U.S. Defense Primer: Procurement

The following is the Jan. 5, 2023, Congressional Research Service report, Defense Primer: Procurement.

From the report

Background

While procurement implies a process of obtaining goods or services, the word also refers to a specific title and associated accounts within the annual National Defense Authorization Act (NDAA) and Department of Defense Appropriations Act.

Appropriations for Procurement

The Department of Defense (DOD) procurement appropriations title provides funds for non-construction-related investment costs—the costs to acquire capital assets, such as an F-35 Joint Strike Fighter aircraft or a Virginia-class submarine. Investment costs are distinguished from expenses—the costs of resources consumed in operating the department, such as food and fuel. DOD uses procurement appropriations to obtain various categories of materiel, including:

• new military hardware (e.g., aircraft, ships, armored vehicles, radios, and satellites);
• upgrades to existing equipment, including service life extension or remanufacturing programs;
• weapons and ammunition (e.g., air-to-air missiles and rifle rounds); and
• spares and repair parts.

Procurement funding provided to the department in a given fiscal year can usually be obligated over a period of three years. The most prominent exception is Navy Shipbuilding and Conversion funding, which is available for five years. The Department of Defense Appropriations Act, 2023 (Division C of P.L. 117-328) provided $162.2 billion for procurement accounts.

How is DOD Procurement Funded?

In general, Congress appropriates money for defense procurement under a policy of full funding, which requires funding the entire procurement cost of end-items (e.g., AIM-9 Sidewinder missiles or KC-46A refueling tankers) in one fiscal year. In other words, the total funding necessary to acquire a useable end-item is approved by Congress in a single fiscal year, even though related work may span many years. In some cases, programs have been procured using incremental funding, a funding policy typically associated with research and development activities. Under incremental funding, a system’s cost is divided into two or more annual portions, or increments, that can reflect the need to make annual progress payments to the contractor as the system is built. Incremental funding has principally been used to procure certain ships and submarines.

Table 1. Funding for DOD Procurement Accounts in the Department of Defense Appropriations Act, 2023

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