Secretary Gates Testified to HAC-D: DoD Has Reformed Its Spendthrift Culture

Yesterday, Secretary of Defense Robert Gates testified before the House Appropriations Subcommittee on Defense about the DoD’s FY 2012 budget request. In light of the ongoing budget standoff in Congress and the continued focus by both parties on the need to cutback defense spending to promote savings, the Secretary’s statement was closely watched, salient, and may ultimately prove significant.

The Secretary struck a level and sometimes defiant tone throughout his statements, repeatedly focusing on both the DoD’s efforts to reform itself over the past two years (since President Obama has taken office) and the need for the U.S. to maintain a prepared, lethal and pre-eminent military force.

For FY 2012, the DoD’s base budget request is for $553 billion with an Overseas Contingency Operations request for $117.8 billion. For FY 2011, the President’s budget contained $549 billion for the DoD. If a full year CR was put in place, it would fund the DoD at $526 billion representing a cut of $23 billion. The bill passed by the House last week would provide DoD with $532 billion, representing a cut of $17 billion. Secretary Gates was adamant that neither would represent an acceptable scenario for the department as it winds down the war in Iraq, increases modernization across all forces, improves internal efficiency, cuts down on waste and bureaucratic overhead, invests in mission critical technology and training programs, and maintains combat forces in Afghanistan through 2014.

In a moment of stark clarity, Secretary Gates said the following about the DoD’s efforts to reform itself:

These budget decisions took place in the context of a nearly two year effort by the Department of Defense to reform the way the Pentagon does business – to change how and what we buy, to replace a culture of endless money with one of savings and restraint. To not only make every defense dollar count, but also become a more agile and effective organization in the process.

Through this process of reform and modernization, the DoD estimates that it identified potential savings of approximately $100 billion over 5 years.

Additionally, the Secretary highlighted the following provisions which may be especially important to government contractors within the department’s FY 2012 budget request:

• $6 billion of the $100 billion saved through modernization comes from reducing staff augmentation and service support contracts by 10 percent annually for three years.
• $13 billion is saved by holding the civilian workforce at FY 2010 levels for three years, but a limited exception will be made for the growth of the acquisition workforce.
• The cancellation of the Expeditionary Fighting Vehicle program. The FY 2012 request proposes that the $2.8 billion for the EFV program be re-invested towards an integrated new vehicle program for the Marine Corps, which would include accelerated procurement of new personnel carriers.
• The Overseas Contingency Operations request has been significantly lowered from the FY 2011 level of $159 billion down to $117.8 billion, undoubtedly impacting some contractors that specialize in transport, security, and specialized military exports.

Secretary Gates concluded his remarks by stating that DoD has curtailed or cancelled troubled or excess programs that would have cost more than $300 billion if completed.

It is clear from their FY 2012 budget request that the DoD is committed to substantially reducing its overhead and expenditures and this may have a severe impact on government contractors that are heavily focused or specializing in military products or services.