How procurement looks from the point of view of the CEO of a major contractor

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The government market is recession proof but that doesn’t mean contractors don’t fight tooth and nail for federal business. For what the scene looks like, from the standpoint of one of the majors, The Federal Drive with Tom Temin turned to the CEO of Peraton, Stu Shea.

Tom Temin  Peraton is a relatively new name, but it’s actually a lot of old elements. You might say just briefly review the genealogy of Peraton as it stands today.

Stu Shea  Yeah, really interesting lineage. We started in 2017, as a divestiture from Harris Corporation. It really was in Harris kind of the island of misfits, it was the leftover businesses through many acquisitions, and was purchased by Veritas Capital. I came in as its first CEO. And then we took that organization and integrated it into a single company, we did a small acquisition in 2018, and other small one in 2019. And then in 2021, we did two major acquisitions, the Northrop Grumman Mission Federal IT Business, and then the entire publicly traded Perspecta. We also did a smaller acquisition at the same time from a small company called Bionz. So, you know, over those five years, we took many of the leftovers of those businesses integrated into a single environment, single culture, single offering, and each of the pieces that we picked up had been, in their antecedent companies, had been the stitch together pieces of multiple acquisitions. So for example, in Perspecta, that was part of the old Lockheed Martin, part of you know, it became Vencore, there was DXC, which is part of HPE. So again, a lot of lanes all coming together in one place.

Tom Temin  And we often see agencies that sometimes combine, and it’s a clash of cultures, not a combination of cultures. So it sounds like you’ve spent a lot of energy trying to create a single company out of these disparate pieces?

Stu Shea  Yeah, it really is. And in fact, what we did was we focused on something that was over and above all of us as individuals or individual lineage, we focus on missions of consequence, real important things that have to be done. If you think about the work that we do, if we don’t get that job done, something happens bad in the world, right? It’s the safety of our people, our families, our communities, our entire way of life. And by focusing on something that’s bigger than all of us, it gave us the ability to merge those cultures more quickly than would normally be done through most acquisitions.

Tom Temin  And again, drawing the parallel with federal agencies who have a talent acquisition problem kind of a continuous thing. And it takes different forms and different generations in the federal market, too, there are just a finite number of people who can do the kind of services that the Peratons and your competitors provide. So what’s your approach to talent acquisition? And talent retention, I think is also key here.

Stu Shea  Yeah, it is. And you know, it’s really two sides of that same coin. On the acquisition side, you have to create a company that is something that people want to come work at. And what does that mean, it has to be exciting, you have to offer a place that’s safe to work, you have to have something where people can grow and thrive and work with others in a team atmosphere. You want to be working on things that have a significant national importance. You want to have a place that is highly agile, and takes on jobs that are really exciting. And so if you can do that, and you take care of those people and treat them as family, that’s the part that is attractive, but it’s a really competitive marketplace out there. And so for us, you know, it’s basically a seller’s market right now. And so we do the very best we can to create a very sticky environment. We work very much on the side of retaining those employees by paying attention to what they do by continuing to offer them opportunities to do something new and different or broadening in their background. And then we have to be able to relate that all to who we are as a company, right? When you wear the jersey and you have the name on the jersey and somebody says, I work at Peraton, I work at a place that implies what the name means a name actually was created to imply thoroughly imperative to the mission. So when people have that sense of connectedness, I think it’s a really good sticking point. And you know, as long as we continue to do what we’re doing and grow, we will attract people, and they will do our very best to retain them. [We are] better than industry standard on retention. So we’re doing very well in that regard.

Tom Temin  We’re speaking with Stu Shea, he’s the CEO of Peraton, and how did you manage services contractors through the pandemic and the aftermath when your employees who would normally be on site at federal agencies could not be there? There were lots of compensation issues, which I think are still being worked out with federal agencies, but there was also the job itself. And what was it like managing from that standpoint? And what kind of steps did you take to maintain continuity and some sort of sanity?

Stu Shea  First of all, if you think about the work that we do as missions a consequence, we are considered mission critical. So as many people when the pandemic happened kind of lost their jobs or weren’t sure if they had a place to work. Our customers immediately came to us and said we have have to have your people. So all of our people stayed working across the board. That’s the first thing that’s incredible. The second thing is, when we built the company, we built an environment that was very agile from the standpoint of remote access, and the ability to access all of our tools. So we literally overnight, kind of flipped the switch, and everybody that could go off campus and stay at home did. And we gave people the freedom and flexibility to work the time and hours that they needed to work, right. Some people had kids, some had aging parents, some had, you know, other challenges, maybe had COVID. So we gave them an environment that allowed them to work from four o’clock in the morning to noon, or from noon to eight o’clock, and, you know, four days a week versus six days a week, whatever it may be, I think that created the first level of stickiness. And people enjoyed that. And what we found is that many of those people will continue to stay off site, because they love the freedom and flexibility that we gave them. But a lot of the things that they do didn’t require a lot of interaction. And so it was important for them to be able to do that in the location that they wanted, using the same kind of tools. Now, the people that had to come to work, were the people that worked inside of sensitive areas, SCIFs or classified work. And we paid really a lot of attention to them to make sure that they felt safe. So we spread them out into our classified areas, gave them more flexibility, allowed them to work different kinds of shift work with the customers. And I think for us, we got through it pretty well. The other thing is it just a final point on that, Tom, is we also were the ones that were helping the government with maintaining all the CDC and NIH kind of records of what was happening with COVID, and how it was being seen across the United States. So we were deeply involved in helping to manage and mitigate the pandemic. So there was an emotional connection for us as well.

Tom Temin  And something that happens frequently, unlike pandemics is the fact that the Congress never finishes the budget. And so the government is on these continuing resolutions that extend and extend followed by very brief actual fiscal years, such as the one we’re about to conclude now. How do contractors, especially in the services area, where you’re dealing with ongoing programs from one year to the next deal with that? What’s your strategy, versus what the government’s got to do on its end?

Stu Shea  Well, a couple of things. The first thing is when we set up the company, we wanted to focus on those missions that were vital and critical, regardless of administration. And regardless of the nuances of budgetary priorities, right. So if you think about areas like space, or intelligence, or cyber, these are sustainable missions, regardless of whether or not there’s a Democrat or Republican in the White House or control of Congress. The other thing is within those markets, we focused on the things that were most vital in those markets. So they became very resilient to individual perturbations within market dynamics. So that gave the fundamental baseline of the company stability. You know, we prefer stability, right, that’s first and foremost. And I think the challenge that we always have with the CRs, and the change in the budget priorities is, this is not good for the American people. It’s not good for the American way. It puts at risk, the way that we have set up our programs as a nation to acquire capabilities to protect our nation, to provide us our intelligence readiness, our military support infrastructure, and our adversaries know that. So what we have to do is we have to make sure that we stay focused on always delivering it’s kind of like the marathon as opposed to the sprint, I can’t do a sprint every year, I have to be in a marathon, which means I have to be resilient against the perturbations. But I have to really focus on making sure that we maintain stable workforce, we maintain our deliveries, and then Congress will do what Congress does. We just have to manage through that.

Tom Temin  And switching gears here. Are you still on the hunt for acquisitions? And I ask that in the context of the Justice Department’s antitrust suit against Booz Allen, which was trying to acquire Everwatch to serve one large services company buying a piece of another holding company that also offered services? Is that a chilling thing to think for the marketplace?

Stu Shea  No, you know, it’s funny, the U.S. government has complete control over what they have in terms of risk or how they think about those acquisitions. You know, they set the conditions for the programs, they set the competitions, and they want competition. So if they do things that are set up, where the opportunity is out there for multiple companies to compete, we want to compete on many programs, we want to compete in that way where we win, obviously, but as long as there’s a fair competition, then, you know, the government’s doing the right thing. In the case where there’s an unfair competitive advantage, or there’s a limited competition, that’s where the Department of Justice may insert themselves. And I think in this particular case, and I don’t know all the details of the case other than what I read, but there was at least one particular area that was a challenge where there was you know, only two suppliers and they were going head to head and you know, there was an acquisition. So, you know, the DOJ what they do in the antitrust kind of civil business, they take a look at these things. But you know, we’re going to still do our acquisitions. We’re going to still try to differentiate ourselves in markets, but we invite competition.

Tom Temin  Well, yeah, most CEOs want to feed their own people’s kids and not the competitors’ kids.

Stu Shea  Yes, exactly.

Tom Temin  And by the way, how did Peraton end up as a party in the OPM breach settlement?

Stu Shea  Yeah, that’s a long history. So back in, I think it was 2013 to 2015 timeframe. So long before we were even conceived as a company, there was KeyPoint Solutions, which was a smaller company was acquired into part of the previous Perspecta as part of the Perspecta when it was Vencore. And so that case is very, very old. The cost of that was borne out by their insurance a number of years ago. So it’s interesting that now it’s coming of light. And everybody’s talking about the OPM breach and they’re naming Peraton, and we weren’t even in existence for four years after that thing occurred. So it’s interesting history, but it’s not really relevant to us.

Tom Temin  Right. An old story, I guess, in the whole tort business that tends to happen from time to time.

Stu Shea  Nobody wants to talk about a small company and the impact that they had, it’s a very small percentage of, I think they’re 5% of the settlement right now. So it’s a pretty small number. But in terms of if you name risk decision, nobody will know who that is. But if you name Peraton as a $7 billion company, everybody says, oh, well, that’s, you know, that’s more fashionable. So that’s why we got named.

Tom Temin  And now you went from a couple of years ago in the top 100 contractors lists that come out from different places. Now you’re in the top, what, 25?

Stu Shea  Well, it depends on the list, but in some were the top 10. I like to say we went from Para-who to Peraton, you know, in many ways, we came on the map pretty quickly, you know, we were a billion dollar organization. And as I’ve said many times, we would have billion dollar organization with $100 million agility and a $10 billion attitude. And so now that we’re a $7 billion organization, we certainly command a lot more attention, we have a tremendous brand that’s out there. And therefore we also become a target. And I think for now, we have a company that’s really differentiated in our ability to serve a really broad array of markets, at a depth from the basic R&D all the way up to the enterprise IT we can do kind of all things for all customers equally. And I think that’s the real power of Peraton.

Tom Temin  And I have been covering the federal market for 30 years, you’ve been in it for 40 years. What do you think are the fundamental changes that you see manifest now versus 40 years ago?

Stu Shea  Well, let’s see. First of all, there wasn’t as many startup companies and there wasn’t as many commercial investments of the scale of say, Amazon, or Google or Microsoft, and those things, right. Those didn’t exist when I started, there was a lot lesser focus on technology back then, because technology was hard, right? We didn’t have computers, we didn’t have desktop, or you know, cloud services and those things. So today, it’s a little bit more of how can you adapt to a customer requirement with all those evolving technologies. You know, everybody talks about artificial intelligence machine learning. That’s great. It’s a moniker for something that’s been going on for 50 years, but there’s not a lot of people really doing it. And so what we have to do is we have to think about how do we most effectively take the technology that does exist and solve somebody’s requirements, and that’s why we call ourselves a mission capability integrator, we are integrating the different capabilities to serve a mission.

Tom Temin  Stu Shea is the CEO of Peraton. Thanks so much for joining me.

Stu Shea  Thanks. Really appreciate it

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