Margarita Howard’s HX5 Navigates the Shrinking Middle Market in Defense Contracting

Sixty-three percent. That’s the share of fiscal year defense contract obligations, $287 billion of a total $456.2 billion, captured by the top 100 contractors, according to DoD contract data. The number itself has barely moved in years. What has moved, dramatically, is the population below it.

Small business participation in defense acquisitions declined more than 40% over the decade preceding 2022, according to the DoD’s own “State of Competition within the Defense Industrial Base” report, which offered a one-word summary of competition in the sector: poor.

But there are also companies sitting in the tier between the handful of dominant primes and the crowded floor of small businesses. Margarita Howard, sole owner, CEO, and president of contractor HX5, has built a roughly 1,000-employee firm that occupies exactly that contested middle ground. Understanding how her company survives there, and what tools it uses, illuminates a structural problem that the Pentagon has identified but not solved.

‘The Last Supper’ and Industry Consolidation

It is not hyperbole to argue that the modern shape of the defense industry was forged at a single dinner. In 1993, then-Deputy Secretary of Defense William Perry convened defense company executives to explain that post-Cold War budget reductions would leave the government unable to sustain many existing contractors. The advice: consolidate.

Within a decade, 51 major prime contractors had collapsed into five — Lockheed Martin, RTX, Boeing Defense, Northrop Grumman, and General Dynamics — in what industry veterans came to call “the Last Supper.”

The consolidation that Perry encouraged did not stop at the top. It cascaded. Companies building tracked combat vehicles went from three in 1990 to one by 2020. Surface ship builders shrank from five to two over the same period. A Defense Business Board report found that nearly two-thirds of production capacity was lost in the consolidation wave, leaving an industry that was both less competitive and more fragile. A 2022 DoD report concluded the same, finding that while consolidation hadn’t definitively correlated with higher contract prices, it had produced lower motivation among contractors to deliver cost, schedule, and performance improvements — and measurably increased supply chain risk.

By 2022, the DoD had identified five major weapons categories with outright duopolies or monopolies.

The Forgotten Middle Tier

The conversation about defense industrial base health tends to fix on two populations: the giant primes too big to fail, and small businesses whose entry into federal contracting serves equity and innovation goals alike.

Mid-tier contractors — firms large enough to prime complex programs but small enough to lack the brand recognition, political capital, and capital reserves of the majors — occupy an awkward position in this framing. They are neither symbolically important nor systemically dominant.

HX5 sits in this tier. With roughly 1,000 employees and operations at over 70 government locations across over 20 states, the firm is larger than companies that benefit from small business set-asides. But it is a fraction of the scale of the primes that bill tens of billions annually.

The company provides research and development, engineering, information technology, and mission operations support to the Department of Defense and NASA: the kind of embedded technical services that require advanced STEM credentials, security clearances, and in many cases years of direct government program experience.

Margarita Howard describes the position plainly. “We have won some, for our size company, very large prime contracts,” she says. “And we have large businesses as our subcontractors.” That inversion, a mid-sized firm directing work for companies many times its revenue, isn’t unusual in technical services contracting. It reflects the capability gaps that consolidation produced. Large primes often lack the specialized depth in narrow technical domains that programs actually need.

Growing Into Both Roles

From the beginning, HX5 focused on building the technical depth and operational discipline required to support complex federal missions. Working across engineering, research, and technical service areas, the company steadily expanded its capabilities while developing the partnerships and customer relationships essential to long-term success in the government marketplace.

As part of its early growth, HX5 participated in a Small Business Administration business development initiative designed to help emerging companies strengthen their capabilities and establish experience in federal contracting. The multi-year program helped the company refine its operational processes, build past performance, and develop the strategic foundation needed to compete in the broader federal market.

“One of the most important things that should be done before completing participation in the program is to create a comprehensive business strategy that outlines the goals, target markets, growth plans, and strategies for sustaining the company’s success as it moves forward,” Howard says. “Using the lessons learned and insights gained during the program is key to ensuring that past mistakes are not repeated.”

As HX5 prepared for its next phase of growth, leadership recognized that long-term success in federal contracting requires flexibility in how work is pursued and delivered. The company developed a strategy centered on operating effectively in two complementary roles: competing as a prime contractor when the scope and technical alignment made sense, and contributing as a specialized subcontractor when opportunities required larger teams or when HX5’s expertise could provide targeted value within broader programs.

The importance of that approach is reflected across the federal contracting landscape. The Brookings Institution has noted that more than 12,000 small and mid-sized firms operate as subcontractors to prime contractors, many possessing specialized capabilities that primes can’t economically maintain in-house. Getting to and staying in that subcontractor ecosystem is itself a competitive act.

“You tend to focus on specific specialization areas, network regularly with multiple prime contractors, and demonstrate the value you bring as a partner to the prime’s team,” Howard explains.

By building strength in both roles, HX5 has continued to expand its participation in federal missions while deepening the expertise and partnerships that support long-term growth in the government marketplace.

What Mid-Tier Firms Offer That Primes Don’t

The Pentagon’s concern about competition in the defense industrial base has driven a series of policy responses: expanded small business outreach, new use of Other Transaction Authority to engage nontraditional contractors, acquisition reform aimed at reducing barriers to entry. An April 2025 executive order directed the Secretary of Defense to submit plans accelerating the DoD’s acquisition process by prioritizing commercial solutions, with particular emphasis on broadening the use of OTA mechanisms often favored by newer, smaller companies.

None of these reforms directly address mid-tier contractors. The policy conversation is largely about the smallest entrants and the largest incumbents.

What mid-tier firms like HX5 actually provide is harder to quantify. They’re large enough to staff complex programs without constant teaming overhead. They’re small enough to make decisions in days, not weeks.

Howard frames this explicitly as a competitive feature.

“Even at our size today, working with larger companies, we see where we can make a decision in a few days; it takes them weeks, sometimes, as they send up the questions through their corporate ladder,” she says.

The dual prime-subcontractor model also gives mid-tier firms an intelligence function that pure subcontractors don’t have. Priming a program means direct contact with program offices, contracting officers, and agency leadership. It builds the institutional knowledge and relationship capital that generates future opportunities. Without it, a firm is entirely dependent on the primes it supports, and those primes are under constant market pressure to bring more work in-house or to maximize subcontractor margins.

Howard describes relationship building with agencies as “an invaluable asset” for contractors. “It can serve to provide the contractor with positive performance appraisals and sometimes even lead to new or additional business.”

That kind of compound knowledge accumulation — program by program, relationship by relationship — is what keeps a mid-tier firm relevant in an industrial base that, structurally, seems intent on pushing toward the extremes.