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Wisconsin companies that sell products and services to the U.S. military should have more insights into fiscal 2014 now that President Barack Obama has signed the $632 billion National Defense Authorization Act into law.
The new spending plan assures $552.1 billion in military spending and $80.7 billion for overseas contingency operations, namely the war in Afghanistan. It also erases $63 billion in arbitrary spending cuts that were to take effect in January, and it allows for a 1% pay raise for military personnel.
For thousands of defense contractors, including Wisconsin companies that sell products and services to the military, the plan ought to provide clarity into their budgets for the next couple of years.
“If you are a government contractor, by and large you have been in a state of suspended animation while the politics has played itself out,” said John Rogers, a former high-ranking Department of Defense official and now president of Capstone National Partners, a Milwaukee-based consulting firm.
Until recently, “If you were a vendor and had a great new idea, you couldn’t get any traction on it. Now you can have a discussion because the policy and procurement folks at Department of Defense can begin to plan,” Rogers said.
What does that mean for Wisconsin defense contractors such as Oshkosh Corp., Marinette Marine through its work for Lockheed Martin Corp., GE Healthcare, Weinbrenner Shoe Co., and Dental Health Products?
It depends on individual contracts and the military’s needs, but changes are coming.
“We will continue to see spending reductions across the board, and you could argue that it’s for good reasons. We are no longer at war in Iraq, and we are phasing down significantly in Afghanistan,” Rogers said.
Two contracts singled out for more scrutiny were the Navy’s littoral combat ship program, which has supported thousands of jobs at Marinette Marine, and the Air Force’s F-35 Joint Strike Fighter program.
Congress has criticized the littoral program for early cost overruns and has questioned whether the ships built in Marinette are capable of performing as expected.
The completed ships have suffered from mechanical problems, and there have been delays in producing switchable mission modules aimed at varied types of warfare.
The littoral program is still being funded, however, “which is a big deal” for Wisconsin, said Aina Vilumsons, executive director of the Wisconsin Procurement Institute, a government-funded organization that helps businesses obtain federal contracts.
Oshkosh seeks contract
For Oshkosh Corp., one of the state’s largest manufacturers, the wind-down of the war in Afghanistan means the military needs fewer of the company’s trucks.
But the new spending plan keeps intact a Joint Light Tactical Vehicle program that Oshkosh and two other truck-makers are bidding for and that could support thousands of manufacturing jobs.
Oshkosh has delivered 22 JLTV prototypes to the military for a year of testing in hopes of winning the contract, which could be worth $30 billion over 20 years.
The trucks are expected to offer more protection from improvised explosive devices, which have killed many troops in Iraq and Afghanistan.
They’re also supposed to be lighter, faster and more nimble than other armored trucks that offer a high level of protection.
The contract is expected to be awarded in 2015, with the first revenue coming in 2016 or 2017.
Funding for big programs like JLTV gives companies like Oshkosh much better insight into their future, Rogers said, and it provides assurances to hundreds of their suppliers.
Wisconsin companies received about $3.4 billion in federal government business in fiscal 2013, down from $3.98 billion in 2012 and $7.2 billion in 2011, according to the Wisconsin Procurement Institute.
“All of the federal agencies are watching their money closely, especially the military,” said Gary Rubel, who handles the military contract business at Dental Health Products in New Franken.
The company sells more than 60,000 products from 600 manufacturers and sells millions of dollars worth of items to the military and federal agencies.
Dental Health Products’ sales fell sharply for months until there was a surge in agency spending, just before the federal government’s fiscal year ended Sept. 30.
“The government has a dirty little secret, and it’s called ‘use it or lose it’ money. If an agency doesn’t spend the money it is allocated, then the next budget will be automatically reduced. And that has nothing to do with sequestration,” Rubel said.
“What I see at this point is a slight upward curve in spending, not terrific, but at least it’s not a downward curve,” he added.
The number of federal contractors in Wisconsin is down about 37% from three years ago, and a few large companies, such as Oshkosh and GE Healthcare, have dominated the field here.
The new defense spending plan calls for more emphasis on technology, including cyber-security, and more emphasis on small businesses, Vilumsons said.
“Manufacturing isn’t being neglected, either, which is good for Wisconsin,” she said.
The plan also calls for more manufacturing audits and accountability measures.
“It’s meant to save money and assure that everyone is doing what they’re supposed to be doing. But it’s difficult at times, if you’re a contractor, because you always have to adapt to new requirements,” Vilumsons said.
“There ought to be a balance between strong oversight and transparency without being overbearing and stifling performance and competition,” she added.