Defense contracting cuts might be much smaller than predicted

Rep. Gerry Connolly, D-Va., applauded the new forecast, but said he remained concerned about the economic impact. Rep. Gerry Connolly, D-Va., applauded the new forecast, but said he remained concerned about the economic impact. Alex Brandon/AP
Deputy Defense Secretary William Lynn on Tuesday told Virginia lawmakers impending contracting cuts Defense Secretary Robert Gates announced last summer could be far smaller than many predicted, an aide to Rep. Gerry Connolly, D-Va., said.

In an effort to rein in costs and redirect money to weapons and troops needed on the battlefield, Gates announced major cuts to Defense Department contracting and overhead costs in August. Gates said the department would cut service support contracts by 10 percent annually during the next three years.

Confusion over what exactly the Pentagon might cut caused enormous turmoil among Defense contractors, many of whom are Connolly's constituents. But during a meeting at the Pentagon on Tuesday, department officials said cuts would be made to a narrow band of service support contracts worth about $4.3 billion -- which means the value of the reductions themselves is estimated to be about $430 million, said George Burke, a spokesman for Connolly.

"While I am still concerned about the effect of these defense contractor cuts on the economy of Northern Virginia and the Washington area, we are making progress," Connolly said in a statement. "The impact will be less than was originally thought when Secretary Gates announced his plan last summer. Where we originally feared annual contractor cuts of as much as $14.3 billion per year, it now appears that those three years of cuts will be in the range of $400 to $430 million per year."

Federal procurement accounts for nearly one-third of Virginia's economy and defense spending alone is responsible for nearly one-in-five jobs in the Commonwealth.

Stan Soloway, president of the Professional Services Council, an industry association, said the Pentagon meeting provided important clarification.

"Based on today's discussion, the department's focus for services contract reductions over the next three fiscal years will be on a subset of advisory and assistance services contracts, primarily involving staff augmentation requirements, which had a baseline of over $4 billion in spending in fiscal year 2009," Soloway said.

Both Gates and Ashton B. Carter, undersecretary of Defense for acquisition, technology and logistics, have targeted service contracts for greater scrutiny. About half of the $400 billion the Pentagon spends annually on contracts is for services, such as technology support, weapons maintenance, transportation and facilities upkeep.

"We don't even have a standard way of talking about services," Carter told reporters during a September briefing on new rules for contracting. "It's as though you were buying weapons and never distinguished between planes, ships and tanks. There are a lot of different kinds of services; they all require different managerial structures, they all have a different industrial base. This is a very rich area and because there is so much money, we really do believe we can do a lot better for the taxpayer."

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