CEO: Defense Industry Cannot Operate Under Fiscal Uncertainty

ORLANDO, Fla. — The defense industry has been walloped by canceled or pared back contract awards over the last two years as a result of budget cuts. While the sector can deal with smaller funding pools, it can no longer bear the “chaos” caused by fiscal uncertainty, the CEO and president of Engility Corp. said Dec. 2.

"While I contend that we can live with these lower levels of funding — and we will develop cost-efficient solutions accordingly — we cannot operate effectively when we have high degrees of budget uncertainties that … results in federal procurement machinery grinding to a halt," said Anthony Smeraglinolo during the annual Interservice/Industry Training, Simulation and Education Conference.

Sequestration, government shutdowns, furloughs and continuing resolutions have hurt the industry over the last two years, he noted. 

“When decisions about contract awards are postponed and delayed, industry correspondently postpones investments in personnel hiring decisions. This results in platforms not getting built on schedule, R&D suffering and ultimately government getting hitting with delays and reduced value,” he said.

“The partnership between government and industry operates best with certainty. With this certainty, we can all structure and operate our business and better support the mission,” Smeraglinolo said.

While the world faces a range of threats — from the Islamic State to Russia and China — small budgets are here to stay, Smeraglinolo said. 

“I contend absent a serious crisis, I do not believe there will be an increase in spending for mission and capability expansion. This means this era of constrained budget is here to stay, even if the pressures to perform our missions due to continued threats have not significantly decreased,” he said.

Still, he noted that the situation is getting better. He pointed to the 2013 Bipartisan Budget Act as one promising example. Additionally, there has been an uptick in contract awards, he said.

“After 2013, where industry virtually saw no acquisition activity coming from our government customers, we are now seeing evidence of things getting better by an increase in the level of solicitations and award activities,” he said.

However, industry now may face the return of sequestration in 2016. Unless averted, the military stands to have tens of billions of dollars lopped off of its budget. Smeraglinolo said he is optimistic that the newly elected Congress may find a resolution to the crisis.

“I am hopeful … that as a result of the November elections there will be a political solution that eliminates the use of this draconian budget act,” he said.

Transparent and frequent communication between industry and the government will continue to be critical to meeting expectations, he said.

“Our focus needs to be on how to maintain readiness with a reduced force structure and reduced budgets over the next decade,” he said.

And while funding is down, the military still expects high quality products, he noted. “Our customers are not looking for cheap, they are looking for efficient. This is industry’s challenge. Our customers are demanding the same outstanding service they have come to expect and in this new era of lower budgets,” he said.

Topics: Defense Department, DOD Budget, Simulation Modeling Wargaming and Training