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CGI contract bids caught up in Washington’s budget wrangling

Canada's biggest technology and outsourcing firm, CGI Group Inc., is among companies that do business with Washington and are feeling the sting from the political standoff over the U.S. debt ceiling.

"Ongoing discussions to resolve the debt issue have slowed down the procurement process. It's industry-wide. I suspect it's even beyond our industry," CGI chief executive officer Michael Roach said in an interview Tuesday.

Montreal-based CGI has some 150 outstanding bids or proposals with the U.S. federal government, valued at more than $1.5-billion (U.S.), that have been slowed in the procurement process because of the uncertainty about the budget wrangling in Washington, he said.

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Mr. Roach pointed out that the contracts will eventually be awarded. "This is a temporary situation and it's offset by the contracts at the state and local levels," he said.

For example, CGI recently won about $600-million (U.S.) worth of contracts from California and Alaska.

Alan Silberberg, an analyst with Constellation Research Group in Los Angeles, said the dispute pitting the White House against Congress over raising the Treasury's debt ceiling by the Aug. 2 deadline is playing havoc with government procurement decisions.

"The paralysis caused by this stalemate is forcing agencies and vendors to put projects on hold because they are unable to make decisions on various projects. They can't put numbers on them, they can't plan," he said.

Government agencies and services may have to implement cost-cutting measures as a result of the fallout from the U.S. government's financing dilemma, he said.

CGI spokesman Lorne Gorber said the company derives about 25 per cent of its revenue from U.S. government contracts.

Last year's acquisition of mid-size U.S. computer services firm Stanley Inc. raised CGI's exposure to U.S. federal government and defence IT business.

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CGI posted third-quarter profit of $118.4-million (Canadian) or 43 cents per share, a 37.9-per-cent increase over a profit of $85.9-million, or 30 cents, in the year-earlier period. Earnings per share of 43 cents came in above An analysts' consensus estimate of share of 39 cents.

Revenue in the third quarter climbed 15.1 per cent to $1.04-billion.

But Q3 revenue fell below analysts' consensus estimate of $1.12-billion, partly because of the high value of the Canadian dollar against the U.S. greenback.

Desjardins Securities analyst Maher Yaghi said in a note to clients that, "even after adjusting for headwinds from negative foreign exchange, revenue was weaker than expected by $100-million."

He attributed the shortfall to U.S. federal government delays in project startups, and in Canada to lower work volumes and project delays as well as the expiration of a contract.

Mr. Roach said the high Canadian dollar. coupled with CGI's relatively strong stock-market valuation, are positive elements that help the company in its continued search for suitable acquisition targets south of the border.

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"We think the environment to grow the business by acquisitions is very interesting right now," he said.

Future growth areas for CGI include cyber security as both governments and the private sector seek improved protection for their computer and telecommunications systems, and health care in the context of an aging population, Mr. Roach said.

Among the services CGI offers are technology integration, consulting and outsourcing. Its five key sectors are government, financial services, telecoms, manufacturing and retail distribution.

It has a total of about 31,000 employees in Canada, the United States, Europe and the Asia-Pacific region.

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