Budget blackjack

In the gamble that often is the annual budget process, Army officials traditionally have complained that the service receives less money and therefore has older systems than the other military services.

But in 2003, Army officials learned how to play the game, managing to fully fund updates of the service's current forces, while making significant investments in its transformation to a lighter, modular, rapidly deployable force.

The Army's financial prowess allowed the 228-year-old institution to get a windfall in fiscal 2004 appropriations — with help from Congress and lobbying from the top two U.S. land warfare manufacturers, which worked together to design and build manned ground vehicles. Those vehicles make up part of the service's Future Combat Systems (FCS).

Given tight budget constraints, Army officials took a calculated risk, according to sources familiar with the process. They asked Bush to put their money into future investments, figuring that Congress would put up the money for current requirements.

It worked.

The Army eventually received fiscal 2004 funds to sustain soldiers in Iraq and Afghanistan, update technologies in its Abrams tanks and Bradley armored personnel carriers, buy 301 more Stryker wheeled infantry carrier vehicles for a fourth Stryker Brigade, and continue development of FCS, the next generation of air and ground vehicles. FCS vehicles are planned to be in use by decade's end.

The Army also received enough money to start servicewide deployment of the Army Battle Command System (ABCS), which gives soldiers the locations of friendly and enemy forces and access to warfighting information via computers in their vehicles. Officials originally planned to digitize only vehicles in the Fort Hood, Texas-based III Corps, the service's counterattack corps and its high-tech unit, which has been fighting in Iraq.

Managing risk

The Army based its budget strategy on a savvy understanding of human nature. Pentagon officials typically look at requirements in 10- or even 20-year increments, but Congress takes a decidedly shorter view.

Army officials essentially bet that the appropriations committees would not want to take money from FCS and other Future Force programs, nor would they allow the Army to shortchange its more immediate requirements.

President Bush's $93.9 billion 2004 budget request omitted funding to finish updating vehicles in the counterattack corps. The service finished updating vehicle technologies in two of the force's three divisions, but shifted money originally earmarked for improvements in the corps' other division and armored cavalry regiment to FCS development.

"We made the decision with a lot of angst," said a senior Army budget official, during a Jan. 30 interview at the Pentagon.

Industry officials and lawmakers called the decision absurd. They questioned why the Army wanted to spend $1.8 billion on FCS in 2004, but only $406 million on updates for Abrams and Bradley vehicles — the Army's primary warfighting vehicles during the first Persian Gulf War. They were also used to defeat Iraqi President Saddam Hussein's armed forces.

"Not improving the heavy forces in the 3rd Armored Cavalry Regiment is operationally unsound," said John Longhouser, a retired Army major general and former vice president of Army programs at Burdeshaw Associates Ltd., a consulting firm in Bethesda, Md.

"The Army has chosen to fund [the Objective Force] at the expense of the Legacy Force," said Sen. Joseph Lieberman (D-Conn.) during a March 12, 2003, hearing of the Senate Armed Services Committee's Air-Land Subcommittee. The service then changed the name of the Legacy Force to Current Force, and the Objective Force was renamed the Future Force.

Congress authorized the Army to spend $1.7 billion on FCS and $1 billion on Stryker, approximately what Bush requested in his fiscal 2004 budget. But lawmakers also authorized $248 million for Abrams, compared with a request for $93 million, and $372 million for Bradley, compared with a request for $113 million. Why the extra money? Because the Current Force needed it, lawmakers said.

In the interest of building on the strategy of preserving the heavy force industrial base and modernizing the Current Force, "the [Armed Services] Committee strongly encourages the Army to restructure its future budget submissions to Congress so that they contain adequate resources to fund the Current Force and provide the counterattack corps with the most modern weapon systems available," according to the 2004 Defense appropriations bill.

Army officials thought it might work that way. They took the risk — and won.

"It was more serendipity than foxiness on our part, and it took a lot of hard work," the senior Army budget official said.

Project on Government Oversight (POGO) officials described the budget games as nothing new.

"It doesn't surprise me it's going on," said Eric Miller, senior Defense investigator at POGO, a government watchdog group in Washington, D.C. "It's politics as usual between the Pentagon, Congress and contractors."

Those politics, however, have changed somewhat since Sept. 11, 2001, Miller said. Congress has taken a more timid attitude toward the Pentagon, giving the military whatever it says it needs. POGO supports the military, but the Defense Department used Sept. 11 to update current weapon systems when it should have spent money buying systems that fight asymmetrical threats, where battles are waged in less traditional ways, he said.

"The Army is not living within its means," he said. "It got everything it needs for the Current Force and the Future Force."

The Army budget official, however, said, "The Army is very grateful and thankful for what Congress appropriated for fiscal 2004."

The official attributed the increased appropriation to improved relations with Congress. "I'm frank and candid with Congress," the official said. "We tell [lawmakers] our bills and our billpayers."

The balancing act continues in fiscal 2005. The Bush administration last week submitted a fiscal 2005 budget request for the Army of $98.5 billion; $3.2 billion is earmarked for FCS, a $1.5 billion increase from fiscal 2004. Yet Army officials still claim they must manage risk between the Current and Future forces.

"The Army has made a conscious decision to balance a reasonable degree of risk between the readiness of the Current Force and investments in the capabilities for the Future Force," according to the fiscal 2005 budget request. "The Army continues to make difficult choices to cancel and restructure programs to invest in transformational capabilities."

The Army in the fiscal 2005 budget terminated 14 systems and restructured 15 others, freeing up $406.5 million to invest in transformational capabilities. The Army in 2004 canceled 24 programs and restructured 24 others, the senior Army budget official said.

Industry at work

But the Army probably would not have been as successful if not for the lobbying efforts of Abrams, Bradley and FCS vehicle manufacturers General Dynamics Corp. and United Defense LP, a military official said. A General Dynamics official said "lobby" is too strong a word.

"The recent conflict reaffirmed the tank as the centerpiece of the Army," said Kendall Pease, General Dynamics' vice president of communications. "We provided the Army and Congress information on the feasibility of continuing the Abrams updates."

He added, "The best lobby for the Abrams was the tank in downtown Baghdad. Funding the Future Force is important, but there has to be a funding bridge between the Current Force and the Future Force, as affirmed by new Army chief of staff, Gen. Peter Schoomaker."

A United Defense official also called the word "lobby" too strong. "Congress added some money for Bradley modifications," said Doug Coffey, the company's vice president of corporate communications, during a Feb. 5 telephone interview. "It certainly helps in 2004."

Coffey concurred that operations in Iraq showed the importance of pairing Abrams and Bradley capabilities. But he said United Defense will remain concerned about Current Force production work

until the start of Future Force vehicle manufacturing.

"It's clear from the performance of the 4th Infantry Division that the enhancements it had in communications and weapon systems were combat multipliers in post-combat Iraq that received significant interest from Congress and the Army," said Peter Keating, director of communications and public relations for General Dynamics Land System. The subsidiary, located in Sterling Heights, Mich., produces the Abrams machines.

The division, stationed at Fort Hood, first received the Army's Force XXI Battle Command Brigade-and-Below system, 10-inch computer terminals that give soldiers access to ABCS. The service's first digitized division also was the first to receive the new M1A2 System Enhancement Package tanks equipped with updated communications, cooling and targeting systems, and soldiers used those systems to capture Hussein Dec. 13, 2003.

United Defense, meanwhile, threatened to close its main plant in York, Pa., one of the most modern land warfare manufacturing facilities in the United States, according to Gregory Fetter, senior Defense analyst at Forecast International/DMS, a consulting firm in Newtown, Conn.

United Defense fired its first warning shot about plant closures to investors, the Army and Congress in a November 2002 Securities and Exchange Commission report. It announced that a multiyear,

$697 million project to improve 389 Bradley vehicles was in jeopardy because "the Army appears inclined to pursue the FCS program at the expense of funding for other weapons programs," the financial report states.

United Defense's suspicion proved true when Army officials announced last February a $93.9 billion 2004 budget that canceled the remaining Abrams and Bradley vehicle improvements for the counterattack corps.

A month later, company officials, in another 10-Q SEC report, declared they might close three plants in South Carolina and Pennsylvania, told the Army they needed 250,000 hours to keep the York facility open in 2004, and asked the service to buy Hercules recovery and Paladin artillery vehicles for the National Guard's enhanced brigades, its most modern forces.

Pennsylvania's congressional delegation also intervened, sending a letter to Defense Secretary Donald Rumsfeld urging him to ensure that $50 million earmarked for United Defense last year would not get diverted to other programs. Congress approved, at the Army's request, spending that money to buy 16 Hercules vehicles, said Rep. Todd Platts (R-Pa.), whose district includes York.

But DOD officials planned to shift that money to other programs, Platts said. "We don't want the Army to purchase things it doesn't need, but the Army position is, they are short 37 tank recovery vehicles and we've seen nothing that reduces that requirement," he said.

The House came through for United Defense and General Dynamics in May 2003 with its version of the fiscal 2004 Defense authorization bill, which boosted funding for the Bradley and Abrams vehicles.

Bill White, the Army's Bradley vehicle program manager, said he heard that United Defense lobbied hard to get the Bradley updates restored for the counterattack corps. He also said the company lobbied diligently to keep the York plant busy between 2004 and 2006, until FCS land vehicle manufacturing starts.

But the 13-year Army employee pointed out that United Defense always delivers outstanding products and services. "The company is very conscientious and concerned about quality," White said. " I have no complaints with them."

That was just the start of a series of victories for the company.

Last June, it received a $3.9 million Army contract — an addition to a $770.3 million contract it won in 2001 — to update the National Guard's Bradley vehicles with digital communications, and onboard diagnostic and automated targeting systems. The award stipulated that the company must perform 83 percent of the work at York; 8 percent at its San Jose, Calif., facility; 5 percent in Aiken, S.C.; and 4 percent in Uniontown, Pa.

Also in June, United Defense received a $14.5 million Army contract — worth $30.6 million if all options are exercised — for Hercules engineering support services to complete 210,000 design hours on the tank recovery vehicle through 2006. The contract mandated that the company complete

99.5 percent of the work at York, 0.3 percent in Santa Clara and 0.2 percent in Aiken.

Last August, the company won a $5.3 million contract, potentially worth $10.7 million, from the Army to build five Hercules vehicles and produce spare parts. The company last November received a

$36.9 million contract — an addition to the $770.3 million and $3.9 million contracts won in 2001 and 2003, respectively — to upgrade 37 Bradley M2 and 26 M3 models.

The Bradley and Hercules work generated mixed results for United Defense. The company reported a 74 percent increase in second-quarter 2003 revenue, $553 million vs. $318 million a year ago; a slight decrease in third-quarter 2003 revenue, from $508 million to $530 million; and a modest increase in fourth-quarter 2004 revenue, $524.7 million compared to $521.1 million, according to the company's Web site.

"United Defense's fourth-quarter sales were right in line with our expectations," said Tom Rabaut, United Defense's president and chief executive officer, in a statement. "We anticipated there would be a decline in Bradley fighting vehicle fieldings again this quarter, but continued strong performance in our ship repair and maintenance business and work on the Army's [FCS] and other artillery systems more than helped to offset the impact."

"We are pleased to start the year on a strong note," he added.