 Good afternoon, everyone, and welcome to the Center for Strategic and International Studies. I want to thank those of you who have braved the elements and come out this afternoon. I'd also like to thank those who are joining us online. One of the advantages, obviously, of webcasting is that people who don't want to get stuck in evening rush hour traffic are still able to join us, and we're very grateful for that. One of the things about having a CEO who is from South Dakota is that the threat of a little snow does not deter one from continuing with scheduled events, and therefore we are certainly happy to have you join us here today. A couple of administrative comments. One is I would ask those here in the audience to make sure you've silenced your cell phones that actually causes me to realize I have not done so. So I will do that as well right now, and that would be a little helpful. Secondly, those of you who have joined us on the web, there are available for download PDF file of the chart so that you can follow along. Because this is a bit of a new exercise for us having a simultaneous live event and webcast, we want to encourage those of you who are watching. Let us know if you're online. You can send us your comments. You can send us your questions. We'll be able to pick them up as part of the process here so that when we get to the question period, if you send them to by email, you'll see my email address on the front of the very first chart and also on the questions chart. It's D-B-E-R-T-E-A-U at c-s-i-s dot o-r-g, so you're welcome to send questions along as we get to the questions period. We're really grateful for the opportunity to do what, for us, is a bit of a branching out in terms of our analysis. Many of you know that for years, we've done an analysis and a report updated each year basically on professional services contracting across the U.S. federal government. Last year, when we did our professional services report and updated it in November, we pronounced that we were going to move forward looking agency by agency. And what we've done, this is the first in what we hope will be a series of agency-specific reports. But rather than just look specifically only at services contracting, what we've done is we step back and look at all contract spending first at the Department of Defense level. We expect to have a follow-on events on the Department of Homeland Security, on the Department of Energy, on NASA, and on all of the agencies that have a substantial amount of government contract spending. So this is a bit of a new exercise for us. We wanted to release it before the DOD budget came out. At the time that we set our schedule, we thought that would be next week. Turns out now it's going to be a couple of weeks later than that. But we think it's still timely. But particularly since it is a new exercise for us, we're really eager to get your input and your comments and your reactions. Joining me on the stage here today is Guy Ben Ari. He is the Deputy Director of the Defense Industrial Initiatives Group. I'm David Burto. I'm the Director of the Defense Industrial Initiatives Group here at CSIS. With that, I'm going to click to the next chart and turn it over to Guy for a couple of comments. Thanks, David. Welcome, everybody. Just a few quick notes on methodology. As David mentioned, this effort grew out of our ongoing work on the professional services industrial-based and professional services contracting across the federal government. We continue to use the Federal Procurement Data System, FPDS, as our primary source of the data. And most of the charts that you'll see in this presentation use FPDS data as the main source. We've noted it in the footnote if there are other sources that we've used. Note that all dollar figures are in constant $2009. And really the last comment I'll make at this point is that the hard data for all of the charts that you'll see in this presentation will be also available online. So you're welcome to, at your own leisure, go ahead and play around with that. It's a lot of fun. One of the things that we do intend to do is to post an updated version of this presentation online with written commentary in lieu of an actual written report. We do have the handout here today, but we expect to refine those charts and to add some additional data to them as we go along. We look, first of all, at the total amount of DOD contract spending as a percentage of total DOD funding. Our data here, there's a little bit of a lag time in terms of these are actual outlays and there have been some lags because of getting the outlay data from supplementals into the data. So there's a little bit of an update that we expect to do for the total for DOD spending, but it does not affect the actual percentage. What you see from the jagged line across the top of the chart here is that total DOD contract spending while it was down had a spike for Desert Storm in 1991 and was down around the 50% level through the early 1990s, but really beginning in the mid-90s all the way up to today has been fairly flat at around 60% of total DOD budgets. And so while the budget has gone up dramatically since 2001, the percentage of spending of DOD budget spending on contracts has stayed relatively flat over that entire period of time, which is actually a bit of a surprise to us because we actually thought contract spending would have gone up at a higher rate than total DOD funding and it really basically did not. Our presentation is organized according to several different categories. We've broken it down into three pieces, products, services, and R&D. Now, in our services contracts report, we include R&D as part of services. That's because the federal procurement data system includes R&D as a service. But we break it out separately for purposes of this category today. In addition, we will give you spending by DOD component, Army, Navy, Air Force, and other DOD. I would note that we can't break out supplemental. Supplementals are not separately classified in the federal procurement data system. And so we haven't broken those out separately here as well. So first we look at DOD contract spending for products. What you have on this chart or along the bottom is you have the dollar totals with the billions on the left. So it gets up, it starts out at a little under $100 billion in 1990, increases to nearly $200 billion by FY08 and a slight drop off after that. On the right, you have the percentages. We have Microsoft to thank for setting the percentages in increments of seven. We will fix that in a subsequent chart. But basically the 49% line is roughly at the 50% level. What you see is a slight decline in spending for contracts through the 1990s, and then an increase in spending for contracts since 2001. And just a quick note on the downturn you're seeing in 09. We are presuming that that's a function of the FPDS data being updated relatively slowly. We've seen that in previous years as well. Where it takes a good year or two, sometimes more for the complete amounts and to be updated in the online version. Which is the one that we're working off of. So we expect the 09 levels to actually be a little higher than you're showing in this chart. Then we look at contract spending by services. This is chart eight. You can see increases in the early 1990s to a level that's generally right below the 40% or right around the 40% level since the mid 90s on up to today. Sorry, we're still on. One, six. There we go. Now the click actually worked. This is chart six, spending for services. Again, an increase in the early 90s to a relatively stable level at around the 40, 42% level since the mid 90s. And just another quick methodology comment. Unlike the professional services report that we've been churning out, services here does not include R&D or most of R&D. It does include R&D management, which you can break out in FPDS. So that's under services. The rest of R&D is in the next chart. And there is our R&D chart. This is really kind of our first big surprise in our data here. Typically, when the defense budget increases, the amount that goes to research and development also increases. Historically, that's been the case since the end of World War II. In this case though, despite the increase, the percentage that's gone to R&D has actually declined over the last decade. I would note that this is R&D dollars as reported again in the federal procurement data system. We have not tracked this back against actual appropriated dollars for R&D, although we think that on a percentage basis, that trend is probably the same. So now we lump the three together. Category in percentage terms, what you see is the increase in services contracts, this is chart eight in the 1990s, and the relative stability since then. And same with products. And two interesting questions here for us. One was, had it not been for OIF, OEF, the two wars starting in 01, 02, 03, would the trend of the decrease in products have continued, and would the spike that we've seen in services have been as high as it has been? And the second question, of course, is will these trends continue into the future years as we are looking at either flat or declining even defense budgets? And we'll come back to that question when we look at spending by Army, Navy, and Air Force, each of the DOD components. So we'll start by looking at the total contract spending by entity. This is a color-coded chart, chart nine, that starts basically the top is the other DOD, and then we have the, I have a non-color-coded piece in front of me, so I'm going to have to work at Air Force, Navy, and Army at the bottom. Substantial increase in all entities, all components of DOD, clearly tied to both Iraq and Afghanistan since the 1990s. And just a note on the other category, the top bar on the chart here, that the growth there is primarily in the Defense Logistics Agency, DLA, and some Missile Defense Agency. Now we'll look at spending on products by component, by entity. This is a replacement chart. For those of you who have the paper copy of the charts here, there's a new chart 10, which you should have picked up on the outside and have to replace the one that you have there. Here again, it's useful to look at the growth rates. What you have, though, is a dramatic difference, a decline in the 1990s in terms of total spending on products by contract, and then a dramatic increase since 2001. The combined annual growth rate over the 20-year period, 1990 to 2009, is a little bit under 4% for all of DOD. But over the last 11 years, it's been over 10% per year annual growth rate in contracts spending on products. And it's worth noting that the majority of growth in DOD and products has been in Army and other, primarily again driven by DLA. And again, we're not sure if we would expect that to continue. Now we'll look at the spending on services by entity. Here again, you have growth, but you'll notice there was not the dip in the 1990s. And so from a growth rate point of view, it's been a little bit different. You actually have a 20-year growth rate of about 6.5% per year and a 11-year growth rate of only about 9%. So the difference, if you will, in the growth rate over the post-911 period is dramatically less of an increase in services spending than it was in spending for products. Whoops. Now we'll look at R&D by component. This is chart 12. Pardon me as my pages are stuck together here. Again, note that there's been little increase in R&D despite the dramatic increase in the DOD budget. Across the board, 4% for Army over the 20-year period, 3.5% Navy, 2% for Air Force. This is historically unprecedented. This next chart is really a repetition of the earlier one you saw on page 9. But it's just to bring you back to the complete picture of the breakdown of contract spending by the various services and by way of also transitioning to look at the individual services now in the coming charts. So first we'll look at Army contract spending from 1990 to 2009. This is chart 14. You can see this is really skyrocketed. As a percent of total DOD contract spending, the Army was only 23% in 1990. It had grown to 40% of total DOD contracts by 2008. That's an 11-year growth rate since 1999 of over 13% per year in Army contract spending. And it's really probably almost entirely attributable to the wars that we've been fighting since 01-02. What I'd also quickly note is that for the next version of this report, we'll have the breakdowns for each of the services into product services and R&D as well. We'll not have that yet in these charts. Now we look at Navy contract spending. This you have almost the mirror image reverse of the Army. The Navy has clearly declined substantially from nearly 40% in 1990 to 25% over the last half decade. And you really wonder if the United States Marine Corps had not been included in the Navy numbers, if these numbers had been even lower, if the declining trend had been even sharper. Then we have the Air Force contract spending. Again, this is down as is the Navy. And in fact, in percentage terms, the last couple of years, the Air Force has been at an all-time low since the Air Force was created in 1947. But there's hope, or seems to me, because the Air Force is the only service that's seeing an increase in its numbers from 08 to 09. So then we decided to put the three together and to add the percentage for other. So we've got all three services together, Army, Navy, Air Force, and then we have the other DOD portion. This is really kind of our second big surprise, if you will. There's a historical change, unprecedented. The Air Force in 2008 actually fell to fourth place behind the fourth estate as we call the defense agencies inside DOD. And it remained there in 09. This has never happened before. And I was actually astonished when we rolled this chart up. It's worth calling almost a press conference just to point this out. Of course, it happened two years ago, almost three years ago now, and we're only just now capturing it because that's how long it takes to get the data. Sorry, we didn't skip forward. There you have it. This is chart 17. So I need to be clicking my button and checking to make sure that I've succeeded. So now you see DOD other, the orange line actually passed the Air Force in 08 and remains above it in 09. Unprecedented. And next few charts you're going to see, we're moving away from the services and looking specifically at different types of contracts. So first we have data by competition, by type of competitive award in terms of total DOD contract spending. And a few methodological notes here. First of all, on the top right-hand side of the legend, unlabeled is both the contracts there are actually unlabeled in FPDS or that we picked out as being erroneously labeled. For example, if it's designated as a competed contract and there are zero bidders, or if it's designated as a non-competed and there are five bidders. What's encouraging to see is that there's actually been a decrease in the number of unlabeled contractors, contracts which is telling us that the data in FPDS, at least on competition, is improving. One other quick note is that this is one of the charts where our data only goes back to 1999 as opposed to 1990 just because for some categories, we were uncomfortable with some of the older numbers and so kept it to a shorter timeframe. But for the sake of confidence in the data. We also picked 1999 as a starting point because that was the significant year of expenditures on Y2K which from the services contract in point of view was a big deal, less so looking back in history. It's worth noting that though both over the 11-year period covered by this chart and the last five-year period, if we look at it, the percentage growth in competitively awarded contracts exceeds the growth in non-competitively awarded contracts. And so what you're seeing is an increase in the successful application of competition across DOD contracts pending. Then we looked at the data for all of DOD by what we call funding mechanism and this is basically the cost basis of the contract whether it's fixed price, whether it's cost reimbursable, whether it's time and materials, whether it's a combination of multiple types of contract or whether it is that wonderful category unlabeled or insufficiently labeled if you will. What we see is that fixed price contracting has been increasing faster than cost-based contracting including TNM over that time period. What you also see here is what for us at least is a somewhat troubling emergence of the combination contract somewhere around 05. That category has seen an immense growth. The combined annual growth rate is actually something like 140% over a five-year period and we believe that this is something that places like OMB, OFPP should really start paying some attention to. We've noticed this trend in the services report and what combination basically means is there's some elements of fixed price and some elements of cost-based in the contract. We can't tell from the data what percentage is and how much is which. And if you'll notice on the chart, if you look at the top of the 05 column there, the fifth one from the right-hand side, you'll see that little one sitting off to the side, that's $1 billion worth of combination contracts in FY05. By FY09, it had grown to $45 billion. And this is troubling us because you can't tell what's inside this, we can't break it down. And so we think a little effort needs to be put onto this. As I said, we had noted this trend in our services report in November but we did not know that it had spilled over into products as well. David, do you have a comment quickly as the one time? Exactly. So my comment that says we're increasing fixed price, if this combination, if 40 of that 45 billion is cost-based and only five is fixed price, then it may undermine my comment that it looks like we're doing better on the fixed price basis. So it's really a question of it makes it way too difficult for us to discern any trend here. This is a particular concern and if you go back to President Obama's March 2009 guidance to the departments, it says you need to increase the amount of work you do to compete, you need to increase the amount of contracts that you put out under fixed price contracting and the way we're going to measure how well you're doing agency by agency is using the federal procurement data system. So now if in fact we're using the federal procurement data system and you can't tell, then how are you gonna evaluate performance? That's really our focus on this question. It's not just that we're curious, we actually think that the government is as well and it ought to know the answer. Then we look at total DOD contract spending by contract vehicle and this is really the type of vehicle, indefinite delivery vehicles, purchase orders, or definitive contracts. We would note that here as in elsewhere, DOD appears to have been responding positively to the policy guidance that's been put out both within DOD and across the federal government. There's a higher increase in the percentage of defendatized contracts than in others and that has been again part of the OMB guidance. And so you see signs here, the DOD is in fact successfully following the guidance that's been put out. And just quickly to note that in this chart, just for the sake of being able to actually read it, we've dropped the unlabeled category. It's relatively insignificant, but worth noting that it's never the less there are unlabeled contracts in this category as well. Our next category of charts we're now in chart 21 is the top 20 contractors in DOD. Here we compare 1999 and that we derived actually from the DD350 forms rather than FPDS because it hadn't broken it out yet by then. And in 2009, which again is the last year for which we have current data. It's interesting you have the same top five in 1999 as you do in 2009. The order has changed a little bit, but it is just the same top five. What's also interesting here is that the share of the top five between 1990 and 2009 dropped slightly, went down from 29% of overall contract to 27%. The top 20 share grew by just a little bit again, 41 to 43%. So really there might actually not be very real effects of vertical integration if you're going by this data because all the big guys are pretty much maintaining their share of the total pie. One big difference though that you can see between 1999 and 2009. In 1999, two of the top 20 companies were healthcare companies. You see Humana at number 16, $780 million a year in contracts, Anthem at number 20, $650 million a year in total DOD contracts. Look over in the 2009 column, you now see Humana up at number 13, $3.4 billion. You see HealthNet at number 16, $2.8 billion, and you see TriWest Healthcare at number 17, $2.7 billion. What you have is three companies in 2009. Combine those three, they add up to $9 billion. They would be number six on the list. This is the growth in DOD healthcare expenses shown very dramatically from a contract's point of view. We now break those top 20 down by products, by services, and by R&D. So first, here's the products category. This is chart 22. There's a small change in the top five. United Technologies is gone as number five. They've now dropped down to seven. Northrop moved from number six up to number five. Of course, between 1999 and 2000, Northrop required Lytton, which had been number eight on the list on the left-hand side. They also acquired Avondale, which had been number 13 on the list on the left-hand side. They've announced, of course, that they're gonna divest themselves of those. So when we see this chart in a couple of years, it will have changed again. You also see number eight in 2009, BAE Systems. BAE, of course, acquired a couple of the top 20 that were in the 1999 list, United Defense, and Stuart and Stevenson. So you've got some changes there that have been as much by mergers and acquisitions as by growth in each of the companies. And in terms again of the share of the top five and the top 20 of overall spending, here the trend is actually downward for both categories. The top five are down 6%. The top 20 are down just a little bit, around about 1%. But again, this is products and there are two wars going on and there are a lot of other players involved in this business. Speaking of which, you can see the effects of those two wars, probably in the makeup of the 09 list, where you've got three oil companies represented, Shell, Oil, BP, and Bahrain Petroleum. And you see some companies, some new companies in the ground vehicles sector. McAndrew's Forbes Holdings actually owns A&M General, BAE Systems, of course. And so again, the results of several years' worth of two major wars are clear in this chart as well. But the idea, and we heard this a lot last week in a series of events around town on the 50th anniversary of Eisenhower's farewell speech, the idea that somehow the top defense contractors are gaining a larger and larger share of the market. And what our research has shown is in fact that's not the case, that it's been stable and in the area of products actually declining in terms of percentage fairly dramatically. So the consolidation of industry is not showing up in the percentage increase of total contract dollars by those top contractors. We see a different story in services contracting between 1999 and 2009. Now I'm on chart 23. Big movement in the top five. In fact, healthcare impact clearly is visible. Companies number five, eight, and 11 in 2009 are healthcare companies. And so three of the top 11 services contractors for DOD are in the healthcare business. And it's really in the share of the top 20 of overall spending that you see the real surge in some of the smaller and medium sized companies. The share of top 20 is up from 29 to 36% between 99 and 09, while the share of the top five has remained pretty much flat at around 15%. Then we look at R&D, which is chart 24. Here the top four are not only the same, they're in the same order. And company number five in 1999 was bought by company number three. And so in many ways that distribution is not changed much dramatically. On the other hand, the shares of the top five and top 20 of overall spending have increased. And this is the R&D category is the one category where we've seen that happen. The share of the top five goes from 50% to 56% of overall spending and the share of the top 20 from 71 to 76%. So 20 companies are doing three quarters worth of work of the work in R&D for DOD. All right. It's worth noting though that five of those top 20 are either non-profits or federally funded R&D centers. And so they're not really part of the same corporate industrial complex that's reflected on the other charts that includes obviously MIT Aerospace Corporation, Johns Hopkins Applied Physics Lab, MITRE and Battelle. We then look, as we did for our services contracting, at the shares of contract spending and the total dollars of contract spending divided up by size of company, if you will. So we have, this is total contract spending by contractor size. 1999 is the top bar on chart 25 and 2009 is the bottom bar for each. Large contractors, medium-sized contractors and small contractors. The largest in terms of annual growth rate is for large, which grew at an average annual rate of 11%. Small businesses, and this is really a success story in terms of the government's policy of set-asides for small business, has grown at an average rate of 10% per year for DOD over that same 11-year period. Just a quick, again, methodological note. We discussed for quite a while what the threshold for a large company should be. For both this report and for our November 2010 professional services report, we increased that threshold from $1 billion to $3 billion because we felt that it was no longer, being a $1 billion company, as incredible as that might sound, is not good enough anymore to be considered a big or large player in the DOD environment. However, after we made that change, we looked to see how many companies or how much business the companies were doing that were in the $1 billion to $3 billion range. And this is annual revenue, by the way. And there's only $17 billion worth of contracts going out to the companies in that category. So that change in terms of share of the pie was not significant. This has been of interest to us because there's a substantial policy question of is a combination of growth in the large companies and growth in small business set aside, putting a squeeze on the middle tier companies. And certainly for those folks who work for those companies, they feel that squeeze. What the data show is that there is a bit of a squeeze, but there's still an awful lot of growth inside that area as well. We see the same thing when we look on a products level. Now I'm on chart 26, where in fact large contractors have a substantial, by far the biggest portion of total contract spending for products. Medium contractors, more and small businesses, the least of the amount. In terms of average annual growth rate though, the mediums are actually taking a smaller and smaller portion each year. They've been growing at an average annual rate of about 7.7%, whereas both small business and large are growing at over 11% per year. So again, there is a little bit of a squeeze on here. It's not dramatic, there's still room for growth, but the shares are diminishing for medium-sized contractors. Then we look at the same question in services. And we see that medium is much bigger in services in terms of total dollars, 64 billion for large companies, 59.5 billion in 2009 for medium-sized companies. So you can see that the mediums are there, but. And in fact, they had a larger share of the overall pie in 99 than did the large companies, but that trend reversed itself in 2009. So here you are seeing the squeeze on the, again on the middle-tier companies. Small business obviously is still growing. They grew at an average rate in the services business of 9.3% large contractors at 11.6%. And then for R&D, here the large companies obviously dominate, they were dominating in 1999, they're still dominating today. This is consistent with the trend that says over half of the R&D dollars are in the top five companies and three-fourths of R&D dollars are in the top 20 companies. So this has been a quick run through a lot of data. And you all have been very patient flipping through these charts with us, if you will. We've found some surprises in here, some areas where the surprise was not what had happened but what hadn't happened, that in fact, the percentage for instance of products and services had been fairly stable over the last 12 to 15 years. Surprises like the Air Force actually spending fewer dollars under contract over the last two years than the fourth estate in DOD. So by and large, we're gonna continue to look at these data, we're gonna continue to break them out, we'll do them by other agencies as well, as I mentioned. So at this point, I'd like to throw the floor open for comments and questions. I believe we have folks, as you all know, our procedure is you raise your hand, I will recognize you and you wait for the microphone. When you get the mic, you can stand up, speak into the mic, identify yourself, your affiliation and make your comment or ask your question. I'll also pull out my blackberry, those of you who wanna email questions from the web will attempt to answer those as well. So any questions from the floor? Any comments or questions from the floor? Here's one over here on the right, if you will. Thank you, this is Amy Strauss from the Avacent Group. I have two quick questions, if you'll permit. One on slide 19, do you have this data by just the services market? And what do you think that chart would look like? For professional services, we do. It's in our report that was released in November. For just DoD? I believe that we have data. We have the data, I'm not sure we've posted it and I think it's a legitimate question and it's worth laying out. I don't know if we put it in our report by DoD but when we do the final rollup of this, we'll put it out by component. My second question is on the following page where you have an interesting breakout of the spending by contract vehicle. I wondered if you included contract money that was flowing through GSA, although going to DoD is the ultimate end user and how that might affect this breakout. Thank you. That's a fascinating question. We would love to get at that. Unfortunately, the data entry in the Federal Procurement Data System doesn't give us the kind of precision. We'd actually have to look at each DD 350 and be able to pull that out and we frankly just don't have the time and the staff to do that. I'd love to know the answer to that question. My suspicion is it's down but I can't verify that. Other questions from the floor? And I have no questions from the audience although I have some in the, aha, here we go. At the risk of shutting down, Mr. Finnelli. Thank you very much, Frank Finnelli from the Carlaw Group. As you're looking at these size categories, are you differentiating this just from DoD Prime contract revenue or have you done any cuts where you look at the total revenue of the company or where you try to integrate subcontract value as well? Those are great questions as well and shows the limits of the data we have. We do look at size of company as well as just size of DoD contracts and so in fact, if your total DoD contracts is under the three billion but the size of the company is over three billion, you're in the category of large for purposes of our display here. Same with medium so that it isn't, the size isn't driven by the total DoD contract dollars or total government contract dollars but by actual total revenue of the company as best we can determine. Some companies that's a little harder than others. We would love to be able to get at subcontract data and to be able to roll those up. So far that's generally not publicly available. There's some early beginnings on usaspending.gov of subcontractor data and we're really excited about this. You know, and this is a great world to live in where you get excited about access, public access to subcontract data but it's the world we live in and we're eager to see that mature over time but I think it'll be a while before we get, before we can really draw any conclusions from it. Thanks for pointing those both out. But what we're also doing for the large companies is rolling up all the daughter companies. So we'll go by Dunn's numbers and if a company is owned by another company, that company's data will be subsumed in the larger company's data. And again, occasionally we lag actual mergers and acquisitions and so we welcome companies who notice that we've got them incorrectly displayed here and will help us fix that problem. I think we had a couple more questions in the front here. Hang on, here comes the mic, if you don't mind. Thanks. Slide 12, I'd just like to go to R&D since that's one of my favorites having worked that issue about 30 years in this town. If you look at the numbers, late 08 and 09 and total those up, they look like they're about in the mid-40s. I mean, we know the 11 budget is 76 billion for R&D and was probably in the mid to high 60s in 08 and 09. So what I'm trying to get a sense of and Guy, I think you said RDT&E management, you've put in services. Yes. Okay, would that involve like six, five defense-wide mission support activities? Yes, exactly. Predominantly. Or were there other RDT&E activities that would be put into services? Well, the way FPDS breaks it down is not by the six, one to six, five labeling. There's just a separate R&D specific code for R&D management and that's what we'll separate out from the overall R&D. I'm just trying to understand what their definition is. And I would also note, by the way, the speaker is Wayne Schroeder from Lockheed Martin. Wayne, I would note that what this does not capture is government expenditures out of the R&D account government employees and facilities and operations as well. This is only contract dollars. And so for instance, the DOD labs, the DOD labs, those salaries would be paid in services as opposed to... My assumption based upon other data is that that portion has actually grown more than the contract portion of R&D. So there's some masking, if you will, but the extent to which you believe actual R&D is done by the companies rather than the government in its own labs, this reflects a flattening of that from a pure contract point of view. And I think it's a concern because in the past, we've lived off the benefits of R&D that get spent when we have a buildup and we reap the benefits of those in the drawdown because that's when you get to start applying the R&D. We have not invested in R&D in the last decade to the same ratios that we've done in the past when we've had a growing budget. And so that puts at risk the potential for reaping the benefits of that in a downturn. My only observation, David, would be if the actual spending on the R&D teeny is in the 40s, the mid 40s, and the R&D teeny in appropriation is in the high 60s, 70s, that's like a two to one ratio that's a lot of management going in to the activity. And of course, some of you will recall that when we did our services report in November, we noted that the single largest services contract in the government was the Joint Strike Fighter, which in many ways is obviously not really a services contract. So we've got some anomalies there, if you will, in terms of the way the categorizations get laid out. And we try to take account of those. Here's another question on the front here. It's August Cole, I'm a writer. The total contract value for the top five contractors in 2009 has obviously risen with the budget, but it looks like the gulf between, let's say the fifth and the sixth has also spread. So that delta's big compared to 1999. Is that a policy issue? If you create a position where the super prime firms are essentially, there's a gulf between them and the rest of the industry. I think that's a great question. And I think one of the answers to that question comes in the back of our services contracting report we have what we refer to as the pitchfork charts, which basically takes the companies in 1995, dozens and dozens of them, rolls them forward to the companies of today, much smaller number. I think we'd have to go back and look at the revenue, if you will, contract revenue of those subsidiary companies that have been bought up by the larger companies to see whether or not it's accentuated that breakpoint beyond what you would consider to be a naturally distributed set of data. And in fact, whether or not there's an incentive for the guys at the top in order to stay at the top, they've got to continue buying up the ones underneath. And I think that's a policy issue. I'm not aware though of any specific guidance from DOD that would produce that outcome. I think it's more a question of the overall dynamics of the market and what those companies at the top have to do to be able to stay there. That's my suspicion. Do you agree? I agree. Yeah, but I think that's worth taking a look at. Thank you. That's another good point. Well, given that we have another question over here, I was going to make some kind of spurious. Just very briefly, Terry Murphy, also with CSIS. Picking up your point about the Navy Marine Corps split, or whatever you speculative, of course, what could you, I was in Australia last summer, and Australia Press was quite filled with concern about the perceived diminution of the Navy force, the Navy presence in the Western Pacific. And we've just had the Chinese president here. Do you have any, you did express concern about that, and I wonder whether you'd like to just expand on that. Thank you, Terry. We noted that the trend in Navy contract dollars as a percent of total DOD was almost the mirror reverse of the Army from a high of just below 40% in 1990. To about 25% in the second half of this past decade. I think that the total dollars, though, if you look at the Navy, have actually grown up, had gone up over that period of time as well. And they've had a growth rate, I don't have the percentage right in front of me, of about 7% in the last 10 years. And so the Navy by no means is, for purposes of contract dollars, going down. They're just not going up at the same rate as the Army and the other DOD. So I think it's premature to draw a conclusion about what that would mean over the long run, notwithstanding the concern of the Australians, which I think is a little bit different question. One of the issues that you mask in data like this is actually what are you getting for the dollars. Because what we can track is what you're spending them on by category, by service, by type of contract, et cetera. Being able to break down from that and look at what you get for them is a whole different question. That's an analytical question that's probably beyond the scope of this report, but it's obviously the real reason why you do it in the first place. And I think that's your point. So as soon as we figure out how to track actual outcomes back to contracts, we'll have a much larger audience and a much longer, more detailed report. So I look forward to that day. We'll continue to work on that. I want to thank you all for coming. The National Weather Service says that commuting will be hazardous this afternoon. So I'll let you guys go early because the last thing I want to do is be responsible for putting you in a hazardous situation. I want to also thank those who are online for having joined us this afternoon. We will be posting an updated version of this report with commentary and analysis, as well as just to charts themselves and make sure that you get them, especially if, since you let us know, those of you who are here, those of you who are online, we'll make sure you get them if you let us know that you were watching. So thank you all very much and have a pleasant afternoon and evening.