Continuing Resolutions: Continuing to Damage Defense
GAI | January 9, 2023
Guest Post by Lieutenant Colonel Timothy Cabana
For the national security community, the calendar year has dawned with an $858 billion National Defense Authorization Act (NDAA) and an omnibus funding bill passed in late December. But what may have felt like a Christmas miracle to congressional staffers scurrying home belies a larger problem. The fiscal year (FY) began on October 1 with all government agencies under a Continuing Resolution (CR), which provides funding at existing rates when Congress can’t pass new appropriations bills. Since 2002, the Department of Defense has started the FY under a CR for 16 of 21 years (exceptions were in 2004, 2005, 2007, 2009, and 2019); those CRs have markedly increased in length from FY2011 on. Former Defense Secretary Mattis, General Berger, the Marine Corps Commandant, and others have raised the alarm on this trend, but research on this crucial topic is lacking. There are many ways in which the lack of a full appropriation, and use of a CR, affects how the DOD operates and invests. The most harmful include no new starts, misaligned funds, impact on the defense industry, and inefficient activities.
Limitations of Current Research:
Despite its importance to military preparedness, research on this topic is surprisingly limited and often inconclusive. The Congressional Research Service notes that existing research does not permit a “systematic analysis” of CR effects on longer-term combat capability and readiness. (Of course, the concept of readiness itself has multiple definitions and metrics.) The most far-reaching studies are themselves limited. A 2019 RAND study analyzed 151 procurement awards from FY2013-FY2015, which could not identify a strong correlation between CRs and delays and cost increases in procurement awards in their data set relative to shorter CRs in FY1999. Notably, RAND “did not provide definitive evidence that such negative effects are not occurring.” A more far reaching study (done after the CRS report), which did find negative effects, is a 2021 GAO study that both finds that DOD hired fewer civilians when under a CR and that spending and acquisitions are limited under a CR but that DOD has practices in place to mitigate effects.
As a longtime Air Force Contracting Officer, I can tell you that trying to mitigate those effects is no small feat. Imagine working the contracting process for a year, only to have Congress deliver you a CR that doesn’t allow for your new contract. All the resources the team, as well as industry, spent on proposal development, evaluations, negotiations, and administrative functions to prepare the contract for award may have been a complete waste. Not only can you not award your contract, but you now must negotiate an extension to the old, more expensive, contract for the mission to continue. Also, since you don’t know how long the CR will last, you must guess how long to extend the incumbent contract for; with the potential of extending it further depending upon when the budget is passed.
No New Starts
A CR delays investment of acquisition programs for weapons systems development, innovation, and modernization. Under a CR, if DOD planned to begin the Research and Development (R&D) phases of a new requirement or technology, they must delay the start of that effort until the full appropriation has passed. This is a significant opportunity cost, particularly for efforts within innovation and technology development. For programs that are in the production/manufacturing phases, the CR would also prohibit any increases in production quantities and multiyear contracts cannot be initiated. For DOD and the services, mission and priorities often change year-to-year and strategic priorities can shift in reaction to current events or other factors. Changes can be programmatic and long-term, such as the publication of a new National Defense Strategy, or they can be immediate, as witnessed when Tyndall AFB was devastated by Hurricane Michael. Operating under a CR allows very little flexibility for responding to a short-term contingency and complicates long-term planning.
Misalignment of funds can also be difficult to navigate under a CR. Particularly with regard to weapons systems, certain acquisitions are funded from multiple accounts with different “colors of money” (i.e. different types of accounts). For example, the development, engineering, and test and evaluation phases of a program may be funded with R&D type funding, but then may transition to low-rate initial production phase requiring Procurement type funding. If under a CR during the transition, the R&D account would have excess funding where the Procurement account would have a shortfall. This misalignment would undoubtedly delay the acquisition.
The CR can also affect readiness activities such as Operations and Maintenance (O&M), sustainment, and personnel pay accounts. Any planned increase scheduled to start at the beginning of the FY would either need to be delayed or offset from a lower priority within the account. Examples include the rate of operations, contingencies, special pay, raises, or bonuses, preventative maintenance, training, and development. This can have a significant impact on the readiness of forces and the ability for the services to carry out its missions or respond to a crisis. Additionally, negative impacts affecting personnel pay or development may also result in second and third order effects on morale, recruitment, and retention.
The 2019 RAND study concluded that a CR can cause a mismatch of staffing levels, hiring freezes, or positions left unfilled to compensate for future funding shortfalls or anticipated pay increases. The uncertainty of this work environment may also deter potential employees from joining the federal government. As a previous Squadron Commander, with hiring authority for the civilian personnel assigned to the unit, I can attest that attracting and hiring talented employees was made more challenging by the limitations and fiscal uncertainty caused by the CR. The demand for talent is high and high performing workers did not wait around for the government to pass a budget before taking another position.
The Defense Industry
Our defense industry partners play a major role in operating and executing defense missions, and they also suffer under a CR. Arguably, the risk of a CR is even higher for companies that invest their capital in a DOD effort, and may be forced to make decisions that result in a loss of revenue, profit, and opportunity cost. Additionally, the funding uncertainty caused by the appropriations process, and delays caused by CRs, are disincentivizing industry from working with the government.
Inefficient activity, often under-recognized, includes any government use of resources — whether time, cost of government labor, or opportunity cost — to plan for, mitigate, compensate, or react to a CR. Because these types of activities are less visible and harder to quantify than the effects of a major weapon system program, they are typically attributed to the general cost of doing business in the government. However, inefficiencies in these areas, taken as a whole, can be significant.
In preparing for a new defense budget, it is presumed that the FY will start with a CR. For those efforts which DOD considers to be critical enough, anomaly proposals are prepared in hopes they will be exempted from the “no new starts rule.” In most instances, the efforts to prepare these proposals are wasted, given that anomaly exceptions are rarely approved. From FY2013 – FY2017, only 13 anomaly requests, of 388 submitted, made it to legislation.
Another significant area is contract adjustment. When a CR is enacted, contracts need to be adjusted for critical services to continue. Usually, contracts must be altered to allow for incremental funding of the duration of a CR. If multiple CRs are enacted over time, adjustments must be made for each CR. It is usually a simple modification to the contract that is not overly burdensome, but the culmination of resources spent modifying most contracts across the enterprise can add up to significant costs. Depending on the contract terms and conditions, it may also open the government to claims or requests for equitable adjustments. Another example are the resources spent on negotiation costs, rates, and pricing. If a new contract start is delayed due to a CR, the government may have to go back into negotiations to account for the time delay with respect to changes in cost, pricing, or rates respective to changes in the market, economy, or inflation.
Shutdown prep is another area of potential waste: the creation of the policy, policies specifically for contracts, and the execution of those plans if shutdowns occur are further examples of administrative actions that could net significant savings when budgets are passed on time.
The “regular disorder” of congressional lawmaking has very real consequences for defense appropriations and military readiness. More study on this important topic is needed. Congress also can, and should, do better to support our military and all the important work we do.
Lieutenant Colonel Timothy Cabana has been an Air Force Contracting Officer for fourteen years and has recently completed a one-year Government Affairs Institute fellowship serving as a Defense Fellow to Rep. Jack Bergman.