Category Archives: Us Economy

Big Industry Winners in the Saudi Weapons Offer

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SAUDI-DEFENCE

(Photo Credit: FAYEZ NURELDINE/AFP/Getty Images)

“DEFENSE NEWS”

“The big winner, at least on the platform side, is Lockheed Martin, with an estimated $29.1 billion in potential sales.

That includes seven THAAD missile defense batteries ($13.5 billion), and three KC-130J and 20 C-130J aircraft ($5.8 billion), as well as four multi-mission surface combatant ships ($6 billion)

Now that details of the $110 billion arms package offered to Saudi Arabia are known, Lockheed Martin appears to be the clear winner among American defense firms.

First, a caveat: Defense News broke the details of the roughly $84 billion in unknown weapons offerings that President Donald Trump brought with him on a May 20 visit to the Kingdom. But by the nature of how foreign military sales are completed, dollar totals are best-guess estimations and likely represent the ceiling for what could be spent. The figures listed may well come down, and the timeframes listed may well change, based on final negotiations around the equipment.

the company’s Sikorsky arm also benefited, with two types of Black Hawk variants: 14 MH-60R Seahawk rotorcraft ($2 billion) and 30 UH-60 rescue helicopters ($1.8 billion). That could potentially grow. A statement from Lockheed, released after the visit to Saudi Arabia, claimed that a deal was being reached with Saudi company Taqnia to “support final assembly and completion of an estimated 150 S-70 Black Hawk utility helicopters for the Saudi government.”

A few other companies also fared well.

Boeing cashed in with an eight-year sustainment deal ($6.25 billion) for their F-15 aircraft, along with a relatively small $20 million deal to run a study on recapitalizing Saudi’s older fleet of F-15 C/D aircraft.

Raytheon’s big win came from an unknown type of enhancement for the Patriot missile system ($6.65 billion). BAE, meanwhile, hopes to bring in $3.7 billion worth of work on its Bradley vehicle, with a pair of contracts – one to modify 400 existing vehicles, and another to produce 213 new ones. (The company may also cash out on an order for 180 Howitzers, worth $1.5 billion.)

There is also a $2 billion order for an unknown number of Mk-VI patrol boats, produced by SAFE Boats International.

The previously unreported list includes roughly 104,000 air to surface weapons, including 27,000 GBU-38 designs ($1.24 billion, Boeing), 9,000 GBU-31v3 designs ($690 million, Boeing), 9,000 GBU-31v1 designs ($490 million, Boeing), 50,000 GBU-12 designs ($1.67 billion, Lockheed and Raytheon) and 9,000 GBU-10 designs ($370 million, Lockheed and Raytheon.)

Known unknowns
But there is a chance for more growth, based on a set of unspecified aircraft and satellite programs. The list includes $2 billion for a light air support aircraft, type and quantity to be decided later. It also includes another $2 billion for four new aircraft to replace the Kingdom’s Tactical Airborne Surveillance System, which serves a similar role to the U.S. Air Force JSTARS.

The light air support seems to have a fairly small list of options: either Textron with it’s AT-6 (or, perhaps, its Scorpion jet, still in search of a first customer) or the Embraer/Sierra Nevada team’s A-29 Super Tucano. Both the UAE and Jordan have ordered the A-29, so buying the Super Tucano would give the Kingdom commonality with two of its closest allies.

The wildcard may be the U.S. Air Force’s OA-X experiment, which is holding a flyoff between the Scorpion, AT-6 and A-29 this summer. In theory, the Air Force is looking at replacing the A-10 with one of the three planes, but the service has been careful to stress this summer’s action is more of a fact-finding exercise than a downselect. At the same time, if the USAF shows a preference for one of the jets, the Saudis may look in the same direction.

As to the TASS replacement, the first question is whether the Saudis look to glom onto the JSTARS recapitalization, which should be awarded sometime in fiscal year 2018. If so, Boeing, a Northrop Grumman/L-3/General Dynamics team and a Lockheed Martin/ Bombardier team would benefit here.

However, the TASS and JSTARS setups are somewhat different, and it may be the Saudis would look for a custom solution.

Meanwhile, the Kingdom has been offered a clutch of satellites, with as-yet-unknown designs: two “Remote Sensing Satellites” estimated at $800 million and two satellite communications & space based early warning systems estimated at $4 billion.

Given the focus on missile defense, the space based early warning systems could well be a derivative of Lockheed’s Space Based Infrared System (SBIRS) missile defense satellite. If so, the U.S. may be able to seek an arrangement with the Kingdom on information sharing, which would widen the overall capability of the missile tracking system.

How quickly these contracts can be pushed through the system is an open question. Roman Schweizer, an analyst with Cowen Washington Research Group, wrote in a note to investors Friday that “precision munitions and missile defense remain top priorities for the Kingdom.”

“We think the elements of the package will probably go through as individual items, which could reduce opposition. We think some of the more easily defined items that have been either sold to Saudi before or to other countries could proceed quickly (such as THAAD, Patriot, precision munitions, helicopters, F-15, C-130Js, etc.),” he wrote.”

Defense Companies Are Here To Stay

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“DEFENSE NEWS” By Charles Mahoney

“Like it or not, government agencies responsible for national security are dependent on private defense firms.

These companies are primarily responsible to shareholders rather than the American people. How can they be held accountable to the nation’s interests?

What is certain is that for-profit military and intelligence firms will remain an integral part of U.S. national defense. My research focuses on the changing nature of the private defense industry. Military contracting is still big business, although media coverage of private military firms has diminished since the withdrawal of the U.S. from Iraq in 2011. Today, contractors’ work ranges from assisting in drone missions to analyzing signals intelligence to training police forces in fragile countries like Afghanistan.”

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Image: “Defense News”

“New frontiers

In recent years, private military companies have adapted to changing demands from U.S. defense agencies. During the wars in Iraq and Afghanistan, the U.S. military relied heavily on contractors to support counterinsurgency operations. However, high-profile incidents of alleged human rights abuses by the company CACI at Abu Ghraib prison in Iraq and Blackwater at Nisour Square, Iraq brought to light the difficulty the American military faces monitoring private defense companies.

At the same time, Americans have since become averse to nation-building campaigns in failing states. So, private defense firms have shifted away from supporting “boots on the ground.” Instead, they are increasingly assisting military and intelligence agencies with counterterrorism and cybersecurity.

While the American people generally want to avoid deploying troops to conflict zones, they still demand protection from terrorism. The Pentagon, CIA and other defense agencies receive assistance in these areas from private companies with expertise in drone warfare, special forces operations and analysis of electronic surveillance of potential terrorist threats. These traditionally were duties of public employees.

Cybersecurity is another area in which private military companies see increasing demand. Information gleaned from hacking government agencies, world leaders and political campaigns can be used by rogue states like Russia and nonstate actors like WikiLeaks to harm American interests.

Serving the public interest?

Most defense analysts now acknowledge that the question is not whether to privatize, but where to draw the line. If the U.S. government is going to work extensively with contractors, it requires a more robust oversight system. Government agencies and courts also need assurances they can hold defense firms accountable if they break the law overseas.

During the Iraq War, this was a point of serious contention. It was unclear what legal jurisdiction applied to employees of private defense firms. The uncertain legal status of contractors caused significant tension between the U.S. and the government of Iraq and hampered American counterinsurgency efforts.

Here are three ways Congress could increase accountability for private defense firms as the industry becomes more enmeshed in national security.

  • Congress could create an independent regulatory agency to report on contractors’ performance. While major firms in the industry insist they can regulate themselves, an independent oversight agency could more adequately assess how defense contractors perform.
  • As things stand now, the U.S. government often overlooks bad behavior and renews contracts with companies that have less than stellar records. Instead, the government could more severely penalize firms that do not fulfill the terms of their agreements.
  • Government employees often transition from public service into lucrative positions at billion-dollar defense corporations. Stricter rules to limit this “revolving door” would make government employees more willing to penalize firms.

Private defense contractors will likely be a major part of U.S. national defense for the foreseeable future. Diligent oversight and regulation of companies in this rapidly evolving industry, I believe, are necessary to ensure that these firms advance the public good of American security.”

http://www.defensenews.com/articles/private-defense-companies-are-here-to-stay-what-does-that-mean-for-national-security

Charles Mahoney is a professor of political science at California State University, Long Beach. His commentary was originally published on The Conversation .

 

 

 

$1 Billion of Military Equipment Goes Missing from Assistance Packages in Iraq

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AP Photo/ APTV

“ARMY TIMES”

“Defense Department Inspector General report, reveals more than $1 billion in rifles, vehicles and ammunition were not properly tracked and accounted for.

Equipment transfers included tens of thousands of assault rifles, hundreds of mortar rounds and hundreds of armored Humvees destined for the Iraqi army and Kurdish peshmerga forces.

“This audit provides a worrying insight into the U.S. Army’s flawed – and potentially dangerous – system for controlling millions of dollars’ worth of arms transfers to a hugely volatile region,” said Patrick Wilcken, Amnesty International’s arms control and human rights researcher.

According to Amnesty International, the military transfers came under the Iraq Train and Equip Fund, which is designed to facilitate the transfer of equipment to the Iraqis and is described by Amnesty as “a linchpin of U.S.-Iraqi security cooperation.”

The human rights organization released the report on Wednesday.

In response, Amnesty says, DoD officials have “pledged to tighten up its systems for tracking and monitoring future transfers to Iraq.”
But, Amnesty notes, military leaders made the same pledge following a 2007 U.S. Government Accountability Office report that had similar findings.
Among other items, the 26-page report highlights the following deficiencies:
  • A broken record-keeping system at installations in Iraq and Kuwait, pointing to equipment information in multiple spreadsheets, databases and hand-written notes.
  • Equipment information was manually entered into multiple spreadsheets, elevating the risk of human error.
  • Incomplete records resulting in equipment custodians who could not provide the status or location of the items.

The potential for missing equipment to land in the hands of adversaries is the main concern for Amnesty officials, Wilcken said.

“It makes for especially sobering reading given the long history of leakage of U.S. arms to multiple armed groups committing atrocities in Iraq, including the armed group calling itself the Islamic State,” he said.”

Modest Small Business Innovative Research Program (SBIR) Investments Bring Big Benefits

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Blackbox Biometrics’ Blast Gauge System

“NATIONAL DEFENSE MAGAZINE”

“The Small Business Innovation Research (SBIR) program makes funding available to small companies to develop technologies to meet warfighting requirements and that can transition to a program of record and commercialization.

The Small Business Technology Transfer (STTR) program is similar to SBIR, but requires the small business to formally collaborate with a research institution.

The defense industry is big, technologically complex and highly competitive. The bar for entry can be high. For small companies who think they have something new or different to offer, vying for a chance to compete can be daunting.

The cost and risk involved with science and technology and research and development to bring a new product or service to market can exceed the ability and resources of many small businesses. So special funding is available to help them develop their ideas and prove their technologies. Meanwhile, program managers and prime contractors have incentives to bring small companies to the table.

Then-Assistant Secretary of the Navy for Research, Acquisition and Development Sean Stackley said in a 2015 memo that a competitive, healthy small business industrial base is vital to the long term success and affordability of the service. “Where affordability is paramount, a strategy that includes small business creates more affordable outcomes and promotes innovation and technical advancement,” he said.

Bob Smith, director of the Navy’s SBIR/STTR program, said in May 2016 that the service announces topics three times a year. It issued about 170 topics in its most recent cycle. From that it received about 2,800 proposals. It reviewed, evaluated and prioritized each one, and selected two proposals for each topic. One of the two is chosen to go forward as a Phase II project. The Navy looked at 252 Phase II proposals, and selected 137 Phase III awards to help those technologies transition.

“These might seem like low numbers, but if you talk to any venture capitalist, that’s a pretty good track record,” Smith said.

While SBIR can help small companies introduce and develop their new technologies, Smith said companies should not focus solely on winning these awards. “Do not make SBIR your only business model. It will not work.”

For Midé Technology Corp., a small business in Medford, Massachusetts, SBIR efforts have led to some surprising developments. From missile instrumentation to bulkhead shaft seals to smart wetsuits, Midé has seen SBIR grant activity evolve into further opportunities including the development of products for the military and commercial markets. One good idea has led to another.

“We know the cycles when the topics and solicitations come out from the different agencies and departments,” said Midé’s Vice President of Corporate Programs Rick Orlando. We have a process in our company that ties into their schedules. We look at the topics, and glean the ones where we have interest and are suited to submit a proposal.”

In general, Orlando said a high proportion of Midé’s R&D work is funded by SBIR funding. “It’s about 80 percent of our R&D expenditures, but that doesn’t count our product revenue.”

A small company in Melbourne, Florida, has used SBIR to match existing technology with a requirement to provide communications relay radios between unmanned systems and host platforms.

“We had the technology, but we had to find a way to militarize it. It had to handle the vibrations and temperatures, and be small enough to fit inside an unmanned aerial vehicle,” said Emilio Power of RSS Technology.

The RT 1944 U radio was developed by RSS using a Navy SBIR investment. Power says the RSS radio is now part of the littoral combat ship program, and the company’s equipment is on the ship and its off-board vehicles, such as the MQ-8B Fire Scout unmanned aircraft.
SBIR and STTR projects require a technology transition plan, that specifies the “fiscal and transition commitment of participants in the transition stream to develop, deliver and integrate a technology/product into an acquisition program.”  It calls for a “seminal transition event,” to test the technology in a mission environment before it can be used by the warfighter.

“Our Phase III funding is allowing us to finish our software and conduct the seminal transition event, which is to do 80 MB at 30 miles. We’re getting ready to put that radio into production,” Power said.

RSS Technology is taking advantage of a related funding mechanism, the Rapid Innovation Fund, to further validate the concept. The Navy’s RIF enables participants to develop concepts and technologies to meet operational or national security needs, and invests in ways to reduce technical risk and cost.

“The SBIR program is fantastic,” Power said. “But one has to know how to work it. There is only a certain amount of money. But that investment can make the difference between an idea and a reality.”

Powers understands the importance and value of working with big companies. But being smaller is an advantage. “A lot of the big guys have tried doing some of these projects, but it takes a long time. A small company can act and react faster.”

Janet Hughes with Robotic Research of Gaithersburg, Maryland, said her company has participated in SBIRs for a number of agencies, such as the Army, the Defense Advanced Research Projects Agency and the Department of Homeland Security.

“We’ve had success moving to Phase II and III by working closely with the TPOCs (technical points of contact),” Hughes said. “We’ve taken technologies developed through one agency’s SBIR program and transitioned them into other agencies.

“Today we use SBIR funding almost exclusively for our research and development,” added Hughes.

Rochester, New York-based BlackBox Biometrics (B3), has been selling the Blast Gauge System, a small, wearable sensor that can detect and measure overpressure from explosions such as artillery or bombs, that can cause brain injuries. According to B3’s Scott Featherman, the Blast Gauge technology was first developed with DARPA, and was adopted by the Army. Now, because of a SBIR from the Marine Corps Systems Command, BlackBox has demonstrated the effectiveness of the technology to the service.

“We’re completing our Phase II now and getting ready to enter Phase III, and begin commercial sales,” Featherman said.

Once a company wins a Phase II SBIR award, the Navy SBIR program offers a course to the company to learn how to create a business plan and navigate the complex Defense Department business structure. This is called the SBIR/STTR Transition Program (STP).

A good percentage of NAVSEA’s SBIR companies participate in the program, Smith said. “We teach them how to be a success. That’s what STP does; we foster the relationship between the Navy and the company and teach these companies how to transition their technology.”

“Our naval acquisition community considers SBIR/STTR part of the solution for delivering quality innovation to our warfighters — quickly and cost-effectively,” said Smith. “The Navy cares about our small businesses, and we care about them succeeding.”

Tad Dickenson, Raytheon’s director of the company’s SPY-6(V) Air and Missile Defense Radar program, said Raytheon has some big reasons why it embraces small business. “Small companies offer more diverse input, and help us to think like a smaller company.”

Raytheon has developed the radar with open architecture to be flexible.  “There’s nothing proprietary, and any-sized company can be involved in the program. In fact, we can insert different algorithms for the same function next to each other to see which works best. We can select one, or both. And we can easily put in new functionality, or replace something with a better version.”

Raytheon’s SBIR teammates bring important attributes to a project, Dickenson said, because they are lean and agile, and can produce results quickly at a lower cost. “Their ideas evolve very quickly, and we can leverage that innovation. That adds up to better capability, performance and affordability for the Navy.”

Dickenson said the SBIR program creates win-win-win situations that benefit the Navy, Raytheon and the small businesses. “We look to nurture these relationships. We learn a lot from our small business partners, and we think we can offer them a mentorship relationship with our experience and expertise.”

http://www.nationaldefensemagazine.org/articles/2017/4/5/modest-sbir-investments-bring-big-benefits

Government Contractor Tax Day Tidbits – “Food for Thought”

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“THE PROJECT ON GOVERNMENT OVERSIGHT”

[On] the federal tax filing deadline, the Project On Government Oversight (POGO) offer[ed] some tax-related contractor oversight food for thought:

  • ” The Treasury Inspector General for Tax Administration (TIGTA) found that the Internal Revenue Service (IRS) awarded contracts to at least 20 companies that owed more than $5 million in delinquent federal taxes. TIGTA also found that 11 contractors owing $4.3 million in taxes were awarded more than $356 million in IRS contracts and an additional $3.7 billion in contracts from other federal agencies
  • POGO tracks tax violations in our Federal Contractor Misconduct Database, which shows that contractors have paid $3.64 billion to resolve cases with local, federal, and foreign revenue collection authorities. The bulk of this amount comes from GlaxoSmithKline’s record-breaking $3.4 billion payment in 2006 to settle IRS charges of under-reporting profits.
  • There are some noteworthy tax misconduct cases pending against the large federal contractors, including actions by New York City and State against FedEx and United Parcel Service for allegedly trafficking in contraband cigarettes, and a complaint filed with the IRS accusing ExxonMobil of violating tax laws to wage a campaign attacking climate science.
  • Earlier this month, the IRS launched a program employing private debt collection companies to recover delinquent income taxes. This is the third time since 1996 the IRS has tried to outsource tax debt collection—both previous attempts were dismal failures.
  • Congress has taken another stab at passing a law that would prevent individuals with seriously delinquent tax debts from obtaining federal employment, contracts, and grants. Similar bills introduced in 2011, 2013, and 2015 ultimately failed to advance. The Senate is also attempting to strengthen protections for those who blow the whistle on tax fraud.

So get those tax returns out the door! You can rest assured that POGO will do its best to make sure the government collects what it is owed and does not waste that money.”

http://www.pogo.org/blog/2017/04/tax-day-tidbits.html

 

 

 

Secrets That Highly Successful Government Contractors Use Everyday

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“WASHINGTON TECHNOLOGY”

“What does it take to deliver at least 20 percent revenue growth year after year?

Last month, we released a new study of high-growth firms, including 445 government contractors. We found three key findings from that study that your  business can use to improve your growth prospects.

Each of these findings can be folded into a cohesive strategy. And a characteristic of high-growth firms is that they often employ all three.

Strategy 1: High-Growth Government Contractors Specialize

Our first finding was that high-growth government contractors tend to specialize. Interestingly, so do the firms that exhibited little or no growth. The difference was what they chose to specialize in.

As you can see in Figure 1 below, high-growth firms often focus on solving a particular challenge or providing a specialized service. In fact, high-growth contractors were two-and-a-half times more likely to be highly specialized. No-growth firms that described a specialty usually specialized in an industry.

~ most valuable digital content

Why does specialization matter? In a related finding, 68 percent  of buyers cited specialized skills and expertise as their top criterion when selecting a firm. Specialization implies expertise, and buyers value that.

Takeaway: Try to define an area of focus for your firm. As you do so, consider building it around a specialized service or common client challenge.

Strategy 2: High-Growth Contractors Are Well Differentiated

According to our research, high-growth firms are three times more likely than their no-growth peers to have a strong differentiator.

Differentiation is the way in which a business separates itself from other similar firms. Usually this difference is expressed in the language a contractor uses to describe itself or its services. But there is more to a differentiator than lip service. It has to meet three criteria. A differentiator must be:

  1. True
  2. Relevant
  3. Provable

And of course, it must be different from most of your competitors. Figure 2 lists the differentiators cited most often by the high-growth firms in our study.

~ most valuable digital content

Now, this data begs the question, how can a characteristic that’s favored by over 80 percent of high-growth firms still be a differentiator?  After all, isn’t the point of a differentiator to be different?

The answer is that many of the responses in Figure 2 are aggregated and categorized. That means “The expertise of our team,” for example, represents a diverse range of answers that are more specialized than the generic category name implies. A firm that differentiates around its expertise might have deep experience in a narrow discipline, such as conducting insider threat risk assessments or designing secure but welcoming embassy facilities.

Takeaway: Figure out how you are different from your competitors and develop messaging to convey this to your audiences. Make sure your differentiators really are in fact truly different.

Strategy 3: High-Growth Firms Invest in Marketing Techniques that Build Their Visibility and Reputation

While high-growth firms grow much faster than their peers, they actually invest less time and money doing so. That means their marketing is more efficient. Figure 3 lists the 10 most favored marketing techniques of high-growth and no-growth firms.

~ most valuable digital content

One thing you will notice is that high-growth firms tend to use more marketing techniques overall than their no-growth brethren. Now let’s look at the five techniques high-growth contractors identified as having the most impact on their business.

~ most valuable digital content

All five of these share two characteristics: 1) they build the firm’s visibility, and 2) they leverage their expertise to enhance their reputation.

The top technique, partnership marketing, deserves a little explanation. Traditional partnership marketing is a strategy in which a firm seeks out other firms, associations or organizations that share one or more target audiences with the firm but don’t directly compete with them. The two parties then pool their resources and market jointly to their audience. For instance they might conduct joint webinars or promote each other’s services to their client lists.

In the case of government contractors, however, partnership marketing takes an interesting twist. Often the partnering firms are direct competitors, but because they have different characteristics, they need each other from time to time to qualify for an RFP or comply with a regulatory requirement, such as 8(a) or HUBZone certification.

Takeaway: Don’t waste your limited marketing dollars on timeworn tactics that no longer produce results. Instead, model your marketing on today’s most successful government contractors.

If you are wondering why your firm is stuck in the doldrums while others grow quickly, take heart. There are changes you can make to change your fortunes.

Reposition your firm as a specialist, clearly articulate how your firm is different, and look to the high-growth firms in your industry to uncover what marketing techniques are most effective.”

About the Author

Elizabeth Harr is a partner with Hinge Marketing and leads the firm’s technology and consulting practice. She is the co-author of two books, the Visible Expert and the Buyer’s Brain.

https://washingtontechnology.com/articles/2017/04/14/insights-harr-differentiation-and-success.aspx

 

National Service Narrows Military-Civilian Divide

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Basic Training Photo Credit: Spc. Emily R. Martin/Army

“AIR FORCE TIMES”
“Since 1974, America has depended on an all-volunteer military for our national defense.
Even in the face of 15 years of war (and counting), the all-volunteer force has proven to be sustainable at the present levels with relatively little adjustment to its selection criteria.
Overall, this force has performed magnificently, in many cases exceeding the expectations of the original architects and surprising many of the naysayers.
While this is good news, especially for those who abhor a draft, it has not been without unintended consequences.

Our nation today faces a growing military-civilian divide, both cultural and societal. Less than one-half of one percent of Americans currently serve in uniform, while the 99-plus percent realize the benefit while bearing none of the burden. Not only do most American families have no one in the military, most do not even know someone who is now serving. This is especially true within the higher economic strata, to include the majority of our nation’s lawmakers.

As a result, most Americans know little or nothing about what life is like for our military families who serve and sacrifice on our behalf. This does not make for a healthy society.

One ray of hope to offset this divide has been a growing interest in national service in a civilian capacity as a way to get more Americans involved. Only about one in four young Americans can even meet the requirements for military service, which makes non-military service options even more important.

While there is much to be said for requiring all young people to serve a year or more in some capacity of national service, that is simply a non-starter in today’s environment. It turns out, however, that a purely voluntary program is already enormously successful.

In fact, demand for very poorly paid national service positions, such as those supported by AmeriCorps, exceeds the availability of these positions many times over. There is an increasing thirst among our nation’s 18- to 24-year-old population to get involved in something bigger than themselves, and, yes, altruistically to “make a difference” in this world.

National service in a civilian capacity still requires a degree of sacrifice on the part of its participants, including financial deprivation and what we might call the “opportunity cost” of a year or more of their lives. The benefits, however, far outweigh these costs, and that’s one reason the demand is so high.

One need look no further than the “greatest generation” and what they subsequently achieved for themselves and for the nation as a direct result of their having served in World War II.

Of course, these veterans, as today’s, were “battle hardened,” which is not likely to be the case for those engaging in civilian national service.

The real benefit to those who served came in the form of maturity, self-discipline, management and leadership experience, and the camaraderie that derived from shared experience, especially with teammates of diverse backgrounds to which they might never have otherwise been exposed.

The thousands of businesses who have been hiring our current generation of veterans have quickly discovered it is not an act of charity, rather it’s the smartest thing that they could be doing for their enterprises. The same can be said for those who hire young Americans coming out of a year or more of national service.

The benefits of national service are legion. What makes the case more compelling is that, by doing their share, these young men and women are actually helping to bridge the military-civilian divide and adding to the moral fiber of our communities and our nation.

We’re stronger as a nation because so many of our young men and women selflessly serve, whether in uniform or in a civilian capacity. Both contribute to “providing for the common defense.”

The recently released federal budget proposal, however, would wipe out this critical element of our national strength by zeroing out both AmeriCorps and the Corporation for National and Community Service, the little-known federal agency that runs national service programs, including AmeriCorps and Senior Corps.

This proposal ignores the enormous return on investment that these very small budget lines represent, especially in comparison to the defense budget, which these programs actually complement.

This would be a tragic outcome for both the nation and those individuals in national service.

There is nothing partisan about national service, which for over eight decades has enjoyed bipartisan support at all levels of government. The Kennedy-Hatch Serve America Act of 2009 came about following the 2008 election campaign during which both John McCain and Barack Obama gave their enthusiastic endorsement of national service.

The subsequent passage of that legislation significantly increased the number of AmeriCorps positions available for young Americans to serve their country. We must not lose this momentum.

The signatories to this piece have all proudly served our country in uniform. We strongly believe that a national civilian service program is a vital component of our strength as a nation. We urge the administration to rethink this small, but critical, budget item, and we urge our congressional representatives to ensure that both the AmeriCorps program and the Corporation for National and Community Service are fully funded.
Air Force Gen. John A. Shaud (ret.)
Army Gen. William G. T. Tuttle (ret.)
Salisbury is chairman of the Critical Issues RoundTable, an informal non-partisan group of retired senior military leaders who meet regularly in Washington to discuss contemporary issues of national importance. The opinions expressed here do not necessarily reflect the views of Military Times or its staff.
Co-signers:
Army Lt. Gen. Henry J. Hatch (ret.)
Navy Rear Adm. Cameron Fraser (ret.)
Navy Rear Adm. David T. Hart Jr. (ret.)
Army Maj. Gen. Leo M. Childs (ret.)
Army Brig. Gen. Clarke M. Brintnall (ret.)
Army Brig. Gen. Gerald E. Galloway (ret.)
Air Force Brig. Gen. Thomas L. Hemingway (ret.)
Air Force Reserve Brig. Gen. John A. Hurley (ret.)
Army Brig. Gen. Richard L. Reynard (ret.)
Army Brig. Gen. Anthony A. Smith (ret.)
G. Kim Wincup
Army Col. Charles B. Giasson (ret.)
Army Reserve Col. Herman E. Bulls
Army Col. George W. Sibert (ret.)
Army Col. John P. Walsh Jr. (ret.)
Army Col. Francis A. Waskowicz (ret.)
Army Lt. Col. William T. Marriott III (ret.)
Army Lt. Col. Palmer McGrew (ret.)
Army Capt. Douglas A. Cohn (ret.)
Army Capt. Joan S. Grey (ret.)
Glen L. Archer III
Jan C. Scruggs”

Frustrated by Industry Behavior, Defense Officials Put CEOs on Notice

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Kickthemallout dot com

Image:  Kickthemallout.com

“NATIONAL DEFENSE MAGAZINE”

“Defense contractors can expect the Pentagon to take increasingly tough negotiating positions as future procurements move forward.

That was in a nutshell the message delivered by senior officials last week at an industry conference in Washington, D.C.

In extensive comments to an audience of executives and investors, Director of Defense Pricing Shay Assad and F-35 Program Executive Officer Lt. Gen. Christopher Bogdan made it clear that they intend to push contractors into a corner.

Defense companies are in the best financial shape in years, but little of that windfall is trickling down into military programs, they complained. The government will seek to regain leverage and press contractors to “bring down the cost of DoD weapon systems,” Assad said at the annual McAleese Credit Suisse defense programs conference.

Government buyers and contract negotiators are encouraged by the Trump administration’s hard-line business approach, Assad said. “When you get somebody who is president of the United States and who understands precisely what you do for a living … This is terrific from my point of view.”

Assad for years has been a thorn in the side of Pentagon contractors as his office oversees pricing negotiations. He suggested the Defense Department is unhappy with the attitude of many defense companies that put profit ahead of the customer’s interest. His priorities going forward: Getting better deals for the Defense Department and looking for ways to increase competition in the market.

The F-35 joint strike fighter, the Pentagon’s largest weapons acquisition, is poised to become a litmus test for the new approach to negotiating with industry. “I am excited about the opportunities,” Assad said.

There is no one specifically to blame for the F-35 being far more expensive than anticipated, said Assad, but he believes that from now on, the Pentagon will look to  manufacturers to deliver cost reductions.

Executives from prime contractor Lockheed Martin have insisted that as soon as production ramps up, the unit price of the aircraft will drop. Assad is skeptical, however. “It’s not as simple as, ‘We increase the rate and that reduces the price,’” he said. “It’s not what this is about. This is about reducing the cost of building the product. We’ll get the inherent benefits of rate as we go along.”

As the Pentagon and Lockheed prepare for the next round of low-rate production contract negotiations, there are concerns that suppliers are not doing everything they could be doing to reduce the cost. “There is a lot of room for improvement at Lockheed Martin and the supply chain,” said Assad. One central question the government will ask is, “What should we be paying for the JSF?” he said. “We need to look deep. … We know what we’re paying. But what does it cost and, more importantly, what should it cost? I think you’ll see a focus on that over the next year.”

The Pentagon will be asking contractors to squeeze savings from their lower-tier suppliers, Assad and Bogdan noted. That will require a complex probe into how each component of the F-35 is made, a process they describe as a “delayering” of the supply chain. Under this approach, a company could consolidate subcontractors that do duplicative work, for instance. For every supplier, there’s additional administrative costs that are passed on and adds to the price of equipment.

Assad said the industry has to step up. “This is no secret to the investor,” he said. “The defense industry writ large in the last five years bought back $85 billion of their own stocks. That’s a pretty big number.” The Pentagon expects the industry to pour some of those returns into innovative technology for the military, he added. “We’re looking to find ways to make companies make meaningful investments.”

In conversations with leaders from non-defense commercial firms, Assad has been impressed by the “huge investments they make in areas so they can improve their market share. We don’t get a lot of that in this industry. And so we’re looking to find ways to reward companies that are stepping up to the plate.”

Assad took a swipe at the F-35 industry team for having suggested that the government co-fund a new round of “affordability” initiatives. In the commercial sector, customers do not give companies money to reduce cost, he said. “We’re looking for a sense of urgency. And frankly we want to reward the companies that do [these investments], and distinguish between those that do and those that don’t.”

He cautioned that he is not proposing that the government “suppress profit margins.” The Pentagon wants companies to be financially successful, he said, but needs the industry to help reduce prices.

In the F-35 program, Lockheed and top subcontractors BAE Systems and Northrop Grumman in 2014 funded a $170 million project called “Blueprint for affordability” to squeeze savings from the manufacturing process. Assad said that effort “has been modestly effective” but more is needed. Of a program that is forecast to produce at nearly 3,000 airplanes, “we only bought 400,” so there are billions of dollars in savings still to be extracted.

“We know companies are all trying to protect the interests of shareholders. And we respect that. We expect them to. But we are trying to protect the interests of the United States taxpayers and war fighters. Sometimes those two interests collide. And I don’t want to give any impression that somehow the JSF negotiation process is different than what we’re doing every day with other companies.”

The Pentagon intends to drive a hard bargain in other upcoming programs like the B-21 long-range bomber, the T-X trainer aircraft and the next-generation intercontinental ballistic missile, said Assad. “We should expect companies to be willing to invest in cost reduction. I’m not talking about buying in. I’m talking strictly making investments to reduce cost.”

Assad said he does not buy the industry’s argument that they are hesitant to invest because defense funding is unstable. And he rebuffed industry assertions that defense systems are expensive because red tape adds cost. By some estimates, defense-unique procurement regulations account for 20 to 30 percent of the cost of a system. “We hear a lot about the cost of doing business with DoD, a lot of angst and arm waving,” but Assad said he has yet to see reliable data that proves that point.

“Every time we go through these exercises nobody shows us the money.” In one case, he heard from a contractor who claimed the “earned value management” accounting system that DoD requires adds too much cost. When he asked for data, he said, the company came back 18 months later and the answer was that two additional people were needed to run EVM. “It is the cost of doing business, there’s nothing there, it’s all hypothetical discussion and no real data.”

Bogdan said the F-35 program is progressing and he is satisfied for the most part, except for the price. He recently concluded that there is more room for savings and lowered the bar — from an $85 million per airplane price tag by 2019 to $80 million by 2020.

“We have over 200 operational airplanes in the field. But the elephant in the room is affordability.” The $80 million goal is for an F-35A model, including the engine and contractor fee. said Bogdan. “That’s the target.”

Bogdan’s office will be negotiating F-35 production lot 11 this summer with Lockheed Martin. “What I see is a lot more has to be done to get cost out of the airplane.” Bigger production runs and multiyear contracts will help, but he wants the industry to take more aggressive actions now.

With a supplier base of 1,300 vendors, “we have to figure out how to delayer the supply chain. There is a lot to be gained in delayering 1,300 suppliers. I don’t disagree with Mr. Assad that there are things that industry could be doing today to drive cost out of this airplane that they ought to be doing themselves. If not, the government is going to help them do it.”

The message from Assad and others is that “we have to roll up our sleeves,” said Bogdan. “Just because I know what it costs doesn’t mean I should be satisfied.”

Like Assad, he seemed unimpressed by the Blueprint for Affordability initiative. “It was OK, just OK,” said Bogdan. “We took the low-hanging fruit. Industry invested $170 million in cost reduction initiatives. In my mind they didn’t invest in anything. It was money they didn’t have in their pocket for one to two years. They get paid back and get a premium. Savings were OK, but not as much as we thought we could have.”

The industry team has proposed a second phase of the Blueprint for Affordability. Initially the companies asked DoD to pitch in $100 million but the JPO said no. “As we move forward, we are looking for deeper savings, getting below the lower-tier suppliers,” said Bogdan. “I have to figure out how to energize the supply chain from the ground up, not from the top down.”

Lockheed Martin’s F-35 manager Jeff Babione, told reporters last week at a news conference that the company was taking significant actions to bring down costs. “Since the first LRIP we have reduced the price by 62 percent,” he said. “We are on a trajectory to get to $85 million in 2019. Between lots 11 and 14 the production will accelerate, which is essential to cost reduction, he said. “This is the opportunity to use economies of scale, apply additional pressure to reduce cost. This is extremely important, so we can procure parts at more cost effective rates. If we don’t have that ramp up the cost flattens.”

Is the $80 million goal achievable? “It’s all within the art of the possible,” said Babione. But he stressed that it’s mostly predicated on the number of airplanes ordered. “This allows us to plan better. I can buy 300 airplanes worth of stuff upfront. It’s like going to Costco. You get economies of scale.”

The details of the second phase of the Blueprint for Affordability are still being hashed out, said Babione. “We have a lot of great ideas. It will be about the same level of investment, $170 million, and we’ll be able to get billions out of the program.”

http://www.nationaldefensemagazine.org/blog/Lists/Posts/Post.aspx?ID=2463

Federal Government Contracts Need to Be Posted Online

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Open Contracting

“THE PROJECT ON GOVERNMENT OVERSIGHT’

“Last Week Senator Claire McCaskill (D-MO) introduced the “Contractor Accountability and Transparency Act of 2017” (S. 651), which POGO and eight other bipartisan groups supported.

The bill will expand the contracting information available on USASpending.gov (which now only offers summaries of contracts), make the contract information more accessible and readable, and help reduce Freedom of Information Act backlogs.

In fiscal year 2016, the federal government spent $472 billion for the acquisition of goods and services. In order to rein in spending and regain public faith in the contracting system, the government must provide public access to information on the contracting process. Posting copies of contracts—rather than summary data that offers little, if any, insights into the goods and services being purchased—is essential to learning about government activities and eliminating waste, fraud, abuse, and substandard performance.

When contract information is publicly accessible, genuine competition will increase, and the government will be better situated to get better deals, especially as budget constraints take hold. Simply stated, the government will be in a much improved position to leverage its robust buying power.

Despite concerns some have voiced about posting contracts, it can be accomplished without compromising national security information or contractors’ proprietary commercial or financial information.

In fact, many states have already adopted a more transparent contracting system without negatively impacting their ability to do business with contractors. According to a recent Project On Government Oversight report, at least 33 states proactively post some contracts online. That means two-thirds of the states are ahead of the federal government when it comes to contract transparency.

For many years, groups and Members of Congress have worked in a bipartisan manner to enhance transparency in the area of federal contract spending. In 2006, Senator Tom Coburn (R-OK), with the support of Senators John McCain (R-AZ), Tom Carper (D-DE), and Barack Obama (D-IL), introduced a bill that brought federal spending out of the Dark Ages—the Federal Funding Accountability and Transparency Act of 2006 (FFATA). That bill was signed into law (see the Notes section) by President George W. Bush, and it provided the foundation for USASpending.org and learning more about federal spending.

In 2008, all four Senators teamed up again to introduce the Strengthening Transparency and Accountability in Federal Spending Act of 2008, which proposed to enhance federal spending transparency. The new bill was intended to expand the scope of information that would become publicly available, including details about the contract bids and the award’s financial terms. Additionally, the bill would have posted searchable copies of “all contracts, subcontracts, purchase orders, task orders, lease agreements and assignments, and delivery orders.”

The 2008 election, pitting Senator Obama against Senator McCain, essentially caused the bill to die in the Senate Committee on Homeland Security and Governmental Affairs. But that wasn’t the last we heard about posting contracts online.

In addition to Senator McCaskill, Senator Jon Tester (D-MT) has also been working on the issue.  He not only cosponsored the McCaskill bill, but since 2010 and most recently on March 14, 2017, has also introduced the Public Online Information Act, which will make information from all three branches of government available on the internet, including contracts.

With annual contract spending bouncing back up to nearly $500 billion, oversight of that spending is crucial. Groups from across the political spectrum support efforts to increase disclosure of federal contracts to improve transparency and accountability in federal spending. Posting contracts online should have happened years ago. We will see if the 115th Congress is serious about transparency and accountability in federal spending. If it is, passing Senator McCaskill’s and Senator Tester’s bills will be a good start.”

http://www.pogo.org/blog/2017/03/contracts-need-to-be-posted-online-mccaskill-sunshine-transparency.html

 

 

Federal Contractors Seek Edge in Specialized Services

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Competive Edge Virtual Elves dot com

Image: “Virtualelves.com”

“NATIONAL DEFENSE MAGAZINE”
“In the cutthroat world of government services contracting, the lowest bid generally wins the project.
That trend has driven a cadre of technically specialized firms to reposition themselves in the market so they can compete less on price and more on the value of particular skills and knowledge. 
 
This shift is especially apparent in sectors like defense, space and intelligence that depend on contractors for highly complex missions. Companies that have the technical expertise are carving out niches where they can dominate and be less vulnerable to price wars. 
 
Lynn Dugle, CEO of government services contractor Engility Inc., said the company has been moving in that direction for the past couple of years, and the plan going forward is to focus more acutely on projects that are awarded based on “best value.”
 
“We are positioning our defense business to be more like our space and intelligence businesses, where we can differentiate the work we do in higher end services and engineering,” Dugle told National Defense. 
 
Dugle is finishing up her first year as CEO of $2.1 billion Engility. The company was spun off nearly five years ago from top defense contractor L-3. In 2015 it acquired the services contractor TASC and doubled its size.
 
Engility initially sought to compete in broader categories of federal support services that are awarded to the lowest bidder in so called “lowest price technically acceptable” contracting. Over the past eight months, only 5 percent of Engility’s bids have been for LPTA contracts, Dugle said. Now almost all the company’s proposals are “best value.”
 
LPTA is widely despised by companies in the defense industry and viewed as a race to the bottom. There is now a growing consensus that LPTA contracting works for nontechnical services like maintaining government facilities or staffing mess halls. Dugle has seen the Defense Department walk back from LPTA for engineering support and other “mission support.” Defense agencies frequently found that companies selected based on LPTA were technically unqualified.
 
“The market has shifted,” Dugle said. “Customers got burned on those higher end contracts with LPTA. Competitors bid really low and then they couldn’t staff the jobs.”
 
Engility is moving to hire specialized talent to shore up its defense expertise. “We are close to naming a senior VP for defense,” she said. “We need a certain percentage of our leadership to have operated and been successful at pursuing big programs, and at best value proposal writing. That’s a different skill than competing on price for smaller projects.”
 
The shift to higher end services appears to paying off. Engility reported an $11 million loss in 2016, but that was an improvement over $235 million of red ink in 2015. The numbers are “encouraging,” said Dugle. “Four contracts we won were over $200 million. That requires getting the right people with the right experience.” Engility has submitted at least 10 bids worth over $100 million that are still in source selection.
 
“We want to be primes in large jobs,” said Dugle. The company’s government work today is 40 percent defense. Dugle predicts that share will increase. “The market itself in DoD continues to get more attractive,” she said. 
 
Like other industry executives, Dugle is bullish but cautious about the anticipated spending boost to defense and veterans programs projected by the Trump administration. Even if the increase materializes, every agency in the federal government including the Defense Department will be squeezed. A new Trump executive order requires agencies to conduct a “thorough examination” of its operations and to recommend “where money can be saved and services improved,” White House Press Secretary Sean Spicer told reporters. That could result in layoffs of government workers but also in cutbacks in the use of contractors.
 
The message for contractors is that “we have to be prepared to respond,” said Dugle. “We do a lot of thinking about scenarios and how we can be prepared. Services is always a challenging business. It’s not a technology play, it’s a people business.”
 
Dugle is especially optimistic about the possible privatization of parts of the Federal Aviation Administration. “We just won the largest contract with the FAA, the largest we’ve ever won, to help them modernize their systems.”
 
Trump’s budget has been widely rejected on Capitol Hill and many specifics remain unknown so Engility, like other defense firms, has been conservative in its future earnings and sales guidance to Wall Street. “It’s premature until we know the program details of the FY18 budget,” she said. “We believe we are more advantaged than disadvantaged in a Trump administration but we did not want to put that in a plan.”
 
The industry also will be watching congressional action led by House Armed Services Committee Chairman Rep. Mac Thornberry, R-Texas. The committee is drafting a procurement reform bill to accompany the 2018 national defense authorization act. On the list of Thornberry’s targets are services contracts. 
 
The 2017 NDAA sets limits to the use of LPTA in defense procurements. Thornberry has pushed Pentagon officials over the years to more precisely articulate the military’s needs for contracted services and how services vendors are selected.
“One of the big challenges is the definition of requirements,” Dugle said. That is partly the reason DoD has had to re-evaluate its use of LPTA contracts, she noted. “If you just write a requirement that you need five people with 10 years of experience with a particular degree, that is when people default to price.” Conversely, the government could make the requirement to accomplish a desired mission, and leave it up to the bidders to decide how to staff the job. “If you are relying on systems engineering, you have to write good requirements.”