On October 15, 2014, the Center for Strategic & International Studies (CSIS) released a report on U.S. Department of Defense (DOD) contract spending between 2000 and 2013. The report analyzes publicly available information from the Federal Procurement Data System (FPDS) and thus does not consider classified contracts, which CSIS estimates to account for up to 10 percent of DOD contract spending.

The CSIS report focuses in particular on the effect of Fiscal Year 2013 sequestration on DOD spending. Overall, DOD-funded contract obligations decreased from 53% of overall DOD spending in 2012 to 49% in 2013, bringing DOD contract spending to its lowest percentage since 2002. The same period saw a 16% decrease in the volume of contract spending—4 times the percentage drop experienced during the budget drawdown from 2009 to 2012—despite the fact that DOD noncontract spending was relatively unchanged between 2012 and 2013.

CSIS measured a number of dimensions of DOD’s spending decreases during the 2012-2013 period:

Spending Area Decrease
Defense Logistics Agency (DLA) contract obligations 23%
Air Force contract obligations 22%
Contract obligations for research and development (R&D) 21%
Army contract obligations 21%
“Other DOD” contract obligations 18%
Contract obligations for products 17%
All DOD-funded contract obligations 16%
Contract obligations for services 14%
Gross DOD outlays 8%
Navy contract obligations 2%
DOD noncontract gross outlays ~0%

 

Regarding both DLA contract obligations and those for products, the report notes that the large decreases in 2013 were skewed by an unusually high level of contract obligations for fuels in 2012, while fuel-buying declined in 2013. And the perceived decreases in spending for both “Other DOD” contract obligations and those for products were amplified by a change in the reporting patterns of the Defense Commissary Agency, which in 2013 no longer reported more than $5 billion of annual nonappropriated-funds contract obligations in FPDS. Moreover, the significant cuts to R&D contract spending differed among DOD components: Army R&D spending decreased by 35%, Air Force by 27%, “Other DOD” by 15%, and Navy by 10%.

In addition to changes in the amount of contract spending, CSIS also analyzed changes in competition for DOD contracts. Overall, the portion of DOD contracts awarded without competition stayed fairly consistent between 2000 and 2009 at 36-40%, and began to slowly increase in 2010, reaching 43% in 2013. DLA and “Other DOD” entities had the highest rates of effective competition, trailed by the Army, and then the Navy and Air Force. CSIS hypothesizes that the higher level of effective competition among DLA and “Other DOD” entities may be attributable to the more commercial goods and services procured by those agencies.

The report concludes that the Budget Control Act of 2011 and sequestration “had a significant effect on both overall defense outlays and defense contract obligations,” and “that a disproportionate share of the budget reductions . . . has been borne by contracts and by the defense industrial base.” Nevertheless, the report hesitates to interpret sequestration-year trends as having longer-term significance. Among other nuances in the spending decreases, the areas that fell off the most in 2013 generally had experienced smaller decreases in 2012, and thus the 2013 cuts may have had a cross-category leveling effect. It remains to be seen how spending patterns will evolve and stabilize in future years.