In the last fifteen years or so there has been major consolidation in the defense industry. The big hardware producers like Boeing, Lockheed Martin and Northrop Grumman expanded by buying other companies in different business areas. Some of this investment was with the engineering companies that provided Scientific, Engineering and Technical Analysis (SETA) services to the Department of Defense and the different branches of the Armed Forces. SETA contractors normally work side-by-side with Government employees and uniformed acquisition professionals to aid in the development, production and management of programs. They have increased in size and role as the Government shed a lot of workers in the Clinton Administrations.
Over the last eight years with the expansion of the defense budget and military operations in Iraq and Afghanistan there has also been an increase in their use and the money spent on their contracts as it is easier to get contractors then hire civil servants. Now the Obama Administration would like to eliminate several thousand of these SETA jobs and move them back into the government. There have also been concerns expressed by companies that having employees of other corporations especially those competing on the acquisition programs may give them an added benefit. Normally the Government will fire wall off these contractors through Non-Disclosure Agreements (NDA) but they can certainly be violated by unethical workers.
Now The Wall Street Journal is reporting that Northrop Grumman is considering selling their engineering and consulting arm, TASC. Part of this is because Northrop Grumman was sued by a company trying to sell rocket systems to the Air Force in competition with Northrop and TASC advised the government on that contract. Northrop also was involved in similar work. The law suit was dismissed but the government is now looking at companies signing more strict and distinct agreements to prevent conflicts. Northrop may be making the judgment that the work TASC brings in is not worth the chance of losing a big procurement.
Other of the large hardware companies have similar groups although two of the biggest SETA contractors are separate companies -- Booze Allen Hamilton and SAIC. It might be in the best interest of the companies to separate those parts. The fact that many of the jobs may be eliminated with Obama's and Secretary of Defense Gate's proposals to make more of these jobs government may also play a role. These corporate components may see a significant decline in their contribution to overall revenue and earnings.
The defense industry is in some flux due to the changes being made by the new Democratic Administration. Until the 2011 budget is released it is not known if there will be further cuts in big programs. It is clear that a great deal of money will move from contractors due to the restructuring of the work force and that amount is hard to identify right now. We may see companies moving back to concentrating on certain core competencies rather then being broad providers. If the operations in Iraq and Afghanistan also begin to wind down a significant chunk of the budget will also not be needed as it is providing contract support to those deployed units.
This sale by Northrop may be a bell weather of further shake ups to come.