April 16, 2018
FY18 DoD Procurement: Analysis
While a rising tide may lift all boats, a rising FY18 Department of Defense (DoD) topline does not lift all accounts equally. There are some clear winners in this year’s FY18 DoD appropriations bill and there are a host of accounts that did not fare as well. As we predicted last year, Congress prioritized increases for large DoD platform programs. Building ships, aircraft, tracked vehicles, and missiles are big business, but it doesn’t benefit all defense contractors equally.
Let’s take a closer look at the addressable IT market. OMB’s 2018 IT Dashboard was released prior to the passage of the Omnibus. Because OMB’s data was based on Continuing Resolutions (CRs) that funded federal agencies for the first 6 months of FY18 and not the spending increases provided in the Omnibus, it is not an accurate predictor of FY18 spending.
Annual DoD funding (including Overseas Contingency Operations (OCO)) rose 11% in FY18. DoD procurement jumped 18%. Last June, FBIQ forecast that most of the Procurement funding increases pushed by the Administration and Congress would focus on large platforms. An analysis of the final FY18 appropriations bill validates that forecast. For example, 75% of the $8 billion increase for Navy Procurement focuses on Aircraft Procurement ($3 billion) and Shipbuilding and Conversion ($3 billion). That leaves $2 billion to spread among the remaining bureaus including “Other Procurement” which funds Communications and Electronic Equipment activities.
Our analysis shows similar patterns for the Army and the Air Force. Funding for large systems—Aircraft Procurement, Weapons and Tracked Combat Vehicles, Missile Procurement, and Space Procurement—grew more than DoD’s budget. Growth in the “Other Procurement” accounts for the Army (9.1%) and the Air Force (4.7%) grew less than DoD’s total budget. A funding shift to DISA resulted in a 12.5% reduction in Defense-Wide procurement spending. Based on our analysis of DoD Procurement funding, IT Procurement spending falls as a percentage of DoD’s FY18 Budget.
Chart II examines the Army Procurement Accounts in detail. We found similar patterns in the other services’ procurement accounts.
A $5 billion increase for Army Communications and Electronic Activities is spread over more than 50 accounts. Most are small with more than half totaling less than $50 million. Chart III focuses on funding changes for Army accounts exceeding $50 million. Funding patterns for these programs vary dramatically.