The U.S. Department of Defense (DoD) and the U.K. Ministry of Defence (MoD) both have seen their budgets reduced by 30 percent in real terms since their Cold War peaks in the mid-1980s, and both now face similar challenges in paying for force modernization. Although their respective force structures have been reduced, much of the budget reductions have come out of procurement. During this “procurement holiday,” existing equipment has aged, and the need to replace key weapon systems has become more urgent, particularly in the United States. However, large increases in total defense budgets seem unlikely in either country. As a result, the DoD and the MoD have sought to reduce infrastructure and support costs in order to finance modernization.
Within this context, privatization and outsourcing of military support functions have become attractive options, not only to reduce costs, but to improve performance by introducing more efficient private-sector business practices. The initial impetus for greater reliance on the private sector came from the ideological convictions of the Reagan Administration in the United States and the Thatcher Government in the United Kingdom. However, the emphasis on greater reliance on the private sector has survived, and even intensified, despite changes in political administrations in both countries (the election of the Clinton Administration in 1992 and the Blair Government in 1997), and this is likely to continue as long as private-sector involvement is seen as a means to improve performance and reduce costs.
In 1980, the United Kingdom had a smaller base of private-sector involvement in defense manufacturing and services than the United States. For example, the government still owned some of the major defense manufacturers, such as British Aerospace, Rolls-Royce, Shorts, and British Shipbuilders. Since 1980, the United Kingdom has caught up to the United States with an aggressive program of privatization, public-private competition, outsourcing, and private finance initiatives; and in some areas the United Kingdom has overtaken the United States, particularly in terms of the innovative proposals the MoD is considering for private-sector provision of defense support services and assets.
The DoD has many programs and initiatives with parallels to those in the United Kingdom. In the 1990s, the Clinton Administration and the DoD advocated public-private competition and outsourcing to reduce support costs, along with acquisition reform to improve the contracting process. Although the DoD has made some progress with public-private competitions, this process seems to have reached a plateau. Members of Congress are very protective of military bases, DoD civilian jobs, and military construction spending in their states or districts. Senior military leaders have not been convinced that the private sector is as reliable as in-house providers, and they fear that contracting with the private sector will reduce their flexibility to reallocate funds among competing priorities.