Industry officials say the president’s plan to cut back on Dept. of Defense spending, while short on details, is likely to mean cuts in military construction programs. But they say the reductions are not unexpected, given the nation’s tepid economy and huge national debt.
Defense Secretary Leon Panetta and President Obama announced the DOD’s new budget strategy on Jan. 5 at the Pentagon. The comprehensive defense review was conducted as a result of the enactment of the Budget Control Act of 2011, which, among other things, requires the DOD reduce spending by $465 billion over 10 years.
Obama said the strategy “will guide our defense priorities and spending over the coming decade because the size and structure of our military and defense budget have to be driven by a strategy, not the other way around.”
Rather than across-the-board cuts, the strategy calls for a shift in priorities, with some areas—such as special military operations—receiving more resources, and others receiving less. Meanwhile, the actual size of the military force will be smaller. “We are at a turning point,” said Panetta, as programs in Afghanistan and Iraq wind down while other threats—particularly in the Asian Pacific—persist.
While administration officials provided a broad outline of the new shape and size of the nation’s military programs, they said that actual numbers would not be released until the president makes his annual budget request in February.
Nevertheless, a number of industry sources say they expect the cuts to affect military construction and engineering programs. Duane Gapinski, vice president and federal program director for Omaha, Neb.-based HDR, says funding for military construction already has dropped to $19 billion, authorized in fiscal 2012, from $26.6 billion, enacted in 2009.
“I think there’s no question that [military construction] is going to be affected by cuts,” adds Robert Flowers, senior vice president of Netherlands-based Arcadis.
One military construction contractor source thinks the DOD's 2013 budget could be cut by 45%. "That's incredible," he says. The executive says it could include a "30% to 50% cut" in budgets for European and Pacific bases as well as a consolidation among the three military branches "to prime bases." These would include U.S. Navy aircraft-carrier bases and U.S. Army brigade combat-team bases, he says.
The executive also says the Corps of Engineers may look to consolidate some of its districts to boost efficiency. He also speculates on possible scope changes related to the multibillion-dollar buildup of facilities on the Pacific island of Guam if the U.S. Marines' planned move there is delayed or reversed.
The cuts will mean the pool of firms competing for military construction work will be smaller, says Dean Fox, president and CEO of Atkins’ Tampa, Fla.-based North American unit. He says firms that are mature in the federal sector will likely survive. However, he says, “If you’re just trying to get into [the market] now, good luck.”
He says that, a few years ago, his firm foresaw that cuts would be coming and, as a result, diversified. While firms acknowledge that military construction programs will be receiving fewer dollars, some are still upbeat. Although “the devil is always in the details,” says Gapinski, the DOD’s plan to bolster its special forces could mean more work to develop infrastructure, such as new training facilities, to support those forces.
Flowers thinks there could be an increase in sustainment, renovation and modernization contracts as the buildings built during the Base Realignment and Closure Commission (BRAC) boom lack standard energy systems. “I think there’s going to be a major push for rehabilitation of existing facilities,” he says.
Robert Wolff, executive director of the Society of American Military Engineers, concurs. “If they’re reducing the size of the Army and the Marine Corps … then I think it would be more the case of not needing new facilities as much as readjusting the facilities that we’ve just built under the last five years under BRAC,” Wolff says.
Says one milcon market participant, "If you're in planning and environmental work, the market may be good. If you're in vertical construction, it will be weak, and if you're working overseas, look out. I know four firms whose federal sales are less than 50% of plan for the first time ever."