Defense-Related Businesses Try To Survive Cutbacks

With cuts in the military budget coming in the new year, small defense-related businesses are trying to stay afloat. At a recent conference in Maryland, representatives from more than 250 of those businesses gathered to get tips on how to survive the cuts.

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The Pentagon is planning to trim its budget, and that worries many small businesses that depend on military spending. At a recent conference in Maryland, some 250 of these businesses gathered to seek guidance on how to survive the cuts, and to find out which multimillion-dollar contracts are likely to remain in play. NPR's Jamie Tarabay reports.

JAMIE TARABAY: The conference room was packed. Attendees sat, leather binders open, and eagerly listened as major defense companies told them the future was bright. There was Walter Havenstein, CEO of SAIC, which provides technical services to the departments of Defense and Homeland Security.

Mr. WALTER HAVENSTEIN (Chief Executive Officer, SAIC): But the reality is it's still very, very large budgets, and there are still some very, very important areas that are going to endure.

TARABAY: There was Mike Hayes, director of the Office of Military and Federal Affairs in Maryland.

Mr. MIKE HAYES (Director, Office of Military and Federal Affairs): All the Army generals up here will tell me that while there's a 10 percent reduction afoot nationally within the Department of Defense, they have - by reasons of mission -exemptions for some time.

TARABAY: Their encouraging words were what many of those attending wanted to hear. These 250 or so small businesses, based in Maryland and Virginia, were there to partner up with other firms and bid for the contracts they hope will continue to come. Lisa Swoboda is deputy director at Maryland's Office of Military and Federal Affairs.

Ms. LISA SWOBODA (Deputy Director, Office of Military and Federal Affairs): Over $200 billion are spent here in our state - stay here. We have over 50 federal agencies that are headquartered here in Maryland, and 17 military installations.

TARABAY: But some worry that money will dry up. Earlier this year, Defense Secretary Robert Gates told his department it needed to cut $100 billion over the next ten years. If that money is going to stop flowing, these businesses will be the ones to lose out, according to Gordon Adams. He's a fellow at the Stimson Center, and has been analyzing defense budgets for more than 40 years.

Mr. GORDON ADAMS (Professor, U.S. Foreign Policy; Stimson Center): The subcontractors, the part suppliers, the R&D contractors, the people who are providing services to the Pentagon - that business goes south even faster than the big systems when there's a downturn.

TARABAY: For these businesses, military contracts make up nearly all of their work. To keep afloat in tougher times, a lot are trying to bid for cyber-security contracts. Genny Bates, a business-development manager with Maryland-based Metrix Technologies, says that's where the money is.

Ms. GENNY BATES (Business Development Manager, Metrix Technologies): That's where a lot of dollars are coming in for each agency, because their security levels have definitely increased over the last couple of years.

TARABAY: Adams and other analysts say Gates will start to pull many of those services in-house or cancel them altogether. Anyone who thinks otherwise -those who say that as long as the country is fighting wars on several fronts, there will always be big contracts - have what Adams calls a stovepipe view.

Mr. ADAM: They're not going to have a very realistic view about the overall trend. The context here is what's happening on the outside.

TARABAY: On the outside, he says, is a Congress that's made debt reduction one of its biggest missions in the new year. Already, Adams says, defense budget requests from the White House are down almost $20 billion. The window for those smaller businesses is rapidly closing.

Jamie Tarabay, NPR News.

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