The U.S. economy may be in the doldrums, but the federal government keeps plugging away, signing contracts and purchasing assets and services from private companies.

While McKenna Long & Aldridge partner Jeremy Silverman wouldn’t say the federal government is water-tight safe from the recession, he did offer that federal government contractors seem to be immune from the current economic downturn. Moreover, Washington is increasingly privatizing many of its functions, creating a boon for government contractors.

“There has been a huge increase in federal spending with private firms over the last decade,” said Silverman, an M&A partner in Atlanta.

Federal spending on government contracts increased from $209 billion in 2000 to $430 billion in 2007, according to USAspending.gov.

The steady stream of business generated by federal contracts has caught the eye of investors. One such deal involved i2S Inc., a Columbia, Md.-based company that provides information-technology services to federal agencies like the Defense Intelligence Agency and the National Reconnaissance Office, as well as private government contractors like Northrop Grumman.

In the transaction, the management of i2S acquired control of the company from the Grosvenor Funds of Washington. Silverman and other McKenna Long attorneys advised i2S on the deal.

I2S management obtained financing for the deal from Royal Bank of Scotland’s Citizens Bank and Parkway Capital Investors LLC of Towson, Md. Aronson Capital Partners LLC was investment advisor to i2S. McKenna Long picked up i2S as a client through contacts with Rockville, Md.-based Aronson Capital, with whom it had previously shared several clients in common in which McKenna Long was the legal advisor and Aronson Capital was the financial advisor, Silverman said. Aronson Capital specializes in advising government contractors.

McKenna Long also specializes in government contracts, counting Lockheed Martin, Boeing and Honeywell among its clients in that area. The law firm boasts one of the largest such practice groups in the U.S. Combining the government contracts group of McKenna & Cuneo and the traditional corporate practice group of Long Aldridge & Norman was one of the primary reasons the Washington and Atlanta law firms decided to merge in May 2002, Silverman said.

Government contracting isn’t limited to building warships and fighter planes. Hundreds of companies provide all kinds of products and services to federal agencies. McKenna Long has handled transactions for contracts with the U.S. Departments of Defense , Education, Labor and others.

There are countless details involved with performing due diligence on corporate matters related to government contracts, Silverman said. Many of those details, such as change-of-control provisions or set-asides for minority-owned or disabled veteran-owned businesses, are dictated by the rules of the Federal Acquisition Regulations System (FAR).

“Government contracts incorporate dozens, if not hundreds of FAR regulations,” Silverman said.

Although The Carlyle Group, one of the world’s largest private equity funds, has invested in government contractors for decades, most private-equity groups have shied away from the area, Silverman said. That’s changing, with private-equity funds that focus on middle-market companies turning an eye toward the District of Columbia.

“Initially these investors may have been scared off by the regulations surrounding government contractors,” Silverman said. “But what’s happened is that as other areas of the economy are really suffering, there are fewer places that look attractive, so they’re taking a harder look at this sector.

“[Government contracting] is an area that has performed at a steady and high level,” Silverman said.

McKenna Long partner Ann-Marie McGaughey and associates Kristen Beystehner and Monique Gonzalez worked with Silverman on the deal. Troutman Sanders partner Richard M. Pollak in Tysons Corner, Va. was counsel to RBS Citizens Bank. DLA Piper advised the Grosvenor Funds. Ober, Kaler, Grimes & Shriver was counsel to Parkway Capital.