Big changes in Pentagon spending, same contractors at the top

Despite dramatic increases in Pentagon spending over the past decade, the contractors at the top haven’t changed markedly, according to a new study released by the Center for Strategic and International Studies’ defense-industrial initiatives group.

The report tracked contract spending trends within the Pentagon and its components, including the Army and Navy, and examined the state of the defense industrial base — or the companies that receive those contracts.

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In comparing the top contractors in 2011 to those in 2001, the report found significantly higher funding levels but many of the same companies.

For example, in 2001, the Defense Department spent nearly $74 billion (in 2011 dollars) on services; in 2011, it spent $160 billion.

Still, Lockheed Martin was the top contractor in both years. Moving up in the ranks was Northrop Grumman, now the contractor receiving the second highest level of funding, up from ninth 10 years ago.

The report notes that health care services providers have made some of the largest gains. The three health care service providers on the 2011 list received about 2.5 percent of the total spending that year — roughly double their combined market share in 2001.

In notable declines, Raytheon’s star dropped. It was third on the list in 2001 but last year clocked in at 12th place.

On the products side, Lockheed Martin, Boeing, Raytheon and General Dynamics all were in the top five in 2001 and remained in the top five in 2011.

BAE Systems made one of the more noticeable gains; it wasn’t on the list in 2001 and came in eighth in 2011 after making acquisitions.

“It’s the same key players year over year, and that’s good to some extent for both DOD and industry,” said Guy Ben-Ari, deputy director of the CSIS group, in an interview. “Industry knows that there’s a customer that they can sell to and DOD knows that there are a number of prime contractors ... who are in it for the long haul.”

Still, he said changing priorities have been reflected in the statistics. For instance, as the military moved into Iraq and Afghanistan, contractors who build armored vehicles as well as constructing and engineering companies saw boosts.

Ben-Ari said CSIS is expecting Pentagon spending and contract spending to drop. But how it plays out depends largely on whether sequestration occurs, he said.

 
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