Defense acquisition reform: small step or pointless?
The Pentagon announced Monday a series of steps it hoped would save $100bn over 5 years. These steps are focused on creating greater “efficiencies” in the defense acquisition process. Defense acquisition chief Ashton Carter said to reporters “In the rest of the economy, we expect this — you get a better computer every year, and cheaper. But we haven’t seen productivity growth in the defense economy. More has been costing more, and we need to reverse that trend and restore affordability to our programs.”
The plan, detailed in this memo by Ashton Carter, has logical objectives. Amongst other things, it aims to “deliver the warfighter capability we need for the dollars we have” and to “get better buying power” for the defense department. Carter advocates steps to reach these objectives which also seem rational.
He splits these steps into two sections. The first section focuses on how the Pentagon can change the defense industry by giving it incentives to become more efficient. This section is called “Providing Incentives for Greater Efficiency in Industry.” It includes these steps:
- Leveraging real competition
- Using proper contract type for development and procurement
- Using proper contract type for services
- Aligning policy on profit and fee to circumstance
- Sharing the benefits of cash flow
- Targeting non-value-added costs
- Involving dynamic small business in defense
- Rewarding excellent suppliers
The second section is called “Adopting Government Practices that Encourage Efficiency.” Seemingly it includes efforts to change and reform government practices to become more efficient. It includes:
- Adopting “should-cost” and “will-cost” management
- Strengthening the acquisition workforce
- Improving audits
- Mandating affordability as a requirement
- Stabilizing production rates
- Eliminating redundancy within warfighting portfolios
- Establishing senior managers for procurement of services
- Protecting the technological base
At first glance you would think all of these actions would already be happening. Indeed, most businesses operating in competitive environments would already do these things. But the defense sector is not subject to the rules of competitive markets. As Dan Froomkin notes, “it’s a testament to how corrupt the now $400 billion a year contracting process has become that the changes outlined [above] seem in any way dramatic; they are, mostly, simply assertions of common sense.”
Ashton Carter proposes to open contract bidding to more firms and even source defense needs from smaller businesses. He advocates “fixed-price” contracting over “cost-plus” contracting, basically shifting the burden to cover cost overruns from the DoD to the defense supplier. But these initiatives are assured to meet up against congressional roadblocks and an industry well sheltered from competition, foreign or domestic.
Perhaps as an indication of how this would play out, earlier this year Northrop Grumman walked away from a $35bn contest to select a replacement for the air force’s fleet of refuelling tankers in part because the Pentagon insisted on a fixed-price development contract. That left only Boeing and the European based EADS to bid for the project, which has characteristically went political and become a source of congressional parochialism.
Next, the Defense Department pledges to refine its in-house acquisition capabilities. Meaning it wants to get better at buying things. For example, “will-cost” management is something the Pentagon doesn’t do well because it doesn’t have engineers and project managers well-trained enough to determine how much a project is actually going to cost.
Take the Littoral Combat Ship (LCS). Running nearly $500 million per ship, these coastal “asymmetric” warfighting vessels (otherwise known as Lavishly Crewed Speedboat, or any of these other acronyms) originally were supposed to cost $90 million per ship. But because the Pentagon awarded the ship-building contract prematurely to General Dynamics, the hull was built before the Navy had submitted its requirements for what it wanted the ship to do. Defense Department acquisition personnel were unable to convince or realize that cost overruns would occur, which led to the 500% increase in price.
To get to my point: Acquisition reform is only the beginning. In fact, the projected $20bn a year savings is an optimistic figure subject to changing political conditions. To create substantial reductions in the defense budget will require real cuts to real programs, and the lowering of end-strength in some of the services. This in turn, will have to be predicated by a more limited mission for the Department of Defense. One that doesn’t necessarily include the projection of power to all parts of the globe and state building in war-torn countries located in the geo-strategic periphery of U.S. national interest.