Defense Department spending drops $24 billion in 2014

Andy Medici, Staff Writer Federaltimes.com  12:10 p.m. EDT March 26, 2015

Defense Department spending fell $23.7 billion — or nearly 8 percent — in fiscal 2014 even as civilian agencies saw increases in overall spending.

Federal governmentwide contract spending fell $17 billion in fiscal 2014, according to data obtained from the Federal Procurement Data System.

Overall spending fell from $462 billion in fiscal 2013 to $445 billion in 2014, according to the data. Contract spending has fallen the last several years — about 17 percent since fiscal 2011 — down from a height of $539 billion.

But while overall contract spending fell, most civilian agencies bucked the trend. Spending at the Department of Homeland Security, Health and Human Services Department and NASA all increased in fiscal 2014. The Veterans Affairs Department and the Social Security Administration also saw increases in spending.

Dan Gordon, former administrator of the Office of Federal Procurement Policy and associate dean for government procurement law at George Washington University, said the drop in spending mirrors a similar drop in fiscal 2013, when most spending reductions came from DoD and not civilian agencies.

He said it could be because of the ongoing drawdowns in Iraq and Afghanistan, as well as the continuing effects of sequestration that are hitting DoD spending harder.

“It is extraordinary, and very surprising,” Gordon said

GOVERNMENT SPENDING BY AGENCY
(Figures are in $ millions)
Agency 2013 2014 % Change
Treasury 6,887 5,553 -19
USAID 4,453 3,816 -14
Defense 308,650 284,908 -8
Justice 7,265 7,067 -3
General Services Administration 8,696 9,016 4
Veterans Affairs 18,334 19,026 4
Homeland Security 12,250 12,828 5
NASA 14,230 14,998 5
Energy 23,968 25,385 6
Health and Human Services 20,123 21,389 6
State 7,348 9,062 23
Source: Federal Procurement Data System, Federal Times research

Contract spending will probably stabilize further in fiscal 2015, Gordon said, without any large drops or increases. But as Congress works to increase funding for the Defense Department, that spending might end up increasing in fiscal 2016, he said.

“I would expect that the numbers — if they drop at all — won’t drop as much as last year. You might even see a turnaround in DoD contract spending that leads to an overall increase in contract spending,” Gordon said.

Michael O’Hanlon, a senior fellow at the Brookings Institution and a former national security analyst at the Congressional Budget Office, said fiscal 2014 spending numbers are down primarily because of the decrease in war costs and the continuing downward pressure of sequestration.

O’Hanlon said he believes there is a chance of higher numbers if Congress approves an increase in the overall DoD budget.

Military spending
(Figures in $ billions)
Services 2013 2014 % change
Army $87.40 75.8 -13.2
Navy $93.80 84.2 -10.2
Air Force $55.10 55.8 1.2
Source: Federal Procurement Data System

Rob Burton, former deputy administrator of the Office of Federal Procurement Policy at OMB and a government contracts attorney at Venable, said the drop in spending was not just related to sequestration but to an administration effort to reduce contract spending as a policy goal.

He said OMB has pushed agencies to rely less on contracted services and personnel, which he called “flawed reasoning.” In many agencies, federal personnel are short on experience or short on the critical skills the agency needs, Burton said.

“I think that is somewhat shortsighted — the government’s reliance on the private sector is probably more critical now than it has before,” Burton said.

While the Defense Department is seeing sharp drops now it will more than likely begin seeing increases in the next few years, Burton said. Congressional pressure to increase the Defense budget will force an increase in contract spending, he said.

The Army saw a 13 percent drop in spending, from $87.4 billion in fiscal 2013 to $75.8 billion.

The decrease was primarily the result of the drawdown, which reduced requirements resulting in fewer contracts and contractor personnel to support the mission, according to the Army.

The Army might see a smaller drop in spending in fiscal 2015 than it did in previous years — $5 billion or less — Harry Hallock, deputy assistant secretary for procurement at the Army, told Federal Times March 16.

Hallock said while fiscal 2015 might see some leveling off, Army contract spending has been falling every year since fiscal 2012. But the real concern within the Army is the automatic budget caps passed by Congress known as sequestration.

“What we are really worried about of course with sequestration is 2016, when it will fall off the cliff,” Hallock said. He would not speculate on how much of a drop that would entail for the Army.

Top contractors see drop in agency spending

The drop in government contract spending — especially within the Defense Department — also translates to a 12 percent drop in spending going to the top 10 contractors. Contract spending for the top 10 fell from $125.6 billion in fiscal 2013 to 110.3 billion in fiscal 2014.

Lockheed Martin took the biggest hit, with the total spending falling from $44 billion in fiscal 2013 to $32 billion in 2014 — a 27 percent drop. Boeing saw its share of spending fall as well, from 21.5 billion in 2013 to 19.4 in 2014.

Top Contractors
(Figures are in $ billions)
Contractors Fiscal 2013 Contractors Fiscal 2014
Lockheed Martin Corporation 44 Lockheed Martin Corporation 32
The Boeing Company 21.5 The Boeing Company 19.4
Raytheon Company 13.8 General Dynamics Corporation 14.4
General Dynamics Corporation 12.6 Raytheon Company 12.4
SAIC Inc. 6.2 Mckesson Corporation 6.2
Huntington Ingalls Industries Inc. 6.2 United Technologies Corporation 6
L-3 Communications Holdings Inc. 5.8 L-3 Communications Holdings Inc. 5.8
United Technologies Corporation 5.8 BAE Systems Plc 5
BAE Systems Plc 4.9 Huntington Ingalls Industries Inc. 4.6
Northrop Grumman Corporation 4.8 SAIC Inc. 4.5
Total spending 125.6 Total spending 110.3
Source: Federal Procurement Data System

General Dynamics Corporation saw a $1.8 billion increase, from $12.6 billion in 2013 to $14.4 billion in 2014.

McKesson Corporation, which provides pharmaceuticals and medical supplies, saw its share of spending increase from $4.7 billion in fiscal 2013 to $6.2 billion in 2014, raising it to the fifth biggest contractor by agency spending.

Aircraft manufacturing and engineer services take hit in fiscal 2014

Aircraft manufacturing took a big hit in fiscal 2014, with spending falling $15.3 billion to $30.9 billion. Engineering services also dropped from $29.2 billion to $26.9 billion in fiscal 2014.

SPENDING BY INDUSTRY
(Figures are in the $ billions)
Industry Classification Fiscal 2014
Aircraft manufacturing 30.9
Engineering Services 26.9
Research and development in the physical, engineering, and life sciences 22.8
Facilities support services 20.4
Commercial and institutional building construction 17.9
Ship building and repair 17.4
Computer systems design services 14.5
Direct health and medical insurance carriers 12.8
Other computer related services 12.6
Total 176.2
Industry Classification Fiscal 2013
Aircraft manufacturing 46.2
Engineering Services 29.2
Facilities support services 23.5
Research and development in the physical, engineering, and life sciences (except biotechnology) 21.4
Ship building and repair 16.3
Commercial and institutional building construction 16
Guided missile and space vehicle manufacturing 13
Computer systems design services 12
Other computer related services 11.7
Total 189.3

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