Defense News Roundup: Pentagon Awards a $5.3 Billion Mystery Contract

The U.S. military has a reputation as a somewhat secretive organization. But in one respect at least, the Pentagon is one of the most "open" of our government agencies. Every day of the week, rain or shine, the Department of Defense tells U.S. taxpayers what contracts it's issued, to whom, and for how much -- all right out in the open on its website.

So what has the Pentagon been up to this week?

DoD is budgeted to spend about $6.2 billion a week on military hardware, infrastructure projects, and supplies in fiscal 2013. (A further $5.6 billion a week goes to pay the salaries and benefits of U.S. servicemen and servicewomen). Last week, though, they blew out the box, awarding contracts worth nearly $7.5 billion. And what will we get for all this money?

A whole lot of tech (but not a whole lot of detail)
By far the biggest contract awarded last week -- and by far the vaguest -- was the monster $5.3 billion SeaPort Enhanced deal awarded Tuesday. That one enlisted 914 separate companies, the majority of which were small businesses, to provide a multitude of technical and support services to the U.S. Navy.

Under SeaPort-e, companies including defense contracting heavyweight SAIC (NYSE: SAI  ) will compete to perform work under such task order categories as "research and development support," "engineering system engineering and process engineering support," and the even more ambiguous "program support." SeaPort-e promises to award five-month contracts (extendable by as much as five years) to companies that win indefinite delivery, indefinite quantity task orders under it. But what, precisely, we'll be getting for our $5.3 billion is anybody's guess.

Official NAVSEA photo. What's inside the boxes? Source: Naval Sea Systems Command Image Gallery.

"Uh-oh. Better get Maaco."
Tuesday's SeaPort-e contract consumed 70% of the funds on offer last week, but a few companies won contracts with more understandable objectives. In fact, you don't get much more basic than the $8.9 million contract that PPG Industries (NYSE: PPG  ) won Tuesday. PPG will be supplying paint (including coatings, solvents, and preservation products) to the U.S. Navy's Military Sealift Command.


Painting a bright future for the Navy. Source: PPG.

Raising Poseidon
In a pair of related contracts, Boeing (NYSE: BA  ) will get some $37 million to perform repairs on Navy P-8A Poseidon sub-hunting aircraft, and to perform redesigns on production Lot 1 of the aircraft to account for "diminishing manufacturing sources" of necessary parts.

Exploring the human brain
Probably the most interesting contract of the week, though, went to tech specialist Teledyne (NYSE: TDY  ) . In what sounds like a project straight out of science fiction, the U.S. Air Force will be funding Teledyne research into "new theories that explain how conceptual knowledge is represented in the human brain." Presumably, this research has some mundane aim such as improving procedures for training pilots. But at this point, we really don't know for certain what the Pentagon is up to. (Brain-reading, perhaps?)

Whatever it is, Teledyne will be getting $8.4 million for helping the Air Force out with its R&D work.

Opportunities on the horizon
So much for the contracts that everyone knows about. Now let's move on to a contract that may not yet be incorporated into defense contractors' stock prices.

On Monday, the U.S. Defense Security Cooperation Agency, or DSCA, sought Congressional approval for a planned $1.1 billion arms sale to Saudi Arabia. If approved, the transaction will send Saudi large quantities of electronic equipment needed to upgrade Royal Saudi Naval Forces' Command, Control, Communications, Computers, and Intelligence capabilities. Specific contractors who will build the equipment were not named in DSCA's note. But Britain's BAE Systems (NASDAQOTH: BAESY  ) , for example, is known to make at least two items on the Saudi shopping list -- MIDS-LVT communication terminals and Identification Friend or Foe transponders, and seems a likely beneficiary of the deal.

While the details aren't all yet clear, just knowing that this contract is in the works should put you a step ahead of the folks on Wall Street.

You don't always have to look far to find good investments. Sometimes, profiting from our increasingly global economy can be as easy as investing in your own backyard. And the Pentagon's helpful habit of publishing all its contracts daily as they're awarded certainly makes that easier for defense investors. Want to find more "easy to understand" investments? The Motley Fool's free report "3 American Companies Set to Dominate the World" shows you how. Click here to get your free copy before it's gone.


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  • Report this Comment On November 25, 2013, at 10:44 AM, primerone wrote:

    Mr Smith's article on the SeaPort IDIQ multiple award contract (MAC) was very misleading. No program dollars were obligated, no program dollars were spent. The contract is no more than a catalog against which orders may be placed. Each order is then competed among the 914 primes and or subsets thereof to ascertain the best price.

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