Last year's defense authorization bill contained a little-noticed provision, aimed at clamping down on the use of consultants, that recently has produced a torrent of protests from consulting firms, particularly high-tech companies around the Beltway.
Maryland and Virginia congressmen have rushed to the defense of these consulting firms, claiming that Navy miscalculations last year caused Congress to set too low a cap on the amount of money the Navy can spend this fiscal year on service contracts.
That means hundreds, possibly thousands, of private firms that do work for the Navy could lose millions of dollars in Navy business, the congressmen say. "We've received over 100 inquiries," said a spokesman for Sen. John W. Warner (R-Va.). "Some have even indicated they may go belly up."
One industry study estimates a potential loss of 250,000 to 350,000 jobs nationwide, 15,000 to 20,000 in Maryland and 4,000 in Montgomery County, according to the office of Rep. Michael D. Barnes (D-Md.). But both opponents of the restriction and those supporting it caution that accurate projections are difficult, and a staff aide to Rep. Roy Dyson (D-Md.) said those figures are probably on the high side.
The controversy stems from an amendment successfully pushed by Sen. Mack Mattingly (R-Ga.) that limits the Pentagon's budget for contracts for support services in fiscal 1985 to $1.3 billion. Support service contracts include such things as consultant studies, software development, management analysis and technical engineering services.
Dyson, who said he believes that numerous Navy contractors could be hurt by the restrictions, particularly the smaller firms, has introduced legislation to remove the cap. He said, however, that he agrees that some discipline needs to be imposed on the Pentagon's contracting system, and his legislation would institute new accounting procedures.
Planning Research Corp., a large high-tech firm located in McLean, recently wrote Defense Secretary Caspar Weinberger: "The problem is now profoundly grave, with irreversible damage beginning to occur to many professional and technical services firms that have served the DOD Department of Defense and the Navy in direct support of mission functions."
Warner and Dyson, whose district includes the Patuxent Naval Air Center in Southern Maryland, have used the argument that defense readiness is at stake to garner Pentagon support for their fight. But Weinberger has made it clear that he also wants to rein in the Pentagon's use of consultants and that he does not agree with the defense readiness argument.
"At this point, we don't have any indication that there are any adverse effects on readiness or that the ceiling is necessarily too low," Weinberger said at hearings before the House Armed Services Committee this week. "We would certainly advise the Congress if there are any adverse effects."
Weinberger added, "Some of the services may have underestimated their needs." But he said, "I must confess I have somewhat of a negative view of consulting costs." He said he once discovered "to my absolute horror that consultants had been hired to plan the agenda of an in-house meeting . . . so I'm not the least bit interested in expanding our consulting costs."
And Mattingly, an outspoken critic of government consultants, said the current chaos does not surprise him. "We knew this would happen," he said.
The $1.3 billion limit in the law was based on Navy, Air Force and Army estimates of how much money they spend on contracts for support services from private firms. That figure includes $638 million for the Navy, $409 million for the Air Force, and $130 million for the Army.
Mattingly said he pushed for a cap because he was frustrated by his inability to get the Pentagon to give what he felt was an accurate figure on how much it spent on outside consultants. He said he suspected that the figures cited by the Defense Department were too low because there were so many programs that could be used to fund consultant services.
In early December, the Navy suddenly announced that it was halting all new service contracts until it could decide on a priority list. The Navy said that if it continued to contract for services at its current rate, it would be $400 million over the congressionally imposed limit. "The Navy in December hit the panic button . . . causing problems for a lot of firms, especially those around the Beltway and in the San Diego area," said Mattingly spokesman Richard Moore.
Noting that neither the Army nor the Air Force has taken such dramatic action, Moore said, "Either the Navy's figures were so off the wall that two months into the fiscal year they had to do this, or else they are trying to create havoc among contractors so they will call their congressmen."
The freeze has been lifted, Navy officials announced Thursday, but various ceilings have been provided to each command. A Navy spokesman said the ceilings will be monitored. "It is clear that total contractor support services requirements exceed our current limitations," the spokesman said. "We are still determining the amounts, and assessing specific programmatic impacts, problems and delays."
The Navy statement said that the reason for the miscalculation is that the definition of "contractor support services" allows "considerable latitude of interpretation" by the program officers who must determine needs.
The Navy also said accurate estimates were difficult because the naval accounting system does not separately identify contracting support services in the budget.
Whatever the Navy's intention, its action sent panic waves through the naval contracting industry, as well as through small communities dependent on Navy service contracts, such as St. Mary's County, where the Patuxent Naval Test Center is located.
Jesse Hawes, operation manager of TraCor operations in Southern Maryland, said, "We have no immediate plans to lay anyone off, but about 175 of our employes are in jeopardy right now in a worst-case scenario." Dalfi, another high-tech firm, has laid off 12 employes at its St. Mary's operation because of uncertainty over Navy contracts, according to the firm's operation head there, Edward Welch.
"The Navy is the locomotive that pulls our local economy," said St. Mary's Economic Development Director David Morgan.
Virginia Littlejohn, executive director of Professional Services Council, a trade association whose members include firms involved in research and development, engineering and computer services, said, "The impact is going to be far-reaching, if the fundamental problems are not addressed, especially on the small and medium-sized companies. It will mean job layoffs and bankruptcies for the small companies that cannot go through these dislocations."
But Mattingly says he will oppose any move to remove the cap. "If you're authorized X amount of dollars, that's what you ought to spend. If they need more, they ought to be asking for more. It's not that complicated," he said. "And if they've been spending more, I'd like to know where they've been getting it."