After avoiding planning for automatic defense budget cuts throughout the fall, the Department of Defense (DoD) now sees the cuts as probable, and is rapidly preparing, a senior Pentagon official said Feb. 6.
Speaking at the Cowen Aerospace and Defense Conference, Frank Kendall, undersecretary of defense for acquisition, technology and logistics, said that despite the catastrophic nature of automatic cuts, they’re likely to happen.
“As we read the tea leaves right now, the odds of sequestration happening, at least getting implemented initially, hopefully not for very long, are reasonably high,” Kendall said. “My guess right now, and it’s just a guess, is that we’ll probably have to implement it for some time. But as the magnitude of the impact gets more and more evident, hopefully people will come to their senses and get down to a deal and get this over with.”
Kendall said that the fiscal cliff deal that delayed from Jan. 1 to March 1 the implementation of the cuts, known as sequestration, has not improved the odds of a budget deal, and that the odds have in fact gotten much worse.
“They’re much higher than they were because of the way the political environment has evolved,” he said.
As evidence of the change in DoD’s perspective, Kendall pointed to a memorandum released by Deputy Secretary of Defense Ashton Carter in January that instructed DoD officials and the military services to start planning for sequestration. The memo “reversed” Carter’s guidance from the fall that had instructed the same groups not to plan.
DoD will do its best to protect its priorities, Kendall said while describing an agency response to a sequester as “damage avoidance,” but civilians will likely face painful cuts.
“Our civilians are essentially all going to take a 20 percent pay cut for the last half of the year,” he said “I don’t know about you, but if I were asked about a job in a firm that froze your pay for three years basically, and then said you’re going to take a leave without pay, I’d be looking for something else to do.”
Having some flexibility would help, Kendall said, but as currently understood the sequester would force a nearly 10 percent reduction at the program, project and activity level, which includes roughly 2,500 items. If the agency were implementing the cuts at the account level, it could pick and choose which items to cut deeper and which items to leave alone more effectively.
DoD is not currently including sequestration in its calculations of a 2014 budget preparations, and there is no clear timeframe for the completion of work on the document because of fiscal uncertainty, Kendall said. Typically the new defense budget is sent to congress in early February, but planning has been difficult.
“Bob Hale [DoD comptroller] and Christine Fox [director, cost assessment and program evaluation] are two of the most frustrated people I’ve ever seen,” Kendall said. “I’m probably right there with them.”
Because of the uncertainty, Kendall said that he is starting to think about whether research and development money needs to be protected to provide alternatives to some big, expensive programs. The idea is that if large, complex items are cut because of continuing declines in defense spending, then DoD would have new, less expensive systems as backups.
“I’m starting to rethink the strategy, and if we change substantially how much money is coming in or is available, I think DoD needs to go more in the direction of hedging investments,” he said.
Kendall spent much of his hour-long presentation talking about a variety of acquisition reforms he has undertaken to improve efficiency at DoD. The agency will be releasing a revised version of DoD 5000.02, the directive that establishes the management framework for the DoD’s acquisition system, in the near future. Kendall said that he reviewed a final draft last week while he was traveling overseas.
The agency will also be releasing a study of acquisition reform soon, he said. The study looks at the impact of various policy changes over the last 20 to 30 years and attempts to measure their impact.
The agency is also looking at some modifications to the acquisition reform framework known as Better Buying Power 2.0.
Among the complaints that he is working to address have been concerns that using a Lowest Price Technically Acceptable (LPTA) standard for acquisition has hurt the value of the products DoD is buying, Kendall said.
“We’ve heard from you on that one,” he said. “The feedback we’re getting pretty consistently is that if we don’t define ‘technically acceptable’ appropriately, we’re not going to get something that really has the value. I’m a fan of best value contracting, and I think it’s probably a good way to go in many cases.”
And while some companies have said that Better Buying Power 2.0’s emphasis on competition has created a stressed business environment, Kendall said that he thinks a bit of stress is helpful.
“Frankly from where I sit, I’m trying to get value for the taxpayers, I’d like you to be nervous,” he said. “I’d like you to be worried about loosing business, and feel that there’s pressure on you to perform at your peak. Competition gives you that.”
But while improving efficiency is important, Kendall said that the structural budget problems posed by continuing resolutions that prevent the agency from putting money where it needs, and blind cuts threatened by sequestration, far outweigh his acquisition reform efforts.
“I’ve been working for three years now to try to improve the efficiency of how we buy things, and what I’m able to achieve is small, it’s just negated by a lot of these things that force inefficiency into the department.”