An expected last ditch effort to prevent sequestration in early 2013 will likely mean that cuts to the defense budget will be more manageable, said a top Pentagon official speaking to a group of business leaders at Technology Summit 2012 hosted by the Chamber of Commerce of Huntsville/Madison County on Oct. 16 at the Jackson Conference Center.
Frank Kendall, undersecretary of defense for acquisition, technology and logistics, said that sequestration -- an automatic spending cut that includes cutting the defense budget by nearly half a trillion dollars over the next decade (about $55 billion in the first year) if Congress is unable to reach a compromise on how to solve America's debt dilemma -- would put the Department of Defense in the impossible position of having to use the "meat ax approach" in cutting defense programs.
With that as a looming possibility, the pressure is on Congress to get an authorization bill passed before the end of 2012, he said.
"We're not falling off the cliff here," Kendall said. "There should be a deal at the last minute that will mean defense cuts of between zero and $50 billion. The number I've heard is there will be defense cuts of $10 billion a year."
Yet, sequestration is still a possibility due to Congress' inability to agree on a mixture of lower spending and higher taxes to balance the budget. Because of that inability, automatic spending decreases in early 2013 will hit the $1.2 trillion figure or about $109 billion in cuts to government spending every year for the next decade. For the Department of Defense, defense programs could be cut by about 10 percent, or $55 billion, each year for the next decade, while Medicare will be reduced by 2 percent ($11 billion) each year and non-defense spending would be cut by about 8 percent ($43 billion) each year.
With such cuts in mind, Kendall said the leadership within the Department of Defense has discussed how to shape the military of the future.
In his position, Kendall is responsible to the Secretary of Defense for all matters pertaining to acquisition; research and engineering; developmental testing; contract administration; logistics and materiel readiness; installations and environment; operational energy; chemical, biological and nuclear weapons; the acquisition work force; and the defense industrial base. He has been involved with drills within the Department of Defense that have been conducted based on different budget cutting scenarios.
"By year 2020, what do we want the defense department to look like and then how do we build the defense budget around that?" is the question Pentagon officials are trying to answer internally.
Unlike other wartime situations where defense spending lessened dramatically as wars came to an end, today's defense cuts are coming at a time when the nation is still at war in Afghanistan.
"Today, the threat is not changing. In some ways the threat is getting worse," Kendall said, mentioning the situations in Iran, Korea and terrorism throughout the world.
The military's future force will be more agile, technologically superior, leaner and more efficient. "We will drawdown ground forces substantially, but we will retain the capability to respond," he said. "There will be a fundamental change in force structure … and all of that has got to come together within the constraints that we have."
A tighter military budget will carry more risk, with no reserve in case of program overages, inflation and other cost escalations in things like medical insurance, fuel costs and facilities.
"It's going to be an austere environment. But the world is not coming to an end. It is a difficult business environment because we spent 10 years of war growing the budget," Kendall said.
There are concerns of what the impact of a substantially reduced budget will have on the Department of Defense's industrial base.
"We want to preserve the industrial base as part of our technological superiority. … We can act selectively if there are niche industries we want to preserve. But we can't protect every business," Kendall said.
To better manage an austere budget environment, Kendall said the DoD acquisition community should fully implement the Better Buying Power initiative, which was introduced about two years ago and which includes 23 policy initiatives designed to get more efficiency in the DoD acquisition process.
Calling himself an evolutionary leader rather than a transformational leader, Kendall said it is best to change the acquisition system in stages rather than all at once.
"I've seen a lot of fads come and go in the acquisition environment," he said. "It's a very stubborn system to change. We need to change it in pieces, continually evaluating our progress.
We need to incorporate continuous improvement because I think we can do a lot better than today …
"There are a lot of laws that are incredibly complicated. We are trying to update them and make them more flexible. We are trying to get rid of laws that were built up piecemeal and replace them with something more coherent. We need to simplify things. We have a lot to do in terms of improving things."
Kendall would like to see improvements in the quality and training of the acquisition work force, and in setting clearer standards in how the government does business with industry.
"Strengthening the work force is probably the single most important thing we can do," he said. "We really, really need to strengthen our work force. We have a lot of good people who don't have the breadth and depth they need."
He would like to see improvements in the way DoD chooses its programs, ensuring that it doesn't choose programs it can't afford in the long run.
"We have had to bring an end to programs that are just not affordable. We spend a lot of money on them in research and development, and then we have to stop them in production," Kendall said.
"When programs start, we have to have an affordability cap. I want us to do an analysis so that we can get a realistic view of costs. The hard part would be enforcing affordability caps. So, we have to prioritize requirements and drop some we can't afford before we get them established."
Kendall would also like program managers to be more active in identifying opportunities to reduce costs, and for hardware to be designed with consideration of future needs and the needs of allied customers.
"Many of our international partners design new systems from day one for export," he said. "We don't do that. We design for our needs and then we look around and say 'Gee, do we want to sell this to somebody?' We need to design our systems up front with our international customers in mind."
Kendall would also like industry to assist in reducing costs. He would like to increase the use of performance-based logistics; reduce the amount of time it takes to award contracts; reduce bureaucracy; implement a new emphasis on the superior supply award program; and increase competition with a better definition of what value means to DoD and with DoD making purchases based on cost and value.
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