DEFENSE DEPARTMENT
Next Pentagon Procurement ‘Bow Wave’ Will Be a Tsunami
9/1/2012
“If procurement plans now on the books are unchanged, we would have a bow wave that could swamp our program after the turn of the century.”Defense Science Board, May 1993
“During the period from 1993 to 2000, deferred procurements — the infamous procurement bow wave — more than doubled from previous levels.”
“During the period from 1993 to 2000, deferred procurements — the infamous procurement bow wave — more than doubled from previous levels.”
Center for Strategic and International Studies, Oct. 1999
“I see a procurement bow wave looming now.”
“I see a procurement bow wave looming now.”
Defense Secretary Donald Rumsfeld, April 2005
“The steep increase in acquisition costs beyond 2013-2017 suggests that a classic bow wave is being created by DoD.”
“The steep increase in acquisition costs beyond 2013-2017 suggests that a classic bow wave is being created by DoD.”
Congressional Budget Office, July 2012
For seasoned defense budget watchers, nothing new under the sun, eh?
In the often-turbulent waters of military spending, bow waves rise and fall in cycles. The phrase is finance shorthand for costs that occur in the future because a budget item is not fully implemented. In the Pentagon’s budget, bow waves usually are caused by weapon systems that the military postpones buying until financial conditions improve. The longer the delays, the more costs build up, and the faster the price tag soars. Sometimes, bow waves are deliberately created when military buyers change their minds about what they want, or when political winds shift.
The slowdown and stretching of major acquisition programs are familiar practices in the Defense Department as they offer an easy alternative to making tough choices. The Pentagon saves money in the short term by putting off production of weapon systems. But delays also contribute to perennial cost overruns, as the Pentagon must fund contractor overhead expenses all through the extra years of development and evaluations.
With the Defense Department now facing a precipitous drop in new equipment purchases over the next two years, the green-eyeshade crowd already is predicting a huge bow wave for 2018 and beyond, which could be the biggest one yet.
As per the latest projections of the Congressional Budget Office, the Pentagon’s procurement forecast looks less like a realistic modernization plan and more like the federal-budget equivalent of a balloon payment mortgage.
The 2013 funding request for new weapons is $168 billion, which includes research, development, testing, engineering and procurement. CBO estimated that the cost of the equipment proposed in the 2013 budget will rise to $193 billion by 2017. By 2018, the bill would come due at more than $212 billion. Further, “acquisition costs could rise again depending on future decisions about how to equip the military,” CBO analysts wrote. “The steep increase in acquisition costs suggests that a classic ‘bow wave’ is being created by DoD’s constraining acquisition during a period of tight budgets but continuing to plan for much more acquisition thereafter.”
The rising bow wave would set off financial shock waves across the entire defense budget as the Pentagon also would be coping with spiraling personnel, heath care and equipment-repair costs. The Budget Control Act of 2011 would make the post-2018 bow wave crest higher than previous ones.
In addition to weapons inflation, there is another, even bigger threat to procurement spending: The Pentagon’s chronic inability — fueled by Congress — to live within its means. CBO projects that to keep things running as they are today, the Defense Department will need $123 billion, or 5 percent, more through 2017 than the Obama administration estimated.
From 2013 through 2030, Pentagon base-budget plans would require $1.2 trillion (or 12 percent) more than if funding for the base budget were held at the 2012 amount in real terms.
None of this bodes well for future acquisitions of new weapons.
The primary culprit for rising defense costs from 2013 to 2030 is operations and support, which accounts for 64 percent of the base budget in 2012. That includes significant jumps in the costs of health care, compensation, operations and maintenance.
Defense Secretary Leon E. Panetta seized on the CBO analysis to once again lash out at Congress for thwarting the administration’s attempts at reining in costs. Committees have consistently fought back most Pentagon recommendations to reduce spending, which only will accelerate the train wreck that CBO is predicting.
Pentagon money-saving initiatives that Panetta proposed — and Congress rejected — include raising TRICARE fees for military retirees, reducing pay raises, shutting down excess infrastructure, retiring aging aircraft, ending production of several weapon systems and decommissioning several Navy ships.
“The CBO report underscores the point the secretary has been making: To responsibly square fiscal discipline with national security, you have to make tough decisions informed by a strategy,” said Defense Department spokesman George Little. “If Congress does not allow us to proceed with these changes, we will be forced to look elsewhere for savings in order to meet the requirements of the Budget Control Act,” Little said, delivering more bad news for weapon manufacturers. “That means cuts to training, weapons modernization and other programs.”
Little did push back on CBO’s assumption that weapon programs are destined to be forever over budget. “CBO assumes that future acquisitions programs will perform as they have too often in the past,” he said. “Their analysis makes clear that we can’t let that happen.”
But improving performance might not be nearly enough to overcome the monster bow wave. Barring rollbacks in personnel and health costs, many of the weapon systems in the current budget will not survive. Fiscal triage is in order.
For seasoned defense budget watchers, nothing new under the sun, eh?
In the often-turbulent waters of military spending, bow waves rise and fall in cycles. The phrase is finance shorthand for costs that occur in the future because a budget item is not fully implemented. In the Pentagon’s budget, bow waves usually are caused by weapon systems that the military postpones buying until financial conditions improve. The longer the delays, the more costs build up, and the faster the price tag soars. Sometimes, bow waves are deliberately created when military buyers change their minds about what they want, or when political winds shift.
The slowdown and stretching of major acquisition programs are familiar practices in the Defense Department as they offer an easy alternative to making tough choices. The Pentagon saves money in the short term by putting off production of weapon systems. But delays also contribute to perennial cost overruns, as the Pentagon must fund contractor overhead expenses all through the extra years of development and evaluations.
With the Defense Department now facing a precipitous drop in new equipment purchases over the next two years, the green-eyeshade crowd already is predicting a huge bow wave for 2018 and beyond, which could be the biggest one yet.
As per the latest projections of the Congressional Budget Office, the Pentagon’s procurement forecast looks less like a realistic modernization plan and more like the federal-budget equivalent of a balloon payment mortgage.
The 2013 funding request for new weapons is $168 billion, which includes research, development, testing, engineering and procurement. CBO estimated that the cost of the equipment proposed in the 2013 budget will rise to $193 billion by 2017. By 2018, the bill would come due at more than $212 billion. Further, “acquisition costs could rise again depending on future decisions about how to equip the military,” CBO analysts wrote. “The steep increase in acquisition costs suggests that a classic ‘bow wave’ is being created by DoD’s constraining acquisition during a period of tight budgets but continuing to plan for much more acquisition thereafter.”
The rising bow wave would set off financial shock waves across the entire defense budget as the Pentagon also would be coping with spiraling personnel, heath care and equipment-repair costs. The Budget Control Act of 2011 would make the post-2018 bow wave crest higher than previous ones.
In addition to weapons inflation, there is another, even bigger threat to procurement spending: The Pentagon’s chronic inability — fueled by Congress — to live within its means. CBO projects that to keep things running as they are today, the Defense Department will need $123 billion, or 5 percent, more through 2017 than the Obama administration estimated.
From 2013 through 2030, Pentagon base-budget plans would require $1.2 trillion (or 12 percent) more than if funding for the base budget were held at the 2012 amount in real terms.
None of this bodes well for future acquisitions of new weapons.
The primary culprit for rising defense costs from 2013 to 2030 is operations and support, which accounts for 64 percent of the base budget in 2012. That includes significant jumps in the costs of health care, compensation, operations and maintenance.
Defense Secretary Leon E. Panetta seized on the CBO analysis to once again lash out at Congress for thwarting the administration’s attempts at reining in costs. Committees have consistently fought back most Pentagon recommendations to reduce spending, which only will accelerate the train wreck that CBO is predicting.
Pentagon money-saving initiatives that Panetta proposed — and Congress rejected — include raising TRICARE fees for military retirees, reducing pay raises, shutting down excess infrastructure, retiring aging aircraft, ending production of several weapon systems and decommissioning several Navy ships.
“The CBO report underscores the point the secretary has been making: To responsibly square fiscal discipline with national security, you have to make tough decisions informed by a strategy,” said Defense Department spokesman George Little. “If Congress does not allow us to proceed with these changes, we will be forced to look elsewhere for savings in order to meet the requirements of the Budget Control Act,” Little said, delivering more bad news for weapon manufacturers. “That means cuts to training, weapons modernization and other programs.”
Little did push back on CBO’s assumption that weapon programs are destined to be forever over budget. “CBO assumes that future acquisitions programs will perform as they have too often in the past,” he said. “Their analysis makes clear that we can’t let that happen.”
But improving performance might not be nearly enough to overcome the monster bow wave. Barring rollbacks in personnel and health costs, many of the weapon systems in the current budget will not survive. Fiscal triage is in order.
Topics: Procurement, Defense Department
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