Procurement Delays Add Up to Big Savings

2/13/2012
By Sandra I. Erwin

Pentagon contractors will be taking a $75 billion hit from weapon cuts and delays that are part of the2013-2017 budget proposal.
It's a familiar tactic used by Pentagon accountants to squeeze more spending into a tight budget: Delay purchases of new weapons into the future to free up dollars for "must pay" immediate bills such as payroll and overseas operations.
Former Defense Secretary Robert Gates managed to generate $300 billion in "out-year" savings, by his own account, when he canceled and postponed a number of major weapon systems in 2009.
The 2013-2017 budget proposal unveiled today continues the practice. It projects $75 billion in savings over the five-year period. Nearly $10 billion come from program terminations, and the rest from restructurings and postponements.
Defense Department Comptroller Robert Hale said the Pentagon had to stretch out programs in order to satisfy a mandate to reduce spending by $259 billion in the next five years. He said that was simply the only way the Pentagon could meet obligatory cuts under the Budget Control Act.
The biggest savings are in to the following programs:
- Joint Strike Fighter: $13.1 billion
- Nuclear missile submarine delay: $4.3 billion
- Army Ground Combat Vehicle: $1.3 billion
- Air Force Global Hawk Block 30: $2.5 billion
- Defense Weather Satellite: $2.3 billion
- Humvee recapitalization: $900 million
Other projects that are being curtailed include the Air Force’s C-27J Joint Cargo Aircraft and C-130 avionics upgrade program, a Navy medium-range maritime unmanned aircraft, the Army's family of medium tactical vehicles, the joint air-to-ground missile, the Marine Corps’ MV-22 Osprey, and the Navy's P8A Poseidon surveillance aircraft and E-2D Advanced Hawkeye command-and-control aircraft.
Analysts have cast a skeptical eye on these projected savings. Although stretching out development or trimming production orders saves money in the near term, they tend to drive up the per-unit cost of weapons over time. When programs are delayed, the Pentagon must continue to fund a program’s overhead costs, which ultimately inflates the overall price tag of a program, analysts say. Greater projected costs lead to what is known in Pentagonese as a "death spiral" of soaring price tags and reduced quantities of equipment.
Contractors fret at programs delays as they suspect that terminations ultimately will follow. During a Feb. 13 news conference, Hale insisted that some of these delays are necessary for budgetary reasons and should not be read as preludes to cancellations. The JSF, for instance, needs more time to complete testing. The Navy's next-generation ballistic missile submarine will take two more years to allow for design changes so it can be made “affordable,” Hale said.
In an ideal world, the Pentagon would prefer to not defer programs and risk unit cost spikes, said Hale. But Congress passed the Budget Control Act, he said, and procurement accounts usually become the first target during short-term budget drills.
The Navy is pushing 16 ships to the out-years. According to Rear Adm. Joseph P. Mulloy, deputy assistant secretary of the Navy for budget, rescheduling ship purchases does not affect the fleet size significantly. He noted that there are today 37 new ships under construction. By 2017, the Navy still will have the same number of ships it has today, 285, he said at a Pentagon news conference. Postponing 16 ships and 69 aircraft will save the Navy $32 billion.
The Army is planning to cancel eight programs – a nearly $2 billion savings -- in the five-year plan: A surveillance aircraft called EMARS, a Humvee modernization project, a “mounted warrior” soldier ensemble, a sensor named LRASS 3, a JPALS parachute system, the Family of Medium Tactical Vehicles, and a soldier armor program. It is also deferring its new Ground Combat Vehicle and a new armed scout helicopter.
Deputy Director of Army Budget Barbara L. Bonessa said these program terminations are not expected to have a major impact on industry. “The risk to the industrial base is manageable,” she said. But she noted that some companies might choose to make “business decisions” based on these cancellations. “That will rest with the private sector,” she said.
Air Force procurement delays will save $3 billion. The programs affected are the Global Hawk Block 30 unmanned air vehicle, a light attack aircraft, the C-130 avionics modernization and the C-27J cargo aircraft. It is also cutting 24 out of a planned 48 order of new Reaper UAVs. This has less to do with budget issues than with the Air Force’s ability to staff more Reaper units, said Maj. Gen. Edward L. Bolton Jr., Air Force deputy assistant secretary for budget. “We're stretching the production with our ability to produce crews. It didn't make sense to have that many aircraft if we didn't have the crews” to do the data analysis.”
Bolton said the Air Force plans to eliminate more than 300 aircraft from the fleet, and that the impact of those cuts is being evaluated under a “force structure review” that is expected to be announced March 6.

Topics: Defense Department, DOD Budget, Procurement

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