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Michigan’s refreshed strategy for attracting defense-related dollars appears to be paying off with businesses in the state winning more contracts as federal military spending grows.
But it’s got further to go, experts say, to bolster its share of defense-related contracts.
The state for years has pursued the ambition of no longer being a “donor state” — where taxpayers contribute more than their state receives from the U.S. Defense Department. In addition to attracting business and helping it win contracts, Michigan has sought to become a fixture in pursuit of grants, missions and other opportunities by leveraging its expertise in engineering, manufacturing, automotive production, advanced driver assistance systems and other resources.
“We have seen increased DOD spending and increased spending in the state of Michigan, so that’s a piece of it,” said Mark Ignash, interim director of the Michigan Defense Center. “It’s then trying to help our companies then be prepared for and meet those needs in order to ultimately secure those contracts with DOD.”
In fiscal year 2022, which began Oct. 1, 2021, and ended Sept. 30, Michigan received $6.3 billion in contract capture from the U.S. Defense Department, a $1.3 billion increase from 2019, according to the Michigan Defense Center.
Figures from the DOD showed that in fiscal year 2019, contract spending in Michigan dipped from a peak in 2018, but has risen since. Most of the funds went to contracts in Macomb County to companies like Virginia-based General Dynamics Corp.
“With the defense budget, a lot of our companies in this industry were noted as being critical to the supply chain” through the pandemic, Ignash said, “so many of them were able to sustain through that.”
Attracting defense missions as well as subcontracting also are a significant part of economic attraction in defense not reflected in those figures. “That trickle-down effect,” Ignash said, “is really important to our local economy.”
One of the latest signs of growth for Michigan was the grand opening this month of an engineering and technology center in Sterling Heights by the U.S. vehicles division of German arms manufacturer Rheinmetall AG. It’s grown to about 100 people so far. The company hopes to double that if its optionally manned fighting vehicle called the Lynx is selected in May by the U.S. Army as one of three to proceed from five under consideration.
“The next phase OMFV goes into phase three and four, and if we win that,” said Mike Milner, vice president of business development and strategy at American Rheinmetall Vehicles LLC, “that will require us to basically double the size of our organization right now.”
Rheinmetall has been in the area for about three years, but the nearly 47,000-square-foot space off Mound Road now affords it the space to grow.
Plus, “we’re co-located with the customer,” said Chris Haag, director of business development, referring to the Army’s Tank-automotive and Armaments Command in nearby Warren. “The supply chain is developed here. We hire aerospace engineers, automotive engineers and, of course, from defense because there are some nuances to the field.”
If the Army chooses Lynx, Textron Systems will build prototypes of the OMFV in Louisiana, and then they’ll undergo a year to 18 months of testing by the Army. If the Army ultimately selects Rheinmetall’s program, it will open a new manufacturing site for the vehicles. Michigan is in the running, Milner said, but one of the biggest considerations is workforce availability.
In addition to the OMFV, the Army authorized Rheinmetall and General Motors Co.’s defense division to proceed with phase one for a common tactical truck, an up to $14 billion program for 40,000 trucks. The truck called the HX3 will be adapted from the European version for the United States.
David Shuler joined the company in June as the CTT program’s manager from the U.S. Army’s contracting command. A Michigan native, he’s grateful that despite his background in military and defense, he hasn’t had to move his family across the country.
“It’s nice to find that stability,” said Shuler, 52, of Oakland Township. “I know many don’t feel that they have a home” from moving so much.
The quasi-governmental Michigan Economic Development Corp. is supporting the new facility with $1.5 million in incentives with the commitment that Rheinmetall will create at least 125 jobs in the next three years. Rheinmetall is hiring engineers, program managers, software developers, and experts in information technology, manufacturing, quality and supply chain.
The MEDC’s Michigan Defense Center supports businesses with federal contracting and promoting the state’s resources and assets for investment. In 2017, it first put together a strategy to protect and grow Michigan’s defense sector, and it has undergone multiple refreshes since.
The result of that has been not just emphasis on securing DOD contracts but also on pursuing grants and installations that can present long-term opportunities but may require more assets.
“That is a goal,” Ignash said regarding contracts, “but what else is there, and what resources do we need to pursue it?”
That can entail obtaining match funding or having dedicated staff members for projects. The center also has emphasized building relationships with people in the DOD to ensure the state is at the table when it comes to these opportunities.
“When the state of Michigan is applying for this funding, we’re not a one-off, looking to get a little bit of funding to do a project,” Ignash said. “It’s sustained, long-term. So long as the opportunities are there, Michigan is going to be at that table.
“If nothing else, it’s led to the success in being known that Michigan is going to be at that table. Now, if we’re not there, it’s noticed.”
Although Ignash says awareness and perception of Michigan continue to be the biggest focuses, these efforts have resulted in connections that helped the state to obtain grants. The Protect and Grow Defense Strategy Initiative also supported attraction of the headquarters for the Army’s Next Generation Combat Vehicle Group, Army dense urban training and the 272nd Cyber Operations Squadron at Battle Creek Air National Guard Base.
Other efforts seek to support Selfridge Air National Guard Base and Camp Grayling. Michigan has 17 active and guard installations. The state also is the nexus for Army land systems and has the most testing air space east of the Mississippi River, Ignash said.
Michigan, however, does have its limitations in attracting programs that put troops on the ground, said Mark Cancian, a retired Marine colonel and senior adviser for the Center for Strategic and International Studies who analyzes defense budgets.
“Michigan is not all that well-positioned,” he said. “The weather isn’t all that great. There’s not a lot of open space. (States receiving the most investment) either have big military bases, warm climate, a lot of empty space where the military can use, or they are the center of some manufacturing.”
In fiscal year 2021, the latest year with a state-by-state breakdown from the DOD, Michigan ranked No. 23 in contract and personnel spending. Virginia, home of the Pentagon, topped the list with $62.7 billion, followed by California and Texas.
Some states have gotten creative, Cancian notes. Indiana built the physical infrastructure of an entire city at the Muscatatuck Urban Training Center for urban warfare practice. Massachusetts worked with its congressional delegation to secure maneuvering exercises and various other installations at the U.S. Coast Guard Base Cape Cod, a former Army base during World War II. Others have established centers of excellence in an area of strength.
“This is a classic example where a state government has to work closely with the congressional delegation,” Cancian said. “It’s a way to bring the whole congressional delegation together. There’s always a split, but they all can agree on getting more stuff for Michigan.”
There are new opportunities with increasing demand for services like rebuilds, he said. Businesses also found new opportunities in government contracting amid the pandemic to provide personal protection equipment and other supplies to the military and other agencies, said Jasmine McKenney, president of the Michigan Alliance of APEX Accelerators.
Formerly the Procurement Technical Assistance Centers of Michigan, the alliance is made up of regional organizations that help businesses “from cradle to grave” obtain government contracts. That includes registering, bidding, obtaining special certifications and issuing invoices.
The organization has seen an increasing number of cold calls from businesses seeking help following administrative changes in the processing of contracts, McKenney said. In December, it also signed a memorandum of understanding with the Small Business Association to collaborate on supporting entrepreneurs and matchmaking.
With economists forecasting a recession as early as later this year, more companies could seek out other avenues of revenue, such as government contracting, including in defense.
“The federal government can be more cumbersome than the private market, and the private market is doing really well right now,” McKenney said. “There might be a dip, or when the tide turns, you might see an increase in interest from business.”
bnoble@detroitnews.com
Twitter: @BreanaCNoble
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