Pentagon's empty posts
cause uncertainty for defense contractors
Send a link to a friend
[August 12, 2017]
By Mike Stone
WASHINGTON (Reuters) - U.S. President
Donald Trump's failure to fill dozens of senior-level positions at the
Pentagon is making it difficult for defense contractors to forecast
Defense company officials, speaking on conference calls after their
just-reported quarterly earnings, did not blame Trump directly, but said
the lack of appointments to key positions at the Pentagon had slowed
contract awards and created uncertainty.
"The still-high number of unfilled leadership appointments and the
approaching government physical year-end continue to serve as
headwinds," said Roger Krone, chief executive of Leidos Holdings Inc
<LDOS.N>, on an Aug. 3 call with analysts.
Krone, whose company is one of the largest providers of services to U.S.
armed forces, said those open posts have slowed the awarding of
The Department of Defense said it has 42 unfilled top-level posts that
require Senate confirmation, including general counsel, inspector
general and other important roles like secretary of the Army and
undersecretary of the Navy.
The Pentagon referred a request for comment on its unfilled posts to the
White House. A White House official said: "Democrat obstruction has
played a key role in jamming up the president's agenda."
Of the 42 open positions that require Senate confirmation, 29 have no
nominee identified, while 13 have nominees awaiting confirmation.
For two of the largest U.S. defense companies, General Dynamics Corp
<GD.N> and L3 Technologies Inc <LLL.N>, thin staffing at their largest
customer was a talking point with investors.
The Defense Department is "working on filling several positions in the
Pentagon and that has definitely resulted in a slowdown," said Ralph
D'Ambrosio, chief financial officer of L3, a prime contractor for
surveillance, security and detection systems.
[to top of second column]
The dome of the U.S. Capitol rises over the Pentagon and other
federal buildings in Washington during sunrise, October 2, 2013.
Because of the slowdown, the quarter just ended was the lowest second-quarter
spending level on record at $62.5 billion, according to a report by data
analysis firm Govini, seen by Reuters. The report said "federal procurement
resources are stretched thinner than they ever have been."
Leidos' Krone pointed to the expected one-year delay of the Navy's $3.5 billion
NMCI NextGen program to update the intranet used by the U.S. Navy and Marine
Corps as an example of a big contract delay.
Defense spending for the 2018 fiscal year and beyond was unclear, said Byron
Callan, a defense analyst at Capital Alpha Partners, noting that few companies
have changed their long-term profit expectations, suggesting that uncertainty
has made forecasting more difficult.
"The fact that we didn't have an enacted (fiscal year) 2017 budget until the
early part of May, which was seven months into the fiscal year, has definitely
slowed down the contracting activity and the obligation activity within the
Department of Defense," said D'Ambrosio.
Some of the positions have been difficult to fill. Two of Trump's nominees for
Army secretary, its top professional civilian position, withdrew their names
from consideration. The White House then nominated Raytheon Co <RTN.N> lobbyist
Mark Esper, and he is awaiting a vote on his confirmation.
General Dynamics CEO Phebe Novakovic said during her company's conference call
that "without these appointments, it is difficult to process contracts" and to
make progress on defense-related projects.
Novakovic's information systems and technology business unit has thousands of
shorter sales-cycle service contracts which can reflect delays quickly.
(Reporting by Mike Stone; Editing by Chris Sanders and Bill Rigby)
[© 2017 Thomson Reuters. All rights
Copyright 2017 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.