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Instantaneous interconnectivity: Inside the Department of Defense’s ambitious plan for JADC2

What is Joint All-Domain Command and Control?

Joint All-Domain Command and Control (JADC2) is an evolving Department of Defense (DOD) vision to revamp the Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance (C4ISR) programs currently in use across all U.S. military branches. The infrastructures in place at, for example, the U.S. Army, are largely unable to function at a seamless level with the networks of other branches, such as the U.S. Space Force. Additionally, these infrastructures do not meet the DOD’s requirements to handle rapidly evolving and highly complex new-age battlefield situations that require urgent, coordinated responses from U.S. armed forces.

 

JADC2 is an effort to rectify these dilemmas by creating a cloudlike environment that enables the rapid receipt and transmission of intelligence, surveillance and reconnaissance (ISR) data to interconnected networks. By developing a unified network that enables sensors on Internet of Military Things (IoMT) devices to instantly pass on mission-critical information to leaders, more informed and coordinated decision making is possible across the U.S. military’s branches. Decision makers can act faster and establish more cohesive battlefield tactics, factoring in land, sea and air threats with additional support from each other’s assets due to this common operating picture (COP) being immediately relayed to the relevant parties via machine learning (ML) and AI support.

 

Vendors covered in TBR’s series of Public Sector and Mission Systems reports have been increasingly involved in JADC2. It provides a sizable opportunity for vendors with these areas of expertise.

What will be needed to enable JADC2?

In March, the Pentagon published its official JADC2 strategy, which included five “lines of effort” that the JADC2 Cross-Functional Team (CFT) will work on to bring the DOD’s vision closer to reality. The first goal is to set up a uniform “data enterprise,” which includes creating guidelines for baseline metadata tagging. Next, the JADC2 CFT will leverage digital tools like AI to support decision makers and engage in efforts to advance integral technology. The Space Development Agency (SDA) will then establish a network that enables communication across branches and weave nuclear command, control and communication (N3) systems into the overarching JADC2 program. Lastly, the DOD will strive to better connect mission partners by streamlining the exchange of data.

 

This lofty goal of rapidly parsing relevant data from battlefield situations and enabling decision makers to be more agile will require a lot of support. For example, DevSecOps will build out customizable capabilities for JADC2 based on a department’s needs. The electromagnetic battle management system (EMBM), a core piece of the DOD’s vision, will be underpinned by DevSecOps using electromagnetics that will aid branches of the U.S. military, such as the U.S. Air Force, with tasks like identifying and connecting data. Advancing AI technology will also be critical to JADC2’s success and require contractors to increasingly expand their capabilities.

For example, Booz Allen Hamilton (NYSE: BAH) has been positioning itself to capitalize on AI and analytics demand since 2018 with a series of inorganic and organic investments. TBR anticipates Booz Allen Hamilton will play a key role in helping to produce new tactical support systems leveraging AI and familiarize warfighters with newer technologies like directed energy weapons. Additionally, Peraton Labs has been building out its Operational Spectrum Comprehension, Analytics and Response (OSCAR) solution, which will bolster the DOD’s efforts to bring interoperability across the nation’s military branches by leveraging AI as well as 5G technologies.

 

JADC2 will also require an anti-fragile cloud environment underpinned by 5G technology, which is where military contractors like Lockheed Martin (NYSE: LMT) and Northrop Grumman (NYSE: NOC) have been looking to capitalize. In November 2021 Lockheed Martin formed an alliance with Verizon (NYSE: VZ) to enable interoperability among legacy networks and devices already in use as part of the contractor’s efforts to provide 5G connectivity through its 5G.MIL unified infrastructure. Lockheed Martin has since expanded its partner network to include Keysight Technologies (Nasdaq: KEYS), Microsoft (Nasdaq: MSFT), Intel (Nasdaq: INTC) and Omnispace to assist with 5G.MIL, streamlining network communications for both IP and non-IP users.

Meanwhile Northrop Grumman formed an alliance with AT&T (NYSE: T) in April to analyze digital battle networks and integrate Northrop Grumman’s systems with 5G commercial capabilities and AT&T’s 5G private networks to establish a scalable open architecture for the DOD. To do this at the scale the DOD wants, Lockheed Martin and Northrop Grumman will need to build out their partner networks among startups and fringe players while continuing to build out relationships with major names like Verizon and Microsoft.

 

The military/DOD will increasingly require IT assistance to underpin the JADC2 initiative. While the military’s outsourcing efforts will certainly play a part in bringing JADC2 closer to fruition, the branches are expected to bring on more IT workers of their own and invest in systems integration as well as methods to educate these employees and retain them to help build, maintain and troubleshoot applications.

 

Currently, the military branches are working on their own programs compatible with the DOD’s JADC2 vision. For example, the U.S. Air Force is developing its Advanced Battle Management System (ABMS), which has undergone periodic testing in public since December 2019. Recent efforts indicate the U.S. Air Force is trying to fit KC-46 Pegasus tanker aircraft with pods linking F-22 aircraft and other solutions on the ABMS network, which would allow more information to be exchanged. Meanwhile, the U.S. Navy has been working on Project Overwatch while the U.S. Army has been expanding Project Convergence to include additional features that will contribute to its success. For example, the Army’s FIRESTORM system leverages AI that scans relevant points with sensors, maps out a digital battleground, tags hostiles and selects the optimal weapon for the circumstances.

What are the fears surrounding JADC2?

While JADC2 has a lot of potential, there are several concerns with the DOD’s vision, beyond just getting these systems to communicate through one language.

Security

Fears about JADC2’s adaptability and resiliency are prevalent, particularly because China and other countries have invested in disruptive technologies like an anti-access/area denial (A2/AD) conflict deterrence system that could impede JADC2 and other communication networks’ functions. There has been very little discussion about how JADC2 would combat these disruptions or function in these contested environments outside of test settings when facing the brunt of foreign adversaries’ disruptive technologies. The DOD will need to ensure it can generate as much relevant information as possible from a limited number of sensors while maintaining undetectable networks capable of surviving enemies’ efforts to degrade or disrupt the relaying of information.

Design

Accenture (NYSE: ACN) Federal Services Managing Director Bill Marion also emphasized that human-centered design will be necessary throughout JADC2’s framework to ensure that warfighters and decision makers can easily navigate these interconnected networks and learn about all of their capabilities to maximize their use.

Affordability

Targeted internal investments are necessary to implement JADC2. Companies like Raytheon Intelligence & Space of Raytheon Technologies (NYSE: RTX) will need to develop and connect new IT infrastructure and update legacy systems to ensure they are compatible with JADC2 utilizing a cost-effective approach. Simultaneously, affordable and functioning multilevel cybersecurity solutions that can support the DOD’s desired instantaneous relaying of data and commands will be needed. Currently, there are concerns about enemies being able to hack into the MIL-STD-1553 serial data busses found in IoMT weapon systems. External parties might be able to breach the 1553 data bus and either shut down or actively use these connected armaments on U.S. personnel.

Contractors will need to find ways to protect the 1553 data bus from these threats, and Peraton Labs is already collaborating with military branches to establish Bus Defender capabilities. With the DOD looking to interconnect IT systems across all military branches, TBR anticipates that General Dynamics (NASDAQ: GD) Technologies is aiming to be the DOD’s preferred IT vendor by utilizing Agile methods to expedite the construction of tailored prototypes after first consulting with clients and showcasing the contractor’s base zero-trust solutions.

Ultimately, the journey to JADC2’s implementation will be long and complex. The DOD’s ambitious project will certainly face an ever-shifting road to implementation as there is no true endpoint for the project. Key components like hardware will need to be updated, policies will be amended, and the scope of JADC2 will grow, especially as the U.S. eyes getting allies involved with JADC2 in the future to establish a more unified cloudlike environment capable of streamlining the transference of data to all nations. If all goes well, the U.S. will be able to truly integrate its military branches, allowing them to overwhelm adversaries by using mission-critical data to make better, more informed and coordinated tactical decisions. The U.S. will aim to control the next-generation battlefield by gaining the upper hand on intelligence and rapid communication.


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TBR launches semiannual U.S. Telecom Operator Public Sector Market Landscape

TBR launches five mission systems-specific reports: Boeing Mission Systems, L3Harris Mission Systems, Lockheed Mission Systems, Northrop Mission Systems and Raytheon Mission Systems.

ManTech acquired by The Carlyle Group

ManTech will be taken private through a $4.2B all-cash buyout

On Monday, ManTech (Nasdaq: MANT) agreed to be acquired by private equity specialist The Carlyle Group Inc. (Nasdaq: CG) — the same investment firm that purchased Booz Allen Hamilton (BAH) after BAH split from Booz & Co. in 2008, took BAH public in a 2011 IPO and remained a stockholder until 2016. ManTech has been a publicly traded company since its IPO in 2002. Carlyle agreed to pay $96 per share for ManTech (on Friday, May 13, ManTech’s stock closed at $81.97 per share); taking into account ManTech’s $240 million in net debt, the total transaction value will be $4.2 billion, or roughly 1.6 times ManTech’s trailing 12-month (TTM) revenue of $2.596 billion as of 1Q22.

The sale to Carlyle ends 3 months of speculation about ManTech’s future

ManTech co-founder and longtime CEO (40 years) and Chairman (42 years) George Pedersen stepped down as chairman of the board in 2020 and officially retired from the company’s board in February 2022. His retirement from the board sparked rumors that the company was for sale, and industry observers wondered what would become of Pedersen’s controlling block of voting shares. According to ManTech’s 2021 10-K report, Pedersen held 32% of the common stock as well as nearly 83% of the combined voting power vis-à-vis Class B stock ownership. A Reuters report on Feb. 2 suggested that Pedersen’s family wanted to resolve his estate plan following his retirement, including exploring options for his controlling stake. Carlyle’s per-share purchase price represents a 32% premium on the price of ManTech’s stock as of market close on Feb. 2.

Private equity steps up to buy ManTech, perhaps in lieu of peer interest

When rumors surfaced that ManTech was for sale, it was initially thought that ManTech’s acquirer would be a federal IT peer. Leidos, federal IT’s largest traditional systems integrator, was on the short list of potential buyers. Even after spending over $2.5 billion during 2020 and 2021 on acquisitions, Leidos (NYSE: LDOS) entered 2022 flush with liquidity after back-to-back years of record sales and backlog, sustained profitability, and stronger-than-expected cash from operations in 2021. Leidos certainly had the fiscal war chest to support another strategic purchase, even as it retires debt from its recent acquisition spree.

General Dynamics Technologies (GDT), specifically GDT’s Information Technology (GDIT) segment, was considered a potential buyer, having fiscal resources on par with Leidos, thanks to a corporate parent with a $60-plus billion market capitalization. GDIT has completed its acquisition of CSRA, purchased in 2018 for $9 billion, but the integration process was protracted, reviving speculation that originally surfaced around GDIT’s troubled purchase of Vangent in 2011 that the company struggles to assimilate acquired peers.

Parsons (NYSE: PSN), a longtime construction contractor for the Department of Defense (DOD) and a more recent entrant into the federal IT fray, was also thought to have an interest in ManTech as a way to continue diversifying its portfolio by building out its federal IT capabilities. Buying ManTech would have immediately garnered Parsons the scale to support large federal IT modernization programs, as well as a sizable presence in the Intelligence Community (IC). (ManTech is estimated to generate $1 billion annually from the IC.) However, Parsons would have been forced to rely more heavily on stock to facilitate the transaction, and it was thought the Pedersen family would be less amenable to such an arrangement.

Buying ManTech would have imparted similar benefits upon KBR Inc. (NYSE: KBR) (about $5 billion in federal IT revenue), also believed to be a potential buyer looking to diversify its solutions focus into federal enterprise technology but facing the same potential challenges structuring the transaction in a way that would be favorable to the Pedersen family’s preferences.

Serial federal IT acquirer CACI International (NYSE: CACI) was also rumored to be in the mix to purchase ManTech, which would have expanded CACI’s annual federal IT revenue base ($5.8 billion as of 4Q21 on a TTM basis) past $8 billion in total value, surpassing BAH ($7.9 billion as of 4Q21 on a TTM basis) and SAIC ($7.3 billion as of 4Q21 on a TTM basis), and significantly narrowing the gap with Leidos ($11.8 billion as of 4Q21 on a TTM basis) and GDT (also $11.8 billion as of 4Q21 on a TTM basis, though this includes roughly $4 billion from GDT’s Mission Systems group).

With its recent purchases of Bluestone Analytics (3Q21), an unidentified space-focused company (also in 3Q21), SA Photonics (4Q21) and ID Technologies (1Q22), it appears that the focus of CACI’s M&A strategy is on expanding the company’s high-end, high-margin technology capabilities, particularly in areas that enable wallet-share gains with existing clients in the DOD and IC. CACI’s acquisitions of SA Photonics and ID Technologies also showcase CACI’s preference for leveraging M&A to capture first-mover advantage in solution areas or markets in which the company expects to experience accelerating demand from its core DOD and IC customers.

In addition to its large IC footprint, ManTech is a long-standing IT contractor to the DOD, particularly with its suite of cybersecurity solutions. ManTech’s legacy with the DOD and IC, along with its highly regarded security offerings, would have added value to any of the federal IT peers rumored to be interested acquirers, or other well-funded federal IT competitors (e.g., Accenture Federal Services [AFS], CGI Federal or SAIC). However, ManTech has been a margin laggard in TBR’s Public Sector IT Services Benchmark report in terms of relative operating margin performance. ManTech has been ranked ninth or lower (out of 13 benchmarked companies) in the benchmark report since 2013.

We believe that despite the lucrative nature of its cybersecurity offerings and its operations in the IC, ManTech has largely retained a high emphasis on labor-based services, keeping its margin performance below that of peers. Also impeding relative profitability is ManTech’s focus on being a low-cost but technically acceptable contractor, while peers like CACI, Leidos, BAH and GDT have increasingly recruited superior talent to support a more aggressive pivot up the value chain with their offerings (AI, analytics, cloud, high-end defense platforms, C5ISR [command, control, computers, communications, cyber, intelligence, surveillance and reconnaissance]). In short, ManTech’s federal IT peers might have viewed acquiring ManTech as too margin-dilutive, particularly as a strategic acquisition. TBR also notes that ManTech’s top-line performance has been impeded by the drawdown of military operations in Iraq and Afghanistan over the last decade, while its efforts to expand its footprint in the federal civilian market seemed to stall during late 2021.

Ultimately, it was The Carlyle Group, with over $325 billion in assets under management as of March 31, 2022, that made the purchase. We are not aware of the terms of any competing offers, though we believe ManTech did garner some interest from fellow investment group Veritas Capital — the private equity backer of the three-way merger between Peraton, Perspecta and Northrop Grumman’s IT services unit in early 2021. We expect Carlyle will implement across-the-board cost rationalizations following the acquisition (likely accelerating workforce attrition in an already fiercely competitive federal IT labor market). Carlyle’s deep fiscal pockets will provide ample funding for additional acquisitions to expand ManTech’s suite of offerings in AI, analytics, automation, advanced cybersecurity (e.g., cognitive security), systems engineering and solutions at the tactical edge.

In the end, ManTech may return to publicly traded status as a larger and more profitable federal IT peer with a broader and more lucrative suite of solutions better aligned with the federal embrace of digital technologies, in a scenario more reminiscent of BAH’s IPO in 2011 after three years of Carlyle’s restructuring. Conversely, Carlyle’s ultimate goal may be to sell ManTech to a larger federal IT peer with the fiscal wherewithal for a strategic purchase that will either further cement its leadership position (e.g., Leidos, GDT, BAH or SAIC) or catapult its scale (e.g., CACI, AFS, CGI Federal or even IBM Consulting) into direct contention with established federal IT leaders.

TBR launches Mission Systems research stream

TBR launches five mission systems-specific reports: Boeing Mission Systems, L3Harris Mission Systems, Lockheed Mission Systems, Northrop Mission Systems and Raytheon Mission Systems.

Lockheed Martin forced to abandon $4.4B acquisition

On Feb. 13 Lockheed Martin (NYSE: LMT) pivoted and severely altered its FY22 outlook by withdrawing from its $4.4 billion plan to acquire missile and rocket propulsion expert Aerojet Rocketdyne (AR) (NYSE: AJRD) after months of mounting antitrust pressure and the recent unanimous U.S. Federal Trade Commission (FTC) decision to sue Lockheed Martin to obstruct the planned acquisition of AR.

Lockheed Martin looked to challenge Northrop Grumman for missile and rocket propulsion market dominance

In December 2020 Lockheed Martin announced it had entered into a definitive agreement with AR to acquire the missile and rocket propulsion innovator. With this proposed purchase, Lockheed Martin indirectly revealed its plans to disrupt the market dominance Northrop Grumman (NYSE: NOC) has enjoyed since 2018 when it purchased renowned rocket booster manufacturer Orbital ATK. Lockheed Martin hoped that its acquisition of AR would follow a similar trajectory as Northrop Grumman’s purchase of Orbital ATK, where the FTC would approve the acquisition so long as Lockheed Martin followed FTC stipulations, such as refusing to discriminate access to its missile system products and services to competing contractors.

With the world’s largest defense contractor planning to dedicate significant resources to acquire AR, Lockheed Martin expected the FTC to approve its acquisition as the combination of Lockheed Martin and AR would be a stronger competitor against Northrop Grumman, giving the U.S. government an additional option when selecting contractors. Expecting approval in 1Q22, Lockheed Martin forecasted its FY22 based on gaining an expanded propulsion systems and rocket engines portfolio and priority access to AR resources during the ongoing supply chain chaos seen in all industries.

After a year of setbacks, the FTC intervenes with Lockheed Martin’s proposed acquisition

Lockheed Martin experienced several setbacks almost immediately after announcing the planned acquisition. In February 2021 Raytheon Technologies (NYSE: RTX) stated it would implore regulatory agencies to block Lockheed Martin’s proposed purchase, arguing that the acquisition would give Lockheed Martin an unfair market advantage and Raytheon Technologies would have to purchase approximately 70% of its missile propulsion systems through Lockheed Martin as a result.

In July 2021 Senator Elizabeth Warren petitioned the FTC to probe the acquisition. Despite a bipartisan appeal to the Pentagon by a group of 13 U.S. Congress members in support of the merger in August 2021 and rumors circling that the Pentagon was in favor of the deal, the FTC voted 4-0 in January 2022 to file a lawsuit impeding Lockheed Martin’s $4.4 billion acquisition.

After initially postponing the vote, the FTC finally argued that Lockheed Martin would damage the national defense market and its rivals by acquiring the United States’ only independent provider of essential missile inputs. By reducing industry competition, Lockheed Martin would be able to relax innovation efforts and not be as competitive with its pricing, which could result in higher prices for the government. The acquisition would also potentially limit rivals access to resources and provide Lockheed Martin with unfair insight into their confidential information as AR operated as a subcontractor for many of them in the market.

Rather than face an arduous administrative trial against the U.S. government in mid-June, Lockheed Martin opted to simply abandon its acquisition plans.

Big Blue and big government: Enhancing security and co-innovation operations improves IBM’s chances in the U.S. public sector

IBM is strengthening public sector resources in the U.S. to capture modernization opportunities

While the public sector accounts for less than 10% of IBM’s revenue, in TBR’s estimates, IBM is expanding resources in the U.S. to ramp up activities. IBM developed its delivery capabilities for the U.S. federal sector by establishing the IBM Center for Government Cybersecurity in June. The center, part of IBM’s offices in downtown Washington, D.C., will have a secure laboratory space for government clients to jointly develop solutions around advanced security threats leveraging IBM technologies and services. The center will provide access to IBM experts and external advisers, such as former government officials, as well as host workshops around topics such as zero-trust frameworks and cloud security. Clients will also have access to the IBM Research labs to collaborate on encryption solutions. ​

In October IBM opened a new IBM Garage location in Huntsville, Ala., a location designed specifically to support the federal government’s digital transformation and modernization. IBM is enhancing its value proposition by offering government-grade cloud environments, cleared local resources trained on IBM Garage principles and methodology, and thought leaders that will provide services in a hybrid model. In a similar move, Accenture Federal Services opened an innovation space at the University of Alabama in Huntsville’s Invention to Innovation Center in June. Such activities indicate a potential war for talent, especially for industry and technology experts skilled at working with public sector clients.​

A partnership with Raytheon, formed in October, expands IBM’s reach in the aerospace, defense and intelligence, and federal government sectors. IBM and Raytheon will jointly develop AI, cryptographic and quantum solutions. Raytheon is one of several federal aerospace and defense (A&D) contractors teaming with IBM Services to launch MARQTS (Marketplace for Advanced, Rapid, Quantifiably-assured, Trusted Semiconductors), a hybrid cloud-based and blockchain-enabled forum to support the secure development of microelectronics for the commercial industry and the DOD. IBM joins A&D and commercial IT companies Boeing, Cadence, Colvin Run Networks, Intrinsix, Lockheed Martin, Marvell Government Solutions, Nimbis Services Inc., Northrop Grumman and PDF Solutions. MARQTS will be available to the U.S. defense sector by 2023. IBM will use a proprietary cloud platform developed to enable secure collaboration for the group, while the platform will reside on an IBM blockchain to enhance security. IBM expects to roll out MARQTS across the DOD by 2023.

According to TBR’s 2Q21 Public Sector IT Services Benchmark, “The appetite for digital modernization by agencies of the U.S. federal government remains strong, as evidenced not only by record revenue and backlog levels reported by many federal technology contractors in 2Q21 but also by the robust level and velocity of proposal submissions tendered by federal IT vendors. Commercial technology adoption is red hot in federal IT, particularly around cloud computing, where TBR observed a significant uptick in efforts by multiple contractors during 2Q21 to shore up collaborations with the leading commercial cloud leaders.”

Senior Analyst John Caucis, who leads TBR’s Public Sector IT Services research, notes, “The federal civilian sector has recovered vigorously from the COVID-19 trough a year ago, thanks to civilian agencies’ ongoing drive to digitize their IT infrastructures. Cyber budgets are also growing, reflecting federal agencies’ strong will to secure their data and IT systems from the ever-growing barrage of cyber threats. AI is increasingly permeating security, intelligence gathering and analysis, the burgeoning space sector, and citizen services, cementing AI as a critical technology to drive mission success and driving AI leaders like Booz Allen Hamilton to accelerate the time to market of new AI technologies.”

The content above draws heavily from TBR’s most recent quarterly analysis of IBM’s services business. Contact the author at [email protected] for additional insight and information. 

Unprecedented change doomed JEDI

The ongoing JEDI controversy comes to an end

Since the process began in 2017, it was widely speculated that the approach used with the Joint Enterprise Defense Infrastructure (JEDI) contract was too large and diverse to be fulfilled by a single vendor. The unprecedented global disruption brought on by COVID-19 during 2020 and 2021 quickly confirmed those suspicions. The shift to remote work, disruptions in global IT supply chains, and accelerated interest in cloud-delivered IT services only added to the rapid pace of change in the cloud market from 2017 to present day.

Two weeks ago the Pentagon officially announced its decision to cancel the $10 billion JEDI contract with Microsoft (Nasdaq: MSFT), with the Pentagon stating, “With the shifting technology environment, it has become clear that the JEDI cloud contract, which has long been delayed, no longer meets the requirements to fill the Department of Defense’s (DOD) capability gaps.” Since Microsoft won the JEDI contract in October 2019, the contract has been mired in controversy, with Amazon Web Services (AWS) (Nasdaq: AMZN) filing numerous protests and legal challenges on the award starting in November 2019.

While politically charged rumors continue to circulate around the initial JEDI contract award to Microsoft, TBR believes the DOD’s decision to cancel the contract goes beyond these assertions and was driven by the realities of a maturing cloud market, which is becoming increasingly hybrid. And, when combined with the fact that the JEDI requirements were constructed almost two years ago, the needs of the highly complex, inter-related federal agencies demanding cloud technologies necessitates a hybrid IT and cloud approach. In summary, the DOD’s updated contract approach will provide the individual agency stakeholders with the flexibility to select cloud services and solutions based on the existing capabilities and strengths of all the leading technology providers vying for the opportunity.

Understanding the evolving JEDI controversy

Microsoft won the JEDI contract in October 2019 and prevailed against a subsequent lawsuit by AWS in 2020 that prompted the DOD to review its source selection process. The award has been mired in a legal battle between AWS and Microsoft and two years after the initial award, there was seemingly no end in sight. The DOD intimated in January 2021 that its patience with the unending court battles was running out as its need for a cloud platform was “urgent” according to acting DOD CIO John Sherman. The protracted litigation was likely a factor in JEDI’s termination and industry observers speculated the next phase of legal wrangling would examine claims of inappropriate political influence over the vendor selection process, potentially dragging the case out even further.

In the cancellation announcement the DOD stated that the original JEDI concept no longer met the DOD’s needs due to “evolving requirements, increased cloud conversancy, and industry advances,” implying JEDI had lost relevance from both technical and procurement standpoints. The contract aimed to be the foundation of a general-purpose enterprise cloud for the DOD, while the agency’s other major cloud vehicles, milCloud 2.0 and Defense Enterprise Office Solutions (DEOS), would provide for the DOD’s fit-for-purpose cloud needs. Even as the JEDI contract languished in legal purgatory, milCloud 2.0 moved forward and is now available. DEOS is right on its heels.

Not only did the DOD’s cloud needs evolve, but the termination of JEDI strongly suggests the DOD wants maximum flexibility to choose the vendor providing the most mission-appropriate cloud services on an agency-by-agency basis, while concurrently avoiding the risk of over-reliance on a single contractor for the entire agencywide cloud platform.

JEDI will be replaced by the multicloud, multivendor, and likely multibillion-dollar Joint Warfighter Cloud Capability (JWCC) IDIQ (indefinite delivery/indefinite quantity) program. JEDI was to underpin the DOD’s Joint All-Domain Command and Control (JADC2) initiative to connect systems across all military branches in a single, unified network, as well as the DOD’s Artificial Intelligence and Data Acceleration (ADA) program. The absence of a DOD-wide, purpose-built enterprise cloud solution would eventually hamper the JADC2 initiative, even as several DOD departments had recently kicked off their own cloud programs while JEDI remained stuck in court. JWCC will retain JEDI’s overarching objective to facilitate the adoption of digital solutions in AI, analytics, automation, big data, machine learning and storage across DOD C5ISR (command, control, communications, computers, cybersecurity, intelligence, surveillance, and reconnaissance) IT infrastructures.

The DOD will evaluate other cloud vendors, including Google (Nasdaq: GOOGL), IBM (NYSE: IBM) and Oracle (NYSE: ORCL), for future cloud procurements. However, AWS and Microsoft will remain the principal cloud competitors, at least at the outset, as the DOD stated that they were the only vendors able to meet DOD cloud requirements. AWS and Microsoft will receive RFPs by mid-October 2021 and notification of awards by April 2022. The DOD plans to have a more comprehensive multivendor cloud procurement vehicle in place by 2025, but for now, JWCC should address the DOD’s urgency to modernize its enterprise and tactical edge computing capabilities across all service branches.

Quick Quantum Quips: Public investment, national rivalries, business restructurings and process innovation heat up

Welcome to TBR’s monthly newsletter on the quantum computing market: Quick Quantum Quips (Q3). This market changes rapidly, and the hype can often distract from the realities of the actual technological developments. This newsletter keeps the community up to date on recent announcements while stripping away the hype around developments.

For more details, reach out to Geoff Woollacott or Jacob Fong to set up a time to chat.

June Developments:

June quantum computing market activities illustrate the growing public sector interest in quantum as both a source of high-paying jobs and a technology vital to a company’s strategic sovereign interests. Legacy technology innovation has always hinged on early funding for “protection of the commons” initiatives, where the funding was essentially for scientific discovery that, once hardened, could be retooled for commercial use cases. Quantum systems are no different in that regard.

Similarly, the Honeywell spin-merger with CQC also enables the new entity to participate in several national initiatives around cybersecurity and national defense by combining U.S. and U.K. firms into one operating unit. Scientific discovery and manufacturing process innovation also merited mention this month as Rigetti announced a chip manufacturing process that it claims will facilitate the manufacture of highly scalable systems of hundreds, if not thousands, of qubits.  

  1. Federated Quantum System (FQS) announced during the G-7 summit that the U.S., U.K., Japan, Canada, Italy, Belgium and Austria will collaborate on a on a satellite-based quantum technology encryption network based on assets being developed by British startup Arqit. Companies from those countries will also join the initiative to help design and test the system. With ransomware attacks bringing cybersecurity to the forefront of the news, this multinational encryption initiative for military communications between allied nations represents encouraging signs for international cooperation that can potentially produce the funding necessary to advance quantum to a point where it is commercially advantageous.
  2. Germany formally announced its quantum data center facility, to be located near Stuttgart and  managed by prominent applied research organization Fraunhofer-Gesellschaft. The event underscores the strategic importance many nation states place on ensuring a center of gravity within the quantum world within their sovereign borders. German Chancellor Angela Merkel is a unique political figure in that her formal education is in quantum chemistry. While keeping a watchful eye on quantum developments in the U.S. and China and wanting to maintain and build quantum intellectual property indigenous to Germany, the quantum system is being installed by IBM, which maintains a dominant early lead in the nascent industry. The European Union (EU) has taken a leadership position in establishing policy legislation around data sovereignty. Integral to this installation will be the localization of the data within Germany.
  3. The EU loosened restrictions it had imposed on non-EU nations participating in its quantum research initiatives. Launched in February under the legislative banner Horizon Europe, which calls for funding of 95.5 billion euros in total, the initiative calls for curiosity-driven proposals from the European Research Council. Viewed as strategically important to the overall security of the EU, a month-long parliamentary debate occurred on whether to allow non-EU nations such as the U.K., Switzerland and Israel to participate. The final compromise allows for limited participation by non-EU nations provided they agree to special “assurances” regarding protecting the confidentiality of the technology. This agreement and the wrangling over who can participate underscores the growing political interest in a technology that, once hardened, will radically alter cybersecurity and military weapons systems.
  4. Honeywell and Cambridge Quantum Computing (CQC) announced a spin-merger combining Honeywell’s quantum assets with those of CQC. An early investor in the ion trap hardware stack, Honeywell will retain a majority stake in the combined entity, which will include CQC’s software stack as well. CQC will remain system-agnostic. Honeywell claims the impetus for creating a stand-alone quantum entity was to facilitate investment from various capital sources that may have been reticent to invest in the operation when it was a wholly owned Honeywell subsidiary. Each entity has been an early leader in the space. In addition to increasing funding opportunities, the combined entity also aims to create a consolidated talent pool of quantum experts at a time when human talent capable of scientific discovery in this domain is in short supply.
  5. Rigetti Computing held an early lead in full-stack quantum development but has struggled lately to keep pace with the investment funding necessary to compete with heavily capitalized firms such as IBM, Google and Microsoft. In June Rigetti announced it had developed a scalable manufacturing design process for quantum chips manufacturing in its fabrication plant in California. Rigetti claims it has a multichip approach that will allow the company to connect multiple identical dies into a large-scale quantum processor. Rigetti alleges connecting multiple smaller dies reduces manufacturing complexity and allows for accelerated, predictable scaling.  

If you would like more detailed information about the quantum computing market, please inquire about TBR’s Quantum Computing Market Landscape, a semiannual deep dive into the quantum computing market. Our next edition, publishing in July, will focus on evolving services and overall market maturation indicators.

Is it time for the Big Four referees to educate the public sector on the benefits of rules changes?

In TBR’s newest blog series, What Do You Think?, we’re sharing questions our subject-matter experts have been asking each other lately, as well as posing the question to our readers. If you’d like to discuss this edition’s topic further, contact Geoff Woollacott at [email protected].

Adoption accelerated as innovation stalled

Last year’s pandemic-induced changes across the technology space and society overall led TBR to consider how the pandemic accelerated existing technology adoption trends. From an emerging technology perspective, we increasingly believe private sector adoption will remain stalled until public sector actors with scale and influence rethink operating practices and enact and enforce regulatory governance. Several years ago, our “wallet versus will” special report argued that the public sector used to lead in technology adoption when funding was the decisive factor but lagged in technology adoption when consensus on common business rules proved elusive. Add in a pandemic, and we’re questioning whether private sector innovation has hit a roadblock that will be resolved only when there is greater public-private partnership and, more importantly, an ability for our political leaders to come to some consensus. Consider the following:

  • Our latest research around blockchain suggests a current period of disillusionment. Reaching the scale technologically feasible to generate business returns requires better automation and regulatory agility or the networks won’t achieve scale through broader ecosystem participation.
  • Globally, poor international cooperation related to the sharing of information and the movement of people between countries contributed to the spread of COVID-19. Imagine a blockchain-enabled universal product code (UPC) on a smartphone functioning as an international system of record regarding vaccination history.  

Early in the pandemic, supply chain disruptions made headlines and every consumer felt the impacts. Blockchain-enabled smart supply chains, tied into ports and international transactions, could have smoothed out some of these disruptions if the distributed ledger technology had been broadly embraced by countries and their import/export hubs. The Republic of Venice once ruled commerce, reaching the pinnacle of its power from 1425 to 1500. It’s no coincidence that general ledger accounting was invented in Italy during that same period.

Moving from city-states to countries, nations fundamentally seek to protect their citizens through sovereign laws, with many regulations revolving around property, currencies and finances. Cryptocurrency purportedly separates currency from nations. In one potential scenario, China’s newly launched digital yuan topples the U.S. dollar as the de facto international currency trading standard, greatly reducing the impact of economic sanctions from the U.S. foreign policy tool set. Venice’s grip on the Mediterranean loosened for many reasons and while blockchain wasn’t among them — needing another 500 years to be invented — the parallels to the U.S. can be unsettling.

Private sector initiative proved emerging tech-enabled practices are essential; now comes public sector education

Out of necessity, the private sector accelerated emerging technology-enabled use cases to address the pandemic’s impact. This highlighted gaps in how the public sector operates and responds to significant changes in the commercial space. For newly enhanced technological tools to deliver tangible business and social benefit after these proofs of concept, government must accommodate new ways of working while still providing expected regulatory benefits to its citizens against moral hazards. Not surprisingly, advisory firms with the tax and audit knowledge essentially acted as referees within the free-market systems that frantically developed the workarounds to sustain business operations in 2020, exposing the ways in which the public sector decreases, rather than increases, the efficiency and viability of emerging technology-enabled operations.  

So, what do you think? Is it time for the Big Four referees to educate the public sector on the benefits of rules changes?

Globally diversified government IT vendors buffered pandemic-related turbulence overseas with growth in U.S. federal sector

Overall government IT spending will take a significant hit from COVID-19; growth opportunities will eventually arise but on a longer-term horizon

Public sector market growth drivers

State and local governments in the U.S. as well as civilian agencies of international governments saw significant disruption to tax revenues and their ability to provide even basic levels of citizen-facing services as a result of the pandemic. Employment services agencies, for example, were suddenly forced to operate at sharply lower levels, if at all, while experiencing surges in new jobless claims. As a result, ongoing IT programs were put on hiatus while moratoriums on new technology initiatives were implemented. Conversely, spending on defense, intelligence and national security initiatives by foreign governments, even with temporary stoppages in delivery, was less affected by COVID-19, though essentially profiting only defense contractors like Raytheon Technologies, Northrop Grumman and others that have long-standing relationships with international defense agencies.

2Q20 Public Sector Revenue, Profitability and YTY Revenue Growth

TBR’s Public Sector IT Services Benchmark compares and contrasts covered vendors’ go-to-market models, recent investments and key deal wins. The benchmark also reviews numerous key financial performance metrics and highlights vendors that have been particularly successful in expanding market share and improving profitability.