Like many defense contractors, Dave Garza is eagerly waiting for an agreement between the White House and Republicans on the fiscal cliff, which could spell massive cuts. Contractors are concerned about potential across-the-board budget cuts, known as sequestration, that are set to take effect in January if an agreement is not reached.
While it is not yet clear how cuts in federal spending might affect military spending, contractors said they expect cuts for some services and increased competition for available contracts.
Officials at Naval Base Ventura County, Calif., and Naval Sea Systems Command in Port Hueneme would not comment on possible cuts.
Patricia Dolan, director of corporate communications for NAVSEA, said planning has been on hold since it is still uncertain which items in the Department of Defense’s budget might be affected.
“We are at a standstill,” Dolan said. “No one has done any planning in order to determine what that impact would be.”
Meanwhile, some contractors are already seeing effects of the looming fiscal cliff.
Priscilla Becker, CEO of Visual Concepts in Oxnard, Calif., said vendors are holding off on larger projects.
“I think the most immediate effects we are seeing at this time is just fear ... that big vendors will not be spending because they really don’t know how things will turn out,” Becker said. “The country has been feeling the pinch for several years now and we are finally starting to see it on our end.”
Securing government contracts has become increasingly competitive. Over the past two or three years, Becker said, companies competing for military contracts have driven prices down by 25 to 35 percent.
“With prices going down, our staff has had to put in two or three times more work to sustain the same revenue because we also have growth goals we have to hit,” Becker said. “Meanwhile, there is also the reservation and fear that there could be more tightening of the belt, especially with larger projects for the military. There has definitely been a big slowdown on that.”
Sung Won Sohn, an economics professor at California State University Channel Islands, said that if President Obama and Republicans do not come to an agreement, the military still should have enough flexibility to “cushion the shock.”
Sohn said larger companies such as Boeing Co. and Northrop Grumman Corp. could lose major revenue, but smaller contractors might be protected from cuts because they provide services that are integral to the military’s daily operation.
Glenn Harris, president of Southern California Gold Products, said specialized work has kept his Oxnard-based company busy with various projects that now make up 70 percent of his business.
For the past seven years, the company has manufactured about 400 armor components and other protective materials for military vehicles and hydraulic excavators that are used by Seabees in Afghanistan and Iraq.
The company is now on its second year of a five-year, multimillion-dollar contract to develop its specialized armor protection system for John Deere equipment, which will be used by the Army and the Marine Corps.
Harris said his business has increased by 40 to 50 percent in the past year because larger companies that offered similar services have closed.
“Some of the companies that have failed were just too big and we ended up getting a lot of that work,” said Harris. “Everyone is edgy with what’s going to happen in the horizon for future work, but if you are creative, you can adapt and get involved in other industries to keep your business going.”
Becker, of Visual Concepts, said the company is also looking at expanding and offering its specialized engineering, software and systems security management services to commercial clients.
Despite his concerns about future contracts, Garza, of Oxnard Precision Fabrication, said he expects his 21 employees at his company will stay busy into next year.
He said his business has increased by about 16 percent this year compared to 2011.”The government is spending money right now and we have been extremely swamped, especially in the past three months,” Garza said. “How long that will last, we just don’t know yet.”
(Contact Marjorie Hernandez of the Ventura County Star in California at MHernandez@vcstar.com.)