Northrop Grumman becomes big gun in info technology.

Northrop Grumman Co. is best known as a tier-one defense contractor, but the Los Angeles company is also the second-largest provider of information technology services to the government--and getting bigger.

Northrop pulls in about $5 billion, or one third of its revenue, from so-called "non-traditional defense contracting," another name for its civilian-side work, and the company expects the sector to grow so much that it recently formed a Civilian Agencies Group in its information technology business.

"We're predicting high-single digit, low-double digit growth in this sector for this year," said Sid Fuchs, president of the group, who added the company's "non-traditional" business is growing at a faster clip than its traditional defense business and is expected to do so into the near future.

And Northrop is far from the only defense player in the sector betting on a funding largesse.

Companies such as Raytheon Co. and General Dynamics Corp. do similar information technology business with the government. Indeed, the largest information technology provider for the government is none other than Lockheed Martin Co., which said IT services make up about a quarter of the company's $37 billion annual revenue.

Northrop's expected IT growth is supported by a recent study released by Input, a Reston, Va.-based consulting firm that provides information on government business to the private sector. It found government spending in the sector should increase dramatically over the next four years with companies like Northrop standing to benefit significantly.

Federal funding for IT programs for the first quarter of 2006 was more than $28 billion, a 40 percent increase over the same time in 2005, according to Input. The study projects federal spending to hit $75 billion this year and should top out at $93 billion by 2011.

Much of the increase has been driven by homeland security projects, though the federal government spends an enormous amount on a variety of information technology programs.

"No ambitious politician is going to vote against funding homeland security," said Paul Nisbet of Newport, R.I.-based JSA Research. "So everyone knows that this sector is going to be well-funded, and they're all trying to get involved."

Broad programs

In the case of Northrop, the company has been awarded information technology contracts that are both close to their core defense work and far removed.

For example, last week it was awarded a $2.5 billion contract with the Department of Energy to help the agency manage its nuclear testing program in Nevada, as well as research hazardous spill response technology. And in November, a group led by Northrop was awarded one of four contracts to develop a prototype for a National Health Information Network for the Department of Health and Human Services.

The project is aimed at developing and implementing a national network that would allow local and national agencies to share health-related data; it was cited by President Bush in his State of the Union speech as an important health care advance.

"Anytime the President shines some light on a project, people are going to pay attention and put some legs behind the effort," Fuchs said. "This project will be gargantuan for the company who wins it."

The trend of increased information technology spending doesn't stop at the federal level. Ever since the September 11 terrorist attacks, federal, state and local agencies have sought to improve their ability to communicate and share information. Problems with sharing information also were highlighted by the failed response to Hurricane Katrina in New Orleans.

Many local and state agencies also were given significant federal grant funding to improve their homeland security response programs and have yet to spend all the money. The Input study projects that local and state information technology spending will grow to $72 billion by 2011 from $50 billion this year.

"Currently, local agencies have more money than they know what to do with, and I'm sure these large defense contractors are going to find ways to help them spend it," Nisbet said.

Earlier this year Northrop was awarded a $650 million contract to manage San Diego County's information technology and telecommunication services. San Diego County is the fourth largest county in the U.S. and employs more than 17,000 people.

Northrop was also recently awarded a $54 million contract to refurbish and increase the capabilities of the Los Angeles Police Department's communication and dispatch systems.

"A crucial aspect of homeland security is the ability of federal and local officials to be able to communicate," Fuchs said. "With our knowledge and experience working with the federal government it is logical that we also provide services for local agencies."