Pentagon’s November Contracts Rose 46% as Shutdown Backlog Eased

Pentagon contracts rose 46 percent last month to $23 billion as the military began clearing a bottleneck caused by October’s partial U.S. government shutdown.

Three of the top five agreements went to Lockheed Martin Corp. (LMT), Cardinal Health Inc. (CAH) and Bechtel Group Inc., and they accounted for more than a third of the total, according to data compiled by Bloomberg.

The boost may not presage a rebound in defense spending, because the shutdown led to a backlog in contracts that helped boost November awards. While some relief may be on the way as lawmakers debate a budget deal, the Pentagon is still operating under a temporary spending bill, or continuing resolution, that forbids new programs and higher production levels.

“The big contracts that are being funded are ongoing activities whose funding is not being impaired by the continuing resolution,” said Loren Thompson, a defense analyst with the Lexington Institute, an Arlington, Virginia-based research organization. “There are no big increases and there are no big new contracts because the funding mechanism doesn’t permit it.”

The Defense Department would get $22.3 billion in relief from spending cuts this fiscal year under the budget agreement reached by congressional negotiators, according to aides to lawmakers and Pentagon officials who asked not to be identified discussing details that haven’t been presented publicly. The bill would also allow the military to once again fund new projects.

16-Day Shutdown

“It’s a positive move,” Randy Belote, a spokesman for No. 5 Pentagon contractor Northrop Grumman Corp. (NOC), said in an interview. “It looks like the bill increases the budget for acquisition. We hope they can get more stability into the budget process.”

Congress’s failure to reach an agreement to fund the government by Sept. 30 prompted a 16-day partial shutdown that resulted in the contracting backlog. It also contributed to a 66 percent plunge in military awards in October from a month earlier.

The No. 1 defense contract in November went to closely held Bechtel, a San Francisco-based provider of engineering and construction services. The Navy awarded a $7.07 billion modification to a contract for nuclear propulsion work through 2018 at laboratories in West Mifflin, Pennsylvania, and Niskayuna, New York.

The facilities are “critical to our national defense,” Craig Albert, president of Bechtel’s government services business unit, said in a statement after the Navy extension was announced Nov. 5.

198 Contracts

The service said it was able to promise, or obligate, $82.9 million at the time of the award. About $484.7 million in funding for the fiscal year that began Oct. 1 is being delayed until lawmakers pass a spending bill, according to military and company officials.

The Pentagon announced 198 contracts with a maximum value of $23 billion in November, compared with 185 contracts and a maximum $15.7 billion in October, according to data compiled by Bloomberg. In November 2012, the military awarded more than 250 contracts with a maximum value of $21 billion.

The Pentagon is required to announce contracts of at least $6.5 million.

The second-biggest contract in November went to 914 companies that were added to the Navy’s SeaPort Enhanced program for acquiring professional support services. The vendors will join more than 2,000 others in competing for as much as $5.3 billion in services each year, the military said on Nov 19.

Research, Missiles

Cardinal Health, based in Dublin, Ohio, won the No. 3 agreement, a $1.02 billion modification to an existing medical-supply contract. The Defense Logistics Agency awarded the deal on Nov. 13.

The military’s Washington Headquarters Services awarded an $888.8 million noncompetitive contract for research and analysis to the Institute for Defense Analyses in Alexandria, Virginia, on Nov. 1. Lockheed, based in Bethesda, Maryland, on Nov. 5 received a Navy contract valued at as much as $803.2 million for Trident II missile production.

Pentagon contracting will remain at a lower level because of other restraints on spending, said Brian Friel, an analyst at Bloomberg Industries. Even before the automatic budget cuts known as sequestration took effect in March, the military already was absorbing reductions.

“No matter what this budget deal does, defense spending will be lower,” Friel said. “The department has to step back and decide which programs it’s going to scale back or cancel.”

To contact the reporter on this story: Jonathan D. Salant in Washington at jsalant@bloomberg.net

To contact the editor responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net

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