New defense rules might cost contractors money
May 2, 2012 by cs
The final Defense Federal Acquisition Regulation Supplement (DFARS), released in February, is an improvement over its predecessor, but its withholding clause could cause problems and payment delays for many Defense Department contractors, experts say.
An April 25 cross-industry panel of contracting experts agreed that the new DFARS is the most comprehensive change in federal contracting in several years.
But they centered their attention on assessing the new withholding clause, which calls for withholding a percentage of the contract payment if the Defense Contracting Management Agency finds “significant deficiencies” in any of six business systems cited in the new rule.
Timothy Callahan, executive director for contracts at DCMA, said the old rule had a variety of regulations, no consistent language in determining whether a contractor’s work was adequate or inadequate, and what and how corrective actions were to be taken.
“Under the way we were operating if a contractor had a deficiency with a business system, they put forward an adequate corrective action plan; that submittal of an adequate action plan oftentimes was sufficient to change the status from a disapproved system to an approved system,” Callahan said.
“And there really wasn’t the follow-through on either the contractor’s part or our oversight to ensure that that corrective action plan was put into place,” he added.
The new DFARS business system clause normally does not apply to small businesses, competitive fixed price contracts or contracts less than $7.5 million, he said, adding that the agency will issue a withhold assessment on contracts valued at more than $50 million.
Callahan said DCMA now will use a four-phase program to determine if any of six contract business systems are judged to contain “significant deficiencies.”
“If it’s one business system, the withhold [amount] is 5 percent. If it’s two or more business systems that are being disapproved, the maximum is 10 percent,” he said.
“The withholds are against the financing arrangements of the contract,” Callahan explained, including progress payments, performance-based payments and interim cost vouchers.
The contractor then has 45 days to turn in its corrective action plan.
“If it’s an adequate corrective action plan the withhold will be reduced by 2 percent,” Callahan said. “We’re trying to minimize the hurt but still keep the pressure on to get this corrective action implemented.”
When the contractor notifies the government of the implementation, the government has 90 days to validate that corrective action has indeed occurred and that the deficiencies have been corrected.
“If we don’t get out there within 90 days, it’s another automatic reduction in the withhold [penalty] of 50 percent,” he said.
Participants at the Compusearch-sponsored panel “Contracting in a Time of Change” agreed there was a definite need for a new DFARs rule.
But Robert Burton, partner at Venable law firm and former deputy administrator in the Office of Federal Procurement Policy, called the business system clause draconian and hard to implement.
Alan Chvotkin, executive vice president and counsel at the Professional Services Council, said there is a lot of mythology surrounding the rule.
However, he praised DFARS for providing “contractor engagement and response at every opportunity. So it’s really moved to a compliance rule rather than a withholding rule.”
Chvotkin said the attributes in each of the six business systems are more clearly defined now than they were early on in the drafting process “But there’s still a lot of ambiguity and a lot of room for interpretation,” he said.
Addressing the ambiguity and need for interpretation, Chvotkin offered several steps contractors need to take even before winning a contract affected by the rule.
He said contractors should always document their own business systems, be aware proactively of the contract clauses and the risks inherent in DFARS.
Robin Schulze, director of the Government Contractor Advisory Services at accountants Baker Tilly Virchow Krause LLP, said she believed the strength of the new DFARS was its peer review requirement.
But she said, “I believe that when you get the initial determination [of a deficiency] if you were able, in your response to that, provide an action plan you could start at 2 percent [withhold] instead of the 5 percent. And the same thing should be true if you voluntarily disclose a deficiency that you’ve identified and have already started working of it.”
Defending the clause and the remediation process, Callahan suggested that if a contractor knows there is a problem and takes corrective action right away, “we can start out with a withhold of 2 percent, it doesn’t have to be 5 percent,” he added.
“We would like this to be a collaborative operation,’ Callahan said, “where we’re communicating as we go along.”
About the Author: David Hubler is senior editor of Washington Technology. This article was published on Apr. 25, 2012 at http://washingtontechnology.com/articles/2012/04/25/panel-on-dfars.aspx?s=wtdaily_260412.
Panetta urges Congress to de-trigger sequestration cuts
April 20, 2012 by cs
It is up to Congress to dissipate the shadow of sequestration hanging over the Defense Department, according to Defense Secretary Leon Panetta.
Panetta and Joint Chiefs of Staff Chairman Army Gen. Martin Dempsey discussed on Monday (Apr. 16, 2012) the impending $500 billion budget reduction over the next ten years that would incur if Congress does not resolve an alternate solution by January 2013.
Congress should approve an alternate budget plan in order to maintain the military strength Panetta believes is necessary to face today’s security environment, he said during the press conference.
He said the Pentagon has not received directives from the Office of Management and Budget to plan for sequestration, but added the possibility is already impacting the department and industries it depends on.
Congress is set to review defense authorization and appropriations bills in the coming weeks.
Panetta said he hopes Congress will review the new defense strategy and cautions that if the cuts are handled incorrectly, it will result in a hollow military force.
Panetta notes that the Budget Control Act is structured in such a way that any change in one area of the budget or force structure will require offsetting changes in other areas.
Panetta’s hope is that Congress will reach a speedy decision to de-trigger the sequester.
The longer Congress waits, the more impact the impending cuts will have on the Pentagon’s planning and budget processes, he added.
Dempsey said he expects the Pentagon will have to begin planning toward the middle or end of the summer in order to react to sequester cuts.
Panetta noted that he believes military reductions should occur but that Congress has a small margin of error in its decision to avoid a significantly unbalanced or weakened force.
– by Katelyn Noland – ExecutiveGov – Apr 17, 2012 at http://www.executivegov.com/2012/04/panetta-urges-congress-to-de-trigger-sequestration-cuts/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+execgov+%28Executive+Gov%29.
Pentagon awarded veteran-owned contracts to illegitimate firms
April 13, 2012 by cs
The Defense Department awarded millions of dollars in veteran-owned contracts to ineligible firms and made coding errors affecting billions of dollars more, according to an inspector general report.
The report, dated Feb. 29 and recently made public, said the department awarded six contracts for service-disabled veteran-owned small businesses, valued at about $1.9 million, to ineligible companies. In addition, the report said, Defense awarded 27 contracts, valued at about $340.3 million, to contractors that “potentially misstated their SDVOSB status.”
Finally, the department made coding errors when it entered these contracts into the federal procurement database. These errors, in turn, affected 137 contracts valued at about $1.3 billion, according to the report, which was picked up Monday by Federal News Radio.
Defense made two key errors that contributed to awarding ineligible contracts, Devon Hewitt, a partner at Protorae Law and a member of the American Legion’s Small Business Task Force, told Federal News Radio. The first was the department failed to check the Central Contractor Registration database, which catalogs the eligibility of federal contractors prior to awarding the contracts.
Second, and according to Hewitt more significant, Defense relied heavily on its own self-verification process for contractors. The department’s inspector general recommended Defense adopt a new verification process similar to the Veterans Affairs Department, which has a separate authentication process for veteran-owned contractors — and is, according to Federal News Radio, the only government agency that does not rely on self-verification.
Veterans Affairs’ verification process, however, has itself been hampered by complaints of delays, inconsistencies and a lack of thoroughness, according to Federal News Radio.
– by Andrew Lapin, Government Executive, Apr. 9, 2012 at http://www.govexec.com/contracting/2012/04/pentagon-awarded-veteran-owned-contracts-illegitimate-firms/41717.
Insourcing savings difficult to predict
April 11, 2012 by cs
Insourcing saved the Homeland Security Department $2.3 million since mid-2010, a DHS official said, even while counterparts at the Defense Department said their initial estimates of cost savings to be had from converting contractor positions into full-time civil service jobs were overestimated.
During a March 29 hearing of the Senate Homeland Security and Governmental Affairs subcommittee on contracting oversight, Debra Tomchek, executive director of the DHS balanced workforce program management office, said efforts underway at DHS since mid-2010 to rely less on contractors and to hire more civil servants have produced about $2.3 million in savings as of January 2012.
According to Tomchek’s written testimony, DHS calculates the cost of a contractor to a civil servant using a “DHS Modular Cost Model” that includes “one-time and recurring costs associated with establishing new positions.”
During the hearing, Chuck Grimes, Office of Personnel Management chief operating officer, emphasized that savings shouldn’t be calculated by just comparing labor costs.
When the Defense Department began an insourcing initiative in 2009, then-Defense Secretary Robert Gates estimated the Army could produce $400 million worth of savings and that conversion of contractor positions would save 40 percent on employment costs.
“We had two instances over different periods of time where we achieved anywhere from about 16 to 30 percent savings. And really the percentage savings are really dependent upon the function that’s being in-sourced and the location where that’s occurring,” said Jay Aronowitz, Army deputy assistant secretary for force management, manpower and resources.
Lack of a good cost model to compare the true costs of retaining civil servants versus hiring contractors has long been an obstacle to cost transparency and decision-making. The Center for Strategic and International Studies proposed in May 2011 a cost estimation taxonomy that would permit a comparison based not on labor costs, but the costs that federal agency would incur if it tried to meet its needs by internally running the equivalent of a private sector consulting firm.
– by David Perera, Fierce Government IT, Apr. 3, 2012 at http://www.fiercegovernment.com/story/insourcing-savings-difficult-predict/2012-04-03.
How to handle today’s austere times
April 6, 2012 by cs
Austerity is here, it’s real and it will be the rule of the road for several years. The president’s fiscal 2013 budget request for defense will likely be about $260 billion less, over the next five years, than the top line projections of just one year ago. The civilian agencies, many of which have been facing fiscal quagmires for several years as a result of a non-stop diet of continuing resolutions, also face real pressures today and further reductions for fiscal 2013, likely in the 3 percent to 5 percent range.
And if sequestration happens, the challenges will be that much more significant. What is not yet clear is what all of this means for both the effective functioning of government and, of course, for the industry that plays such a critical role in supporting it.
Recently, the Professional Services Council, along with the Aerospace Industries Association and the National Defense Industrial Association, submitted to Defense Secretary Leon Panetta and other top DOD leaders a report on the anticipated impacts of the defense spending reductions. They included job losses, reductions in company-funded research and development, investments in people, and the potential loss of key suppliers.
In addition, it is clear that, dosuring the next few years, an already highly competitive market will become even more competitive. With fewer contract opportunities, the number and range of competitors vying for those opportunities will be even greater than they are today.
While the fiscal environment is an unavoidable reality, there are a number of actions companies can and should take to help ameliorate at least some of those impacts. Indeed, these strategies and actions were prominent in discussions with the secretary of defense, the deputy secretary, and the undersecretary for acquisition, technology and logistics, following submission of our industrial base impacts report. These strategies also have applicability across the government.
Key among them is an intensified focus on performance—at all levels. This includes not only programmatic performance, which should always be the principal objective, but also a renewed focus on the financial side, such as fostering a proactive dialogue to help customers identify areas for cost savings—even if those savings might impact company revenue—and tightening company overhead as much as reasonably possible.
At the same time, the government customer must also think and act differently. Despite the budget reductions, the government will nonetheless be spending a huge amount of money through contracts for goods and services. To ensure that those expenditures deliver optimal benefits in both the short and long runs, it is crucial that the government, as the DOD and Office of Management and Budget leaders have said, focus on value and other meaningful value discriminators in the acquisition process. Indeed, DOD leadership has said that given the times, they will be focusing more intently than ever on those discriminators.
Unfortunately, the No. 1 issue identified by our member companies in our report was the government’s growing propensity to do just the opposite, even when buying complex services, including those that generate the kinds of innovation that lead to performance improvements and sustainable efficiencies.
Likewise, government teams must be open to eliminating non-value or limited-value contractual burdens. And the government must get away from its habit of using margins—too often arbitrarily set at unreasonably low levels—as a key cost savings tool. Margins should be linked to the complexity and risk associated with the work being done. Here too, a disconnect between the leadership’s objectives and the field’s implementation is clear and must be addressed.
For every company in the federal market, this must be a time of internal and external reassessment. The same is true for our government colleagues. There are some things that are well beyond either’s control. The key is to focus on those things that we can control and to turn an era of challenge into an era of innovation and opportunity.
About the Author: Stan Soloway is president and chief executive officer of the Professional Services Council. This article was published on Feb. 27, 2012 by Washington Technology at http://washingtontechnology.com/articles/2012/01/30/insights-soloway.aspx.
Panel: Small businesses to feel crunch as spending declines
April 2, 2012 by cs
A panel of lawmakers has recommended increasing the 23 percent contracting goal because of the foreseen decline in government spending.
“There is a fear that the decrease will be disproportionately borne by small businesses,” according a report from the House Armed Services Committee’s Panel on Business Challenges Within the Defense Industry.
The panel wrote that less spending will affect the health of the defense industrial base and pose challenge to the economy as a whole.
Each year, the government, as whole, aims to award 23 percent of its spending from prime contracts to small businesses. The government continuously comes up short of the goal.
As the panel recommends the increase, it’s already being considered.
The House Small Business Committee approved a contracting bill that would raise the goal to 25 percent. The Government Efficiency through Small Business Contracting Act (H.R. 3850) would also hold agency executives accountable for meeting the goal. Senior officials would not get their bonuses if their agency misses small business goals. The House has not passed the bill yet.
In its report, the Armed Services Committee’s panel recommended that Congress and defense officials review DOD’s contracting procedures and assess its performance. Their intent should be making it easier for small businesses to win contracts.
The panel suggested developing a preferred-supplier program at DOD. It would reward small firms that have “a history of superior contract performance.”
“Such a program could incentivize small companies to compete for and perform on government contracts by holding out the opportunity for locking in long-term contracts based on performance,” the panel wrote. This could mean small businesses might commit more of their limited resources to DOD’s projects for a long-term payoff.
The panel also suggested beefing up DOD’s small business office.
The director of the office should join senior-level decision forums, such as the Defense Acquisition Board and the Information Technology Advisory Board. The director should also get invitations to the Deputy Secretary’s Management Action Group when it’s dealing with procurement issues, the panel said.
The small business officials need better coordination with senior procurement officials when planning acquisitions, according to the report. Finally, DOD needs more training for its workforce regarding small business contracting, it said.
The panel also recognized the complexities of defense contracting rules and procedures. The process is often bureaucratic and rigid, with little flexibility for managing and monitoring small businesses.
“Across the country, we heard the same thing from businesses, academics and researchers: navigating the defense acquisitions process is difficult for all businesses, but is particularly difficult for small businesses,” Rep. Bill Shuster (R-Penn.), the panel’s chairman, said March 20.
The panel released the report after six months of researching and discussing acquisition issues with more than 150 experts.
Despite its emphasis on supporting small businesses, the group also made recognized mid-size companies. These companies are caught between a growing percent of dollars going to large firms and to small firms. Citing the Center for Strategic and International Studies’ figures, the share of DOD contracts awarded to firms categorized as small businesses increased from 17 percent to 17.4 percent from 1999 to 2009. Meanwhile, the share of contracts going to large companies increased from 47 percent to 53.7 percent over the same period.
About the Author: Matthew Weigelt is a senior writer covering acquisition and procurement for Federal Computer Week. Published Mar. 22, 2012 at http://washingtontechnology.com/articles/2012/03/22/small-business-defense-department-report.aspx?s=wtdaily_230312.
DOD needs simpler contracting processes, lawmakers told
March 30, 2012 by cs
Congress and the Defense Department need to simplify the department’s confusing and burdensome acquisition regulations in order to make the jobs of the acquisition workforce and contractors easier, the House Armed Services Committee recommended in a new report.
In one recommendation, the report says DOD and Congress should embark on a comprehensive review of laws and regulations related to procurement. They then should attempt to amend or even repeal outdated regulations. In doing so, officials should consider whether a rule has had unintended consequences that outweigh its original purpose.
“This effort should be undertaken with an eye to simplifying and streamlining all aspects of the acquisition process and reducing the negative cost and schedule impacts,” according to the report released March 20.
The House committee’s Panel on Business Challenges Within the Defense Industry released the report after discussing acquisition issues with more than 150 people from government, industry, think tanks and academia.
The panel learned in those discussions that the acquisition rules are constantly changing and are extremely complicated. The result is unnecessary complexity, confusion, and poor execution, which only furthers challenges for the acquisition workforce, according to the report.
The Office of Management and Budget urged agencies on March 20 to take similar steps in an effort to avoid duplication among regulations. It even urged agency officials to talk to contractors and other experts before they issue a proposed rule.
DOD’s acquisition rules are off-putting to some companies, the panel wrote in its report.
“The plethora of regulations specific to government and defense contracting dissuades many companies from competing for government contracts,” the panel found.
The complexities also make it tough for the department’s acquisition workforce, which is going through a slow rebuilding process. Employees need a lot of training to understand the ins and outs of the acquisitions regulations and manage complex procurements, the panel wrote.
The workforce took a hit in the 1990s with a major reduction in its numbers. Nowadays, defense officials are attempting to rebuild it. They have hired a lot of new employees, dubbed by the panel as a “new-hire bulge.” Meanwhile many senior members are eligible for retirement.
“These parallel bulges constitute a ‘bathtub effect’ as mid-career personnel are not abundant enough to adequately replace the retirement bulge, nor provide for enough on-hands mentorship to the new-hire bulge,” the panel wrote.
DOD’s training now is very important, the panel added. Maturity in the job and higher education are keys to a strong workforce. It’s more than numbers.
Higher education equips acquisition workers with complex skill sets in finance, systems engineering, logistics, and operations management needed to administer large contracts and manage long-term technology projects.
In President Barack Obama’s fiscal 2013 budget proposal, DOD requested $374 million in its acquisition workforce development fund for recruiting and hiring acquisition and only $120 million, or less than a third, for training and development of the workforce, the panel points out.
“Just as it takes many years to develop a military leader capable of commanding at the senior ranks of the operational force, it takes a similar amount of time to develop an acquisition professional with the knowledge, skills, and experience needed to manage large defense acquisition efforts,” the panel wrote.
About the Author: Matthew Weigelt is a senior writer covering acquisition and procurement for Federal Computer Week. This article appeared Mar. 22, 2012 at http://washingtontechnology.com/articles/2012/03/22/regulatory-reform-dod-acquisition.aspx?s=wtdaily_230312.
DoD: $178.8 billion for acquisitions, $109.1 billion for procurement, $67.9 billion for R&D
February 17, 2012 by cs
President Obama’s defense budget of $613.9 billion for fiscal 2013 reflects the downsizing of America’s wars abroad and the size of its military, as well as its plans to increase and entrench smaller counter terrorism, special operations and high-tech capabilities globally.
The cut — a reduction of $40 billion, or six percent, from current year spending — includes a 20 percent slash in Afghanistan war spending, increasing weaponry intended for Asian-Pacific security, while deferring legacy weapons purchases and personnel costs into future years.
“We are redoubling our efforts to make better use of the taxpayer’s defense dollar,” Defense Secretary Leon Panetta said, in a statement released with budget documents at the Pentagon on Monday. Panetta is not expected to appear Monday, going instead to three hearings scheduled before Congress this week.
The White House wants $525.4 billion for the regular defense budget and $88.5 billion for the separate war account. The war request includes $85.6 billion for Afghanistan, which is down from $105 billion in 2012, and $2.5 billion for Iraq. Most of the decline in Afghan war spending reflects the operational savings from pulling out the remaining 23,000 surge forces by September.
DOD also requests $178.8 billion for acquisitions, or $109.1 billion for procurement and $67.9 billion for research and development, a crucial account for the nervous defense industry.
A greater total spending cut is forecast for 2014, appearing to come entirely from war accounts. But the Pentagon forecasts its base spending will increase by roughly $10 billion in each of the following four years after 2013. That’s a 0.3 percent decrease in spending for the next five years.
There were no surprises in the increased budgets for U.S. priority accounts, include special operations forces, at $10.4 billion next year, as well as drones, cybersecurity, and missile defense. DOD slashed $15 billion from the still-breathing Joint Strike Fighter’s development, due to forced delays in planned purchases. The Army’s search for a next generation ground combat vehicle and Navy shipbuilding also were cut.
Cutting 72,000 soldiers, 20,000 Marines and thousands more sailors and airmen accounts for $50 billion savings over five years.
The Pentagon claims $60 billion of its total savings next year will come from “efficiencies”, an ongoing DOD effort to trim its own expenses and waste that watchdogs have complained was hard to track and verify.
– by Kevin Baron, National Journal, February 13, 2012, at http://www.govexec.com/defense/2012/02/president-requests-more-disciplined-613-billion-defense-budget/41179/.
Contractors respond warily to Pentagon vow to preserve industrial base
February 14, 2012 by cs
Just days before the expected Feb. 13, 2012 release of President Obama’s fiscal 2013 budget, the Defense Department’s top weapons buyer sought to reassure nervous contractors that the White House will protect vital industries even as it implements major cuts in procurement and personnel spending.
Frank Kendall, acting undersecretary of Defense for acquisitions, technology and logistics, told a Monday (Jan. 6, 2012) forum at the Center for Strategic and International Studies his highest priorities include beefing up the federal acquisition workforce, strengthening the military industrial base, preserving technical superiority, and buying into only affordable and dependable programs.
He also suggested that the Pentagon might intervene to help key contractors that are struggling in the current economy. “When people see that there’s a supplier who is in trouble, or they’re in trouble themselves, they need to come let us know,” he said, according to an account in National Journal . “When they look out and see their business base eroding, or see that they’re not going to be viable for whatever reason, we need to know that. Then we can do assessments that look at whether we need to maintain competition there, whether it is a nice capability that we need to continue to support — how we might intervene.”
Fred Downey, vice president of national security at the Aerospace Industries Association, told Government Executive that “ongoing reductions in defense spending coupled with the threat of sequestration cuts are causing a great deal of concern among smaller companies in the supply chain. Many of these companies have unique capabilities that could be lost if their workflow is interrupted by cancellations and delays.” He added, “Kendall’s comments could lead to positive action to sustain critical small suppliers. We look forward to more discussion about how the Pentagon would go about executing such support.”
Alan Chvotkin, executive vice president and counsel of the Professional Services Council, which represents contractors, said the comments were “reassuring in that they demonstrate renewed attention at high levels. But a bailout, for lack of a better word, should not be counted on as a strategy by companies as the Pentagon takes steps to make sure the supply chain is not disrupted.”
Both the budget cuts now being prepared by Obama defense strategists and the additional reductions that could be mandated next year under the 2011 Budget Control Act have fueled concern about long-term dwindling of the nation’s defense-related industrial infrastructure.
House Armed Services Committee Chairman Howard “Buck” McKeon, R-Calif., sounded the alarm in January after the Pentagon released its latest strategic guidance. A fact sheet his committee released warned that “industry cannot be turned on and off like a light switch [and] requires a steady, enduring partnership that allows for innovation, expertise and growth.”
It said the Pentagon’s planned cuts would result in delays or a shutdown of production lines that would cost highly skilled manufacturing jobs.
Two defense analysts who spoke to reporters Wednesday at the Center for Strategic and Budgetary Assessments expressed similar worries. “The industrial base is not like Wal-Mart, where you can count on things being on the shelves when you walk in,” said Andrew Krepinevich, CSBA’s president. “The industrial base is a strategic asset, a weapon” that imposes enormous planning problems on potential enemies, he added, noting the British allowed their air and maritime industrial base to decline in the 1930s and again in the 1990s. “These companies trade on Wall Street, and eventually the money will go somewhere else.”
Todd Harrison, a senior fellow in budget studies at CSBA, said the number of prime defense contractors has shrunk from about 30 in the 1990s to five or so today, creating a near-monopoly in the industry. He predicted that severe cuts would prompt some companies to “get out of the defense business or consolidate, and you may see a reduction in capacity, in the number of factories.”
Kendall stressed the importance of leadership to create a cost-conscious acquisition workforce. But both defense analysts said they were skeptical that the Pentagon will succeed in its goals of achieving $60 billion over 10 years in savings through “efficiencies” in areas such as operations and maintenance. “It’s long been tried, but they don’t end up getting anywhere near what they’d hope for,” Krepinevich said.
The Pentagon’s initiative to insource more contractor work and build up the acquisition workforce, Harrison said, was a priority of former Defense Secretary Robert Gates, and might well become unworkable because of coming budget cuts. “We’re likely to see significant reductions in the DoD civilian workforce,” he said. “It’s hard to bring contractor expertise in-house when contractors have higher paying jobs.”
– y Charles S. Clark, Government Executive, February 8, 2012 at http://www.govexec.com/contracting/2012/02/contractors-respond-warily-pentagon-vow-preserve-industrial-base/41138
Budget preview hits Defense contractors on weapons and management
January 31, 2012 by cs
Defense budget cuts previewed Thursday, Jan. 26, 2011 would affect contractors in two ways: in the coming alterations to major weapons systems and the intensified search for greater efficiencies in Pentagon management.
Defense Secretary Leon Panetta planned to retire aging C5A and C130 transport aircraft while preserving adequate airlift capability. He would trim six tactical air squadrons from the current lineup of 60, and the Navy would retire seven older cruisers and two amphibious ships early. He would delay the next generation of ballistic missile submarines by two years, and he would “make adjustments” to the long-controversial Joint Strike Fighter aircraft, “slowing procurement to complete more testing and to develop changes before we buy in great quantities,” he said.
Programs left largely intact, he said, would be the Navy’s carrier air wings, the next generation of bombers and the aerial refueling tanker.
In a move likely to have the most direct effect on the acquisition community, Panetta said he would look to save $60 billion over five years by “improving business practices across the department.” That would include “more aggressive and competitive contacting practices and reductions in contract services.”
Further savings might be found, according to a Pentagon fact sheet, in better use of information technology, better use of business and enterprise systems, streamlined staff, limitations on official travel, improved inventory management and deferral of some military construction.
Asked whether such efforts in the past have proved fruitful, Panetta said his predecessor, Robert Gates, “had made some progress with regard to going after duplication, overhead and waste, and tightening up on systems. This is a very big bureaucracy,” Panetta said.
He emphasized that a key element of the guidance released earlier this month is “protecting key investments to retain a decisive technological edge,” which includes scientific programs in such areas as cyberwarfare, unmanned aircraft and homeland missiles. That means “maintaining the vitality of a healthy industrial base,” he added, “and avoiding imposing unacceptable risks on our critical suppliers.”
None of the actions comes as a surprise, said Stan Soloway, president and chief executive officer of the Professional Services Council, a contractors trade group. “They’ve long been signaling a need to drive more efficiency into the system, and you can only take so much out of each area,” he said. “The force structure reductions are going to happen, but it will take a while to achieve savings.”
He said people may look more carefully at the proposed new round of BRAC cuts. “We know it requires an up-front investment and takes several years to realize the savings, so it’s not impactful in the near term,” he said.
Marion C. Blakey, president and CEO of Aerospace Industries Association, asked how the Defense cuts will affect national security. “These cuts will have real consequences on our military and industrial base,” Blakey said.
– by Charles S. Clark – cclark@govexec.com – January 26, 2012 – http://www.govexec.com/story_page.cfm?articleid=49871&dcn=e_gvet