Budgets Require Industry-Government Cooperation.

AuthorHallman, Wesley P.

* We should all celebrate the recent passage and signing of the 2019 Bipartisan Budget Act that ended the federal budget impasse and did away with the destructive spending caps imposed by the 2011 Budget Control Act. Thankfully, the way legislators wrote the budget deal and its two-year coverage means the threat of sequestration has finally passed.

Observers will note, however, the budget deal hints at the feared decline of defense resourcing going forward. While the defense topline grows by 2.64 percent in 2020, that growth slides to 0.33 percent in 2021; and these percentages do not consider inflation. That is well below the 3-5 percent real growth after inflation called for by former Secretary of Defense Jim Mattis. He saw that growth level as a requirement to regain readiness and make the necessary investments in modernization and recapitalization to ensure the U.S. military can carry out the National Defense Strategy.

While defense experts, think tanks and the Defense Department all call for fully resourcing the strategy, harbingers of flatter defense budgets yet again call for the hard thinking required to get the absolute most out of every defense dollar spent. One critical avenue of that approach is better government-industry collaboration. The more government can work with industry to identify key technology and workforce investments, telegraph future requirements, and develop innovative contracting vehicles, among other things, the more efficiently and cost-effectively industry can provide the best services and products to our warfighters over time.

This may seem obvious, but recent policy efforts both on the Hill and in the Pentagon indicate otherwise. One example is the recent effort to revamp how the government funds capital-intensive projects for companies through contract financing. Right now, companies receive financing on average for 80 percent of the total cost of these projects. This financing frees up internal capital, allowing the company to make upfront investments in research and development, workforce hiring and training, tooling, etc.

Instead, the revamped rule would have lowered the cap on financing to 50 percent, with outyear incentives to bring that percentage higher while requiring industry to self-finance the rest. This would have been onerous for larger contractors and existential for smaller ones, which would have suffered from the trickle-down impact of prime contracts having less available capital...

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