If the Pentagon were viewed as a for-profit corporation, the current cash burn rate would equal about 1.8 billion U.S. dollars a day. That amounts to roughly 75 million U.S. dollars per hour or 1.2 million U.S dollars per minute.
Where is all this money going and how does it get to the organizations that receive it? The answer requires a situational analysis of the evolving military mission requirements of our forces as well as an exploration of the procurement vehicles used by defense contractors to obtain huge contracts from the Pentagon and related government agencies.
Where is all this money going and how does it get to the organizations that receive it?
Resource Allocation Load Balancing: Present and Future Missions
The Global war on Terrorism, Operation Enduring Freedom and Operation Iraqi Freedom has significantly changed the defense and security mission requirements of the United States. These events have had, and for the foreseeable future will continue to have, a major impact on the markets for military defense and advanced technology systems and services products. The U.S. Department of Defense (DoD) continues to focus on supporting ongoing military and regional stabilization operations while simultaneously transforming the military to confront future threats. The DoD has embraced a new ideology that values speed, precision, flexibility and superior knowledge acquisition and dissemination. The harmonization of these critical attributes will provide a capabilities platform from which forces can seize and sustain the initiative, project & concentrate combat power, while preventing nation and non-nation state enemies from responding.
The much publicized growth in military spending is being driven by the broadly defined approach required to fight the War on Terrorism, replenish war materials consumed during the prosecution of continued operations in Afghanistan & Iraq, while still pursuing the war fighting capacity transformation required to address current & future threat scenarios.
U.S. Air Force Master Sgt. Coco Gunther, with 1st Combat Camera Squadron, gives candy to an Iraqi girl during a combined cordon and search with Iraqi and U.S. Army Soldiers in Ameriyah, Iraq. The U.S. Soldiers are assigned to Bravo Company, 1st Battalion, 23rd Infantry Regiment, 3rd Stryker Brigade Combat Team, 2nd Infantry Division.
New Tools for New Missions
As a result of a variety of evolving geopolitical and asymmetrical warfare threat considerations, there are a number of critical mission areas that have become elevated within the DoD transformation goals hierarchy.
Homeland Security: Securing our borders, port facilities and key water, energy and food supply infrastructure is vital if our country is to maintain its high standard of living.
Missile Defense: Developing a layered system that will detect, identify and intercept all boost, mid-course and terminal phase ballistic missile threats initiated by the emerging growth of the “nuclear club” through the development of sensors, interceptors, command & control mechanisms, and systems integration.
Precision Engagement: The military is increasingly seeking mission solutions that provide the means to operate jointly across all service branches as well as with allied forces. This requires the deployment of a net-centric capability, the ability to minimize collateral damage (including friendly fire and non-combatants) while creating the ability to precision strike time-sensitive targets (ex; Tactical Tomahawk cruise missile).
From left, USS Higgins (DDG 76), USS Bonhomme Richard (LHD 6), USS Antietam (CG 54), USS Denver (LPD 9), USS O’Kane (DDG 77) and USS John C. Stennis (CVN 74) steam through the Gulf of Oman. The ships are part of three different strike groups, the John C. Stennis Carrier Strike Group, Nimitz Carrier Strike Group and the Bonhomme Richard Expeditionary Strike Group, that are on regularly scheduled deployments in support of maritime security operations. DoD photo by Mass Communication Specialist 1st Class Denny Cantrell.
Government Contracts: Show Me The Money
There are a few key sources of the spending to support these initiatives that include the DoD Research, Development Test & Evaluation (RDT&E) budget as well as the DoD Procurement budget. Additional significant funding is allocated to the Future Years Defense Program budget and the President’s budget submissions to congress to provide supplemental funding to support ongoing operations, primarily in the Middle East region at the direction of United States Central Command (CENTCOM).
The U.S. and foreign military industrial complex is well positioned as a result of the prolonged demand for mission solutions by the DoD. The most lucrative arrangement is to act as prime contractor or a major subcontractor for DoD programs that involve the development and production of new or improved electronic systems or major components of such systems. Over its lifetime, the award of many different individual contracts and subcontracts may implement a program. The funding of DoD programs is almost always subject to congressional appropriations. Although multi-year contracts may be authorized in connection with large scale and prolonged procurement programs, Congress usually appropriates funds on a fiscal year basis even though the program may continue for many years. As a result, programs are often only partially funded initially, and additional funds are committed only when Congress makes additional appropriations. The DoD is required to adjust a contract price for additions or reductions in the scope of the program or other changes that are required.
Usually, DoD contracts are subject to oversight audits by government representatives and include provisions allowing for the termination, in whole or in part, of a program. Payment is made to the contractor(s) for profit on the work performed.
DoD contracts are created under a number of structures including cost reimbursement and fixed prime price contracts and subcontracts.
Cost Reimbursement Contracts
Cost reimbursement contracts provide for the reimbursement of allowable costs plus the payment of a fee. These contracts fall into three basic types:
Cost Plus Fixed fee contracts which provide for the payment of a fixed fee irrespective of the final cost of performance.
Cost Plus Incentive fee contracts, which provide for increases or decreases in the fee, within specified limits and based upon actual results as compared to contractual targets relating to such factors as cost, performance and delivery schedule.
Cost Plus Award fee contracts which provide for the payment of an award fee determined at the discretion of the customer based upon the performance of the contractor against pre-established criteria. Under cost reimbursement type contracts, a contractor is reimbursed periodically for allowable costs and is paid a portion of the fee based on progress made against contract performance milestones.
Fixed Price Contracts
Fixed price contracts are either firm fixed price contracts or fixed price incentive contracts. With firm fixed-price contract, the contractor agrees to perform a specific scope of work for a fixed price and as a result, benefits from any cost savings as well as carries the cost-burden of any overruns. Under fixed-price incentive contracts, the contractor shares with the DoD savings accrued from contracts performed for less than the target costs and costs incurred in excess of targets up to a negotiated ceiling price (a price higher than the target cost) and carries the entire burden of costs exceeding the negotiated ceiling price.
Regulations & Statutes
Under most contracts, contractors are required to maintain facility and personnel security clearances that comply with DoD requirements. Clearance levels include unclassified, classified, secret and top secret for all but the blackest of contract work performed. Additional requirements mandated by statutes include procurement integrity, export control, employment practices, environmental protection, accuracy of records and recording of costs (amongst others).
Security clearance levels include unclassified, classified, secret and top secret for all but the blackest of contract work performed.
Additionally, US Government agencies such as the Defense Contract Audit Agency (DCCA) routinely audit and investigate DoD contractors to review performance, cost structure and compliance factors. The DCCA also reviews the adequacy of, and a contractor’s compliance with, its internal control systems and policies including a contractors purchasing, property, estimating, compensation, and management information systems. Audits that reveal improper or illegal activity will hold the contractor subject to civil and criminal penalties, administrative sanctions including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with the U.S. Government. In an instance where this occurs, the contractors’ reputation and brand equity could be irreparably damaged, incurring soft-dollar expenses that far exceed any fees or penalties.
Anyone With An Unbiased Expert Opinion?
There is an enormous burden borne by members of congress and the logic process behind their defense spending appropriations. The number of real factors and potential variables involved is nearly incomprehensible, as are the consequences for our nation that result from poor or misguided decision making.
U.S. Army Soldiers practice room-clearing procedures during military operations in an urban terrain training at Fort Dix, N.J. The soldiers are assigned to Headquarters Company, 58th Infantry Brigade Combat Team. DoD photo by Staff Sgt. Jon Soucy.
Some members of Congress are pushing to re-establish the Office of Technology Assessment (OTA) to provide expert advice relating to “the science of war” and national security issues. Leading the effort is Delaware Republican Michael Castle and New Jersey Democrat Rush Holt. If restored to its former mission as originally created under the Nixon administration, the OTA would “raise the level of technical discussion on Capital Hill about technological issues. OTA would help us avoid the kinds of expensive mistakes and omissions we have made in the decade without it”.
If successful in doing so, bringing back the OTA would coincide with the timing of the new Congress of Democratic majority that is evaluating the need for major defense acquisition programs including the air superiority fighter, future combat system and the ambitions of the missile defense agency at a time when our country is faced with the need to create mission solutions for present and future asymmetrical threats.
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