 Good morning, ladies and gentlemen. Welcome to the Center for Strategic and International Studies. This is our exciting and long-awaited update of our US Defense Department contract spending and the supporting industrial base, covering the years 2000 through 2012. I'm David Burto. I'm Senior Vice President here at CSIS and the Director of our National Security Program on Industry and Resources. Joining me this morning is our research fellow, Greg Sanders. Greg is a principal author of our report today. I have a couple of administrative announcements. I want to remind you to turn your cell phones off, or whatever other devices you might have. I also want to welcome our viewers on the web. Increasingly, it's our web presence that drives these events, and many of you have found that it's easier to stay where you are and watch us on the web than to come down here and join in the coffee and the camaraderie of the defense contracting community. And we recognize that that's OK. We're actually happy that you're joining us here. It's also, I think, valuable because we can archive these and you can access these on the web at any time. And I find, actually, it's useful to go back and use these as a brief or an update when you need them. The charts that we're using this morning are also available on the web for download. They should be to the right of the screen when you're watching the video. And obviously, those of you who are in the audience can download the charts as well. They'll be on the web regularly. We have our report here this morning. There are copies outside. There's also a PDF available on the website. You can download it. Most of the charts we're using are, in fact, in the report as well. We'll note those that are not as we go through it today. I would also like to acknowledge, in addition to Greg, Jesse Elman and Rhys McCormick, research associate and research assistant, respectively, who are, again, principal authors in this report. Alex Stevenson, a remarkable intern who has made tremendous contributions, and in particular, as you'll see, has begun to expand our access to our data for you on our website so that, in fact, you won't have to rely on the charts themselves to actually be able to go in and get the data. And this is a new feature we'll talk about a bit this morning. I also want to recognize those who have pulled this event together from my staff, Nicole Darden, Joshua Archer, Adam Schwartzman. But it's also useful to recognize, I think, the legions of people, both at the policy level in the Office of Federal Procurement Policy and within DoD itself, who help make the public data available and who have been working pretty diligently for now a couple decades to refine and improve and upgrade these data. It's our ability to find publicly accessible data and to use it in our analysis that I think is one of the core strengths that links the executive branch with the interested parties who depend on that. And so we're very grateful for that. And, of course, I think it's worth thanking all the companies who help make contracting work for America. It's a core element of our way of defending ourselves. And then, finally, I've been starting a lot of these briefings that we do on our reports update by reminding us and recalling to our mind, at least those of us who work on this, the memory of our senior fellow and my former deputy, Guy Ben Ari, who passed away earlier this year. It was Guy's vision to be able to link analysis to policy in a way that I think has been the core value of our work for a decade now. And every day when we do our work, we're reminded of that vision and of his willingness and commitment to materialize that. I think all the staff that I recognized earlier have pulled together following Guy's departure in a remarkable way. And I want to acknowledge that as well. I think it's a great testament and a living testament to his memory and his vision, including, in fact, access on the web to our data, which we'll see here. Greg and I are going to tag team this morning. We'll go back and forth between the charts. We're going to have time at the end for questions. We'll also be able to email your questions in dbertoe at csis.org. Unlike DoD, we have not yet gone to very, very long, long, long emails. So it's pretty simple and straightforward. And we'll try to get to your questions as many as we can in the time that we have this morning. Greg, do you want to cover our methodology a little bit? So there's a small number of methodological points we'd like to emphasize. First off, that these are prime contract obligations. We aren't gained to the subcontract level. Similarly, there are only requirements to report contracts above 2,500 and that are unclassified. We take this to mean that most contracts that do not mean those two criterias are not in our data. Company classifications will sometimes vary from ours. It may be a matter that they will break out products and services differently. It may also be because they're including subcontract revenue. All of our figures are in $2012 constant. And there are all of the data underlying this for key figures, as well as additional breakdowns will be available on our website, in addition to the methodology section, which is also in the report. I would add a couple of things. There's no real track in the Federal Procurement Data System for the year of appropriations. So we know the year that, in fact, the contract dollars are obligated. We don't know the year in which they were appropriated. There's pretty high correlation with the fiscal year, but it's not, obviously, 100%. And these kind of features, if you will, that are unique to it, since we focus so much on the trend analysis, they tend to cancel each other out over a period of time. So let me have the next chart. This chart is in your report. And it really, this is kind of our standard overview, if you will, it breaks down total defense spending into three categories. At the top in the relatively green section is the non-contract outlays. This is, by and large, pay and benefits for military and civilian personnel. And then the red and the blue are, in fact, contract spending by DOD. Those are obligated dollars as reported in the Federal Procurement Data System. The red being contract obligations for services. We include, for this purposes of this chart, R&D as a service. That's the way the Federal Procurement Data System classifies it. And then the blue being contract dollars for products with a little small amount, almost undetectable for what we refer to as unlabeled. Then there's a line that goes across the top. And that shows the share of total DOD spending. DOD spending is essentially calculated by a combination of outlays and contract obligation dollars. So it doesn't track exactly to the total outlays for that year. The share of that spending that is in contracts. And you see it's gone down from a high of 69% of total DOD spending in contracts in 2008 to now 55% in 2012. I should note that this report goes through 2012. That's the last year for which we have complete data for contracts. We recognize that 2013, particularly with the impact of sequestration, is gonna be a bit different than what you're seeing in 2012. And one of the things that we've committed to do is a much earlier update of this report next year, as soon as the FY13 data are available at a solid enough level, that is they're not changing every day to allow us to enter into our analysis. We expect that to be sometime in the early spring next year, late winter or early spring next year when we're updating this for 13. We don't even know whether 13 will also be an anomalous year. There's a lot of hope. You know, we might get a defense bill today. We might get an appropriations sometime in the next few weeks. And so there's a lot of hope that some stability will restore in fiscal year 14, although I would note that we already are almost one fourth of the way through that fiscal year. So in share of total DOD outlays, services contracts fell from 34% to 2009 to 29% in 2012. Products only fell from 29% to 27%. And of course, non-contract spending fell in between. So in a way, the decline that we've seen from 2009 and 2012 has been bigger in services contracts than it has in products and in military pay and civilian pay. That should not surprise us. Service contracts are more malleable, more flexible, and at least in some areas, it's easier to say, okay, we don't have to do as much of that next year. So we'll have a later report coming out analyzing services contracts when we update 13 as well. Greg, do you want to do the next one? Do you want to do the next category? Yeah, the categories here are essentially obligations by component. I'm sorry, my chart seems to be slightly disconnected from the one that's on the screen. For some reason, my briefing repeated chart three on the page for chart four. At the top, we have other DOD that's essentially everything that's not included in the four categories below. The purple is DLA. We broke DLA out some time ago, largely because of the substantial amount of additional contract spending from DLA in support of the wars. This is primarily fuels, but other products as well. And then we have light blue Air Force, dark blue Navy, and an army at the bottom. Greg's gonna cover each of these, if you will, and some of the trends that we're recognizing here. Again, almost across the board, you can see the peaks in 2008, 2009, substantial declines since then, and particularly a pretty substantial decline from 11 to 12. Greg? So one of the largest declines is with army, although which has, in terms of share, gone from 33% in 2011 to only 30% in 2012. Notably though, equipment related services and information and communication technology services have both held steady, even though the rest of army was declining. For Navy, the declines have been most notable in R and D, which has dropped with a almost 10% three-year keger. And there's also unfortunately been a rise in contract obligations without competition from 46% to 54%. Going to the Air Force, there's also been a rise in contract obligations without competition from 54% in 2009 to 63% in 2012. There's also been a notable growth in fixed price contracts from 60% in 2010 to 67% in 2012. Air Force has in general been a bit volatile on its changes as there's also a drop-off in multi-award IDC contracts, which have been fairly stable for the rest of DOD, but have had a 11.5% three-year keger decline for Air Force. For that service, the facility related and construction have been declining sharply and unlike Army, information communication technology has also been declining. DOA has been an exception to some of these aforementioned trends and competition with five plus offers has gone from 42% in 2009 to 60% in 2012. It has also been a spike in fuel spending in 2012 with a variety of possible factors, including our withdrawal from or preparation for drawback in Afghanistan and also the cyclical nature of fuel spending. Other DOD spending has been drawn, driven in large part by equipment related spending. Let me go to the next chart, defense contract obligations by what we call here area. The federal procurement data system categorizes contract spending basically two ways, products and services. R&D is counted as a service. We look at R&D from a defense department point of view as an investment more than as a service and so we break it out separately so that we can track R&D and for analytic purposes can combine it with products to look at overall DOD investment trends, if you will. This chart shows you, check and make sure that I'm talking about the same chart that you're seeing. This chart shows you at the top, the R&D expenditures. R&D has gone from 11% of total contract spending in 09 and 10 down to 10% in 11 and 12. Much of that is explained, Greg will cover this a little bit by a couple of things, if you will. Services has declined also a little bit, 44% in 2010 down to about 42% in 2012. And interestingly, products as a percentage of total contract spending has actually increased in this period of time, 46% in 09, it's up to 48% in 2012. It will be interesting to see what happens when we have the 13 data and look at this. Again, we have a lot of anecdotes of deferrals and delays in terms of particular contracts. We have anecdotal evidence of cutbacks in service contracts but we don't have the data rolled up in a way that we can lay out here. So in some ways we're setting the stage here to see whether or not 2013 continues a trend or in fact changes that trend. Greg, do you wanna make any particular comments on some of the categories? So for products, there's been mild growth for most of the DOD components but there's actually been a sharp decline for Army of about 13.1% Kegar from 2009. And there's also been a decline in use of multi-award IDCs for products indefinite delivery contracts, IDC. On the services side, nearly two thirds of services contracts have been awarded with competition of at least two offers since 2007. There's also been some interesting trends in type of vendors for services. Their services have been level for the big six contracting or defense vendors. However, for all other categories of vendors, small, medium, and large, they have been declining. From 2011 to 2012, there's even been a growth in the big six while they've continued to decline. And then for R&D, we'll discuss this a bit more under the policy implications section at the back end of this report but there's been a different trend than services. The big six have actually declined from 58% of R&D in 2009 to only 49% in 2012. I should also mention that we define R&D using the product or service category field, not the account title. The account, R&D account does have a field in FPDS but it's often not filled in. So we use product and service code in a manner similar to DoD because it's more reliable. One of the interesting things about these data, of course, is they are publicly available data. And they are laid out in a way that a reasonably diligent analyst from the public can go into the data and come to their own analysis, do their own analysis, come to their own conclusions. Companies themselves track their own information, obviously, and FPDS data doesn't replicate a company's data. It doesn't track separately revenue from subcontracts. It doesn't break out prime dollars and subcontract dollars. And in fact, it categorizes things in ways that a company would not categorize it for internal management purposes. Nonetheless, we feel it's useful for companies to see and for the departments to see what the data show from a public perspective, if you will. So because of that, we then look at our data by three new categories, if you will. One is by competition. The second is by what we call the funding mechanism and the third is the contract type. Funding mechanism being the basis for pricing, fixed price or cost base, et cetera. So in order to do that, for those of you doing your own analysis at home, we also like to give you an audit trail of how we get from the way the federal procurement data system breaks its data out to how we categorize our own competition dollars. Greg, you wanna walk through that a little? This is not in your book, by the way. There not be a test on this today. You'll have time to study it over the holidays and we'll do it when we come back. So we've changed our method a bit from prior years. Though this is consistent with the services report. So the main change is that we've introduced an additional field which closely, more closely tracks how DOD looks at competition, namely the fair opportunity given. This is a field meant to look at competition for indefinite delivery vehicles, which have been increasingly important over the past decade. So for anything that has, is an indefinite delivery vehicle award, we give preference to fair opportunity given if it is available. And if by that field fair opportunity is given, we consider you potentially a competed contract. Otherwise, and for awards, we look at the extent competed field. For extent competed, for everything that is not explicitly uncompeted, we then will look to number of offers. For everything else, we put you in a no competition category. This year we've also switched to looking more at the number of offers, because we ultimately think that even if your pool of vendors is limited, it's probably more important if you got five offers with a limited pool, than if you got only two offers with a nominally phone open pool. So you'll see in the next slide, we break that into a couple of few categories. And that is true for both indefinite delivery vehicles and awards. Then we also do a little bit of data cleanup. If you are nominally a competed contract, however you have zero offers or the number of offers is unlabeled, we treat you as unlabeled. If you are nominally a uncompeted contract and you have two or more offers, we treat you as unlabeled. However, DOD has been doing a much fair job of minimizing that unlabeled field in recent years as much of a government. Typically a competed contract with no offers that was awarded is generally a data entry problem. So let's have the next try. So what does this mean for companies, if you will? Well, obviously as dollars decline, if you've got the existing contract, you don't actually look forward to competition and the potential for losing it. And particularly for follow on work or for awarded task unders under a previously competed task order contract, the incumbents would like to minimize the competition. On the other hand, they're way more non-incumbents than there are incumbents. And so there's an appetite there for, in fact, more openness, increasing competition, et cetera. We've had policy guidance from this administration since 2009 that pushes to increase the amount of competition. And we've even seen examples in terms of compliance with that guidance where rather than exercise an option, contracts been open for new competition and new award. So as we look at what the data show us, we keep in mind kind of the incentive structure for the patissons, both the government and the bidders, if you will. What we see from these data, and I'm gonna start at the bottom. The blue chunk at the bottom is DOD dollars awarded with essentially no competition for one or more of the exceptions to the Competition and Contracting Act and the FPDS data sites, those exceptions, as you will. They've gone from 19% of the total dollars in 2009 to 21% of dollars obligated in 2012. And one of the things we'll be watching for very carefully is what happens in 2013 there. This is not surprising because in fact, those contracts, if you will, are often gonna be following contracts for major programs, for major end items. They'd be very hard to compete. In fact, in many cases, it'd be rather pointless to compete because there's only one source of supply. And those are gonna be sustained even in declining dollars in the near term. Over time, budgets will adjust, if you will. Intriguingly though, as you look up the chain, right, the red is competition with a single offer, the light green is competition with two offers, the purple is competition with three or four, and the blue at the top is competition with five or more offers. We're seeing a decrease in competitions with a single offer and an increase in competition with five or more offers in terms of percentages. This is actually encouraging from a governance point of view because it says that we're opening up more for competition and more companies are taking advantage of it. And the degree to which competition provides lots of benefits to both the government and the end users, if you will, inside the Defense Department. This is heartening news. And as Greg noted, the unlabeled category, which if you look back in history and the slope coming up on this chart, was up in the near $20 billion range is now so small as to almost not matter. And we find that to be very, very encouraging. I'm gonna, we're gonna move rather rapidly through the next couple of charts because we do wanna get to your questions. We have a similar dynamic with respect to the translating the 17 categories of federal procurement data system for contract pricing into what we call our five categories. Greg, if you don't mind, I'll just zip right through these, if you will. Ultimately, we care only about the five categories on the right, fixed price contract, cost reimbursable, time and materials, combination, which is a judgment call on the part of the data interiors and that's gone down a lot over time and unlabeled. So that's the five categories that we care about. If you look at the chart nine now, Greg, you wanna walk through some of the results from this? So one point of emphasis is that you'll see in 2009, there's quite a spike in the combination. It has now worked its way down. So we have seen a increase in share of fixed price and cost plus, but much of that increase is just a matter of more granular labeling. We shouldn't draw too much from that trend. There has been a small spike in fixed price from 2011 to 2012 and we're gonna discuss that in a little more detail in the policy implications section. I may have the next chart. We're now on chart 10. This is also in your report. This is a contract by contract vehicle, if you will. We also have a schematic. It has too many lines on it for me to actually display what we translate the PDF data into our categories, but we can crosswalk this. Basically, we have five categories. You have the dollar numbers here. Let me give you the percentages, if you will. Definitive contracts have been steady. That's your blue down at the bottom as almost 50% of total contract dollars on definitive single contracts defined. About 44% in 2009, 42% in 10, 45, 46. Fairly stable percentage over that period of time. Purchase orders, which are in that little red in the middle, have gone to, from a fairly substantial percentage to almost none in the way we decline it. Single award individual or indefinite delivery contracts have declined as a percentage, but still make up a third of total dollar contracts and multiple award indefinite delivery contracts have been fairly stable at around 13 or 14%. And then the federal supply services rounds out the rest. What's really remarkable here, I think, is the stability in the declining dollars. The percentage shares of each of these categories has been very stable. What that says to us is that the contracting offices and the acquisition plans for the programs that are using them have been fairly stable in terms of the type of contract that they're seeking. This is generally pretty good news for companies because they can count on that stability and that predictability going forward. It'll be interesting to see whether that changes when we have the sequestration data. We don't expect it to, though. So this next chart on contract size, first off, we're defining contract size here by annual obligations rather than the total lifetime of a contract. The big trend to note is that those contracts with greater than $500 million in annual obligations have been gained a larger share. It, in fact, increased by 3% between 2011 and 2012. We're gonna get into this in a little more detail on policy implications because there's some very distinct trends for those larger contracts versus the rest of contracts. By and large, though, the stability is, again, pretty remarkable here, and we'll be looking to see whether or not that changes under sequestration. Most of you know that inside the Defense Department, as part of the management of sequester dollars, they instituted a much more rigorous review process for new contracts and for major modifications that were total over at the OSD level, $500 million over the life of the contract. I think that's now actually reduced down to $250 million. But there are cascading levels of review all the way down to the bottom where every contract award and every major contract modification has to go through a review and approval before that award can be made. And, of course, one of the key questions in that approval process is kind of the last one, which is, why can't you wait? And for many contracts, there often seems to be an ability to say, well, we could wait a little while. And many of you in the business know, you've put your proposal together, you've submitted it, you're sitting around, you're waiting, you're waiting, you're waiting, you're waiting. Well, the reason you're waiting is because they don't have a good answer to the question yet, why can't you wait longer? And that will hopefully resolve itself, but we're gonna see what the implications are. Let me have the next chart. We break out also our data by the size of the company that, in fact, was awarded the contract. Small business down at the bottom that's defined by the small business set aside laws and rules. Those change occasionally, but the percentages stay pretty same. And, in fact, in a remarkable consistent, every single year from 09 to 12, 16% of prime contract dollars have been awarded to small business. This is less than what DOD reports, it's less than the target, but in part it's because of accounting rule that we put in place. If you're a small business and you're acquired by a non-small business, you retain your small business categorization for accounting purposes and actually for award purposes for two years. We track by DUNS codes, and so as soon as a large company acquires a small company, it ceases to be a small company for our data purposes. And we think from a social economic goal of, in fact, a law, it probably makes more sense to do it the way we do it, because they're not small business anymore once they've been bought. Within that, we also look at large, and we break large into two groups. At the very top are the Big Six, Lockheed Martin, Boeing, Northrop Grumman, General Dynamics, Raytheon, and BAE. And then the green is large companies that are not in the Big Six, largest defined by us as a company with more than $3 billion a year in total annual revenue from all sources. Government spending, commercial sources, international, et cetera. And then medium is defined by you're not large and you're not small. So essentially it's above the small business threshold cap and it's below $3 billion a year in annual revenue. What's interesting to us is that the medium-sized companies again on a percentage basis have been holding their own. We saw when we first started looking at this, a shrinking percentage going to mid-sized companies and there was some concern, and many of you know that there were some policy issues being circulated around that or we were threatening our medium-sized companies. That no longer seems to be the case. It's essentially 24% of total contract dollars in DoD across O9, 10, 11, and 12, if you will. And the others are fairly stable as well, only about a 1% change in the share for large and the share for the Big Six. We're gonna break this out in our next report by the categories because you see pretty dramatic differences here in products, R&D, and the various services categories. And in our 13 data, we'll be breaking that out because it's not as stable as it looks from this point. There's also one of our more benign explanation for our discrepancy with small business. When it comes to contingency contracting, overseas work, Iraq, Afghanistan, et cetera, that does not have small business requirements on it. However, we do include that in our data. Right. Greg, would you like to talk about the top 20? Certainly. So we've actually been seeing, versus 2002, a somewhat decentralized top 20 list. In 2002, the top five vendors were 72% of the top 20. In 2012, they're 62%. Similarly, if you take the top 20 as a whole, they constituted 47% of total defense obligations in 2002 versus only 43% in 2012, which seems to indicate a larger range of vendors becoming involved. And I think one's a little bit contrary to some of the concerns you often hear raised of it merely being centralized at the top. And we've begun to look at some of the changes company by company as well. And there's a good bit of variation in a number of cases. Companies on this chart have seen their share of total DOD contract dollars go up fairly dramatically during this 09 to 12 downturn. And in other cases, we've seen them, their share is reduced at a disproportionately large pace compared to the overalls. So we're gonna analyze that a bit further as well. I know I asked you if you would like to say something. I'm not quite sure what I would have done if you'd have said no, but let's move on quickly and walk you through essentially a new feature for us is we've picked up and are articulating some of what we see as the policy implications of the data. Again, this is a new feature. It's one that we're kind of testing out and I think we're gonna apply more robustly when we have our post sequestration 2013 report in a few months. But we picked four questions to walk our way through. I'll cover a couple of them. Greg will cover a couple as well. And then we'll throw the floor open for questions. One is there is concern. In fact, Frank Kendall, the Under Secretary of Defense for Acquisition, Technology and Logistics in this very room, it was a bigger room because the wall wasn't there and he was further over, raised concerns just last month about decline in R&D spending and what its impact would be, both in terms of contract dollars and in terms of overall DOD budgets, if you will. So we wanna look within the data and see where those declines are occurring. So when we use the word sources, and I'll cover this a little bit in the next one, it doesn't mean the root cause, it means where the categories where we're seeing those declines. The other three questions, the share of R&D contracts awarded under fixed price contracts because we all know that one of the dictums of fixed price contracting is you really should use it. And this is what the guidance says in cases where in fact the requirements are stable and that is not always by definition an R&D contract. And then third and fourth questions where we wanna look at competition, if you will. So let me turn first to the sources of R&D decline within DOD. That's chart 15. This is within the Army. There was a pretty substantial decline. It can be almost all tied to the eventual termination, if you will, of all the components of the future combat system. There were still $2.8 billion of R&D obligations on FCS in 2009. So it's down to a negative number in 2012. That of course is a reprogramming. They didn't actually award a contract for negative dollars that the company had to give the government back money. For the Navy, almost all of the decline can be attributed to a few special programs. And these are essentially programs that are migrating from R&D either into not being there anymore or into production, if you will. Operational aircraft R&D for joint strike fighter, migrating into production, system development from UO satellites and engineering for DDX as it migrated to the DD1000. That accounts for almost all of the Navy decline in R&D. And overall it seems then that the decline in DOD contract obligations since 2009 are actually tied either to cancel programs or to programs maturing to the point where they're no longer being budgeted for with appropriations from the R&D accounts. And so I think there's less concern as a result of appealing that back. And again, we're gonna wanna look very carefully going forward, but I'm a lot more encouraged about the future of R&D spending at least in the near term in that regard. Greg, do you wanna add anything to that? No. All right. So we then looked specifically at the rise of fixed price contracting within R&D. Yes, for reasons already mentioned. It's driven most by Army. Why don't you switch one more further? Yeah. Thank you. No, I'm gonna skip that. Go on the next one. Sure. So we've looked at the competition breakdown by service. And this was mentioned a few times during the component portion. So we've seen Army hold relatively stable. We've seen a jump in Navy, no competition. We've seen the jump in Air Force. DOA is higher still when it's 2009 level, but it has dropped from its 2010-2011 peak. And other DOD is similarly largest stable of an exception in 2011. And in Army, awards citing only one source exception declined, though with unique source declining in particular. And within Air Force, other exceptions, once not citing only one source, grew at a 20.9% keger for a variety of reasons, though the international agreement exception was a notable one. Do you want to add on this slide? No. All right. So this one is a little bit of an eye chart, so I'll try to walk you through it. Note the black line. The black line is all DOD contracts. So it's an easy point of reference for things that are above or beneath it. You'll notice that for those contracts with annual obligations less than 250,000, the competition rate, so with two plus offers, which is sometimes referred to in DOD as effective competition, has been actually rising in recent years and been rising even more over the lifetime. Whereas if you look at the largest contracts, those over 100 million a year in the period from 2012, they've had nearly identical rates of effective competition, 42% for 100 million, 41% for 500 million above. Because there's a small number of contracts with 500 million and above in annual obligations, that's a very volatile category. However, as a general rule, if you look at the average, it's a good bit below the middle. In addition, for those 500 million and above, as you might expect, when there is competition with two and more offers, it is almost always with two offers, because typically there are only a small number of vendors that can actually act on those contracts. You might say to yourself, well, this is all obvious, you don't really need to do the data analysis to do that, but I think there are a couple of data points in here that are worth coming on from that perspective. It's been true historically that the smaller the contract, the larger the number of companies that can compete for it. Obviously, there's a barrier to entry when you get above a certain size. But one of the encouraging things that we see here in this chart is the next to last line up from the bottom, and that is contracts in the 100 million to 500 million dollar range. These are non-trivial opportunities for many companies, but they're also still within the range of mid-side companies to compete on. And we're seeing a good bit of an increase in the last couple of years in rates of effective competition. When you break that down even by a number of competitors, we're also seeing that's the place where we're seeing the rise, where in fact the number of competitors are going up from two to three, or from the three to four category into the five or more category. I think this is good news for companies, I think this is good news for the government as well, because you're gonna get better service and better prices as a result of that competition. So that's an encouraging one and we look forward to the day when in fact that light blue line down the bottom actually gets up to equal to the overall DOD competitive line. Clearly there's a lot of opportunity for additional competition here and I know that the government is focusing on that if you will, but it's really meaningless unless you have enough bidders to make it worthwhile and that the government's willing to in fact entertain offers from across the board. That's our quick survey. I would note at this point if you put this one on the shelf next to your prior year versions of this report, you'll notice that it's slimmer and smaller. And one of the reasons it's slimmer and smaller is because we want to move towards bringing our data into availability year round rather than just when the report comes out. So that what we're gonna aim for is in fact an ability to make that data and update it regularly so that you can access it on all times at the web. When you put the last chart up, if you, I'm gonna open it up for questions now. Do you wanna go straight to your demo and I'll ask you that question or do you want to open it up to the floor a bit? We can do a quick demo. Let's give you a sample if you will. This is untested in public. So this is sort of real time V and V and of our ability to show you what the data on the web will look like. So one of the points David mentioned earlier was it's interesting to look at vendor size by product service or R&D. So this is our overall, which are the charts you're allowed to see in your report. But if we go over to R&D, we can then get down to see the vendor size breakout. And as you might expect, the big six vendors are dominant in the R&D category. That's the sort of level of, we also break this out by each of the components, but this is a level of detail that we can't always discuss at appropriate length in the report. So we're trying to highlight these when they're interesting because of trends in report. However, your interests aren't always the same as our interests. So we try to make them all available to you on the web. Actually, we're interested in everything, but we just can't put everything in the report. So thanks for that demonstration, Greg, if you will. Let me throw the floor open for questions. Most of you know the drill. We have a couple of guys with microphones. You raise your hand, they'll bring you a mic. You can identify yourself and your connections or affiliation and then launch into your question. Anybody on the floor? And then also you can pick them up on the web. We've got a couple here. Let's do the front here first, Jesse, and then hand back to them. Thanks, folks. Joe Militano with FinMechanic and DRS. It seems like the Navy and the Air Force have really risen dramatically in the volume of no competition programs. If I look at the stats, 44% for the Navy up to 54, about a 25% increase in the USAF has certainly gone up 44% to 63, almost a 50% increase. Can you get a little bit more distilled on what you attribute that lack of competition to? When we've looked at it, it seems to be fairly program specific. So it does not appear to us that there's a policy change, if you will, that's in place there. And it has as much to do with the programs that have come up for recompete and the availability of vendors to bid on those things in the dollar volume. I'll get you the specifics in terms of particular contracts, if you will, but that's the generic answer, if you will. Bill? Bill Courtney, CSE. Is it possible in looking at the data to detect any trends as a result of the better buying power initiatives in the Pentagon in the last several years? The better buying power initiatives and particularly as they've focused on two things, I think, that we would measure here. One is, in fact, the appropriate use of fixed price contracts. And I didn't spend a lot of time in the R&D chart on fixed price contracts. But what we're finding is that increases in fixed price contracts for R&D, again, tends to be very program specific and the programs where those R&D contracts are being awarded on a fixed price basis, it appears to be a conscious decision which is consistent with what the guidance is. It says evaluate whether or not it makes sense and then apply accordingly. I think in the core question of where better buying power is focused, which is really driving affordability, if you will, it's a way too early to tell whether or not we're seeing the results coming out of this that we'd expect to see in that regard. It's a great question, a big wonderful topic for further analysis and a report probably next year. The other question related to that, Bill, that we're looking at as we approach, next May, the fifth anniversary of the Weapons System Acquisition Reform Act is, in fact, to look from a kind of a report card point of view of the degree to which the combination of the two key elements of that law, one of which was better cost estimating upfront and we're certainly seeing the results of that, at least initially, from the selected acquisition reports and fewer non-McCurdy breaches, although that may change when we get the impact of sequestration. And the second is the impact of the way of looking at program assessment and root cause analysis and the reports on trying to learn lessons from previous problems, if you will. It'd be very interesting to see whether or not the data show any benefit from that as well. So we'll be looking at that. One possible positive effect of better pine power is that we have seen, while there's been Verizon, no competition, there's also been a rise in five plus offer competition, which might be the sort of thing you would expect to see from those initiatives, but we haven't specifically traced the source of that change. You know, almost nobody cites in their JNA that they're complying with better by-power initiative number 22, for instance. And so it's not an automatic track, so. Other questions and comments here? Let's do one here and then go over to the other side. Thanks. Marjorie Sensor, Washington Post. David, you sort of hinted that you're gonna be looking for various trends in 2013, that it could be an interesting year. Can you give me a sense of what you'll be looking for? I don't expect you to speculate on the results with sort of what things we might wanna keep an eye out for for the 2013 numbers. I think two key things, thanks Marjorie. Two key things that we're gonna be looking for, and this will be in our very preliminary assessments. One is in fact the expansion or contraction of competition. Ultimately, we do care about what happens in the industrial base when the defense budget's going down. And short of a contract award specifically for the purpose of keeping a company in business, as opposed to actually delivering goods and services that the government needs, the one of the measures of how well we're doing in preserving that industrial base would be competition. As the industrial base diminishes too much, you're gonna see less competition. And so you would expect to see a correlation between the competitive nature. Having said that, we're gonna have to look inside in terms of the particular programs, but I think that's the first key that we're gonna look at. The second key we're gonna look at is market share and a distribution of the share, if you will. I commented when we were looking at big six versus the large versus the medium versus the small of the stability that we've seen between 2009 and 2012. Greg then on almost the very next chart, I believe, noted that while what I said was not false, if you look at the top 20, you actually, and you look company by company, you see some pretty dramatic changes. So I think what we're gonna focus a lot on is the changes inside the top 20 by each of these categories, by products, by services, by R&D, breaking down within services into the categories, and then breaking it down by component, Army, Navy, Air Force, DLA, and what we call other DOD. So that we've really got a sense of what the changes are inside, because ultimately, the importance of preserving the industrial base comes down to both the collective decisions, but also the individual decisions. So I think those are the two key things we're gonna be looking at. It's competition and market share. Let's go to Frank and then, yeah. Thank you, David and Greg. As you look at figure 2.2, where you talk about the growth in DLA, do you think you're picking up the purchasing of subsystems and components and parts associated with the working capital accounts? And are you gaining any insights about what's going on in those working capital accounts from this analysis? The first part of your question, I think, is yes, Frank, and I think we're approaching the point where we're gonna pick it apart more to look at that. There's no indication inside the contracts of whether or not the funding has flowed through the working capital funds or not. And so we're gonna have to go back. We've had some very good preliminary discussions with DLA about engaging with them and getting into more analysis inside their data there. They've been most forthcoming in terms of cooperating in that regard. So I don't know if we'll have that in time for our 13. That may be a little bit of a longer term project. You know, the working capital funds are set up primarily to facilitate meeting supply and demand rather than encouraging outside independent analysis. And so it's gonna take a little while for us to penetrate that, I suspect. Yes. Got it. Got it. Pam Sudelko from Margon National Laboratory. From a federal R&D side, one thing I've seen in a trend for over the last like 10 years is a more successful bid is a collaborative bid. So industry, academia, and maybe federal R&D coming together, especially for maybe the more mid-sized, probably not the real large contracts. Do you track that or have you seen any trends in how do you deal with the fact that a medium-sized contract might actually been split between three different like R&D categories? I think the only place we would pick that up, Greg, you can expand on this a little bit would be in the subcontract data because there's always a single prime, if you will. The federal government began a couple of years ago. In fact, I think when Dan Gordon was still the administrator of OFPP, began to require and start to track and report publicly on subcontractor data. It's still incomplete and we're not quite certain how accurate it all is. We're looking at a project in this coming year though, in which we begin to use the available subcontractor data and analyze it. And I think what you've raised is actually a very good opening round of analysis for us to look at, if you will, is perhaps not only the degree of collaboration, but some correlation between the presence of collaboration and win percentage competition, et cetera. And I think that would be a very useful exercise. And as far as I know, nobody's looking at that question. I mean, maybe the participants are because they'd like to know the answer, but nobody's looking at it from a broad analytical perspective. I really like that idea. I'm not sure that your assumption is right is that it enhances your chances of winning. I think it's probably good for the customer, but it may not be all that good for the bidders. I think that's an assumption that'd be well worth plumbing if you will, thank you. Absolutely. You mentioned there's a cost to collaboration and I think that cost to collaboration is both upfront in the preparation and solicitation and bidding process. There's also a cost to collaboration in terms of management after the fact and there's a risk associated with that. The question is, how do you structure yourself so that you enhance that? From access to innovation point of view, it's probably a good idea. You're probably gonna get more if you have more players, but that's a trade-off that'd be hard to measure. I think we also had a question here. Thank you. I'm Jim Byrne. I, for many years, I was the Washington correspondent for Minority Business Entrepreneur Magazine. And I was at your incredibly excellent conference in November on what we've learned from the Iraq and Afghanistan wars and Senator James Cartwright, who I guess is now on the staff here at this size, made a statement, un-stilisted it. I mean, he really emphasized how important DARPA and small businesses were to turn around times to produce weapons systems for those two wars. And I haven't followed up on that yet. I'm gonna make a story proposal to MBE, which I wanna report is improved financially so I may be back to being the Washington correspondent again sometime soon. But no, it's under excellent management and always has been. But the, do you see any implications for minority business women-owned and small entrepreneurs in this report today? I don't see any implications one way or the other in the data that we have presented here. And I'll open up to Greg. He may have some additional insights. I've taken part twice in the last 15 years in a defense science board study that tried to answer the question, to what extent should we encourage and rely upon smaller or mid-sized companies to compete rather than larger vertically integrated firms because of the value they bring from innovation and new technology and new processes. And in both of those cases we concluded that we just don't have the data to be able to tell that. There's plenty of anecdotes to indicate in both directions that yes, we rely upon smaller and middle-sized companies to create that innovation. And no, we don't rely exclusively on them. There's plenty of innovation that comes from larger companies as well. So there's plenty of anecdotes in that regard. I don't know, Greg, whether you think there's anything in our data that speaks to that or not. Well, we actually have a upcoming newsletter, our current issue series, which will feed into our website as well. Our researcher, Adam Schwarzman, has been looking at the small business set-asides, hasn't specifically broken out the minority side of things, but has found that the competition rates for small business is actually higher than the overall DoD rates. Now much of that may just tie into the fact that there are smaller contracts, but on the whole, it's consistent with what General Cartwright said. I should also note that, while DARPA may have some presence in other DoD, they're not one of a major factors for other DoD. I don't know whether that's a matter of non-reporting or whether they're showing up in grants, but we don't actually get that much into DARPA work in this report because it's not a major player by dollar terms in FPDS. There's another side to your question at the front end, though, that I want to comment on, and that is the fair amount of success that the Defense Department and its contractors have had over the last 12, 13 years now in terms of rapid innovation, rapid fielding, rapid acquisition, and you're seeing inside the Defense Department a couple of fairly significant, I think, and useful policy efforts to not lose the value that we've gained in the warfighting dynamics there. One is under the Assistant Secretary of Defense for Research and Engineering, Earl Wyatt's deputate, Rapid Fielding Office is changing its focus for a continuing focus on urgent needs and how to translate those. The second is I think there's a DoD-wide effort now, I believe Andrew Hunter has been listed as heading that up, looking at integrating all of the rapid fielding, rapid acquisition exercises across the Department, which have proliferated tremendously in response to demand, but as you move into a less of a wartime environment, you wanna make sure that you, in fact, capture the value of that and don't let it die, and I think in both cases those are useful. We have an exercise here underway now, our report will be out probably September or so of next year, looking at alternative ways to both anticipate and identify innovation that occurs outside the Defense arena and the ability to bring it in. So all of those will look in part at the supposition of your question, if not necessarily at the particulars of your focus in terms of the size of the company. I think we had one last question. I have, let me check and see if we have any from the web here, we are right about at our time, and I'll tell you, it's hard to orchestrate that, as you know, most of you know I teach, and if I don't get questions, I just keep lecturing, so, but I wanna thank you all for coming today, I wanna thank our viewers on the web as well, I wanna thank you for your continued interest and engagement in these issues, which are gonna be the linchpin of the survival of our industry going forward. So, Greg, thank you as well.