Top Defense Contractors Fared Better Under Sequestration Than Rest Of Industry, CSIS Report Says | Defense Daily Network

By Calvin Biesecker

The top six defense contractors saw their overall receipt of Defense Department contract obligations decline far less than the rest of the industry under sequestration, according to an annual report by the Center for Strategic and International Studies (CSIS) that analyzes DoD contract spending.

While the largest contractors have seen their overall share of DoD contract obligations decline slightly since 2003, between 2012 and 2013 when sequestration was in effect for part of the time these companies fared better than the rest of the defense industry because the largest Pentagon contracts were “relatively protected under sequestration,” says the report, U.S. Department of Defense Contract Spending and the Industrial Base, 2000-2013. It notes that these companies “account for a disproportionate share of the largest DoD contracts.”CSIS, DoD, Contract Spending

From 2012 to 2013 the Big Six—Lockheed Martin [LMT], Boeing [BA], General Dynamics [GD], Raytheon [RTN], Northrop Grumman [NOC] and Britain’s BAE Systems—saw their combined obligations from DoD decline by 9 percent, says CSIS. On the other hand, contract obligations to small, medium and large defense companies fell 19 percent in that time, it says.

The report notes that for the most part since the early 2000s, the top defense firms have seen their share of overall contract receipts shrink from roughly 32 to 35 percent of obligations down to between 27 to 31 percent. Large defense companies, those with at least $3 billion in annual sales and that are not part of the Big Six, have ranged between 28 and 32 percent of obligations in that period, medium contractors between 21 and 23 percent and small companies between 15 and 16 percent, it says.

CSIS says that larger contracts have increasingly been gaining traction versus smaller contracts while the shares for medium-size contracts have basically been consistent. The share of contracts valued at $500 million or more has increased from 11 percent in 2000 to 24 percent in 2013 while the share of contracts worth less than $250,000 has declined from 9 percent to 7 percent in that period and the share of contract worth between $250,000 and $1 million has declined from 11 percent to 7 percent.

“Under sequestration, the data indicate that DoD prioritized preserving their biggest acquisition programs, but also indicate that there was no concerted effort to target either smaller contracts or mid-size contracts as a source of savings,” says the report.

As usual, the report analyzes contract obligations in a number of categories. Some of the other findings include that of the three services, the Air Force and Army had the largest declines in contract obligations from 2012 to 2013, obligating 22 percent and 21 percent less from one year to the next, the report says. The Navy’s contract obligations only fell 2 percent in that period. The Defense Logistics Agency’s obligations fell 23 percent and other DoD agencies fell 18 percent, it says.

Overall, DoD contract obligations fell 16 percent during the period that sequestration was partly in effect while total DoD outlays were down 8 percent. The decline in Air Force contract obligations was due to less spending on products such as the C-17 transport aircraft, the Evolved Expendable Launch Vehicle, and possibly the F-35 Joint Strike Fighter, the report says.

Army contract obligations were down mainly on less spending for unmanned aircraft systems, combat assault and tactical vehicles, and land mines.

Navy spending on products was actually up 8 percent, driven by the F-35, nuclear reactors, the H-1 helicopter upgrade, CVN-68 aircraft carrier, DDG-51 destroyer ship, and the E-2C Advanced Hawkeye aircraft. The decline in the Navy’s contract obligations on research and development were relatively steady under sequestration at about 10 percent although reduced spending on services accelerated, down 16 percent between 2012 and 2013 versus off nearly 5 percent on average over 2009 to 2013.

via Top Defense Contractors Fared Better Under Sequestration Than Rest Of Industry, CSIS Report Says | Defense Daily Network.