Enterprising Solutions: Buying/Building New State & Local Preparedness Capabilities

Following the 9/11 terrorist attacks in 2001, the United States started to build new capabilities that would pull state and local governments, as well as the private sector, into the national security enterprise in what would be an unprecedented effort to better protect the U.S. homeland. The federal government also started to push new policies and “voluntary” requirements to the individual states in the hope that grant funding would result in a rapid infusion of sustainable capabilities into the system.

Operational leaders in state/local governments and the private sector have struggled to keep pace with the federal government’s effort to build the new capabilities required to support what the 2010 Quadrennial Homeland Security Review (QHSR) called the “Homeland Security Enterprise” (HSE). However, these leaders still lack the acquisition infrastructure needed to take full advantage of the resources that already have been poured into the collective federal/state/local effort. For one thing, it is difficult for them to justify the overhead costs required to establish the competencies necessary to carry out rigorous requirements analyses and to oversee the program management capabilities needed to upgrade public safety and security. (Previous articles published in DomPrep Journal have advocated the direct resourcing of planning and systems engineering capabilities to state and local jurisdictions. However, thatea has not yet gained traction.)

Compounding the problem are the numerous cultures and business models of the companies that rushed into the homeland security marketplace in an attempt to “follow the money.” For example, defense contractors are accustomed to focus on multi-billion-dollar programs that have relatively long life cycles – often with a generous built-in overhead. In addition, many companies already in the U.S. Defense Industrial Base (DIB) attempted to focus on the emerging and rapidly evolving homeland security market in an effort that was largely fueled not only by the billions of grant dollars suddenly available but also by establishment of the new U.S. Department of Homeland Security (DHS).

Needed: More Effective Planning & Continuing Effort 

The initial allure of state and local work – and its limited cost structure, small-scale budgets, and indemnification requirements – has proved over time to be financially unattractive to at least some defense contractors. When resources continue to diminish, as now seems likely, it will be critical that these acquisition issues are much better understood if state and local jurisdictions are asked to invest scarce resources more effectively in the continuing effort to build a truly national, and effective, Homeland Security Enterprise. Otherwise, it will be almost impossible for them, and their private-sector partners, to participate in a meaningful partnership with the federal government.

In a July 2010 Government Security News (GSN) article by Jacob Goodwin, Mark Sloman of the Homeland Security Research Corporation (HSRC) suggested that the process just described had already presented some “serious challenges” for businesses trying to “penetrate” the decentralized state and local marketplaces. In that context, it should be remembered that companies already operating in the DIB are focused on a centralized, single-agency market controlled by the Pentagon – which thereby controls the cost and behavior of all of the sellers in the market, thus providing: (a) not only the standard processes adhered to by all of the companies in the market; but also (b) a considerable degree of predictability. Nonetheless, given the smaller but still very large size of the Homeland-Security market, meeting the serious challenges just mentioned seems likely to be worth the extra effort involved.

After a decade, though, it has become clear that the Homeland Security Industrial Base (HSIB) may in several important ways be related to, but in certain other respects be considerably different from, the traditional DIB. A September 2011 article by Eric Beidel in the National Defense Industrial Association’s National Defense magazine not only corroborates this view but also acknowledges that the two markets “are driven by different factors.”

Differences in Scale – But Still a Very Large “Middle Market” 

The 2010 QHSR mentioned earlier advocated, among other recommendations, an accelerated maturation of the Homeland Security Enterprise. Developing an improved understanding of the HSIB and how it relates to state and local governments, and to the private sector, would be an important step forward in that maturation. For example, the threats that face the nation domestically include sectors such as food and agriculture, healthcare, and life-line sectors such as power, communications, and transportation.

The HSRC report cited in Goodwin’s July 2010 GSN article suggests that, at that time, there was an HSE market, estimated at about $53-62 billion and largely financed by state and local governments, and supplemented (by an estimated $3-4 billion) in federal grants. It should be remembered, though, that that very large market is spread throughout all 50 states (and the District of Columbia) and 30,000 counties, cities, and towns throughout the nation.

Industry needs to recognize that a different business model is required to work the two elements of the Homeland Security Market. The scale of both elements is much smaller than the Pentagon market – $428 billion in 2010, according to a July 2011 Center for Strategic and International Studies (CSIS) study (DHS Contract Spending and the Supporting Industrial Base) led by David J. Berteau, Senior Advisor and Director of the CSIS Defense-Industrial Initiatives Group. In fact, the U.S. Defense Department’s 2010 research and development budget (approximately $41 billion) alone was larger than the entire DHS budget that same year. For that reason, among others, industry would be well advised to evaluate the needs of HSIB leaders in state and local governments – and the private-sector markets as well. All of these potential customers have needs that are different in numerous ways from the needs of the program managers of large federal/national defense programs.

Industry also should focus greater attention on the “middle market” of somewhat lower-cost consultants that can bridge the federal, state, and local market spaces. For their part, state, local, and private-sector customers should look to the small- and medium-sized businesses – which are already very active in the homeland security market – as a potential source of the innovation and flexibility required to develop and sustain the capabilities needed, but at a lower cost, to build out the HSIB and the Homeland Security Enterprise in general.

John F. Morton is the Strategic Advisor for DomPrep. He is also the Homeland Security Team Lead for the Project on National Security Reform (PNSR). A member of the DomPrep team since its founding, he has served as managing editor for writer assignments and interviewer for scores of DomPrep audio interviews.

Dennis R. Schrader

Dennis R. Schrader is President of DRS International LLC and former deputy administrator of the Federal Emergency Management Agency’s National Preparedness Directorate. Prior to assuming his NPD post he served as the State of Maryland’s first director of homeland security, and before that served for 16 years in various leadership posts at the University of Maryland Medical System Corporation. Dennis currently provides Senior Consulting services at Integrity Consulting Solutions, LLC.

John F. Morton

John F. Morton is the Strategic Advisor for DomPrep. He is also the Homeland Security Team Lead for the Project on National Security Reform (PNSR). A member of the DomPrep team since its founding, he has served as managing editor for writer assignments and interviewer for scores of DomPrep audio interviews.

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