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CEOs Talk Sequestration Challenges

May. 16, 2013 - 01:19PM   |  
By | By AARON MEHTA   |   Comments
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WASHINGTON — Faced with a new budget reality, industry and the Pentagon are looking for ways to streamline contracting and pursue new innovations, a panel of CEOs said today.

John Jumper of SAIC, Frank Mendicino of SKYDEX Technologies and Kevin Miller of Sciolex Corp. also outlined how outside factors are causing a financial crunch for their companies.

The panel was intentionally mixed, with the head of SAIC, a Fortune 500 company with offices around the country, sitting next to the heads of two companies with fewer than 40 employees apiece. SKYDEX develops protective materials for military and commercial use, including gear designed to protect soldiers from IED attacks, while Sciolex handles engineering, integration and operations support for the intelligence community.

All three men agreed that the drop in spending levels itself is not the biggest challenge.

“We’ve been fed on filet — and it’s been a requirement to sustain the marathon we’ve been running since 9/11 — and it’s probably time to think more about hamburger,” Jumper said.

The way the cuts are spread across the entire industry, instead of targeted at specific areas, means that small companies and large primes alike find themselves unable to work together to recover.

“Reduction in itself is good, it forces us to be more innovative and efficient,” Miller said. But “reduction for everyone at the same time across the board doesn’t allow anyone the flexibility” to find new revenue streams or invest in other projects.

Miller also identified the implementation of the Patient Protection and Affordable Care Act and expansion of regulatory requirements as outside factors that, when combined with sequestration, are impacting small defense contractors.

As an example, Miller noted that five years ago it took him 30 minutes to complete the four documents needed to certify his company’s qualification as a Service-Disabled Veteran-Owned Small Business. This year, it has taken him weeks to fill out more than 50 documents for the same certification.

To help cash-strapped companies, the Pentagon should continue reforming the contracting process, something Jumper acknowledged has begun with the Better Buying Power 2.0 initiative, but which he hopes to see continued.

“Probably one of the biggest payoffs [officials] can pursue is the price the Pentagon pays for contracts,” Jumper said. “Figure out what the contracting world generates for itself in terms of costs as you take on these new innovative contracting vehicles that are supposed to save you money but in the end may not because of the costs of administrating them.”

“Our procurement system has been developed over the years, fundamentally, for good solid reasons with good intent and purposes. But with size, comes a certain level of bureaucracy,” Mendicino said.

While declining to name specific programs, he called for a look at ways the government as a whole could streamline and improve contracting.

“To me, there are some procurement policies and vehicles that might have been good policies when they were formulated in the 1930s and 1940s that may not be good policies today,” he said.

But even if the government fixes some of these issues, the trio acknowledged there would be some contraction in the industry in the coming years, with smaller companies being absorbed by larger firms and boutique firms being forced to close their doors.

“I think it’s inevitable that we will see some consolidations, and that’s always driven by the business case and things will seek their own level over time,” Jumper said. ■

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