Contingency contracting a slowly turning tide, budget shows

When Secretary of State Hillary Clinton appeared before the Senate Foreign Relations Committee in February to detail the department’s 2013 budget request, funding for the contingency operation in Iraq topped the list of priorities.

State had been deeply intertwined with the Defense Department’s mission in Iraq since 2003. But on Jan. 1, 2012, State officially took over.

“In Iraq, civilians are now in the lead, working to help that country come through this current period of challenge and uncertainty,” Clinton said in her prepared remarks.

In fiscal 2012, for the first time and in anticipation of the impending handoff to State, the administration broke out overseas contingency operations (OCO) for the State Department as a separate line item, as it had done for DoD for the past several years.

That practice continued in 2013.

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The State Department requested a base budget of $43.4 billion and an additional $8.2 billion for OCO activities for both State and the United States Agency for International Development in 2013. Specifically for Iraq, State requested $4 billion. In contrast, DoD requested $2.9 billion for its activities in Iraq.

Mixed messages from Congress

In the months since State unveiled its 2013 budget request, however, Congress has sent conflicting messages about the department’s share of the contingency budget.

The House Appropriations Committee funded the full OCO amount, but cut the department’s core budget by more than $3 billion. The Senate Appropriations Committee, however, did just the opposite. It shifted funding from the OCO account back to the core budget, leaving contingency funding at a little more than $2.3 billion.

Last year, State sought $8.7 billion in OCO funding. But when Congress approved most agency budgets in a single massive spending bill at the end of the year, it actually increased OCO funding to $11.2 billion — even as it cut the rest of State’s core budget.

Despite State’s growing role in contingency operations amid the transition to a civilian presence in Iraq, DoD remains a major player in the region. The military footprint in Afghanistan still is significant and likely will be for some time.

DoD’s 2013 request for OCO funding is about $88 billion, a significant decline from the $126 billion it received in 2012, but an amount that still far outstrips State and USAID’s request.

“What will likely happen in Afghanistan further out, more in the 2014 or 2015 timeframe, is what happened in Iraq,” said Brian Friel, a federal business analyst for Bloomberg Government. “Defense Department (OCO) spending will continue to decline and … you’ll likely see a concurrent increase in the State Department budget but nowhere near the same level,” he said.

Matter of perspective

The size of State’s role in contingency operations is a matter of perspective.

DoD’s share of spending on all overseas contracting is in a slow decline — from 87 percent in 1999 to 73 percent in 2010, according to a 2011 analysis prepared by the Congressional Budget Office. At the same time, State and USAID’s share of overseas contracts (not necessarily in contingency environments) increased from 5 percent to 16 percent.

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Contracting dollars obligated and spent over the last decade indicate a “shift toward a more whole-of-government approach to achieving foreign policy objectives,” the CBO report stated.

Still, in 2010, DoD obligated $366 billion for contracting, more than State, USAID and all other federal agencies combined, according to the report.

OCO in the crosshairs

In the past, the budget for contingency operations has been relatively sheltered from budget cuts because it shifted funding from agencies’ traditional bottom lines.

The use of the OCO account may have been a budgetary short-term necessity when it was first used, but it carries with it risk in the long-term, the Commission on Wartime Contracting cautioned in its final report to Congress.

“Seemingly unlimited funding for contingencies through supplemental appropriations allows agencies to avoid a prioritization of their program requirements in support of the war effort,” the panel wrote. “The supplemental budget also obscures the full cost of contracting and creates the illusion that contractors in the war zone are a free resource.”

The continuing drumbeat in Congress to cut the budget deficit means more uncertainty for the foreign affairs budget. Even the administration appeared to strike a new tone in its 2013 budget request, which included a proposal to make contingency operations funding comply with sequestration, the across-the-board spending caps set to begin in January.

The proposal would set an overall limit — $450 billion through 2021 — to the contingency budget.

But even that may be more a matter of rhetoric than reality.

“In the near-term it doesn’t appear to me that would have an impact on OCO levels,” Friel said. “Congress would have to pass that change into law, so until Congress does, it has no effect.”

Coming up Friday, in the final part of our special report, Trial by Fire: Overseas Contracting in Transition: a look at how contractors fared in the Iraq transition, as well as what they can expect from State’s more robust role in contingency contracting. The report is part of the special series Inside the World’s Biggest Buyer.


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Inside the World’s Biggest Buyer (Main Page)

Part 1: Agency Acquisition

Part 2: Acquisition Workforce