Will the defense cuts hurt your business?

When Defense Secretary Robert Gates unveiled more details Monday on his planned cuts to his department's budget, it didn’t take us long to begin chasing the reaction story.

But calls to the biggest defense players around have been met with stony silence.

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If you are a government contractor, you probably won’t gain much by complaining in the media – you’ll look greedy. If you heap praise, you’ll look like you are a suck-up.

Industry associations and a few others have released statements, but from the companies themselves, silence seems to be the watchword. But that doesn’t mean there isn’t plenty to talk about.

One of the first questions is whether the cuts will go through. In the current economic and budget environment, I think that there is little doubt that cuts will be made in some form. They might get shifted from place to place, but the $100 billion number is probably a good one.

Also, the cuts to contractors will likely survive the political wrangling. Contractor is a dirty word in many places. As one veteran executive told me recently, the reputation and relationship of contractors and government has never been worse. 

It is interesting that Gates has shifted gears from the number of contractor jobs to the amount of money spent on contractors. But in reading one of his quotes, I still see an anti-contractor bias:

“The problem with contractors is, and what we’ve learned over the past year, is you really don’t get at contractors by cutting people, because you give the contractor a certain amount of money and they go hire however many people they think they need to perform that contract. So the only way, we’ve decided, that you get at the contractor base is to cut the dollars.”

The part I’m left scratching my head about is why is that a problem? If you give a contractor, $100 million to do a job, what difference does it make if the contractor hires 1,000 or 5,000 people to do it? It still costs the government $100 million.

The question in my mind is: Will the shift toward cost and away from head count push the Defense Department to think more strategically about how and when it uses contractors?

For industry’s sake, I hope so and not because I believe that strategic thinking will save contractor jobs. It very well could mean fewer contractors jobs. But If DOD officials were to clearly articulate how they will make the cuts, why they will make them and, this is critical, evenly apply the policy across the department, contractors will benefit because they’ll have some predictability on how the marketplace will function.

With predictability comes the confidence to know where to invest and how much -- whom to hire and whom not to hire. Without it, a company is easily frozen in place.

I know I’m just scratching the surface on this topic, but I want to hear from you. Some questions I’d like answered are:

• How will this affect your business?
• How will this impact the marketplace and competition?
• What kind of services business are likely to face the toughest time with these cuts?
• Who do you think will benefit?