Spending cuts force Navy to reshape; opportunity for contractors

Imminent spending reductions by the Department of Defense combined with a mix of different types of international security threats will require the Navy to reshape itself as a more flexible and innovative fighting force. And that could provide profitable opportunities for the smaller defense-related industries sprinkled throughout Rhode Island.
This was one major message of the first Rhode Island Defense Expo, a wide-ranging, daylong discussion among the Navy and various defense contractors and industry groups held Oct. 18 at Naval Station Newport.
“Everything about how we design, produce and acquire [military goods] is changing,” said Dick Diamond, a Raytheon Integrated Defense Systems strategic assessments analyst. “The money is going down and efficiency has to rise. This means there will be a rich environment for small companies seeking niche opportunities.” He emphasized, “Smaller defense companies will form the base of the U.S. defense industry in the future.”
Most questions from the audience focused on how smaller, defense-related businesses can grab their share of defense contracts. According to the U.S. Small Business Administration, a business providing military hardware is defined as “small” if it has no more than 500 employees and no more than $27 million in average annual revenues.
A total of 257 Rhode Island companies work on Defense Department contracts, according to the R.I. Economic Development Corporation. Of that number, 250 are considered small businesses. The Southeastern New England Defense-Industry Alliance (SENEDIA), one co-sponsor of the expo, includes about 50 defense-industry contractors, almost all from Rhode Island and almost all of them small businesses.
John Riendeau, defense-sector head for the EDC, explained the expo’s purpose: “[It’s] primarily to bring provocative speakers to the forefront, to open what they see as the future of warfare and related systems, and to help businessmen know what this means for their companies. Hopefully businesses can use what they hear to lead their companies into the future.”
In addition to several panels, speakers at the expo included the entire Rhode Island congressional delegation, Gov. Donald L. Carcieri, Assistant Secretary of the Navy Juan M. Garcia, and Rear Admiral Terry Benedict.
Democratic Sen. Jack Reed, an expert on defense matters and chairman of the Senate Armed Services Committee’s Subcommittee on Seapower, used his keynote address to plunge straight into the finances of the issue, noting that Defense Secretary Robert Gates has set a goal of saving $100 billion over the next five years by reducing the use of contractors, freezing staff sizes and eliminating excess organizations. “This year will be good for shipbuilding but we have to be cognizant of the budget pressures on defense,” Reed said. “We have a huge set of issues and emerging challenges for maritime policy.” Among the challenges for the Navy mentioned by Reed and others are expansion of China’s naval fleet, the reinvestment by Russia in its submarine fleet, pirates off the African coast, threats from Iran, humanitarian and environmental aid in cases like the Haiti earthquake and the Gulf of Mexico oil spill. All of this, Reed said, demands a flexible and adaptive Navy.
Like other speakers, Reed said the “innovation and ingenuity in small businesses” are advantageous in meeting Defense Department needs cheaply.
Democratic Sen. Sheldon Whitehouse warned of the grave dangers of cybercrime and cyberterrorism. Although the instances receive little publicity, banks have been robbed of hundreds of millions of dollars by thieves manipulating the Internet, Whitehouse said. “These are not hackers in a basement,” he said. “Some are as big as the Pentagon, spread out over multiple buildings. The more briefed you are about this, the more scared you are.”
Whitehouse said the Internet is not safeguarded by any type of regulations, allowing computer users to host and pass viruses and malicious software.
Some speakers raised the topic of members of the military burdened after nine years of war in the Middle East and Afghanistan. Garcia, the assistant secretary of the Navy, emphasized the importance of the reserves in the ongoing U.S. military conflicts. He thanked the business owners who are making sacrifices to keep jobs open for reservists and in some cases making up the difference between reservists’ stateside and military pay. “That is real patriotism; that is putting your money where your mouth is.”
Garcia noted that battlefield survival rates are very high in this decade, which means America is welcoming back a lot of wounded people. “Our moral mandate is to find a way to reintegrate into American society a cadre of warrior class that is returning,” he said. “Don’t hire these people to make yourself feel good; hire them because it is smart business.” •