Pentagon Considers Help for Struggling, but Critical Small Businesses

By Valerie Insinna

Budget cuts have hit small businesses hard, but the Defense Department's top acquisition official said help may be on the way for those considered critical suppliers to the industrial base.

There are currently few options for the Pentagon to help small businesses that are in trouble, said Frank Kendall, undersecretary of defense for acquisition, technology and logistics. Many prime contractors are already looking within their supply chain and working to keep vulnerable small businesses afloat. Defense Department officials also want to be more proactive in those efforts, he added.

"What I'm starting to discuss with my staff and with the service acquisition leadership is a proactive approach, a collaboration between DoD and the services and the large primes,” he said to an audience of small and large business officials during a June 3 keynote speech at the Navy Opportunity Forum in Arlington, Va.

“This is a germ of an idea at this point. We'll be exploring it over the next few weeks, and hopefully we'll be making a real announcement before too long on what we're going to do about it. I think we need to do more than monitor. We need to do more than wait," Kendall said.

Under sequestration, the Navy's small business investment research (SBIR) program saw an 8 percent cut to its accounts. That means that 100 small businesses will not be able to enter into phase two of the program, when demonstrators and prototypes are built, Kendall said. “That's a pretty big deal. That's 100 small businesses that are not going to get the seed money they need to develop their products.” 

The spending cut also slashes several hundred phase one SBIR awards, which are intended to study the scientific merit of an idea, Kendall said.

The department is working on a set of goals to transition SBIR technologies into bigger programs and to track their progress, he said. “I believe by the end of the year we will have that in place."

While Kendall spoke mostly of the acquisition community's budget woes, Rear Adm. Matthew Klunder, chief of naval research at the Office of Naval Research, tried to court small businesses.
ONR is looking for innovative and “hugely affordable” technologies, and small businesses are uniquely poised to deliver such products, he said.

Smaller firms usually are more agile and have less overhead than large prime contractors. That ability to quickly and affordably design new weapons and gadgets is crucial as the Defense Department tries to cut down costs in an austere budget environment, Klunder noted.

"When budgets are tight, we want to keep momentum,” he said. “We really do, even if it's not huge leaps forward in momentum, but maybe half steps forward."

Small businesses make up 40 percent of ONR awards delivered either through the office itself or by prime contractors, Klunder said.

While working with the office doesn't guarantee an acquisition contract down the road, it can help industry to mature technology and minimize risk. "There are some systems that we have today in our acquisition [process] that we've spent 10 years testing,” which cost “a ton of bucks. We can't do it that way," he said.

Sequestration has kept the office from holding informal quarterly meetings between industry and officials, Klunder said.

As long as ONR officials keep Congress informed on progress, it can adjust and move funding as necessary within its different lines of research, such as that for directed energy weapons, he said.

"The lines where we're committed in, the lines that are funded right now are going to be there for the next two years. It still gives us some ability to be nimble ourselves and reprogram as necessary."

Klunder highlighted two ONR projects — the electromagnetic rail gun and the laser weapons system — that were built with small business participation. He and other Navy officials have said these directed energy weapons could be a new wave of technology with the potential to revolutionize how wars are fought.

ONR has so far created two prototypes of an electromagnetic rail gun that can fire a projectile more than 100 miles, Klunder said. Small businesses were responsible for 86 individual subcontracts within the project, totaling $20 million for their work.

"We have a lot of small business folks playing on this, and we're still working it today,” he said. “There are still continuing development on prototypes, so there will be more small business involved, I guarantee."

One shot of the gun costs about $25,000. Klunder said he was not suggesting the weapon could replace more expensive missiles, but that such cost savings were “a compelling story.”

ONR and Naval Sea Systems Command also recently demonstrated they could use the laser weapons system to destroy an unmanned aerial vehicle. At $1 a shot, it's another example of naval officials' desire to create new weapons that are also cost-effective.

Topics: Defense Department, DOD Budget, Procurement, Defense Department

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