Contractors prepare for post-sequestration world.

• Author: Erwin, Sandra I.
• Position: Defense Insider

U.S. military suppliers are fretting over looming budget cuts that could slice more than $50 billion from next year's Pentagon budget, and are carefully studying ways to reposition themselves in the defense market.

There is a "new world order" for the defense industry, said Richard Bergmann, managing director of Accenture North America aerospace and defense. The Pentagon will be buying less equipment and pressuring contractors to lower prices, opportunities for foreign sales will remain despite a tougher market, and military spending will be shifting from heavy hardware to all things cyber, he said.

Companies can still make a lot of money amid global austerity, but they will have to change how they do business, he said. Some of the immediate items on the to-do list are to trim fat from corporate structures. Defense firms have grown accustomed to being reimbursed by the Pentagon for expansive overhead, he said. In the future they will be greatly scrutinized for their ability to complete programs on budget and on schedule, and they will have to compete for fixed-price contracts, which favor leaner suppliers.

The sequestration crisis doesn't alter longer term financial realities for...