-up” organization.
The problems for companies trying to tap into the homeland security market for the most part are the same ones voiced over the past few years. These include a lack of transparency, immature acquisition and program management organizations, inconsistency between the department components, a lack of understanding by DHS about their out-year plans, and whether there is sufficient funding, industry panelists at the conference say.
Start-Up, Communication Issues
As a start-up, DHS still has issues such as improving its “mechanisms” for procurement and establishing agency priorities, says Howe. And, he adds, there is also a lot of homeland security science and technology spending going on in other departments and agencies such as DoD and the National Institutes of Health that needs to be coordinated.
There is “reluctance” on the part of DHS to talk directly with contractors, says Fred Schwien, director of Homeland Security Strategy for Boeing [BA] the past year and previously a senior advisor at DHS. He’s had “spotty” success getting to know the DHS customers from his perch at Boeing, singling out work the company has done with the Science and Technology (S&T) Directorate’s Chemical and Biological Division as a positive experience.
When it comes to what DHS is planning five years from now, “they don’t have the answers,” says Michael Kelly, director of Homeland Security for Battelle. Shaheen says it’s been difficult to get a “realistic view” from DHS regarding strategy, which is even more troublesome at the program manager level.
DHS is still reacting to the “crisis of the day” and is struggling to get a long-term perspective, Kelly says.
Kelly, who also describes the interaction between DHS and industry as fair, says that S&T has tried to provide contractors with insights at to technological needs but that in the end these have fallen short and “they didn’t tell us much.” However, it’s worse with other directorates, he says, pointing to the Transportation Security Administration as an agency that is “going to go what they are going to do.”
Whether homeland security funding is adequate is also a question. Howe says that the DHS S&T budget peaked in the 2006, 2007 period and hasn’t gotten back to that level. He notes that the establishment of the Domestic Nuclear Detection Office several years ago was expected to generate upwards of “billions” of dollars to address the threat of nuclear terrorism although these funds never materialized. That may be because the U.S. didn’t know what the money should be spent on, Howe says.
Shaheen also says there is a “lack of appreciation” on the part of DHS about knowing what it takes for industry to pursue homeland security opportunities. He says there are two companies that Civitas has worked with that provide services to the intelligence community and have technology applicable to DHS but they have given up on homeland security because the department is too difficult to work with.
Several panelists note that DHS officials go out of their way to be “fair” in the procurement process, making it difficult to talk with program officials. There is a “reluctance to engage with industry for fear of being perceived as unfair,” says Lee Buchanan, a partner with the venture capital firm Paladin Capital Group. He describes the relationship as being “confrontational” rather than collaborative.
Another challenge has been figuring out how best to address the market components, which include the federal government on one hand and the states and localities on the other. The defense business model allows industry to basically deal with a single customer, usually DHS on the federal side, while working with the states and localities–not to mention the multiple agencies that populate these levels of government–requires a commercial model.
Buchanan says that most companies that Paladin chooses not to fund lack a sales model. The first thing companies think is that they will create a direct sales force, but “they quickly discard that because it’s impractical” and too expensive given the diversity of the customer base, he says. Then they go for the channel model, which he says is good because the state and local markets are getting more grant monies to spend, but here it’s “crucial” to pick the right partner.
Barriers to Innovation
Howe says the federal and state and local dimensions of the homeland security marketplace also represent barriers to innovation. On the federal side, most of the programs are small relative to defense programs, require faster deployments and low total costs of ownership, he says.
“Overall, a more granular, more fragmented faster developing marketplace than the aerospace or defense market in a government context,” Howe says.
While there is a lot of money flowing to the states and localities, which “is potentially ideal for encouraging innovation,” accessing that money is difficult for both large and small companies because it is subdivided in so many ways, Howe says.
“So we lose some of the large companies’ desire to innovate for that marketplace and we lose the venture desire to innovate for that marketplace and we’re left with a gap,” Howe says. “How do we effectively create the best techs for the state and local level when we’re facing such a fragmented market?”
For Boeing it’s hard to go beyond the federal and foreign government customers, Schwien says.
While most of the comments from the industry panel pointed to changes DHS needs to make to improve the working environment for contractors, panelists did point to areas where industry can help. One is developing the association organizations that exist for the defense industry to constantly work these issues with DHS.
Schwien points out that DHS is in a difficult situation because it is always being second guessed and that some issues will never be resolved. Shaheen says that DHS is also at the mercy of a lack of political and societal decisions that still have to be made that will provide clearer direction, noting that there still is no national level guidance on “what we want border security to be.”
Anne Petera, the director of Homeland Security for Lockheed Martin [LMT], says that industry has to be “patient” in the development of the “trusted partnership” with DHS, noting that “strong partnerships” with the Defense Department have taken years to develop. Petera also served at DHS in the National Protection and Programs Directorate.
“The most important thing is to better understand [the DHS] mission,” Petera says. Procurement doesn’t make the top 10 in DHS missions, she notes. It’s important to get the message across to DHS that industry wants to be a partner not just a profit maker, she adds.
Buchanan says that Paladin has looked at over 700 products from companies for potential venture capital funding in the last 18 months. Of those, Paladin has funded six, he says.
Having the opportunity to look at so many proposals has provided “lots of good statistics” on deciding on which to fund, Buchanan says. The products that tend to be successful usually have another use beyond security, he says.
“So if the product has as its only attribute the provision of security, it tends not to be successful,” Buchanan says.