An Uneasy Peace : Small Defense Contractors Have a Tough Time Competing With the Big Guns for Government Dollars in a Brave New World

In cramped quarters almost hidden in a Torrance industrial park, Polar Power Inc. has slugged it out for years against the big guns of aerospace, hoping to land the elusive military contract.

It’s been no easy task. Mounds of paperwork are stacked on President Arthur D. Sams’ desk, and he spends hours on the phone trying to convince military officials that his company’s generators are the best available for submarines and aircraft.

So when the Clinton Administration launched a grant program last summer to help defense contractors convert their technology to civilian use, Polar Power jumped at the chance. The company teamed up with Martin Marietta Corp. to seek a grant for production of an electric generator to charge batteries in low-emission vehicles.

The grant would have allowed Sams to give his 15 employees long-delayed raises and add as many as 20 workers to the payroll. Most important, it would have been a giant leap into the commercial marketplace.

But the big guns, Sams says, came out ahead again. After Martin Marietta won the $1.1-million grant, the defense giant chose another company to supply the generator parts.

“The bottom line is, everyone says that it will be the small businesses that will create jobs,” Sams said. “But it is hard to compete with the big guys, with their bid and proposal machines.”

When the winners were announced late last year, President Clinton hailed the program, called the Technology Reinvestment Project, as a way to stimulate innovation that would lead to new jobs.

But in the South Bay, the federal program has come under fire for giving most of the grants to giants like TRW, Hughes Aircraft, Northrop and Allied Signal Aerospace, while bypassing smaller firms.

The Technology Reinvestment Project “is not going to be the answer,” said Rohit Shukla, director of aerospace and high-technology business for Los Angeles County Economic Development Corp., a nonprofit group that promotes business growth. “It is a boondoggle of a program.”

But advocates say many complaints about the program come from companies whose names were not among the winners.

“This isn’t pork; it’s merit,” said John Chernesky, executive director of the California Manufacturing Technology Center at El Camino College, which won a $1.5-million grant to help small- and medium-sized businesses convert to commercial markets and improve their production. “It was based on the ability to provide and deliver a product in a timely and efficient manner,” he said.

In many cases, grants went to projects proposed by dozens of companies, large and small, or to research institutions such as UCLA and Cal State Long Beach. Such efforts, while led by big aerospace firms, often involve smaller companies, Chernesky said.

For example, the technology center helped Ace Clearwater Enterprises, a Torrance defense contractor with 170 employees, perfect techniques to increase its production of aircraft components for Boeing.

And some small businesses won grants on their own. Hi-Shear Technology won $800,000 to develop a lightweight, more powerful version of the Jaws of Life, a device paramedics use to cut open cars when rescuing accident victims. Called the Live-Shear, it will be developed with the Torrance Fire Department.

Dana Spencer, a member of Hi-Shear’s product design team, came up with the idea for Live-Shear after watching a television episode of “Rescue 911.” Within days, the company was adapting the pyrotechnics used to create missile and military aircraft components. The result: a tool that rips through a car’s metal frame in milliseconds.

The 110-employee company has shifted to such products in the wake of defense cutbacks. It has lost about a third of its work force in the past three years and a large chunk of its factory space is vacant so budgets are tight.

When traveling to meet potential customers, Spencer and designer Walt Smith always took the Continental Airlines “old-timer’s” special, which offers reduced air fares for those 55 and older.

“We can be more efficient, lower cost, and more flexible in executing the product (than a larger company),” said Don Novotny, Hi-Shear’s vice president for business development.

Large military contractors, however, have more money to spend to get the grants.

Northrop applied for two dozen grants for projects ranging from a lightweight electric vehicle to a sophisticated monitoring system to measure toxic emissions. It won for two projects: It is part of the team working with TRW on developing a precision laser for manufacturing, and another team will assist UCLA in a transportation engineering program.

So far, about $415 million has been awarded nationwide, with another $50 million to be announced later this month. Applicants had to prove they could finance at least half of their projects, and the government would generally pick up the tab for the rest.

The grant winners include four South Bay proposals to finance $54.5 million in projects. In addition, $16.8 million in projects led by companies and nonprofit institutions elsewhere will utilize the work of four South Bay companies.

The projects are being developed in an area hard hit by cuts in military spending. Since 1989, the South Bay has lost about 63,100 jobs, many in defense-related areas such as the manufacture of missiles, space vehicles, instruments and electronic components.

In all, South Bay firms collected about one-fifth of grant money awarded to projects in the state. But some aerospace experts doubt that will make up for the loss of jobs because it remains uncertain how viable many of the new ventures will be or how long the companies will continue them after federal funds run out.

Northrop, for example, probably will not pursue many of the proposals that didn’t win federal grants, said spokesman Terry Clawson.

“The company’s philosophy is, ‘We’re only going to explore (defense conversion) when it makes sense economically and when we can partner with experts in the field,” Clawson said.

At some of the South Bay’s other large aerospace firms, executives said they have made inroads in conversion efforts, independent of the government program.

At TRW, for example, military aircraft sensors have been adapted to detect an accident and inflate auto air bags.

Hughes Aircraft created a DirecTv subsidiary that is investing almost $600 million to launch a satellite television service scheduled to start in April.

Hughes’ strategy has been to create subsidiaries with managers who have extensive commercial experience. DirecTv includes former executives from ESPN, NBC and the Disney Channel.

“We placed people in a totally different environment, with full autonomy,” Currie said. “You have to do that.”

But smaller companies find it difficult to compete. Dyna-Cam Industries in Redondo Beach spent $30,000 trying to get a $3-million grant to modify an aircraft engine for use in trucks and buses to help reduce emissions. It was turned down.

“We were a perfect example of a company for that program,” said Dennis Palmer, former sales representative for engine manufacturer Detroit Diesel. He and his sister, Patricia Wilks, operate the company from their homes.

“But we had no idea that instead (federal officials) would just go ahead and fund their billion-dollar brothers.”

Dyna-Cam’s grant proposal was backed by about $400,000 in matching funds from private investors, some of their vendors and the state’s Office of Competitive Technology, which has a program to help small businesses meet the federal program requirements.

Palmer and Wilks said they planned to use the grant to hire as many as 300 employees. Because of lower salaries and less overhead, smaller firms like theirs would be able to hire more employees than larger companies, she said.

“Money to us means that jobs will materialize directly out of it,” said Wilks, formerly a schoolteacher and an office manager for North American Rockwell.

Dyna-Cam’s venture was not a total loss. Its production plans for a cleaner engine earned it a $500,000 grant from the South Coast Air Quality Management District. And a private investment group recently pledged another $500,000. The funding will allow the company to proceed with a scaled-down engine project.

Torrance-based Polar Power Inc. intends to go ahead with its product as well. Sams hopes to find private firms to finance the development of the generator components for hybrid vehicles.

His company, he said, is better suited to keep down the cost of the generator components. Wages are lower at Polar Power than at larger companies, he said.

Quality-control manager Ana Fisette moved to Polar Power after she was laid off from Fairchild Industries in Manhattan Beach in 1991. At Fairchild, her annual salary was $40,664. At Polar Power, it is $24,680.

She said her family would have lost its home had she not taken the job. “We really haven’t adjusted to it,” she said. “That’s a drastic cut. But I’m starting to accept the fact now.” Hours are longer at Polar Power, but there is greater flexibility in her new job.

“You don’t have 50 different processes to make sure a part is fine,” Fisette said.

Such bureaucracy, Sams said, makes the larger firms less efficient. That makes it all the more perplexing why they got the bulk of the awards, he said.

“In a small company or a commercial company, you learn how to make your dollars stretch,” Sams said.

Directors of the federal program said they knew small businesses would have trouble competing for the grants. So $20 million has been set aside for a separate grant program for them. The winners have yet to be announced.

“There is more to be done to urge them into the program and we’re going to do that . . . “ said Lee Buchanan of the Advanced Research Projects Agency, which is spearheading the federal program.

Still, there are benefits to giving the grants to larger companies, supporters of the federal program said.

“These companies are motivated by government contracts. It’s all they’ve known all of their lives,” said Steve Jarvis, director of the state’s Office of Competitive Technology. The government grants are an incentive for companies to apply their technology beyond Pentagon projects and take a look at other markets.

“It’s an experiment,” Jarvis said. “You might not be able to do a lot with the money, but at least it will stimulate some new ideas.”

Defense Conversion Grant Winners South Bay companies have won four Technology Reinvestment Project grants from the federal government to help finance $54.5 million in projects. The grants to help defense contractors convert technology to civilian use include:

* Hi-Shear Technology Corp. of Torrance, for a $1.5-million project to develop a lightweight, more powerful Jaws of Life, which firefighters use to cut open cars to rescue accident victims.

* Magnavox Electronics Systems Co. of Torrance, along with U.S. Army Corps of Engineers and Caterpillar Inc. in Peoria, Ill., for a $17.7-million project to develop satellite guidance systems for construction projects such as highways and dams.

* TRW Space and Electronics Group in Redondo Beach, along with Northrop Corp.--which has plants in Hawthorne and El Segundo--and 23 other partners, for a $33.8-million project to develop laser machine tools for drilling, welding and cutting on assembly lines.

* California Manufacturing Technology Center in Torrance, along with El Camino College and the state Trade and Commerce Agency, for a $1.5-million program to help defense contractors shift to commercial products.

Companies or nonprofit institutions outside the South Bay will lead $16.8 million in projects that include local firms. They are:

* Allied Signal Aerospace and Hughes Power Control Systems, both in Torrance, are part of a $7.1-million project to develop a turbine-powered engine that can burn cleaner fuels. The project is led by the transportation consortium Calstart.

* Hughes Aircraft Co. in Westchester, the Aerospace Corp. in El Segundo and Northrop Corp. are part of a $9.7-million plan to create a UCLA master’s degree program for transportation engineers.