Defense contracts surge 71 percent in March as Congress eases budget blow

April 7, 2013

The Defense Department announced contracts valued at as much as $39.4 billion in March, 71 percent more than the prior month, even as automatic federal budget cuts started taking effect.

Awards included a $2.6 billion contract to Huntington Ingalls Industries for an upgrade of the USS Abraham Lincoln aircraft carrier. The Pentagon said the contract had been delayed until Congress passed a full-year defense budget on March 26.

The work awarded on March 29 to Huntington Ingalls, the only U.S. builder of aircraft carriers, includes refueling nuclear reactors and upgrading ship systems at its facility in Newport News, Va. More than 3,800 people will work on the project, and “any further delay in receiving the contract would have negatively impacted our workforce,” Christie Miller, a company spokeswoman, said in an e-mail.

March’s award total continued an increase in defense contracts in 2013. The Pentagon announced $23.1 billion in awards in February and $12.1 billion in January. The $39.4 billion in contracts announced last month was 15 percent less than the $46.1 billion disclosed in March 2012.

Even with the budget cuts under sequestration, the Pentagon will spend at least $300 billion on contracts in the fiscal year ending Sept. 30, more than the amount spent in 2006, when the United States was supporting troops deployed to Iraq and Afghanistan, according to federal data.

Among the 284 deals announced last month was a $697 million contract with Lockheed Martin and a $682 million agreement with Austal for the Navy’s next four Littoral Combat Ships. Lockheed, the world’s largest defense contractor, received awards with a potential value of at least $1.8 billion.

The Pentagon also awarded a five-year, $781 million contract for explosives manufacturing to BAE Systems. The order came under a 25-year agreement the London-based company holds to operate the Holston Army Ammunition Plant in Kingsport, Tenn., until 2023.

The award “extends our capability to develop new, safer and innovative” explosives and will increase efficiency, Erin Moseley, president of BAE’s support solutions division, said in an e-mailed statement.

The sequestration process had been set to strip $46 billion from Pentagon programs in the current fiscal year. The budget agreement signed by President Obama changed the savings target to $41 billion and gave officials some flexibility on where to apply the cuts.

The spending bill included $10 billion more for operations and maintenance accounts than allocated in the fiscal 2012 continuing resolution the Pentagon would have operated under if the new measure had not passed.

It also spared the Pentagon from as much as $6 billion in “penalty” cuts because the measure came in under caps set by previous legislation, according to a Pentagon official who briefed reporters and asked not to be identified discussing the budget.

As a result of the budget restorations, furloughs for the Defense Department’s 750,000 civilian workers will be reduced to 14 days from the 22 days originally planned.

Still, those funds will fall short of what’s needed to maintain current spending levels by at least $22 billion this year, according to Defense Secretary Chuck Hagel.

The higher spending in March “doesn’t mean the system has reopened and we’re back in business,’’ said Stan Soloway, chief executive of the Professional Services Council, a contractors lobbying group based in Arlington County.

Even with the passage of the full-year spending measure, government officials continue to delay contract competitions and revise agreements that were already issued to reduce their value, he said.

“It’s an obvious byproduct not just of sequestration per se but of the entire fiscal chaos in which the agencies are functioning,” Soloway said in a phone interview.

The Pentagon still must cut as much as $500 billion from planned spending over the next nine years unless Congress and Obama agree on an alternative deficit-reduction package.

The March deals with the highest potential values went to small businesses that supply the military with survival gear and scuba-diving equipment. The contracts have a maximum value of $20 billion among four firms, representing more than half of the spending announced in March.

Those deals list the maximum values of awards over multi-year periods, rather than guaranteed funding, and there is little chance the companies will receive the announced contract values.

— Bloomberg Government

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