defense budgeting essay

8/7/2019 Defense Budgeting Essay

1/9

Roberto Ortega Zloczewer

Student number: 10616720

E-mail address: [email protected]


2/9

I mprovements in the Acquisition Process of the DoD

Student number: 10616720

Introduction& background context

Substantial efforts have been pursued to obtain efficiency in the acquisition process of the

Department of Defense, including ones such as The Single Process I nitiative or the Director

of Acquisition Program I nitiative (Jones & McCaffery, 2007), the latter having proved to

manage costs and measure performance more precisely than before

However, there are many steps in the process that continue being inefficient, and in this paper I will propose some measures to maximize the output of the DoD, especially in relation

with its contractors. Contractors are not liable for important differences encountered between

what the DoD demanded and the actual output. This could be solved by directly changing the

contractors liability or, possibly better, modifying the competences and assigning clear roles to

the different Defense agencies in charge of supervising the contract.

Another topic discussed will be the future of public shipyards and R&D laboratories,

analyzing their supplemental cost to Defense.These facilities have decreasing activity levels but

are maintaining the majority of job positions. This automatically implies decreasing levels of

efficiency, and as stated in the Jones-McCaffery model, they should be eliminated. However, this

would affect an important stakeholder, the workforce, and is an unpopular political decision to

take.So, when is the right moment to execute this measure?

Finally, the last problem which will be dealt involves stakeholders from the aircraft

industry at a worldwide level. Can the U.S government subsidize Boeing? And, most

importantly, concentrating on the DoD: what is the objective of the latest massive defense

contracts signed with Boeing: supply the military with assets, or supply Boeing with liquidity?


3/9

I n this paper, the Jones-McCaffery reengineering model will not be modified in itself, as

the initiatives presented in this essay will build upon this model and will explain how to bring

these measures to light. The solutions will be devised through a qualitative analysis, although

some numerical data will be available as well. The main goal of these reforms is to reduce not

only expenditures but also minimize project indicators such as cost,lead times and risk associated

to the acquired asset.

D ata & Analysis

In order to deal with the problem of contractors liability,

Iwill build upon the initiative

stated in the Jones-McCaffery model, which states that when the warfighter is not satisfied with

the performance of the asset that has been deployed, the DoD can force the contractor to pay the

U.S treasury a certain portion of the total contract cost, therefore making the contractor partly

liable for the problems or underperformances found in their asset. I n the book, it is forecasted

that the contractors will not meet this reform with their arms open(Jones & McCaffery, 2007).

However, even if they dont like the proposal, they wont be able to turn their heads away from

the DoD and start looking for contracts abroad, because of the downside their profits would

experience. For example, 84% of Lockheed Martins revenue comes from contracts with the

DoD (Wikinvest), who therefore has great negotiation power to decide the rules which are to be

followed. By implementing this measure, contractors would be more engaged in delivering the

correct product, as they are partly liable for the final outcome, both parties bearing the risks.

This measure aims to change the relationship between national contractors and the DoD,

in order to distribute the liability between the two parties. However, what if the original problem

that causes the liability issue (the difference between what Defense asked for in the contract and

what the contractor finally delivered), is caused by misinterpretations among different agencies


4/9

in the DoD?

Here comes in the second problem: the confusion of roles among two important agencies

that are part of the Under Secretary of Defense (USD): the Defense Contract Audit Agency

(DCAA) and the Defense Contract Management Agency (DCMA). There is only one letter that

differentiates their acronym, and that seems on purpose: these two agencies have many

overlapping roles. The DCAA agency basically audits the contracts and gives financial advice

regarding these contracts, while onthe other hand the DCMA surveys and provides advice before

the contract has been awarded, and once the contract has been awarded it measures the

performance of the contractor in terms of cost, schedules and asset capabilities in order toguarantee that everything is going as planned (Ford).

Therefore, their functions overlap before the contract takes place, as they both give

advice about it. The situation is aggravated by the fact that although both agencies are part of the

USD, the DCAA is under the USD Comptroller, while the DCMA is in the USD AT&L

(Acquisition, Technology and Logistics), preventing direct contact between them (Ford), which

is crucial given the similar nature of the roles they are undertaking. Their different stances on a

yet unsigned contract can confuse the potential contractor, as well as delay the whole acquisition

process, creating inefficiencies. These can be detected by analyzing the results of Grant Thornton

LLPs 16 th Annual Government Contractor I ndustry Survey: 74% of private government

contractors found the government inefficient when it came to resolving contract issues, and of

these, 56% found the inefficiencies within the DCAA (Hall, 2010) .

This unsettling data calls for an urgent reform under the hood of the USD. The DCAA

and the DCMA could jointly analyze the potential contract and do the auditing, and arrive

together to a conclusion. Once the contract has been awarded, the present procedure would

continue, where the DCMA monitors the performance of the contractor and see if the interests of


5/9

DoD are aligned with what the contractor is actually producing. This reform follows the

principle of creating joint groups for certain decisions, which is underlined in the Jones-

McCaffery model.

The third problem, treated in this model, involves the facilities owned or contracted by

the DoD, which include shipyards and out-of-date R&D facilities. I n the book, it is

recommended that these public companies should be eliminated after analyzing the little value

which they create in comparison with the cost that they represent. Many of these shipyardsare

not active, and those thatare operational produce aircraft carriers, which are, as Mark Thompson

from Time Magazine states, old fashionedand include expensive manned aircraft that are not part of the present tendency to go for less costly and more versatile weaponry and assets, such as

drones or cruise missiles, used in Lybia recently (2011). Therefore, eliminating these shipyards

would also help the reengineering process in changing from a push strategy (produce an

aircraft carrier and then see where it can be used (as is happening today) to a pull strategy (initial

question: do we really need an aircraft carrier?).

However, a question that remains unanswered is: when is the moment to close them? Or,

better said, when will politicians abide to follow such an unpopular program as is eliminating

jobs? After analyzing present situation, in which both Democrats and Republicans are presenting

different plans to deal with the deficit over the following years, the moment is right now.

Obamas treatment of the deficit includes a cut of $400 billion over the next twelve years

(ASMC, 2011), which should include the elimination of these inefficient facilities. At least for a

politician, this is the right time to take this kind of action without becoming too unpopular, as

many citizens see the budget savings as necessary.

Finally, the fourth problem deals again with private contractors, but in this case with one

in particular: Boeing. The question is: are the reasons behind the DoDs massive defense


6/9

contracts with Boeing following a pull strategy (because the DoD needs certain capabilities),

as it should be, or is there a secondary goal, to fund Boeing in its battle with Airbus? On

Thursday, March 31 st 2011, the WTO confirmed as illegal the $5.3 billion subsidies which the

U.S government provided to Boeing. But what about the $35 billion contract to supply the Air

Force with new aerial refueling tankers?(Clark, 2011). I s that really a need, or is it in part an

excuse in order to veil the subsidies towards Boeing? The United States, as well as Europe

(with Airbus), Canada (with Bombardier) and Brasil (with Embraer) should stop subsidizing

their aircraft companies (Doh, 2003), and make of this highly subsidized sector a competitive

and more efficient one. At the moment, by looking at the delays and technical problems presentin the Boeing Dreamliner 787 and the Airbus 380 (Moellenkamp, 2008), it could be said that the

financial safe net that governments offer dont go hand in hand with efficiency.

C onclusions

After analyzing the problems and offered possible solutions, here are the 4 main

conclusions reached:

1. The DoD has enough negotiation power, as the majority of their revenues come from U.S

DoD contracts, to force national contractors to assume part of the liability if the asset

delivered differs from the expected, and should do so to diversify risks .

2. The DCAA and the DCMA should jointly analyze potential contracts and reach

collectively to a decision about it. This would eliminate overlapping decisions and

inefficiencies .


7/9

3. I t is necessary to shut down underperforming R&D facilities and shipyards, and the

moment to do so which will be less politically damaging is now, when the possibility

of a fiscal crisis gives makes budget cuts a priority.

4. DoD should not sign massive contracts with Boeing if one of the main reasons is to

subsidize the latter; reduces efficiency in Boeing (they have a safety net) and can

distract DoD from following a pull strategy (ordering what they need), creating the risk

of buying unnecessary assets.

Ultimately, these conclusions deal with achieving more efficiency and reducing the risk of theassets acquired. These two goals are the main pillars of capital budgeting(Jones & McCaffery

2007), which is being gradually implemented in the budgeting and acquisition process of the

Department of Defense.


8/9

References

ASMC ( American Society of Military Comptrollers). Presidents $4 trillion deficit reduction plan

includes $400 billion cut to defense. (2011, April 13). Ascmonline.org Retrieved April

15, 2011, from http://www.asmconline.org/2011/04/presidents-4-trillion-deficit-

reduction-plan-includes-400-billion-cut-to-defense/

Clark, N. (2011, March 31). W.T.O. Rules U.S. Subsidies for Boeing Unfair - NYTimes.com.

The New York Times . Retrieved April 15, 2011, from

http://www.nytimes.com/2011/03/31/business/global/01trade.html

Doh, J. P. (2003, December 1). The Bombardier-Embraer Dispute and its I mplications for

Western Hemisphere I ntegration. CSIS: Center for Strategic & International Studies .

Retrieved April 15, 2011, from csis.org/files/media/csis/pubs/pp0312doh%5B1%5D.pdf

Ford, J. N., Cherry &Bekaert& Holland, L.L.C.The Relationship Between DCAA and

DCMA. Cherry, Bekaert& Holland - Certified Public Accountants and Consultants .

Retrieved April 15, 2011, from http://www.cbh.com/news/newsletter_details.asp?id=293

Hall, K. B. (2010). 16th Annual Government Contractor I ndustry Survey Highlights Book.

Grant Thorton . Retrieved April 13, 2011, from

http://www.grantthornton.com/staticfiles/GTCom/Government%20contractors/Governm

ent%20contractor%20files/16th_HighlightsBook.pdf

Jones, L. R., & McCaffery, J. L. (2007).Budgeting and Acquisition Business Process

Reform. Budgeting, Financial Management, And Acquisition Reform in the U.S

Department of Defense (pp. 603-661). I nformation Age Publishing.

Moellenkamp, J. (2008, December 14). A380 vs. Boeing 787 delay. c0t0d0s0.org . Retrieved

April 15, 2011, from http://www.c0t0d0s0.org/archives/5119-A380-vs.-Boeing-787-


9/9

delay.html

Thompson, M. (2011, April 14) How to Save a Trillion Dollars - T I ME.TIME.COM . Retrieved

April 15, 2011, from http://www.time.com/time/politics/article/0,8599,2065108,00.htmlWikinvest.Stock: Lockheed Martin (LMT). wikinvest . Retrieved April 14, 2011, from

www.wikinvest.com/stock/Lockheed_Martin_(LMT)

defense budgeting essay

Documents