“NATIONAL DEFENSE MAGAZINE”
” Army Service Contracts are Seven of the top 20 Pentagon targets of opportunity for FY 2017.
The biggest prize is a potential $10 billion deal as the Army prepares to re-compete the Logistics Civil Augmentation Program, known as LOGCAP.
Other lucrative opportunities are an $8 billion human resources solutions contract and an $8 billion project called “joint enterprise research, development, acquisition and product procurement.”This is a new initiative by the Joint Program Executive Office for Chemical and Biological Defense for contractor support services.
The Army market has taken a dramatic turn not only because it is smaller but also because it is shifting toward services, rather than hardware. Since 2012, the Army has spent 59 percent of its annual contracting dollars on services, according to new data from Bloomberg Government.
“We don’t see that changing any time soon,” says Bloomberg analyst Cameron Leuthy.
The Army in fiscal year 2012 awarded more than $104 billion worth of contracts. That figure dropped to $83 billion in 2013, $71 billion in 2014 and $68 billion in 2015. Bloomberg projects a 4 percent to 5 percent increase for 2016.
The contracting landscape is bad news for suppliers of traditional Army weapon systems, but encouraging to those in the professional services, information and communications technology sectors, Leuthy tells federal contractors Oct. 5 during a breakfast meeting.
Army contracts for services consistently have outweighed acquisitions of weapons and other products. A so-called procurement holiday — only 18 percent of the service’s budget is for weapons research, development and procurement — means there will a growing backlog of aging equipment that will need repairs and maintenance. “Support contractors, you’ll still have a job,” Leuthy says.
The movement of dollars from acquisitions of equipment to services is the new reality for defense contractors. “In today’s Army there is very little money for procurement, research and development,” says Robert Levinson, a Bloomberg defense analyst.
Most of the Army’s money is being spent on personnel costs and on combat operations. Weapons acquisitions are being deferred. “The Army is in a bind,” says Levinson. “There is just not a lot of room to expand the Army’s budget without a big increase to the Defense Department top line.”
Also working against contractors is the lagging technological innovation in ground warfare, says Levinson. “There isn’t a lot of new technology for the Army to invest in,” he says. “A newly developed tank would not be dramatically better than an upgraded Abrams M1A2,” he adds. “With regard to armor, the Army is looking for the next technology breakthrough.” As a result, “It only makes sense to upgrade existing systems. There’s a lot of money in upgrades.”
Current Army platforms are “still better than most comparable systems around the world,” he says. In the combat vehicles area, the Army “continues to pursue the optimal mix of lethality, mobility and survivability.”
The latest technologies in engines, armor, weapons and munitions are, in most cases, only marginally better than those deployed in current fleets, says Levinson. The Army’s most recent acquisition programs, the Joint Light Tactical Vehicle and the Armored Multi-Purpose Vehicle, “don’t significantly push the technological envelope.”
Bloomberg analysts believe the Army is making a wise decision by delaying big-ticket procurements until the desired technologies are more mature. “The Army is being smart, in our opinion,” says Leuthy. “They are looking at leap ahead improvements in engines, composite materials, kinetic power. They don’t want to waste their money and get stuck with technologies that will be obsolete three years later.”