Small contractors could be hit hardest under planned Defense spending cuts

Monday - 7/30/2012, 9:19pm EDT

Mackenzie Eaglen, Resident Fellow, American Enterprise Institute.

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By Amanda Iacone
Federal News Radio

Automatic budget cuts set to kick in next year will hurt small and mid-size defense subcontractors and suppliers more than top-tier contractors like Boeing or Lockheed Martin.

"For every dollar that Congress appropriates to a program that goes to a prime contractor, roughly 70 to 75 cents goes out the door of the big company to small and medium size businesses across America," Mackenzie Eaglen, a resident fellow at the Marilyn Ware Center for Security Studies at the American Enterprise Institute, told In Depth with Francis Rose

Vendors, sub-vendors and sub-contractors typically employ fewer than 500 workers, although the smallest may employee fewer than 100 people across the country. And those are the jobs at risk if Congress allows sequestration to take affect come January, Eaglen said.

The expertise small contractors bring to the DoD is also at risk as some of these small contractors may be the only business in the country to provide a particular service or commodity, she said.

Congress is also less likely to hear concerns about sequestration from small business owners, whose voices are drowned out by the largest, primary contractors.

Orders have already slowed or stopped all together in response to defense spending cut through President Barack Obama's 2010 budget, which cancelled or shrunk 240 programs, she said.

The DoD is expected to lose $487 million more next year if Congress doesn't halt sequestration. And the defense budget also faces structural problems that make cuts challenging including growing retirement costs for veterans and maintenance costs for an aging fleet of aircraft and ships, she said.

"If this is how they're coping with defense cuts that are underway as part of our build down after the War in Iraq, it's going to be a lot messier when sequestration hits," Eaglen said.

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