Threat reduction. Homeland security, now federally reorganized, will see spending boost.

The famous government poster with Uncle Sam saying, "I Want YOU for U.S. Army," has defined military recruiting back to World War I and may have new meaning 87 years later. New and changing missions in the U.S. Defense Dept. and other key sectors of the federal government are pushing Uncle Sam and the engineering and construction community closer together. The Bush administration’s plan for a more "outsourced" government and its tougher security priorities are generating new mutual interest. In turn, firms are revving up stakes in the federal market. The effort includes lots of high-profile ex-military and government hires.

"We dabbled in the federal market five years ago, but we were not a recognized name and it was a minuscule part of revenue," says Skip Homan, executive vice president of PBSJ, Miami. "It’s now about 9%. That doesn’t sound like much, but it’s been growing 15% per year. It’s a market that’s changing a lot."

The huge commitment of U.S. dollars to Iraq reconstruction and the needed rapid deployment of American engineers and contractors in the past two years have raised firms’ federal profile and financial return. DOD announced Jan. 27 that it awarded a total of $230.7 billion in prime contracts in fiscal 2004, up $21.7 billion from the previous fiscal year. This year’s list of the agency’s Top 100 contractors includes 13 E&C firms (see chart, right).

But the plan by Defense Secretary Donald Rumsfeld to streamline and reinvent the military over the next 20 years is even more compelling to industry firms. The DOD "transformation" would involve major changes in troop location and strength, combining some service functions, massive integration of new technology throughout the military and greater reliance on the private sector to take over non-core base operations and logistics. "The department must develop a comprehensive divestiture strategy so that it can generate growth," says Arthur K. Cebrowski, director of DOD’s Office of Force Transformation. "We have to be willing to shed some things. There is a growing need for new business models."

Industry firms see much new potential in providing engineering and construction support as the military makes plans to rearrange its global basing strategy and redeploy thousands of troops and families to new locations.

McCaffrey

"We are going to take 70,000 troops out of Europe," says Barry McCaffrey, former commander-in-chief of the Armed Forces Southern Command, based in Miami. "It is going to be a $7-billion funding challenge for the Army just to restation them."

McCaffrey, who last month was named chairman of HNTB Federal Services Corp., says Korea-based U.S. troops who were sent to Iraq will be returning to Fort Carson, Colo., when their tour is up. "We have to get going on infrastructure so forces can deploy," he says. DOD’s Defense Global Basing Strategy is to be released shortly, but PBSJ’s Homan says the firm already is involved in base master planning in Europe and Asia. Moving large numbers of troops around will put further cost and schedule pressure on the military’s effort to expand and upgrade base housing, likely escalating its dependence on privatization approaches.

New horizons in the federal sector have enticed some to stick their toe farther into the water. HNTB’s federal venture began last year as the firm saw its mainstay transportation work slowed by the political battle over federal funding.

"Federal was always in our long-term plans," says Paul Yarossi, CEO of HNTB Corp. "What’s pushed it forward is simply the opportunity. It’s market diversification where we can use core skills. We can do for the federal government what we do for state highway departments."

HNTB Corp., Kansas City, Mo., did not skimp on well-connected talent, hiring former Clinton-era federal drug czar and current NBC commentator McCaffrey, as well as retired Corps of Engineers commander Robert B. Flowers, as the federal unit’s...