VA pushes relationship repair with industry suppliers
April 23, 2012 by cs
When Maurice Stewart arrived at the Veterans Affairs Department a few years ago, he joined a procurement office that was in extreme distress.
VA faced the prospect of running 20 percent over its budget for commodities and IT services in fiscal 2010 due to costly redundancies and other chronic dysfunctions.
The odds that procurement officials and industry leaders could join forces to tackle any of the problems seemed slim given the dwindling interaction — and trust — between the two sides.
The department’s contracting officers were notorious for not returning phone calls. Contracts routinely went out the door late. And vendors had no insight into a contract’s requirements until the official request for proposals hit the street, which limited their ability to propose alternative or more creative solutions.
All that chaos had a direct impact on the agency’s mission. “If we can’t put good requirements out on the street, we can’t serve the veteran,” said Stewart, VA’s associate deputy assistant secretary for logistics policy and supply chain management.
VA officials now believe they have begun to put those problems behind them, thanks to a three-year-old initiative that Stewart leads called the Supplier Relationship Transformation (SRT) program. It is based on the premise that, as Stewart said, “improving dialogue is essential to the health of government procurement.”
VA officials began by surveying vendors and holding industry forums around the country last year. Armed with the feedback they received — much of it brutally honest — they are now developing targeted, multipronged plans to address the biggest problems.
VA is hardly alone in this battle. Procurement offices across government struggle with strained relationships and poor communication with suppliers. Government procurement and industry executives say the problem, at least in part, is an unintended consequence of President Barack Obama’s efforts to tighten ethics rules in contracting.
The message that many procurement officials heard was that they could only stay out of trouble by playing it safe, and that meant avoiding contact with vendors unless absolutely necessary.
Now, officials are trying to reverse that trend through efforts such as VA’s SRT program, the General Services Administration’s supplier relationship management initiative and the Office of Federal Procurement Policy’s myth-busters campaign.
Getting feedback from industry and internal agency customers is an important first step. Translating that knowledge into policy and managerial guidance that can change attitudes and behaviors is a bit trickier, but it’s a challenge that officials say they must embrace.
No pain, no gain
VA procurement officials realized that if they wanted to improve, they would need to understand where they were falling short, and that meant listening to some harsh criticism.
SRT is VA’s first enterprisewide effort to gather quantitative data and qualitative insight into what’s wrong with the agency’s acquisition processes. The program includes semi-annual supplier perception surveys, quarterly internal customer perception surveys, annual webinars and supplier outreach forums. This year, officials have already held forums in Denver and Atlanta, with plans to do the same in Boston, Seattle, Chicago and Washington, D.C.
The feedback gathered so far has been frank — often painfully so. “Suppliers gave them an earful,” said Doug Black, a director at the Ambit Group, which has worked with VA on the SRT program since the beginning.
Several key problem areas have been identified, including:
- Inadequate communications. Transparency in the acquisition process needs to be improved and should include ways for vendors to offer feedback on requirements for specific contracts and the overall process.
- Poor customer service. Contractors would like to see improvements in the level and quality of acquisition support they receive, such as having phone calls returned and contract modifications addressed in a timely manner.
- Unclear roles. Companies struggle to understand the differing roles and responsibilities of contracting officers, contracting officer’s representatives and program managers.
- A closed contracting process. Companies would like to provide input on the contract type and definition of requirements early in the process so they can offer VA the best prices and delivery timelines in their proposals.
In general, company leaders told VA officials they didn’t think the department cared about their profitability or adequately shared the risks that come with contracting. Therefore, contractors had no choice but to reflect that risk in the form of higher prices.
On the road to recovery
The grievances were no surprise to Jaime Gracia, president and CEO of Seville Government Consulting, an acquisition and program management consulting firm. For example, he said that many companies in the service-disabled veteran-owned small-business community, of which his firm is a part, are frustrated with VA’s certification process. VA officials say it should take three months for the agency to certify a company as eligible to compete for special contracts set aside for that community.
“I’ve not met anyone who got through it in three months,” Gracia said. “It may happen, but I’ve never heard of it.”
He said some companies are choosing to avoid that bureaucratic process and are looking elsewhere for business. He sees the SRT program as a positive sign.
“The VA is far from stellar, but they recognize it and are going in the right direction,” he said.
The feedback has been hard for some VA managers to take. “Initially, some folks were reluctant to read what was reported on the surveys,” Stewart said.
But only by identifying and understanding the problems can officials begin to craft plans to solve them. Fortunately, those efforts are already under way.
For example, last year the VA acquisition office formed an industry advisory group of 24 companies of varying sizes. The group meets quarterly to share best practices and provide targeted suggestions to help VA improve relationships with vendors.
VA also established a governance council of acquisition leaders, which is led by the chief acquisition officer and the senior procurement executive and includes policy experts and the small-business procurement director. The council’s purpose is to develop specific action plans for improvement.
That group came up with the idea of having VA’s Technology Acquisition Center conduct advanced planning briefings for industry. Contracting officers and program managers can now bring companies in to talk about upcoming procurements so they have an opportunity to provide feedback and suggestions early in the process.
Such programs are still fairly new, but as more suppliers are getting involved and seeing that VA officials are committed to improvement, negative attitudes are beginning to change, Stewart said.
Based on the responses to the supplier perception surveys, VA is making measurable progress. Vendors are asked to use a five-point scale to rate VA’s performance in specific areas. When the first survey was conducted in October 2010, the agency scored 3.5 or higher in only two areas. In the second and third semi-annual follow-up surveys, companies gave VA a rating of 3.5 or higher in four areas.
In addition, 17 areas received ratings below 3.0 in the first survey. In the second survey, 12 areas scored below 3.0, and VA only had five areas rated below 3.0 in the third survey.
Turning the tide
The need to strengthen relationships with industry is pervasive throughout government. An independent survey of contractors released in February reported a worsening relationship between government contracting officers and industry representatives.
Ten percent of respondents in Grant Thornton’s 17th annual Government Contractor Industry Survey said the relationship with contracting officers was “fair or poor,” double the percentage who gave that rating in the previous year’s survey. Moreover, only 22 percent of the more than 100 companies surveyed said they believe the government resolves contract issues efficiently, a drop from 26 percent in the previous year.
The Obama administration has been trying to improve relationships with industry suppliers. For example, the Office of Federal Procurement Policy released its myth-busters memo in February 2011 to encourage agency officials to increase their communication with industry. The memo emphasized that it is not against the rules to discuss upcoming contracts and procurements before bid proposals are formally solicited. In fact, those discussions are necessary.
“If OFPP had to issue that memo, it indicates there’s a serious problem,” said Robert Burton, former deputy administrator at OFPP and now a partner at Venable law firm.
Only after Burton left government for the private sector did he realize how closed off most of the government acquisition workforce is from industry, he said. Stewart said he had a similar reaction during his time in the private sector.
The General Services Administration, which handles $50 billion in business volume annually, is also working on ways to improve relationships and communication with vendors, said Steve Kempf, commissioner of GSA’s Federal Acquisition Service (FAS).
GSA officials are planning to launch a supplier relationship management initiative, and like their counterparts at VA, they are starting with an assessment of the current state of relationships.
The agency recently surveyed 50,000 contractors to see how they perceived FAS as a business partner. Officials planned to share the results among GSA procurement managers in April. Kemp said the results will contribute to the development of specific action plans.
In addition, GSA has been making an effort to incorporate companies’ input earlier in the contract development process. For example, GSA’s Interact website hosts a community for industry members who are interested in providing input as GSA develops a new professional services contract called One Acquisition Solution for Integrated Services (formerly Integrations).
Keeping the momentum going
The key to all those efforts is follow-through and continuing engagement, Stewart and other executives say.
As part of VA’s SRT program, Stewart hosts an end-of-year webinar for vendors, a sort of State of the Union address for VA’s acquisition community.
At the third such update, held last month, all of VA’s senior acquisition leaders shared the improvements their offices have made in the past year based on vendors’ feedback.
“What we try to do is show them we’ve made changes and show them improvements,” Stewart said. “If you don’t keep them engaged, they’re going to feel, ‘Why should I invest my time and resources?’ Without their investment, you have nothing.”
Tips for better conversations
Agencies can build a more competitive pool of bidders by reaching out to the vendor community early in the procurement process and asking company leaders to share their ideas and expertise. But participants on both sides fear running afoul of acquisition regulations and jeopardizing contracts, which has kept many of them from pursuing greater engagement.
Last year, the Office of Federal Procurement Policy launched a campaign to dispel common misconceptions about such interactions and encourage responsible and constructive exchanges.
Among other guidance, the myth-busters campaign advises government procurement employees to:
- Communicate with vendors early, frequently and constructively.
- Talk to various categories of small businesses.
- Talk to vendors you have not worked with in the past.
- Protect private information, including vendors’ confidential information and details on the agency’s source-selection process.
[Source: Office of Federal Procurement Policy]
Soliciting honest feedback
Officials might have to suffer some bruising criticism if they want to improve their procurement performance and relationships with industry.
To see what their contractors think of the job they are doing, Veterans Affairs Department officials conduct semi-annual surveys that ask contractors to assess the agency’s performance.
Topics include:
- The company’s commitment to VA for a long-term business relationship.
- VA’s effectiveness in sharing risk and reducing the company’s need to build risk into its pricing.
- The extent to which VA makes it easy for companies to succeed and effectively provide goods and services.
- The overall quality of the working relationship between VA and the company.
— by Matthew Weigelt – Federal Computer Week - Apr. 16, 2012 at http://fcw.com/articles/2012/04/30/feat-government-industry-relations.aspx.
Panetta urges Congress to de-trigger sequestration cuts
April 20, 2012 by cs
It is up to Congress to dissipate the shadow of sequestration hanging over the Defense Department, according to Defense Secretary Leon Panetta.
Panetta and Joint Chiefs of Staff Chairman Army Gen. Martin Dempsey discussed on Monday (Apr. 16, 2012) the impending $500 billion budget reduction over the next ten years that would incur if Congress does not resolve an alternate solution by January 2013.
Congress should approve an alternate budget plan in order to maintain the military strength Panetta believes is necessary to face today’s security environment, he said during the press conference.
He said the Pentagon has not received directives from the Office of Management and Budget to plan for sequestration, but added the possibility is already impacting the department and industries it depends on.
Congress is set to review defense authorization and appropriations bills in the coming weeks.
Panetta said he hopes Congress will review the new defense strategy and cautions that if the cuts are handled incorrectly, it will result in a hollow military force.
Panetta notes that the Budget Control Act is structured in such a way that any change in one area of the budget or force structure will require offsetting changes in other areas.
Panetta’s hope is that Congress will reach a speedy decision to de-trigger the sequester.
The longer Congress waits, the more impact the impending cuts will have on the Pentagon’s planning and budget processes, he added.
Dempsey said he expects the Pentagon will have to begin planning toward the middle or end of the summer in order to react to sequester cuts.
Panetta noted that he believes military reductions should occur but that Congress has a small margin of error in its decision to avoid a significantly unbalanced or weakened force.
– by Katelyn Noland – ExecutiveGov – Apr 17, 2012 at http://www.executivegov.com/2012/04/panetta-urges-congress-to-de-trigger-sequestration-cuts/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+execgov+%28Executive+Gov%29.
Companies lost more folks in 2011 due to insourcing
April 17, 2012 by cs
In a recent survey of more than 100 companies, 60 percent of them reported they had lost employees to the government insourcing initiative.
It’s a 13 percent increase from 2010, according to the consulting firm Grant Thornton in its 17th Annual Government Contractor Industry Survey, which was conducted in 2011. Grant Thornton released it in 2012.
Agencies have more aggressively insourced work from companies in recent years as Congress and the Obama administration have said the government relies too much on the private sector to do its work. Spending on contracts increased greatly under the George W. Bush administration and the Barack Obama administration has proudly said it’s cut back on contract spending.
Obama’s former administrator of the Office of Federal Procurement Policy, Dan Gordon, reiterated that the government needed to “right-size” the balance between government employees and contractors. More importantly, federal employees need the in-house knowledge and expertise to handle those contractors’ jobs to release the government from an over-reliance on companies.
Government officials have also said they would save money with federal employees doing the same work instead of contractors. It’s stemmed a heated debate and both sides of the argument have generated their facts to prove their point.
From Grant Thornton’s perspective, thinking that insourcing saves money is an “unsubstantiated and frankly unimaginable belief.” In 2010, defense officials said they could find no evidence of savings from insourcing work.
In the survey report, Grant Thornton expressed some hope for those who dislike the insourcing initiative.
“Based on experience, we assume that this desire to grow government at the expense of the private sector is another initiative that will eventually be reversed, most likely when the political climate in the country changes,” wrote the author of the survey report.
In other words, the pendulum will swing back.
– by Matthew Weigelt, Federal Computer Week, on Apr. 09, 2012 at http://fcw.com/blogs/acquisitive-mind/2012/04/insourcing-companies-lose-employees.aspx?s=fcwdaily_110412.
Who won March’s biggest contracts?
April 16, 2012 by cs
March’s contract countdown includes a pair of major wins by one company, a $1.5 billion contract that cleared the protest hurdle and only two multiple award contracts.
For the month, Washington Technology covered 28 contract awards, compared to 21 in February and 40 in January.
The total value of the contracts awarded in March was just over $7 billion. Of course, that is the ceiling value of the contracts. Only time will tell how closely they get to those kinds of numbers.
So starting at No. 10, the March contract countdown begins with….
10. CACI wins $78M pact to update Air Force IT
CACI International Inc. won a $78 million contract to help update aging systems within the Air Force’s NextGen IT program with new technologies. The award covers integration, sustainment and deployment services for the Air Force Civil Engineer’s Office, which ensures that all Air Force buildings, structures and utilities are maintained and combat ready.
9. Harris wins delayed VA contract for $80.3M
Harris Corp. will be taking over the Veterans Affairs Department contract to create software for the agency’s integrated-electronic health records system, known as iEHR. The contract is worth $80.3 million
The original software contract awarded to ASM Research in January was canceled on Feb. 28 after a conflict of interest, and was reopened to the original bidders.
8. 8 bid on $93M Navy education-training contract
The Navy has selected eight contractors to provide education training products and services for the Naval Education Training Command under a cost-plus-fixed-fee, firm-fixed-price multiple-award contract with a maximum value of $97.3 million.
The winning contractors will compete to provide support and services to the Naval Education Training and Professional Development and Technology Center, which works to educate Navy sailors in a variety of ways.
The eight contractors are:
URS Federal Inc.
Raytheon Technical Services Co.
Technical Software Services
Camber Corp.
General Dynamics Information Technology
Northrop Grumman Corp.
Logistics Services International Inc.
Sonalysts Inc.
7. Northrop nabs $189M DISA cyber task
Northrop Grumman Corp. has won a $189 million contract to support the Defense Information Systems Agency’s cybersecurity efforts. The company will be implementing the host-based security system across the Defense Department and intelligence agencies. The HBSS is part of DOD’s Information Assurance and Computer Network Defense contract. Northrop will provide software license management support, training, help desk and architectural infrastructure support personnel.
6. CSC wins $297M Maryland Medicaid upgrade
Computer Sciences Corp. will completely revamp Maryland’s Medicaid information system under an eight-year contract that has an estimated total value to $297 million. The contract from the Maryland Department of Health and Mental Hygiene calls for CSC to replace the state’s Medicaid Management Information System and to provide fiscal agent services for selected DHMH programs.
5. 14 vie for $500M Navy purchases
Fourteen government contractors, including nine small businesses, will share a potential $500 million Navy supply contract for IT equipment and services.
Each company has been awarded an indefinite-delivery, indefinite-quantity, firm-fixed-price supply contract for the procurement of commercial-off-the-shelf, network and communications equipment, and related incidental support services.
The contract winners are:
ACG Systems Inc., Annapolis, Md.
Atlantic Diving Supply Inc., Virginia Beach, Va.
Blue Tech Inc., San Diego.
CDW Government LLC, Vernon Hills, Ill.
Global Technology Resources Inc., Denver.
Iron Bow Technologies LLC, Chantilly, Va.
Marshall Communications Corp., Ashburn, Va.
Mercom Inc., Pawleys Island, S.C.
Mutual Telecom Services Inc., Needham, Mass.
Science Applications International Corp., McLean, Va.
Scientific Research Corp., Atlanta.
Strategic Communications LLC, Louisville, Ky.
Tribalco LLC, Bethesda, Md.
World Wide Technology Inc., St. Louis.
4. Northrop wins $504M Air Force job
Northrop Grumman Corp. will modernize the Air Force’s Air and Space Operations Center as the result of an eight-year contract that has a potential value of $504 million if all options are exercised. The Air and Space Operations Center Weapon System in Newport News, Va., is the command and control center for planning, executing and assessing joint air operations during contingency operations or conflict.
3. Xerox captures $848M cloud project
Xerox has won a nine-year, $848 million contract from the state of Texas to create secure cloud-based services by modernizing and consolidating its data centers. The upgrade will be one of the largest projects of its kind in the country.
2. Protest denial clears $1.5B contract for VSE
VSE Corp. can now begin work on a $1.5 billion contract to help the Navy transfer U.S. vessels to foreign buyers. The contract was protested by Booz Allen Hamilton but the Government Accountability Office denied the protest. VSE services will include design, configuration management, spare parts support, training and depot-level repair.
And the biggiest contract award for the month of March goes to…
1. Xerox takes over $1.6B Medi-Cal contract
Xerox wins a $1.6 billion contract to manage the processing of Medicaid claims in the state of California, which serves more than 7.5 million people. Xerox got into the Medicaid processing business with its acquisition of Affiliated Computer Services. It now processes claims in 12 states and the District of Columbia.
About the Author: Nick Wakeman is the editor-in-chief of Washington Technology. This article appeared on Apr. 9, 2012 at http://washingtontechnology.com/articles/2012/04/09/march-contract-countdown.aspx?s=EB?s=wtdaily
Pentagon awarded veteran-owned contracts to illegitimate firms
April 13, 2012 by cs
The Defense Department awarded millions of dollars in veteran-owned contracts to ineligible firms and made coding errors affecting billions of dollars more, according to an inspector general report.
The report, dated Feb. 29 and recently made public, said the department awarded six contracts for service-disabled veteran-owned small businesses, valued at about $1.9 million, to ineligible companies. In addition, the report said, Defense awarded 27 contracts, valued at about $340.3 million, to contractors that “potentially misstated their SDVOSB status.”
Finally, the department made coding errors when it entered these contracts into the federal procurement database. These errors, in turn, affected 137 contracts valued at about $1.3 billion, according to the report, which was picked up Monday by Federal News Radio.
Defense made two key errors that contributed to awarding ineligible contracts, Devon Hewitt, a partner at Protorae Law and a member of the American Legion’s Small Business Task Force, told Federal News Radio. The first was the department failed to check the Central Contractor Registration database, which catalogs the eligibility of federal contractors prior to awarding the contracts.
Second, and according to Hewitt more significant, Defense relied heavily on its own self-verification process for contractors. The department’s inspector general recommended Defense adopt a new verification process similar to the Veterans Affairs Department, which has a separate authentication process for veteran-owned contractors — and is, according to Federal News Radio, the only government agency that does not rely on self-verification.
Veterans Affairs’ verification process, however, has itself been hampered by complaints of delays, inconsistencies and a lack of thoroughness, according to Federal News Radio.
– by Andrew Lapin, Government Executive, Apr. 9, 2012 at http://www.govexec.com/contracting/2012/04/pentagon-awarded-veteran-owned-contracts-illegitimate-firms/41717.
Insourcing savings difficult to predict
April 11, 2012 by cs
Insourcing saved the Homeland Security Department $2.3 million since mid-2010, a DHS official said, even while counterparts at the Defense Department said their initial estimates of cost savings to be had from converting contractor positions into full-time civil service jobs were overestimated.
During a March 29 hearing of the Senate Homeland Security and Governmental Affairs subcommittee on contracting oversight, Debra Tomchek, executive director of the DHS balanced workforce program management office, said efforts underway at DHS since mid-2010 to rely less on contractors and to hire more civil servants have produced about $2.3 million in savings as of January 2012.
According to Tomchek’s written testimony, DHS calculates the cost of a contractor to a civil servant using a “DHS Modular Cost Model” that includes “one-time and recurring costs associated with establishing new positions.”
During the hearing, Chuck Grimes, Office of Personnel Management chief operating officer, emphasized that savings shouldn’t be calculated by just comparing labor costs.
When the Defense Department began an insourcing initiative in 2009, then-Defense Secretary Robert Gates estimated the Army could produce $400 million worth of savings and that conversion of contractor positions would save 40 percent on employment costs.
“We had two instances over different periods of time where we achieved anywhere from about 16 to 30 percent savings. And really the percentage savings are really dependent upon the function that’s being in-sourced and the location where that’s occurring,” said Jay Aronowitz, Army deputy assistant secretary for force management, manpower and resources.
Lack of a good cost model to compare the true costs of retaining civil servants versus hiring contractors has long been an obstacle to cost transparency and decision-making. The Center for Strategic and International Studies proposed in May 2011 a cost estimation taxonomy that would permit a comparison based not on labor costs, but the costs that federal agency would incur if it tried to meet its needs by internally running the equivalent of a private sector consulting firm.
– by David Perera, Fierce Government IT, Apr. 3, 2012 at http://www.fiercegovernment.com/story/insourcing-savings-difficult-predict/2012-04-03.
GSA scandal sheds light on small business contracting fraud
April 10, 2012 by cs
Buried in the laundry list of misconduct claims against the General Services Administration is further evidence of what at least one federal official and one trade group call a critical problem for small employers: improper contracting that diverts government spending to large corporations instead of small businesses.
GSA Administrator Martha N. Johnson resigned Monday and two of her senior deputies have been fired in the wake of the agency’s spending scandal.
The GSA inspector general’s report, which blasts the agency for excessive spending on clowns, mind readers and lavish parties during a training conference just outside Las Vegas, claims that officials awarded a $58,808 contract to a large audio and visual services firm, Royal Productions, when federal regulations require contracts of such size be reserved for small businesses.
The inspector general also said the agency violated federal rules by neglecting to publish a solicitation for the contract on the government’s list of Federal Business Opportunities and by providing Royal Productions with a competing bidder’s quote — thus allowing the company to present a winning offer. Subsequently, the agency paid roughly double what the contract outlined for the company’s employees’ hotel rooms, according to the report.
Although the scandal alleges a wide range of misconduct, the contracting accusations shed light on a problem that some say has been crippling the nation’s small businesses for more than a decade.
“The diversion of small-business contracts to large corporations has gone on for a dozen years, and the only thing the government has done in response is remove the transparency,” Lloyd Chapman, president of the American Small Business League, said in an interview, later adding that the procurement review system available to the public has become increasingly difficult to use in recent years.
The federal government has a stated goal of awarding 23 percent of contract dollars every year to small businesses. However, Chapman pointed to his group’s recent analysis of government data that showed that 72 of the 100 companies receiving the highest amount of federal small-business contracts in 2011 were firms that exceeded the Small Business Administration’s size standards for small companies.
“Anytime you take a sample of what the federal government is doing and anytime you take a look at small-business contracting in almost any federal agency, what you find is money going to the biggest companies in the world,” he said.
In October, the SBA’s inspector general published a report acknowledging that small-business contracting was the agency’s most serious management and performance challenge. Specifically, the report stated that “procurement flaws allow large firms to obtain small business awards and agencies to count contracts performed by large firms towards their small business goals.”
But the SBA says the Obama administration has taken steps to bring more contracting opportunities to small businesses, noting that the president created an interagency task force charged with increasing their share of government work and signed the Small Business Jobs Act, which agency officials say levels the playing field for small companies competing for federal contracts.
“These initiatives have made a real difference,” SBA Deputy Administrator Marie Johns wrote on the agency’s blog. “The number of contracts going to small businesses has steadily risen in the last two years,” she wrote, noting that the government nearly hit its 23 percent small-business contracting goal last year.
When Congress returns from recess in two weeks, the public-buildings subpanel of the House Transportation and Infrastructure Committee plans to conduct a full hearing on the claims of wasteful spending against the GSA, according to the committee’s chairman, Rep. John L. Mica (R-Fla.), who said “the Las Vegas fiasco is just the tip of the iceberg.”
– By J.D. Harrison, The Washington Post, Wednesday, April 4, 7:15 AM at http://www.washingtonpost.com/politics/gsa-scandal-sheds-light-on-small-business-contracting-fraud/2012/04/03/gIQAJUOtuS_story.html
Sequestration specter already is making its mark on contractors
April 9, 2012 by cs
Neither the government nor the aerospace industry can afford to sit and wait for the sequestration required under budget law to kick in on Jan. 2, 2013, an industry chief said Wednesday (3/21/2012). The mere threat of across-the-board spending cuts already has had a “chilling effect” on companies that are vital both to the economy and to U.S. national security, said Robert Stevens, chairman and chief executive officer of Lockheed Martin Corp.
Stevens told a Capitol Hill luncheon gathering sponsored by the Aerospace Industries Association that his industry has responded to the budget situation’s “huge disruption” by reducing overhead and cutting investments in training and research and development, as well as imposing “painful” reductions in force.
“We understand the need to address our nation’s fiscal challenges,” he said. “But the prospect of sequestration is another matter entirely,” given the $500 billion in reductions the Pentagon would absorb over 10 years, including $53 billion in fiscal 2013 alone. Such changes would be “divorced from any national strategy and from operational needs,” he said, resulting in “the smallest ground forces since 1940, the fewest ships since 1950, and the smallest Air Force in history.” The country needs a “strategy to preserve the industrial base, not dismantle it,” he added.
Lockheed Martin is part of the association’s ongoing “Second to None” campaign against defense and aerospace industry budget cuts. Near Stevens’ podium the group mounted a large digital clock, a version of which was recently up in New York City’s Times Square, noting the exact number of days, hours, minutes and seconds until the Jan. 2 sequestration. It warns that its industry will lose a million jobs if Congress makes drastic cuts in such areas as defense, the NextGen air traffic management system and the space program.
The association also released a report by Deloitte detailing the financial and economic impact the industry has on the nation, with state-by-state job numbers both direct and indirect. It noted that 19,150 aerospace jobs were eliminated in 2010 and 34,759 in 2011.
Stevens described his industry’s “critical contribution to the economic engine of America” — $324 billion in sales in 2010, adding 2.3 percent to gross domestic product, and $89.6 billion in exports. He called it a “wellspring of innovation and creativity in technological advancement,” citing development of day-to-day essential products in air safety, weather forecasting and communications connectivity, along with weapons systems that “define a generation.”
But he said the modern industry is by necessity “smaller and leaner” and “fragile in the shadow of sequestration.” He said he “can’t begin to judge the impact of a bow wave of $53 billion” in fiscal 2013 on suppliers, partners and contractors, to whom companies are obligated to provide 60 to 90 days’ notice if workers are to lose jobs.
He expects many equity adjustment requests. “To ask us to react instantly in the year of execution would be massively complicated, and we have no real response,” he said. “It’s all yet to be determined.”
To avoid sequestration, Stevens said, Congress should consider three elements to address the nation’s $15 trillion debt: spending cuts in both defense and nondefense areas, an examination of tax policy, and entitlement reform.
Sen. Saxby Chambliss, R-Ga., co-chairman of the Senate Aerospace Caucus, also urged Congress to act soon. “If we think we’re going to wait until a lame-duck session, we’re kidding ourselves,” he told the group. He highlighted the industry’s importance both to national security and to a healthy export economy, noting he represents the Port of Savannah. “We need to make purchases by other countries easier, though we do need to get the most out of each defense dollar,” he said.
Sen. Patty Murray, D-Wash., the other leader of the caucus, praised Lockheed Martin as an important symbol of American corporate leadership, adding it is celebrating the 100th anniversary of the founding of its namesake companies. She stressed the need for the government to invest in the education and training of scientists, mathematicians and engineers. She asked the industry for support for a current amendment to reauthorize the Export-Import Bank of the United States, and implored aerospace companies to hire and train veterans.
– by Charles S. Clark, Government Executive, March 14, 2012, http://www.govexec.com/contracting/2012/03/sequestration-specter-already-making-its-mark-contractors/41468/?oref=dropdown.