Financing the DOD Acquisition Budget: Innovative Uses of Public-Private Partnerships

Abstract

This project identifies a need for alternative financing options in the Department of Defense (DOD) to provide increased capability to the warfighter in today's exigent military environment. Further, this project compares the history of Public-Private Partnerships in the U.S. Government with the United Kingdom (UK) Ministry of Defense (MOD). We intend to showcase the increased capabilities currently enjoyed by the UK MOD from entering into these agreements. Additionally, it will provide an in depth look of three Private Finance Initiatives (PFI) that Serco Inc. has undertaken and future prospects for the private financing technique. Finally, this analysis will evaluate the value for money gained by using Public-Private Partnerships through proper risk transfer in lieu of Full Up-Front Funding. The examination concludes that continued and expanded use of Public-Private Partnerships provides increased real time capability to DOD while supporting private industry. Public-Private Partnership agreements may not always be the most inexpensive means of procurement from a purely financial standpoint. However, this relationship provides several tangible real time benefits to the government and seeks to reduce the full life cycle cost. First and foremost, private relationships reallocate risk and up front capital requirements allowing the government to spread program cost over time. Freeing up the initial capital requirement affords the government the ability to acquire products and services with the limited resources provided in today's austere budget environment. Finally, Public-Private Partnerships provide the government with an increased infrastructure and technological capability without having to allocate current year dollars for additional property, plants, and equipment and unnecessary overhead.