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DoD Budget Reforms Aid Relationships With Private Sector

By Paul Stone
American Forces Press Service

WASHINGTON, Dec. 24, 2003 – Transformation of DoD budgetary practices during the past few years is having a rippling effect, reaching far outside the Pentagon and positively influencing how private industry views working with the Defense Department.

That's the assessment of Dov Zakheim, DoD's undersecretary of defense (comptroller) and chief financial officer.

Zakheim, one of the chief architects in the effort to transform DoD budgetary practices, said in a recent interview that private industry including both established defense contractors and those with whom the department has not traditionally conducted business now view DoD as a more attractive business partner.

He credits this primarily to changes in the way that DoD programs funding and how it looks at its budget.

Zakheim said the first step he took upon taking office was to streamline the budget process and provide a "degree of consistency that wasn't there before." He explained that budget process basically was broken down into two parts: the program review, performed by the Office of Director of Program Analysis and Evaluation, and the budget review, performed by Zakheim's office -- two processes that were more independent than integrated at the time.

"The program review traditionally looked at programs -- did you want to buy an F-16, as opposed to an F-18, as opposed to an aircraft carrier - - and they were decisions made in the summer prior to the start of the new fiscal year," Zakheim explained. "What then happened was we would review the actual budget proposals, and those who didn't get what they wanted in the program review looked at the budget review as a vehicle for overturning prior decisions. And in many cases, that happened. The two reviews did not share a common database, nor did they harmoniously integrate the people who were managing each of the reviews."

Today, all that has changed. Zakheim said that during the past year, the two staffs have become fully integrated, working hand-in-hand to ensure that what happens during the program review does not change in the budget review. "We simply issue a document that confirms, in budgetary terms, the decisions made in programmatic terms," he said.

Another significant change is Zakheim's initiative to examine the budget from a two-year perspective. "This has allowed us to make a commitment not to tamper with financial resources from one year to the next," he explained. "So in effect, what we're doing is carrying forward the full vision of transformation that really began last year."

What this means for those who do business with DoD, Zakheim said, is it gives them an increased sense of security that what DoD commits to invest in one year will not disappear the next. "Industries are always concerned about planning stability," he said. "Corporate planners want to know what their orders will look like next year and the year after that. And by incorporating that (long- term) view into our practices, by minimizing changes, and by building on previous (budgetary) decisions, we're giving industry a better sense of where we're going."

Zakheim used the shipbuilding industry as an example. "Each year we promised that the following year (we) would do something more with shipbuilding. And it's not unfair to say that the shipbuilding account is more stable than it has been in years," he said. "That's important, because it's a volatile industry in which people move out very quickly if they don't see jobs. They go elsewhere and don't come back. And it's extremely hard and costly to get started back up again."

Transformation of budget practices is also attracting business outside of the traditional defense firms, and Zakheim credits that, in part, to integration of some corporate practices in the DoD budget process.

"My emphasis on having clean audits financial statements that make sense to the outside world I believe is helpful," he said. "It shows them that we understand how they do business and it helps them understand us."

As a result, Zakheim said that increasingly more businesses from the high-tech sector are showing interest in doing business with DoD, especially as they recognize how much the department now relies on information-based technologies.

"My colleagues in acquisition and technology have also tried very hard to create a more company-friendly environment so we can attract the leading edge of American business," he said. "And we believe that has begun to occur.

"So now we have two constellations: One is (made up of) traditional vendors, and the second is (made up of) less traditional vendors, many of which sell off the shelf," he continued. "The result is we've expanded our reach and probably increased competition in ways people haven't thought about, which means a better price for the taxpayer. And the end product is pretty clear. We are unchallenged around the world. That doesn't happen by accident."

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