Trump Plans Could Harm Service Contractors

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Spending on defense contractor services could fall victim to other priorities after President-elect Donald Trump takes office, according to industry insiders.

Trump called for massive national infrastructure upgrades that have been estimated to cost as much as $1 trillion.

 “It really sets the context for being able to afford” other programs, said Rich McFarland, head of one of the research teams that helped put together the Professional Services Council’s latest “Vision Federal Market Forecast.”

On the campaign trial, Trump vowed to cut taxes and not reduce entitlement spending, which continues to grow.

Meanwhile, many economists expect modest economic growth in the coming years, which will limit tax revenues, noted Lou Crenshaw, who led PSC’s macroeconomic/DoD topline forecast research team.

Budget constraints could force difficult choices even if Pentagon spending caps are eased or lifted, he said. “The economy is going to have to improve before we’re really going to be able to have a significant number of dollars to do the things that the president-elect would like to do with the Defense Department.”

The businessman’s defense spending blueprint would cost approximately $640 billion per year, about $80 billion more than President Barack Obama called for in the coming years, according to projections by the Center for Strategic and International Studies.

To make room in the budget for high-priority spending, the new administration might view contractor services as an area where cuts could be made, Crenshaw said.

Defense officials won’t want to skimp on funding for operations and maintenance because the force has been pushed hard for more than a decade, he added. “We see increasing spending in those areas because we have to recapitalize the force and revitalize the force.”

Trump has proposed significantly increasing the size of the active duty component, and personnel accounts could see a major boost as a result. Those extra troops “come with a bill,” Crenshaw noted.

As the Defense Department pursues its “third offset” strategy, which is aimed at maintaining the U.S. military’s technological edge over advanced adversaries, spending on research, development, test and evaluation will likely be protected for the foreseeable future, he said.

Meanwhile, the Pentagon is slated to procure a range of next-generation weapon systems in the coming years. Those high-priority programs are expected to come with a hefty price tag.

“We have many, many large acquisition programs that extend over many years, and we’re not likely to be able to go to that well” to cut spending, Crenshaw said.  

That could leave service providers as the odd man out. “What cutting there’s going to be … is probably going to be seen probably in some of the service industry categories, which are sometimes seen as things that we can put off a little bit or maybe we do some consolidation there.”

Topics: Budget, Contracting