Glimpse the (Unclassified) Future in DARPA’s FY 2011 Budget Request
We
were fortunate to find DARPA’s FY 2011 Presidential Budget Request file
while searching the DARPA website. DARPA, of course, is the Department
of Defense’s Advanced Research Projects Agency, where the future of
U.S. military technology is funded today. Let’s be clear: just
because DARPA asks for funding is no guarantee the agency will receive
it. That said, looking at the budget request (link here) is a glimpse into the future.
The
budget request discusses cognitive computing systems and machine
intelligence, network-centric warfare technology and “materials and
biological technology.” It’s science fiction, except that it’s a list
of the military research areas of today. For example, DARPA is requesting $53.8 million for –
… investigating
and developing the intersections of biology, information technology and
micro/physical systems to exploit important technological advances and
leverage fundamental discoveries for the development of new
technologies, techniques, and systems of interest to the DoD. This research is critical to the development of rapid responses to engineered biological warfare agents, radically new biomolecular computers, and novel materials for the DoD.
Programs in this project will draw upon the information and physical
sciences to discover properties of biological systems that cross
multiple scales of biological architecture and function, from the
molecular and genetic level through cellular, tissue, organ, and whole
organism levels. This project will develop the basic research tools in
biology that are unique to the application of biological-based
solutions to critical Defense problems.
Here’s another project description that caught our eye: “The program will also create technology to reliably integrate nanoscale and microsystems payloads on insects that will extract power, control locomotion, and also carry DoD relevant sensors.” Talk about bugging the opposition forces!
Or how about this one?
One focus is on techniques that can efficiently process and ‘understand’
massive data streams. Deeply layered machine learning engines will be
created that use a single set of methods in multiple layers (at least
three internally) to generate progressively more sophisticated
representations of patterns, invariants, and correlations from data
inputs. These will have far-reaching military implications with
potential applications such as anomaly detection, object recognition,
language understanding, information retrieval, pattern recognition,
robotic task learning and automatic metadata extraction from video
streams, sensor data, and multi-media objects.
Or this one?
The Programmable Matter program will develop a new functional form of matter, constructed from mesoscale
particles that assemble into complex 3-Dimensional (3-D) objects upon
external command. These objects will exhibit all of the functionality
of their conventional counterparts and ultimately have the ability to
reverse back to the original components.
In other areas, we learned that DARPA recently “Devised full characterization and manipulation of entangled quantum systems,” and also that NACHOS stands for “Nanoscaled Architecture for Coherent Hyper-Optic Sources.”
This one might scare you.
The Magneto Hydrodynamic Explosive Munition (MAHEM) program will demonstrate compressed magnetic flux generator (CMFG)-driven magneto hydrodynamically formed metal jets and self-forging penetrators (SFP) with significantly improved performance over explosively formed jets and fragments. Explosively
formed jets (EFJ) and SFP are used for precision strike against targets
such as armored vehicles and reinforced structures. MAHEM offers the
potential for higher efficiency, greater control, the ability to
generate and accurately time multiple jets and fragments from a single
charge, and the potential for aimable, multiple warheads with a much higher EFJ velocity, hence increased lethality precision, than conventional EFJ/SFP.
There is more, of course, roughly 500 pages of discussion. What brought us to the budget request was some research on the ArcLight
Program. This is not the Vietnam-era program that used B-52’s.
Instead, it is an attempt to design and build a long-range hypersonic
strike weapon. The concept uses the Navy’s SM-3 Block II booster stack
and a hypersonic glider, and should be “capable of being launched from
a Mark 41 Vertical Launch System (VLS) tube.”
In other words, DARPA is researching dropping a 100-200 lb. payload
from up to 2,000 miles, at hypersonic speeds. If one were to speculate
that the MAHEM warhead (described above) might be mated to the ArcLight missile that would be a formidable piece of ordnance, indeed.
In this article, Aviation Week not only mentions the ArcLight program, but other projects within the DARPA budget request. We don’t think AW’s summaries are a cool as the actual DARPA descriptions, though.
Check out the budget request. See the future of warfare.
Fraud is Expensive—But is it Expensive Enough?
In October, 2009 we wrote
about the serious fraud charges facing BAE Systems PLC. We noted
allegations of “bribery and corruption in arms deals in South Africa,
Romania, and the Czech Republic dating back to the 1990’s.” Britain’s
Serious Fraud Office (SFO) was seeking an admission of guilt as well as
payment of fines ranging from £500 to £1billion (US$1.6 billion to $3.2 billion at the currency conversion rates in effect at the time). At
the same time, the U.S. Department of Justice (DOJ) was conducting an
investigation into allegations that the US-subsidiary of BAE Systems
“used a U.S. bank to funnel bribes to Saudi Arabian officials.” We
predicted that, “given the current U.S. government stance on contractor
integrity and ethical conduct, a sustained finding in this area could
prove problematic for the company,” since it derived slightly more than half of its £18.5 billion pounds annual revenue from U.S. operations.
Reports
have emerged that on February 5, 2010, BAE Systems settled its case,
agreeing to pay the U.S. $400 million to settle charges of making a
False Statement and agreeing to pay the SFO £30 million (US$47 million)
for improper accounting (“breach of its duty to keep [accurate] accounting records”) in connection with a payment to a former consultant in Tanzania. The settlement
permits BAE Systems to avoid suspension or debarment, and thus to
continue to bid on U.S. government contracts. As such, it is seen as a
victory for the company; its stock price rose 1.6% on the day of the
announcement.
According to the WSJ article linked above—
[BAE’s
CEO] on Friday stressed that the transactions in relation to which the
company pleaded guilty all occurred nearly a decade ago and outside the
U.S. U.S.
court documents detailed what prosecutors allege was BAE's use of
secretive offshore entities and shell companies, and its efforts to
conceal where payments were going, in 1999 deals to lease fighter jets
to Hungary and the Czech Republic. According to prosecutors, BAE
avoided communicating with so-called ‘marketing advisers’ in writing and maintained scant information about its payments. After 2001, prosecutors allege, BAE made payments totalling
more than £135 million and an additional $14 million-plus to marketing
advisers through one offshore entity, according to the court documents. The
U.S. filing also alleges that BAE paid tens of millions of dollars to a
Saudi government official and other associates, as well as to
intermediaries, as recently as 2002. The payments were made as part of
its management of a long-term agreement begun in the 1980s between the
U.K. and Saudi Arabia to supply military hardware to the Saudis, U.S.
prosecutors say.
‘Beginning in 1993, BAE [Systems] knowingly and willfully failed to
identify commissions paid to third parties for assistance in the
solicitation or promotion or otherwise to secure the conclusion of the
sale of defense articles, in violation of its legal obligations,’ the
court documents filed by Justice Department prosecutors said.
Interestingly,
the false statement stemmed not from the payments themselves, but from
management’s assertions and certifications regarding its commitment to
ethical business conduct. As the WSJ article reports, “In the court
documents, prosecutors allege that BAE promised to institute antibribery programs and filed false documents to the U.S. Defense Department stating it had implemented such programs when none existed.”
According to the Financial Times, “BAE ‘undertook no adequate review’ of any of the services it gave the official, the DoJ said, even when the BAE employee who was handling the matter submitted $5m in invoices. The DoJ
said that until early 2002, the company transferred millions more to an
account in Switzerland controlled by an intermediary, though the
company ‘was aware that there was a high probability’ that the payments
would be transferred to the Saudi official.”
We have discussed the Foreign Corrupt Practices Act (FCPA) before. We have also discussed,
in passing, the False Statements Act (18 U.S.C. 1001). This is an
interesting blending of the two statutes. The U.S. DOJ certainly
earned its $400 million settlement.
In the U.K. though, watchdog groups are not as sanguine about the paltry settlement negotiated by the SFO. This report from the BBC states that the “Campaign Against the Arms Trade” (CAAT) was “shocked and angered” by the settlement, as well as “outraged and angry,” and ‘dismissed the UK fine as a “tiny price”
for the lucrative deals the company struck. The CAAT spokesperson
asserted that “Ultimately the charges that we see admitted are
administrative charges, not charges of corruption."
This Financial Times article
quotes a former African National Congress MP as calling the settlement
a “travesty of justice.” Certainly, US$400 million is no small
fine—but does the UK settlement of $47 million represent a mere slap on
the wrist? What do you think? Members are encouraged to leave their
comments below.
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Proposed Inflation Adjustments to Acquisition Thresholds
On February 4, 2010 the FAR Councils published
a proposed rule that will lead to changes in key acquisition
thresholds. This year’s notice of proposed changes is the second of a
series of notices that is mandated by the 2005 National Defense
Authorization Act, which linked the thresholds to inflation experienced
over a 5-year period. In other words, the FAR Councils are required to
revise/update the thresholds every five years (in years evenly
divisible by five).
The
proposed changes are linked to changes in the Consumer Price Index
(CPI) including a projection through April 2010. If the final CPI
change is different from the projected change, then the final
thresholds might be different. That said, the rule proposed to revise
key thresholds as follows—
· Increase the simplified acquisition threshold from $100,000 to $150,000.
· Increase the commercial item test program ceiling from $5,500,000 to $6,500,000.
· Increase the threshold for obtaining cost and pricing data from $650,000 to $700,000.
· Increase the threshold for requiring a (non-construction) prime contractor’s subcontracting plan from $550,000 to $650,000.
· Increase the threshold for requiring a construction prime contractor’s subcontracting plan from $1,000,000 to $1,500,000.
The changes listed above create ripple effects throughout the FAR. However,
readers should note that there are no changes to other statutory
requirements. For example, there are no changes to Cost Accounting
Standards (CAS) thresholds. Nor are there any changes to thresholds
applicable to the Davis-Bacon Act, the Service Contract Act, or to any
trade agreements.
Many
contractors tie their internal policies and procedures to the Federal
acquisition thresholds. Consequently, when thresholds are revised in
the FAR, they may want to evaluate the impacts on their internal
command media. We encourage a thorough review of the proposed
threshold changes, to assess how internal guidance might be impacted.
Too Big to Fail? Airbus and the A400M Transport
We
reported before on Airbus’ problems with its new A400M military
transport plane. It’s the typical development scenario, over budget
and behind schedule. Only
this time, Airbus entered into fixed price contracts for its planes,
meaning that any cost growth would become a loss unless contracts were
renegotiated to provide additional funding. Adding complexity is the fact that the program has at least seven international participants (such as South Africa) while Airbus, as a subsidiary of EADS, is owned by “core shareholders” the State of France, French conglomerate Lagardère, the Spanish Government, and the German company Daimler. In other words, some of the A440M customers are also the company’s owners! Another interesting aspect is the various stories about a recent report prepared by PricewaterhouseCoopers (PwC) that said “management had consistently underestimated the costs of the programme”
and that the €20 billion ($28 billion) program would be overrun by at
least €11 billion, or more than 50 percent of the original budget.
Ouch!
At the heart of the issue is who should pay for the overrun.
Airbus naturally wants to push additional funding needs back to its
customers; but those same customers (some of whom are also owners)
think that Airbus needs to pay for its own mistakes. The Financial
Times article (link above) reported that “Hervé Morin, French defence minister, said EADS would have to bear a ‘very significant share’ of the cost overruns on a programme.”
The PwC report allegedly said that Airbus could absorb up to €7.6
billion in overruns “without problem” – but that conclusion was
rejected by Airbus, as was the entire PwC report, which was
characterized as a negotiating ploy.
Meanwhile, the Airbus CEO threatened to cancel the entire program if its European customers didn’t provide more funding. According to the BBC article in the link,
Ditching the A400M would cost EADS some 5.7bn euros in advance payments - more than double the 2.4bn euros it has already set aside to cover losses it expects to incur from the project. Some analysts believe, therefore, that there is too much at stake for Airbus to cancel the project. ‘Airbus's
posturing over the A400M is a tactic to extract more governmental aid
to secure funding to ensure that contracts can be met,’ said Saj Ahmad, an independent aerospace analyst. ‘If
the A400M is terminated, Airbus faces the prospect of a
several-billion-euro compensation bill that would obliterate its cash
reserve and decimate its stock value.’ But others believe that the company could axe the plane to avoid further losses. ‘There will come a point where it is better for EADS to simply walk away,’ said Nomura aerospace analyst Jason Adams. Doing
so would severely damage Airbus' reputation and boost arch rival
Boeing, which has seen the order book for its A400M rival, the C-17,
swell.
European
customers are reportedly divided on how best to proceed. The UK and
France want to move ahead briskly toward completion, while Germany
wants to slow the program down in order to spread the overrun over more
years. Talks are underway now. According to this report,
the airplane’s European customers “are ready to contribute” as much as
€3.5 billion towards the program’s cost growth. But the offer has not
(as of this date) accepted the offer, “as it falls short of the €4.4
billion it is asking for.” In late breaking news, this article
reports that the core funding offer is €2.0 billion, with additional
tranches of “reimbursable advances” (i.e., loans) in the range of €1.0
to €1.5 billion being offered to Airbus to help close the funding gap.
There is one additional driver that is rarely mentioned. As this New York Times article notes—
European
Aeronautic Defense & Space, the parent company of Airbus, has said
it wants to clarify what its share of the more than €7 billion in A400M
cost overruns will be so it can book them in its 2009 financial
results, rather than carry them over into the first quarter of 2010.
EADS’s 2009 accounts are scheduled to be published March 9, and
financial market regulations require that they be audited by an outside
accounting firm — a process that normally takes about four weeks.
Last
week, the international ratings agency Fitch warned that failure to
reach an accord, or an agreement to EADS’s disadvantage, could lead it
to downgrade the company’s BBB-plus credit rating. Any rating cut would
increase the rate of interest EADS would have to pay on future
borrowings in the capital markets. Failure
to reach a solution in time for the close of EADS’s 2009 accounts
‘makes a downgrade more likely,’ said the person with knowledge of the
talks.
While
Airbus’ A380 commercial aircraft program is routinely discussed for its
past program and supply chain management “challenges,” the A400M
military program is emerging as the current “financial albatross”
weighing down the company. While it is easy to see (with hindsight)
that early commitment to a fixed-price per aircraft was a huge misstep,
we wonder what other “lessons learned” will emerge from this
problem-plagued program.
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