Forecasting the Future

An Article on the Dulles Chamber of Commerce’s “What to Expect in 2012” Discussion Panel

Late in January, the Dulles Chamber of Commerce hosted a panel discussion on “What to Expect in 2012”.  Members of the panel included executives from Professional Services Council, Raytheon, Northrop Grumman and Lockheed Martin.

The panelists discussed the expectations that 2012 has compared to 2012.  The main themes covered were the defense budget cuts, continuing resolutions, the current budget cloud of uncertainty, as well as the external events that may play a role in shaping the defense contracting environment.

The Dilemma:

Mr. Chris Bowie, Corporate Director of the Northrop Grumman Analysis Center said that 2012 will exceed the lows of 2011.  He also mentioned that the defense budget for 2013 will be 3% lower than 2012.  A contraction in investment accounts should also be expected. 

Mr. Stan Soloway, the President of the Professional Services Council mentioned Secretary of Defense Leon Panetta’s resolution to reduce America’s defense budget by up to $490 billion over the coming decade.  He briefed the panel that last year was the first time in ten years where the industry did not match the federal budget. 

The points mentioned above also means that the federal “funding stream remains under a cloud of uncertainty”, said Mr. Larry Duncan, Vice President for Federal and State Government Relations and PAC Affairs.  Yet, in spite of this cloud of uncertain, there will not only be challenges, but opportunities that contractors could benefit from.  Panetta’s resolution emphasizes a shift into reconnaissance, cyberspace warfare, special operations, and missile defense systems. 

Mr. Mark Esper, the Vice President of Government Relations for Raytheon, brought up the fact that external events will also play a big part in into feeding into that cloud of uncertainty that hovers around the federal budget for 2012 and beyond.  2012 is an election  year, and the Obama administration had to make a move to show that they are coming up with solutions to address the country’s deficit problem.  Of course, the winner of the elections in November will also dictate how the budgeting will be addressed in the years to come.  Although he still sees a “strong middle ground” out there, Mr. Esper noted that the parties themselves are moving further apart from each other.  He referenced 2010 when the Democrats were decimated.  In Congress, the deficit hawks now outnumber the defense hawks.

How to Thrive During Challenging Times:

In short, defense spending in general will face a difficult time within the coming years.  To meet the coming challenges, Mr. Bowie said that Northrop Grumman is reorganizing its structure so that it can better meet the new needs of the government. 

Mr. Duncan added that the reduction of the pie means that the bar has also been set much higher.  There needs to be a “resetting of expectations in terms of margins”.  Mr. Duncan suggested to the members of the audience that much more effective teaming arrangements be taken into consideration when it comes to resetting these expectations, as “the tightening of the belt flows down to the subcontractors”.

The representatives of the large prime contractors on the panel spoke of expanding their company’s horizons to look more aggressively at international opportunities.  They brought up USA’s NATO allies as potential sources of opportunities, namely: Australia, Japan, and Israel.  Potential external threats like Iran and China should also be taken into consideration when reviewing the international climate.  Mr. Esper added that in these challenging times, it is wise to “follow security threats are” and identify “where our partners and allies are”. 

Conclusion:

The climate for government contractors may be cloudy, but that doesn’t mean that there isn’t any room for sunshine.  The days of outrageous government defense spending may be behind us, but if a company does its homework and is able to leverage itself to respond to the changing environment, and if it is able to increase its efficiency and reevaluate its expected margins, then it should be able to thrive. 

Lockheed Martin Corp. has won an Army contract with a potential value of $203 million over five years to provide an array of services to the Field Logistics Readiness Center at Fort Bragg, N.C.

Under the terms of the contract, the company will furnish maintenance, material and logistics services to Army Forces Command units and the Army Materiel Command, which supports troops stationed in the United States and deployed overseas, company officials said June 25.

The contractor will be responsible for maintaining in a state of readiness wheeled vehicles, weapons and power generation and engineering equipment for the Army Sustainment Command and the 406th Training Support Brigade, the officials said.

Lockheed also operates Field Logistics Readiness Centers at Fort Stewart, Ga., and Fort Benning, Ga., the officials said.

The Army awarded the work through the Field and Installation Readiness Support Team indefinite-delivery, indefinite-quantity contract. Click here for original news release.

The Department of Energy (DOE) has selected a team led by Lockheed Martin (NYSE:LMT) to manage and operate the new Mission Support Contract at its Hanford site in south central Washington State. The latest DOE determination was made following a protest lodged by a competing bidder and a review last fall by the Government Accountability Office.

With a total program value of $3.059 billion over a 10-year period, the contract includes a five-year base contract period and options to extend it to an additional five years. Lockheed Martin is joined in the limited liability company, Mission Support Alliance (MSA) by partners Jacobs Engineering Group, Inc., and Wackenhut Services, Inc. They will also be supported by several small teammates. MSA LLC had been notified in September, 2008, that it had won the contract.

Under the leadership of Lockheed Martin’s Frank Figueroa, MSA LLC President, the team will provide integrated site-wide services to the DOE and other contractors at the Hanford site, such as safety, security and environment, site infrastructure and utilities, site business management, information resources and content management and portfolio management.

The existing Information Resources Management services work at Hanford, now being performed by Lockheed Martin under a subcontract to Fluor Hanford, Inc., will continue under the Mission Support Contract. Frank Armijo, who has successfully led Hanford IRM and other Tri-Cities, Washington-based technology programs, will remain in his role supporting MSA and leading the Lockheed Martin Advanced Technology Solutions unit in Richland.

“We are gratified that the U.S. Government has made its determination, and we are ready to begin,” Tom Grumbly, Vice President of Lockheed Martin Energy and Security Services in Rockville, Md. “The team has maintained a high state of readiness to effect a smooth transition and an efficient, progressive path forward for the DOE, its contractors, and the community in the Tri-Cities,” he said.

In addition to mission support for energy labs, Lockheed Martin is working with its customers to address the nation’s energy and climate challenges in the areas of energy efficiency, management and storage, next-generation alternative energies, and climate monitoring.

Headquartered in Bethesda, Md., Lockheed Martin is a global security company that employs about 146,000 people worldwide and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. The corporation reported 2008 sales of $42.7 billion. www.lmco.com