Defense Financial Highlights

DoD issues annual acquisition performance report

Friday, June 20th, 2014

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The Department of Defense (DoD) last week released the annual performance review of the DoD acquisition system.

Initiated last year, this year’s report “provides a review of the efficiency of incentives in improving costs and performance as well as updating earlier analyses with more recent data,” according to a press release issued at the pentagon.

The report provides includes background material on acquisition budgets and trends, analyzes performance outcomes by commodity type, military department, and by prime contractor, and discusses insights and lessons learned.

The review focuses on incentive techniques (contract types, profits, fees, etc.) used by organizations in the acquisition process. It placed special attention on how effective the incentive techniques are in controlling costs, schedules, and technical performance.

Frank Kendall, Under Secretary of Defense for Acquisition, Technology, and Logistics, noted in the report that analysis is showing that not all the incentives being used work. For example, the report concludes that contractual incentives are effective only if “they are significant, stable, and predictable and they are tied to our [acquisition] objectives.”

The report notes that the use of either Cost-plus or Fixed-price contracts is not clear cut when evaluating their effectiveness. Not all cost type contracts effectively control costs. And, while fixed-price contracts can effectively control costs, evidence shows that they should not be considered the “magic bullet” that solves all acquisition problems.

It is not the type of contract that necessarily controls costs the report concludes. Rather, incentives that link profit to performance, control price, and share costs savings are the best determinants of the effectiveness of controlling costs. The findings from this analysis may lead to a wider variety of contract type, Kendall said.

Kendall called uncertainty about defense budgets the primary obstacle to improving the efficiency of the defense acquisition process. He said that sequestration is the main driver of this uncertainty.

He also cited declining budget levels as having limited the number of opportunities to achieve more effective competition. But, he said many opportunities still remain especially in the area of improving tradecraft by the acquisition workforce in acquiring services. He said DoD has done much to educate and train the acquisition workforce to be creative and think critically. Current analysis is looking beyond that however, seeking to determine correlations between workforce factors—technical background, certifications, and experience—to program outcomes..

Kendall said much progress has been made to improve DoD’s acquisition process, but much work remains. He cautioned that “defense acquisition is complicated and varying and there are no simple ‘schoolhouse’ solutions that should be mandated.” The performance report and its findings provide “fresh insights into what generally works in what circumstances, and why,’ he stressed.

ASMC/Grant Thornton 2014 Survey

Monday, June 16th, 2014

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The ASMC Annual Survey on issues facing the defense financial management community is now available here.

We need your input!  Your opinions in response to the survey questions will be absolutely anonymous.

ASMC, in partnership with Grant Thornton LLP, is conducting our annual online survey of defense financial managers.  This survey will take only a few minutes of your time to complete and asks respondents about issues facing the financial management community, such as budget/cost management, audit readiness, and workforce development.

Within each of our chapter size categories (A1, A, B, and C) the ASMC chapter that achieves the highest percentage response rate to this survey will receive a $200 cash award.

These awards will be based on the number of responses received per chapter divided by the total paid membership of a chapter as of May 31, 2014.

You must access the survey not later than June 30, 2014!  Please be sure to enter your chapter’s name when you fill out the survey. Aggregated results of this survey will be published and made available on the ASMC website.

House committee approves FY2015 Coast Guard appropriations

Monday, June 16th, 2014

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Last week, the House Appropriations Committee (HAC) approved FY2015 appropriations for the Coast Guard. Coast Guard appropriations are included in the Department of Homeland Security appropriations bill.

The HAC approved $8.5 billion in FY2015 discretionary appropriations (to be appropriated by Congress) for the Coast Guard, $316 million more than the budget request. The bill also identifies $1.6 billion in Coast Guard mandatory spending, including retired pay.

Operating expenses totaling $6.8 billion are funded in the bill, about $120 million higher than the request.  The 1 percent pay raise requested for Coast Guard military personnel would be fully funded in the bill. Funding would be increased to reduce depot maintenance backlogs (+$73 million), to restore operations hours (+$15 million), and for surge counterdrug surge operations. Additional funding is included to prevent the proposed decommissioning of two High Endurance Cutters. The HAC would also restore funding for cuts to special pays (+$7.5 million).

The bill would increase the request for acquisition, construction, and improvements by $203 million to $1.3 billion.  Funding would be increased to buy two additional Fast Response Cutters (+$95 million), to replace one HH-60 helicopter (+$12 million), and to buy one missionized Long Range Surveillance Aircraft (+$95 million).

The bill would cut a net $10 million for unjustified cost growth in the NSC-8 program, $10 million for schedule delays to the Offshore Patrol Cutter, and $6 million due to excess carryover funding in the polar icebreaker program.

The HAC report expressed the committee’s concern that the Coast Guard did not submit a Capital Improvement Plan (CIP) with the FY2015 budget request as required. As a result of what the Committee called the “Coast Guard’s repeated noncompliance with the requirement in annual appropriations acts,” the HAC bill would withhold $150 million from Coast Guard Headquarters offices funding until the CIP is submitted.

Senate confirms Mike McCord for DoD Comptroller post

Friday, June 13th, 2014

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Yesterday, the Senate confirmed Mike McCord to be the next DoD Under Secretary of Defense (Comptroller) and Chief Financial Officer.

McCord succeeds Bob Hale (DoD Comptroller since 2009) who has served three Secretaries of Defense—Bob Gates, Leon Panetta, and Chuck Hagel—during his tenure.

McCord brings almost 30 years of experience in defense budgetary matters to the job of Comptroller. He has been Principal Deputy Under Secretary of Defense (Comptroller) since 2009. Prior to that, he served as a professional staff member of the Senate Armed Services Committee (SASC) for 21 years. His areas of expertise on the SASC were installations and global basing matters, readiness accounts, and defense budget matters.

During his confirmation hearing, SASC chairman Sen. Carl Levin said of McCord, “many of us remember his great expertise, his work ethic, his commitment. And they qualify him well for this job.”

He also was a budget analyst on defense and veterans issues for the House Budget Committee. At the Budget Committee he specialized in military personnel programs, including personnel strength levels, pay and benefits costs, and military retirement.

McCord began his career as a military personnel analyst for the Congressional Budget Office, specializing in military personnel issues.

House Appropriations Committee approves FY2015 DoD spending bill

Wednesday, June 11th, 2014

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Yesterday, the full House Appropriations Committee (HAC) approved the FY2015 Department of Defense (DoD) Appropriations bill. The HAC bill would provide $491 billion for the DoD base budget (excluding military construction), $200 million higher than the president’s request.

The HAC bill also includes $79.4 billion for Overseas Contingency Operations (OCO) in FY2015. This amount is the same as the placeholder request included in the president’s budget. The White House has recently announced its plan for reducing U.S. troop levels in Afghanistan and is expected to submit a detailed OCO request soon.

Committee chairman Rep. Hal Rogers (R-KY) called the bill “fiscally responsible” and said it reflects current and future threats. “By prioritizing the security of the American people, the readiness of our military, and the health and well-being of our brave warfighters, this bipartisan legislation will help create a safer America,” he said.

The HAC bill would fund a 1.8 percent military pay raise that is authorized in the House-passed FY2015 Defense Authorization bill. The president’s budget requests a 1 percent pay raise for military personnel. The bill rejects the administration’s proposal to reduce the Basic Allowance for Housing (BAH).

The bill would fund the Defense Health Program (DHP) at $31.6 billion, $360 million below the request. The bill would also add $100 million to the Defense Commissary Agency funding level. The president’s budget request proposed a cut in the subsidy to commissary operations.

Funding in the HAC bill for Operations and Maintenance (O&M) programs would total $165 billion, $1.4 billion below the request. Within the amount provided in the bill, an additional $1.2 billion is provided for readiness shortfalls and $791 million to restore funding cuts to facility sustainment and modernization. Offsetting some of these increases are savings from favorable foreign currency fluctuations ($547 million) and overestimated civilian personnel costs ($592 million). The committee also cut about $900 million from O&M accounts for what it called “unjustified program growth.”

The bill would provide $91.2 billion for procurement programs, $1.6 billion more than the request.  Included in the bill are funds to build six new ships, buy 38 F-35 (Joint Strike Fighter) and 7 KC-46A tankers, 12 EA-18G Growlers, 87 H-60 Blackhawk and 37 MH-60S/R helicopters. The HAC rejects the administration’s proposal to delay a decision on refueling the USS George Washington aircraft carrier until 2016 and provides $789 million for the refueling.

The HAC bill approves the administration’s request to retire the A-10 aircraft. The committee defeated an amendment offered by Rep Jack Kingston (R-GA) to fund the program in FY2015. Both the House-passed and the Senate Armed Services Committee (SASC) versions of the FY2015 Defense Authorization bill would keep the program alive. The Senate Appropriations Committee (SAC) has not yet acted on the DoD appropriations bill.

Funding in the bill for research and development (R&D) would be $63.4 billion, $171 million below the president’s request. Programs receiving R&D funding include: a new Air Force bomber, next generation JSTARS, Future Unmanned Carrier-based Strike System, Army Ground Combat Vehicle, and Marine Corps Joint Light Tactical Vehicle.

No date has been set for House floor action on the DoD appropriations bill.

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