Experts say Pentagon progress with nontraditional contractors at risk during coronavirus outbreak

By Marjorie Censer  / April 14, 2020

Analysts say the ongoing economic crisis spurred by the coronavirus pandemic could hurt the Defense Department's work with nontraditional contractors.

Tara Murphy Dougherty, the chief executive of Govini, said her company's data shows the Pentagon has been successful making inroads with small and nontraditional companies.

"The department's been incredibly successful in engaging this part of industry," she said.

But many of these companies are more exposed to the crisis, Dougherty said, because of their size and, in many cases, because they have commercial work. That work is part of what has made them attractive to the Pentagon, but also can create challenges as consumers pull back spending.

"I'm not that sanguine about these small businesses being able to withstand the economic shocks here," she said. "Small businesses just in general because of smaller access to overall capital -- they tend to carry less in terms of cash reserves [and] are just not as well positioned to withstand an economic crisis like this."

She said the length of the crisis will likely determine how problematic it is for companies.

Chris Brose, a former top Senate staffer who now serves as chief strategy officer for Anduril, a small defense contractor, told Inside Defense the ongoing emergency could take a significant toll on small companies.

"The immediate impact of this is a lot of the small businesses, nontraditional businesses, startups that the department has been going out of its way to try to work with for the last five years -- a lot of those companies are going to get crushed," he said. "The department needs to be thinking about what for a very small amount of money it will ultimately require on their part, what it will mean for these companies to be able to not only continue work throughout the crisis but ultimately continue on the growth trajectory that all of them are seeking to be able to keep."

Jerry McGinn, a former top industrial policy official at the Pentagon who now leads George Mason University's Center for Government Contracting, told Inside Defense DOD will be able to continue some of its ongoing efforts but will likely not be able to undertake many new initiatives, including those targeted at small businesses.

"If you're already engaged in the system to some degree . . . there's probably less difference [in] how it impacts traditional versus nontraditional," McGinn said, noting that companies hoping to do business with DOD but not already on contract might see more of an effect.

In terms of engaging new types of companies, DOD may be "less focused on that kind of stuff -- at least in the short run," McGinn said

Brose said small businesses need more DOD orders as quickly as possible.

He said additional procurement would allow Anduril "to really expand the revenue that we're bringing into the company."

"That's the single biggest thing that will allow us to not only retain the workforce that we have but to hire new people," Brose added.

He said an increase in DOD orders then helps Anduril get more funding from private investors.

"A nontraditional, venture-backed small business is in a different position with a different set of needs than a large" original equipment manufacturer, he said. "It's an apple and an orange, and [DOD] need[s] to recognize that even as they address the needs of their largest, most traditional partners, many of their nontraditional partners . . . just have a different set of needs."

Still, Dougherty noted that while the coronavirus outbreak and resulting economic hardship could take a toll on small businesses, it could also change how some technology companies think about working with the government.

"It could be helpful from the perspective that it makes [the] government look like a very secure customer," she said. For an entrepreneur, that market "all of a sudden looks more interesting."