Navy courts small businesses for submarine program.

In an effort to keep costs down and competition up, the Navy is seeking out small businesses to provide new technologies, especially in the Virginia-class submarine program, which is dominated by two large shipbuilding contractors--Northrop Grumman and General Dynamics.

"Small business participation is very important to the Virginia-class program, both from technical and business viewpoints," said Kevin Sykes, Naval Sea Systems Command spokesman.

Small businesses are creative and provide options to program managers, Sykes said. "They stay close to commercial products and solutions available in the market."

Small companies, such as Digital Systems Resources, Progeny Systems Corp. and Chesapeake Sciences Corp., have developed everything from composite materials and tactical controls to weapon simulators for the submarine. Of the 3,204 subcontractors working on the Virginia-class program, 1,309 are considered small businesses, according to a General Dynamics Electric Boat Division spokesman, who asked not to be quoted by name.

General Dynamics Electric Boat Division and Northrop Grumman Newport News are the prime builders of the Virginia-class submarines.

General Dynamics Electric Boat Division, for example, relies on small businesses for electrical supplies and hardware, valves, fabricated parts, medical supplies, paint and paint products, lumber, fuels, welding supplies, industrial and safety supplies, and packing and gaskets, said the GD spokesman.

One of the major subcontractors on the program is Lockheed Martin Naval Electronic & Surveillance Systems. The company makes the command control, communications and intelligence systems for the Virginia-class ships. The C3I work amounts to about 10 percent of the value of each submarine.

Lockheed's vice president for submarine programs, Richard A. Udicious, said that the company outsources about half the C3I workload and that about 25 percent of that outsourcing goes to small businesses. "We are contractually obligated" to include small businesses in the program, he said.

The Navy has created several avenues to encourage small business participation: The Small Business Innovative Research (SBIR) program, technical expertise contracts, and large-business incentives and outreach conferences.

The SBIR funds early-stage research and development at small technology companies. It is designed to stimulate innovation, increase private sector commercialization of federal research and development, increase small business participation in federally funded research and development, and foster participation by minority and disadvantaged firms.

Companies apply first for a phase I award of up to $100,000 to test the scientific, technical and commercial merit and feasibility of a particular concept. If phase I proves successful, the company may be invited to apply for a two-year phase II award of up to $750,000 to further develop the concept, usually to the prototype stage. Proposals are judged competitively on the basis of scientific, technical and commercial merit. Following completion of phase II, small companies are expected to obtain funding from the private sector and/or non-SBIR government sources (in "phase III") to develop the concept into a product for sale in private sector and/or military markets.

In the past eight years, Naval Sea Systems Command has contributed $70 million to the SBIR program, said Richard McNamara, deputy program executive officer for submarines. Since 1988, NAVSEA has provided $830 million. "The submarine community represents over $700 million of that," he added.

At a recent conference, McNamara told defense industry representatives that the Navy really believes in working with small businesses.

"This is not a social program. We have to take care of small businesses," he said. "I'm convinced there are a lot of good ideas out there that need to be brought to the surface."

McNamara has become a strong ally of small businesses, several sources say.

"[McNamara] is an important guy in making this work," said Mardsen Davis, director of Navy programs for Progeny Systems Corp. "He's going out of his way to find funding ... to empower more companies. He does a lot for the small business community."

Progeny, based in Manassas, Va., has 120 employees. It has developed an acoustic intercept system and a Tomahawk weapon simulator (MK 115).

Davis said Progeny's involvement in the Virginia-class program helps build credibility for the company. Without the efforts of McNamara and the SBIR program, it would be impossible for Progeny to compete, Davis added.

According to Sykes, about five small companies have been successful in using SBIR to help get their technology into the Virginia-class program. Digital Systems Resources (DSR) in Fairfax, Va., is the "model of success in the SBIR program," he said.

DSR has 450 employees nationwide with about 300 employees in its Fairfax office.

"Our goal is to be an end-to-end solution provider," said Joe Murray, director of Strategic Technologies.

DSR has been involved in electronic warfare systems for eight years. Murray said the company teams with large and small businesses. "We encourage small businesses to come see us," he said.

In the early 1990s, the Virginia-class program office funded DSR's first (SBIR) Phase III award for the Multi Purpose Processor, Sykes said. It was a success for the company, and it gave the Navy a valuable product, he added.

The in-service submarine sonar program built the successful Acoustic Rapid COTS Insertion (ARCI) program for this project, Sykes said. "And future upgrades to the Virginia-class will include this and more from the small business community," he added.

Another way the Navy provides opportunities for small businesses is through technical expertise contracts. Support contractors are required to subcontract out 20 percent of their work to small businesses, Sykes said.

Large companies are also encouraged to seek out smaller companies. The Defense Department has an incentive program to get large businesses to contract work out to small businesses, Sykes said.

The Navy also holds outreach conferences to bring large and small companies together.

"As the financial pie gets smaller, big businesses are more willing to accept the work of subcontractors," said one industry representative.

Sykes said that program representatives spend time educating and introducing small companies to General Dynamics and Northrop Grumman in order to broker business between the two.

"We encourage both [General Dynamics and Northrop Grumman] to be very aggressive in subcontracting to small companies, meeting DOD goals for small business subcontracting and keeping a data base on small companies and technologies available in the market," he said. "Their purchasing departments are very supportive of small business and [they] continually look for opportunities."

Virginia-class officials also are keeping a close eye on about 40 small companies. They are looking for opportunities to apply these companies' ideas and technologies into the submarine program, Sykes said.

The Virginia class program office also is pursuing an incentive clause for the next construction contract, to encourage General Dynamics and Northrop Grumman to meet the small business subcontracting established by the program office.

"We want small business participation, we are willing to pay for that," McNamara said. "It's not just a cheerleading thing .... We are willing to put some money on the table."

The Navy is scheduled to take delivery of the first Virginia-class submarine (SSN 775), in June 2004. The Navy will take delivery of three more submarines over the next six years.

The Virginia-class submarines are currently budgeted at $2 billion each (in 1995 dollars).