“Smart” Defense Cuts: Contractor Strategy in the Efficiency Era
“It will be a great day,” read the old bumper sticker, “when schools have all the money they need and the Air Force needs to hold a bake sale to buy a bomber.” Fortunately, the Air Force hasn’t had to subcontract with Mrs. Fields yet, but the Department of Defense, the Obama Administration, and even Congress are putting a new emphasis on efficiency for our military.
Given that DoD is far and away the largest Department in the federal government, hundreds of billions of dollars rest on whether it will embrace “efficiency” in the most effective way possible. Recent events strongly imply it will. If DoD follows the “efficient” path, defense contractors will need to go beyond positioning support for their products as good politics. They will need to position support for their products as good policy as well.
As part of the Quadrennial Defense Review process, DoD invited four of the most prominent think tanks in Washington to review the Department’s budget and make recommendations as to weapons programs that should be retired, phased out, or cut entirely. The participating think tanks included:
- The Center for Strategic and Budgetary Assessments
- The Center for Strategic and International Studies
- The American Enterprise Institute
- The Center for a New American Security
The specific findings of these think tanks are important (more on that below). But the bigger headline is the process used by DoD. It invited experienced experts into the process and solicited ideas from people with limited political bias. It wanted unvarnished advice, so it can make calculated decisions based on return on investment. Experienced Washingtonians may think they have heard this all before, but it is different this time. As Kate Brannen of Politico reported, the experts are already briefing Members of Congress, and will likely brief Defense Secretary Chuck Hagel himself in the near future.
So what do each of the four groups of experts agree can be cut? There are some well-known programs on all four lists, and these programs each have entrenched constituencies:
- The A-10 Thunderbolt
- The U-2 spy plane
- The F/A-18 C/D Super Hornet
- The Ground Combat Vehicle
- The Navy's portion of the Joint Tactical Radio System
All four groups also recommended another round of Base Realignment and Closure (BRAC) base closures, which always invite a major political fight.
One can debate the merits of each of the programs – indeed, I anticipate a rigorous debate on all of them. The larger takeaway is that DoD is even having these debates. The unfortunate need to cut budgets means DoD doesn’t really have a choice.
Defense contracting is about to enter a painful adjustment. We should never lose sight of the fact that our current system gave the U.S. the most powerful military the world has ever seen. Yet it is expensive. It may be money well-spent, but it may not be something the U.S. can afford when the good news is that we’re “only” running a $500 billion annual deficit.
Defense contractors do excellent work, and the ones that make the painful adjustment to the efficiency era fastest will thrive. Defense contractors that provide value, emphasize return on investment, and underscore how their products are good policy will be the next companies to lead the industry.