DoD contracting cuts less painful than expected

In a meeting with members of Congress and industry association leaders this week, DoD officials said proposed cuts to Defense contracting will only impact a sma...

By originally thought they would be. The clarification came this week during an hour-long meeting between William Lynn, the Deputy Defense Secretary, members of the Virginia Congressional delegation and representatives of the government contracting industry. Rep. Gerry Connolly (D-Va.) said the meeting participants were told that the 10 percent cuts announced by Defense Secretary Robert Gates in August will come out of a much smaller piece of the overall DoD contracting pie than was originally feared.

“The total universe they’re looking at (for cuts) is administrative support contracting, which totals about $4.3 billion a year versus $143 billion a year, of which 10 percent will be brought back into the Pentagon,” Connolly said in an interview. “So we’re talking about a total risk here involving a value of about $400-to-$430 million a year.”

In August, Gates announced cuts to Pentagon spending focused on support services contracts by 10 percent per year through 2013, but provided few details.

The lack of information led to speculation that up to $14.3 billion would be sliced away from DoD’s contracting budget. An independent report compiled earlier this year by Deltek Consulting estimated that cuts on that scale could mean 10,000 lost jobs in Virginia each year for the next three years.

Virginia would have borne a disproportionate share of the cuts as they were originally contemplated by DoD.

Deltek found the value of contract work performed in Virginia totaled $10.8 billion in fiscal 2009. California was a distant second, at $3.8 billion.

Industry association leaders said while the cuts will have impacts on their companies, the meeting with Defense officials provided valuable guidance on what’s ahead.

“We now have a better understanding of what their goal is, and it’s somewhat of a relief that it’s not going to be quite as draconian as we thought it was,” said Bobbie Kilberg, president of the Northern Virginia Technology Council. Kilberg said Lynn explained exactly which types of service contracts DoD would target to cut.

“We very much appreciated the meeting,” she said. “What they said are examples (of contracts subject to cuts) are those that provide support as staff augmentation for government employees-people who are subject to the direction of a government official or function as a staff action officer. Examples that they gave us were folks who come into a headquarters building each day and have a desk, a phone number or a computer account, and contractors who perform duties such as preparing memorandum and preparing routine briefings.” Kilberg said DoD would take specific job functions off the chopping block-among them, those who provide IT support and technical assistance for weapons systems.

Stan Soloway, president of the Professional Services Council and a former senior Pentagon official who worked on procurement policy, said it was understandable that it took a several months for DoD to develop hard numbers and communicate them to vendors.

“I think this is a case where the Secretary of Defense put a tough marker out there and then the team had to at that point do the analysis, do a deep dive into the system to figure out exactly how best to achieve what the secretary was really talking about. I think that was the process,” he said.

Now that that process has been largely worked through, Soloway said it’s enormously helpful to the industry to understand what’s behind the Pentagon’s thinking as it prepares to go set about the task of actually making the contract cuts.

“What the deputy secretary continually referred to as staff augmentation kinds of roles-they see that as relatively equivalent to freezes and potential reductions that will take place in the civil service,” Soloway said. “Understanding that is critically important because we all recognize austerity is coming and we all want to make sure we do our responsible part to find efficiencies and eliminate waste. We’re in a tough fiscal situation, but some degree of predictability and clarity is important to that process.”

Although the industry now has some of that clarity, there are lingering concerns about how DoD will go about implementing the cuts. Connelly said he remains concerned that the department will view small, veteran and minority-owned businesses as “low hanging fruit.” “Many of those businesses are sort of one-mission businesses,” Connelly said. “They provide one big service. If that one service is eliminated as a contract by the Pentagon, that small business goes out of business.”

Kilberg said she believes DoD as a matter of policy wants to protect those small businesses. She said the trick would be to ensure that deckplate-level contract administrators adhere to that policy.

“We need to be sure that there’s not a disconnect-which we think there is, by the way-between what your senior officials at the Department of Defense state that they want to do and intend to do and want to do, versus what actually happens down in the field,” she said. “We have gotten a number of reports from our member companies that they have already been told that their contract is going to be cut by 10 percent next year, and that the government expects the same level of service and the same deliverables. That makes it arbitrary. What we’re looking for is a seat at the table and a conversation and collaboration.”

Kilberg said this week’s meeting was a huge step in that direction, and she anticipates more sessions as DoD implements the cuts. “We need to know if the system’s working the way it should be working,” she said. “We understand that the Defense Department has a right to make cuts. Our point is that the cuts should not be draconian, those cuts should not be arbitrary, and those cuts ought to be based on data and good analytics. ”

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