I would tell you anecdotally that China is still, after gains we’ve made in the last five years or so, about five to six times faster than us in acquisition. In purchasing power parity they spend about one dollar to our twenty dollars to get to the same capability. It’s math, ladies and gentlemen. We are going to lose if we can’t figure out how to drop the cost and increase the speed in our defense supply chains.
That was retiring General Cameron Holt, chief of Air Force contracting, at a great presentation during the Government Contracting Pricing Summit. Holt argues that in the DIME model of national power — diplomatic, informational, military, and economic — the United States for many reasons underutilizes its strengths in information and economy, but a strong military deterrent is still incredibly important. I was glad to hear that Holt put the resourcing system at the top of the list in terms of what has to change:
If we don’t change our resourcing system, none of the rest of it matters… Not just the PPBE [Planning, Programming, Budgeting, Execution]. I actually think that’s second place. So the budgeting process could be the same budgeting process we have today, as glorious and as slow and stodgy as it is. If you just change the execution year flexibilities and modernize Congress’s oversight of it to be more patient — which is saying a mouthful because when their constituent calls [about] the decision to take money away from your negotiation and give it to another one, that’s the hard part to get over.
I would quibble with the general because in-year execution flexibility is 100% a PPBE issue. And so is the slow, multi-year budget build process. What is the point of spending years hammering out a requirement, getting all the acquisition, test, sustainment, lifecycle cost estimates, etc., in a row, and then sending it through a prioritization process to get budgeted — Why do any of that if DoD just gets to move money around at will in the year of execution? If the plans are recognized to be faulty, so why tie resources to a specified plan?
Holt explained his “cash flow” model that would allow for some flexible reallocation, but the problem remains. What was the point of Congress debating how much a particular weapon line item gets if DoD can move a significant percent of that? As Congress stated in 1971 after DoD had been moving unexpired funds to different or new programs:
“The availability of these funds makes defense planners, to a limited extent, immune from tight Congressional fiscal control.”
Policy and appropriations are intertwined, and until Congress provides more “mission command” or “relational contract” direction in appropriations, DoD seems stuck. And it’s not just Congress, but layers of DoD and OMB equities that are derived from their power over the program plan and program budget.
And thus, all speed and all flexibility goes nowhere unless PPBE as a whole is tackled. Year-of-execution flexibilities, like the ability to move money from one program to another, implement the cash flow model, increase new start authority, or whatever it might be — these cannot be separated from the ideology of program planning and budgeting.
I documented precisely how much flexibility DoD had through budget portfolios and reprogramming authorities prior to PPBE in my 2022 NPS paper: Pathways to Defense Budget Reform. I draw a causal link between the rise of PPBE and the dramatic reduction of in-year-of-execution flexibilities.
Alright, more from Cameron Holt on PPBE reform:
We also have gotten a very centrally and micromanaged system of appropriations that have served the cold war well. In this environment today, it is absolutely going to kill us. We cannot have a system where the appropriations — where it’s in statute that the name of the program is on that money, and the phase within the program is on the statute, so it’s illegal for a program executive officer inside of execution year to look at that and say — ‘No, there’s a better way to allocate those resources.’
As fast as technology is moving, when this PPBE process demands that we should know four years in advance what kind of technologies and what colors of money we want to put the budget request in for. Then, in execution year, our ability to make decisions that are smart is limited and requires the prior approval of Congress using archaic, very cumbersome processes we call an above threshold reprogramming action, or an omnibus reprogramming bill. Enormous amounts of activity that take a long time and get political. So if the legislative branch doesn’t like what the executive branch is doing they’ll say, ‘Well, I’m not approving your ATRs.”
Holt said that the Air Force has been accused of “innovation theater” using the SBIR funding, which is about $700 million a year. But he explains that is it basically the only RDT&E funds that “doesn’t have the name of the program on it, the phase of the program.” Nor is it “micromanaged” by Congress because SBIR is a tax on each program, so they don’t see it necessarily and cannot program it to specific constituents. But SBIR is far too small for the task at hand.
There was much more of interest from General Holt, including some thoughts on flipping business models and ideas about profitability. But I’ll leave you with this, because it isn’t often enough that a credible individual is willing to take Congress to task for their fixation on self-interest as opposed to the national interest:
I know the appropriators are concerned about that because it gives them the ability to help their constituents. If their constituents are concerned that they have a certain amount of money for that company in the budget, if a PEO decides to move that money while there’s negotiations are going on, you better believe that congressman is going to get a call. Can we as a nation start to understand how important it is or we’re going to lose if we don’t think of more modern ways to do the oversight. I swore allegiance to the constitution. I believe congressional oversight is necessary. But we’ve got to modernize it. Instead of an oversight process that happens once per year, maybe there’s insight we can give them quarterly but we don’t stop decisions that need to be made on the fly.
By the way, can you imagine if DoD could move money around how quickly it would gain leverage on contractors unwilling to provide information or offer a reasonable price in sole source negotiations? DoD has no way of credibly holding that money at risk from a sole-source contractor, finding alternative solutions to make them play ball. The implications of PPBE are far-reaching to every aspect of acquisition. I hope the Congressional Commission on PPBE Reform considers these issues and talks to people like General Cameron Holt.
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