Top U.S. Weapons Buyer Says Pentagon Begins to Plan for Cuts

The U.S. Defense Department’s top weapons buyer said the Pentagon has begun preparing for automatic budget cuts set to take effect early next year.

“We get a certain amount of criticism for not planning for sequestration,” Frank Kendall, undersecretary of defense for acquisition, technology and logistics, said during a speech today at a government contracting conference in Washington. “We actually are starting to do some planning.”

Kendall, who didn’t elaborate on the plans, spoke a day before the presidential election. Republican Mitt Romney has pledged to stop the cuts and increase defense spending from levels proposed by President Barack Obama.

Under last year’s deficit-reduction legislation, the U.S. faces $1.2 trillion in budget cuts over a decade, with half coming from national-security spending. If sequestration takes effect on Jan. 2 as scheduled, it would require cutting $55 billion, or about 9 percent, from the Pentagon’s budget request of $614 billion for the fiscal year that began Oct. 1

The law requires each budget line to be cut by the same percentage amount, Kendall said, which is a “singularly stupid way of taking money out” and doesn’t allow the department to prioritize, he said.

Tax cuts enacted under former President George W. Bush also are scheduled to expire at the end of the year, setting up a so- called fiscal cliff.

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The military may be able to withstand reductions of “a few billion dollars” a year under a broader deficit reduction agreement, though cuts on the scale of sequestration would be “devastating,” Kendall said.

“A few billion dollars might be acceptable, but when you start talking about 10, 20, 30, or 40, to say nothing of $50 billion a year, that really means we have to go fundamentally rethink what kind of Defense Department we have,” he said.

Kendall’s comments are the first acknowledgment that the Pentagon is planning for the possibility of the automatic cuts, said Stan Soloway, chief executive officer of the Professional Services Council, an Arlington, Virginia-based contractors’ group.

“It’s good news that they’re planning because it’s a really complicated problem,” Soloway said in a phone interview. “One would hope that as they’re planning they would begin to engage their private-sector implementing partners, which at this point, as far as I know, they have not begun to do. So I don’t know how deep the planning is going.”

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Defense Secretary Leon Panetta during an Oct. 25 press conference at the Pentagon urged Congress to take action to avoid the automatic cuts.

When asked whether the White House’s Office of Management and Budget had indicated the department could start planning for sequestration, Panetta said: “We have not received that word.”

In a Sept. 25 memo, Deputy Defense Secretary Ashton Carter directed military departments and acquisition personnel to proceed with normal spending and operations.

“We do not want our programs, personnel and activities to begin to suffer the harmful effects of sequestration while there is still a chance it can be avoided,” Carter wrote. He directed commanders and managers to “continue the defense mission under current laws and policies, without taking steps that assume sequestration will occur.”

U.S. lawmakers from both parties have said they want to avoid the automatic cuts, which may hurt contractors such as Lockheed Martin Corp. (LMT) and Northrop Grumman Corp. (NOC) Obama has expressed confidence that a deal will be made and said during the final presidential debate that the automatic cuts “will not happen.”

To contact the reporters on this story: Brendan McGarry in Washington at bmcgarry2@bloomberg.net; Nick Taborek in Washington at ntaborek@bloomberg.net

To contact the editor responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net

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