Please ensure Javascript is enabled for purposes of website accessibility

Cerner Corp.’s Defense Department Contract Sets It Apart From the Competition

By Motley Fool Staff - Feb 19, 2016 at 10:01AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A look at how huge (and necessary) the Department of Defense's health records modernization deal was, and how that $9 billion contract is central to the Cerner investing thesis.

After the Veterans Administration made headlines a few years ago when one of its buildings nearly collapsed under the weight of too many paper benefits claims files, the Department of Defense sent out a request for proposals to modernize its health records system. That meant upgrading a mammoth system with aging infrastructure, and for the winning bidder, it would be a very big deal.

In this Industry Focus: Tech clip, Motley Fool analysts Sean O'Reilly and Kristine Harjes talk about just how gargantuan the deal was, and what winning it will probably mean for lead contractor Cerner (CERN) in the future.

A full transcript follows the video.

This podcast was recorded on Feb. 12, 2016. 

Sean O'Reilly: So, I understand that both of these companies, and a lot of these guys, they have big business not only with private hospital chains, but also the federal government and the Department of Defense and stuff.

Kristine Harjes: Yeah, the Department of Defense contract, that's a really interesting story. So, this was ...

O'Reilly: Not a small customer, obviously.

Harjes: Yeah (laughs). On the heels of a 2012 story where the VA made headlines ...

O'Reilly: Oh my gosh, that!

Harjes: Do you remember that?

O'Reilly: Yeah!

Harjes: So, for those who aren't familiar with the story: Basically, the Veteran's Benefits Administration office building in North Carolina nearly collapsed under the weight of all of its paper files.

O'Reilly: They still had computers from the 1980s or something. (laughs) 

Harjes: Yeah! According to these reports, one floor had totally overflowed, and you had stacks and stacks of paper going up to the cabinets, and falling out of boxes--

O'Reilly: You're talking about physical files!

Harjes: Yeah, yeah!

O'Reilly: Oh my gosh!

Harjes: You have actual paper files! And there was such a backlog, just, for people waiting to get more information, and they just weren't online at all. So, the floor almost collapsed.

O'Reilly: Wow!

Harjes: So, the Department of Defense decides, "OK ... "

O'Reilly: "Maybe we should use computers!" (laughs) 

Harjes: "Maybe we should modernize a little bit." So, there was a huge battle between a bunch of companies that are in this space, and it ultimately ended up being that Cerner, a combination of Cerner and Leidos and Accenture, they beat out a partnership between Epic and IBM, and they also beat out a couple of others competitors to win this $11 billion contract. Interestingly, it was originally anticipated to be $11 billion, but was whittled down to $9 billion, which is the effect of competition. But, going forward, these things, they don't get cheaper. These contracts only expand. So, this is a huge deal.

O'Reilly: Right, and once you're in on the federal government, you're in. (laughs) 

Harjes: Yeah, this is definitely a long term partnership.

Kristine Harjes has no position in any stocks mentioned. Sean O'Reilly has no position in any stocks mentioned. The Motley Fool recommends Accenture and Cerner. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Cerner Corporation Stock Quote
Cerner Corporation

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.