Fiscal-cliff fears trigger potential bonanza for military contractors
In the weeks leading up to the dreaded "fiscal cliff," the U.S. military flung open its coffers and awarded a slew of defense contracts before Jan. 1, when automatic spending cuts had been scheduled to take effect.
Agencies within the Department of Defense committed billions of dollars to the contract pipeline in December — for everything from fighter jets and missiles to training simulators and construction projects — to protect them from across-the-board cuts mandated by the 2011 deficit-reduction law.
And while last week's fiscal-cliff compromise between the White House and Republicans in Congress delayed the defense-budget controversy until March, it is clear Central Florida was one of the big beneficiaries of the Pentagon's last-minute rush of contracts.
In December alone, the military doled out contracts worth nearly $6.6 billion for work to be performed partly or totally in Central Florida, according to the latest Department of Defense figures. And nearly all of it involves Lockheed Martin Corp., the region's biggest defense contractor.
The $6.6 billion was three times the total size of Central Florida-related contracts awarded back in September, which is typically the busiest month for military spending because the federal government's fiscal year ends Sept. 30.
"The last-minute rush usually comes at the end of the fiscal year, because military agencies want to get that money obligated so it won't get cut," said Michael Blades, senior defense analyst for the global consulting firm Frost & Sullivan. "So it is not surprising to also see this big spike of contracts as we approached the so-called fiscal cliff. Once that money is out there, it's generally insulated from budget cuts."
He noted, however, that such insulation is not absolute: Troubled military programs can always be terminated if they face chronic technical problems or cost overruns.
But canceling a defense program is not an easy thing. Take the controversial F-35 stealth fighter jet, the most expensive weapons program in U.S. history. Critics have long assailed it for being massively over budget; its cost and technical issues have divided even the Pentagon. Yet its supporters — including Lockheed, its prime contractor — have fended off all challenges so far.
Lockheed dominated the list of Central Florida-related military-contract awards in December thanks to a series of deals worth a combined $5.4 billion to build the next round of F-35 jets, complete with flight-training simulators, spare parts and other support equipment.
Lockheed's Orlando training-simulation unit provides the F-35's flight- and maintenance-training systems, while its Orlando missiles operation produces a weapons-targeting system for the stealth fighter. The Bethesda, Md.-based company's aircraft division in Fort Worth, Texas, is the program's lead contractor.
A half-dozen Lockheed subcontractors in Central Florida also work on the F-35. And Melbourne-based Harris Corp., the region's biggest locally based tech company, is providing the F-35's high-speed avionics, cockpit communications and data-processing technology. Hundreds of jobs across the region are tied to the program, which has been worth more than $1 billion in revenue for local defense contractors during the past 10 years.
Lockheed snagged another series of deals in December worth a combined $1 billion that involve a wide range of work in Orlando, from weapons-targeting systems for the Apache helicopter and Hellfire missiles to C-130 flight-deck simulators and tank-gunnery training systems. It also received a $592 million contract to continue producing the Navy's Trident missile, part of which is built and tested by Lockheed operations in Brevard County.
Three other companies with local operations made the Pentagon's yearend rush list:
•Boeing Co., $50.5 million for rocket-launch and satellite-support services at Cape Canaveral and in Colorado Springs, Colo.
•IAP World Services Inc. of Cape Canaveral, $14 million for naval base operations.
•Indiana-based ERAPSO Inc., $18 million to build sonobuoys at a plant in DeLeon Springs.
Although December's spike in military-contract awards makes sense from a "use it or lose it" perspective, defense-budget watchdogs say the practice is fraught with oversight problems.
"Even under normal circumstances, it is nearly impossible to keep track of the billions of dollars the Pentagon spends," said Ben Freeman, national security investigator for the Project on Government Oversight, a nonprofit advocacy group in Washington. "So this year-end rush to dole out even more contracts than usual makes it that much difficult to keep track of potential fraud and abuse."
Those in the defense industry say such concerns are overblown. And for military contractors fearing massive spending cuts because of the deficit-reduction law, the rush of Pentagon contract awards provide at least a little relief.
"Needless to say, there has been a lot of angst among defense contractors that 'sequestration' could cause some substantial delays in new programs," said Ken Kelly, an Orlando-based training-simulation consultant and a former chairman of the National Center for Simulation in east Orange County.
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