A mix of unease and confusion is what best describes the current mood in the defense industry as it tries to predict what lies ahead. Two major developments — an acquisition reform bill now being debated on Capitol Hill and the Obama administration’s defense budget proposal — are stirring many questions and concerns about what all this means for the industry.
President Obama recently laid down his marker on the need for reform in government contracting and procurement. Sens. Carl Levin, D-Mich., and John McCain, R-Ariz., have introduced legislation to tighten up the front end of the acquisition process and to ease the path to program cancellations for those in breach of Nunn-McCurdy cost-overrun limits.
Defense Secretary Robert Gates said he expects the Pentagon’s free spending ways to end soon. The 2010 defense top line has been set at $533.7 billion — a modest 4 percent increase over fiscal 2009 — in addition to a $130 billion supplemental war request. But all indicators point to potential cuts for fiscal 2011. Deputy Comptroller Kevin Scheid recently said the department may cut procurement in the fiscal 2010 budget by 2 percent or maybe 3 percent. But he warned that the administration’s policy decisions that will substantially shape the defense budget will not be known until the completion of the Quadrennial Defense Review early next year, when the president will submit the budget proposal for fiscal 2011.
Rumors are swirling about possible “targets” among the Pentagon’s procurement programs. They include the Air Force’s aerial refueling tanker — which would be delayed but not cancelled — and its next-generation long-range bomber. Other programs that could face substantial cuts include the Army’s Future Combat Systems and the Marine Corps’ Expeditionary Fighting Vehicle.
Exacerbating this unpleasant exercise is the financial crisis that is gripping the nation.
Early on in the presidential race, then-candidate Obama’s national security team signaled that Defense would not be a “bill payer” in an Obama administration. There was an understanding — based on Congressional Budget Office estimates — that even the generous budgets of recent years under-funded defense modernization programs by $100 billion a year. Much of that shortfall was the result of major overruns in defense acquisition programs.
The economic circumstances obviously have changed since last year’s presidential campaign. Some major adjustments to defense spending appear inevitable. Whether we see slips, cutbacks or outright cancellations is not certain yet, but a combination of these seems likely.
It also is fair to predict that some real movement on acquisition reform will actually happen. There have been dozens of studies on this issue in recent decades. They all said essentially the same thing and resulted in little change in how the Pentagon does acquisition. Under the Levin-McCain plan, we might actually get serious about doing a better job of defining requirements upfront, laying down a good technical baseline, focusing on systems engineering and actually forcing rational trades between cost, schedule and requirements.
This will all come with major pain, but industry will have an important role to play. Choices and adjustments will best be done in a cooperative team-oriented way between government and industry. It will be important to preserve the most critical capabilities in design and integration that mark a world-class defense industry. An example of essential capabilities that must be sustained are sensors and network-centric systems both at the strategic and tactical levels.
It must be pointed out that the tough choices should be made based on what best meets military needs and the nation’s defense strategy. The military services have always done an excellent job of defining their requirements and needs in support of the national strategy. In today’s rapidly changing environment — with threats that range from hostile states to terrorist networks, pirates and drug cartels — the job just keeps getting tougher. And the proliferation of advanced systems around the world, whether produced by allies or competitors, means that they can eventually find their way into a potential adversary’s hands. Witness the French air defense systems found in Iraq.
Ultimately, we will make hard choices. In all probability that will require giving up capabilities that the United States will someday need. Given the squeeze we are now in, substantial improvement in the Defense Department’s acquisition effectiveness should be no longer optional or the subject of another study. Real progress will be a welcome change.
The coming months and years will be hard, but the alternative is too dire. We will do it well, because we have no other choice.