In his February 24 speech to a joint session of Congress, President Obama promised to protect the future health of the American economy by halving the projected deficit in his first term. One way of accomplishing this task, the President declared, was by reforming the buying practices of the Department of Defense (DoD).
Unfortunately, the President’s call to reduce the use of private contractors is precisely the wrong way to reform the defense acquisition system and save money.
DoD already has innovative reform programs underway that could meet the President’s challenge. One of these is called Performance-Based Logistics (PBL). PBL focuses on performance outcomes, not the acquisition of individual parts or particular repair actions. Performance outcomes can include delivery time, work-in-progress, and most important, availability of systems and materiel to the warfighter.
This approach forces both the government and the private sector to abandon narrow interests in favor of solutions that benefit both. The key issue is improving outcomes to the warfighter at equal or reduced cost to the government.
PBL also saves money. By paying the contractor for outcomes, PBL reduces their incentives to maximize their price on every item sold to the government. Moreover, since the contractor is interested in keeping systems in working order, PBL results in fewer repairs, less use of spare parts and reduced demand for labor. Credible estimates of PBL cost benefits to the government run into billions of dollars.
PBL has another benefit. It encourages partnerships between the private sector and the public organic defense industrial base. These partnerships allow each side to do what they do best. Moreover, partnerships actually bring work into the public industrial base.
Just look at two examples. One successful example of PBL is the C-17 Global Support Program (GSP). The cumulative savings to the government in the first ten years of the GSP agreement is estimated to have been $562 million. The GSP is a public-private partnership. Boeing has direct-sales partnership agreements with each of the three Air Logistics Centers (ALCs).
The other is the maintenance agreement for the F-22 Raptor which was given the DoD 2008 PBL System Level Award. In partnership with the ALCs, the public-private team increased the mean time between maintenance for the F-22 by 69 percent fleet wide – which means jets need fewer repairs. The team also achieved a 15 percent improved mission rate and a 20 percent reduction in repair time while saving hundreds of millions of dollars.
Some government officials want to dismantle this successful system and bring all the maintenance work back into the public industrial base. This is a short-sighted policy.
Performance will go down. Because the private contractors would be reduced to their old role of parts providers, they would be forced to increase the price of their products that would ultimately raise the costs to the government. Overall costs will rise and the warfighter will have less to work with.
President Obama needs to rethink his knee-jerk opposition to outsourcing. In the case of PBL, it makes sense.