House, Senate reach accord on DoD policy bill

After months of on-and-off talks dealing with 874 separate areas of disagreement, House and Senate negotiators finally shook hands Tuesday on a defense authorization bill both parties generally support and that would enact some of the most sweeping and aggressive changes to the military’s personnel and acquisition systems in several decades.

But the bill is almost certain to be vetoed. Like many things in Washington, it’s been swept up in an unrelated deficit reduction fight that started four years ago and no one’s quite sure how to solve.

Although the NDAA would authorize military spending at almost exactly the levels the Obama Administration asked for in its 2016 budget, it does so by moving tens of billions of dollars in ongoing DoD spending obligations out of the department’s base budget and into wartime accounts, which are not subject to the Budget Control Act.

The White House and Democratic lawmakers see that as an end-run that spares the military from sequestration without fixing the underlying budget caps that afflict the rest of the government, and President Barack Obama has threatened to veto any Defense bill that takes such an approach.

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For similar reasons, only a handful of Democratic members signed Tuesday’s House-Senate conference report even though party leaders said they agreed with almost everything else in the bill, which mostly deals with Defense policy matters.

As to those policy matters, both chambers had proposed major acquisition reforms in this year’s bill, but the Senate version’s more comprehensive changes won out over the House’s cautious, incremental approach.

The House mostly acceded to Senate Armed Services Committee Chairman John McCain (R-Ariz.), who wants the military departments and their uniformed service chiefs to play a much more active role in procurement decisions.

“This is one of the most sweeping reforms we’ve done in years and years,” McCain told reporters Tuesday afternoon. “The service chiefs are now going to have to sign off that they’re cognizant of any single cost overrun, and that brings them into the acquisition process. We think one of the biggest problems in the past is that no one has been held accountable for overruns, and now, the service chief’s signature will be on a piece of paper.”

Perhaps more importantly, the bill would significantly reduce the role that DoD’s undersecretary for acquisition, technology and logistics (AT&L) plays in the approval process for major defense acquisition programs. In most cases, milestone decision authority for major weapons systems would be taken away from the top levels of the Pentagon and devolved several rungs down the current command chain, to the assistant secretaries of the Army, Navy and Air Force for acquisition.

“I think the Senate bill was very thoughtful and supported a lot of the testimony that our committee received about the services playing a greater role in acquisition decisions,” said Rep. Mac Thornberry (R-Texas).

Frank Kendall, the current AT&L undersecretary, has opposed such a move, as has the White House.

In a June policy statement, the Obama Administration said it would “significantly reduce the Secretary of Defense’s ability … to guard against unwarranted optimism in program planning and budget formulation, and prevent excessive risk taking during execution — all of which is essential to avoiding overruns and costly delays.”

The House-Senate agreement would leave some decision making roles for Kendall and his successors, but only as a backstop: AT&L would take over milestone decisions if a military service had failed to keep one of its programs from breaching cost and schedule thresholds under the Nunn-McCurdy Act, and it would still have authority over programs that serve multiple services, such as the F-35 Joint Strike Fighter.

On personnel issues, the two chambers were not that far apart from the beginning. Both the House and Senate armed services committees had already accepted several of the key recommendations of a blue-ribbon panel on military compensation and retirement, including a major one that would reduce the guaranteed pensions military members receive after having served at least 20 years while hopefully offsetting that reduction with a new government contribution to military members’ Thrift Savings Plan accounts.

A similar provision survived the conference committee, but under the final agreement, it won’t actually take effect until 2018.

The House and Senate negotiators were more divided on other personnel matters, including whether to raise the Military Health System’s co-pays for prescription drugs. The Senate had agreed with the DoD budget proposal in that TRICARE beneficiaries should pay a premium at retail pharmacies as one way to encourage beneficiaries to get their brand name drugs in ways that are less-costly to the government, including through TRICARE’s mail order program and at on-base pharmacies; the House wanted to hold the line on co-pays at current rates.

“We ended up with more modest increases than the Senate had, but obviously more than the House had,” Thornberry said. “But we agree that there’s a lot more work to be done on TRICARE, and reforming the system in a way that saves money and provides better service is going to be a high priority in the coming year.”

The House and Senate are also in agreement that DoD has not done enough to cut its civilian staff at the same time that funding reductions are forcing a reduction in its military end-strength.

So the final bill would order the department to cut its headquarters staff by 7.5 percent per year over the next several years. Overall, DoD would need to find $10 billion in headquarters cost savings between 2015 and 2019.

Robert Work, the deputy secretary of Defense, wrote to Defense employees last month that the Pentagon was anticipating such a measure and that managers should begin proactive planning to reduce their headquarters spending by as much as 25 percent over the next five years.

Rep. Adam Smith (D-Wash.), the ranking member of the House Armed Services Committee, said his party’s rank-and-file agreed with 98 percent of the policy measures the House and Senate conferees agreed to in the final bill, which is scheduled to go to the House floor on Thursday.

But he declined to put his signature on the final conference report.

“There is a lot of good substance here and a lot of good work has gone into it, but the lingering problem is that we’re relying on one-year money to get around the Budget Control Act,” Smith said. “The department opposes this idea because it doesn’t give them the freedom to plan and have a normal budget process. That’s really the fly that’s left in the ointment of this bill.”

Sen. Jack Reed (D-R.I.) said his Democratic Senate colleagues also supported almost all of the bill’s provisions, but couldn’t endorse a Defense authorization that stayed within the current budget caps only by shifting $38 billion into the military’s off-budget overseas contingency operations accounts, since that’s not an option available for any other element of the government.

“The one fundamental issue that prevents me from supporting this bill is the failure to change sequestration and the reliance on OCO funds,” Reed said. “Our national security is more than the Department of Defense. It’s Homeland Security, it’s the Treasury Department and a host of other organizations. I’m afraid that if we follow through with this legislation, we’ll give some of our members an excuse not to deal with the bigger problem, which is sequestration.”