David Berteau of CSIS: 2010 defense budget heating up
Congressional activity over the 2010 defense budget is heating up. On July 30, the House of Representatives passed a defense spending bill for fiscal year 2010 that included money for four programs the Obama administration opposed. Now it’s up to the Senate to come up with a version of the legislation that meets with White House approval. So, where will the chips fall for defense contracting? As senior advisor at the Center for Strategic and International Studies and Director of its Defense Industrial Initiatives Group, David Berteau has a few ideas. Here’s what he’s telling ExecutiveBiz.
ExecutiveBiz: How is the economic climate affecting the defense budget for fiscal years 2010 and 2011?
David Berteau: The economic climate affects the defense budget in three ways. Number one, we are engaged in a vigorous stimulus package across federal spending; defense is not a part of that package, and that was a conscious decision. Number two, the defense budget is still $680 billion by the time you roll in other contingency operations — or what used to be called “supplementals.” Number three, pretty significant shifts are underway with programs, driven by Secretary Gates.
ExecutiveBiz: Your analysis shows what over the next two years?
David Berteau: Secretary Gates gave a significant boost in terms of personnel — almost 100,000 more Marines and Army personnel. That has a dollar effect beyond fiscal years 2010 and 2011. To sustain those growth numbers will require a substantial chunk of money, especially if the overall top line doesn’t go up. The only logical place it can come from is programs: procurement, and research and development.
ExecutiveBiz: How much of the defense budget do you think will go toward cybersecurity?
David Berteau: An awful lot of the money in defense in cybersecurity is buried inside the intelligence budget. So we don’t have a good sense of the total dollar amount being spent there. I think the creation of the new Cyber Command certainly focuses those efforts; whether or not it actually leads to increased spending we can’t say. That said, the tendency would be to believe there is going to be increased spending.
ExecutiveBiz: In the midst of defense budget shifts, what issues should industry be paying special attention to?
David Berteau: There are three issues that matter most. One, it is a difficult political environment for contractors today; there is a tendency to blame contractors for whatever problems come to bear. Contractors need to be prepared for that by recognizing the need to demonstrate added value and by helping the government define requirements more precisely. Second, Secretary Gates is moving toward a defense program with less reliance on brand new platforms and more reliance on legacy systems. Industry will need to focus on ways to incorporate technology into existing systems. Third, the overall downward pressure on the defense budget will grow each year, as the need to control deficits kicks in.
ExecutiveBiz: What role, if any, is the healthcare IT discussion playing in defense budget considerations?
David Berteau: I have not tracked that from a spending point of view. That said, defense healthcare costs are the fastest rising portion of the defense budget. It is going to be difficult to get defense healthcare spending under control unless a national healthcare control process gets underway. I think that statement hasn’t been articulated much by anyone in the administration, but you really can’t fix defense healthcare until you fix national healthcare.
ExecutiveBiz: What has the Obama administration’s talk of greater transparency meant for the defense industry so far?
David Berteau: There was talk early on in the administration about increased dialogue with industry and perhaps reestablishing the Defense Policy Advisory Committee on Trade. I have not seen any formal announcement of any reestablishment of such a committee, however. While there is obviously an attempt to create transparency or the appearance of it, there is a counter effect — one that is quite significant. As a result of the President’s executive order and lobbying conversation restrictions that have come out of the Recovery Act, government personnel are wondering with whom can they talk to. When government officials are faced with that kind of uncertainty — “I’m not sure who I can talk to” — the tendency is to say, “I won’t talk to anybody.” I’m hearing a lot of stories about industry having trouble getting a meeting. I haven’t seen any structural change to counter that by creating other avenues.
ExecutiveBiz: Any view on insourcing and how it will impact contractors?
David Berteau: As part of its fiscal year 2010 package, the administration has a laudable plan to expand the capabilities of the in-house government workforce both in the narrow acquisition world — contracts and procurement — and in systems engineering and defense capability more broadly across the defense government. The numbers that we are talking about here — 21,000 people over five years in acquisition, and 30,000 for the defense workforce — are fairly small numbers for a five-year program. From an industry point of view, I don’t think it is a great reduction in the opportunities for business. Certainly it does not represent a reduction in the dependence on contractors; that’s not a bad thing. The real issue is: Where does the government need to have in-house capabilities and where is it OK to rely on contractors? Answering that question requires a policy framework rather than a case by case contract level decision. That policy framework is not yet in place.
ExecutiveBiz: What should be keeping defense contractors up at night?
David Berteau: National security is critical. There is an awful lot going on both domestically in terms of program developments and obviously in terms of support for contingency operations overseas: in Iraq, Afghanistan, and elsewhere. Nobody should worry about being on a going out of business curve. Overall it’s still a good business. The next 18 months, though, will have decisions taken that will shape defense for a decade or more. That’s what industry needs to be watching.
Posted by Staff Writer
on Tuesday, September 1st, 2009. Filed under General.
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