Pentagon Watch: Where Did Your Tax Dollars Go This Week?

The U.S. military has a reputation as a somewhat secretive organization. But in one respect at least, the Pentagon is one of the most "open" of our government agencies. Every day of the week, rain or shine, the Department of Defense tells U.S. taxpayers what contracts it's issued, to whom, and for how much -- all right out in the open on its website.

So what has the Pentagon been up to this week?

As I mentioned last week, DoD is budgeted to spend about $6.2 billion a week on military hardware, infrastructure projects, and supplies in fiscal 2013. (A further $5.6 billion a week goes to pay the salaries and benefits of U.S. servicemen and servicewomen). Yet this week in particular, the Pentagon spent way, way more than you might have expected it to spend.

Indeed, Pentagon contracts awarded Monday to Friday totaled $9.8 billion in value. Put another way, four months into the sequester, the Pentagon just spent about 58% more than it's budgeted to in an ordinary week. Where did the money go?

Napoleon was wrong
According to General Bonaparte, "an army marches on its stomach." Well, that might have been true 200 years ago, but today, the modern military drives to work, and for this, it needs fuel. Last week, the Pentagon placed orders for more than $2.3 billion worth of oil supplies -- with jet fuel orders making up the bulk of the purchases.

Pretty much everyone who's anyone in the oil industry got a contract. The biggest winner was Netherlands' Royal Dutch Shell at $474 million, but America's Valero (NYSE: VLO  ) came a close second with $456 million in Pentagon fuel contracts.

Hewlett-Packard gets a draft card
Of course, even the modern military can't get by on dinosaur juice alone. In this day and age, silicon is just as important to a fighting army. Helping the Pentagon wage war on its adversaries this week -- and getting handsomely compensated for doing it -- is Hewlett-Packard (NYSE: HPQ  ) .

Over the course of two very lucrative days, Hewlett inked two separate contracts with the Pentagon. In separate contract extensions, the Navy and Marines hired Hewlett to first build them a new Intranet called the Next Generation Enterprise Network for $322 million -- and then agreed to pay the company a further $680 million to keep their old Navy Marine Corps Intranet running while they transition to the new system.

Found money
Next to $1 billion in IT contracts, General Dynamics' (NYSE: GD  ) $208 million in funding to buy submarine "long-lead-time" parts doesn't look like a lot. But General D's contract win Friday was nonetheless noteworthy.

Last we had heard, you see, the Pentagon only had enough money on hand to start building one Virginia-class nuclear fast-attack submarine in 2014 -- the as-yet unnamed SSN 792. SSN 793 and SSN 794 were to follow in 2015.

The timeframe for construction of SSN 793 appears to have shifted forward, however. On Friday, the Pentagon approved its long-lead-parts acquisitions to begin in 2014. SSN 794 is still scheduled to begin procurement in 2015, as is a new vessel, SSN 795.

Captain Kirk has left the bridge
As one new sub enters the lineup, however, an aircraft carrier is leaving it. On Friday, DoD confirmed that it is proceeding with plans to defuel, retire, and disassemble the USS Enterprise -- America's first, and longest-serving nuclear aircraft carrier. Huntington Ingalls (NYSE: HII  ) has received a $745 million contract to begin work on the removal of fuel from the carrier's eight nuclear reactors. Once this work is done, the Enterprise will be towed to its final berth at Puget Sound Naval Shipyard, there to be disassembled and sold for scrap. 

Lockheed fixes its mistakes
Say what you want about the $745 million cost of taking the USS Enterprise apart, or the $3.5 billion cost (in today's dollars) to put it together in the first place -- America got a lot of work out of the old girl. Over the course of 51 years in service, the Enterprise sortied on 22 separate foreign deployments, more than any other carrier before or since, defending U.S. interests during the Cuban Missile Crisis in 1962, all the way up to 2011, when the Enterprise was spotted off the Somali coast, hunting pirates.

In contrast, it cost America $80 billion to build 187 of Lockheed Martin's (NYSE: LMT  ) F-22 "Raptor" stealth fighter jets -- yet the plane's never fired a shot in anger, and last year the entire fleet had to be grounded over reports that F-22 pilots were having trouble breathing when flying the plane. Last week, the Pentagon sank a further $12.7 million into the plane, paying Lockheed to provide 72 retrofit kits that (it hopes) will fix the oxygen supply problem.

Fingers crossed.

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Rich Smith

I like things that go "boom." Sonic or otherwise, that means I tend to gravitate towards defense and aerospace stocks. But to tell the truth, over the course of a dozen years writing for The Motley Fool, I have covered -- and continue to cover -- everything from retailers to consumer goods stocks, and from tech to banks to insurers as well. Follow me on Twitter or Facebook for the most important developments in defense & aerospace news, and other great stories besides.

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