Change Is More Than a Line Item

The U.S. fiscal year 2011 budget submission is in the hands of Congress, and information on defense budgets internationally provides clarity in the wake of the global economic crisis. At the same time, dialogue with government and industry has given us some insight into near- and mid-term direction. I want to share some of that information because the more we all understand probable trends and direction, the better we will be able to work together to provide the solutions needed going forward.

First, on the budget: Ray Bjorklund, senior vice president and chief knowledge officer at FedSources, has said that according to his firm’s analysis, the overall contractor-addressable budget across the federal government will decline 4.8 percent from 2010 to 2011. Federal information technology spending will fare a little better, growing by 2.9 percent in total. Defense information technology will do a bit better with a 6.6 percent increase. Most European and Pacific governments either are forecasting or have set budgets for defense and security with significant cuts, some as high as 15 percent to 20 percent. However, remember that with the United States, NATO and a number of allies in conflict, some of the available resources go to warfighting sustainment and inventory replacement, which are not addressable by many of our members. Gen. George W. Casey Jr., USA, U.S. Army chief of staff, said recently at an AFCEA Northern Virginia Chapter luncheon that it could take seven or more years to restore the inventory consumed in Iraq and Afghanistan.

So what should we observe in terms of government direction? Where should industry be applying its effort and resources? This is my take based on input to date.

In the United States, the key is to watch the Quadrennial Defense Review, or QDR, and its impact on shaping future budgets. Traditional planning, which was based on two major regional conflicts and one smaller local engagement, has been replaced by an underpinning assumption that the threat today likely will drive small, agile engagements but that the possibility of conventional warfare continues to exist. This will drive the military services and joint commands to move toward full-spectrum balance and, probably, some realignment.

Recognition of cyberspace as a war- fighting domain and the need to address cyberspace effectively is prompting the establishment of the U.S. Cyber Command and component commands in each of the military services. This inevitably will force consolidation in the cyber community and a change in the way industry is engaged.

The agility required for asymmetric warfare and humanitarian assistance/disaster relief operations has put unprecedented emphasis on the enterprise view for joint commanders/organizations, the military services and federal agencies. Cloud, or at least shared, computing will happen broadly in some form. Federation is occurring and will accelerate in the United States and NATO. Security architectures will, to a large extent, drive the train. Enterprise security solutions will be at a premium. Identity and attribute services will be key, driven by the enterprise approach and the move to federation. Integration of social networking into the defense and security fabric will occur—there will be opportunities for innovation here.

Government research and development (R&D) budgets will be among the hardest hit. Much of the burden for R&D will shift further to industry—a trend that has been occurring for some time. Aneesh Chopra, the U.S. federal chief technology officer, said recently that the White House wants to use industry “challenges” to promote innovation, competition and speed of fielding. This involves throwing out a tough problem, asking for innovation, then evaluating the results and awarding contracts based on such review. This shifts the risk heavily to industry, but it gives innovative companies an opportunity to get some visibility.

We will see fewer new contract starts, and what we do see will lean heavily toward services. An example would be the new services contract recently announced by the Defense Information Systems Agency (DISA) through a request for information (RFI). This would be a new global contract for information security, operations centers, program management, test and evaluation, enterprise architecture, systems engineering, spectrum management and exercise support. The value has been estimated at up to $100 million. Indefinite delivery/indefinite quantity (IDIQ) contracts are likely to be more focused going forward to promote competition. Emphasis on small business content is likely to grow because of the Obama administration’s focus on small business.

Finally, we need to be cognizant of the increased emphasis on conflict of interest that has emerged from Congress. New legislation gives government buyers much less flexibility in mitigating conflict of interest. Large companies with both systems engineering and technical assistance (SETA) and advisory and assistance services (A&AS) contracts, as well as production contracts or bids, will be most affected. Companies will have to be more strategic in their bid approaches, weighing their entire contract portfolios against the conflict-of-interest provisions in target contracts. We no longer should assume that mitigation for apparent conflicts of interest will be seriously considered. The most significant example of this problem to date is the divestiture of TASC by Northrop Grumman, driven by conflicts of interest between TASC’s SETA and A&AS work and the production work of other elements of Northrop Grumman.

The bottom line is there will be challenges going forward, and both government and industry need to work together to ensure optimum application of available resources to meet the mission. Effective communication is an important element of this cooperative effort.