Gates Efficiency Push Targets Appetite for Requirements
(Source: Lexington Institute; issued September 16, 2010)

(© Lexington Institute; reproduced by permission)
There is no question that the Secretary of Defense, Robert Gates, is a smart man. Nor is there a doubt that he means well. His efforts to drive excess costs out of the defense budget and to find ways of reining in the skyrocketing prices for new weapons systems is admirable. However, in many ways his characterization of the defense industry is simplistic, and consequently, the scope of the proposed reforms, of only limited value.

In unveiling his new proposals to reduce costs and boost productivity, the Secretary made the same kind of incorrect references as had his Under Secretary for Acquisition, Technology and Logistics, Dr. Ashton Carter, to cost reductions and productivity gains experienced by private industry.

In his press conference, Secretary Gates stated that, “We have not seen the productivity growth in the defense economy that we have seen and expect from the rest of the economy.... Consumers are accustomed to getting more for their money -- a more powerful computer, wider functionality in mobile phones -- every year. . . when it comes to the defense sector, however, the taxpayers had to spend significantly more in order to get more.”

There are so many things wrong with this comparison it is difficult to know where to begin.

First, defense companies almost never have the advantage of production at scale that would allow reducing cost by maximizing volume.

Second, unlike the commercial sector, defense goods are usually built specifically to be better than (and sometimes to kill) the systems in the hands of other militaries. Defense companies must build these products not only with the systems the enemy has today, but also with an eye towards what they may have in ten or even twenty years.

Third, while commercial companies definitely take the needs and desires of consumers into account when building a new product, they rarely if ever allow the customer to change his mind about the features of the product midway through its design and development. DoD does this all the time.

Finally, the commercial world works in a relatively stable and predictable planning and budgeting environment. Occasionally, when a private company guesses wrong about a product’s popular appeal it will find itself over-invested in plant and materials relative to demand. But there is no private sector comparison to the stop-start funding that occurs all the time with defense programs. Just this week the defense subcommittee of the Senate Appropriations Committee cut 12 airplanes from next year’s buy of the F-35 Joint Strike Fighter. The net result will be higher costs and lower productivity.

There are companies that today could provide the troops in Afghanistan with low-cost, highly-reliable, rugged, cell phone-based, wireless, applications-driven tactical communications systems. What’s the problem? Security. The National Security Agency will not certify such a phone for carrying classified information.

One of the potentially major innovations in acquisition proposed by the Secretary of Defense is to restrain the military services appetite for requirements. The reality is that defense acquisition leaders, including Under Secretary Carter do not really control acquisition. They share this responsibility with others, notably the military services which define requirements for new platforms and systems.

Anyone who has been in the weapons system design, development and production system knows how the services like to hang requirements on new programs like lights on a Christmas tree. The services often add requirements in the middle of a program, sometimes with catastrophic results. This was the problem that killed the VXX Presidential Helicopter program. In the interests of affordability, new programs such as a follow-on ballistic missile submarine, the Army’s new Ground Combat Vehicle, the future long-range bomber and the restarted Presidential helicopter will all be designed “to affordability, and not just desire or appetite.” This is a good thing.

Now, it is not clear how far one can go in trimming requirements without sacrificing capability and hence, putting the mission or the lives of military personnel at risk. For example, small caliber ammunition for the military is produced to a higher standard than for commercial users. It has to have a very low misfire rate and be able to work in extremes of hot, cold and humidity. Why? Because unlike a hunter who can survive missing his shot at a fifteen point buck, a soldier in combat may not. Care needs to be taken so that critical requirements that mean the difference between winning or losing a fight, living or dying, are not eliminated or reduced.

Another thing that makes sense to do is expand the use of multi-year procurements. When private companies have a predictable environment, they can lower costs. Multi-year procurements allow companies to buy materials, components and subsystems more efficiently, thereby reducing costs.

This approach has been used with great success in the Virginia-class nuclear attack (SSN) submarine program. That program, a shared endeavor between General Dynamics and Northrop Grumman, has reduced the cost and man hours for each successive boat built. As a result, the program is going to two boats a year. This is a great example of how increased efficiencies can be achieved in defense acquisition.

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