Big defense contract generates debate in Ohio
By Thomas Gnau | The Dayton (Ohio) Daily News | Published: November 9, 2013
DAYTON, Ohio — A nearly $1 billion U.S. Air Force contract up for bid could be an economic boon for the Dayton area, but some observers wonder if small businesses can truly compete for the work.
The $960 million, eight-year contract known by its military acronym ATEP II, for Advanced Technical Exploitation Program, is the latest version of an existing contract in support of the National Air and Space Intelligence Center, or NASIC, at Wright-Patterson Air Force Base.
Bids from companies that hope to be prime contractors on ATEP II are due Friday.
Some observers hope the contract draws new companies to the Dayton area and strengthens companies already here.
Jerad Barnett, president and chief executive of Mills Development and Synergy in Beavercreek, said he has clients and prospective clients waiting on Air Force decisions on ATEP II awards before making their own decisions about staffing and other moves in the Dayton area.
In scope and impact, Barnett compared ATEP II to the Expeditionary Combat Support System contract, a multi-year, $1 billion contract.
“I think at a minimum it will mean additional jobs and keeping a program that is contracted out of Wright-Patterson Air Force Base closer to home,” Barnett said.
Stephen Chambal, vice president of Beavercreek data analytics firm The Perduco Group, said, “It’s a big deal in the community right now, and it has been for a number of years.”
But some wonder whether smaller companies will realistically be able to bid on the research work behind ATEP II. For this contract, the Air Force raised the size standard of what a small business is from 500 to 1,500 employees.
That leaves true small- to medium-sized businesses out in the cold, according to Chuck Evanhoe, president of Riverside’s Evanhoe & Associates, a defense contractor who this year sought but failed to get the Small Business Administration (SBA) to alter the new size standard.
“We’re going up against these guys who have huge revenues,” Evanhoe said.
As Evanhoe & Associates said in its appeal to the SBA: “Evanhoe and other similarly sized small businesses face insurmountable competition from substantially larger and more dominant small businesses.”
The size standard hasn’t stopped some from competing. Fairborn’s Peerless Technologies is much smaller than other firms that worked on the earlier iteration of ATEP — companies like Ball Aerospace. Yet Peerless plans to submit its own prime bid, said Peerless President Michael Bridges.
Peerless gained experience working on an earlier iteration of the contract as a subcontractor. Ball Aerospace has held about 80 percent of the market share on ATEP, Bridges said. General Dynamics has also been a key player, he said.
“It’s a unique opportunity for a business that has the qualifications, like Peerless,” Bridges said.
The contract is complex, as is the work behind it, Bridges said. “It’s a very significant endeavor to simply submit a bid.”
Any company with less than 1,500 employees may bid. But people like Evanhoe ask if a company with 1,499 employees is truly a “small business.”
“My understanding is it’s all a function of how you look at it,” said Bridges, whose company has 270 employees. “There are companies that have up to 1,499 employees that are just powerhouses.”
Evanhoe disagrees with the new small business size standard. The previous standard for what the Air Force considered a “small business” was a firm with $35.5 million in annual sales, he said.
By pegging the new size standard to a company with as many as 1,500 employees, the Air Force is embracing as small businesses companies with annual sales as high as $500 million, Evanhoe said.
A NASIC spokesman said the center could not comment on ATEP II while the contract is the subject of competing bids. He declined to answer questions about the business size standard.
A Pentagon spokesman asked that questions be emailed to him, but did not further respond. SBA officials did not respond to messages seeking comment.
In Evanhoe’s appeal against the new size standard, the Air Force argued that ATEP II is concerned with the “research and development of technical means of gathering intelligence” and required companies able to perform in that field. (The military-focused intelligence work behind NASIC goes back decades, but the organization took the designation “NASIC” in 2008.)
The service argued that 42 percent of the work behind the contract will be research and 36 percent will be production.
The Air Force also argued that ATEP II will require contractors to “perform applied research and advanced technology development. Christopher Holleman, an SBA administrative judge, agreed.
Holleman denied Evanhoe’s appeal, in part, because ATEP work requires “research and experimental development … in the physical, engineering and life sciences.”
But Evanhoe and his attorney said there were other reasons behind the denial. Large companies are often “graded” on how well they include small businesses in their work, said Barbara Duncombe, a Cincinnati attorney who represented Evanhoe in its appeal to the SBA.
But since the small business standard has been revised, a requirement to subcontract to other small businesses won’t be in place, Duncombe said.
When a prime contractor is regarded already as a small business under the new size standard, “You’re not as compelled to subcontract (work) out,” she said. “You’d rather keep that money in house.”
Chambal, vice president of data analytics firm The Perduco Group, said he hopes ATEP II contract awards will let companies as small as his participate, at least as a subcontractor. Perduco has about 20 employees.
“The whole debate on whether ATEP II is going to go big (business) or is it going to go small (business), … is a very heated debate, and there are people who are extraordinarily passionate on both sides,” he said.
Despite the disagreement, the opportunity presented by a nearly $1 billion, eight-year contract cannot be ignored, say Chambal and others.
“I guess the jury is still out if this truly is going to go to small business,” Chambal said.