DOD contract obligations have gone up, but mostly benefited largest contractors and defense products

By Marjorie Censer  / November 27, 2018

The Pentagon's contract obligations grew 13 percent between fiscal years 2015 and 2017 -- but the five largest defense contractors reaped most of that benefit, according to new analysis by the Center for Strategic and International Studies.

CSIS' defense-industrial initiatives group today released several new reports, including an examination of acquisition trends and a look at new entrants in the market.

The data indicates that from FY-15 to FY-17, defense products contracting grew 22 percent, far more significantly than defense services contracting, which increased 5 percent, and defense research and development, which went up by 6 percent.

The "big five" -- Boeing, General Dynamics, Lockheed Martin, Northrop Grumman and Raytheon -- were the top beneficiaries. According to CSIS, they saw a 33 percent growth in defense contract obligations during that time period. While small and medium companies saw modest growth, large contractors outside the top five saw only a 1 percent boost in contract obligations.

"It's really clear that the big five . . . are winning overwhelmingly in this budget climate," Andrew Hunter of CSIS said at a press briefing this morning.

The increased defense product spending was concentrated in key areas. Aircraft, for instance, saw a 34 percent boost, while ordnance and missiles recorded a 32 percent increase. Spending in air and missile defense and space systems fell even as defense budgets rose.

Hunter said industry bore a greater share of the cuts made to cope with sequestration -- but has benefited as money has been added to recent budgets.

When sequestration was implemented, "it was probably easier [for DOD] to take money away from industry than to cut its internal costs in the short term," Hunter said. But the "flip side of the coin" is "when you have hot money that's burning a hole in your pocket, the easiest thing to do [is] to throw it into existing production lines that can chew up that money really fast."

Hunter also noted that Congress has driven additional money into the defense budget, contending that the legislative branch tends to move funding into existing production lines, which are easy to see and have associated jobs.

CSIS also noted in a separate report the number of new entrants into the federal contracting arena has been "low and constant" since 2013. Hunter said the number of new entrants peaked in the 2005-2006 period.

"There's just much less dynamism in the marketplace over time and that's, I think, a very significant concern for DOD," he said, noting the Pentagon has made an effort in recent years to attract new vendors. "We see the strategic imperative to do outreach to new suppliers . . . [but] we don't at all see success."