Pentagon contractors souring on 'soft power'.

• Author: Erwin, Sandra I.
• Position: DEFENSEWATCH

Pentagon contractors are turning bearish on the so-called "soft power" market for non-defense work such as nation-building and post-conflict reconstruction.

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During the past several years, major defense firms have been seeking to diversify their corporate portfolios in anticipation of funding cutbacks to traditional weapons programs. One promising new source of revenue, analysts predicted, was the emerging "interagency" work from the non-defense side of the government, such as the State Department, the U.S. Agency for International Development, as well as from the military's expanding role in post-conflict "stability" operations.

But the rising tide of pessimism about the civilian "surge" in Afghanistan is throwing those projections into question, experts said.

A glaring sign of the souring mood toward soft-power work was the recent decision by Lockheed Martin Corp. to unload a construction and engineering company that it purchased just four years ago as a means to break into that market.

In a series of speeches during the past two years, Defense Secretary Robert Gates, Secretary of State Hillary Clinton and Chairman of the Joint Chiefs of Staff Adm. Michael Mullen have called for increased use of "smart power" in U.S. foreign policy. In a nutshell: more diplomacy, nation-building, training local forces to defend themselves and less lethal force.

A similar theme runs through the Obama administration's National Security Strategy and the 2010 Quadrennial Defense Review.

But so far the rhetoric has not been matched by resources, industry insiders lament. Companies are no longer seeing soft-power work as a growth area. Non-defense agencies have paltry budgets compared to the Pentagon, and there is no sign that the wealth will shift any time soon. Despite a close working relationship between Gates and Clinton, Defense overshadows State in terms of financial and human resources to conduct reconstruction and post-conflict stability operations.

Lockheed Martin in 2006 acquired a long-time peacekeeping and reconstruction contractor, Pacific Architects and Engineers Inc., for $700 million. PAE last month was selected as one of four awardees for the State Department's Africa Contingency Operations Training and Assistance program, a contract potentially worth $500 million over five years. The work involves training and equipping African peacekeepers, and upgrading facilities used by these forces.

Lockheed announced last month it...