How the Government Pays Defense Contractors Tens of Billions For Nothing |

By starting expensive technology programs but ending them before they bear fruit, the military has spent a taxpayer fortune without getting anything in return.

By Sara Sorcher

In 2011, the Army doled out its first contracts to develop new armored vehicles that could carry a full nine-man infantry squad. Building the fleet of 1,800 new vehicles was expected to cost a whopping $29 billion.

In its 2015 budget request Tuesday, the Obama administration officially asked Congress to kill the ground combat vehicle program, with Defense Secretary Chuck Hagel requesting military leaders draw up a “realistic”—read: less expensive—replacement.

But there’s a problem: The Pentagon has already paid some $1.2 billion to defense contractors BAE Systems and General Dynamics since 2011 to develop the program, according to Inside Defense.

And though the Army will not have a single vehicle to show for that spending, it won’t be getting its money back either.

The ground combat vehicle program is just the tip of the iceberg. Since President Obama took office, his administration has spiked a slew of major programs the government spent tens of billions to develop but will now never finish.

Some highlights:

  • Future Combat Systems. It was the biggest, and most ambitious, acquisition program the Army ever planned: a brigade of weapons systems, from tanks to drones and war-fighting software, all connected over an advanced wireless network. Its projected budget swelled to $159 billion. By the time former Defense Secretary Robert Gates nixed the program in 2009, the Pentagon had already spent around $19 billion to develop it.
  • Airborne Laser. The U.S. spent 16 years and $5.2 billion to develop the program dubbed “America’s first light saber,” an aircraft armed with a laser capable of shooting enemy missiles out of the air. Gates killed plans for a second plane in 2009, and three years later the existing aircraft was put into storage in the “boneyard” at an Air Force base in Arizona.
  • Expeditionary Fighting Vehicle. This amphibious assault vehicle, envisioned as a tank that swims from sea to shore with 17 Marines on board, was cancelled in 2011 after ballooning costs and poor performance. Its development costs notoriously ate up $3.3 billion.

That’s just a smattering. Other unfinished programs spiked by the Obama administration include the now-aborted VH-71 presidential helicopter, the Transformational Satellite Communications System, the National Polar-Orbiting Operational Environmental Satellite System, the CG(X) Cruiser, the Joint Tactical Radio System Ground Mobile Radios, and the Medium Extended Air Defense System.

That list alone totals more than $50 billion, and there are undoubtedly others tucked within the Pentagon’s labyrinthine budget.

Regardless of the exact tally, the wasted funding does not necessarily mean it’s a mistake to kill the programs. Doing so can save big money in the long term. If the military believes it would be better served by a different option—or the money is needed for a more crucial program—then continuing to invest in the expensive programs would have been throwing good money after bad.

The Pentagon was unavailable for comment on this issue Tuesday, but the Army’s acquisitions chief, Heidi Shyu, has said the ground combat vehicle was “sacrificed” to save other programs in a shrinking budget. There was simply no money to fund it, she said last week, and its cancellation had nothing to do with its performance.

But even those who support the decision to spike the projects will concede that this is far from the ideal outcome, and that it would be better that the projects were never started at all.

“[When] you invest in products you’re not going to be able to afford to buy, you’re just wasting money,” Frank Kendall, undersecretary of Defense for acquisition, technology, and logistics, told an industry conference in January. The Pentagon, Kendall said, is trying to learn from its past mistakes and plan today’s investments better so that the programs they spawn can be around in decades to come.

Kendall, who previously worked as a consultant on the Army’s Future Combat Systems, called it a “notorious example” of an overly ambitious program that probably was never affordable. “But nobody sat down and did that long-term planning analysis to say, ‘Can we really do this? Are the budgets in the future going to support this?'” Kendall said. “The answer would have been, I think pretty obviously, ‘No.'”

It’s not just the Pentagon that needs to be more disciplined to avoid squandering investments.

Virtually all the major forces in Washington have a hand in this.

Politically speaking, the Pentagon—and Congress—often view future programs as easier targets for reductions than older systems with entrenched constituencies on Capitol Hill. Congress has for years rebuffed Pentagon demands to close bases or slow the growth of military health care and benefits, and overturned its decisions to retire aging platforms that bring jobs to their districts.

The stop-and-start nature of the budget in recent years, when lawmakers have been unable to pass a full year’s budget on time, has also taken its toll on the Pentagon’s complex web of literally millions of government contracts, worth hundreds of billions of dollars. “Congress needs to exercise more discipline in setting funding levels and sticking to them,” said Todd Harrison of the Center for Strategic and Budgetary Assessments.

The intense budget pressure is a driving force behind the cancellations.

Since the start of the Obama administration, the Pentagon has committed to cutting at least $500 billion from its planned budget over 10 years as the military emerges from an era dominated by long wars in Iraq and Afghanistan. Even before the Budget Control Act of 2011 finalized the Pentagon’s constrained budget trajectory, former Secretary Gates cut a slew of programs in 2009 because they were not performing well enough (or were not affordable enough) to meet the tougher bottom line he expected in the future.

But now, the Pentagon is in the throes of implementing another half-trillion-dollar cutback it does not support, because Congress has so far failed to fully repeal sequestration and agree on another way to reduce the deficit.

So even with its money-saving initiatives, “the uncertainty is driving us crazy,” Kendall told an industry conference last week. When the Pentagon calculated whether the ground combat vehicle would be affordable some three years ago, he said, “we were looking at very different projections for our budget.”

That uncertainty trickles down to industry. Companies may be forced to raise their prices over the long term as their programs are delayed. Cost overruns and delays can make future programs appear even less desirable.

Of course, Obama is not the only president to cut programs after investing in them. The Clinton, Reagan, and George H.W. Bush administrations also trimmed big-ticket programs. Even George W. Bush was no exception. For instance, he axed the Comanche helicopter, intended to be the Army’s advanced, stealthy, and light attack helicopter, in 2004 after pouring $7.9 billion into its development.

Still, the $50 billion worth of failed investments in recent years is both a waste of taxpayer dollars and a missed opportunity for the Pentagon, Harrison said. Military procurement funds surged in the last decade of war as the defense budget increased—”but we didn’t get much out of it,” he said.

The Pentagon should be kicking itself. “Because in the next 10 years, we’re not going to be able to spend that kind of money on developing new systems,” Harrison said. “We’re going to be stuck with what we’ve got.”

via How the Government Pays Defense Contractors Tens of Billions For Nothing |