Clunky Budgeting Hurts DOD’s New Tech Purchases, Report Says (1)

A congressionally mandated commission called on Congress and the Defense Department to make the legislative funding process more flexible so the US can acquire cutting-edge defense capabilities quickly.

The Planning, Programming, Budgeting and Execution Commission’s interim report released Tuesday said “the current segmented budget structure does not align with today’s technological and development environment.”

The PPBE commission, established by the fiscal 2022 National Defense Authorization Act, is an independent group of former defense officials, procurement professionals, and representatives from the private sector. The commission aims to improve how the DOD buys emerging technology with recommendations to make sure the federal budget process can keep up with the speed and agility of the private sector.

Most of the commission’s recommendations will require approval from Congress. The legislative session is likely too far along this year to see much traction, according to Bob Hale, former DOD comptroller.

“I don’t expect to see a lot, frankly, in the legislation this year. It’s well along and they’re in conference in most cases,” Hale said about the fiscal 2024 defense policy bill. “But I do hope to see comments.”

Ellen Lord, former DOD acquisition chief, said the war in Ukraine is catching lawmakers’ attention about the need to improve the Pentagon’s procurement system.

“That was a wake up call that the world’s changing around us,” she said at a Defense Writer’s Group event Tuesday. “Obviously everyone has eyes on China, and given where we are with gray zone warfare and so forth, there are some challenges to not only our national security but our economic security.”

With all of the changes that the commission is suggesting, Lord and Hale said they’re focused on making use of the Pentagon’s strengths while looking at partner nations and private industry for insight.

“We think it would be irresponsible to throw everything out, as appealing as that might sound to people,” Lord said. “What we’re trying to do is take what works and streamline it.”

Congress-DOD Relationship

The commission said the relationship between the Defense Department and Congress needs to improve with better communication and information sharing. It recommended a mid-year briefing to Congress by the Undersecretary of Defense Comptroller and consolidation of DOD budget line items to make management and tracking easier for both entities.

The report also criticizes continuing resolutions that occur when Congress doesn’t approve annual appropriations bills on time. These limit the DOD’s ability to start new programs or increase production capacity until full-year appropriations and authorizations are enacted, according to the report.

Solutions could include allowing “new starts”—significant new programs not previously justified to Congress—and reprogrammings—changes in the application of funds—to be approved by congressional defense committees that would then be implemented through informal agreement between the DOD and Congress.

Acquisition professionals and private industry executives point to the timing of federal appropriations as hindrances to the military’s ability to buy the latest emerging technology because funds must be planned years in advance.

“This policy creates incentives to obligate any remaining funding quickly at the end of the fiscal year to avoid losing the money to other internal DoD priorities or back to the U.S. Treasury, often called ‘use it or lose it,’ which can result in year-end spending on lower priority projects or activities and is especially problematic when budgets are enacted months after the fiscal year has already started,” the report said.

The backdrop of conversations about the DOD’s acquisition limits usually take on strategic competition with China and Russia—with Pentagon watchers fearing that the inability to move fast will hurt the US in acquiring the latest technology. However, research from the RAND Corporation, cited in the report, said those two nations’ own procurement systems face “many of the same challenges as their counterparts in Western democratic countries when it comes to resourcing their militaries.”

Based on DOD and congressional feedback, the commission said it may recommend a two-year flexibility to use appropriated money, an authority already wielded by some federal agencies like NASA and the Department of Homeland Security.

Following on a House Appropriations Committee report accompanying the fiscal 2024 Defense Department appropriations bill, the commission noted the benefits of aligning budgets to defense capability portfolios by directly connecting national security strategies to the DOD’s budget needs and program plans. This would also include consolidating budget line items. A “good place to start” would be the DOD’s research and engineering office, Hale said.

The commission is seeking more feedback on how to restructure the budget so “dollars are expressed in a more mission-oriented fashion,” with the hopes that the concept bleeds over to appropriators. The Air Force and Navy have previously tried to consolidate their programs, but they “dumped it in the budget submission instead of have the conversation, and so it wasn’t well received,” Hale added.

The Atlantic Council procurement reform group made a similar suggestion in April, which Lord also took part in.

Modernization and Innovation

One of the Pentagon’s systematic problems, cited in the House version of the 2024 NDAA (H.R. 2670), is the DOD’s ability to track and manage innovation efforts across the agency and its military branches. This makes it difficult for the agency to leverage new technology from small businesses that want to work with the DOD but can’t due to delayed or indefinite funding.

“It appears that every time we have had a major misstep, which usually comes out during an acquisition program, we go and put 25 Band Aids on it that hold everything else back,” Lord said. She said her office is looking at streamlining and scaling the innovation process—an initiative gaining steam in offices like the Defense Innovation Unit. Under its new director, former Apple vice president Doug Beck, DIU is focusing on scale in its next phase.

The DOD lacks a single authoritative database to reflect program and budget decisions. The report called for an acceleration and consolidation of its multiple data systems.

Lord said DOD could share digital twins of its internal systems with lawmakers to help with explainability and transparency.

Both the DOD and Congress still use static forms to share information, like paper or electronic documents like PDFs. The commission recommended using electronic options that allow searchable and sortable budget justification books.

Data and data transparency is key to improving the DOD-congressional relationship, Lord said. Communication could be improved by mimicking how publicly traded companies use “secure enclaves” to “transmit the most sensitive data between the company and their board of directors.” This would allow members to have ongoing oversight and actionable intelligence during the budgeting process.

The commission also detailed workforce problems, including unfilled personnel spots in several areas throughout the Office of the Secretary of Defense. That makes it more difficult to meet workloads and provide “a reasonable working environment and work-life balance necessary to recruit and retain a high-quality workforce.”

For example, the DOD’s Cost Assessment and Program Evaluation office—which provides the defense secretary with analysis on the military’s size, shape, capabilities, and resource allocation—has had a 9% attrition every year on top of recruiting challenges, according to the report.

Pay enhancements for skilled and senior employees, recruitment bonuses, faster hiring processes, and flexible telework policies would help the Pentagon recruit and retain talent, according to the commission.

More to Come

The commission plans to seek feedback from military departments, analyze private sector practices, and look at the DOD’s financial management at large.

The PPBE committee will include research from other entities in the final publication. Studies include comparisons of similar processes in other countries and federal agencies, review of metrics and structural influences on spending behavior, and analysis of the Small Business Innovation Research program.

The next six months will be critical as the commission dives into more detailed conversations on how to get buy-in from DOD and Congress. The goal is for the US to “maintain a significant overmatch versus strategic competitors,” Lord said.

A final report will be released in March 2024.

To contact the reporter on this story: Patty Nieberg in Washington at pnieberg@bloombergindustry.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloombergindustry.com