Re-Shuffling

Lockheed Martin today announced a number of organizational changes to its information systems and global services business unit.

"We periodically review our portfolio of capabilities and services against the demands of the environment to find ways to continuously provide the best, most affordable solutions for our customers, a secure future for our employees and value for our shareholders by assuring a sound strategic fit for each of our lines of business," Lockheed Martin Chairman and CEO Robert Stevens said in a statement. "We completed such a review recently, factoring in the major changes we've seen in the global security environment, world economic conditions and the new priorities of the Administration. As a result, we are initiating several portfolio-shaping actions to strengthen our business over the long term."

Specifically, those actions include:

* Plans to divest most of the Enterprise Integration Group (EIG) and Pacific Architects and Engineers, Inc. (PAE), two units under the company's Information Systems & Global Services (IS&GS) business area. EIG provides high-quality, independent systems engineering and integration products and services to help customers optimize their resources and manage risk. PAE is a wholly-owned subsidiary of Lockheed Martin Corporation with core competencies in mission readiness, peacekeeping, global infrastructure support and disaster relief activities. EIG and PAE combined produce approximately 3 percent of the Corporation's revenue and less than 3 percent of its operating profit.

* Realignment of two other IS&GS units--Readiness & Stability Operations (RSO) and Savi Technology, Inc.--with our Simulation, Training and Support (STS) unit under Electronic Systems. RSO is a leading provider of global services, offering rapid, cost-effective capabilities in logistics, mission operations support and readiness, engineering support services, and integration solutions. Savi Technology provides wireless tracking solutions that enable decision-support for managing assets, inventory and shipments. The new line of business will be named Global Training and Logistics, which describes the breadth of its products and services and the international scope of its business.

* Renaming IS&GS to Information Systems & Global Solutions, replacing "Services" with "Solutions" to better reflect its focus and scope.

Christopher Kubasik, Lockheed's president and chief operating officer, said the plan to divest EIG was based on the U.S. government's "increased concerns about perceived organizational conflicts of interest (OCI)," according to the statement. "Through EIG, Lockheed Martin provides both systems and services to a broad range of government customers, and this has led to concerns about the potential for conflicting interests," Kubasik said. Divesting the company will free it from the OCI concerns and position it to grow, he added.

Inside the Pentagon reported in January that as the Defense Department mulls options for congressionally required conflict-of-interest guidance for major weapons programs, industry leaders were complaining the coming rule may not provide the solution sought by Congress. Specifically:

As part of the 2009 Weapons Systems Acquisition Reform Act, Congress directed the Pentagon “to provide guidance and tighten existing requirements concerning organizational conflicts of interest by contractors” in major defense acquisition programs. The aim was to prevent defense contractors from conducting their own product assessment work, either in house or via a contracted company with ties to the prime contractor.

The legislation prohibits such organizational conflicts of interest from occurring on current and future major defense programs, but leaves it up to DOD to develop a proper implementation plan to prevent such issues.

Some in industry are concerned the coming rule may be too stringent.

“It may be easy for some to recommend a ‘bright line’ test ((or)) not to permit an OCI in circumstances under A,B,G or F . . . and I’d be very concerned about those bright line tests that lead to prohibitions,” Professional Services Council Vice President Alan Chvotkin told Inside the Pentagon. A one-size-fits-all type of rule will simply not work, he argued.

“There has to be some way to know what the outcome of some of these decisions are because these become very significant business and procurement issues,” Chvotkin said. “As you are putting together a ((development)) team, you would like to be able to have some confidence that the team you put together will pass some conflict of interest review.”

Chvotkin, along with other senior industry representatives, made that case during a Dec. 8, 2009, meeting on the organizational conflict of interest issues, sponsored by DOD’s acquisition shop and the U.S. General Services Administration.