A US Government Accountability Office (GAO) report has found that budget requests for three key US Navy acquisition programmes contained fewer platforms ordered when compared to their multiyear contracts or previous procurement plans, a practice likely due to budgetary considerations.
However, US Navy then sought to offset the reduction in officially budgeted platform numbers for the DDG-51 Arleigh Burke-class guided missile destroyers, the Virginia-class nuclear-powered submarines, and the V-22 Osprey tiltrotor aircraft as ‘unfunded priorities’ in lists provided to US congressional committees. The US Congress ultimately decided to fund the procurement of additional platforms.
The GAO report said that Congress was ‘concerned’ that the US Navy deliberately underfunded certain critical programmes that use multiyear contracting procurement method. In one example, the US Navy had multiyear contracts to purchase two destroyers per year in a five-year period, and in fiscal year 2022 requested funding for only one DDG-51 destroyer, placing the second on the unfunded priorities list.
Instead of requesting funding for the second ship, the US Navy requested $33m to cover the government’s cancellation liability for reducing its procurement to one ship in fiscal year 2022. In effect, the US Navy was prepared to pay $33m to the shipbuilder as a penalty for not funding the ship in the planned contract for that year.
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By GlobalData‘The [US] Navy was not required to explain this decision to Congress, leading to the concerns that it was engaging in budgetary manoeuvres that impede congressional oversight and decision-making,’ the report stated, adding that it recommended the US Department of Defense (DoD) require the US Navy to provide its rationale for such decisions to Congress.
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When dissecting the circumstances behind these decisions, it can be easy to lose sight of why Congress raised specific concern about US Navy programms using multiyear procurements
Shelby Oakley, GAO director of contracting and national security acquisitions
A multiyear procurement method can work to save money through procurement efficiencies but can also include future financial commitments.
The GAO found that DoD financial management regulations do not require the US Navy to notify the congressional defence committees of its rationale for budget decisions that do not support the procurement quantities stated in multiyear contracts.
The lack of such notification can hamper the ability of the committees to oversee programmes and make decisions without having to request supplemental information and explanations from the US Navy, the GAO reported.
The bottom line
Shelby Oakley, director of contracting and national security acquisitions at the GAO, told Naval Technology that the benefit from including funding for a weapon system in an unfunded priorities list, instead of a budget request, was that “it allowed the US Navy to signal to Congress that it has a need without having to fit the funding for that need within [the US Navy’s] top line budget for the year”.
While there was no obligation for Congress to fund anything included in unfunded priorities lists, platforms such as an Arleigh Burke destroyer or Virginia submarine would have likely been deemed to be of critical national security importance.
“In the case of those two vessels, buying more is a decision with a price tag in the billions of dollars, so each additional vessel the US Navy includes in its budget request significantly reduces the funding available for other priorities,” Oakley said. “In a scenario where the US Navy does not budget for those vessels but Congress ultimately provides funding for them, the US Navy is able to fund the other priorities while still getting the vessels that it wanted.”
Oakley said that “as noted by US Navy officials”, the budget request decisions for the DDG-51 and V-22 programmes were “largely driven” by the US Navy’s assessment of its priorities against the top line budget it had to fund such acquisitions.
“For more expensive weapon systems like the DDG-51 destroyers and Virginia-class submarines, a decision by the US Navy to reduce procurement by just one vessel frees up a significant amount of funding, which can then be used to support other priorities,” Oakley said.
Budget management
In addition, the US Navy’s unfunded priorities lists in recent years also suggested that “affordability” was a significant factor that influenced decision-making.
“Specifically, when the US Navy included DDG-51 and Virginia-class vessels at the top of those lists, it indicated both a high value placed on those vessels and suggested that their estimated costs—which far exceeded anything else on those lists—led the US Navy to trade procuring one more of each for the budget flexibility provided to the department by not doing so,” Oakley said.
There was also the factor of the US Navy’s perceived commitment to multiyear procurement programmes, which provide defence industry suppliers with assurances of an expected level of work that can be planned for in terms of recruitment and manufacturing output.
“When dissecting the circumstances behind these decisions, it can be easy to lose sight of why Congress raised specific concern about US Navy programmes using multiyear procurements. When the US Navy (or any other DoD agency) proposes using multiyear contracts to Congress for authorisation, it expresses a willingness to make a substantial, longer-term commitment to procurement and sets funding expectations for Congress for up to five years in the future,” Oakley said.
“As a result, when a budget request for a programme using multiyear procurement doesn’t align with expectations—and especially when a weapon system expected to be in that request instead ends up on the unfunded priorities list—it can raise questions about the US Navy’s level of commitment to the multiyear procurement.”
