Tag Archives: defense spending

Top 5 Things To Watch In 2021 Defense Budget Hearings



“Military and civilian defense leaders will testify to lawmakers about the Defense Department’s $705 billion budget request for 2021. Here’s what to expect.


Defense Dollars for Immigration…Again

The Pentagon’s budget has stopped growing for the first time in this administration (excluding disaster-relief funding). Lawmakers are still processing the many tradeoffs produced by this belt-tightening. Few were expecting the administration once again to attempt to divert defense funds to border-barrier construction. Last year, Washington’s impasse over “more wall” led to a government shutdown. Ultimately, the president got most of what he wanted. 

HASC Chairman Adam Smith said it best: “If you can just grab $7 billion out of your budget, then I think we need to take a closer look at your budget and how to cut it.” 

The Defense Department cannot spend the money it currently has, so Congress rightly will want more details.

Divesting to Invest in the Defense Strategy

Defense Secretary Mark Esper is animated by his efficiency reviews to plow more funds into the defense strategy. Congress is generally supportive of the concept but often dissatisfied when the individual consequences become real. 

Nowhere is this truer than in shipbuilding and the retirement of existing aircraft. The Air Force has proposed expansive retirements of geriatric aircraft that strain tight budgets with increasing maintenance costs. Yet Congress has responded poorly to similar plans in the past, as former Air Force Secretary Deborah Lee James recently reiterated. “No member of Congress wants to lose, or stand by and silently lose, a fleet of aircraft or a capability from their state or district, which, of course, translates to jobs,” she said. 

The Navy faces a similarly steep charge. Despite commitment to a 355-ship fleet, the latest budget cuts Navy’s shipbuilding. Leaders have warned that the new nuclear submarine would eat into shipbuilding for years. But the Navy has also diverged from last year’s 30-year plan in other ways, cutting planned purchases of attack subs, littoral combat ships, and other programs. 

Again, rumblings have already started in Congress. Chair of the Seapower Subcommittee, Rep. Joe Courtney, D-Conn., held no punches: “The President’s shipbuilding budget is not a 355-ship Navy budget…I can say with complete certainty that, like so much of the rest of the President’s budget, it is dead on arrival.” 

Nuclear Weapons Bill is Big and Getting Bigger

Modernization of the aging nuclear triad has been repeatedly put off by administrations of both parties. The ability to continue extending the service lives of these strategic platforms has essentially run out. The bills are due, and they are large. 

In order to modernize bombers, boomers and ballistic missiles, the Pentagon had to cut other priority procurement to pay for it. One headline earlier this month summed up the difficult tradeoffs: “The U.S. Navy wants more ships but can’t afford them, admiral says.” The Navy’s unfunded priorities list reads like a casualty list of all the programs sacrificed for the new Columbia-class missile subs.

Nuclear forces upgrades alone will cost a half-trillion dollars over the next decade. The tradeoffs only get tougher next year and the year after that.

Space Force Quickly Becoming a Bureaucracy 

The sixth branch of the armed forces is quickly standing up and learning the ways of Washington. The Space Force might not have a headquarters yet, but it did have an unfunded requirements list totaling $1 billion

Lt. Gen. David Thompson, vice commander of the U.S. Space Force reiterated the challenges ahead, saying, “Since the creation of the Space Force I’ve gotten questions from people along the lines of ‘So we’ve created the Space Force, but what is it going to do?’”

Over the next year, the new service must rapidly establish the bureaucratic structures it requires to sustain itself. Among various other charges, this means training personnel, deciding where talent will be pulled from, and launching their recruitment pipeline. Congress must be reassured the new service is progressing on schedule, while simultaneously avoiding the temptation to recreate old processes that will fail to serve this unique domain. 

Iran, Afghanistan, North Korea and Terrorists

There is much disruption in this year’s defense budget as officials try to instill “irreversible” momentum toward implementation of the defense strategy. But policymakers have seen reality continue to mug the military the past year with repeated flare-ups in regions where the Pentagon would like to shed mission. 

Just weeks ago, Rep. Mac Thornberry, R-Texas, warned that “the Middle East is never going to let you pivot away from it.” After a challenging start to 2020, military brass will be pressed to justify their regional decisions. For example, the Army plans to draw down both counter-ISIS fund and Afghanistan security forces funds. It also intends to reduce the European Deterrence Initiative for the second year. 

As policymakers and service chiefs prepare for a long season of posture hearings, it’s clear the military has made hard choices. Congress must now live up to its end of the bargain to accept some political pain for great(er) power competition gain.”


Traditional Defense Contractors Grow As Technology Providers

Image: “Nona Today


The Pentagon is now buying technology instead of making its own.

The Department of Defense used to fund much of the basic defense tech research and development in-house. Now, the private sector fills that void with innovation fast outpacing what the government can produce.


“Defense industry? You must mean the defense technology industry.

A new analysis of top government contractors from Bloomberg Government shows that technology was one of the biggest drivers of growth in the defense sector in fiscal 2018. It follows trends of recent years in both government contracting and global economics with tech being a leader in growth.

“Across the board, technology plays a greater role; but technology has always played a role in defense,” said David Berteau, president of the Professional Services Council, a government contractor trade group.

Bloomberg’s report analyzed and ranked the top 200 contractors in terms of unclassified contracts won across the government. Top contractors Lockheed Martin and Boeing, whose biggest market is defense systems, offer technology services as a part of their delivery of traditional aerospace and security products to the Pentagon. General Dynamics ranks third in overall government contract money, and its IT arm alone took in $3 billion last year. Technology, both in terms of services and equipment, grew by $8.3 billion, taking an $82.3 billion slice from the $559 billion overall contracting pie, according to the report.

The report did not distinguish defense-specific IT contracts from civilian ones, but it stated top IT contractors generated most of their income from defense contracts. The biggest growth in federal technology equipment came from defense giants Raytheon, Lockheed Martin and Northrop Grumman. Together the three companies generated $6.2 billion in federal technology obligations.

Old contractors turning a new leaf

Bell, a longtime manufacturer of helicopters and aircraft, is an example of this pivot of traditional defense contractors to provide technology hardware and services. The company now sees itself as a technology company that is a part of a technology-driven industry, its CEO, Mitch Snyder, said at a Center for Security and International Studies event last week. Bell even rebranded itself, trimming its name from “Bell Helicopter.”

Snyder said Bell is partnering with “Silicon Valley-type companies” to test and develop the use of AI in their aerospace products. The company is also developing an in-house core team that is focused on getting its products to be autonomy-first.

“The technology that we are using and the speed in which we are going, that is why we believe we are a technology company,” Snyder said.

Modernization is the name of the game

Beyond traditionally machine-focused companies embracing emerging tech, the big boom is in IT modernization contracts, according to the Bloomberg report. Billions of dollars have been poured into technology companies working on cloud modernization and legacy system maintenance, a trend that Bloomberg projects will continue.

The $10 billion dollar JEDI contract is a prime example of the demand. Other modernization contracts, like the DOD and VA joint venture with Cerner Millennium to develop modern, interoperable electronic health records, follow that trend as well.

“[T]ech spending included a $4.7 billion increase for services as agencies continued investing in modernization efforts to replace legacy systems,” the report states.

AI and machine learning are also on the Pentagon’s radar and prime technologies that could add to the technology spending push. Leaders at the top level of the Pentagon have said they are laser-focused on AI as a top technology priority.”

China’s Defense Industry Barges Into Global Spotlight

Chinese DF-15B Short-Ranged Ballistic Missile (SRBM) during PLA Rocket Force exercise.


“A whopping six Chinese companies have stormed into the top 15 global defense firms according to a new report by Defense News, which released its annual Top 100 list of the biggest defense companies in the world. 

The burgeoning Chinese defense industry has blown past the majority of its US counterparts while leaving virtually all of Europe in the dust, according to a new study of the global defense market.”


“The top Chinese company on the list, Aviation Industry Corporation of China, boasts an estimated revenue from defense sales of $24 billion, pushing past traditional US defense giants General Dynamics and BAE Systems. The company has also inched within roughly a billion in revenue of fellow behemoths, Raytheon and Northrop Grumman, both of which pulled in just over $25 billion in 2018.  

Two other Chinese companies, China North Industries Group Corporation Limited, and the China Aerospace Science and Industry Corporation, made the top 10.

Pentagon officials have long bemoaned the Chinese government’s ability to order industry to respond quickly — and completely — to its demands. The new report shines a spotlight on the gravity of those complaints while shining a spotlight on secretive Chinese defense industry. 

During his recent nomination hearing to become the next chairman of the Joint Chiefs, Gen. Mark Milley said when it comes to military technology and doctrine, “China went to school on us,” telling the Senate Armed Services Committee, “they watched us very closely in the First Gulf War, the Second Gulf War. They watched our capabilities. And in many many ways, they have mimicked those, and they have adopted many of the doctrines and organizations.”

Some of the huge technological strides Beijing has made recently come as the result of rules that require foreign companies to share their technological expertise in exchange for access to China’s vast market. Using those technologies, combined with a willingness to spend, has allowed Chinese defense companies to grow at an astounding rate.

A Defense Intelligence Agency report released in January said that this state of affairs isn’t likely to change any time soon: “China has the political will and fiscal strength to sustain a steady increase in defense spending during the next decade, which will help support PLA modernization, develop an integrated military-civilian defense industry, and explore new technologies with defense applications,” the report concludes.

Given the poor transparency rules governing Chinese companies and China’s poor record of disclosing defense spending these companies could well be much larger than estimated. “

Boeing And The Art Of Capitalism



Boeing and Capitalism Plane

Boeing-Saab’s T-X trainer design won the Air Force’s T-X competition in September 2018. (John Parker/Boeing)


“Is fair competition achieved when one company has more cards to play than others and therefore walks away the winner? It doesn’t leave a clear path to victory for smaller competitors, particularly international ones that are inevitably at a disadvantage from the start.

Even a giant like Lockheed Martin, which has more than double the defense revenue of Boeing, has less than half the free cash flow.”

Boeing and Capitalism graphic

Image:  Seeking Alpha.com

“It’s been about a month since the U.S. Air Force’s T-X trainer contract was awarded, providing plenty of time for industry and media alike to chew over the decision.

A lot of the conversations I had started out pretty much the same: “Were you surprised?”

I’m not one to place bets on major defense programs, but, yes, I was surprised.

And I was in good company. As the only firm offering a clean-sheet design, with no track record and presumably a whole lot of development and manufacturing costs ahead of it, a lot of people I spoke to saw Boeing as a long shot.

And yet the company won the $9.2 billion contract to produce 351 jets. Moreover, they won on price. And it’s not the only thing Boeing won: there was also the $2.4 billion UN-1N Huey replacement, and the Navy’s $805 million MQ-25 aerial fueling drone contract.

So why Boeing?

First, one could argue that Lockheed Martin might have been pressed by the Air Force to compete for the trainer but did not actually want to win. Not enough to really go bold, anyway. The company has a pretty demanding portfolio already.

Notably, Lockheed Martin CEO Marillyn Hewson said that matching the winning prices for Boeing’s trifecta of wins would have led to cumulative losses across all three programs in excess of $5 billion, “an outcome that we do not feel would have been in the best interest of our stockholders or our customers.”

Why would it be all that different for Boeing?

It won’t be, necessarily. Chances are that Boeing knows full well that it will see losses. It already has — announcing $691 million of new third-quarter charges for winning the contracts. But even billions in charges is palatable for a company that last quarter alone saw free cash flow surge 37 percent to $4.1 billion, and that number is expected to climb to $13 billion or more for the year.

That is the fundamental advantage of having a commercial business. Boeing has shown what appears to be the strategy for this program: Ride the wave, borrow from one business to offset losses in the other, keep the St. Louis plant humming and eventually see a major return, particularly when other buyers emerge. (Beyond international sales for T-X, Richard Aboulafia of Teal Group pointed to a few dozen planes procured for U.S. “red air” adversary training, and the prospect of a navalized T-X variant one day replacing the Navy’s T-45 carrier-based trainer, which could be good for 200 more.)

Obviously there’s risk involved. Boeing is counting on future opportunities to more than offset any overages it swallows. The commercial business may be booming, but that’s still a gamble, albeit a relatively safe one. In the meantime, though, Wall Street is pleased, particularly after losses of the Joint Strike Fighter program and Long Range Strike Bomber left some questioning Boeing’s future in combat aircraft manufacturing. This keeps the company squarely in the game.

It’s also an advantage that benefits the Department of Defense and the taxpayer. Looking at the trainer specifically, the Air Force is ultimately getting a more advanced aircraft, built to order, so to speak, for a deep discount. Cost overruns will happen, but the Pentagon won’t be on the hook for them. Perhaps it could bring some added oversight from congressional watchdogs, but that’s a small price to pay. This is a good deal.

But is that ultimately how the procurement game is meant to be played? Is fair competition achieved when one company has more cards to play than others and therefore walks away the winner? It doesn’t leave a clear path to victory for smaller competitors, particularly international ones that are inevitably at a disadvantage from the start. Even a giant like Lockheed Martin, which has more than double the defense revenue of Boeing, has less than half the free cash flow.


Congress is Afraid to be Responsible for Our Current Wars



“In the next few weeks Congress will debate and approve legislation to authorize and appropriate over $1 trillion in national security spending.  That debate should include authorization for our current wars.

But yet again leadership proved its cowardice when it comes to its constitutional responsibility to declare wars, and to be held accountable for those wars, by using a procedural trick to block an up-or-down vote to authorize them.

The 2001 AUMF authorized the use of force in response to the September 11 attacks, but has since been twisted to cover a number of conflicts that have little to no connection to those attacks.

Last month Representative Barbara Lee (D-CA) offered an amendment to the House Appropriations bill to repeal the 2001 Authorization for the Use of Military Force—referred to as the AUMF. The amendment would have repealed the 2001 AUMF 240 days after the appropriations bill went into effect, which Lee hoped would force Congress to vote on a new AUMF to reflect our current wars.

The Congressional Research Service found that the AUMF has been used to allow deploying and directing forces, or to engage in other actions, in Afghanistan, the Philippines, Georgia, Yemen, Djibouti, Kenya, Ethiopia, Eritrea, Iraq, and Somalia. Lee, along with Representative Justin Amash (R-MI) and 53 other colleagues in the House, and Senators Jeff Flake (R-AZ) and Tim Kaine (D-VA) in the Senate, have spent years trying to get Congress to vote on a new AUMF to reflect our current commitments without success.

The Lee amendment was a brief moment of progress, surprisingly passing in the committee on a bipartisan vote. Representatives Chris Stewart (R-UT) and Scott Taylor (R-VA), both military veterans themselves, criticized Congress’s inaction on debating and approving a new AUMF. But that progress has been halted for now by the House Rules committee—which proudly touts itself as the “Speaker’s Committee” because it’s the Speaker’s way of controlling the House Floor—which stripped the language from the bill in the dead of night before it could get to the Floor for a vote. The Rules Committee  replaced it with language Representative Tom Cole (R-OK) had added to a different defense authorization bill; that language required a report and budgetary analysis from the President on how to defeat Al-Qaeda, the Taliban, and the Islamic State, including an analysis of whether the current AUMF is sufficient to accomplish that strategy. While this language is an important step forward, it stops far short of Congress actually doing its job and voting—and thus being accountable—for our current wars. Cole himself supported the language offered by Lee.

Speaker Paul Ryan (R-WI) told Real Clear Politics it was “a mistake” that the amendment had passed and that an appropriations bill was the wrong vehicle for debating the issue. But it appears there’s never going to be a right vehicle. The Speaker and his Republican and Democratic predecessors, through the Rules committee, have repeatedly blocked votes on this issue on defense authorization bills—a pretty natural vehicle for the debate. They have not allowed standalone legislation to be considered, either.”

Congress is truly broken if they think they can absolve themselves of responsibility for our war efforts. Large Pentagon budgets don’t show support for the troops so much as they do for defense contractors and campaign donors. Real support for our troops would be Congress giving serious consideration to where and why we send our men and women into harm’s way, and then having the guts to vote for it on the record.”











Why Defense Program Estimates Fail




Replacing aging Ohio-class nuclear missile submarines could cost so much it busts the Navy budget. But how much? That gets complicated. The media’s been saying $128 billion. The Navy would prefer we say $100 billion.

Both figures are right. The difference is inflation.

Last Wednesday, when Pentagon procurement chief Frank Kendall gave the go-ahead to start detailed design & engineering work (aka “Milestone B”) of the new Columbia-class submarine, we reported the cost would be “over $125 billion.”  But this morning, when the Navy officially announced the Milestone B approval decision, it took the unusual step of prefacing the pro forma announcement with a short lesson on proper costing.

“The total acquisition cost of the COLUMBIA Class program is $100B in CY17$ (calendar year 2017 dollars),” wrote Capt. Thurraya Kent, a Navy spokeswoman. “Media report total acquisition cost as $128B. That figure is accurate but in TY$ (then-year dollars) so please ensure you specify for accuracy purposes.”

In other words, the program would cost $100 billion if you could somehow buy all of it today, paying 2017 prices. It costs $128 billion once you factor in future inflation. But inflation adds up dramatically for a program that started R&D (“Milestone A”) in 2011, delivers its first submarine in 2021, delivers the last boat in 2033, and then keeps the last sub in service through 2080. Predicting inflation over so many decades is invariably a matter of guesswork, and it’s especially hard in shipbuilding, which suffers inflation at a higher rate than the economy as a whole. And of course inflation-adjusted figures are larger, so they induce more sticker shock: The F-35 Joint Strike Fighter took heavy flak in 2011 after one estimate, in inflated future dollars, suggested it would cost over $1 trillion.

No wonder, then, the Pentagon would prefer to use today’s dollars, whose value we actually know for sure. But rather than update program estimates every single year — which would be the most accurate and intelligible way to convey the real cost to laymen — the Defense Department pegs each program’s estimated cost to a specific “baseline” year, typically the year of the Milestone B decision. Since different programs have different baseline years, and the dollar is worth (slightly) less every year, that means different programs are measured in dollars of different values. That practice makes an apples-to-apples comparison almost impossible — even if the estimates are accurate.

“It is standard practice and policy to align baseline dollars for the program’s Acquisition Program Baseline (APB) with the year of the milestone review. Accordingly, the cost estimates have been adjusted to Base Year 2017 (MS B),” Kent wrote. “The Acquisition (Decision) Memorandum is not releasable.”

Kendall’s Acquisition Decision Memorandum may not be releasable but it is leakable, and a copy is appended to this article. Incidentally, it estimates the overall cost of the program in then-year dollars, i.e. adjusted for future inflation. The total? $128 billion.”

OHIO Replacement Program Milestone B Acquisition Decision Memorandum by BreakingDefense on Scribd”




Hamstrung Again By the One Year Budget Cycle


Once again, the US Government one year budget cycle is playing havoc with your tax dollar.


“Rather than addressing the looming budget caps that will snap back in January, the fiscal 2016 budget resolution the Senate passed Tuesday on a party-line vote uses the Pentagon’s Overseas Contingency Operations Fund (OCO) — a war chest not subject to the caps — to simply go around them.

The budget conference report sets about $523 billion for national defense, plus roughly $90 billion for OCO, for a total of $613 billion. Defense Secretary Carter called it a road to nowhere and stated. “We think that the amount of money we have requested and the manner in which we have requested it meets the national security strategy of the United States.” He continued, “We need to get a longer horizon…You cannot do defense or national security with a one-year-at-a-time approach.”


The One Year Budget Cycle Must Go

By Ken Larson

White Elephant

Photo Courtesy “Dabble With” dot com

Having  dealt with the funding process in the government contracting industry  (both large and small business) for over 40 years through many  administrations and much frustration, I can discuss with some credibility a major weakness in the huge machine we call the US  Federal  Government — the one year budget cycle. Its tail end is whipping everybody.

A huge reason for much of the largess in this entire area is the one year budget cycle in which the US Government is entrenched. About mid-summer every agency begins to get paranoid about whether or not they have spent all their money, worried about having to return some and be cut back the next year. They flood the market with sources sought notifications and open solicitations to get the money committed. Many of these projects are meaningless. Then during the last fiscal month (September) proposals are stacked up all over the place and everything is bottle-necked.

If you are a small business trying to get the paperwork processed and be under contract before the new fiscal year starts you are facing a major challenge. Surely the one year cycle has become a ludicrous exercise we can no longer afford and our government is choking on it. It is a political monstrosity that occurs too frequently to be managed.

Government must lay out a formal baseline over multiple years (I suggest at least 2 fiscal years – ideally 4 – tied to a presidential election)  – then fund in accordance with it and hold some principals in the agencies funded accountable by controlling their spending incrementally – not once year in a panic mode.

Naturally exigencies can occur. A management reserve can be set aside if events mandate scope changes in the baseline due to unforeseen circumstances. Congress could approve such baseline changes as they arise. There is a management technique for the above that DOD, NASA and the major agencies require by regulation in large government contracts.    It is called “Earned Value Management” and it came about as a result of some of the biggest White Elephant overruns in Defense Department History.


We have one of the biggest White Elephants ever in front of us (a National Debt in excess of $18Trillion)


We must get this mess under control, manage our finances and our debt or it will manage us into default.