The Insider

The week ahead features two key Army events, as well as a dialogue on the future of naval aviation with a top Navy official.

Tuesday

The Army hosts its annual space and missile defense symposium in Huntsville, AL.

The Army hosts an innovation summit in Williamsburg, VA.

Thursday

The Center for Strategic and International Studies and the United States Naval Institute host a dialogue on the future of naval Aviation with Vice Admiral Mike Shoemaker, chief of the Navy's air forces in the Pacific.

Some must-reads from this week's issue of Inside the Navy:

1. Congress has approved a $9.5 million reprogramming action allowing the Marine Corps to buy 144 Polaris MRZRS as part of a new-start "utility task vehicle" program.

Full Story: Congress approves Marine Corps purchase of 144 MRZRs

2. The Marine Corps plan to field a large, sea-based unmanned aerial system with strike capability is making its way through the joint requirements process and is on track for Pentagon approval by the beginning of fiscal year 2017.

Full Story: Marines on track to field large, sea-based UAS pending JROC approv

3. Marine Corps used the support of a MQ-9 Reaper organic to a Marine Expeditionary Unit for the first time during a recent technology experiment, and contractor General Atomics Aeronautical Systems is pitching the drone as an interim capability for the service as it weighs long-term requirements for a large, sea-based unmanned aerial system.

Full Story: Marines use Reaper drone for first time during tech experiment

The Air Force will host a "collaboration day" later this month for munitions developers interested in designing, developing, manufacturing and testing a prototype, subsonic, conventional cruise missile.

The event, planned for Aug. 30 and 31 will provide potential prime contractors with "top-level" information about the service's "Gray Wolf" science and technology program, formerly known as AFRL Cruise Missile.

The service intends to issue a broad agency announcement for the effort in the near future, and will likely award contracts in the FY-17 time frame.

A speech this morning by the Army secretary leads off this Thursday INSIDER Daily Digest.

Army Secretary Eric Fanning spoke in Rhode Island this morning at an energy conference:

Fanning: Army making strides on energy, but work remains

The Army's efforts to increase energy efficiency have yielded key advancements of late, but the service is committed to doing even more, according to its secretary.

Document: Army secretary's speech on energy efficiency

A sneak peek at part of the front page of tomorrow's Inside the Air Force:

Congress releases a portion of fenced weather satellite development funds

The Air Force confirmed this week that Congress has released some of the funds fenced off from its Weather Satellite Follow-on program after the service wrote a letter noting concerns that without funding, a contract for a key, enabling demonstration mission could be held at risk.

Air Force concerned about KC-46 contract breach under long-term continuing resolution

The Air Force is worried a long-term continuing resolution that caps the quantities of Boeing-built KC-46 tankers the service can buy next year could break contractual production agreements and slow a key delivery milestone for the already-delayed program.

The Defense Innovation Unit Experimental is getting an increasing amount of attention:

Seeking innovation, CSRA executives visit West Coast

CSRA executives last month visited the West Coast, including meeting with the Defense Innovation Unit Experimental, as part of its focus on next-generation technologies.

A House Republican-led task force released a report today on CENTCOM's intelligence analysis of ISIL:

GOP-led task force says CENTCOM manipulated intelligence reports on ISIL

Officials from U.S. Central Command have provided a more rosy depiction of U.S. efforts to combat the Islamic State of Iraq and the Levant than the facts warranted, according to a new report from a congressional joint task force.

Document: Congressional task force's report on CENTCOM intel analysis of ISIL

News from today's Inside the Pentagon:

OMB institutes new custom-developed source code policy, pilot program

Aiming to save money, prevent duplication and enhance transparency, the White House Office of Management and Budget is instituting a new policy designed to ensure that custom-developed federal source code is shared across the federal government for reuse purposes.

Document: OMB memo on federal source code policy

 

Defense budget analyst sees tall order for gridlocked Congress

A new report from a Washington think tank highlights current and future challenges facing defense spending, while the GOP-dominated Congress is expected to continue a bitter budget battle with Democrats and the White House when lawmakers return from summer recess next month.

DOD IG launches audit to see if DISA complied with software processes

The Defense Department's inspector general is launching an audit of the Defense Information Systems Agency to determine if it complied with required software lifecycle management processes.

Document: DOD IG memo on DISA's software management process

 

IG begins investigation of DOD's info systems contingency plans

The Pentagon inspector general's office has launched an audit of the department's contingency planning for its information systems, according to a recent memo.

Document: DOD IG memo on 'audit of contingency planning for DOD information systems'

Defense-related news from our colleagues at Inside U.S. Trade:

Final export control rules issued for two munitions list categories

The Commerce Department's Bureau of Industry and Security and the State Department's Directorate of Defense Trade Controls in late July issued final rules implementing export control reforms for two munitions list categories covering toxicological agents and directed-energy weapons.

Here are some must-reads from this week's edition of Inside the Pentagon:

1. Aiming to save money, prevent duplication and enhance transparency, the White House Office of Management and Budget is instituting a new policy designed to ensure that custom-developed federal source code is shared across the federal government for reuse purposes.

Full story: OMB institutes new custom-developed source code policy, pilot program

2. U.S. Special Operations Command intends to hold a government-industry collaboration event next month that will enable organizations to better comprehend the needs of special operations forces helicopter aircrews and what is needed to help achieve next-generation cockpit and aircraft avionics architecture.

Full story: SOCOM to host government-industry event on aircraft avionics architecture

3. A new report from a Washington think tank highlights current and future challenges facing defense spending, while the GOP-dominated Congress is expected to continue a bitter budget battle with Democrats and the White House when lawmakers return from summer recess next month.

Full story: Defense budget analyst sees tall order for gridlocked Congress

Orbital ATK said today it expects to restate recent financial statements in connection with a $2.3 billion Army contract to manufacture and supply small-caliber ammunition at the Lake City Army Ammunition Plant in Missouri.

The 10-year contract was awarded to ATK in 2012; Orbital merged with ATK's aerospace and defense groups last year.

The "company believes that the Contract will result in a net loss over its 10-year term," Orbital ATK said today. "Under generally accepted accounting principles, the company is required to record the entire anticipated forward loss provision for a contract in the period in which the loss becomes evident. The company believes that a forward loss provision should have been recorded for the Contract in fiscal 2015, which was the first year of large-scale production under the Contract."

Orbital ATK said it anticipates restating its financial statements for fiscal year 2015, which ended March 31, 2015, as well as the nine-month transition period that ended Dec. 31, 2015 and the quarter that ended April 3. The company said it estimates the forward loss provision will reduce previously reported pre-tax operating income by about $400 million to $450 million and after-tax net income by about $250 million to $280 million.

"The company's evaluation of the misstatements is ongoing and, accordingly, the determination as to which fiscal period the forward loss provision and related effects should have been recorded is preliminary and could change," the contractor added.

During a morning call with analysts, David Thompson, Orbital ATK's chief executive, said he is "very concerned by this situation and absolutely determined that nothing like it will ever happen again." He said the company does not believe there were any "intentional misstatements" or "misbehavior." Other factors, he said, "obscured the actual performance of the Army contract as it ramped up, beginning in 2014."

"While the Lake City contract restatement is very distressing to me, I am very confident that accounting errors are isolated to this one program," Thompson said. "More generally, while it is certainly an unfortunate development, this single event should not overshadow an otherwise highly successful merger."

Orbital ATK's stock fell sharply today. After closing at nearly $89 per share on Tuesday, the company's stock had fallen to under $70 per share by early afternoon Wednesday.

The company also said today that sales in its most recent quarter reached $1.1 billion, down about 2 percent from the same three-month period a year earlier. Quarterly profit hit $72 million, up from $55 million the prior year. The company attributed the revenue decline to lower sales in its flight systems and space systems groups.

Iraq will spend about $8 million for ScanEagle unmanned aircraft system spares, support equipment and services, according to a recent contract announcement.

On Aug. 9, Insitu was awarded a firm-fixed-price delivery order for Iraq's intelligence, surveillance and reconnaissance program. The work will wrap up in August 2017 with 90 percent of it performed in Baghdad and 10 percent in Bingen, WA, where Insitu is based.

Inside the Navy reported in June that the Defense Department inspector general claimed the Navy overpaid by $2.1 million on sole-source spare parts for the ScanEagle following an audit conducted from June 2015 through March 2016.

Additionally, the IG predicted the service would overpay on the remaining value of $42.6 million for ScanEagle spare parts if Naval Air Systems Command contracting officials continue using the current negotiated spare part prices, according to the report released June 1.

"Naval Air Systems Command may also overpay on future ScanEagle contracts if officials do not substantiate their analysis to determine the price's reasonableness or quantify the spare-part requirements," the report reads.

The IG suggests Navy contracting officials should use price analysis to verify that the overall price offered is fair and reasonable. The agency is concerned the service did not take advantage of quantity discounts when negotiating a contract with contractor Insitu for ScanEagle spare parts.

NAVAIR contracting officials did not know the quantity of each spare part needed and requested Insitu price the spare parts as if the service was purchasing only one spare part, the report reads. Contracting officials argue the reason they negotiated the spare parts contract in this manner is because the program office did not define spare part requirements, according to the IG report.