On Wednesday, Senate and House conferees resolved their differences over several new Pentagon policies and agreed to authorize $700B in "defense" spending (DoD + DoE) for FY18. The figure includes $606B in Pentagon baseline spending, $66B in OCO spending, and $28B for DoE atomic energy baseline spending. That compares to $634B in FY17 and $673B requested by the Administration in May (as amended just this week). The chart below lays out the state of play to date.
Authorization is necessary for money to be appropriated but it is not sufficient since nothing happens if the money isn't actually appropriated. This authorization of $700B must be considered particularly "aspirational" (DC speak for "we don't think we'll be able to get that much") given that it exceeds the $549B Budget Control Act (BCA) cap on discretionary "defense" appropriations for FY18 by ~$85B. (OCO spending does not count against the caps.)
While the House has sent to the Senate an appropriations bill whose topline essentially coincides with the NDAA (and likewise blows past the BCA cap), the Senate Appropriations Committee has yet to mark its version pending some direction on the BCA problem which takes 60 Senate votes to solve. Given that tax reform has "sucked the oxygen out of the room" appropriators are unlikely to be able to begin their work before Thanksgiving. To everyone's chagrin, an extension of the CR past December 8 is nearly certain but how long it lasts is not.
All boats float if DoD gets a 10% bump in the topline. The biggest change would come in shipbuilding where the 355 ship Navy will be established in law and FY18 procurement would be increased by $6.3B for 5 additional ships above PresBud (GD, HII). Plenty of additional aircraft: LMT: +20 JSF = +$2.6B; +6 MC-130J = +$600M; BA: +10 F/A-18 = +$739M; +3 P-8 = +$507M; +2 KC-46 tankers = +$400M; TXT: +6 V-22 = +$522M. TXT would also see 5 additional ship-to-shore connectors = $312M
Even if the dollars come up short, investors should take note of some of the acquisition improvements that come into effect in any case:
- Major (>$100M) companies who protest contract awards and lose will have to pay DoD's costs in a three year pilot.
- Increased use of Other Transactional Authorities which move up to two years faster than normal Federal Acquisition Regulation contracts
- EOQ authorities for longer range/smarter materials buys: F-35 Block Buy, multiyear authorities for 13 Va-Class and 15 Destroyers Submarines, Carriers
