Gates Calls for a New Acquisition and Contracting Paradigm
Defense Secretary Robert Gates’ Monday, April 6 press conference offered surprises as well as some things long anticipated. What seems apparent is an unwillingness to deal with decades-long procurement cycles, as budgets and threats are moving too quickly to maintain such a structure. Part and parcel of this is a reset on programs attempting to leverage leap-ahead technologies - whatever they may be. Gates’ comments on technology readiness should be taken seriously, as should his concurrent emphasis on a more rapid fielding of platforms and capabilities. One needs only to look at the ABL and FCS programs as examples that strayed from these evolving principles.
Program cancellations, redirects and recompetes will continue to garner a great deal of press coverage; their impacts appear immediate to their constituencies. Look for a change in contract structures, perhaps to include a greater number of firm, fixed price contract vehicles where appropriate, and look for more scrutiny on the feasibility of “productizing” technologies and delivering on schedule.
Gates has gone to great lengths to explain (time and again) that his decisions were made without regard to top-line DoD budgets or to their political and/or job related impacts. “I tell you as I said yesterday, virtually every decision that I announced yesterday I would have made regardless of what our top line was. If our top line had been $581 billion, I would have made the same decisions that I made and announced yesterday because they went to what should be in the base budget; they went to program a rebalancing of getting more of the irregular — the resources for irregular warfare into the base budget; putting a cap on programs where there was no military requirement for additional resources; and then killing programs where the budget was out of control or they were overdue or the technology was too great a risk,” Gates said in an April 7, 2009 Defense Media Roundtable.
On a “programs mentioned” basis, winners and losers are being singled out, and perhaps rightfully so especially when Secretary Gates called out the FCS contract vehicle in his April 6 News Briefing from the Pentagon: “Further, I am troubled by the terms of the contract, particularly in its very unattractive fee structure that gives the government little leverage to promote cost efficiency. Because the vehicle part of the FCS program is currently estimated to cost over $87 billion, I believe we must have more confidence in the program strategy, requirements, and maturity of the technologies before proceeding further.”
So, in the short term, Gates’ decisions on the following programs will positively or negatively affect the following companies, although Tier 1 and Tier 2 suppliers will also suffer/benefit:
1) VH-71 Presidential Helicopter reset and recompete: Lockheed Martin
2) CSAR-X cancellation: Boeing, Lockheed Martin and Sikorsky all competed
3) TSAT program cancellation: Boeing, Lockheed Martin
4) Cancellation of second ABL aircraft: Boeing
5) Multiple Kill Vehicle Program termination: Lockheed Martin
6) DDX to stop at three ships with likely reopening of DDG 51 line: General Dynamics likely hurt, Northrop Grumman to benefit
7) C-17 manufacturing termination: Boeing
8 ) Future Combat Systems, reset and recompete of vehicle portion: Boeing and SAIC
9) F-22, production to end at 187 aircraft:Lockheed Martin, Boeing
10) MDA, evolving emphasis on theater and/or “rogue” threats: Boeing, Raytheon, Northrop Grumman and Lockheed Martin - with the theater emphasis likely helping Raytheon at the relative expense of others.
rstearns @ April 8, 2009