As the defense sector heads toward a future of flat or declining budgets, the health of the industrial base and its critical capabilities becomes a prime concern.
It is not yet apparent that senior policy makers have begun to assess what industrial capabilities must be preserved. Ensuring that the United States is able to maintain core industrial competencies must be a priority before a fiscal downturn becomes reality.
Besides this longer term issue of the industrial base, there are other worrisome trends that require attention in the near term. For many companies, the contracting process continues to create unnecessary burdens that hamper their ability to support the military’s needs.
A case in point is the U.S. munitions industry. The Munitions Industrial Base Task Force (MIBTF) is one of the most active groups in the defense sector. The MIBTF’s mission is to ensure there is adequate funding and policies to sustain a responsive capable domestic industrial base to develop, produce and support superior munitions for the U.S. military and its allies.
Over the years, it has conducted many studies, and has proposed detailed plans for how the munitions base would respond to a significant downturn in funding. The task force completed a recent survey that highlights the challenges facing not just the munitions sector, but also the entire defense industry.
The MIBTF polled 19 companies and received 15 responses. This survey was conducted as a result of persisting complaints of slowness in contracting processes, which seriously affects many firms’ business operations. It also followed a query to the Joint Munitions Command that revealed oversight problems in munitions programs. For example, program manager reviews are conducted with lower level joint commodity teams, but apparently there is no senior executive level status review of planned or ongoing procurements.
Survey responders said that a lack of timely procurements has affected business (12 of 15 answered yes to this question). Seven of 12 said these delays have caused production lines to go cold, and half of the companies laid workers off. Finally nine of 12 stated that these delays in contracting caused a reduction in revenue for the year. Based on the results of the survey, it appears that the cutbacks in industry were not a result of reduced budgets, but were caused by bureaucratic delays — including Defense Contract Audit Agency (DCAA) audits — that have impeded the timely execution of appropriated funds.
The DCAA process is illustrative. One company reported that a post-award audit started in 2007 and is currently on hold. Another reported that a contracting officer removed a DCAA auditor after a year of little progress and restarted the audit. In some cases, the trouble is inconsistent DCAA procedures, which may vary from one region of the country to another. Different audit functions within a single program are conducted separately and not coordinated. This has resulted in multiple repetitive audits by different agencies and individuals. Adding to these issues are poor communications between procurement contracting officers and auditors, and a general lack of experience in contracting officers. All of the issues have led to slow, cumbersome processes and a lack of qualified experts in critical positions.
Another source of complaints is the conflict between the Federal Acquisition Regulation (FAR) and a federal statute. Section 806 of the 1999 Defense Authorization Act requires that competitions for munitions consider whether the domestic base has the manufacturing capability, and if so, to award the contract to a U.S. supplier, even to a single source. This decision has been delegated down to the program executive officer, but the FAR still requires a full-blown analysis (known as J&A, or justification and authorization) of why a domestic supplier should receive the contract. The requirement for a follow-on J&A is obviously redundant and adds extra time to the execution of munitions procurements.
These issues would be of concern under any circumstance, but are all the more worrying with the U.S. military engaged in two ongoing wars, and the Defense Department heading for a period of fiscal austerity. Congress has slowed things down even further by stalling key legislation. Fiscal year 2011 marks the first time in two decades that Congress has failed to pass an appropriations bill before a mid-term election.
Funding challenges and procurement timeliness magnify the obstacles companies face as they strive to remain viable and competitive. It should be pointed out that funds appropriated by Congress for specific programs are swept off the table if not executed in a timely fashion. If the services or the Defense Department fail to take action in a timely manner on a given contract, the funds will eventually expire. Anecdotal evidence from other services shows that this is happening throughout the Defense Department. When major programs are affected, the amount of money that they lose is significant.
Anyone who follows acquisition reform efforts knows that failure to meet timelines in the original government procurement plan begins a slippery slope of cost overruns, reduced quantities, higher unit prices and delays in providing critical supplies to U.S. forces.
Senior leaders in all sectors — and especially in critical areas such as munitions — should begin to focus on the status of planned and ongoing acquisitions to ensure speedy contract definitization and timely execution. NDIA will make this one a top policy and legislative issue for 2011.
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