As its January 2 deadline draws near, sequestration and the roughly $500 billion it will cut from defense have received increasing attention. While proponents of these dramatic cuts argue it shows fiscal restraint and will save the country money, the sensitive nature of Department of Defense (DOD) contracting could mean programs will cost more to the taxpayer in the long run if the cuts do indeed take place.
The Office of Management and Budget reported last week that major defense accounts will each face reductions of 9.4 percent under sequestration, but failed to provide specifics. A blind cut of this degree could cause serious problems for DOD managers charged with running their programs efficiently.
Many of these programs are already underway. The managers of these will find it quite difficult to administer a 9.4 percent cut when they have already spent significant time creating plans under previous assumptions. Long-term acquisition, operation, and maintenance programs often rely on long-lead purchases, which take advantage of locked-in prices and economies of scale. Aside from breached contract fees, program managers will also have to reevaluate how much they can afford immediately versus long-term planning, which may cause cost growth in the future.
The U.S. Navy fleet demonstrates the need for steady and predictable budgeting. Aircraft carriers, for example, take roughly five years to construct. Sequestration will potentially lengthen this build rate by a year, causing uncertainty for the shipbuilders and the companies that supply them.
The dilemma facing the suppliers particularly threatens national security forces for two reasons. First, many suppliers are extremely specialized, and in some cases are the sole provider of a product or service that goes into building a warship. Second, supplier companies are often small businesses. If their only customer is the U.S. Navy, and business is uncertain, they may have to exit the market. These are specialized capabilities and processes that sustain America’s naval superiority in the world.
If the armed services lose such capabilities, what are the costs to find and secure contracts with a replacement? Will the loss of one supplier stall other components of their development? For how long will the military have to go without a certain capability necessary to executing its missions? These are all significant concerns facing acquisition officials, who currently do not know how the across-the-board cuts will be administered.
The Obama Administration, through its congressionally mandated report and throughout this debate, has oversimplified the catastrophic effects sequestration will have on national security. Congress needs to fulfill its constitutional responsibility to provide for the common defense by responsibly funding security forces, rather than using it as a political tool as the President has done.
