By Carlo Munoz
With defense budgets expected to experience little to no growth over the next several years, defense industry firms must adjust their business practices in the same manner as their Pentagon counterparts to survive, according to DoD acquisition chief Ashton Carter.
The Defense Department has entered “a new era” in defense procurement, according to Carter. An era, he added, that is hallmarked by “modest” growth in base defense budgets. But that modest growth pales in comparison to the double-digit growth in defense spending levels experienced at DoD just after 9/11, he noted during a Aviation Week-sponsored event in Washington yesterday.
To work within that stringent budget environment, DoD canceled roughly $300 billion in existing procurement programs over the past two years, and has also completed an ambitious cost efficiencies plan designed to save an addtional $100 billion over the next five years, Carter said.
What was left in the procurement portfolio after the implementation of those cost-saving efforts were programs “we do need [and] we do want,” according to Carter. Those budgetary moves, he added, “were fundamental adjustments we had to make” to maintain the necessary level of warfighting capability under declining spending levels.
That said, the DoD acquisition chief told conference attendees that members of the defense industrial base had to make the same types of adjustments to keep pace.
One of those adjustments, he suggested, is that defense industry firms needed to align their business practices closer to the traditional market forces that govern other commercial business sectors. Disregard and at times outright ignorance of these forces by elements of the industrial base has led to poor risk management and behaviors focused on short-term gains.
By recommitting to those market principles that govern other commercial business sectors, defense firms would be in a better position to develop into a “technologically vibrant…financially strong” industry base focused on long-term benefits.
To that end, DoD is in the midst of a sector-by-sector analysis of all elements within the defense industrial base to evaluate what can be done, on the department’s end, to get defense firms to hit that goal.
The survey is being led by Carter, Deputy Defense Secretary William Lynn, and defense industrial policy director Brett Lambert.
The survey is vital to the Pentagon’s efficiencies initiative–which is intended to wring savings out of the Defense Department during the federal fiscal crunch–as military contractors adjust in response to the current “inflection point” in defense spending, Lynn said during a Jan. 30 gathering of the Professional Services Council (PSC) trade group (Defense Daily, Feb. 8)
While the survey will provide the department with valuable information on the overall status of the defense industry, the effort was not just another budget drill or study, Carter said. The survey’s findings are “action oriented” and will have implications in acquisition policy formulation, he said.
Further, the policy decisions based on the survey’s findings will not be designed to support sectors of the indsutrial base that are oversized or inefficient, Carter said. But those sectors and specific companies that do make the difficult decisions to reform their business practices to adapt to the changing budget environment, DoD acquisition policy “will take an interest in keeping [them] that way,” Carter added.