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Nick Wakeman

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?

Posted by Nick Wakeman on Aug 10, 2010 at 7:23 PM


Reader Comments

Mon, Aug 16, 2010 Gorgonzola

@August 16 Contractor: oh, yes, the work WILL go away. It did not exist before, and is ridiculous now. Again, if the services have learned jointness, all this JFCOM activity is not needed. Ask senior warfighters, who will tell you it slows things down. And, Gates can move to close the command; why the hell not? Sure, Congress will try to bludgeon him, but he ain't gonna change his mind. He wants to spend the money saved on things more important. Get used to Defense spending not being a blank check or some kind of entitlement. The people who feel threatened by this are contractors, who, yes, feel entitled to this trough, and certain DoD civilians. The military personnel don't care all that much, except if the job is relatively cushy for them.

Mon, Aug 16, 2010

Gorgonzola: Not a jobs program at all. I'm saying the work will not go away, so the savings isn't real. On top of that, I'm also saying that by eliminating jobs with one hand, and then trying to create work to create jobs on the other, doesn't make sense. And, that by closing a base and causing further job losses, more mortgage bailout will ultimately be required - there is a ripple effect. On top of all of that, how can Gates unilaterally decide to close a base, and not consider the total economic impact? And the real problem in all of this is the fact that the factors used to come to the conclusion to close the base are not available! Where is a completed mission analysis? Where is a tradeoff study? Where is ANY DATA used to come to this decision? This appears to be a FIRE-Ready-Aim decision. Let's make a decision based upon opinion (no facts), and then create the facts to support it. Prove that wrong by showing the readers the data existed before the decision was made.

Sat, Aug 14, 2010

Oh, who are you kidding....my hubby is an aviation contractor. As unhappy as I am to say it, The war provides him a job. We're overseas, because it was have our home foreclosed on, or take this job. As glamorous as you think it must be...I will tell you it is hard work. Not much English spoken here, and it can be very isolating. Also, I can't drive, so I walk on the average 5 to 8 miles a day carrying groceries each day...10 to 15 lbs. I miss my car!!! I have furnished my home with things I picked from my neighbor's trash.or bought used..money is tight. The stress level is very high with the contractor's lifestyle and contractors are treated like dirt here! If the powers that be want to keep a war, they're going to have staff aviation contractors. The younger guys in the military....you are all wonderful for your sacrifice, but you just don't have experience these guys have. They have 25 years of experience under their belts. Please take a moment to consider the hard work they put in working 60 hour weeks, being treated like dirt...all the while trying to keep military men and women safe in these helicopters.

Thu, Aug 12, 2010 Gorgonzola

@Hampton Roads speaks as if defense contracting were primarily a jobs program. Furthermore, he wants to keep on spending on JFCOM because to close it means more home foreclosure. So, now defense spending is also a housing program. He needs to get real and absorb Secretary Gates's point about where money needs to be spent most of all. We have to believe that Gates, who is certainly a top expert in national security, must be confident that JFCOM is not a good bang for the buck, relatively speaking. By this time, the services have learned Jointness and don't need 6000 feds, mil, and contractors to grind away at a whole lot of research and coordination. Let Gates direct the money to more worthy programs and activities, which will require contracts, BTW And please, no assertions that people will die because JFCOM is closed down. Maybe he can nip a few flag and SES positions in the process, too.

Thu, Aug 12, 2010 Hampton Roads

Absolutely it will adversely affect our small business. And how does this make any sense? Let's close JFCOM, which employs almost 6,000 people, and ultimately impacts about 10,000 according to a study by Old Dominion University. At the same time, they want to move an aircraft carrier to Mayport Florida at a cost of about a billion dollars, without being able to really prove the benefit. And on top of that, let's bail out Freddie Mac another $2b or so. What's going to happen to the some of the homes of people adversely impacted by closing JFCOM? Some will go into foreclosure, and again, more money required to bailout Freddie Mac! This is ridiculous. In addition, a good portion of the work done at JFCOM will not go away - it will have to be done somewhere, so where is the real savings? Is it bogus? As a taxpayer, I'm pissed! As a small business owner, I've lost faith in our Government and our elected leaders.

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