Boatbuilders say government contracts can be very profitable, but getting them is no piece of cake
Boatbuilders trying to stay afloat during this Great Recession are constantly searching for ways to keep their doors open and plants producing.
Expanding into new markets is one way, and selling to the military or various government entities can be an attractive way to drum up business while waiting for the recreational side of the industry to recover. However, those who sell to the military or government caution that it's not as easy as simply bidding on a contract. There's a lot of work that goes into manufacturing for this market, and while the rewards can be high, it can take awhile to see results.
Jay Perrotta, president of Maine-based Rock Salt Alloy Boats, started his company more than two years ago with the intent of selling to recreational, military and commercial clients. So far, he says, he has yet to land a military contract for his deep-vee welded aluminum alloy boats.
Worth the risk?
"The military is a bit of a gamble," he says. "You can spend a lot of time and a lot of money and a lot of effort for zero return on your investment. We've done a bunch of military shows and spent time visiting Washington and all that, and so far we have a grand total of zero dollars in revenue."
Is the gamble worth it? "If you land a $30 million government contract, it looks like money well spent," Perrotta says. "Recreational sales are onesies, twosies, and military sales are twenties, thirties for one contract. That changes things for a company. It's much more high-stakes poker than the recreational market."
Everglades, the Florida-based fishing-boat builder, launched its first commercial boat in June 2009, a 35 Pilot that debuted at the Multi-Agency Craft Conference, which allows boatbuilders to meet with government agencies - Department of Defense officials in particular. Industry veteran Mike Collins, Everglades' commercial and government division director, says the company had previously been asked to build government boats, but the "recreational business had just been skyrocketing, and [the company] didn't really have any capacity, nor did they have anybody here with much experience on how to set it up," he says.
Since launching the commercial and government division, he says, Everglades has been quoting bids, and he predicts the new division will be a success. "We're very active. We're quoting a lot of deals," Collins says. "We've delivered some boats, so it's going at a fairly decent pace. We're working on some big deals."
Collins believes the military/professional side of the business is "going to be a very, very profitable venture for this company," adding that he expects it will be 25 percent of Everglades' business at the end of 18 months and will continue to grow.
Perrotta says some government business - local, county or state government contracts, for example - is easier to find and bid on than military contracts, which can be elusive, especially for those new to that segment. "Military is almost like joining a club, like joining an exclusive country club or yacht club," he says. "The first day you show up you're not on all the committees and no one knows you, no one talks to you. And they all know each other. ... You literally feel like you're at a party where everyone knows everybody else."
After two years, Perrotta says, "we're slowly being admitted to the club."
Those in the know
In order to sell products and services to the military, businesses must get a General Services Administration contract. Working with the military can be lucrative, in some cases providing more than half of a boatbuilder's revenue.
Matthew Velluto, director of business development for Massachusetts-based RIB manufacturer Ribcraft, says the commercial side accounts for approximately 70 percent of the company's business. "We're extremely fortunate that we still have our commercial business, and another plus is that the commercial business is our focus, as opposed to a secondary [business]," he says. "The whole focus of Ribcraft
really has always been on the commercial sector, including the military. That's how we design our products. How they're built, how they're designed is all with the intention of being used for commercial and military applications."
T.J. Tracy, vice president of sales and marketing for Zodiac's military and professional division, says that sector accounts for more than 50 percent of his company's revenues. "We've been able to grow our mil/pro since about 2000," he says. "I think 2004, 2005 is about where we peaked, and we've stayed the same for a while. It's a considerable business over the recreational side, especially the last few years."
Zodiac is working to separate its recreational and military/professional businesses into two companies, Tracy says. The company decided to split the business units into separate entities, since they don't share production tooling or customers. Zodiac Professional is led by Cmdr. (Ret.) Steve Seigel, and Zodiac Recreational is led by Gary Dickman. The recreational business has moved to South Carolina, while the military/professional side remains in Maryland.
A recession offset
Propulsion system manufacturer ZF Marine has served both recreational and government clients for decades. Roughly half of its business is non-recreational, and a "significant portion" of that is government applications, says Martin Meissner, the company's marketing and communications manager.
"We are certainly aware of economic swings and realized from early on that a healthy product and market portfolio is essential to combat recessionary times," Meissner says. "Government spending is typically driven by the geopolitical situation we are faced with, whereas private spending follows an economic cycle."
ZF Marine, he says, has recently been awarded two significant projects with the Navy and the Coast Guard. "[This] helps our company in the current times," he says. "However, it can't completely offset the downturn in the recreational sector."
Harris Glaser, vice president of Hollywood, Fla.-based Midnight Express Powerboats, says that in the 10 years the company has been building for recreational and military clients, the split has been split about 50-50 between the two. In the last 12 months, however, that's become more of a 60-40 split, with 60 percent military.
The company recently announced contracts with the Navy for 14 of its 39-foot Interceptor model and the Coast Guard for a "progression" of Interceptors. "Military is just a part of what we do," says Glaser, adding that Midnight Express is more of a custom builder and in 2009 produced about 36 boats for both sectors. "When the economy was good and the economy was bad - we're always pushing it. I'm not pushing it any more right now than I was, say, three years ago."
Change in administration
Though the change in presidential administrations almost certainly means a change in U.S. military policy, manufacturers say this doesn't necessarily mean that sector of their businesses will dry up. "There's an enormous amount of military activity going on, regardless of the administration," says Stephen Connett Jr., president of Naiad Inflatables of Newport, R.I. "Although there's not a lot of boats being sold for Afghanistan ... we still have a large military presence all over Asia and places like that as well."
Also, Meissner adds, border control and protection are critical issues regardless of who is in the White House.
Velluto says the biggest change he's seen with the change in administration is a longer buying cycle. While it may have taken six months to complete a buying cycle, it is now taking nine months or more.
Zodiac's Tracy says the new administration could actually help the non-recreational side, as in many cases stimulus money is going to local, county or state governments. "States are starting to inquire again," he says.
Perrotta points out that selling to local, county or state governments can be much easier than selling to the federal government, with more opportunities. After all, he says, there are "literally thousands of markets to sell to."
This article originally appeared in the March 2010 issue.