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Contractors getting ready for more cuts to workforce, facilities

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The D.C. region’s contracting companies have made dramatic cuts in recent years, from Bethesda-based Lockheed Martin’s 2010 buyout for hundreds of senior executives to Booz Allen Hamilton’s 2012 reductions in its management ranks.

Many in the region thought the worst might be over, but contractors are making it clear they’re not done yet. Reporting declining profit and sales, companies from Northrop Grumman to General Dynamics are promising a continued focus on reducing costs.

McLean-based Booz Allen Hamilton, a contracting giant that cut 2 percent from its ranks a year ago, said last week that it is trimming its staff again, and undertaking a review of its head count and labor costs.

Ralph Shrader, Booz Allen’s chief executive, chairman and president, said in a call with investors last week that the company thought the head count reductions it made last year would “place us well ahead of the curve.”

“Unfortunately, the curve kept changing faster than we thought,” he said. “What we are coming to grips with as an organization ... is that, when your growth rate slows, it’s time to take a good look at some of the practices that have been put in place over these really good times, and decide whether they are sustainable over uncertain times.”

The company has found that its senior management ranks “have perhaps an excess of talent and capability,” Shrader said.

James Fisher, a company spokesman, said Booz Allen is in the process of culling its ranks, but estimates that when complete, it will have made a head count reduction of less than half a percent of its total staff (the equivalent of about 124 people).

At the same time, he said, Booz Allen has reduced total compensation for partners and vice presidents, and it is looking at its benefits and infrastructure costs.

At Falls Church-based Northrop Grumman, where earnings for the quarter were also down, Wes Bush, the company’s chief executive, chairman and president, said he is pushing for more efficiency.

“I am not going to set any public targets on how much more we can get there, but ... we are determined and ensuring that we can be very, very competitive from a cost structure perspective,” Bush said in a call with investors last week. “That goes to every aspect of cost.”

Last month, officials at contracting giants Lockheed Martin and General Dynamicsalso said they will be looking to cut costs to preserve their profit margins.

Loren Thompson, a defense industry consultant, said every contractor is under pressure to cut its spending — but not all will be affected at the same time. A consulting company such as Booz Allen Hamilton, for instance, receives payment in shorter cycles than a shipbuilder.

“Defense spending is falling by hundreds of billions of dollars over the next several years,” he said. “It’s going to impact companies relatively gradually, and so they have time to make adjustments and plan for how best to deal with the downturn.”

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