Defense Budget and Financial Management

DoD’s Better Buying Power 3.0 emphasizes innovation and technical excellence

Wednesday, April 15th, 2015

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The Department of Defense (DoD) announced last week that Better Buying Power 3.0 is taking the next step in its efforts to improve the productivity, efficiency, and effectiveness of DoD’s acquisition and logistics and to achieve dominant capabilities.

Deputy Secretary Robert Work said at a press conference announcing BBP 3.0 that a major impetus for its implementation is “a steady erosion of our technological superiority that we have relied upon for so long in all of our defense strategies.” This is “one of the biggest issues facing our department and our nation,” he stressed. BBP 3.0 will provide “dominant capabilities to the warfighter to try to maintain that technological overmatch that we’ve always enjoyed and try to extend it if possible,” he said.

BBP 3.0 is the third iteration of DoD’s program to improve its acquisition process to get more from every acquisition dollar. BBP 1.0 (2010) stressed best practices and 2.0 (2013) emphasized critical thinking skills and better tools for the decision makers.

BBP 3.0 places a “stronger emphasis on innovation, technical excellence, and the quality of our products,” Frank Kendall, DoD’s Under Secretary for Acquisition, Technology, and Logistics said in a memo implementing BBP 3.0. The overarching theme is “Achieving Dominant Capabilities through Technical Excellence and Innovation,” he said.

There are eight focus areas for achieving dominant capabilities: Achieve affordable programs; Achieve dominant capabilities while controlling costs; Incentivize productivity in industry and government; Incentivize innovation in industry and government; Eliminate unproductive processes and bureaucracy; Promote effective competition; Improve tradecraft in acquisition of services; and Improve the professionalism of the acquisition workforce. Some of these areas are “core” initiatives from earlier versions, some are expanded, and some are new. These areas contains over 30 initiatives.

Within these areas, BBP 3.0 sets goals for new focus initiatives. To Institutionalize Stronger DOD Level Long Range Program Plans, the Deputy Assistance Secretary of Defense will lead the development of the Long Range Research and Development Program Plan (LRRDPP) by July 15, 2015. The LRRDPP explores and develops “new technologies and approaches to warfighting.”

Cybersecurity issues will receive special attention. BBP 3.0 seeks to Strengthen Cybersecurity throughout the Product Lifecycle. Efforts will focus on ways to improve cybersecurity of system designs and methods to implement higher levels of protection for unclassified technical information. DoD components and the military services will develop a ways to link Intelligence, counterintelligence, law enforcement, and acquisition activities to improve protection of classified and unclassified technical information.

To Remove Barriers to Commercial Technology Utilization, DoD will assess the potential benefits from greater participation in consortium arrangements focused on innovation, establish a “Community of Practice” for faster acquisition of Commercial Off-the-Shelf products and commercial services, and evaluate possible legislative changes to give DOD greater access to commercial technology.

BBP 3.0 will also seek to increase the use of prototyping and experimentation to allow the exploration of innovative operational concepts, improve outreach to global markets for technology and products, strengthen organic engineering capabilities by more proactively managing the organic workforce, and use modular open systems to stimulate innovation. DoD will also promote outreach efforts to promote Science, Technology, Engineering, and Mathematics (STEM) education and careers.

Kendall stressed implementing BBP 3.0 is even more important during the current period of financial constraint, especially with sequestration set to reengage in FY2016. “Getting as much buying power for the money as we possibly can is what this is all about,” Kendall said.

More detailed information is available on the Better Buying Power program website.

Congress returns to complete work on FY2016 budget resolution

Monday, April 13th, 2015

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Congress returns this week from its spring recess ready to complete action on the FY2016 Budget Resolution. The House and Senate passed their versions last month and must reconcile the differences.

The annual budget resolution sets revenue and spending targets for the tax writing and appropriations committees so they can begin work on the president’s budget request.  This is an internal congressional procedure and therefore the passed budget resolution is not sent to the president for approval. 

The House and Senate bills set the FY2016 total federal spending level at $3.8 trillion, reach a balanced budget in 10 years, and repeal Obamacare. The House bill would cut $5.5 billion in spending from the current policy level for FY2016-25, while the Senate proposes to reduce spending by $5.1 trillion over the next ten years. The difference is primarily due to the Senate’s smaller cut to nondefense discretionary spending.

The House and Senate bills do not change the requirement to return to sequestration in FY2016, even though most in Congress continue to decry effects of the across-the-board cuts, and keep discretionary spending caps in place.

For defense, both bills keep baseline national defense (DoD plus other defense-related spending such as the Department of Energy’s nuclear program) funding at the sequester level of $523 billion.

However, both bills propose to increase funding for Overseas Contingency Operations (OCO) as a way of increasing defense while staying within the statutory cap levels, because OCO funding is considered emergency spending. The House includes $96 billion for OCO, while the Senate bill set OCO funding at $89 billion. This $7 billion difference must be resolved in conference.

But, the $96 billion OCO in the House bill includes $6 billion OCO funding for the State Department. The $89 billion in the Senate bill (according to reports) does not include any OCO funding for State. So, it appears that there is only a $1 billion difference between the House and Senate bills for DoD, which should make resolution on DoD relatively easy.

There is one complicating factor to the House and Senate scheme to add defense funding while staying within the statutory caps. There is a Senate point of order against the bill that says any proposal to increase OCO spending above the requested level of $50.9 billion needs 60 votes in the Senate. With Republicans having only 54 Senate seats, six Democrats would have to join all Republicans to overrule the point of order to approve the higher defense amount. So, conferees will have to address this point of order issue.

April 15 is the target date for completing the budget resolution so the appropriations committees can begin crafting the 12 appropriations bills. House Budget Committee chair Rep. Tom Price (R-GA) and Senate Budget Committee chair Mike Enzi (R-WY) issued a joint press release last week in which they said they “look forward to the House-Senate beginning its work as early as next week, followed by congressional passage of a joint concurrent budget resolution for our nation.” It is unlikely that House and Senate conferees can compete their work by Wednesday, but there will be strong push by Republican leaders to pass a resolution so House appropriators can mark up some bills before memorial Day.

House committee schedules FY2016 Defense Authorization bill markup

Tuesday, April 7th, 2015

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The House Armed Services Committee (HASC) will begin to mark up the FY2016 Defense Authorization bill on Wednesday, April 22.

The HASC press release announced that subcommittee markups and the full committee markup will be streamed live on the committee’s YouTube Channel.

The HASC markup schedule calls for two subcommittees to mark up on Wednesday April 22: the Emerging Threats and Capabilities Subcommittee (2:30 PM) and the Readiness Subcommittee (4:30 PM). On Thursday, April 23 the remaining four subcommittee will mark: the Tactical Air and Land Forces Subcommittee (8:30 AM); the Military Personnel Subcommittee (9:30 AM); the Seapower and Projection Forces Subcommittee (10:30 AM); and the Strategic Forces Subcommittee (12:00 NOON).

The full committee markup is scheduled for the following week on Wednesday April 29 at 10:00 AM. HASC chair Rep. Mac Thornberry (R-TX) hopes to take the bill to the House floor in early May.

As in past years, subcommittees are expected to release draft markups on the HASC website before the subcommittee meets.

House defense committee chair proposes acquisition system reforms

Friday, March 27th, 2015

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House Armed Services Committee (HASC) chair Rep. Mac Thornberry (R-TX) introduced a bill containing the first in a series of broad ranging defense acquisition reforms.

During a year-long effort, the committee engaged stakeholders from the Department of Defense (DoD), industry, and Congress to develop proposals for long-term reform of the defense acquisition system. Thornberry called his proposal “the first step on what I expect to be many years of focused work to improve our flawed defense acquisition system.”

The broken acquisition system is contributing to the loss of our military’s technological edge,” Thornberry charged. He said the current system is slow, cumbersome, and often many years late in delivering equipment that frequently under performs and is costly to maintain.

The proposed “Agile Acquisition to Retain Technological Edge Act” would streamline the process, improve accountability, and eliminate outdated regulations, thereby begin “to get some of that edge back,” Thornberry stressed. The bill’s provisions promote a system that is “proactive, agile, transparent, and innovative.”

To be proactive, the bill proposes to empower acquisition officials by removing barriers so that officers can pursue acquisition as a profession. It would provide a “Defense Acquisition Workforce Development Fund” and expedited hiring authority for hiring and training the acquisition workforce. The bill also would give acquisition program managers greater flexibility to address programmatic risk and enable the selection of contract types that best meet program objectives with an appropriate level of risk.

The bill promotes quick program adjustments by allowing program managers to focus on oversight, engineering, and risk management. The proposal would consolidate reporting requirements, streamline the approval process, and identify key considerations that are addressed during the life of the program. The bill also would eliminate “non-productive Departmental legal review” in some cases.

The bill promotes transparency by supporting government and industry communication that is clear and open and the production of auditable financial management statements.

The proposed reform bill would remove barriers that inhibit companies from seeking defense business or proposing new ideas. The bill would promote the use of value engineering to encourage contractors to reduce costs and share savings. The Mentor-protégé Program would be made permanent to improve the linkage small and large defense contractors. Also, the bill would make the Small Business Innovative Research Program permanent to be used “more broadly by the military services and defense agencies.”

Thornberry said the reforms will be considered for inclusion in the FY2016 Defense Authorization bill, which the HASC will take up next month. Ranking Member Rep. Adam Smith (D-WA) co-sponsored Thornberry’s proposals.

Thornberry said he released his recommendations of what he called a “discussion draft” of the bill now because he wanted feedback from the stakeholders. “We listened to a lot of folks as we drafted this bill, and we want to hear from them again before we work to make it law,” he said.

Total cost of DoD major acquisition programs declines

Tuesday, March 24th, 2015

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The total cost of 77 selected Department of Defense (DoD) major acquisition programs decreased by $9.1 billion (-.06 percent) in 2014, according to a report issued by DoD last week. 

This small increase reflects increased planned quantities (+$2.5 billion), program schedule changes (+$2.4 billion), higher costs due to engineering changes (+$5.4 billion), increased program cost estimates (+$0.2 billion), and other changes ($0.2 billion). Extending Offsetting these increases were cost decreases due to lower escalation rates (-$10.8 billion) and a drop in support costs (-$9.0 billion).

When $6.964.4 billion is added to extend the funding for Ballistic Missile Defense through FY2020 (previous reports limited BMD funding through FY2019) and adjustments are made for final and initial reports, the total cost of DOD major acquisition programs as of December 31, 2014 is $1.622 trillion.

The DoD report also identified one program that experienced critical Nunn-McCurdy unit cost breaches—unit cost increases of 25 percent or more to the current Acquisition Program Baseline (APB) or 50 percent or more to the original APB. The Joint Standoff Weapon—Baseline Variant and Unitary Warhead Variant (JSOW). The breach occurred because JSOW production was terminated after FY2015 in the president’s FY2016 budget resulting in a significant reduction in quantities.

The Warfighter Information Network—Tactical Increment 2 (WIN-T Inc2) experienced a significant McCurdy breach—unit cost increases of 15 percent, but less than 25 percent of the current APB or 30 percent, but less than 50 percent of the original APB. The WIN-T Inc 2 breach was due to a 32 percent quantity decrease (5,267 to 3,583) and a procurement schedule extension.

Programs submitting their initial SAR reports are not represented in the total cost growth estimates for a particular year. For this reporting period, the initial report was submitted for the Air Force Intercontinental Ballistic Missile Fuze Modernization (ICBM Fuze Mod) program at a cost estimate of $2.076 billion.

The cost estimates for selected programs are reported in the congressionally-required Selected Acquisition Reports (SAR).  SAR estimates of total program costs include actual costs to date and estimated future costs.  Program costs include research and development, procurement, military construction, and operations and maintenance costs that are acquisition-related. 

DoD prepares these congressionally-required reports annually (with submission of the budget).  Quarterly reports are prepared for programs that experience cost increases of 15 percent or more, and schedule delays of at least six months.  DoD also submits quarterly reports for a program’s initial and final report, or for programs that are rebaselined during major milestone reviews.

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