By Sandra I. Erwin
The same question keeps being asked at Pentagon meetings: Is there a better way to do weapon acquisitions?
There might be. But Pentagon officials do not believe that rewriting defense procurement rules from scratch will fix what ails the system.
It has become a parlor game at the Pentagon to contemplate the problems of weapon procurements and recommend solutions. “If we could only write the definitive book on how to do acquisition,” William LaPlante Jr., the Air Force’s principal deputy assistant secretary of the Air Force for acquisition, said wistfully.
“Coming into this job, I found it is fun to do that. The room takes over,” LaPlante recounted last week at the Air Armaments Symposium in Fort Walton Beach, near Eglin Air Force Base, Fla.
But trying to reinvent the acquisition wheel ultimately is a waste of time, he acknowledged. “We don’t need new ideas. We need the ideas that are good, and already are in the books, and implement them.”
The Government Accountability Office estimated that 39 percent of the Pentagon’s weapons programs in fiscal year 2012 were running 25 percent or more over budget.
Analysts calculated that the Defense Department spent $50 billion over the past decade on weapons systems that never were fielded.
Defense officials introduced new procurement guidelines in 2011, called “Better Buying Power 2.0,” that iterate many of the rules that existed before and were called by other names.
“Applying the existing best practices will make more of a difference than coming up with new acquisition reforms,” LaPlante said.
A major headache for defense officials, for instance, continues to be inaccurate cost estimates for new weapons. The issue is not “cost control” but simply making sure that a system is “affordable” based on the projected budget, said LaPlante. “So much of this is common sense,” he said. “When you are thinking about replacing a weapon system, look at the next five to seven years and make sure the budget you have will support it.”
These are common-sense issues that often do not get addressed early enough before a program is considered “unaffordable,” he said.
Unreliable cost estimates usually result in programs being downscaled or losing performance features the military wants to keep costs within budgets. “We need a better connection between requirements and acquisition,” he said. “We need to make sure the user understands what they are asking for. We do not have that formal dialogue now,” said LaPlante. “But we are moving in that direction.”
Another intractable problem has been the inability to predict what it will cost to operate and maintain a system after it enters service. The poster child is the F-35 Joint Strike Fighter, which caused sticker shock in Washington when it was revealed that it would cost nearly a trillion dollars to operate and maintain over the next five decades, compared to $400 billion for production alone.
LaPlante recognized that the procurement system does not encourage spending funds today to save money in the future, although that might change. “What we want to do — and we’re not there yet — is to take it 10 years out with O&S costs,” he said. “We are still planning in five-year cycles.”
The Air Force wants to offer greater incentives to save in the long run, said LaPlante. New “should cost” policies will allow those who generate the savings to use the funds for other projects.
Other changes in procurement policy are expected in the area of service contracts, said LaPlante. “This is getting more attention at the Pentagon,” he said. “It’s a big, big deal” as the Defense Department spends about $185 billion a year on contract services. “We often don’t think of it under the acquisition umbrella. But it is.” The most expensive category is “knowledge based” services, such as consultants and expert support staff.
LaPlante said Deputy Undersecretary of Defense for Acquisition Alan Estevez will be considering new policies so services come “under regular acquisition governance.” Among the priorities is to better understand how to price contractors’ services, he said. The Pentagon will seek more data on historical cost trends to ensure the government is not overpaying.
The procurement bureaucracy, too, is under scrutiny as part of a broader initiative by Defense Secretary Chuck Hagel to reduce administrative overhead costs. According to various estimates, the goods and services the Pentagon buys carry a cost premium of 20 to 40 percent from overhead expenses such as administration and contractor oversight.
Defining what precisely is “overhead” has been difficult, said LaPlante. “Whatever numbers one believes, there are savings that we can have,” he said. The problem with overhead is that it “begets more overhead.”
If one organization, for instance, wants to defend its budget from cuts, it will hire staff to help explain it. The group that is reviewing the budget reacts by hiring additional staff to review the other organization’s work. “You get into a little bit of an arm’s race over time,” said LaPlante. “If my staff is cut and yours isn’t, then all of a sudden I’m at a disadvantage.”
That is why typically the Pentagon ends up applying “meat cleaver solutions” that cut across the board, he said. “That’s not strategic, I agree,” but it is usually the most realistic option. Downsizing, ideally, should take a holistic approach in order to avoid the “waterbed effect,” LaPlante said. “When you push down one part of the organization and it pops up somewhere else.”
Frank Kendall, undersecretary of defense for acquisition, technology and logistics, said he appointed assistant secretary Katrina McFarland to work with prime contractors and suggest ways to slice overhead expenses. “We are asking industry for input,” Kendall said last week at the Center for Strategic and International Studies, in Washington, D.C.
The idea is to identify activities that add cost but don’t contribute value, he said. Oversight and auditing will not be scaled back, but the job could be done more efficiently, he said.
The acquisition business, he said, is headed for turbulent times because of the uncertainty regarding future budgets, Kendall said. Programs need predicable funding, and the past three years have been “one of the worst environments I have ever seen” for program management, he said. “Uncertainty is the worst. We don’t know what to plan for.” Many programs could be delayed for several years, said Kendall. “I am worried about industry,” he added. “We are dependent on industry.”
Some industry executives, for their part, worry that an adversarial relationship between contractors and government buyers continues to erode trust and will make it tougher to improve the acquisition system.
“There has to be a change in how we do business with each other,” said Tom Keck, vice president of Air Force programs at Raytheon Missile Systems. “Over the past five to six years, a term I’ve heard less is ‘government-industry partnership,’” he said at the Air Armaments Conference. “The incoming DoD workforce needs to know how industry works. Industry needs to know how the government buys,” he said. “This requires extraordinary transparency and communication.”
If a government official “has a problem with industry, get in touch with us and talk to us,” said Keck. Some DoD managers resent contractors for making profits, he noted. “It’s OK to make a profit.”
David Fastabend, vice president of advanced information systems at Exelis Inc., said the antagonism is hurting industry. “By the standards of Wall Street, defense businesses are not known for being the most profitable,” he told National Defense. To compensate for lower profit margins, defense contractors historically have been rewarded by investors for having reliable customers who pay on time. “Now, in this budget environment, we are losing that certainty,” said Fastabend. “We have no idea what that the government is going to do. At the same time we are being pounded by politicians who presume that because you are a defense company you have unwarranted profits,” he said. “At the same time, the stock market is punishing you because you don’t make impressive profits.”
The situation makes it difficult for the defense industry and the government to work in partnership, he said. “If you have no visibility into what the government will be doing three months or three years from now, it is imprudent to the point of reckless to take excessive risk with your stockholders’ money today.”