DOD's budget: The newest contested environment

With two wars and the growing threat in cyberspace, the Defense Department has its share of contested environments. It is now coming to grips with a new one on the fiscal front: deciding which projects, products and services must be cut to achieve $100 billion in defense savings during the next five years.

Few could have been surprised when Defense Secretary Robert Gates laid out that objective in early June. The pressure to rein in federal spending and concurrent need to shift new resources to support warfighting efforts have been building for months.

However, the scope of the task came into starker view in late June when Ashton Carter, undersecretary of Defense for acquisition, technology and logistics, called on defense contractors to look at their practices and processes and help identify ways DOD can support a 2 percent to 3 percent net increase in funding for the wars without an overall increased in budgets.

Of the approximately $700 billion per year the department spends on the nation’s defense, $400 billion is spent on contracts issued to DOD suppliers. Carter said that $400 billion is divided about equally among products, services, facilities and transportation.

Carter’s plans include a fresh resolve to phase out award-fee or cost-plus contracts, favoring fixed-price contracts “in which government and industry share equally in cost overruns and underruns,” according to Carter’s memo to industry. Fixed-price contracts also would be favored over time-and-materials contracts.

Carter also outlined renewed commitments to strengthen the acquisition workforce, eliminate redundancy in warfighting portfolios, and work with industry to improve affordability and productivity, although the track record on past efforts is hardly encouraging.

Although the contracting community reacted with muted support, a strong undercurrent of uncertainty remains about how DOD will implement those changes. In addition, there are worries that narrowing the types of procurement vehicles DOD uses might limit the department’s flexibility. And there’s obvious concern over which projects and services will ultimately be deemed unproductive or redundant.

Gates has given DOD's agencies until July 31 to submit proposals on how they plan to shave $1 billion to $2 billion in spending for fiscal 2012 as part of his multiyear plan.

Yet given the financial challenges the government now faces, many see little choice but to curtail the growth in defense spending, which has grown by about 3 percent per year since 2001 and now represents about 4.9 percent of the gross domestic product.

Even congressional hawks are beginning to acknowledge that runaway federal spending and the United States’ mounting debts are becoming a national security issue in and of themselves.