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OSHA Action Highlights - 2011 First Quarter

March 16, 2011  

OSHA's Crystalline Silica Rule At OMB For Review
OSHA is a step closer to publishing a proposed rule regulating crystalline silica exposure in general industry, construction, and maritime.  OSHA's proposal has been submitted to the Office of Management and Budget (OMB) for review under Executive Order 12866.  This is the final internal review before the proposal gets published in the Federal Register and signals that OSHA's proposal will be out in early to mid-Summer.

Crystalline silica is ubiquitous, comprising a substantial percentage of the Earth’s crust.  OSHA has evidence that exposure to crystalline silica at the current permissible exposure limit (PEL) causes silicosis and other diseases.  It has been seeking to comprehensively regulate the substance – and reduce the PEL – for over a decade.  In 2003, OSHA completed a Small Business Regulatory Enforcement Fairness Act (SBREFA) panel for an early draft version of the rule and has since been preparing regulatory text and background health, risk, and economic data to support the rulemaking. SCA participated in this SBREFA process.

OSHA's rulemaking efforts in this area are complicated by the broad scope of the rule -- a number of employers in a variety of industries use silica in their operations -- as well as technical issues associated with controlling silica exposures.  There are also difficult issues of sampling methodology that the Agency must overcome.  And of course, stakeholders are keenly interested in what ancillary provisions OSHA might propose, such as medical surveillance requirements, housekeeping requirements, and requirements related to regulated areas.

Stay tuned.

OSHA Temporarily Withdraws MSD Column Rule From OMB Review
The Department of Labor announced that OSHA is temporarily withdrawing from review by the Office of Management and Budget (OMB) its proposed rule to restore a column for musculoskeletal disorders (MSDs) on employer injury and illness logs.

The rule, originally proposed last year, would have required employers to “check a box” in a separate column on the OSHA 300 log – an “MSD” column – for injuries and illnesses that fit within the Agency’s proposed definition.  OSHA also proposed to remove existing language from its recordkeeping compliance directive that “minor musculoskeletal discomfort” is not recordable as a restricted work case “if a health care professional determines that the employee is fully able to perform all of his or her routine job functions, and the employer assigns a work restriction for the purpose of preventing a more serious injury.” Recall, SCA submitted comments on this proposal. To view them click HERE 

OSHA Withdraws Proposed Noise Interpretation
Citing "concerns raised" and the need for "more public outreach," OSHA is withdrawing its  proposed interpretation on occupational noise.  The proposal would have altered existing Agency enforcement policy for determining when an employer could utilize PPE to protect employees from noise exposures, as opposed to relying on engineering and administrative controls.  Existing policy provides that employers will be cited for not implementing certain engineering or administrative controls when hearing protectors are ineffective or the cost of such controls are actually less than the cost of implementing a full hearing conservation program.  OSHA was proposing to eliminate this framework and consider engineering and administrative controls to be feasible so long as they would "not threaten the employer's ability to remain in business or if the threat to viability results from the employer's having failed to keep up with industry safety and health standards."

Many stakeholders expressed concerns over the proposal and the potential costs.  OSHA originally set a 60-day comment period for the proposal, but then extended that in response to numerous requests for more time to submit comments.  OSHA will no longer pursue the proposal at all. .

Instead, the Agency says that it will find other ways to reduce the number of hearing loss cases by:

•Conducting a thorough review of comments received from the public in response to the proposed interpretation.
•Holding a stakeholder meeting to discuss ways to prevent occupational hearing loss.
•Consulting on approaches with NIOSH and the National Academy of Engineering.
•Initiating a "robust" outreach and compliance assistance effort to provide guidance on "inexpensive, effective engineering controls" to reduce noise exposures. 

Budget Delay Sinks Shipyard Projects

March 14, 2011
Publication: The Virginian-Pilot; Date: Mar 14, 2011; Section: Front Page; Page: A1 
  U.S. BUDGET DELAY SINKS LUCRATIVE SHIPYARD PROJECTS
  By Robert McCabe
  The Virginian-Pilot
     NORFOLK   

   The Navy has canceled four ship-repair jobs at Hampton Roads shipyards because of the federal budget impasse, and more cancellations could be on the way. 

   The work lost so far because Navy ship maintenance funds remain frozen at year-ago levels was worth about $28 million, according to information presented at the National Ship Repair Industry Conference in Washington.

   Altogether, 29 surface-ship projects, hundreds of jobs and $4.6 billion in Navy maintenance spending are on the line if the federal funding issues are not resolved, ship-repair industry officials said. 

    “These are very, very unusual times here,” said John Strem, chief operating officer of Metro Machine Corp., a shipyard in Norfolk’s Berkley section. 

   Met ro M ach i ne rec ent ly learned it lost a job worth around $10 million on the dock landing ship Gunston Hall, Strem said. “It was scheduled for 13 April, and it’s not going to work.”  

   While Metro Machine has enough repairs scheduled to prevent layoffs, subcontractors the company would have been required to hire for about 40 percent of the Gunston Hall work could up end taking the brunt of

    “Who’s to say how badly any or all of them may be hurt?” he said.       

   Other local projects canceled include work on the patrol crafts Squall ($5.5 million) and Thunderbolt ($5.5 million), as well as on the guided missile destroyer Gonzalez ($5.1 million), according to Navy numbers released at the conference. 

    MHI Ship Repair & Services in Norfolk was scheduled to handle the Thunderbolt and the Gonzalez.  

   Asked if there would be layoffs as a result, the company’s president and CEO didn’t want to speculate. 

    “It’s too early for me to try to assess the impacts,” said Tom Epley, who also is chairman of the Virginia Ship Repair Association, which represents 200 companies. “We pursue multiple markets.”  

   BAE Ship Repair’s Norfolk yard was scheduled to work on the Squall, but that cancellation is not expected to affect employment levels there, the company said. 

    “I don’t know what’s going to happen,” said Malcolm P. Branch, president and CEO of the ship-repair association. “I think we’re in somewhat uncharted territory.” 

   Because Congress has yet to pass a budget for the federal fiscal year that began on Oct. 1, funding across the government has been stuck at levels authorized for fiscal year 2010 through a series of stop-gap measures known as “continuing resolutions.” 

    The fourth one expires Friday. Congress will either have to pass a 2011 budget or another continuing resolution or the federal government effectively will shut down, said Cindy M. Walters, a federal contracting expert and director of government-sponsored programs at Old Dominion University.  

   The two sides in the budget impasse remain far apart, with the House wanting about $64 billion in federal spending cuts and the White House and the Senate about $6 billion, Walters said. 

    The government last shut down – leaving only essential personnel identified by agencies on the job – in the mid-1990s.    as well, including work scheduled in Northrop Grumman Corp.’s Shipbuilding sector. 

   “I hope that can be avoided and businesses contracting with the federal government will be able to plan beyond the short term,” Walters said. 

    In a letter to Hampton Roads’ congressional delegation on Jan. 27, Branch warned that Navy ship-maintenance work planned months in advance is being scaled back at some companies, jeopardizing jobs.  

   There’s a roughly $760 million difference between the 2010 funding levels and those the Navy requested for the current fiscal year, Branch wrote. 

    The association’s letter asked that, in the absence of a 2011 budget, Congress include language in ongoing continuing resolutions to fund Navy ship maintenance at the level requested in President Barack Obama’s 2011 defense-authorization bill.  

   “We’re hoping that Congress can come to some resolution on freeing up Navy maintenance money,” Branch said. “They understand what the need is; they’re hopeful they can restore the funding levels.” 

    Branch said he recently asked some members of Congress, whom he did not identify, what might happen, but “none of them were willing to even go there.”  

   The uncertainty extends beyond Navy ship repair, touching shipbuilding

    The stop-gap measure that Congress has in place to fund the government has resulted in a so-called “production rate” problem, Navy spokesman Alan Baribeau wrote in an e-mail. It essentially blocks the appropriation of money for construction contracts for more ships than the number appropriated for building in the prior fiscal year, he wrote.   

   For the current fiscal year, the White House requested two new destroyers and two new Virginia-class submarines. Because only one of each was appropriated in last fiscal year’s budget, the stopgap measure does not include funding for a second destroyer and submarine. 

    Other shipbuilding programs are affected as well, including construction of CVN 79, the second carrier in the new Gerald R. Ford class; the midlife overhaul of the carrier Abraham Lincoln; and the program to replace Ohio-class submarines, Baribeau wrote.  

   Northrop Grumman’s Newport News shipyard is the only one in the country that builds carriers and one of only two that make submarines. 

    A Northrop Grumman spokeswoman declined to say what, if any, impact the budget impasse might have on its Newport News operation.  

   “The budget process is a complex and dynamic one,” Jennifer Dellapenta said. “Although we are planning for all contingencies, it’s premature to speculate on the outcome.” 

    Even shipyards that are only minimally affected by canceled work still face uncertainty because of lack of funding.  

   “It’s all still in flux; we don’t know,” said Richard Sobocinski, vice president/contracts, at Colonna’s Shipyard in Norfolk. 

    As bigger yards scale back work loads, they compete for the same jobs that Colonna’s does, Sobocinski said.  

   “The summer could be a very difficult time for all of us,” he said. “This whole thing is like a domino effect.” 

    Robert McCabe, (757) 446-2327 begin_of_the_skype_highlighting              (757) 446-2327      end_of_the_skype_highlighting, robert.mccabe@pilotonline.com

       The lost jobs are among seven canceled projects nationwide, including two in Mayport, Fla., and one in San Diego, that were worth $62.4 million, conference participants learned.    the cancellation, he said. 

NSRIC Presentations Posted

March 11, 2011
A very successful National Ship Repair Industry Conference (NSRIC) was held 2/28 - 3/3.  The presentations that were made on Navy and Industry day at NSRIC11 are now available on the SCA website!  Please click HERE or copy and past the following link into your browser: (http://www.shipbuilders.org/membership/events/NationalShipRepairIndustryConference/NSRIC11PresentationsInformation/tabid/616/Default.aspx)
 
To view the press release, please click HERE!

Foreign Rebuilding Determinations - Comments Requested

March 09, 2011 The US Coast Guard seeks comment on a petition for rulemaking the requests the Coast Guard to amend its regulations relating to an application for a foreign rebuilding determination. The petition requests amendments to the major-component test, the considerable-parts test, the criteria for when vessels altered outside the United States must submit material to the National Vessel Documentation Center and what materials must be submitted, and the preliminary rebuilt determinations application requirements. It also proposes addition of a requirement for the Coast Guard to publish in the Federal Register notices of applications for rebuild determinations and a requirement that the owner of a coastwise trade eligible vessel that had any work performed on that vessel at a facility outside the United States to submit a Customs Form 226, Record of Vessel Foreign Repair or Equipment Purchase to the Commandant. Comments on the petition should be submitted by May 26. 76 Fed. Reg. 10553 

Battle Coming Over Proposed Workplace Safety Rules

March 09, 2011
Lobbying battle on tap over proposed changes to workplace-safety rules
By Kevin Bogardus - 03/04/11  
 From TheHill.com 
 Business and labor are preparing to wage a lobbying battle over a new rule expected later this year that could have a profound effect on how health and safety are handled in the workplace. 
Over the past year, the Occupational Safety and Health Administration (OSHA) has been gathering input from trade associations and unions while promoting an initiative that would require workplace managers to institute their own Injury and Illness Prevention Program — often referred to as I2P2.  
The rule would require employers to identify their workplaces’ health and safety hazards on their own and take action to resolve them.
In a January speech before the watchdog group Public Citizen, OSHA head David Michaels said the rule “represents the most fundamental change in workplace culture since the passage of the OSHA Act” — the 1970 law that created the agency.
Michaels and his agency has promoted the initiative heavily. Since announcing  the rule in April, the OSHA chief has mentioned it in almost a dozen speeches. The agency has held at least five public meetings with stakeholders to get feedback on how to draft it.
President Obama’s fiscal 2012 budget request asks Congress for $2.4 million to help develop I2P2, which is an increase since he did not seek any funding for the rule for fiscal 2011.
Michaels told The Hill that his agency is working on the regulation because OSHA does not have the manpower to stop every workplace accident. 
“It would take over 100 years for OSHA to visit every workplace under its jurisdiction,” Michaels said. “OSHA believes that workers will be better protected if each employer has a proactive plan to find and fix hazards in their workplaces so that workers don’t get hurt.”
Economic and feasibility analyses of the regulation were slated to be released in late 2010. But those reports were delayed to June in order “to gather more stakeholder input” and crunch more data, Michaels said.
OSHA’s focus on the rule has caught the attention of a number of business groups. Members of the Coalition for Workplace Safety, like the U.S. Chamber of Commerce and the National Association of Manufacturers, have grown concerned about the rule.
“This would be the most sweeping regulation that OSHA has ever put out,” said Marc Freedman, the Chamber’s executive director of labor law policy. 
Freedman believes the rule could require employers to identify all hazards in the workplace, even ones not already mitigated for by OSHA.
“There is one school of thought that they would not have to issue another regulation ever again,” Freedman said.
Michaels said, however, that no new health and safety standards would be developed under the rule.
“It is intended to help employers develop a systematic plan to find and fix workplace hazards that are currently covered under OSHA standards or that are currently covered under the General Duty Clause,” Michaels said.
The rule’s supporters say it will be the federal version of laws already on the books in California, Minnesota, Washington and many other states. Those laws require employers to have a written health and safety plan to deal with workplace accidents.
Those plans typically designate an employee as the safety officer, establish training programs for workers and set up a system to report and evaluate workplace hazards. That should allow businesses to collaborate with inspectors on how best to lessen risks for workers, according to the rule’s supporters.
Peg Seminario, the AFL-CIO’s director of health and safety, called the rule “a framework” that should help employers find those hazards before they can do harm to their employees.
“You are looking at problems, trying to identify them and address them before workers get hurt,” Seminario said about the rule.
OSHA has discussed proposing the rule before. Agency officials in the Clinton and George W. Bush administrations had similar ambitions. 
But much of that discussion at that time was overwhelmed by a massive lobbying campaign by business groups against an ergonomics standard issued by OSHA. Using the Congressional Review Act, a Republican-led Congress was able to the overturn the ergonomics rule in 2001.
Freedman of the Chamber believes OSHA wants to re-establish that ergonomics standard using the I2P2 rule. Since the ergonomics rule was rejected under the Congressional Review Act, the agency cannot reissue a regulation that would be similar to the voided standard.
“Not only is this similar to the ergo rule, this will be how this OSHA does ergonomics,” Freedman said. “This is their ergo rule in style and substance.”
Seminario of the AFL-CIO said the reference to the voided ergonomics standard is a scare tactic and has been used before, most recently, she said, with OSHA’s proposed regulation that would restore a column on employer injury and illness logs to record workers’ musculoskeletal disorders. The rule was temporarily withdrawn earlier this year. 
“They are trying to make this something that this is not,” Seminario said.
A major player in the ergonomics debate, however, disagreed with Freedman’s take. Charles Jeffress, head of OSHA from 1997 to 2000, said the rule under consideration by the agency now would not result in an ergonomics standard.
The rule “changes the dynamic where OSHA doesn’t have to go rule-by-rule. Instead, employers are asked to identify hazards in their own workplace and asked to fix them,” said Jeffress, now the chief operational officer for the American Association for Justice, a trial lawyers’ trade group.
“You don’t become a stickler for what the black-letter rules say. You become a stickler for whether or not employees are protected from injury,” Jeffress said.

Shipyards to Congress: Budget Impasse Threatens Jobs

February 11, 2011
  Continuing last year’s funding levels jeopardizes projects
  By Robert McCabe
  The Virginian-Pilot
  Robert McCabe, (757) 446-2327, robert.mccabe@pilotonline.com
     Layoffs are possible at local shipyards if Congress doesn’t approve a new budget or carve out an authorization for Navy ship-repair funding at the level   planned for 2011, executives from those yards said.

 

   Because Congress has yet to pass a budget for the federal fiscal year that began on Oct. 1, federal funding across the government is stuck at levels authorized for fiscal year 2010 through a stop-gap measure known as a continuing resolution.

 

   This has put local shipyards, which provide jobs for thousands of workers, in a bind.   They had a lean year in 2010 but were anticipating more funding this year.

 

   Nearly one in every 11 jobs in Hampton Roads depends directly or indirectly on the private-sector shipbuilding and repair industry, according to a 2007 study by Old Dominion University’s Economic Forecasting Project.

 

   In a Jan. 27 letter to Hampton Roads’ congressional delegation, a local trade group   representing 200 companies warned that Navy ship-maintenance work planned months in advance is being scaled back at some firms, jeopardizing jobs.

 

   “This job loss is the direct result of the lack of projected     funding stemming from the current appropriations impasse,” wrote Malcolm P. Branch, president and CEO of the Virginia Ship Repair Association. “The situation is exacerbated as more immediate repairs are performed and the available funding for the purchase of any long-lead items for future alterations or maintenance is consumed, creating a potential bow wave” into the next fiscal year.

 

   There’s a roughly $760 million difference between the 2010 funding levels and those the Navy requested for the current fiscal year, according to Branch’s letter.

 

   If Congress were to delay approving a 2011 budget for the rest of the year, the association is asking that specific language be included in continuing-resolution legislation to keep Navy ship-maintenance funding at the level requested in President Barack Obama’s 2011 defense authorization bill.

 

   “Obviously, what’s at   stake are jobs,” said Tom Epley, president and CEO of MHI Ship Repair & Services in Norfolk and chairman of the ship-repair association.

 

   “We saw 2011 being a very robust year, and many of us made plans for that,” said Epley, adding that those plans included hiring workers and investing in equipment.

 

   MHI employs about 420 workers, of whom between 20 to 30 percent could be at risk if layoffs become necessary, he said.

 

   The Navy, Epley said, is now constrained to act at 2010 funding levels, though there are more ships to be repaired this year.

 

   If Congress doesn’t address the funding issue by March or April, putting off action until the middle of the summer, when there will be only a few months left in the fiscal year, it will be too late, he said.

 

   “We size our work force on the way things are planned a year in advance,” said Jerry Miller, president and CEO of   Portsmouth-based Earl Industries, which employs 800. “If all they’ve got is the money from the year before, they might cancel or delay some of the work from being funded.”

 

   Miller doesn’t foresee any layoffs at Earl, but said that even if funding comes through later, the adjustments made because the money wasn’t there as planned carry economic consequences.

 

   “When you do something out of sequence, it becomes more expensive to do,” said Miller, comparing the situation to a household that delays required maintenance on a car, which can lead to further deterioration and   costlier repairs.

 

   The Navy has said that 220 of the 284 ships in service today must be in service in 2020 to meet increasing commitments worldwide, according to the association’s letter.

 

   “Execution of scheduled ship maintenance is the key enabler for this to occur,” Branch wrote.

 

   BAE Systems Ship Repair employs about 1,200 at its Norfolk shipyard and about 2,800 more at facilities in San Diego; San Francisco; Pearl Harbor, Hawaii; Mobile, Ala.; and Jacksonville, Fla.

 

   “If we defer the maintenance, it impacts their fleet readiness,” said Bill Clifford, president of BAE   Systems Ship Repair.

 

   It was too soon to say how many workers there could be affected, Clifford said. “We don’t know yet what work may be deferred or rescheduled by the Navy, so the impact on layoffs isn’t known at this time.”

REGIONAL SECURITY EXERCISE 2/21 - 2/23

February 10, 2011
ALL Hampton Roads Contractors NOTE - this WILL affect your work.
“EXERCISE” SOLID CURTAIN 2011 - US Fleet Forces and CNIC will conduct an annual CONUS-wide Anti-Terrorism (AT) “Exercise” under the Solid Curtain-Citadel Shield Series from 21-25 February.  This “Exercise” provides an opportunity to validate security plans, and assess Unit and Base Installation processes for deterring, detecting, mitigating the effects of, and recovery from a terrorist incident.  Expect additional security measures at all Bases during this time.

News from the Maritime Cabotage Task Force

February 08, 2011
The Maritime Minute
 
News From The Maritime Cabotage Task Force
February 7, 2011 
 
LATEST NEWS:  The New Orleans Times-Picayune writes the National Oil Spill Commission's report on the Deepwater Horizon disaster flatly rejected claims that the federal government was forced to turn away foreign offers of assistance because of the Jones Act.  "This report confirms what Admiral Thad Allen and so many others have been saying all along: The Jones Act in no way, shape and form hindered the BP clean-up effort," said James Henry, chairman of the Maritime Cabotage Task Force.  "Thousands of American vessels were already at work cleaning up oil in the Gulf and, when necessary, qualified foreign vessels identified as suitable by unified command participated in the effort. We are pleased the president's commission has concluded the Jones Act did not obstruct efforts to clean up the worst oil spill in U.S. history."  Click here to read more.
 
GREAT LAKES MARITIME TASK FORCE ANNUAL REPORT ADDRESSES JONES ACT:  The Great Lakes Maritime Task Force, a founding member of MCTF, recently released its 2010 Annual Report.  With regard to false claims that the Jones Act hindered the Gulf oil spill clean-up, the 83-member labor/management coalition declared: “Our final thought must address the nonsense about the Jones Act hindering the clean-up of the Gulf oil spill that was bandied about this past summer.  The criticism was pure invention.  The Jones Act’s jurisdiction ends three miles out.  The spill was nearly 50 miles from the U.S. shoreline.  We are so thankful facts ruled the day, otherwise our country would have begun the process of handing over yet another American industry to foreign owners and workers.”
 
REP. STEVE SCALISE ATTENDS CHRISTENING OF TOWBOAT NAMES IN HIS HONOR:  WorkBoat reports Rep. Steve Scalise (R-LA) was on hand to christen a New Orleans towboat named after him in January.  During his remarks, he said the maritime industry plays a vital role in the U.S. economy.  “It’s really special that we’re standing here on the foot of the Port of New Orleans looking at a vessel that will be traversing the Mississippi River among others, because this waterway is so important to the economics of our entire country,” said Scalise.  “I’ve always appreciated the importance of the maritime industry, but, especially what it means to our economy and our community – the fact that you’ve got thousands of people who work in this industry moving commerce throughout our nation.”  Click here to read more.
 
GREAT LAKES FRIEGHTERS CARRY MORE CARGO IN 2010:  U.S.-flagged Great Lakes freighters ? commonly called “lakers” ? carried 88.7 million tons of dry-bulk cargo in 2010, an increase of 33.4 percent over 2009.  The largest increase came in iron ore cargos for the steel industry.  Shipments in U.S. bottoms totaled 42 million tons, an increase of 75 percent compared to 2009.  Coal cargos carried in U.S.-flag hulls totaled 21.5 million tons, an increase of 4.1 percent compared to 2009.  Shipments of limestone (aggregate and flux stone) totaled 20.4 million tons, an increase of 19.6 percent over 2009.  Cement cargos slipped by about 80,000 tons.  Salt loadings increased by 130,000 tons.  Sand cargos dipped slightly, and grain loadings were a virtual repeat of 2009.
 
DID YOU KNOW?  Vessels are the most environmentally friendly form of transportation.  They use less fuel and produce fewer emissions than trains or trucks.  According to a U.S. Army Corps of Engineers report, a cargo of 1,000 tons transported by a Great Lakes freighter produces 90 percent less carbon dioxide as compared to the same cargo transported by truck and 70 percent less if moved by rail.
 
The MCTF is the most broad-based coalition the U.S. maritime industry has ever assembled to promote the cabotage laws. Its 400-plus members span the United States and its territories and represent vessel owners and operators, shipboard and shoreside labor groups, shipbuilders and repair yards, marine equipment manufacturers and vendors, trade associations, dredging and marine construction contractors, pro-defense groups and companies in other modes of domestic transportation. These diverse but allied interests share a common goal: to promote the long-standing U.S. maritime cabotage laws. Upon a foundation of U.S. ownership, construction and crews, the United States has built an unsubsidized domestic fleet that is the world leader in efficiency, innovation and safety.

HOW DEEP WILL THE CUTS BE?

February 07, 2011 Virginia has benefited from a massive influx of Defense Department dollars, but after the JFCOM decision and as more budget cuts loom, some area contractors are feeling a little nervous.
  By Robert McCabe
  The Virginian-Pilot
     A block south of the busy auto dealerships and fast-food franchises on Military Highway in Chesapeake, an 80,000-square-foot building sits on a side street in an industrial park.

 

   Most people looking for a new car or a burger, a minute away, would never suspect it’s there, much less what goes on inside.

 

   Small Navy patrol boats, Humvees and black, armor-laden SUVs, like those in movies, are brought by tractor-trailer into the hangar-like facility. There, BAE Systems Inc. installs and tests prototype communications devices in them for U.S. special operations forces, the Navy and an array of other government agencies.

 

   Since Sept. 11, 2001, the facility has grown from a handful of employees to nearly 250.

 

   Many are former military personnel who may have once used equipment similar to what they now help perfect. Others are engineers or programmers, busy at work stations adorned with coils of wire and assorted electronics gear.

 

   BAE Systems, one of the world’s largest defense contractors, is one of thousands of such firms operating in Hampton Roads. The region is so thick with contractors it’s known by some as “Pentagon South.” They’re vying for contracts that are part of a requested Pentagon budget worth $708 billion. Virginia – along with California and Texas – is one of the Big Three states for Department of Defense expenditures. In 2009, it was No. 1 in the nation in total defense spending, surpassing even California.        In terms of defense-contracting dollars, Virginia ranked second only to California. Quite naturally, Hampton Roads gets its share.

 

   The four congressional districts that represent South Hampton Roads were awarded more than $12.5 billion in defense contracts in 2009, federal figures show.

 

   But the defense landscape is shifting.

 

   In a speech last spring, Defense Secretary Robert Gates laid out his case for why business-as-usual at the Pentagon must end.

 

   “The attacks of Sept. 11, 2001, opened a gusher of defense spending that nearly doubled the base budget over the last decade,” he said. “… Given America’s difficult economic circumstances and parlous fiscal condition, military spending on things large and small can and should expect closer, harsher scrutiny. The gusher has been turned off,   and will stay off for a good period of time.”

 

   In early January, Gates called for $78 billion in defense cuts; later the same day, President Barack Obama signed off on the closure of the Norfolk-based Joint Forces Command, which will mean a loss of roughly 1,900 jobs.

 

   “The canary has died,” said E. Dana Dickens III, president and CEO of the Hampton Roads Partnership, a regional economic development organization.

 

   When the partnership was founded in 1996, military/ federal spending accounted for roughly 26 percent of the local economy. Today, he said, it’s “north of 45 percent.”

 

   “There’s a wake-up call, that the region needs to diversify our economy,” Dickens said.  

 

   Defense contractors and their facilities are so much a part of the local landscape as to seem virtually invisible.

 

   “It’s like the layers of an onion,” said Chris Philbrick, vice president of marketing at ADS Inc., or Atlantic Diving Supply Inc., a roughly $1 billion-a-year defense-contracting firm based in Virginia Beach. “For every large defense contractor, there are hundreds of small ones.”

 

   They range in size and service from huge, well-known companies such as Northrop Grumman Corp. and Lockheed Martin Corp. to a Norfolk-based unit of Flowers Foods Inc., which makes bakery and cereal products, and Jo-Kell Inc. of Chesapeake, which supplies shipboard electrical systems. Even Landmark Media Enterprises LLC, owner of The Virginian-Pilot, publishes base newspapers under a defense contract.  

 

   Together, defense contractors pack an economic wallop.

 

   Procurement contracts in the region totaled more than $ 8.3 billion in fiscal year 2009, according to the Hampton Roads Planning District Commission. Toss in other defense spending in the area, including salaries/ wages as well as retirement/ disability payments, and the Pentagon’s contribution to the local economy came to nearly $14.5 billion.

 

   Of course, not all that money stays in Hampton Roads. When a contractor such as Northrop Grumman, for example, gets a large award for work on an aircraft carrier, its expenditures will be spread across a number of years and will include purchases of services and materials from companies outside of the region and the state, said Greg Grootendorst, an economist with the   commission.

 

   Tracking defense contracting isn’t easy. An array of sources offer information, and their numbers don’t always align.

 

   Since its launch in 2007, however, USAspending.gov has become the government’s showcase for user-friendly, publicly accessible federal spending data.

 

   It presents a good picture of how many defense-contracting dollars have been committed to the region and how that spending has grown in recent years.

 

   Defense contract awards for work performed in Congressional Districts 1, 2, 3 and 4 – which cover Hampton Roads but extend elsewhere in Virginia – grew 32-fold between fiscal years 2004 and 2008, from $421.7 million to more than $13.5 billion.  

 

   In the past two years, the totals began to slide – to $12.6 billion in 2009 and $11.8 billion in 2010.

 

   ADS is one company whose revenues soared as defense-contracting dollars poured into the region.

 

   Its roots go back to the 1980s, when it began as part of Lynnhaven Dive Center. “SEALs were coming in and buying their own stuff,” Phil-brick said.

 

   The company soon began to compete for – and win – defense contracts.

 

   ADS was spun off as a separate company in 1997. Its president is Luke Hillier, whose father, Michael, founded Lynnhaven Dive Center. Its business has grown at a nearly incomprehensible rate, climbing from $18,380 in contract awards in 2005 to $1.08 billion in 2010, according to USAspending.gov data.

 

   For the past four years, ADS has been the No. 1 defense contractor in the 2nd District – in terms of defense contract awards – eclipsing much larger and more nationally prominent contractors.

 

   Some of ADS’ recent success is the result of a massive contract announced in January 2008. It lets ADS and four other firms compete for work worth up to $4 billion over as many as five years.

 

   Yet even before winning that contract, the kinds of products in which ADS specializes – such as boots, socks, scopes, night-vision and infrared equipment, cold-weather and flame-retardant gear – positioned it to capitalize on the wars the nation is fighting in Iraq and Afghanistan.  

 

   The Defense Department is moving away from large programs that focus on aviation or other expensive platforms, to equipment and technology to protect the individual soldier, Philbrick said. “That’s our core business.”

 

   While ADS ships massive amounts of supplies to U.S. troops in Iraq and Afghanistan, it is not a manufacturer, but what Philbrick calls a “value-added distributor,” a kind of buyer for the Pentagon.

 

   Years ago, if the Pentagon needed, for example, a flame-retardant glove, it would design and develop it, buy thousands and stockpile them in government warehouses, Phil-brick said.

 

   Today, it’s faster and more economical to buy “off-the-shelf” products on the commercial market.

 

   ADS offers the Defense Department and government agencies one-stop-shopping for equipment and logistical support, buying the products that meet the necessary standards and then “kitting” – or assembling – them for shipping.

 

   The company has an 85,000-square-foot kitting operation   off London Bridge Road in Virginia Beach and employs more than 400 people.

 

   And, Philbrick said, it expects continued growth, so it’s building another kitting operation.

 

   Not everyone is so optimistic, especially with the budget-cutting ax already falling in Hampton Roads.

 

   “These are not easy decisions,” said Charles A. Schue III, president and CEO of UrsaNav Inc. in Chesapeake. “No matter what they decide, somebody in the United States is going to get hurt.”

 

   Among other tasks, UrsaNav helps maintain and service the workhorse navigational radar systems used on most ships in the Navy and Coast Guard.

 

   Schue and another Coast Guard vet established Ursa-Nav about seven years ago when they bought the East Coast operations of a California company.  

 

   Now with about 100 employees and annual revenues in the $20 million to $30 million range, UrsaNav has positioned itself in the defense sector as a product and service provider focused on maintaining and modernizing existing systems, Schue said. Its employees travel to vessels around the world to do repairs, make adjustments and train crew members.

 

   Firms like his, however, have a lot at stake, he said.

 

   “Large defense contractors have the ability to recover from losing 500, 1,000 or 1,500 people; as public corporations, they’re big enough to absorb that,” Schue said. “Small, typically privately held businesses don’t have that big footprint; there’s much more of a drastic effect. The impact on small businesses is significant.”

 

   Service-contracting companies   that provide engineering, maintenance and information-technology services are likely to be more vulnerable to defense cutbacks, said Cindy M. Walters, director of Old Dominion University’s Government Sponsored-Industry Assistance Programs.

 

   The Pentagon already is working to bring back under its roof work that it “outsourced” to businesses over the past 15 years, so “you don’t have as many contracts,” said Walters, who helps local firms get federal contracting work.

 

   “My biggest concern is that we have this somewhat of a perfect storm going on,” she said. “For me, the foregone conclusion would be a cut in defense spending that would impact dollars for programs and contracts, across the board, that would affect our area.”

 

   The impending closure of the Joint Forces Command, which provides research   and development, modeling and simulation, and training to the military, will slow one flow of defense contracts for firms large and small in the region.

 

   “Everybody’s kind of breathing a sigh of relief,” said Tom Mastaglio, CEO of MYMIC LLC,of news that roughly half of JFCOM’s functions will continue in Hampton Roads.

 

   Yet Mastaglio – a West Point grad, 22-year Army veteran and founding director of the Virginia Modeling, Analysis and Simulation Center in Suffolk in the late 1990s – said he’s not sure how much to buy in to what he terms “spin.”

 

   “We’re on the slippery slope here,” he said. “If we’re not careful, there are going to be some significant issues for small businesses.”

 

   The Portsmouth-based company   employs about 80 people and has about $20 million worth of defense contract work, about 90 percent of its portfolio. It’s now on a mission to diversify its product line, creating computer programs to help train emergency medical response teams, provide therapy for people with brain injuries, and improve security at U.S. ports. It’s already won a contract with the Virginia Port Authority.

 

   “As a region, we’ve got to look beyond defense,” Mastaglio said. “If you don’t want to end up like Detroit, we better figure out what we have, what our organic capabilities are and how we can use them to meet other needs, rather than being largely dependent on a single customer.”

 

   Others, however, believe that the region has such a well-established defense infrastructure, with facilities and a talent pool few other places can match, that it will continue to hold its own, at the very least, and even may see some growth.

 

   “There’s a huge customer base there, and there’s a lot of talent,” said Dave Herr, president of BAE Systems’ Rockville, Md.-based Support Solutions sector. “It’s a good place to do business; it’s fairly diversified. I’d say it’s fairly well-positioned.”

 

   BAE’s Support Solutions sector includes the Chesapeake communications facility, an office in Hampton and, most recognizable, its shipyard at the mouth of the Elizabeth River’s Southern Branch.

 

   “The Hampton Roads area is actually fairly central to the BAE strategy,” Herr said.  

 

   Last summer, anticipating some of the shifts in the defense environment now under way, BAE reconfigured its businesses, shoring up the unit Herr heads, servicing and sustaining existing systems.

 

   “We think there’s going to be rising demand to maintain and upgrade some of those older platforms,” Herr said.

 

   The local shipbuilding and ship-repair industry, in which BAE is a player, contributes significantly to the region’s economy. Nearly one of every 11 jobs in Hampton Roads is directly or indirectly dependent upon the private-sector shipbuilding and repair industry, according to a 2007 study by Old Dominion University’s Economic Forecasting Project.

 

   “Knock on wood, it’s not going to affect us very much,” said Malcolm Branch, president and CEO of the Norfolk-based Virginia Ship Repair Association, of any defense-spending   adjustments.

 

   The port’s ship-repair facilities are virtually unparalleled, Branch said, and local firms have adapted to changes by the Navy that concentrate more work in one shipyard through “multi-ship, multi-option” contracts. The Navy’s 30-year plan calls for a minimum fleet of 313 ships. As long as they continue to be built and go to sea, Navy ships will require maintenance and periodic overhaul.

 

   It’s that ongoing pace of operations that may secure continued defense contracting for businesses in Hampton Roads.

 

   “When is that going to end?” asked Al White, an executive at BAE’s Chesapeake facility, pointing to a slide-show image of two camouflaged snipers in an Afghan-like setting, near a portable satellite dish. “When is the war on terror going to be over?”

 

   Until that happens, he said, he’s not too worried.

 

   Robert McCabe, (757) 446-2327, robert.mccabe@pilotonline.com  

 

  

Industry Continuing Resolution Concern Expressed

February 02, 2011

On behalf of the VSRA Board of Directors, each of the six Hampton Roads delegation received a letter last week expressing concern with the federal appropriations Continuing Resolution (CR).  As currently implemented, federal spending is limited to FY2010 levels until either the FY2011 Appropriations Bills are signed.  In addition, material that should be ordered in advance of availabilities is not authorized. 

One of the Continuing Resolution letters is available at this link.  The letters were sent to Senators Webb and Warner, as well as Congressmen Forbes, Rigell, Whitman and Scott.
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