Staying a Step Ahead of the DoD Budget
Gene Townsend
DoD’s budget is shrinking, but other constraints drive the issues facing local defense contractors, including the turning away of non-Navy work and changes to procurement metrics that emphasize lowest price for technical acceptability.
These were among the insider insights Pax Partnership board member Gene Townsend imparted last week to a rapt room of contractors. Another gem was the online address of The Defense Business Board where projections are manifesting into the next years’ DoD budgets.
Where the money is headed is vital information. It is not actually the amount of the budget, Mr. Townsend demonstrated, that hasn’t changed all that much. It is rather where monies are shifting. Staying ahead of the curve is imperative.
Non-Navy work was the point returned to repeatedly during the 90-minute briefing sponsored by The Patuxent Partnership. The myriad and multilayer federal budget maneuvers have constrained money into NAVAIR and the Patuxent River Naval Air Station facility in such a way that non-Navy customers will no longer be accommodated. The bottom line is a Catch-22; to save money the Navy is turning away business that brings them income and helps underwrite the supportive contracting industry the Navy needs.
“We’ve seen this before,” said local defense contractor Michael Johnston about the “down cycle” the defense industry must anticipate in a draw down of active military engagement.
A 35-year veteran participant and observer of the fortunes of defense contracting in the NAS:Pax River arena, Mr. Johnston elaborated, “I remember the Cold War, the Berlin Wall, the peace dividend. What saved us then,” he said a few days after the Mr. Townsend’s briefing, “we could get not-Navy customers. Some other federal customers, some private. The Navy let us do it. It’s different now.”
Both men emphasized that the array of directives creating this result neither originated at NAVAIR nor Pax River but at the DoD/Navy level. Higher up, the on-the-ground ramifications of NAVAIR turning away customers such as the US Coast Guard or Air Force at Pax River is not so manifestly apparent as in the local contracting industry.
“Down here, for us, this is going to impact us,” Mr. Johnston said.
So the traditional fallback is not in place. And the constricting budgets are already intensifying government scrutiny, sharpening competition, and cutting contractor funds. Getting an early read on the DoD budget is imperative to staying in business, Mr. Townsend said.
Contractors need to be “pre-active,” Mr. Townsend said, not merely “proactive” to face DoD’s stated mission to cut contractors by 20 percent.
Mr. Townsend again recommended contractors study the reports out of the DBB. “The Defense Business Board provides Pentagon leaders . . . with trusted independent and objective advice which reflects an outside private sector perspective on proven and effective best business practices,” reads the mission statement at the top of the DBB’s website, an assessment Mr. Townsend endorsed.
Across these past tumultuous budget years, Mr. Townsend said, the DBB reports have shown to be on target, publishing leading indicators sometimes at least a year in advance of the DoD budget. And this “pre-active” response is imperative to thrive in the coming budget crunch years.
During the TPP briefing, “Financial Management: Managing in Difficult Times,” Mr. Townsend also suggested that government contractors download the 125-page DoD/Navy budget summaries which show the future funding levels by program.
“The old approach won’t work. It was personal relationships. [Now] the customer is not as involved, [they are] looking for the minimal technically.” Whether or not it is still called Lowest Price Technical Acceptable, Mr. Townsend said, this is still what is happening on contract awards, Mr. Townsend said, and a number of contractors in the audience concurred.
Small contractors may fare best in the coming years, he said. “Be nimble, be flexible,” he advised, and take advantage of local decision-making capabilities. Decisions needing to be relayed back to a home office “may be too slow” he said. “You need local flexibility.”
“Anything could change, he further warned them. “Things we didn’t think would happen,” he said, such as closing the government and sequestration, “happened.”
The financial management series continues next month:
