U.S. automatic cuts send Pentagon contract awards down 52 percent


The Pentagon is seen in this aerial view in Washington. (Charles Dharapak/AP)
May 12, 2013

Pentagon contracts tumbled 52 percent in April from a month earlier as across-the-board federal budget cuts took hold.

The Defense Department announced awards with a maximum value of $19 billion in April, about 22 percent lower than a year earlier, according to procurement data. The biggest contract, a $6.9 billion network equipment deal, was won by a group of eight companies led by General Dynamics.

The military is scheduled to absorb $37 billion in cuts this year under the reductions known as sequestration. The contract slowdown is “undoubtedly tied to sequestration’’ and reflects an even sharper drop in awards than mandated under the cuts, said Larry Allen, president of Allen Federal Business Partners, a consulting company in McLean. In March, the Pentagon awarded $39.4 billion in contracts.

Military buyers probably have “erred on the side of caution’’ by holding back spending to preserve funding for priorities later in the year, Allen said in an e-mail. “There is a tremendous sense of pressure not to spend right now.’’

The possibility of furloughs for civilian Pentagon workers, which haven’t yet begun, may be further delaying awards, Allen said. Defense Secretary Chuck Hagel said he’s still reviewing options that may avert furloughs more than three months after the Pentagon said automatic budget cuts may require unpaid leave for as many as 750,000 civilian workers.

The automatic reductions began March 1 and will cut as much as $1.2 trillion in federal spending over nine years if President Obama and Congress fail to agree on a broader program of budgetary reductions.

April’s award total was 34 percent less than the monthly average of $28.8 billion in the 12 months ended March 31, according to data compiled by Bloomberg. The military is required to announce awards valued at $6.5 million or more.

The $6.9 billion, six-year network equipment contract is part of an Air Force program known as Netcents-2. The agreement was awarded a year ago and then rebid after more than 10 companies filed protests with the Government Accountability Office, which arbitrates federal contract disputes.

The deal may be delayed again. Eleven companies, including Dell, have filed new challenges, according to the GAO’s Web site.

Round Rock, Tex.-based Dell declined to comment, Scott Radcliffe, a company spokesman, said in an e-mail.

Rob Doolittle, a spokesman for Falls Church-based General Dynamics, also declined to comment on the award, citing the pending protests.

The second-largest contract in April was a five-year, $1.5 billion award for Army helicopter maintenance and upgrades. It went to two closely held businesses: Science and Engineering Services, based in Columbia, and Support Systems Associates, based in Melbourne, Fla.

The contract, announced April 30, involves work on Apache, Black Hawk and Chinook helicopters and represents new business for Support Systems Associates, said John Hamilton, the company’s vice president of contracts.

“It is a major effort for the company,’’ Hamilton said in a phone interview. The work will result in the company starting a new operation in the Huntsville, Ala., area, he said.

Hamilton said his company, which has 200 employees, plans to subcontract work to London-based BAE Systems, the Pentagon’s seventh-biggest supplier.

The top two awards and eight of the 10 biggest defense deals in April were “multiple-award contracts.” In such arrangements, several contractors are selected to supply a certain type of product or service. They then compete with one another for orders as specific needs arise.

The biggest award to a single company was an $830 million agreement with Lockheed Martin, the Pentagon’s top contractor, to provide F-16 jets for Iraq’s military.

The order is expected to extend work at the Fort Worth F-16 production line through mid-2017, Mark Johnson, a Lockheed spokesman, said in an e-mail.

The Bethesda-based contractor received awards with a potential value of $1.03 billion in April, excluding multiple-award contracts, the highest total of any company.

—Bloomberg Government

Tony Capaccio contributed to this report.

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