The QDR ... And The Industry Challenge.

This month, Defense Secretary Donald Rumsfeld is scheduled to unveil the document that the defense community has been waiting for: the Quadrennial Defense Review.

Much has been speculated about what the QDR will say concerning the national security strategy and about the force structure needed to meet that strategy.

Despite many press reports indicating otherwise, Secretary Rumsfeld has hinted that the current size of the force will not necessarily be cut. But cutbacks remain a possibility, only because there may not be enough money to keep the current force and modernize it. As he explained at various press conferences, the Pentagon he inherited has a huge problem: the mismatch between programs and resources to pay for them. That mismatch has been estimated to be as large as $100 billion.

That amount is debatable, but it is important to note a Congressional Budget Office (CBO) analysis released in September 2000, titled "Budgeting For Defense: Maintaining Today's Forces." That study concluded that the Defense Department needed a budget increase-over the fiscal year 2000 appropriation-of $51 billion.

As Secretary Rumsfeld said, the administration inherited forces and weapon systems that are in far worse shape than they had anticipated. That is the result of a long period of funding cutbacks-14 consecutive years of reductions-and an increase in the number of deployments by all the services.

The president requested an $18.4 billion increase for fiscal year 2002, but Congress is not convinced the nation can afford to pay for that, given the reductions in the federal budget surplus and the president's decision to cut income taxes.

It is important to recognize that military forces have not always been structured based on strategy nor have they always been funded to support current readiness needs and recapitalization. To understand this notion, one must reflect upon the real reasons for America's traditional success in the "profession of arms." With some exceptions, American triumphs on the battlefield have been achieved through superiority in equipment and superbly trained warriors. Well-trained and amply-supplied units equal readiness.

Today, the training provided to U.S. troops is not only unequaled, it is approached by none of our competitors and few of our allies. Our emphasis on technological superiority since the late '70s has produced a set of weapons that is the envy of the world. In the last several years, our readiness has come at a price, however. The services have, of necessity, sacrificed procurement and modernization to keep readiness the number-one priority. Other accounts, like base operating support, depot maintenance, real property maintenance, military construction, housing, vehicles and communications have suffered from even greater cuts.

One other problem should be noted in the context of this brief analysis. The services have excess infrastructure to support. The average Air Force base costs about $80 million to $100 million per year to operate. A large Army or Navy base will cost even more. The shortage of funds, thus, is exacerbated by having to spread precious base-operating funds over a large, underutilized infrastructure

In summary, there is not only a strategy-forces mismatch, there is also a forces-resources mismatch. It is in this light that we should view the problem that Secretary Rumsfeld and his team face.

The holy grail, of course, is a coherent national strategy that can be met with appropriate resources. The existing strategy-which calls for the United States to be prepared to fight and win two major regional wars neatly simultaneously-presents a real stretch in execution, not only because of the force levels, but also because of the inadequate funding for the existing forces.

Strategy aside, it is not apparent that all of the services' problems can be solved with the available funding. If Congress balks at $18 billion additional funding, it is hard to imagine getting the $51 billion that CBO recommended a year ago.

Whatever the outcome, the issues for the defense industrial base are fairly constant: The need to maintain and increase R&D, the need for continued prototyping and fielding of advanced capability systems, the need to maintain competition, the need to continue rational consolidation in the interest of efficiency and the survival of critical industrial capability, the need to advocate and maintain adequate levels of profitability in the industrial base, a rededication to acquisition reform and a continued search for better balancing of responsibilities between the private sector and government through better partnering, outsourcing and privatization-with models that stress innovation over process and "administrivia."

Secretary Rumsfeld has asked each service to propose changes to its force mix. Defense companies will have to be prepared to work with the services on new capabilities that are "transformational," and that can be implemented without sacrificing near-term readiness. The good news for industry is that the administration is committed to increases in research and development spending.

It is foreseeable, though, that the services will continue to struggle with aging equipment and shortfalls in their recapitalization accounts.

The success of American arms over the past 20 years rides on the back of past investments in technology and an industrial base that has been very effective at adapting to new national security requirements Despite shrinking Pentagon budgets, our industry has managed to remain viable and the most competent in the world. We should be alert to the danger that, if acquisition spending continues to lag, more companies might be forced out of the defense sector.

In the final analysis, we need to continue to emphasize that the defense industrial base is a for-profit enterprise. It competes in the same' markets as other industries for personnel, material, resources and financing. A level-playing field demands adequate profitability and an unburdened competitive environment.

No matter the outcome of the current QDR, our objective should remain to provide the equipment and service support that allows our Defense Department to continue to field the most capable, the best equipped, and the best trained warriors in the world. This is not an option.

As your new president, I welcome your comments about the changing landscape of the defense community and your ideas about what NDIA can do to help you strengthen our industrial base-both in the private and public sectors-to meet the challenges of a transforming Defense for the 21st century.