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Sequestration Drives Firms To Push DoD Industry Policy

Sep. 21, 2013 - 03:45AM   |  
The composite-structure deckhouse of the destroyer Zumwalt is set on the ship at Bath Iron Works in January. Contractors are seeking a US defense industrial base strategy that would protect critical industrial capabilities that supply the US military.
The composite-structure deckhouse of the destroyer Zumwalt is set on the ship at Bath Iron Works in January. Contractors are seeking a US defense industrial base strategy that would protect critical industrial capabilities that supply the US military. (General Dynamics Bath Iron Works)
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WASHINGTON — Few in the US national security arena are supportive of the defense cuts tied to sequestration, but now that those cuts appear to be here to stay, industry is pushing the Defense Department to take the next step: Manage its vast network of contractors to protect critical industrial capabilities that give the US its technological edge.

In particular, contractors are looking for a defense industrial base strategy, a clearly articulated outline of what DoD’s priorities are and how it intends to direct its money. That guidance would in turn help companies make investment decisions so they have the capacity in the right areas when the government comes calling.

Making those kinds of decisions will inevitably lead to winners and losers, but industry is willing to accept those kinds of divisions for the sake of clarity, said Christian Marrone, the Aerospace Industries Association’s vice president for national security and acquisition policy.

“Invariably china will be broken,” he said. “It ultimately does come down to service vs. service, program vs. program. But you have to prioritize somewhere. If you make everything a priority, nothing is a priority.”

And despite the contractors’ continued concerns about sequestration cuts, planning how to manage limited resources is crucial, Marrone said.

“There will never be acceptance that this is the new normal, but you have a business to run,” he said. “You don’t have the luxury to plan for budgets that won’t be implemented. There’s a reality to this.”

Senior industry executives said that in their conversations with DoD officials, there is an appetite for creating a clear industrial base policy, although they don’t believe such a policy will be completed in the immediate future given the ongoing budget process and continued tensions surrounding Syria.

Asked whether the US should have an industrial base policy, Rep. Randy Forbes, R-Va., provided a succinct answer.

“Absolutely,” he said.

The US wouldn’t be the first country to have such a policy, and Forbes said the US needs one to remain competitive.

“Some of our peers are doing that,” he said. “If you go to China, I guarantee you that they have a strategy; they know what they’re doing with the industrial base. So I think we need to at least have created that strategy and asked that question.”

But what makes that process difficult for DoD is that it doesn’t have an ownership stake in its contractors, unlike most other nations. That situation creates both a necessary separation and a resulting intelligence gap exacerbated by a complex supply chain that can include dozens of companies for a single system.

Since any strategy would be created chiefly to protect design and production capabilities in critical areas, knowing when a company is at risk or a capability is eroding is the first step.

“From an industrial policy standpoint, first and foremost, I think it’s going to be really important to have situational awareness in understanding what’s happening in our supply chain so that we can collectively intervene,” said Wes Bush, CEO of Northrop Grumman, during a speech Sept. 16.

That awareness isn’t just for DoD but also for companies to intervene themselves, he said. “Sometimes that needs to be done by government, sometimes it needs to be done by industry.”

A new Center for Strategic and Budgetary Assessments (CSBA) report, released Sept. 18, makes the case that gaining that data is a necessary prerequisite for any strategy, and that DoD is only beginning to gather that kind of intelligence.

“Drilling down into defense supply chains to identify unique, fragile or niche capabilities requires detailed data,” the report, called “Sustaining the US Defense Industrial Base as a Strategic Asset,” read. “Only in recent years has the Defense Department begun to map the sectors and tiers of the US [defense industrial base] to this degree of detail.”

The chief tool that the agency is using to find out more is the Sector by Sector, Tier by Tier review, known as the S2T2. The review consists of surveying companies in an effort to map out the broader supply chain and assess potential stress points.

But the S2T2 has had difficulties, Marrone said.

“The S2T2, I think everyone agreed with it, but it demonstrated a lack of understanding of the industrial base,” he said. “Even the way that it was done showed a lack of understanding of the industrial base. There were companies that received multiple copies of the surveys sent to the same companies because DoD didn’t realize that they’d merged.”

For its part, the CSBA report attempts to lay out several general areas where the US must focus its attention: precision strike, nuclear capabilities, power projection, access to the global commons, integrated combined-arms campaigns, the cryptologic enterprise and realistic training.

“The time for the Defense Department to take a long-term, strategic approach to managing the US defense industrial base is now, while the Pentagon still has the opportunity to preserve its core elements,” CSBA’s Barry Watts wrote. “The alternative is to risk losing them to recurring bouts of short-term, across-the-board budget cutting.”

Speaking at an event marking the release of the paper, DoD’s acting industrial base chief, Elana Broitman, said the agency is working on the problem.

“I’m happy to report that DoD’s leadership and this report really aren’t that far apart,” she said. “The department’s leadership clearly recognizes that there are tough choices, and is working to make those choices.”

There still remains concern, however, because of the lack of coordination with industry, Marrone said.

“There’s a one degree of separation between some of our acquisition policy and our industrial base,” he said. “You can’t have a policy-making regime that is completely uninformed by what’s happening with your acquisition system and in the industrial base. They’re linked so closely together that you can’t divorce those.”

Even if a policy is articulated, making sure that the agency can protect the areas it wants to preserve will remain a challenge. Having the immediate knowledge of what is happening to every one of thousands of companies in the supply chain is a gargantuan task. And the agency likely won’t have the resources to step in in every situation it might want to.

“When you’re developing a strategy, it’s really not that complex in terms of the architecture,” Forbes said. “Implementation is the tough part.”

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