The presence of a technologically superior defense industrial base has been a foundation of U.S. strategy since 1945. While the implementation of the budget cuts in the Budget Control Act of 2011 has caused concerns for the industrial base, the resulting debate has been lacking in empirical analysis. The purpose of this research is to measure the impact of the current defense drawdown across all the tiers of the industrial base. This report analyzes prime and subprime Defense Department contract data to measures the impacts of the drawdown by sector to better understand how prime and subprime contractors have responded to this external market shock.

The presence of a technologically superior defense industrial base has been a foundation of U.S. strategy since 1945. While the implementation of the budget cuts in the Budget Control Act of 2011 has caused concerns for the industrial base, the resulting debate has been lacking in empirical analysis. The purpose of this research is to measure the impact of the current defense drawdown across all the tiers of the industrial base. This report analyzes prime and subprime Defense Department contract data to measures the impacts of the drawdown by sector to better understand how prime and subprime contractors have responded to this external market shock.

Economics scholars and policymakers have rung alarm bells about the increasing threat of consolidation within industrial sectors. This paper examines the importance of industrial concentration in U.S. defense acquisition in two ways: first, a direct relationship between concentration and performance outcomes; and second, a mediating relationship, where concentration influences performance through reduced competition for defense acquisition. The study created a large contract dataset incorporating economic statistics on industrial sectors and analyzed it using multilevel logit models. The study finds that subsector concentration correlates with greater rates of termination. Contrary to the hypothesis, competition is associated with higher rates of termination, and only single-offer competition is significantly associated with lower rates of cost ceiling breaches. Taken together, the results are consistent with the literature on the risk of concentration’s connection with market power but also suggest that the mechanisms of competition are worthy of future study.

The U.S. defense industrial base is not adequately prepared for the international security environment that now exists. In a major regional conflict—such as a war with China in the Taiwan Strait—the U.S. use of munitions would likely exceed the current stockpiles of the U.S. Department of Defense. According to the results of a series of CSIS war games, the United States would likely run out of some munitions—such as long-range, precision-guided munitions—in less than one week in a Taiwan Strait conflict. The war in Ukraine has also exposed serious deficiencies in the U.S. defense industrial base and serves as a stark reminder that a protracted conflict is likely to be an industrial war that requires a defense industry able to manufacture enough munitions, weapons systems, and matériel to replace depleted stockpiles. As timelines for a possible conflict in Asia shrink, the goal should be to support the production capacity required to enable the United States and its allies and partners to deter and, if deterrence fails, fight and win at least one major theater war—if not two. “Just in time” and lean manufacturing operations must be balanced with carrying added capacity. The U.S. Department of Defense, in coordination with Congress, should develop a plan now that involves taking steps to streamline and improve production, acquisitions, replenishment, Foreign Military Sales, ITAR, and other policies and procedures. A revitalization of the defense industrial base will not happen overnight for the United States or its allies and partners. It is time to prepare for the era of competition that now exists.

This report analyzes the current state of affairs in defense acquisition by combining detailed policy and data analysis to provide a comprehensive overview of the current and future outlook for defense acquisition. This analysis will provide critical insights into what DoD is buying, how DoD is buying it, from whom is DoD buying, and what are the defense components buying using data from the Federal Procurement Data System (FPDS). This analysis provides critical insights into understanding the current trends in the defense industrial base and the implications of those trends on acquisition policy.

"Organized into three parts, the ninth edition traces the impact that societal changes and emerging technologies are having as force enablers, game changers, or disrupters of American defense policy"--