DoD spending more on services, less on equipment

Service contracts have become a larger part of the Defense Department budget over the past decade, displacing falling equipment purchases, the General Accounting Office has found.

In a new study, Defense Spending: Trends and Geographical Distribution of Prime Contract Awards and Compensation (NSIAD-98-195), GAO found that DoD equipment purchases as a percentage of all Defense contract dollars fell 16 percent from 1988 to 1997, from 58 percent of purchases to 42 percent. Over the same period, service contracts rose 16 percent, up from 24 percent in 1988 to 40 percent in 1997.

Overall, DoD prime contract awards decreased from $164 billion in 1988 to $107 billion last year (in constant 1997 dollars). Equipment prime contract awards dropped from $95 billion in 1988 to $45 billion in 1997. Research contracts dropped from $29 billion to $20 billion, but made up 18 percent of DoD contract dollars in both 1988 and 1997. Service contracts, on the other hand, rose slightly from $40 billion to $42 billion.

Engineering and architectural services represented the largest segment of service contracts, at $7.7 billion in 1997, with information technology ($3.7 billion), management and public relations ($2.3 billion), and construction projects ($1.5 billion) making up significant portions as well.

GAO also examined the geographic distribution of Defense prime contracts and DoD compensation, which includes pay for the department's civilian employees, military active duty personnel, reserves, national guard and retirees. Four states--California, Virginia, Texas and Florida accounted for $81 billion, or 40 percent of Defense expenditures in 1997. The same four states took in 39 percent of DoD contract awards and compensation in 1988. California ranked number one with $30.9 billion in contracts and compensation in 1997. Virginia was ranked second, with $21.7 billion.

Over the last decade, California saw the largest decrease in Defense contract dollars, losing $4.3 billion in equipment contracts as DoD downsized and cut costs. The state also gained $400 million in service contracts. Virginia gained $1.3 billion in service contracts and lost $700 million in equipment contracts from 1988 to 1997.