Defensive Measures | Massachusetts contractors take a wait-and-see stance as feds weigh budget cuts
Photo/Edd Cote
SLICE AND DICE: Massachusetts is home to thousands of companies that rely on federal defense spending for major revenue streams. Westborough-based Security Engineered Machinery, which sells industrial-strength shredders to the federal government, is one of them. Pictured is Michael Paciello, SEM vice president of marketing, who said his company is concerned, but not overly worried about possible cuts to defense spending by the federal government.
Congress’s recent game of chicken over raising the nation’s debt ceiling was more than just political spectacle to Matthew Foster, CEO and co-owner of Avatar Computing Inc. in Worcester.
That’s because Avatar, which provides information technology and support services, does more than 90 percent of its business with the federal Department of Defense. And the deal reached in Congress earlier this month is likely to translate into hundreds of billions of dollars in cuts from the DOD budget over the next decade.
It would be the first contraction in defense spending in years and it has Central Massachusetts contractors watching closely.
“It’s obviously not the news you want to hear,” Foster said. “There’s not a lot we can do about it either.”
Flush Times
After a decade of ramped-up spending on national security and on two separate wars, defense spending faces its first contraction in years. It is not yet clear how the cuts will play out in Massachusetts, which ranks highly in the country for the dollars its companies and institutions bring in from defense contracts.
From electronics cabinets to furniture to high-tech data destruction equipment, the DOD’s needs run the gamut.
Hudson-based Affordable Interior Systems (AIS), which manufactures and sells office workstations to various branches of the government, including the DOD, is also watching the discussions in Congress, according to David Morales, senior vice president of government sales.
AIS has won about $50 million in government contracts in the past five years, Morales estimated, and the majority have been from the DOD. He said that such contracts are a key factor in the company’s growth strategy, though it also sells to civilian government agencies and the private sector.
He said the company’s diversified customer base could help insulate it to some extent from potential DOD cuts.
Michael Paciello, vice president of marketing for Westborough-based Security Engineered Machinery Corp., said there is uncertainty about what the future holds, but the current defense budget has his employer doing business at a steady clip.
“Right now, things are good,” Paciello said. “We’re concerned about the discussions of reductions, not frightened, but concerned.”
SEM sells paper shredders, hard-drive destroyers and other data-destruction equipment. The company has 45 employees and does roughly 80 percent of its business with the government, most of which is through high-security agencies such as the military and the Department of Homeland Security.
The company has won more than $32 million in defense contracts since 1999, according to USAspending.gov.
Paciello said it would be difficult to confirm that exact figure, and noted that SEM also does business with the FBI, which does not fall under the DOD, but could also be on the chopping block as Congress debates where to cut.
Paciello said the contract total on the federal website may be a bit low because it does not include one-time “impact” item purchases, which do not require a contract and have become more common since the Clinton administration.
Cuts On The Table
The defense cuts under discussion in Congress could range anywhere from $350 billion to $886 billion over the next decade, according to the White House. It is also not yet clear exactly how the promised cuts would be spread out across the Army, Navy, Air Force, Marine Corps, National Security Agency and other DOD branches.
The full $886-billion defense spending cut would be enacted through a “trigger” mechanism if Congress fails to identify an additional $1.5 trillion in overall cuts by the end of this year. That would add to the nearly $1 trillion immediately enacted through budget caps that take effect later this year.
The trigger is high-stakes motivation for a “super committee” of legislators to reach a spending cut deal of their own design by the end of December.
Massachusetts will be representated on the 12-member committee by Sen. John Kerry.
Despite what could be the most significant cuts to defense spending in years, some companies expressed confidence that their products and services may be insulated because they are critical to the agencies that purchase them.
“The way we’re seeing it right now is there’s still a need for what we provide,” said Foster, of Avatar. “The government can’t in-source it.”
And Paciello of SEM does not expect the military and FBI to suddenly stop destroying sensitive data when it is no longer needed. The tools his company makes are all but required by numerous agencies that work with sensitive data.
“They’re mandatory,” he said.
WBJ Web Partners
Most Recent
Most Recent
0 Comments