Defense Update
By Al Jackson, Total Spectrum Strategic Consultant
In a recent white paper published by the National Defense Industrial Association, the Fiscal Year (FY) 2023 defense budget must total $815 billion just to outpace inflation. That figure represents a $42 billion increase over the Administration’s FY2023 budget request. If not addressed, the Pentagon will experience an estimated $110 billion loss in buying power in the coming years due to record-setting inflation, resulting in reduced quantities and maintenance backlogs or cost overruns and delays.
Further, the white paper indicates the current Continuing Resolution (CR), which keeps the government operating through December 16, 2022, will hinder the Pentagon’s buying power by $6 billion every month the CR remains in effect.
As defense companies cope with soaring inflation, the Pentagon is considering issuing new guidance that would give contracting officers more flexibility to adjust, especially on firm, fixed-price contracts with suppliers. The Pentagon hopes to update guidance for contracting officers in the very near future. Small businesses operating under firm-fixed pricing contracts coupled with 11% inflation could threaten their future survival.
Late in September, the Senate Appropriations Committee reported an $850 billion defense spending bill, which is well above the administration’s FY2023 request of $773 billion. The large budget increase was needed in response to the increase in inflation.
Budget numbers associated with the four key defense committees are as follows:
- House Appropriations Committee: $762 billion
- House Armed Services Committee: $839 billion
- Senate Armed Services Committee: $847 billion
- Senate Appropriations Committee: $850 billion
Procurement of the F-35 Joint Strike Fighter program received an increase, as the committee added $725 million for more F-35 aircraft. For Air Force aircraft, the committee fully funded the service’s request for 24 F-15EXs, 15 KC-46 tankers, and five MH-139A Grey Wolf helicopters. Appropriators also increased several aircraft procurement programs beyond the Air Force’s request. The committee added $298 million to increase procurement of the Combat Rescue Helicopter by 10 HH-60Ws, for a total of 20 aircraft. The committee also added 16 Georgia-built C-130Js aircraft at a total cost of $1.7 billion, and fulfilled an unfunded requirement of $554 million for four new Compass Call aircraft. The Army’s Apache helicopter also received full funding.
Small defense contractors, which benefit from the popular Small Business Innovation Research (SBIR) grants and Small Business Technology Transfer (STTR) awards, will see the programs reauthorized for three years, as both Houses passed the measure in late September. The SBIR and STTR programs are designed to incentivize small businesses to engage in early-stage research and development for technologies and products.
Unfortunately, Chinese state-sponsored companies have targeted U.S. firms that receive the SBIR and STTR grants, which are awarded jointly by 11 federal agencies. A 2021 Pentagon report on a small sample of SBIR awardees found China was the ultimate beneficiary of the grants, not the United States. Hence, the legislation requires SBIR or STTR applicants to disclose whether the company has ties to “any foreign country of concern, including the People’s Republic of China.”
Late in September, the Senate Foreign Relations Committee reported the Taiwan Policy Act, which includes $6.5 billion in military aid for Taiwan. Senate Foreign Relations Committee Chairman Bob Menendez (D-NJ) hopes to pass this legislation as an amendment to the FY2023 National Defense Authorization Act (NDAA). Congress will begin debate on the NDAA later this month, though a final vote won’t come until after the midterm elections.