Virginia’s Smaller Defense Firms Cope with Spending Caps, Focus on Cost-Cutting

Virginia’s Smaller Defense Firms Cope with Spending Caps, Focus on Cost-Cutting

Small and midsize defense contractors in Virginia are coping with statutory spending caps and an increased effort by federal contracting managers to limit profit margins in a variety of ways, with some firms taking a second look at federal set-aside programs and others looking to new markets in the United States or overseas.

Virginia is particularly vulnerable to cutbacks in defense spending; 11.8 percent of the state’s gross domestic product relies on DOD spending, the highest in the nation. While Pentagon spending is increasing slightly this year, the department’s budget had declined since fiscal 2011.

“Defense contracting these days is not for the faint of heart,” Mark Moore, executive vice president and chief lending officer for John Marshall Bank, told Virginia Business. “The downward pressure on permitable profit is more difficult than it has ever been.”

To survive in a hyper-competitive environment, Global Dimensions, which provides language and linguistic services, moved from Alexandria to Fredericksburg to take advantage of the Small Business Administration’s HUBZone program. The initiative provides special access to federal contracts to companies that locate in historically underutilized business zones and hire 35 percent of their employees from similarly designated areas.

Alliance Solutions Group, which specializes in emergency response and mass-casualty incident planning, has been forced to contend with a sharp drop in federal funding for training and the federal government’s increasing preference to award contracts to larger companies.

In response, Alliance has begun to target the commercial market and opened an office in the United Arab Emirates. The firm’s overseas expansion has been supported by the Virginia Economic Development Partnership’s Going Global Defense Initiative.

Almost 300 companies, representing 25,000 employees, have participated in the initiative, said Paul Grossman, the partnership’s vice president of international trade. The program is in its third year, and until now, has been largely funded by DOD’s Office of Economic Adjustment (OEA), according to the story. Virginia’s General Assembly this year agreed to fund the program through 2018.

OEA supports a wide array of economic adjustment strategies for areas affected by cuts in defense spending. The agency’s defense industry adjustment program provides technical and grant assistance focused on regional job creation through business development, attraction and expansion, workforce development and community economic diversification. Examples include helping manufacturers become more efficient or explore different markets, including domestic and international; and helping workers acquire new skills in growth industries in their area.

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