When twin brothers Geoff and Mike Howe invested their life savings and took out second mortgages on their homes in 2003 to fund their newest experiment — an unmanned, off-terrain vehicle capable of accelerating from 0 mph to 50 mph in four seconds called the Ripsaw — they didn’t know where that leap of faith would take them. All they knew was that they had a product they thought the military would be interested in.

Last year, their hard work and personal risk paid off. In 2007, the Howe brothers received a nearly $740,000 contract from the U.S. Army to build a Ripsaw prototype. This year, the company received $1.1 million for the second phase of the project and got word that its prototype will be sent to Afghanistan in the spring. Now they’re expanding, hiring more people and watching as that contract leads to millions more in private sector work for the company.

Geoff Howe says he knew they were taking a risk when they first began work on the Ripsaw, but he says they had faith in the project and that if the vehicle saves even one soldier’s life, it’ll all be worth it. “The biggest risk is taking no risk at all,” Howe says. “I was taught that at a young age.”

While everyone in Maine is familiar with the state’s big players in the defense industry — Bath Iron Works and General Dynamics’ weapons manufacturing facility in Saco — less well known are the hundreds of small businesses like Howe and Howe Technologies that count the U.S. military as one of their largest customers. For them, the $1.1 billion in defense contracts that went to Maine businesses last year is an opportunity.

And those opportunities are growing. Armed conflict often acts as an economic engine for countries. It was true for the United States during World War II and the Cold War. It’s true today because of the wars in Afghanistan and Iraq.

The U.S. Department of Defense’s budget has increased 40% since 2001, from $370.8 billion that year to $518.3 billion in 2009 in inflation-adjusted numbers, according to the Washington, D.C.-based Center for Defense Information. There is “no question” that increase has bolstered the country’s small businesses, says Calvin Jenkins, deputy associate administrator for government contracting and business development at the U.S. Small Business Administration. “Certainly those firms are hiring more employees,” he says.

Maine companies like Titan Machine Products in Windham, which produces metal parts for the gun manufacturing sector, and Howell Laboratories in Bridgton, which develops and manufactures air and water treatment equipment that end up on U.S. Navy ships, including the ones built in Bath, are seeing the benefits of that increased defense spending. Federal defense contracts to Maine companies increased from $750 million in 2000 to $1.1 billion in 2007. Last year, the vast majority of those contracts — $946 million — were awarded by the U.S. Navy to Bath Iron Works, which is owned by Virginia-based General Dynamics. Once BIW is taken out of the equation, $185 million in defense contracts went straight to Maine businesses. However, that number doesn’t include the millions that flow through prime contractors to subcontractors. General Dynamics claims BIW and its weapons manufacturing facility in Saco work with more than 400 Maine businesses alone.

“Federal defense contracts are very important to our economy in southern Maine,” says Geoff Howe.

The how-tos

There are two avenues to access government defense contracts — becoming a prime contractor or working as a subcontractor.

Becoming a prime contractor for the federal government is “something I don’t wish on anybody,” Howe says. It can be a very tedious process. At first the brothers were encouraged by people within the industry to build their Ripsaw as a subcontractor under a larger existing defense contractor first and attempt to gain prime contractor status in a few years. Their accountant, a specialist who works with government contractors, said they were biting off more than they could chew. But Geoff Howe says they weren’t willing to work under another company and cede control of their “baby” to someone else. “We didn’t put our houses on the line for someone else to take the credit,” he says.

So they spent nine months making their way through red tape to become a prime contractor with the federal government. “I can’t even tell you the stuff you have to go through,” he says. The paperwork. The security clearance. And the audit. “It’s like an audit by the IRS times 10,” Howe says.

But the work paid off last year when Howe and Howe Technologies became a prime contractor with the federal government. Howe says he and his brother, who are both 34, are some of the youngest federal prime contractors to receive more than $500,000 in contracts.

In the year since Howe and Howe Technologies received its first federal contract, the brothers have hired 12 new employees (before the contract it was only the brothers and an assistant) and are preparing to expand their operations with a move to a 70-acre property in Lebanon, Maine, where Geoff Howe says they’ll have all the room they need to test out their vehicles.

Howe and Howe’s work with the military also has created demand for its services in the private sector. In late September, the company, which had $1.2 million in revenue last year, signed a contract with a coal mining company in Alabama to develop a vehicle that can stand up to the rigor of underground mining operations. If the vehicle is successful, Howe says the company is ready to sign a $4 million contract for Howe and Howe to replace all 36 vehicles in the mining company’s fleet. “And that’s just one mine,” Howe says. The company is also developing the world’s smallest armored vehicle for the Las Vegas SWAT team. The vehicle is bulletproof and only 32 inches wide, just enough room for one man to fold into.

It’s not just high-tech companies that are getting work from the military. Traditional manufacturing companies are getting a piece of the pie as well. Jonathan Brawn was vice president of operations at Saco Defense for 20 years before becoming co-owner of Titan Machine Products in Windham in June 2002. At the time, Titan didn’t work in the defense arena, but Brawn brought with him an intimate knowledge of the defense industry and saw great opportunity there for Titan. Because of his knowledge of the industry, Brawn says the process of becoming a defense contractor wasn’t too difficult, but it did take millions of dollars in investment to get the facility to a point where it could handle the capacity necessary for a federal contract. This year, the company expects to do as much as $10 million worth of defense-related work, which now accounts for 90% of the company’s revenue. And not only is the company, which has 62 employees, a prime contractor for the federal government, it also works as a subcontractor for as many as eight major defense contractors, including General Dynamics and Colt. Since 2002, defense work has increased the company’s sales and employee ranks tenfold, Brawn says.

The military isn’t only buying robotic military vehicles and machine guns. Yale Cordage in Saco manufactures rope primarily for the electrical utility, construction and maritime industries, but they have also manufactured rope for the U.S. Army and U.S. Navy for roughly 30 years, according to Richard Hildebrand, sales manager at the company. During the Cold War, and to a lesser extent today, U.S. nuclear submarines trailed a piece of Yale Cordage rope with a series of sensors to locate enemy subs. Check out any war movie: The soldiers sliding down the thick, anchored rope from the helicopter are swinging from a Yale Cordage product.

The company is also working on the next generation of ropes, such as better rope crash gates to prevent cars from breaking through barriers, say at a checkpoint in Iraq or an overseas U.S. embassy, and rope nets with little charges attached that can be shot from a landing craft and clear mines from a beach, for instance. “We just make rope,” Hildebrand says. “People will come to us because they know that’s our mission.”

In any given year, between three percent and 10% of the company’s business comes from the defense industry. In general, though, Hildebrand says the company’s business with the federal government has doubled since the wars began in Iraq and Afghanistan. He says he probably bids on two or three military contracts a year, and wins 20% to 30% of the time.

Competition for defense contracts can be fierce in an industry populated with entrenched conglomerates like General Dynamics and Lockheed Martin. But small businesses do get a leg up from the government. Every federal agency, including the Department of Defense, has a goal to award a certain percent of all contract dollars to small businesses and other subcategories, such as women-owned and veteran-owned businesses.

But even if those goals weren’t there, Calvin Jenkins at the SBA says the procurement folks in the federal government would rely on small businesses. “Small businesses are flexible, they provide the products and services that the government needs,” he says, “and small businesses have the innovation.”

Geoff Howe recognizes his company has entered an industry dominated by powerful competitors. “We understand the waters we play in are full of great whites and we’re a little fish with a little gold mine,” he says. “And they want to take it from us. That scares us.”

But because it’s small and maneuverable, he says his company has an edge when it comes to efficiency and innovation. And building one Ripsaw costs Howe and Howe Technologies between $500,000 and $600,000, but it could lower that cost if the company manufactured 10 to 20 a year, Howe says. A large company, on the other hand, would charge several times that amount to build a similar vehicle, he says. One reason is overhead. While Howe and Howe charges a 0.92 percent overhead rate on contracts, big companies have a 1.5 to 2 percent overhead rates, Howe says. “We don’t need to spend $30 for a roll of paper towels.”

Besides offering a steady revenue stream, working with the government also offers another advantage close to a businessman’s heart. “The government usually pays on time,” says Patricia Rice, director of the Maine Procurement Technical Assistance Center in Bangor, which helps businesses access the federal contracting arena. “That’s a plus.”

Building on its past

Maine has a long history with the nation’s defense industry, a relationship epitomized by Bath Iron Works, which has built destroyers and other combat ships for the U.S. Navy on the banks of the Kennebec River since 1893.

Maine’s role in the defense industry is also reflected in the prominent roles its politicians have played on the federal level, such as William Cohen, a U.S. Senator from Maine who served as Secretary of Defense under former President Clinton, and Caspar Weinberger who served in the same role under Ronald Reagan. U.S. Sen. Susan Collins is also an influential member of the Senate Committee on Armed Services.

Helping build on that tradition is the Maine Procurement Technical Assistance Center’s mission to connect businesses with federal contracting opportunities. In an average year, Maine PTAC, which is funded by the DOD and the state, works with more than 700 Maine companies, out of which about 150 receive contracts, according to Rice. Last year, $92 million in defense department contracts went to Maine businesses that worked with Maine PTAC, which has locations in Bangor, Lewiston, Portland, Saco and Bath.

The major hurdles that companies face competing for federal contracts are the same facing all companies: health care costs, energy costs, labor pool. “It’s hard for us to compete with companies that are able to buy health care at a fraction of the price we pay, where energy costs are lower than in the state of Maine and where they have access to a more robust workforce,” says Brawn at Titan Machine Products, which competes for skilled machinists in southern Maine with General Dynamics’ Saco facility, Pratt & Whitney’s facility in North Berwick and Maine Machine Products Co. in South Paris. “We have passed up [potential work] because we haven’t been able to get the volume of workers we need to be successful.”

Penobscot Bay Media in Camden, which does work in Web application development, is currently developing robotic technology with defense and commercial applications. The technology takes interior sensor readings for air quality and hazardous waste, says Ann Yahner, the company’s president. The company has increased its workforce in Camden from 17 a little more than a year ago to 40 today in most part because of an increase in its federal contracting work. In April, the company announced an expansion — but not in Maine. Yahner says she can’t find enough skilled workers in Maine so the company opened an office in Falls Church, Va., closer to the federal markets the company is targeting, and in London. “One of biggest problems is finding the skilled people we need,” she says. “And I think we’re suffering from that.”

Despite the business challenges that exist, Maine companies are likely to remain an integral part of the defense industry, in everything from high-tech software developers to state-of-the-art manufacturers. “I’m so proud we have this industry in Maine,” Geoff Howe says. “A lot of cutting edge stuff comes from Maine and not a lot of people know about it.”

Whit Richardson, Mainebiz staff writer, can be reached at wrichardson@mainebiz.biz.