Tag Archives: Northrop Grumman

Northrop Grumman Expanding Grand Forks, North Dakota Unmanned Aerial Systems Facility

Standard
grand-sky1

Photo: Northrop Grumman

“NATIONAL DEFENSE MAGAZINE”

“Less than a year after Northrop Grumman opened the doors to its new unmanned aerial systems facility in North Dakota, the company will soon break ground on a new hangar to conduct testing and maintenance on its family of autonomous systems.

The company expects to employ 100 people by the end of 2017, with a mix of current Northrop employees coming from San Diego and other locations, and new hires from the North Dakota area.

The Grand Sky Park, for which Northrop Grumman is the anchor tenant, hosts several commercial tenants with ties to unmanned aerial systems, including General Atomics, Hambleton said. Northrop committed over $10 million to the initial Grand Sky project, and its initial 36,000 square-foot facility was completed in late 2016.

The company in April announced the opening of its new facility at the Grand Sky Unmanned Aerial Systems Business and Aviation Park near Grand Forks. The facility serves as a “nucleus” for research and development, pilot, operator and maintainer training, as well as operations and mission analysis and aircraft maintenance, according to Northrop.

Before the end of the summer, Northrop will start work on a new hangar that will allow it to take advantage of the proximity of Grand Forks Air Force Base’s remotely piloted aircraft squadron, David Hambleton, Grand Sky program manager and site lead, said in an interview with National Defense.

Northrop leased 10 acres of land from the Air Force to build the recently opened facility and the 35,000 square-foot hangar, which is expected to be complete by the end of 2018, he said. Flight testing and aircraft maintenance for the company’s family of autonomous systems will begin by the following year, he added.

The company’s facility in North Dakota will be an “offshoot” of its autonomous systems division in San Diego, California, he said. “In one place, we have access to both civil and restricted airspace [and] opportunities to collaborate with the universities nearby” such as the University of North Dakota and North Dakota State University, he said.

The Grand Sky team will have the ability to link different capabilities “through a modeling and simulation backbone,” he added. “We’ll be able to tie together system testing in a lab with monitoring mission data as it comes in, connecting to training simulators and linking them together in a technical way to enable new ways to doing what, in the past, we’ve done independently or separately.”

The FAA-designated Northern Plains unmanned aerial systems test site is also located in Grand Forks, and the Air Force’s fleet of RQ-4 Global Hawk unmanned surveillance aircraft, produced by Northrop, is based next door, he noted.

“Having all of these capabilities and infrastructure concentrated here makes Grand Sky a desirable place for us to pursue flight testing and system demonstration,” he added.

Northrop expects to perform flight testing and maintenance for the Global Hawk fleet at Grand Sky, but also intends to support other unmanned systems such as the Navy’s forthcoming MQ-4C Triton surveillance aircraft or the MQ-8 Fire Scout reconnaissance helicopter, he added.

Northrop committed over $10 million to the initial Grand Sky project, and its initial 36,000 square-foot facility was completed in late 2016, he added.

The local community and the state of North Dakota were interested in developing the unmanned aerial systems industry in the Red River Valley region, he said. A group of local actors that included the University of North Dakota and Grand Forks County developed the Red River strategic alliance agreement.

“Northrop Grumman signed on to this agreement to promote the UAS industry,” he said. “That set the stage for the goal of creating… the Grand Sky aviation business park for UAS.”

http://www.nationaldefensemagazine.org/articles/2017/8/3/northrop-prepares-for-new-hangar-construction-in-north-dakota

 

Advertisements

Northrop Grumman Won $55 Billion B-21 Bomber Contract Based on Cost

Standard

b21-usaf_0

“DOD BUZZ”

“Northrop adjusted its cost estimates, and was also willing to spend its own cash on risk-reduction.

Boeing initially protested the award contract over inaccurate risk assessment for the program, the GAO revealed. The GAO said the claim had no bearing, as Northrop met the Air Force’s bid proposal.

In a redacted report released by the GAO on Tuesday, the investigative arm of Congress produced its final 52-page decision based on the Air Force’s assessment that the award to Northrop was “reasonable and consistent” with the service’s request for proposal.

“With respect to the cost price evaluation, we see no support for Boeing’s argument that the Air Force failed to reasonably account for Northrop’s technical risks in the cost realism analysis, and cannot conclude that the Air Force’s realism evaluation of Boeing’s proposal was flawed,” investigators offered in their conclusion.

All technical and cost-price estimates were redacted or deleted throughout the report.

“Significant structural advantages in Northrop’s proposal — specifically, its labor rate advantage and decision to absorb significant company investment — also strongly impacted the outcome of this essentially low-price, technically acceptable procurement, and Northrop’s significantly lower proposed process for the [Low Rate Initial Production] phase created a near-insurmountable obstacle to Boeing’s proposal achieving best-value or to Boeing’s protest demonstrating prejudice in the cost realism evaluation,” the report said.

RELATED: Air Force Unveils Name of Future Stealth Bomber as B-21 ‘Raider’

Boeing initially protested the award contract over inaccurate risk assessment for the program, the GAO revealed. The GAO said the claim had no bearing, as Northrop met the Air Force’s bid proposal.

Boeing’s protest, in tandem with partner Lockheed Martin Corp., prompted Northrop to suspend initial engineering work on the program in November 2015 until the decision in February reversed the temporary pause.

Earlier in the report, investigators also noted that, “throughout the discussion process, Boeing pursued an approach of revising and supplementing the substantiation of its original cost proposal without upwardly revising any of its proposed costs.”

Cost Was Deciding Factor in Air Force’s B-21 Decision: GAO

 

Five B-21 Bomber Questions The Air Force Must Answer

Standard

Northrop Questions

“FORBES WASHINGTON”

“Answering these questions would present no real security problem for the Air Force.

Last October the Air Force awarded Northrop Grumman Corporation a contract to develop a stealthy bomber that has since been designated the B-21.Development is funded using a “cost-plus” arrangement of the sort that led to abuses in the past.

The Chairman of the Senate Armed Services Committee has launched an effort to get details on precisely how much the winning bid was, information the Air Force improbably contends is too sensitive to release.

Most of the questions revolve around cost, particularly how great the government’s exposure will be when the inevitable cost overruns occur. The Air Force has sought to hold down costs by using mature technology from other programs to equip the bomber. Thus it wasn’t a surprise when the service revealed this week that Pratt & Whitney would be building the bomber’s engines and BAE Systems would be providing electronic-warfare systems. They build those items for the next-generation F-35 fighter too, so their role would have been mandated regardless of which bomber team won.

But there are other aspects to the aircraft that could send costs into the stratosphere, such as how antennas will be embedded in the plane’s skin to minimize radar reflectivity. The aircraft is supposed to be untrackable across all segments of the electromagnetic spectrum, which is a tough design (not to mention manufacturing) challenge for an airframe the size of a bomber. Senator McCain is one of the few members who has served long enough to remember when it was disclosed Northrop’s B-2 bomber would cost three times its weight in gold, or when defense secretary Dick Cheney canceled a similar Navy program in 1991 — leading to 23 years of litigation.

The key question Senator McCain and his colleagues are trying to get at is whether the winning bomber team bid an unrealistic price to secure the contract, knowing that any cost overruns would be covered by the Air Force under what is called a “cost-reimbursable” contract. That kind of behavior was common in past Pentagon competitions, with companies routinely bidding prices at a negative rate of return because they figured once they had won they could get the terms adjusted. The practice is called “buying in,” and the Air Force made certain it wouldn’t happen on a recently-awarded tanker contract by imposing a fixed-price development contract on winner Boeing.

But that is not the way it structured the bomber contract, where development is funded using a “cost-plus” arrangement of the sort that led to abuses in the past. Senator McCain isn’t having it. The Chairman of the Senate Armed Services Committee told a group of reporters “I will not stand for cost-plus contracts,” arguing that they always lead to massive cost overruns. Now the Senator has launched an effort to get details on precisely how much the winning bid was, information the Air Force improbably contends is too sensitive to release. More requests for information will follow. In the end, there are at least five key questions the Air Force will need to answer.

How much was the winning bid for developing the bomber? Senator McCain sent a letter to Air Force Secretary James yesterday demanding an answer to this question. The Air Force has stated that an “independent cost estimate” the Pentagon conducted pegs the price of development at $23.5 billion in today’s dollars, but it has not disclosed the amount of the winning bid. An Air Force spokesperson told Lara Seligman of Defense News in February that it would make more sense to compare the winning bid with the service’s projected “most probable cost,” which an unnamed source told Seligman is much lower than $23.5 billion and close to the bid number. There’s no way Congress can judge these assertions without having actual numbers.

Why is there a big gap between the bid and Air Force cost estimates? In reality, the Air Force’s “most probable cost” is much higher than the winning bid, and the independent cost estimate is over twice as big. The Air Force signaled this fact last month when it reduced the projected cost of the bomber program through 2020 by 28% while stating there were no changes in the program. The reason the budget was cut $3.5 billion over four years was because “we have a winner — we know that winner’s business strategy, their technology strategy,” according to the service’s deputy budget chief in another Seligman story. Translation: the winning bid was way below what the Air Force calculated the development program should cost.

What happens if development costs exceed the winning bid? This is really the crux of the matter for Senator McCain. If the winning contractor incurs little or no penalty for exceeding its bid, then why not offer a wildly implausible price to secure the contract? The Air Force says there are incentive fees built into the development contract for meeting cost and schedule goals, but that doesn’t mean Northrop suffers actual losses if it runs over the price it bid. Boeing was willing to lose hundreds of millions of dollars on its fixed-price development contract for the tanker in order to secure a 50-year franchise. If Northrop suffers no real loss for going over bid, why wouldn’t such reasoning be even more compelling in bidding for the bomber?

What did the winning team bid for each production bomber? In addition to the cost-plus development contract, the Air Force plan also includes five fixed-price options on the first 21 production bombers. The competing bomber teams submitted bids on that part of the program too, and those bids materially influenced the decision as to which team would win. The Air Force has estimated that each production bomber should cost an average of $564 million in 2016 dollars across the entire 100-plane production run, and has stated that the cost will not be allowed to exceed $606 million. But there has been no disclosure of what the winning team bid per production bomber, making it impossible to assess cost realism.

How much less was the winner’s bid for production bombers than Air Force estimates? Boeing is the world’s biggest builder of jetliners, and yet despite bidding aggressively for the bomber program it apparently was underbid by a company that hasn’t built large aircraft in nearly 20 years. That raises the obvious question of whether Northrop Grumman’s proposed unit procurement cost — the incremental cost of each production plane without development expenses included — was realistic. If it wasn’t, then the Air Force’s modernization budget will go haywire early in the next decade. Boeing charges around $300 million for an empty 777 jetliner. Did Northrop Grumman bid more or less than that amount? If less, how can the number be believable?

Congress needs to know the numbers to assess whether the B-21 program is grounded in reality, or is yet another Pentagon budget fiasco waiting to happen. Until it has those numbers, the Air Force’s new bomber isn’t likely to make much progress.”

http://www.forbes.com/sites/lorenthompson/2016/03/11/b-21-bomber-five-questions-the-air-force-must-answer/#39989d012c62

 

 

Laser Trucks are on Their Way

Standard
Image Patrick Tucker

Northrop Grumman’s Hell Hound on the AUSA show floor. Image: Patrick Tucker

“DEFENSE ONE”

“Weapons maker Northrop Grumman announced that they’re looking to integrate a 10-kilowatt solid-state fiber laser onto their newest tactical dune buggy.

The vehicle’s sensors include a visible-light camera that can spot objects some 800 meters away, and an infrared sensor effective out to 10,000 meters.

The Hellhound, a rear-engine vehicle with seating for six, weighs in at 13,000 pounds, loaded. Loaded with what? Not a lot of armor, nor even a belly-plate to protect against IEDs, though you can buy and bolt on a 1-ton armor kit. But this kind of protection is deemed unnecessary for the typical mission of a light reconnaissance vehicle, or LRV, which might go in as part of an entry brigade combat team — more Grenada, 1983; less Iraq, 2003.

For quick entry and exit, the Hellhound can be squeezed onto or slung under a CH-47 Chinook helicopter.

“We accomplished this [folding the machine into the body of the Chinook] by compressing the suspension to a kneel height of 73 inches and by folding the entire weapon system into the vehicle itself,” said Jeff Wood, who runs vehicle modernization for Northrop Grumman. “It’s more an ISR platform than it is a truck.”

It can also be configured as a hybrid-drive version for a more stealthy (and environmentally friendly) laser-armed death truck.

The most important item on board is the integrated starter generator system from German manufacturer Jenoptik. It’s a mini power plant that runs as long as the engine is running and puts out 100 kilowatts of usable power, a first for a small truck.

“The jump to 100 kilowatts of onboard power opens up new opportunities that we are beginning to explore, directed energy weapons that we would once only see in Star Trek are now quite possible,” Wood said. “New and more powerful sensor suites that give unprecedented situational awareness.”

That’s enough power to run the LN270 nav system, which has an inertial positioning unit for when GPS is jammed or unavailable.  It’s sufficient juice to keep the lights on in a small hospital or forward operating base, or — cue supervillain intro music — fire a 10-kilowatt fiber laser. Wood told reporters that he anticipates that direct energy—in addition to regular guns—will soon be a requirement for more vehicles, the result of rising Pentagon concern about cheap ubiquitous drone swarms. Wood estimated that a 30kw fiber laser is possible within a matter of months.

Laser trucks are coming. It’s a matter of when.”

http://www.defenseone.com/technology/2015/10/laser-trucks-are-their-way/122727/?oref=d_brief_nl

Air Force Awards $3.2 Billion UAV Contract on Last Day of Fiscal Year

Standard

Global Hawk NGC

“MILITARY AND AEROSPACE ELECTRONICS”

“The Air Force awarded the contract on 30 Sept. 2015, the last day of federal fiscal year 2015 — a time when many large contracts are let to clear up financial details at the end of the fiscal year.

Unmanned aircraft experts at Northrop Grumman Corp. will handle upgrades, technology insertion, and maintenance of the U.S. Air Force RQ-4 Global Hawk unmanned surveillance aircraft over the next decade.

Officials of the Air Force Life Cycle Management Center at Robins Air Force Base, Ga., are asking the Northrop Grumman Aerospace Systems segment in San Diego to handle configuration management, data management, technical refresh, and component-obsolescence issues for all Air Force variants of the Global Hawk.

Northrop Grumman is the original equipment manufacturer of the Global Hawk unmanned aerial vehicle (UAV), which the Air Force uses for long-endurance and high-altitude surveillance missions throughout the world.

Global Hawk was designed by Ryan Aeronautical, which Northrop Grumman acquired in 1999. The UAV has a role similar to the U-2 high-altitude surveillance aircraft.

The RQ-4 UAV provides broad-area surveillance using high-resolution synthetic aperture radar (SAR) and long-range infrared sensors. The aircraft can remain aloft for days and can survey as much as 40,000 square miles a day.

A Navy version of the Global Hawk called the MQ-4C Triton Broad Area Maritime Surveillance (BAMS) UAV assists the Navy’s Boeing P-8 surveillance jet with anti-submarine warfare (ASW) and maritime patrol duties.

Contractor logistics support, although an expensive line item in the Pentagon budget, often makes sense in the modern era of complex military technology-especially as military personnel are taking a hit from U.S. Department of Defense budget cuts.”

http://www.militaryaerospace.com/articles/2015/10/global-hawk-upgrades.html?cmpid=EnlMAEspecOctober22015&eid=297842363&bid=1192129

Northrop Grumman CEO Critical of “Better Buying Power” for the Tax Payer

Standard
canadaf35cartoon

Canadians Choked on the F-35 – Cancelled the Program with the US and took it away from the equivalent of their Pentagon, mandating the Canadian Government find another fighter

ROSE COVERED GLASSES NOTE:

Having worked on the inside of Northrop Grumman in two locations for several years, I find a recent article in “Defense One”  begs the question of fixed price vs. cost plus contracting. Anyone who been in the industry knows that IR&D in Aerospace and Defense is a technology ploy to obtain a cost plus contact for development where every cent of risk is on the tax payer (the $Trillion F-35 is a good example).

It does not work like intellectual property at Apple, Microsoft, Google and like firms.  That is why the Pentagon is finding it difficult to utilize commercial contracting techniques for products they must have for security and advancement.Fixed price contracting is considered by the typical defense contractor when production arrives and risk is gone.

http://www.smalltofeds.com/2014/09/fixed-price-versus-cost-plus-in-federal.html

Lockheed (with Northrop as a major subcontractor) pushed the F-35 production envelope prematurely into the development (cost plus) window and fell flat on their faces. The government has now capped their program price (at a sunk cost in the billions to US Citizens)  For the F-35 to survive these contractors must now finance themselves any overruns hereafter to get the plane into production.

CEO Bush  questions that Secretary Carter and his staff wish to further authenticate his company’s judgements on new technology earlier in the future because they have been burned.  Go figure?

Ken Larson Mission to learn dot com


Wes+Bush+Aerospace+Industry+Leaders+Urge+Gov+fpvpESPKnuWl

Northrop Grumman CEO Wes Bush

“DEFENSE ONE”

“Better Buying Power, has been pushing firms to share the results of their research projects on a Defense Department website so government technologists can “look up what industry has done and they can identify technologies and they can inquire about it.

Bush voiced his opposition to a provision in the Pentagon’s Better Buying Power acquisition doctrine that requires companies to get a Defense Department sponsor when they conduct independent research-and-development projects, commonly called IRAD or IR&D.

In April, Under Secretary of Defense for Acquisition, Technology and Logistics Frank Kendall, the Pentagon’s top weapons buyer, announced the new policy. Kendall called the mandate “a minimalist requirement,” saying it “enhances the communication between industry and government.” “I don’t think it’s a very high hurdle for people to get over,” Kendall said in April at the Pentagon.

But industry executives are not excited about the provision, arguing they should be able to spend their own money on projects of their choosing. Behind the scenes, executives and their surrogates have voiced their displeasure with the request, making Bush’s public rebuke at the Center for Strategic and International Studies, or CSIS, all the more notable. “I think the challenge here is to preserve the ‘I’ in IRAD, to ensure that we really do maintain independence,” Bush said, “but also enhance the flow of discussion and communication around it.”

Top Defense Department officials have been pushing firms to spend more of their own money on  research-and-development projects as federal spending is expected to decline. The hope is that these projects could spur new technology that could give the military a cost-saving edge on the battlefield of the future.

Bush’s sentiment expressed Tuesday is widely shared throughout the defense sector, but getting executives to speak publicly about the issue is rare. His comments could prompt more CEOs to speak openly on the policy. “If the fix is to try and put some controls into the front end of it, I think we end up in the wrong place on this,” Bush said of getting prior Pentagon approval for research projects. “It’s got to be some place in the middle. It’s got to be where we enhance the dialogue, enhance the communications and enhance the engagement.”

Research teams made up of outside-the-box thinkers are key to spurring innovation, Bush argues. “[H]aving worked in innovation for essentially my entire career, one of the things that rings really true to me is the benefit of independent thinking,” he said.

At the same time, there is a criticism that companies don’t share the results of their IRAD projects or, in some cases, use this work to defer costs when competing for Pentagon contracts. In other cases, companies’ internal research focuses on defining intellectual property rather than advanced technology, Kendall said. “I have seen some behaviors, and they’re not general, but I’ve seen enough of them to make me nervous, by industry,” he said.

“I think that’s a pretty minimalist requirement, too,” Kendall said. “We are paying for this even though it’s not directly contracted out.” Bush agreed that companies must have a better dialog with the Pentagon about the research projects they’re working on.”

http://www.defenseone.com/management/2015/05/northrop-grumman-ceo-issues-rare-pentagon-rebuke-over-research-red-tape/113737/?oref=defenseone_today_nl

Major Defense Companies Interested in North Dakota Drone Park

Standard

41300_GrandSky_Logo_4C“CNBC By DAVE KOLPACK, Associated Press”

“The nation’s first unmanned aircraft business park currently under construction in North Dakota has a second major defense contractor interested in setting up shop.  Linden P. Blue, the CEO of General Atomics Aeronautical Systems, Inc., plans to visit in July to look into Grand Sky, a 1.2 million-square-foot park.

Already, defense technology company Northrop Grumman last month signed a lease to become the park’s lead tenant, finalizing a plan that had been in the works for years.

Among the unmanned aerial systems General Atomics produces are drones for military combat missions. The MQ-1 Predator drones are being flown by the North Dakota Air National Guard and MQ-9 Reaper planes are being used by U.S. Customs and Border Protection. Several graduates of the University of North Dakota aviation school are among the more than 6,000 employees for the San Diego-based company.

Northrop Grumman makes the RQ-4 Global Hawk drone, which is considered particularly valuable because it can conduct long-range missions, fly at 60,000 feet and roam in a particular area for 24 hours or more.

“I always have been a big believer in momentum, and someone like Northrop Grumman signing that lease, that’s momentum,” Cramer said.

The momentum continued this past week at an international trade show in Atlanta, where Grand Sky Development President Tom Swoyer said he received inquiries from seven companies. A handful of other businesses also have publicly expressed their interest, he said.

“The questions I heard were, ‘What do I have to do to get space, what’s the process, how fast can I get it, and what does it cost?'” Swoyer said.

In addition to the fledgling tech park, North Dakota is one six sites around the country testing unmanned aircraft and the only one to receive approval from the Federal Aviation Administration to fly in expanded airspace. Airspace, Swoyer said, was the No. 1 topic at the Atlanta convention.”

http://www.cnbc.com/id/102664830

5 Things Your Taxes Bought for the Pentagon in February

Standard

diagnosing-military-industrial-complex-cartoon-473x350 - Copy

“DAILY FINANCE.COM”

“Tax Day approaches, and with it, the perennial question: We’re paying the government a lot of money — but what are we getting for our money? In fact, though, this was a light spending month for the Pentagon, which is budgeted to spend some $585 billion in fiscal 2015, or nearly $49 billion a month.

Here are a few of the more interesting items the generals spent your tax dollars on: DronesAircraft carriersHelicopters for the ArmyNukesForeign aid.

  • Drones. Unmanned aerial vehicles remain as popular as ever. Early in the month, the Pentagon awarded $279 million to General Atomics to produce 24 MQ-9 “Reaper” unmanned aerial vehicles (“drones,” in the popular parlance) for the U.S. Air Force. Toward month’s end, the Pentagon awarded Northrop Grumman (NOC) $26 million to support U.S. Navy MQ-8 Fire Scouts (robotic helicopters).
  • Aircraft carriers. There’s been a lot of talk lately about the state of the American aircraft carrier fleet, and in particular, the fact that we only have 10 carriers in operation, despite a statutory requirement that the Navy maintain an 11-carrier fleet. Carrier fans, then, will be pleased to learn that on Feb. 4, the Navy awarded Huntington Ingalls (HII) a $224 million contract to begin preparations to refuel and refurbish the aircraft carrier USS George Washington (CVN 73). Once complete, this years-long task will return the Washington to service, ready to sail for another 25 years.
  • Helicopters for the Army. For $220 million, the U.S. Army will receive 41 72A Lakota Helicopters from European aerospace conglomerate Airbus. Then, for $591 million more, it will get 35 AH-64E Apache attack helicopters from Boeing (BA).
  • Nukes. You may have thought that nuclear weapons went out of fashion with the Cold War — but everything old is nuke again for the Navy. On Feb. 9, the Navy awarded Charles Stark Draper Laboratory (no relation to Tony Stark) $302 million to fund the testing of the guidance systems aboard U.S. Trident sub-launched nuclear missiles.
  • Foreign aid. Finally, never one to be stingy, the Pentagon awarded a slew of contracts facilitating arms sales to U.S. allies around the world. Among these were awards for $144 million to supply 2,040 of Lockheed Martin’s (LMT) Hellfire missiles to customers in Australia, Egypt, Iraq, Jordan, Saudi Arabia and Qatar; $221 million to pay Britain’s BAE Systems to support and maintain F-16 fighter jets flown by the air forces of Morocco, Egypt, Oman, Pakistan, Indonesia and Portugal; and $402 million to have Boeing upgrade four AWACS planes for Japan.

Mind you, this is just a small sampling of the $13.93 billion in contracts the Pentagon announced on its website. Even with nearly half that sum budgeted to pay for military service members’ pay and benefits, the Pentagon still spent significantly less than you’d expect it to, in an ordinary month.

Will it make up the difference in March? Tune back in at month’s end to find out.”

http://www.dailyfinance.com/2015/03/05/5things-pentagon-bought-february/

 

 

 

 

Compelling Proof Large Defense Contractors Are Sheltered from Cuts and Pay Little in Taxes

Standard

“PUBLIC INTELLIGENCE.NET”

defense-tax-evaders“NATIONAL DEFENSE MAGAZINE”

“Defense Department contract obligations dropped by 16 percent to $314 billion from 2012 to 2013, a decline four times as steep as was seen from 2009 to 2012, a CSIS study estimated. From 2012 to 2013, contracts for the Pentagon’s top six contractors — Lockheed Martin, Boeing, Raytheon, General Dynamics, Northrop Grumman and L-3 Communications — dropped by 9 percent. For everyone else, they fell by 19 percent.

The report provides overwhelming evidence that the sequester, which was designed to cut government spending across the board, has affected contractors far more dramatically, Berteau said. Non-contract outlays, by comparison, remained mostly flat from 2012 to 2013, an indication that when budgets fall, federal agencies target contract spending as a measure of first resort. The study, conducted annually by CSIS, looks at contracting trends from 2000 to 2013 drawn from the Federal Procurement Data System.

“Contractors are paying the largest share of the impact of the decline,” Berteau said. As a percentage of total gross defense outlays, defense funded contract obligations have declined from 53 percent to 49 percent in 2013, the lowest share since 2002.

Berteau said the industry might not want to keep pretending that its defense sales have hit bottom and are going to come back up. World events and new contingencies such as the war on the Islamic State and the Ebola crisis might boost emergency spending, but will not immediately lead to a broad bipartisan agreement to increase the current caps on government discretionary spending, he added.

At the Defense Department, uncertainty and churn will continue to delay weapon modernization programs. “It is only going to get worse from a contractor point of view,” Berteau said. “I do no see the votes to change those caps any time soon.”

Many defense CEOs believed when sequester hit, that it would be a one-time event, that “Congress would come to its senses, that we’d get our money back in 2014, and the caps would be raised,” said Berteau.

A big warning signal for contractors is the precipitous fall in Defense Department research and development spending. R&D contract obligations dropped by 21 percent from 2012 to 2013, and by 39 percent from 2009 to 2013. The Army’s R&D contracts went down by 35 percent and the Air Force’s by 27 percent, compared to only 10 percent for the Navy.

These numbers show that the Pentagon, contrary to the official rhetoric, is paring back investments in advanced technology and modernization of the force, said CSIS analyst Greg Sanders, one of the authors of the study. After Congress passed the Budget Control Act and military spending took a dive, Defense Secretary Chuck Hagel called for a smaller, but more technologically advanced force. The data contradicts that vision, Sanders said.

As shown by impressive gains in stock prices over the past two year, large primes have pulled through the sequester better than small firms. The study provides compelling proof that the largest contractors are more sheltered from cuts. From 2012 to 2013, contracts for the Pentagon’s top six contractors — Lockheed Martin, Boeing, Raytheon, General Dynamics, Northrop Grumman and L-3 Communications — dropped by 9 percent. For everyone else, they fell by 19 percent.

The numbers in the CSIS study should not come as a surprise to industry investors, says analyst Byron Callan, of Capital Alpha Partners. “The data likely conforms to many investor perceptions of what’s happened in recent years,” he writes in a research note.

“Investors and analysts need to keep in mind that the data is for contracts — this is not the same as outlays,” he warns. Contract awards more closely track company orders while outlays are more closely related to sales. Of particular interest to investors, he says, is that foreign military sales contract obligations fell 20 percent between 2012 and 2013 — from $26 billion to $21 billion. “FMS should not have been impacted by sequestration, but the data is a bit surprising given general optimism surrounding international defense growth opportunities.”

http://www.nationaldefensemagazine.org/blog/Lists/Posts/Post.aspx?ID=1650