What DoD Budget Cuts Taught Me About Peanut Butter Spread

I haven’t been able to look at a jar of peanut butter in years.  Ever since a certain PEO turned peanut butter spread into a verb. 

Not that the Program Executive Officer was a bad guy.  Not at all.  But as a Contracting Officer, I hated how he handled budget cuts. I don’t think he realized the havoc it caused with his contracts, including the increase in costs and decrease in success. By the end of the contracts, the peanut butter spreaders—of which I saw many—had usually moved on.

Let’s look at what it means, why it happens, the downsides, and the downside most non-Contracting Officers aren’t aware of.

What “Peanut Butter Spreading” Is

I’m not sure why Federal employees are so fond of food metaphors, but…okay.  When acquisition professionals in the Department of Defense refer to “peanut butter spreading” a budget cut, they are describing the practice of distributing budget cuts evenly across all programs and the contracts that support each program, rather than targeting specific areas for reduction or cutting the lowest mission priorities. The analogy comes from the way peanut butter is evenly spread across a slice of bread—thinly and uniformly.

Why This Happens

Like I said, that PEO wasn’t a bad guy.  In fact, he liked that he was known for being fair to everyone, and the way the cuts were evenly spread across contracts made a lot of sense on the surface. More than once, I heard him say that it was the only way he could apply the budget cuts fairly, and it seemed we had a budget cut every time I looked up from my contract files—and since I had sometimes a dozen or more contracts that had to be restructured for the budget cut, it seemed I was just wrapping up mods to those contracts when the next round hit.

The perceived fairness of his decision to “peanut butter spread” the pain was that, yes, this method was seen as a way to ensure all stakeholders shared the burden of cuts equally, avoiding perceptions of favoritism or bias.  That was important to him, nice guy that he was.

By spreading the cuts evenly, he was also avoiding tough decisions. This method allows decision-makers to avoid the politically or organizationally difficult task of choosing which programs to prioritize—or eliminate. Eliminating a program may cause staffing issues, too, unless there are other vacancies to move the program manager with the short straw to.

It might also be considered a form of risk aversion. Leaders might prefer this approach to minimize conflict and pushback from program managers or other stakeholders.

Downsides of “Peanut Butter Spreading”

Obviously, there can be a lack of strategic focus if critical programs or high-priority projects suffer from underfunding.

Resources across all programs are reduced, potentially leading to inefficiencies and delays across the board as well as dilution of impact.

Spreading cuts evenly may hinder the progress of key initiatives without achieving significant savings in areas of lesser importance. The result? Inefficiency.

Behind the Scenes of the Downside

But those downsides are the “wave tops.”  The top-level summary of where there might be concerns.  They’re usually dismissed amid the attempt to be fair, so that it’s a little painful for everyone across the board and not too terribly painful for any one program or project. 

What does it look like behind the scenes?  How does this play out in the trenches? Since it seems that efficiency will be the word for 2025, let’s keep in mind how inefficient that peanut butter tastes when it’s spread across all programs, no matter how thin.

It starts with the PEO announcing with a sad face that the portfolio must take some cuts. Sometimes it’s not a PEO but a leader under him or her who is in charge of multiple programs. No choice, no arguing. Word has come down. Now everyone has a sad face.

Then comes the inevitable meetings to figure out what to do and the announcement that the only fair thing to do is to “peanut butter spread” the budget cuts across everything.  Let’s say the cut amounts to a 10% cut in every contract.  That’s okay, right?  A little pain for everyone, but no one bears the brunt.

Next, it’s a drill to look at all the affected contracts to see which 10% can be cut out.  Are there options you won’t exercise?  Are there options the Contracting Officer now can’t exercise unilaterally because the originally negotiated option has changed too much? Are you at the end of the contract and most of those funds have been spent already?  Can you cut 10% and still have a technical solution that can answer the end-user’s need?   Assuming you weren’t gold-plating that solution, what will you cut out of the Statement of Work to downscope the contract by 10% funding?  Did the small business contractor propose so close to the bone that there’s nothing they can cut and still have a feasible solution? 

As a Contracting Officer, I’ve had to renegotiate every peanut butter spread budget cut for every contract and had to face all of these situations above.  Not easy.  Not efficient. In some cases—always small firms—a downscope meant the contracted work would die, even after years of effort and getting close to delivery unless the small firm decided to forego their own profit in a firm fixed price contract to have a successful end to their work.  I’m not sure there’s incentive for small businesses to do more business with the Government after that.  Oddly, the small businesses were much more willing to bail out the Government out of their own hide than large businesses with more attorneys were.  Just saying. Not that I asked them to or pressured them to, but they were usually really eager to prove what they could do and had invested a lot of heart into having some successes on their record.  The large firms had longer histories of success and were often harder negotiators. Your mileage may vary.

Ultimately, the “peanut butter” approach reflects a tendency to avoid making hard choices but often leads to suboptimal outcomes for critical programs and strategic goals. All that pain spread evenly rather than make a tough decision to end the lower priorities. All that extra workload in Contracting. And those occasional contracts that can’t cut anything and still be viable.

Part of me feels hard-hearted in saying this, but I’ve seen the actual aftermath of these trying-to-be-nice decisions.  There’s a lot more to consider in how to apply budget cuts than being fair.