The Fruits Of Safety Accenture's $10 billion contract marks a water-shed: The homeland-security market has hit the big time. Stand by for much, much more.
By Nicholas Stein

(FORTUNE Magazine) – The U.S. government doesn't hand out $10 billion to a single company every day. So the announcement this month that the Department of Homeland Security (DHS) had awarded Accenture a contract for that amount (to be paid over five years) to develop its US-VISIT program received plenty of attention. US-VISIT is the futuristic and controversial new initiative that will use fingerprinting, retinal scans, and other so-called biometric data to monitor the flow of visitors across America's borders. There's much to marvel at here--and it's not just what such a program might mean for the future of civil rights. That $10 billion is truly huge: It's seven times the size of the contract Boeing got to heighten security at the nation's airports. And it's a clear sign that the nascent homeland-security business, which companies have eyed since 9/11 as a potential gold mine, has finally come into its own. The pace and volume of contracts--both from the feds and the private sector--have greatly accelerated and are expected to soar still higher.

Before Sept. 11, 2001, the U.S. government was spending about $10 billion a year on homeland security, the majority on protecting federal facilities in the U.S and abroad. Each year since, the Bush administration has allocated about $40 billion annually to homeland security. Initially much of this money was spent on things like getting the DHS up and running (a 180,000-employee colossus, it officially opened its doors in early 2003) and paying the salaries of additional security forces. Only in the past 18 months have the real bucks started flowing directly to the private sector. In its 2003 fiscal year the DHS awarded $6.8 billion in private sector contracts. In 2004 it will sign over some $8 billion more, according to the Civitas Group, a leading D.C. homeland-security consultancy. In a report to be released at the end of June, Civitas forecasts $17 billion in government spending on homeland security for 2005--about $8 billion from the DHS and the rest from other governmental agencies.

But government money is just part of the story. The biggest rise in spending is likely to come from the private sector. After all, more than 70% of the nation's critical infrastructure, including oil wells, chemical plants, and computer systems, is in private hands. Civitas expects corporations to spend $6.5 billion on their own security in the next year. "We are very optimistic about the potential for continued growth in the market," says Mark Shaheen, vice president of Civitas. He estimates that the sector will expand 5% to 10% a year, mostly due to increased corporate spending.

Homeland security is a vast arena, encompassing everything from baggage screening at airports to Coast Guard patrols to the stockpiling of smallpox vaccines. So far the government has focused its spending on securing borders, transportation, and infrastructure; enhancing domestic intelligence and counterterrorism; and generally preparing for emergencies. Within each of these areas there are immense programs like US-VISIT, which is expected to capture arrival and departure information on all of the 300 million people who enter the country each year. (Some legislators, angry about Bermuda-based Accenture's offshore status, are trying to block the deal; if that happens, the contract is likely to go to Computer Sciences or Lockheed Martin.) But there are also smaller-scale projects that devote a few million dollars to studying, for example, how to prevent a shoulder-fired missile attack on commercial aircraft.

Thus far just a handful of companies have received the bulk of DHS money: In 2003, 42% of the $6.8 billion for the private sector went to ten corporations. Those ten include not only Accenture but also IT system integrator Unisys and major defense contractors Boeing, Northrop Grumman, and General Dynamics --companies with the experience and lobbying power to negotiate Washington's bureaucracy. But the field is beginning to widen. "In the long run, the bidding will get a lot more competitive," says Bruce Aitken, a Washington lobbyist who heads the Homeland Securities Industries Association, a 200-member trade group founded in 2002.

Indeed, what's surprising is the vast number of companies in a wide range of industries that are setting themselves up to benefit from this windfall. Some are doing it through acquisitions. For example, in March, General Electric agreed to buy InVision, a top producer of explosive-detection systems used in airports, for $900 million. And insurance giant Marsh just announced the $1.9 billion acquisition of Kroll Associates, the world's leading investigation firm. Companies in businesses ranging from shipbuilding to small-caliber arms stand to profit too.

Other beneficiaries will be smaller firms in the tech industry, many of which are getting R&D money from the government to develop useful new technologies. For example, U.S. Genomics, a Woburn, Mass., company, recently received $7.5 million to perfect a sensor that can be placed in large public spaces to identify airborne pathogens such as anthrax and smallpox. Another recipient is Wakefield, Mass., firm Implant Sciences, which has received $1 million to develop bomb-detection devices.

The stock market is wild about these developments. In early June, Secretary of Homeland Security Tom Ridge gave a speech in Knoxville, Tenn., in which he singled out a few local companies for "helping to make America more secure." One of them was iPIX, a maker of 360-degree-video software that lets househunters view an entire room online. The next day iPIX, which has annual revenues of just $29 million and only recently started a security division, was the most actively traded stock on Nasdaq. It rose 50%.

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