A contract dispute with the state of Florida may cost Motorola Solutions (MSI) the largest land-mobile-radio (LMR) deal currently up for grabs in North America.
In the 1980s, as law enforcement and first responders began to upgrade their radios from analog to digital, it quickly became apparent that differing digital standards would make communication between Public Safety departments difficult.
In a push to coordinate Public Safety activities in responding to disasters, the Federal Communications Commission (FCC) performed a study of the issue, which in 1989 led to the introduction of the Project 25, or P25. P25 put forth a set of standards to be used for digital LMR production used by local, state, and national public safety organizations and agencies.
P25 ensures law enforcement and first responders from different organizations can communicate via voice, text and data transfer between devices.
The state of Florida Department of Management Services (DMS) is seeking to build a statewide P25 network, to replace the current Statewide Law Enforcement Radio System (SLERS) which was built and maintained by L3Harris Technologies (LHX).
Both L3Harris and Motorola Solutions bid on the upgrade contract, with Motorola’s bid coming in at $300 million less than the L3Harris bid. Motorola feels it can complete the upgrade for $687.8 million, with a completion date of June 2021.
But, in recent weeks the contract negotiations have hit a snag, as DMS is arguing for a clause in the multi-million dollar contract that will allow the state to walk away from the contract at any time with little or no warning, and with no default compensation to the P25 provider.
This “termination for convenience” clause is a major risk for Motorola Solutions, or any other P25 contract provider, and has resulted in Motorola missing a DMS imposed December 31, 2019 deadline for contract signing.
The state has said that if that December 31 deadline came and passed, and its negotiations with Motorola were not complete, it would seek other options for the contract.
It is unclear if Florida DMS will be willing to reopen the bidding process, or delay the contract and continue negotiations with Motorola at this point. Execution of the contract could give a major boost to Motorola’s earnings forecast, but would have to take into consideration the risk that the state could at any time arbitrarily discontinue the work.
Such a move would negatively impact MSI’s stock price, and would likely discourage the company from entering into a similar P25 contract with such terms in the future.
Steven Adams’s personal position in Motorola Solutions: none.
This guide will get you placing winning trades without you needing to spend hundreds of hours studying.
In fact, you can place your first trade today after reading my "Beginner's Guide" to trading options.