Access to Capital
This section provides some basic information on using DoD as a source of non-dilutive capital.
- Every year in early February, the President submits a budget to Congress for the upcoming fiscal year, starting October 1st
- The DOD budget is included as part of this
- Over several months leading up to February, DOD components prepare their submissions, with line items relatively narrowly focused and well defined
- Congress reviews and edits this budget, with their changes due in time for the start of the fiscal year
- Over the past several years, it has been rare for Congress to complete its review/edit process before October 1st, and often takes an additional 3 or more months
- During this period, the previous year budget is essentially extended until the new budget is passed
- Congress members generally take input from their constituents on potential programs the members could add during their February-September review/edit period
- Inputs are generally expected to be finalized by February or March, but Congressional engagement should happen well ahead of that deadline, to ensure members are receptive to inputs and to shape inputs based on member priorities and feedback
- Members seek to make changes to the President’s budget and provide guidance for how this budget will be executed
- This is led by the various appropriations committees, who are responsible for leading the Congressional part of the budget process
- For DOD, these are the House Appropriations Committee for Defense (HAC-D) and Senate Appropriations Committee for Defense (SAC-D)
- Members advocating for constituent interests who are not part of these committees generally have less or even little influence on impacting the budget
- At the same time, the authorization committees review the budget and draft guidelines for new policies or priorities that they want the Executive Branch to follow when spending the money
- For DOD, these are the House Armed Services Committee (HASC) and Senate Armed Services Committee (SASC)
- New funding is allocated to a specific “Program Element (PE)” that generally corresponds to a specific DOD program and/or office
- This is led by the various appropriations committees, who are responsible for leading the Congressional part of the budget process
- If Congress is able to add new funding for a special interest (e.g., a new entrant who has a technology of interest), that funding is added to the designated PE
- The office responsible for that PE may have received minimal background information on Congressional expectations related to this new money
- Some offices are more proactive than others in ensuring that they understand expectations of Congressional sponsors for this added funding.
- Similarly, some members are more proactive than others in ensuring DOD understands their expectations related to funding additions (aka “plus-ups”)
- It is generally best to engage the DOD office who will receive the plus-up in parallel with Congressional engagement to have those funds added, to ensure the DOD office is supportive
- The office responsible for that PE may have received minimal background information on Congressional expectations related to this new money
- Funding is typically received after work is performed
- Payment terms should be negotiated up front, and should include deliverables and payment timing (i.e., how work is broken down for invoicing purposes)
- Advance payments are not typical, but can be negotiated in some cases
- For prime and subcontract work, payments are typically received a minimum of 1 month after the work sub-element has been completed, and often 3-5 months after completion
- We use the term “work sub-element” to refer to the portion of the work being included in a given invoice
- This could be a period of time (e.g., one month of work) or a specific task or deliverable (which could take several months to complete)
- Companies should consider cash and credit limitations in negotiating payment terms, recognizing that it’s not uncommon for payments to be later than expected (whether being paid directly by the government or by a prime contractor)
