Maybe April isn’t the cruelest month. No, it is. But there is some good news for the defense industry. The Center for Strategic & International Studies’ (CSIS) Defense Acquisition Trends 2016 is out, and the title says a lot: “The End of the Contracting Drawdown.” This is CSIS’s second annual report, and it’s a welcome sign of spring for the defense industry. As Jesse Ellman, et. al. announce in the Executive Summary, “CSIS was able to establish that the tide has definitely turned in the direction of contract spending.” Here’s a glimpse inside.
defense budget FORENSICS
The CSIS report is an incredibly deep and careful dive into decades of defense spending, and CSIS has gone to great lengths to put complex budgets in context of strategic priorities and operations, service by service, expenditure by expenditure, so the report is both an explanation of the past and, while CSIS might deny it, a bit of a crystal ball into the future. The report explains what budget trends show that the Department of Defense (DoD) is buying, how the Department’s buying what it’s buying, which industries from services to research are earning defense spending dollars, and who’s buying what across the services and agencies.
Budgets BETTER THAN EXPECTED
The end of the decline (the word decline saturates the 144 page report) means just that: the end of the decline. It does not mean, however, that there’s been a jump in spending (growth used only 50 times). Still, even CSIS is surprised by its findings. “CSIS had predicted the decline was close to reaching its floor,” the report says. “In fact, the picture is far better than most anyone would have predicted, as overall DoD contract obligations increased by 7 percent, representing an increase of $18 billion over 2015 obligations levels.”
WHAT TO WATCH
Among the three categories of spending—products (think big platforms), services (from consultants to custodians), and Research and Development (R&D, from human resources studies to railguns)—R&D seems poised for an accelerated comeback during Trump Administration years. Indeed, we hear the President promising a bigger military. But, CSIS reports, “Contract obligations related to [major defense acquisition programs like ships and jets] have only accounted for roughly a quarter of DoD contract obligations in recent years.”
Bigger alone is not necessarily better. Ships outfitted with old technology inside don’t last too long. Jets without overwhelming strategic reach, stealth, and maneuverability don’t fly. So a better military necessarily includes evolutionary leaps in technological. “DoD contract obligations rose by 7 percent in 2016,” CSIS reports, “after continuous decline since 2009. This increase was driven by increases in obligations for procurement of high-profile platforms, but both services and R&D showed minor gains as well.”
Key to the R&D spike that might be ahead is the Obama Administration’s Third Offset Strategy. “Championed by Deputy Secretary of Defense Bob Work, the Third Offset Strategy is being pursed to counter great powers (China and Russia) and ensure continued U.S. military technological superiority.” Well, Work’s still working, and threats from neither China nor Russia are diminishing.
GET SOME COFFEE
The CSIS report is as welcome as it is complex in unravelling defense spending. So get to Starbucks, grab a latte, tune in the WiFi, and sit back for an enthralling read.