In Hard Truth, New Opportunity

Changing times call for Army and industrial base to collaborate on solutions

 

From The Army Acquisition Executive
The Honorable Heidi Shyu

 

As we enter a new calendar year, the Army faces challenges of an evolving fiscal reality and the transition from wartime production to peacetime requirements. The Army and its industrial base must work together to address these issues head-on. The hard truth—sustaining readiness in this fiscally constrained environment—necessarily means fewer investments in the future. Budget uncertainty complicates the procurement landscape, but communication and cooperation will allow the Army and industrial base to meet our respective goals.

Defense spending is projected to make up only 12 percent of the federal budget in FY17, down from 17 percent in FY13. Those numbers are a world away from the 49 percent of the federal budget consumed by defense during the 1960s. At the same time, the budget for research, development and acquisition (RDA) is declining faster than the overall defense budget.

Nothing highlights this more concretely than the Army’s total obligation authority (TOA) for FY14, which, at $129.7 billion, is 15 percent lower than the FY12 Army TOA of $152.6 billion. Compare this to the FY14 Army RDA budget of $23.95 billion, which is down an amazing 28 percent from the FY12 RDA budget of $33.2 billion. A Nov 28, 2013, article in The Washington Post profiled members of the West Point Class of 2014 and gave a compelling description of the challenge. A 22-year-old cadet wisely noted that the key question is not how to do more with less, but how to determine “what we’re going to do and what we’re going to do well.” In other words: What’s going to be good enough?

Procurement budgets naturally contract after a war. The end of the Cold War saw a wave of consolidation, mergers and acquisitions in the commercial base. Although industry consolidation reduced duplication and redundancy, it also resulted in many of today’s critical defense assets being manufactured by only a limited number of firms. As the U.S. manufacturing sector has decreased overall, defense manufacturing has taken on a greater significance for remaining firms. But while there are fewer large players than in previous drawdowns, there has been a proliferation of small businesses working as subcontractors—providing engineering services, doing research and development, and manufacturing specialized components.

Today’s industrial base includes a large population of highly skilled technical and knowledge workers, many of them employed by specialized third- and fourth-tier subcontractors. Keeping these skilled employees within the industrial base has the added benefit of enhancing support for the Army’s small business partners. The rapid decline in our RDA budget creates significant challenges for small companies that must diversify quickly, but the Army has met its 25 percent small business goal for the past three years. This helps small businesses continue to innovate and deliver products and services to our warfighters.

It is just as important to note the opportunities created by the coming drawdown. The Army and industry can begin a new level of dialogue around modernization, which technologies best meet national security needs and how to integrate new technologies into existing infrastructure. Although the organic and commercial industrial base sectors are often discussed as distinct communities, public-private partnership at Army depots and essential facilities is a potential core strategy to ensure that parts and materials are available to sustain platforms and equipment at appropriate readiness levels.

As the Army assesses and identifies capabilities and competencies at its depots and arsenals, the commercial base is a vital stakeholder. The commercial base, in particular, is well-positioned to help the Army better use commercial off-the-shelf products and production techniques that can yield new efficiencies and increase the buying power of the defense dollar.

Consider an example from Program Executive Office Ammunition: Staff implemented a long-term strategy for recurring procurement of artillery and mortar components. A $2.7 billion small business set-aside strategy eliminated the need for more than 100 separate market surveys, synopses and requests for proposals, and reduced average delivery time from 18-24 months to 45-60 days. This efficient new procurement strategy will help the Army avoid $60 million in costs while supporting small business.

Multiyear procurement (MYP) is another proven strategy for lowering cost to the taxpayer while reducing financial uncertainty for industry. The CH-47 Chinook MYP has saved taxpayers nearly $500 million to date while enhancing the environment for sharing lessons learned between the Army and industry, and incentivizing quality assurance.

As President Ronald Reagan observed, “no weapon in the arsenals of the world is so formidable as the will and moral courage of free men and women.” We remain committed to providing the best equipment to the warfighter at the best value for the taxpayer. Painful choices will have to be made on force structure, readiness and modernization. The Army’s desired end goal is to meet the nation’s and world’s security needs while we invest in emerging technologies to develop the next generation of capabilities.