Hired Gun for Defense Contractors

The business of extracting cash from government bursars has always required a certain specialized knowledge. There exists a cottage industry in helping scientists and sociologists write grant applications to federal institutes, and Lord knows you can never be sure you’re getting the right refund from the IRS unless you’ve run your tax return through a CPA’s computer.

But it wasn’t until I met the people at SM&A; that I realized that even some of the world’s biggest companies can need outside help to win the multibillion-dollar procurement contracts they need to stay alive.

SM&A; -- the company was formerly known as Steven Myers & Associates, after its founder, chairman and chief executive -- has been functioning quietly for more than 20 years as an outsourcing service for government contractors engaged in high-stakes procurement; such life members of the military-industrial complex as Lockheed Martin Corp., Raytheon Co. and Boeing Co. accounted for 74% of the firm’s revenue in 2001.

Over the decades, the firm has boasted an enviable “win rate” of 86%, measured as a percentage of the procurement money at stake in the more than 600 contract proposals on which it has assisted clients. Among the biggest wins: Lockheed Martin’s 2001 snaring of the Pentagon’s $200-billion contract to build the Joint Strike Fighter, which many people believe may be the last manned fighter plane the military will order.

As Myers told me recently in his Newport Beach office, his business has picked up sharply in recent years thanks to two phenomena.

One is demographic: Succinctly put, baby boomers are leaving the workforce. “The most capable knowledge workers are retiring in large numbers,” Myers says. The end of the Cold War cut the defense procurement budget by half between 1990 and 1997, meanwhile, forcing the defense industry to shrink in lock step. “The companies set up their retirement programs so these people would be dummies if they didn’t retire.”

The waves of white-collar departures that swept through the aerospace industries over the last decade or so sucked big defense contractors dry of the systematic knowledge needed to compete for Washington’s

mega-programs. But their downsizing proved premature, for defense and homeland security spending now is expected to rise sharply, possibly retracing all of the post-Cold War budget cutbacks.

“The aerospace/defense sector scaled itself back, only to have the pressure of world events reverse the trend,” Myers says. He estimates that 255,000 new engineers, systems specialists and other such workers will be needed in the next four years. SM&A; has been recruiting like mad from among the recently retired to help fill the gap as a purveyor of outsourced managers with industrial and military experience. “Our goal is to make a dent in the top one-half of 1% of the gap by hiring the best ones.”

In recent months SM&A;’s recruiting pace has more than doubled -- 56 of the company’s more than 300 employees have been brought on since the first of the year. SM&A; statistics suggest just how well-tailored that workforce is for the task at hand: Two-thirds have advanced degrees and 91% have secret or top-secret security clearances. The median age is 54, Myers says, in contrast to conventional MBA-heavy business consulting firms, which are heavily staffed by thirtysomethings.

The character of the firm’s recruiting sometimes makes SM&A; seem like it’s operating its own embedding program for ex-Pentagon brass. Among its recent hires are Robert Moore, the former deputy director of DARPA, the Pentagon’s high-tech research arm, and Maj. Gen. Don Infante, a former chief of Army Air Defense. (Myers says they weren’t hired to lobby the Pentagon but rather to deal with executives at his big clients; indeed, Moore was once director of programs at Lockheed’s legendary Skunk Works in Palmdale, and Infante’s resume includes high-level jobs at Raytheon and Hughes Aircraft.)

In person, Myers, 56, is a cheery and voluble type. He was casually dressed the day we met at SM&A;’s office, sporting a trim salt-and-pepper beard. But he also exuded the intensity you would expect of someone whose idea of a relaxing vacation is to go game-watching in Africa or accept a joyride on an F-16. (A photo of Myers, in full flight suit, giving a thumbs-up from the cockpit adorns his office wall.)

Myers moved into industry after a few years as an Air Force computer technician with ambitions to become a military pilot. When that option closed with the end of the Vietnam War, he kept up civilian flight training while landing a series of jobs that included management posts at Fairchild Space & Electronics and Loral Data Systems.

He founded his own consulting firm in 1982, took it public in 1998 and weathered the Nasdaq collapse largely by selling off several companies he had acquired during the high-tech boom and paring debt from the firm’s balance sheet. Myers says 2002 was the best revenue year in the company’s history, and it recently reported profit of $3.8 million for the quarter ended March 31, more than triple that of a year earlier. (The earlier figure doesn’t include a one-time debt-related charge.) Since the beginning of the year, SM&A; shares (ticker symbol: WINS) have more than doubled, closing Friday on Nasdaq at $8.05.

None of this would have been possible had it not been for structural changes in SM&A;’s target industries. In the old days, most major contractors managed almost all their government bidding in-house (as they still do for many projects). But the number of large procurement programs has dropped as the Pentagon has moved toward taking a longer view of weapons systems.

“In the ‘70s and ‘80s and the Department of Defense would develop two or three airplane programs a year,” Tom Burbage, the general manager of Lockheed Martin’s Joint Strike Fighter program, told me. “Now it’s one airplane every 10 years. A proposal group is a fairly expensive infrastructure to keep around if you don’t have proposals to work on.”

To assist Lockheed with the Joint Strike Fighter -- an advanced aircraft that could serve all branches of the armed forces with minimal adaptation -- SM&A; moved a team of about 20 pros into the company’s Fort Worth headquarters, some of them committed for as long as five years. (Several are still in place, helping the company manage the contract it won.)

While Lockheed engineers designed a prototype aircraft in a race with rivals at Boeing, the SM&A; team devoted itself to marshaling and organizing the prodigious quantity of documentation -- some 25,000 pages -- needed to prove that the company could fulfill the program’s demands.

“The government wasn’t just buying an airplane, but a support system and training program,” Burbage says.

Myers describes the process as one in which any of thousands of factors might tip the balance from one bidder to the other and that looks very different depending on your vantage point. The guys on the Lockheed engineering floor, for example, are surely convinced that their company won the competition because they designed the superior airplane. Myers talks as though it’s lucky the whole company didn’t think that way.

“The fact is, they had a spectacular airplane,” he says, “but they won because that superior airplane was more manufacturable and more logistically supportable” than Boeing’s version.

For all that, SM&A; is an equal-opportunity outsource provider. Myers says that when potential bidders on a contract include several former clients that might need his services, he avoids the appearance of favoritism by signing on with the first one that calls. Last year, SM&A; helped Boeing win a $150-million contract for the first phase of the Army’s future combat systems program, a competition in which the rival bidders included Lockheed Martin.

There promises to be plenty more such opportunities to go around. “Over the next four to 10 years we’ll have a complete reinvention of our armed forces,” Myers says, adding that when contractors wonder what happened to the professionals who used to manage their own bids for the lavish programs being given out by the Pentagon, likely as not they find them working for his company.

“We’re cherry-picking the best and the brightest,” he says, happily.

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Golden State appears every Monday and Thursday. Michael Hiltzik can be reached at golden.state@latimes.com.