Bloomberg News

Pentagon’s February Contracts Drop 48% in Extended Slump

March 17, 2014

Pentagon contracts dropped 48 percent in February, extending a slump that has awards near the lowest level in almost two years.

The Defense Department announced contracts with a maximum value of $12 billion last month, compared with $23.1 billion a year earlier, according to data compiled by Bloomberg. They fell to $8.44 billion in January, the worst showing in at least 23 months.

Military officials “have sent a very clear message that they are going to be curtailing spending,” said Larry Allen, president of Allen Federal Business Partners, a consulting firm based in McLean, Virginia. “And when they do spend, they’re going to do so with a very close eye on price.”

The delay in enacting a permanent federal spending bill and snowstorms that closed the government also contributed to the low contract awards in both January and February, Allen said.

“It takes a while, even after Congress acts, for everything to filter its way down to the individual accounts,” he said.

The government had been funded under a temporary spending bill that restricted new federal contracts and projects from mid-October through much of January. Those limits ended after President Barack Obama on Jan. 17 signed a $1.1 trillion measure funding the government through Sept. 30.

While last month’s announced contracts declined from a year earlier, they rose 42 percent from January. The Defense Department is required to announce contracts of at least $6.5 million.

Plane Patrols

Last month’s largest award, a $2.07 billion contract modification, went to Chicago-based Boeing Co. (BA:US) for 16 P-8A Poseidon aircraft. The Navy has set aside funds for the entire amount.

The Feb. 25 award is in addition to 13 P-8As already delivered. The Navy eventually plans to buy 117 of the planes to replace its Lockheed Martin Corp. (LMT:US) P-3 Orion aircraft.

“This contract reflects the success of the program and enables us to continue delivering an advanced, cost-effective maritime patrol aircraft,” Rick Heerdt, a Boeing vice president, said in a press release.

The plane is used for patrols at sea, including anti-submarine and surveillance missions. The Pentagon dispatched a P-8 last week to search the Bay of Bengal to help in the international search for Flight 370, the missing Malaysian jetliner.

The third-largest agreement was a $655.4 million Army contract to Waltham, Massachusetts-based Raytheon Co. (RTN:US) for new fire units for a Patriot air- and missile-defense system in Kuwait. The contract was awarded under the government’s Foreign Military Sales program.

Military Airlifts

The second- and fourth-biggest awards were contract modifications for international airlift services announced Feb. 11 by the military’s U.S. Transportation Command.

A team including Chicago-based United Continental Holdings Inc. (UAL:US) and Atlanta-based United Parcel Service Inc. (UPS:US) won an $804.8 million agreement. Another group, including Fort Worth, Texas-based American Airlines Group Inc. (AAL:US), was awarded $635.5 million.

The No. 5 award was an Air Force contract to closely held KS International LLC, based in McLean, Virginia, for support and security services at Joint Base Balad in Iraq. The Foreign Military Sales contract announced Feb. 4 is valued at as much as $623.3 million.

Mark Amtower, a contracting consultant, said he didn’t expect a big increase in awards until the summer, as Congress starts writing spending bills for the year that begins Oct. 1.

“What we’re seeing right now is people pulling back, saving their money, waiting to see what next year’s budget is going to be,” said Amtower, a partner in Clarksville, Maryland-based Amtower & Co. “They’ll wait until the last quarter to eyeball how much money there’s going be next year and decide how they’re going to spend the money this year.”

To contact the reporter on this story: Jonathan D. Salant in Washington at jsalant@bloomberg.net

To contact the editors responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net Larry Liebert


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Companies Mentioned

  • BA
    (Boeing Co/The)
    • $128.61 USD
    • -0.74
    • -0.58%
  • LMT
    (Lockheed Martin Corp)
    • $178.99 USD
    • -1.75
    • -0.98%
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