Op-Ed: DoD Continues Undeclared War Against Private Sector Sustainment
(Source: Lexington Institute; issued August 4, 2010)

(© Lexington Institute; reproduced by permission)
Even as Secretary Gates and Under Secretary Carter conduct civilized exchanges with leaders of defense industry, the undeclared war by the Department of Defense (DoD) on the private sector continues. This war has focused particularly on the role of private companies in providing logistics and sustainment for U.S. forces.

It has not only been overt with contracts being cancelled and work once done by private contractors dragged back into the government depot system, but it also includes a “whispering campaign” in which the cost effectiveness of private contractor logistics providers is questioned. Senior DoD logistics and sustainment officials routinely make comments in public meetings or to media outlets critical of the private sector and its need for profits. DoD executives have repeatedly asserted that contractor logistics support (CLS) and performance-based logistics (PBL) contracts are too expensive and that the government could do the same work for less.

These kinds of assertions fly in the face of available evidence. Data available to DoD officials clearly demonstrates that private sector support is generally less costly than the same work done by the organic or government sustainment system. The Air Force’s own data shows that the average annual cost growth for aircraft programs supported solely from the organic industrial base was greater than that for aircraft programs under either PBL or CLS arrangements. The Office of the Under Secretary of Defense for Acquisition, Technology and Logistics has identified a set of PBL contracts which collectively have saved the government more than $1.5 billion.

PBLs have a proven record of providing high availability rates as well as delivering year over year cost savings greater than the 2-3 percent productivity goals of the OSD efficiency initiative. This is supported by the OSD Product Support Assessment Team’s report on PBLs. For example, Boeing’s C-17 Global Support Program provides for one of the lowest DPFH (dollars per flight hour) platforms in the USAF inventory. Comparing FY04 costs to FY09 costs, U.S. Air Force data shows the GSP program has reduced C-17 DPFH by 28 percent over that period. The C-17 GSP 28 percent reduction was achieved while maintaining the best mission capable rates in airlift (84-85 percent).

It should be noted also that DoD is almost totally dependent on private contractors for its logistics and sustainment. For example, a recent article in Government Executive recounted the extraordinary efforts of “defense logisticians” in maintaining the flow of weapons, fuel and supplies to our forces in Afghanistan. According to a senior DoD official quoted in the article, "We are meeting a 1.1 million gallons a day demand for fuel for the U.S. and coalition forces while feeding 435,000 meals a day to U.S. service personnel and civilians on the ground." Except for a brief reference to the use of commercial routes to get supplies into Afghanistan from the north, the article fails to note that all the supply routes, from the south and north, are run by private companies such as Maersk Line Limited and APL. Defense logisticians know this and respect the work of private logistics providers. Unfortunately, this article helps to perpetuate the myth that the government is providing the logistics for U.S. forces in Iraq and Afghanistan.

DoD officials claim their analyses show that organic sustainment is up to 40 percent cheaper than private contractor-based sustainment. What evidence there is for this claim is never made public. Informed opinion suggests that this simply is a comparison of direct labor hours for government employees versus the fully burdened rates for private contractors. But government employees also have health care, retirement, training and other indirect labor costs. So this is a false comparison.

Moreover, it is not clear that the 40 percent differential is based on the government workforce providing the same level of readiness as that achieved by the private sector. In fact, many observers suspect that the 40 percent differential really reflects a budget target for sustainment without any basis in fact. In other words, DoD will achieve this level of savings simply by spending 40 percent less on sustainment and accepting the consequences in terms of degraded availability and greater risk for the warfighter.

Secretary Gates has set a target of reducing defense overhead by nearly $100 billion over the next five years. This goal does not seem achievable when he is hiring an additional 30,000 government employees and when, according to published statistics, the salary and benefits of the average federal employee now exceeds that of private sector employees. Nor is he likely to be successful when his department is ignoring the proven record of private sector-based logistics and sustainment in reducing costs.

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