By Michael Bradwell

Business editor

mbradwell@observer-reporter.com

BENTLEYVILLE - In the world of defense contract procurement, Walt Kitonis' Progeny Systems could be seen as an anomaly, a cost-cutter in providing elaborate, high-tech weapons systems to the military.

It could also be said that Progeny is developing a reputation for disrupting the status quo in the defense industry.

Kitonis, 47, is an engineer who founded Progeny in 1995 after more than a decade of working in some of the country's largest engineering companies, including a stint as a manager in IBM's military electronics division.

According to Kitonis, what separates Progeny, headquartered in Manassas, Va., from other defense contractors is that it doesn't build its systems from scratch. Instead, it often purchases "off-the-shelf" hardware and software systems that are modified to do the job. The company also uses Linux open-source software, which is free to users.

The approach, which Kitonis refers to as "disruptive technology," has helped Progeny gain share in the contract procurement business dominated by large defense contractors.

Some of the classic examples of disruptive technology include digital photography's replacement of photographic film and mobile telephones' predominance over wireline units. Kitonis points to Progeny's use of commercial technologies to build military systems as a displacement of legacy military systems that are based on full military standard hardware and software.

Privately-held Progeny now has about 400 employees working in 14 facilities around the country, including its operations in the Alta Vista business park near Bentleyville, where 65 are employed, up from 30 people a year ago.

The company expects revenue to hit $80 million this year, drawn from seven different business areas, including submarine systems, unmanned underwater vehicle systems, surveillance systems and torpedoes.

While Kitonis and his staff continue to take their unorthodox approach, he acknowledged that he also has to depend upon finding what he calls "some brave souls" in the military or in Congress who are willing to "break the cycle" of traditional military procurement strategies.

"The government plans three to five years in advance what it's going to buy," he said. In the case of military spending, he said, the contract procurement system is based on establishing how much a ship, submarine or fighter jet system will cost, then building in a percentage of profit for the item.

Kitonis said a large government contractor bidding on something like a laser missile system will design and manufacture all of the components for the system in-house, a more costly proposition than outsourcing some of the more commonplace electronic components or modifying existing systems to achieve a cheaper alternative.

Once he finds someone willing to break the cycle of traditional procurement, Kitonis said, he has to challenge the incumbent manufacturer on the production side of the project. He estimates that Progeny's cost-saving measures have helped to save its customers about $1.6 billion over traditional methods since it started tracking costs in the late 1990s.

While acknowledging that that Progeny's profit on a project is substantially lower, Kitonis said its strategy is paying off with greater long-term stability. The focus on systems integration and use of commercial components and industry standards also has enabled the company to develop a common processing core for sensor and weapon systems in subs, fighters and ships, he said, giving it access to more projects.

"We don't have big-time revenues, so we're more motivated to say we can do this."

But keeping the project pipeline full while competing with the giants of the defense industry requires an insider's knowledge of Washington's power centers, something Kitonis learned well when he worked for IBM.

"You have to know how to navigate through the halls of Congress and the Pentagon," Kitonis said. "We talk to the war fighters at the Pentagon and the acquisition people. You have to find a congressman willing to listen to your ideas."

He said one of those who has listened is Congressman John P. Murtha, D-Johnstown, who heads the Defense Appropriations Subcommittee. Kitonis said Murtha provides funds through the Small Business Innovative Research program that enables smaller contractors to design prototypes of competitive military defense systems.

He added that Murtha helped him bring a Progeny operation to the Mon Valley, first in Charleroi, and then to Alta Vista. Today, the Alta Vista site is the second-largest among Progeny's work sites, and is getting ready to expand again.

John LaCarte of Charleroi, who owns the Alta Vista office building, will soon add another 20,000 square feet to the 30,000-square-foot building in response to Progeny's need to expand its machine shop, testing and production areas and give permanent office space to its engineering staff, which is temporarily housed in what was intended for a shipping area.

Kitonis said the company is currently in the design phase for a torpedo system that, if successful, could mean another major expansion at Alta Vista.

"We could add another 100 people making just torpedo systems within the next two years," Kitonis said.

Like practically everyone else in business, Kitonis said one of the biggest challenges is "finding good people" to do Progeny's work.

"We need engineers," he said. "Engineers are what drives the next big thing."

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