Defense Industry: Trends in DOD Spending, Industrial Productivity, and
Competition (Letter Report, 01/31/97, GAO/PEMD-97-3).

Pursuant to a congressional request, GAO reviewed productivity and
competition in the defense industrial base since the end of the Cold
War, focusing on: (1) overall trends in productivity, competition, and
other financial indicators in the defense industry over time, where
possible; and (2) the relationship between these trends and indicators
of defense spending over time, where possible.

GAO found that: (1) the size and nature of the defense industrial base
is critically shaped by the amount and emphasis of U.S. defense outlays;
(2) with regard to trends in the actual expenditures in segments of the
defense industrial base, after adjustments for inflation, recent
spending on procurement and RDT&E contract awards is similar to spending
just prior to the peacetime defense buildup of the early 1980s; (3)
aside from outlays there are other differences in today's industrial
base compared to past periods; (4) Department of Defense (DOD) and
Department of Labor (DOL) data on productivity in defense-concentrated
industries, and other studies on productivity, indicate that the value
of output has increased over time while the quantity of output has
decreased; (5) the business environment for defense industry has also
changed over the years; (6) recent defense contractor mergers and
acquisitions are seen as a trend that will perpetuate constraints on the
number and nature of businesses that may be willing and able to compete
for business with DOD; (7) these fewer contractors are operating in an
environment where DOD tends to award more money on weapon procurement
contracts using other than full and open competition; (8) little is
known about how the ongoing reconfiguration of the defense industrial
base will affect or be affected by these trends in DOD weapon
procurement processes; (9) defense industry employment is another key
factor affected by changes in the industrial base; (10) the loss of jobs
related to the reduction in defense budgets is widely documented,
although estimates and projections vary; (11) GAO found a correlation,
or statistical relationship, between an indicator of employment in
defense-concentrated industrial sectors and an indicator of procurement
outlays in those sectors for the period 1975-91 that is not large and is
less than values considered moderate in size; (12) market forces and
expectations about future trends in DOD budgets have facilitated the
restructuring of the defense industrial base; (13) DOD's industrial
assessments indicate that companies have been profitable since the
funding drawdown and that its needs can be met in the segments it has
assessed; (14) as part of its current "Defense Acquisition Reform
vision" and under the Federal Acquisition Streamlining Act, DOD has
recently engaged and piloted several new acquisition reform programs in*

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  PEMD-97-3
     TITLE:  Defense Industry: Trends in DOD Spending, Industrial 
             Productivity, and Competition
      DATE:  01/31/97
   SUBJECT:  Defense procurement
             Defense industry
             Department of Defense contractors
             Budget cuts
             Defense budgets
             Military downsizing
             Productivity
             Budget outlays
             Defense cost control
             Competition
IDENTIFIER:  DOD Bottom-Up Review
             DOD Defense Acquisition Pilot Program
             DOD Reinvestment and Conversion Initiative
             World War II
             Korean War
             Vietnam War
             Soviet Union
             DOD DD350 Database
             DOD Evolved Expendable Launch Vehicle Program
             Differential Global Positioning System
             DOD Joint Primary Aircraft Training System
             V-22 Aircraft
             Army Crusader System