The Pentagon has been keeping a concerned eye on Defense-related M&A activity since at least 2008, monitoring the U.S. industrial base to ensure that it maintained some level of diversity of suppliers. The Department of Defense (DoD) has long been concerned with the small number of large firms able to bid on major weapon systems acquisition: four major contractors bid for the F-15, five for the F-16. But the F-22 and F-35 programs attracted only two bidders each. Last week, Pentagon leaders began to voice warnings to the industry: Secretary Carter told the press that “it [is] important to avoid excessive consolidation” and that he “[does not] welcome further consolidation among the very large prime contractors.”
Changes in Defense-Related M&A
Of all the measures outlined in the President’s latest state of the union address, the three measures below are the most likely to pass the Republican controlled Congress.
1. Authorization for the Use of Military Force (AUMF)
During his address, President Obama asked the Congress to pass an AUMF specific to combating ISIL in Iraq and Syria. The President has been in consultation with members of Congress with respect to a new AUMF since late December of 2014, and Speaker of the House John Bohner has indicated a vote will be held on the AUMF by spring of 2015 (Bennett, 2015). A point of contention between Congressional Republicans and Democrats in negotiating an AUMF is the level of discretion the bill will afford to the President, particularly the measures that would prohibit the deployment of ground troops.
The ISIL related AUMF will greatly augment the President’s legal justification for Operation Inherent Resolve, which has been previously justified by the nearly 14 year old AUMF passed after September 11th 2001. Since combat operations in late 2014, the US has launched over 1,800 airstrikes in both Syria and Iraq at a total cost of $1.2 billion.
DoD Seeks Significant EHR Overhaul
The Department of Defense (DoD) is in the midst of selecting a vendor to overhaul its electronic health record (EHR) systems, which facilitate the transfer of information pertaining to patient’s medical history, conditions, prescriptions, and other data across multiple healthcare providers over time. The Healthcare Management Systems Modernization (DHMSM) program is projected to cost $11 billion through the year 2023. DHMSM will replace the DoD’s existing EHR system, the Armed Forces Health Longitudinal Technology Application (AHLTA), as well as elements of the Theater Medical Information Program-Joint (TIMP-J) and the inpatient Composite Health Care System. When DHMSM launches in 2017, it will become the largest EHR system in the United States, with more than 9.6 million patients associated with over 400 hospitals (Brewin, 2014).
The Obama Administration has requested $1 billion in Department of Defense (DoD) reappropriations to augment efforts to contain the outbreak of Ebola in West Africa.
As of late October, the House Appropriations, House Armed Services, and Senate Armed Services committees have approved $750 million dollars in DoD reappropriations, which will come from the overseas contingency operations (OCO) budget, though the Senate Appropriations Committee (SAC) has yet to approve this request. Chairwoman Barbara Mikulski (D-Md.) announced the SAC will hold a hearing on Ebola reappropriations on November 6th, shortly after the midterm elections.
DoD Struggles with R&D
Department of Defense officials have been increasingly concerned with the deteriorating state of the US military’s technological superiority as a result of low cost disruptive technologies.
The proliferation of low cost, disruptive technologies coincides with a dramatic decrease in publicly funded defense Research Development Test and Evaluation (RDT&E) spending from the DoD: the FY 2014 budget allocated just $63 billion to RDT&E, compared to the nearly $80 billion allocated in FY 2009. Additionally, US private sector RDT&E defense spending has fallen dramatically in terms of percentage, as well, with the largest US Defense contractors reinvesting only 1-2% of sales back into R&D. In response, senior DoD leadership has developed new initiatives to foster innovation and maximize reduced budgets through new technological offset strategies, cost sharing between close US allies, and acquisition reforms.
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