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Temporary budget bill idles billions in projects

– The Navy wants to buy a ship that serves as a floating base, an asset when allies won’t welcome U.S. troops on their turf or a when natural disaster prevents operations ashore.

General Dynamics Corp. and its San Diego shipyard are waiting for the contract. It won’t come until Congress approves a budget with more than $560 million in funding for the project – and that isn’t likely to happen anytime soon.

Billions of dollars in helicopter to submarine construction are in limbo because lawmakers failed to pass a budget for the fiscal year that began Oct. 1. As long as the Pentagon operates under a temporary spending bill, it can’t start new programs or boost production levels.

The paralysis has slowed the military’s investments in national security priorities and has delayed work to contractors whose sales and staffs already are shrinking due to federal spending reductions. The companies may be forced to cut more jobs if Congress doesn’t pass a budget.

“My crystal ball is fogged,” said Mike Petters, CEO of Newport News, Va.-based Huntington Ingalls Industries Inc. “I don’t yet see a path that makes any sense to me. If you’re fighting these crises every two or three or four months, how does the nation ever make more strategic decisions?”

House and Senate negotiators are trying to come up with a spending bill for the remainder of the year that may ease some of the automatic spending cuts known as sequestration. Their deadline for an agreement is Friday.

The stopgap funding measure expires Jan. 15. If there’s no agreement, the government might shut down for the second time in less than four months, leading to more contracting delays.

“The ripple effect seems to go on and on,” said Mark Amtower, who runs Amtower & Co., a government contracting consulting firm in Clarksville, Md.

Amtower said he doesn’t expect things to return to normal until early next year – and that prediction assumes that Congress will pass legislation to fund the government for the remainder of the year.

While the current temporary spending bill reopened the government after a 16-day partial shutdown in October, it is a budget bandage that generally prohibits agencies from starting programs and increasing production levels during the prior year.

Companies face higher costs because they need to keep skilled workers on their payrolls while waiting for the contracts, said Wes Bush, CEO of Falls Church, Va.-based Northrop Grumman Corp. If they don’t retain those employees, then they’ll lack the expertise when the government wants the work done, he said.

“This silliness intended to save money ends up costing the taxpayers more,” Bush said.

The Defense Department is disproportionately affected because the agency represents more than two-thirds of the roughly $500 billion federal contracting market.

The delays have affected contractor Huntington Ingalls, which is building nuclear-powered Virginia-class attack submarines with Falls Church, Va.-based General Dynamics.

A contract to build the next 10 subs is on hold because the continuing resolution prevents the Navy from beginning new projects, Petters said. Each submarine costs about $2.7 billion, according to the Congressional Research Service.

Also postponed is the floating base. For the Navy, the ship is a low-cost way to support special operations forces, mine-sweeping efforts and disaster-relief responses without tying up a more expensive aircraft carrier or stationing troops where a U.S. presence might spark unrest or terrorist attacks, said Loren Thompson, a defense analyst with the Lexington Institute, a research organization in Arlington, Va.

The ship could even be used to ferry troops into combat zones, said Thompson, who also consults for companies.

“In major combat operations, this could be a cheap way of keeping troops offshore until they hit the beaches,” he said. “This is an alternative to sending Marines crashing through the waves onto hostile beaches.”

With accommodations for 250 personnel and “a huge helicopter flight deck,” the ship “will provide a highly capable and affordable asset to the Navy and Marine Corps,” according to a General Dynamics description of the program.

The delays aren’t limited to the Pentagon.

The Department of Homeland Security has pushed back the award of a border-surveillance contract valued at as much as $1 billion because of the shutdown and the temporary spending bill, according to an agency notice posted on a federal website.

For many companies, it’s a waiting game. European Aeronautic Defence and Space Co., based in Blagnac, France, wants to know how many UH-72 Lakota helicopters it can build for the Army and National Guard. While the original multiyear plan called for 31 helicopters at a cost of $231 million for the current fiscal year, Obama’s budget proposed spending $96 million on 10.

The House voted to fund all 31, and the Senate is discussing money for no more than 20.

EADS won’t be able to plan until lawmakers agree.

The choppers are being built at a plant in Columbus, Miss. The long-term future of the plant and its 300 employees – more than half of them military veterans – hinges on how many helicopters will be built, said James Darcy, an EADS spokesman.

“Absorbing that uncertainty at the corporate level is one thing,” Darcy said. “But there are individuals having to deal with that uncertainty. This is on your mind every night when you go home.”

The budget squeeze weighs heavier on smaller companies, which often don’t have the cash and credit lines of big contractors. They want to know in advance whether they need to buy equipment and hire employees for their share of major contracts, said Anne Shybunko, president of GSE Dynamics Inc., in Hauppauge, N.Y.

“You need to keep us steady with work,” said Shybunko, whose company makes parts for aircraft. “Right now, the supply base is diminishing.”

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