Changes in Defense-Related M&A?

​The Pentagon has been keeping a concerned eye on Defense-related M&A activity since at least 2008, monitoring the U.S. industrial base to ensure that it maintained some level of diversity of suppliers.  The Department of Defense (DoD) has long been concerned with the small number of large firms able to bid on major weapon systems acquisition: four major contractors bid for the F-15, five for the F-16.  But the F-22 and F-35 programs attracted only two bidders each.  Last week, Pentagon leaders began to voice warnings to the industry: Secretary Carter told the press that “it [is] important to avoid excessive consolidation” and that he “[does not] welcome further consolidation among the very large prime contractors.”

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OPM Hack Demonstrates Need for Internal Defense of Government Networks     

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Office of Personnel Management

The Office of Personal Management (OPM) is the victim of a highly intrusive cyber espionage operation conducted by “Deep Panda”, a state backed Chinese hacker group. The personal information of over 4 million current and former government employees dating back to 1985 has been compromised. Chinese hackers managed to circumvent the much vaunted EINSTEIN 3 cyber intrusion monitoring and blocking system (Sternstein, 2015). Once OPM’s network was penetrated, the hackers were easily able to access government records, as OPM’s personnel data was unencrypted (Perera, 2015). The breach was initially discovered by CyTech Services, which ran diagnostic software of OPM’s network in a sales demonstration in April of 2015.

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DOJ Announces New Guidelines for Domestic Law Enforcement Use of UAVs

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Draganflyer X6 small unmanned aerial system (sUAS)

The Department of Justice (DOJ) recently announced a series of guidelines for the use of unmanned aerial system by domestic law enforcement and federal agencies. While the DOJ report is fully cognizant of the significant potential for UAS within law enforcement, the document states that all UAS use must conform to existing privacy and civil liberty protections: 

“UAS must be operated consistent with the U.S. Constitution. The Fourth Amendment protects individuals from unreasonable searches and seizures and generally requires law enforcement to seek a warrant in circumstances in which a person has a reasonable expectation of privacy. Moreover, Department personnel may never use UAS solely for the purpose of monitoring activities protected by the First Amendment or the lawful exercise of other rights secured by the Constitution and laws of the United States.” – DOJ, 2015 

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USCYBERCOM Struggles to Expand – Outsources $475 Million to Private Sector

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Fort Meade MD, place of performance for the contract

In late April, the Defense Information Technology Contracting Organization released a request for proposals (RFP) concerning US Cyber Command’s (USCYBERCOM) $475 million indefinite delivery, indefinite quantity omnibus contract.* The RFP outlines 20 services selected contractors will provide:

  • Knowledge Management
  • Records Management
  • Cyber Operations
  • Planning; Science and Technology/Research and Development
  • Cyber Focused Training
  • Cyber Exercise
  • Engagements
  • Logistics
  • Integrated Technology Support
  • CybersecurityProject Analysis
  • Program Management
  • All-source Intelligence
  • Business Process ReengineeringSecurity
  • Strategy and Policy and Doctrine Development
  • Administrative Support
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SO/LIC Symposium Highlights

The National Defense Industrial Association (NDIA) recently hosted its 26th annual Special Operations/Low Intensity Conflict (SO/LIC) Symposium and Exhibition. The three day event hosted several notable speakers including: General Joseph L. Votel - Commander of US Special Operations Command (SOCOM), Lieutenant General Michael T. Flynn (Ret.) - former Director of the Defense Intelligence Agency, and Lieutenant General Marshall B. Webb, Commander - NATO Special Operations Headquarters. The event covered topics such as the challenges related to combating ISIL and a more assertive Russia, as well the increasing demand for Unmanned Aerial Vehicles (UAVs) and the growing desire for commercial off-the-shelf (COTS) technologies. 

The threat posed by ISIL was at the centerpiece of many discussions between SO/LIC event speakers and panelists. General Votel stated that at least 19,000 foreign fighters have surged into Iraq and Syria from over 90 countries. Votel further added that SOCOM has been closely observing ISIL’s operations in North Africa. Similarly, Lieutenant General Flynn offered a stark appraisal of the threat posed by ISIL, and cautioned that the ongoing international effort to defeat the group would likely last decades. 

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State of the Union & Expected Legislative Activity

Of all the measures outlined in the President’s latest state of the union address, the three measures below are the most likely to pass the Republican controlled Congress. 

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F/A-18F Super Hornets from Strike Fighter Squadron 22 operating from the USS Carl Vinson in support of Operation Inherent Resolve.
Image Credit: U.S. Navy photo by Petty Officer 2nd Class Scott Fenaroli

1.  Authorization for the Use of Military Force (AUMF)

During his address, President Obama asked the Congress to pass an AUMF specific to combating ISIL in Iraq and Syria. The President has been in consultation with members of Congress with respect to a new AUMF since late December of 2014, and  Speaker of the House John Bohner has indicated a vote will be held on the AUMF by spring of 2015 (Bennett, 2015). A point of contention between Congressional Republicans and Democrats in negotiating an AUMF is the level of discretion the bill will afford to the President, particularly the measures that would prohibit the deployment of ground troops.

The ISIL related AUMF will greatly augment the President’s legal justification for Operation Inherent Resolve, which has been previously justified by the nearly 14 year old AUMF passed after September 11th 2001. Since combat operations in late 2014, the US has launched over 1,800 airstrikes in both Syria and Iraq at a total cost of $1.2 billion. 

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DoD Seeks Significant EHR Overhaul

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The Department of Defense (DoD) is in the midst of selecting a vendor to overhaul its electronic health record (EHR) systems, which facilitate the transfer of information pertaining to patient’s medical history, conditions, prescriptions, and other data across multiple healthcare providers over time. The Healthcare Management Systems Modernization (DHMSM) program is projected to cost $11 billion through the year 2023. DHMSM will replace the DoD’s existing EHR system, the Armed Forces Health Longitudinal Technology Application (AHLTA), as well as elements of the Theater Medical Information Program-Joint (TIMP-J) and the inpatient Composite Health Care System. When DHMSM launches in 2017, it will become the largest EHR system in the United States, with more than 9.6 million patients associated with over 400 hospitals (Brewin, 2014).

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Budget Brief: FY 2015 NDAA

The Carl Levin and Howard P. McKeon National Defense Authorization Act (NDAA) for fiscal year (FY) 2015 passed the Senate Friday night by a bipartisan vote of 89-11, after the House passed the measure 300-119. The bill includes $495.9 billion for the Department of Defense’s (DoD) base budget, $63.7 billion overseas contingency operations (OCO) budget, and $17.9 billion for the Department of Energy related to maintaining the nation’s nuclear arsenal (Alexander, 2014). The FY 2015 NDAA also institutes a host of provisions related to curbing military benefits, creates a new DoD leadership position – the Under Secretary of Defense for Business Management and Information (USDBMI), and provides the Navy with billions in extra procurement funding.  

The 2015 NDAA enacts measures to curtail rising DoD personnel costs, such as increasing co-pays related to prescription drugs by $3, decreasing pay raises to 1% - below the current rate of inflation, and prohibiting further wage raises for flag officers. Departing Chairman of the Senate Armed Services Committee Carl Levin expressed his concern that the spending caps imposed by sequestration, in conjunction with rising of personnel costs will erode military readiness.

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Federal Spending on Ebola Set to Exceed $1 Billion 

The Obama Administration has requested $1 billion in Department of Defense (DoD) reappropriations to augment efforts to contain the outbreak of Ebola in West Africa. 

As of late October, the House Appropriations, House Armed Services, and Senate Armed Services committees have approved $750 million dollars in DoD reappropriations, which will come from the overseas contingency operations (OCO) budget, though the Senate Appropriations Committee (SAC) has yet to approve this request. Chairwoman Barbara Mikulski (D-Md.) announced the SAC will hold a hearing on Ebola reappropriations on November 6th, shortly after the midterm elections. 

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