The Industrial Base After the Drawdown
This event released two new DIIG reports on contract trends and competition in the defense industry. During the post-Cold War defense budget drawdown, the defense industrial base experienced extensive consolidation, with numerous prominent defense vendors exiting the market. The defense budget drawdown of recent years, however, has seen a notably different set of changes to the defense industrial base. There have been a few high-level mergers and acquisitions (such as Lockheed Martin’s impending purchase of Sikorsky), but the greater trend has been one of spinoffs, divestitures, and reformations of portfolios. In order to delve into the core issues facing the defense industrial base, CSIS brought together a panel of defense acquisition experts.
For the past year, the Defense-Industrial Initiatives Group has been working on two studies, “Analysis of Defense Products Contract Trends, 1990–2014” (Products) and “Competition and Bidding Data as an Indicator of the Health of the U.S. Defense Industrial Base" (Competition) that provide quantitative data that helps illustrate key trends affecting the defense industrial base. While both reports covered a range of ground, a common topic was an in-depth look at where the prime vendor base is thick and where it is thin.
The Products report separately analyzes contracting trends for each of the ten categories of supplies, including major weapon systems as well as regularly neglected areas like subsystems, components, commodities, and commercial goods. The report also breaks new ground by extending this analysis back to the 1990s, including a look at vendor size during that period. The report draws the conclusion that the budget cap drawdown, thus far, has not had any shifts in overall contracting comparable to those taking place during the peace dividend cuts, though there have been significant changes in specific sectors, such as Electronics & Communications.
The Competition report focuses on a deeper level of analysis of more recent years, looking at trends by geography and major contracting command (MCC). The study team created a regression analysis to guide us in identifying states and MCCs that had higher- or lower-than expected rates of effective competition. While Products primarily looks backwards, the Competition report is more focused on identifying possible areas of concern as the middle-term effects of the budget caps emerge.