WASHINGTON — With demand for munitions in Ukraine only increasing and NATO members expressing fears about their own stockpile levels, Pentagon planners last week laid out a three-pronged approach to keeping US munition stocks at acceptable levels.
Now defense officials just have to get industry to trust them.
The three steps, revealed as part of the fiscal 2024 budget rollout and in subsequent statements by officials, are a mix of classic concepts and new ideas. On the classic side, it features a major push for multi-year munitions buys, which lock in guaranteed procurements instead of going year-by-year. On the new ideas side, the Pentagon is exploring a pilot project for larger-lot procurement, as well as a new “Joint Production Accelerator Cell” to understand and head off industry challenges.
The overall effort is a direct result of what has happened in the last year in Ukraine, with Pentagon Comptroller Michael McCord saying on March 13 that “Ukraine has really informed and highlighted the need to up our game here.” At the same time, the weapon systems lined up for multi-year buys are “not the kind of missiles that are key to the Ukraine fight: These are key to Indo-Pacific deterrence,” he later added. “What we’re trying to do here… is to think about lessons that we’re learning today and apply them to the future, apply them to other scenarios.”
But while munitions are a hot topic right now, industry officials have been burned before by the Pentagon raising munitions levels and then dropping them shortly after, which would leave companies who invest in increasing production holding the bag for new overhead costs.
Steven Grundman, a senior fellow with the Forward Defense practice of the Atlantic Council’s Scowcroft Center for Strategy and Security, acknowledged that industry has a right to be skittish, based on past government decisions to use munition coffers as a bill-payer. However, he noted that if the government is serious about ramping up munition production lines, enhanced funding is the key since industry is primarily concerned with the money and risk.
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“At that point, there is going to be a dance with industry over who is going to bear the risk of financing the investments needed to meet this new level of demand,” Grundman told Breaking Defense on Monday. “As distasteful as this dance may appear, these are normal business issues, and resolving them should not hold up the train.
“If contractors are not going to put at least some investment of working capital forward in this crisis, then we could hardly blame the government if it takes one step back to find competitors which are willing to bear more risk to get into the market,” he added.
Added industry analyst Roman Schweizer of the Cowen Group, “It’s encouraging that DoD is using a number of new and existing contracting vehicles and funding approaches to increase stockpiles and production rates. The use of multi-year contracts should give industry the confidence it needs to increase hiring and fund plant expansion to expand beyond peacetime production rates. Given the recent inflation, labor and supply chain issues the industry has faced and continues to work through, this is likely to require sustained attention from DoD, Congress and industry.”
Multi-years Help, But No ‘Magic Bullet’
DoD’s new multi-year munition contracts are one avenue to help quell such concerns, but Under Secretary of Defense for Acquisition and Sustainment William LaPlante warned at the Reagan Institute’s National Security Innovation Base Summit on March 14 that they are not the “magic bullet.”
“We’re getting a very good response to it, but [there are] people who are used to traditionally having that fidelity, year-to-year in munitions, and using it for budget purposes: This is hard for them,” he told the audience.
Multi-years also are not set in stone, as the military, or Congress, could decide to cut funding during the next budget cycles. The day following his Reagan comments, LaPlante told reporters that one key to reassuring nervous decision makers sitting on defense industry’s boards is the contract language and showing that the company will be “made whole” if the US government changes course.
Doug Bush, the official charged with overseeing Army acquisition, has also been working closely with industry over the past year to ramp up munition production and separately spoke with reporters on March 15. From his vantage point, he said the multi-year deals are a great incentive for providing industry with an extra layer of insurance since these deals are hard to “pilfer” from once they’re signed.
“Once you’ve got a multi-year contract in place, breaking that up is a huge bar to get over inside the Pentagon and on the hill,” Bush explained. “Nothing’s ever guaranteed but…the bar is high once you’re there to trip it up.”
However, another complicating factor is the sale of US weapons to foreign countries and defense companies are constantly analyzing those “demand signals” too as the war inside Ukraine rages on.
“There’s a bow wave around the world… for equipment from all countries, not just from DoD,” LaPlante said when asked about the demand signal to industry for more munitions. “A board is looking at that and saying, ‘Is Poland really going to buy” that many weapons?
New Approaches To Accelerating Change
The two new ideas included in the FY24 plan are specifically designed to assuage concerns that the multi-year procurement doesn’t.
The first is a pilot project under the “large lot procurement” umbrella. Budget documents confirm that missiles like the LRASM and JASSM-ER are both slated to take part in the pilot project, along with the SM-6 and AMRAAM, and the department plans to spend approximately $15.1 billion on the effort between FY24 and FY28.
While the pilot project revolves around the multi-year deals, Pentagon documents note it also includes dollars to expand production capacity, increase annual production quantities, and provides 15 percent “economic order quantity” in FY24 for long-lead items.
Meanwhile, LaPlante announced the establishment of a Joint Production Accelerator Cell to help identify ways to maximize production strategies and head off industry challenges before they become a problem.
“The accelerator is not going to do contracting, nor is the accelerator going to make decisions,” LaPlante told reporters on March 15. “What the accelerator is going to do is build the content and the material.
“If you were to ask a question… I want to triple that production line, and I want to triple it in one to two years. Tell me first, tell me if it can be done? And if the first answer is, well, ‘No, we don’t think it can be done.’ Why not? What options do we have?”
Experts will then work with the prime contractors and sub suppliers to figure out ways to ramp up capacity and then “work like the devil” to execute a plan, LaPlante said.
Ultimately, industry will want some sort of target to aim for if it is going to spend the money to grow its production capabilities. As of yet, the US has not laid out a clear number.
Speaking last week, neither Deputy Secretary of Defense Kathleen Hicks nor Vice Chairman of the Joint Chiefs of Staff Navy Adm. Christopher Grady would directly address if the US plans to increase its stockpile targets like NATO has vowed to do.
“The team can give you a good rundown of where the investments are across those stockpiles: That’s not a static question, by the way. It is one that we continue to reassess over and over,” Grady said. While he declined to directly if the US would raise its stockpile targets, he noted that the Pentagon’s budget request significantly invests in munitions and is designed to “incentivize the industrial base to maintain production lines.”
What’s In A Multi-year?
In the FY24 rollout, the Pentagon named five missiles that it would be seeking multi-year deals on. Those are:
- Naval Strike Missile: $249.9 million for 103 anti-ship missiles;
- Standard Missile 6: $1.6 billion for 125 of the surface-to-air missiles launched from the MK 41 vertical launch system;
- AIM-120 Advanced Medium-Range Air-to-Air Missile: $1.2 billion for 831 missiles that can be launched from various fighter aircraft;
- Long Range Anti-Ship Missile (LRASM): $1 billion for 118 anti-ship missiles; and
- AGM-158B Joint Air-to-Surface Standoff Missile-Extended Range (JASSM-ER): $1.8 billion for 550 cruise missiles.
While the five weapons that made the initial FY24 budget request are aligned for Air Force and Navy operations, several ground-based Army programs are in the pipeline too.
Army Secretary Christine Wormuth told an audience at the McAleese FY24 defense programs conference March 15 that her service is going after two multi-year procurement buys this year for artillery rounds and artillery charges.
Bush, the army acquisition head, is also working to get two other big-ticket programs aligned for multi-year buys next year— one for Patriot Advanced Capability (PAC)-3 missiles, and the other for Guided Multiple Launch Rocket System (GMLRS). For now, though, the Office of Management and Budget has stopped that from happening while it waits for more clarity on the financial benefit of signing such deals.
“I don’t want to make it sound like OMB is the bad guy here… . We still have homework to do,” McCord told reporters on Wednesday. That homework, he added, is showing lawmakers the government will save money by entering into multi-year contracts, and that a company’s suppliers can support the increased workload.
“One of the basic parts of homework for a multi-year is [showing] ‘Are there savings?’” McCord added. “In these cases, of things like GMLRS [being used in Ukraine], you might decide as a matter of public policy that you will be willing to enter into a multi-year without saving a lot of money because it was that important to you.”
It is possible that they Army proceeds with multi-year buys for both GMLRS or PAC-3 next year either because it completes its homework and submits an addendum to the current request, lawmakers add it to the defense spending bill, or the deals are funded through a future supplemental spending request instead of the base budget.
“Putting a [anti-ship] LRASM on a Ukraine supplemental wouldn’t make a lot of sense but… you’d not be laughed out of the room” by proposing to use that money for GMLRS, he said, while also emphasizing there is not the guarantee of another supplemental.
A spokesperson for Lockheed Martin, which produces both the GMLRS and PAC-3, declined to comment on the proposed multi-year deals and referred all questions over to the government.
Although numbers for the two programs could change, for now the Army wants to spend $1 billion for 5,064 GMLRS in FY24 (890 fewer than in the FY23 base budget), $1.2 billion for 110 PAC-3 Missile Segment Enhancement (MSE) weapons and $36 million for Patriot missile modifications.
While the Army has sent Ukraine GMLRS and promised to send one Patriot air defense battery to the Eastern European country, a source familiar with both production lines told Breaking Defense next year’s PAC-3 is “kind of puzzling.”
“GMLRS is at high demand and there [is expected to be] money for advance procurement for FY25,” the source said.
“[But] where is the demand for this [PAC-3] number? Of course, [Lockheed Martin] is glad to see it but where is the demand?” that source said, referring to the weapon’s current use.
A future demand for PAC-3 is not clear but could, in part, include Army plans to field Patriot launchers on the US territory of Guam as part of the larger integrated missile defense architecture.