Looking to technology, Serco CEO pursues new acquisitions, avoids LPTA work

January 2, 2019

By Marjorie Censer

Serco's chief executive, on the job for about a year and a half, is seeking to convince the Pentagon to turn to technology in its services contracts rather than just focus on price.

Dave Dacquino initially joined Serco Inc., the Americas division of British contractor Serco Group, in 2015 as its top defense executive. In summer 2017, Dacquino, a contracting veteran who has also worked at Lockheed Martin and Raytheon, was named CEO.

In an interview at Serco's Herndon headquarters late last month, Dacquino said he's been concerned by the focus within services contracting on price, particularly the Pentagon's reliance on the lowest price, technically acceptable contracting approach.

He said that though fewer programs are now formally designated LPTA, that strategy remains.

"That behavior and that mindset, used at the level it's been used, is so destructive," Dacquino said. "What it really does is it cuts salaries and benefits of employees. That's the result of LPTA. And I don't want to be in that business. I'm not going to do it."

"We will be moving away from those types of businesses that are heavy in that area," he added.

Dacquino acknowledged LPTA "caused companies to shed a lot of excess," but argued the pendulum has swung too far.

"I would be lying if I said it didn't force me to get leaner. We did get leaner. . . . We scrutinized everything. We do that as a matter of course now," he said. "Was there some benefit of that? Sure. . . . Now we've got to bring that back and stay with some cost sensibility, but bring technology, bring innovation to these programs."

Dacquino said Serco, which has about 6,000 employees and $1 billion in annual sales, is seeking to infuse technology, from data analytics to drones, into its programs to demonstrate the benefit to customers. He said Serco is using its own money to add innovation to existing programs and then seeking to apply that technology to future efforts.

"How do you do this in a cost-obsessed service market?" he said. "Let's make that investment in a current contract. Yes, that's money out of my pocket, yes, it reduces the margin on that particular program, but if we can demonstrate that capability, I've got two wins. One, that customer becomes excited and not willing to give that up anymore and, two, what I've just developed I can put on another contract cheaper."

"I'm forcing those investments in Serco on current programs to show customers: 'Look at the value you can get,'" he added.

In particular, Dacquino said he sees opportunity to apply new technology in logistics and engineering programs.

He told Inside Defense he has seen the Pentagon embrace new advances, but primarily in weapon systems. Defense work makes up just shy of half of Serco's sales.

"The key is to drive that down into the service side as well," he said. "I think it's a perfect time. When the LPTA lessons learned are coming home to roost . . . is clearly going to be the right time in defense services to bring that mentality."

Dacquino said Serco is applying that approach as it pursues acquisitions, seeking new technologies to add to its portfolio.

In January, it acquired BTP Systems, which provides satellite communications, radar modernization, operations and maintenance and sustainment services.

He said Serco won't be following in the footsteps of some of the services contractors who have used acquisitions to become far larger.

"The big volume play is important, but the technology play, the solution play is much more compelling," he said. "If we can get those contracts steered a little in that direction, it's not going to matter that you're 15 cents cheaper or even a dollar cheaper an hour. What matters is you're bringing a very specific set of capabilities to that solution."

Dacquino said Serco is in the "hunt now" for acquisitions and expects to be "pretty visible" early this year.