Further Thoughts On Defense Budget
Seeking Alpha Analyst Since 2008
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My first inclination, given the new DoD budget's emphasis on tech, security, etc., was that the IT firms such as CACI (NYSE: CAI), Computer Sciences Corp (NYSE: CSC) and SAIC (NYSE: SAI) would prosper. The part of the DoD budget that I did not see in the very first news was that the DoD wants to reduce the percentage of work outsourced from about the current 39 percent to the pre-9/11 26 percent. That means that the DoD wants to hire 13,000 civil servants to replace contractors in the coming year and up to 39,000 over the next five years. Interesting question: where are those employees going to come from? Will they leave their jobs at private sector companies to work at the Pentagon? Will they swap their corporate salaries and benefits for government salaries? Will they give up their stock options (which either have been repriced to new lows or will be at some point in the future) for no upside equity growth and a government pension? Maybe yes. But I'm not so certain. For one thing, DoD contractors tend to work on multi-year contracts and thus their employees think in terms of how long the contract on which they are working will extend into the future. For another, while not the most expensive market in which to live, the Greater Washington area ain't cheap. What increases in salaries and benefits will be necessary to lure the highly talented tech employees to become government employees? It's going to be interesting to watch. It's going to ripple through the Washington business community, especially organizations like the Northern Virginia Technology Council. I'll be in touch with my friends and other observers of the industry and post any information I pick up here.
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