Remarks by Senator John McCain On the Continuing Need for Defense Acquisition Reform
(Source: Sen. John McCain; issued May 05 2014)
WASHINGTON, D.C. ­-– U.S. Senator John McCain (R-AZ) today delivered the following remarks on the Senate floor regarding the continuing need for defense acquisition reform:

“As consideration of the National Defense Authorization Act for Fiscal Year 2015 proceeds in earnest and with the recent release of annual assessments of the Department of Defense’s major procurement programs by the Government Accountability Office (GAO) and the Pentagon’s Director of Operational Testing and Evaluation (DOT&E), we are once again reminded of the DOD’s chronic inability to [rein] in costs associated with its largest and most expensive weapon and information technology (I.T.) systems.

“This is, of course, a problem that the DOD has struggled with for years. And, during every one of those years, I have brought this problem to the attention of the American people both in the Senate Armed Services Committee and here on the floor of the United States Senate.

“So, I need not go over again the frustrating litany of costly procurement failures at the DOD. At this point, we are all well aware of the Future Combat System (FCS), the Army’s ‘transformational’ vehicle and communications modernization program, in which the military wasted almost $20 billion developing eighteen vehicles and drones – only one of which actually went into production. As had been done on other programs, on FCS, the Army held a ‘paper competition’ to select contractors far in advance of fielding any actual prototypes. But, it awarded control to two separate companies and let them, not the government, hold their own internal competitions to determine who would test and build the vehicles and systems – encumbering the program with an dizzying array of conflicts-of-interest and preferred-supplier preferences that chipped away at the program from the inside out.

“As for the Air Force, its Expeditionary Combat Support System (ECSS) program wasted over $1 billion taxpayer dollars, attempting to procure and integrate a ‘commercial off-the-shelf’ logistics I.T. system. That effort resulted in no useable capability for the Air Force and taxpayers were forced to pay an additional $8 million in severance costs to the company that failed in its mission. The Marine Corps, in turn, spent 15 years and $3 billion on its Expeditionary Fighting Vehicle (EFV) before cancelling the program in 2012.

“And, while there are so many other failures, we must not forget the VH-71 program, with which the Navy attempted to procure a new presidential helicopter. Before that program’s cancellation in 2009, taxpayers were forced to pay $3.2 billion for exactly zero helicopters.

“Our ‘joint service’ programs have also faced profound difficulties. Even though the DOD has not completed developmental testing on the F-35 Joint Strike Fighter (JSF), that program is already well into production, exposing it to the risk of costly retrofits late in production.

“While today the JSF program is on a more stable path to succeed, during a recent Airland Subcommittee hearing on tactical aircraft programs, I asked the head of the JSF program, Lieutenant General Chris Bogdan, what lessons the DOD learned from that program’s costly failures. He identified three lessons: (1) the danger of overly optimistic initial cost estimates; (2) the importance of reliable technological risk assessments; and (3) the complexity and costs of building next-generation planes while still testing them.

“That is, of course, a post mortem that we’re all very familiar with, including on some of the failed acquisition programs I just alluded to. For that reason, Congress enacted the Weapon Systems Acquisition Reform Act of 2009. That law instituted reforms to help make sure that new major weapons procurement programs ‘start off right’ with accurate initial cost estimates, reliable technological risk assessments, only reasonable ‘concurrency,’ and stable operational requirements.

“While GAO found that this law has had a ‘significant influence’ on requirements, cost, schedule, testing, and reliability for the acquisition of new major weapons systems, there is still much to do, especially on the so-called ‘legacy’ systems already well into the development pipeline. According to GAO, the costs of the Pentagon’s major weapons systems – about 80 in total – have swollen to nearly half a trillion dollars over their initial price tags and have average schedule-delays of more than two years.

“Against this backdrop, I’ll briefly discuss two critical aspects of how the DOD procures major systems – real competition and accountability. In my view, it is no coincidence that the period of remarkably poor performance among our largest weapons procurement programs has coincided with a dramatic contraction in the industrial base, due in large part to consolidation among the nation’s top-tier contractors. For this reason, the DOD must structure into its strategies to acquire major systems true competition – not fake competition, like we saw in FCS or as proponents for an alternate engine for the Joint Strike Fighter once advocated. According to the GAO, in fiscal year 2013, only 57 percent of the $300 billion DOD obligated for contracts and orders was actually competed. Competition should be driven through the subsystems level and it should be reflected in approaches that foster innovation and small business participation throughout a system’s entire lifecycle.

“Especially within the Navy’s ‘shipbuilding and conversion’ account and the Air Force’s ‘missile procurement’ account, costs associated with the Ohio class replacement submarine and the Evolved Expendable Launch Vehicle (EELV) programs, respectively, will severely pressurize other procurement priorities within those same accounts. So, within those portfolios in particular, harnessing competitive forces to drive-down costs – and keep them down – will be enormously important. There can, however, be no doubt that doing this in an era of declining budgets – and, therefore, fewer opportunities to support to an already diminished industrial base – will be extraordinarily difficult. So, we should be embracing competition – even the prospect of it – wherever and however we find it.

“In the Littoral Combat Ship (LCS) program, the Navy's strategy to bring competition into the construction of the follow ships' seaframes successfully drove down those costs after the cost to complete construction of the lead ships' seaframes exploded. While doing so resulted in a dual-award block-buy contract, which I thought (and continue to think) was ill-advised, and serious problems persist with LCS’ ‘mission modules,’ there can be no doubt that competition was just what the program needed. After having found in 2012 that competition for EELV could lower costs for the government, GAO reiterated the importance of competition generally in a report released just today, stating that ‘[c]ompetition is the cornerstone of a sound acquisition process.’

“It is exactly for this reason that I have been concerned with what I have seen in EELV, a critical national security space launch program. In the absence of competition and amidst a highly suspect effort to minimize internal Pentagon and congressional oversight of the program, which I corrected just a couple of years ago, the EELV program’s costs exploded. Only after that program critically breached cost thresholds under federal law that threatened its existence did the DOD finally recognize the value – indeed the need – for competition.

“And yet, despite a directive by the Undersecretary of Defense for Acquisition, Technology and Logistics to the Air Force to ‘aggressively’ introduce competition into the program and just weeks before the Air Force knew that a prospective new entrant to the program would qualify as a bidder, the Air Force recently awarded a three year sole-source block-buy contract to EELV’s incumbent contractor. And, the Air Force did so in a way that exposed only those launches designated for competition to the greatest risk of delay or cancellation. Then, just a few weeks ago, in connection with its budget request for fiscal year 2015, the Air Force proposed to cut the number of launches designated for competition in half, in part to satisfy the Air Force’s existing obligation to the incumbent contractor under the sole-source block-buy contract.

“Why the Air Force made all those decisions in that program, which so desperately needs competition, is unclear. But, the evidence of incumbency favoritism I have seen to date was strong enough for me to refer the matter to the DOD Inspector General for investigation. That favoritism apparently extended to the DOD’s failure to ensure that the incumbent contractor’s efforts to import rocket engines from Russia did not run afoul of the President’s executive order sanctioning certain Russian persons in connection with Russia’s activities in eastern Ukraine. It took a prospective bidder, that is, a possible competitor, to file a lawsuit in federal court to ensure compliance with the President’s executive order. We all look forward to the IG’s findings.

“In addition to EELV, I will also be monitoring the Army’s modernization program to build nearly 3,000 armored personnel carriers. This program, too, appears to lack any meaningful competition, having obtained a waiver to skip over building working prototypes and, thereby, ignoring the acquisition best practice of ‘fly before you buy.’

“There is also clearly more that needs to be done to ensure accountability in how the DOD procures major weapons and I.T. systems. Ensuring accountability means having in place the right acquisition managers when large procurement programs start, instead of bringing them in years after those programs have foundered. Those managers must see and be willing to enforce affordability as an operational requirement and know how to effectively incentivize their industry partners to control costs.

“Also, within a system that better aligns their tenure with key management decisions on their programs, those managers – trained to be as competent and skillful a buyer as their industry counterparts are sellers – need to be empowered to make those decisions in their best professional judgment. And, they need to do so within an overall system that holds them accountable if they’re wrong and rewards them if they’re successful.

“Regrettably, that is not our defense acquisition system. In our system, instead of accountability, a systemic misalignment of incentives reign – incentives that assign a premium to overly optimistic initial cost estimates and technological risk assessments. In our system, what’s all-important is getting activity ‘under contract,’ ‘keeping the money flowing,’ and maintaining budgets. Our system allows the DOD to start programs that are poorly conceived or inherently unexecutable with the aim of getting them ‘on rails’ – into the development pipeline and, if possible, simultaneously into production. At that point, given the extent to which they have been engineered so that their economic benefits are distributed among key states and congressional districts, those programs become notoriously difficult to terminate or meaningfully change. Why? Because our system keeps them alive – often at an exorbitant cost – and in the worst cases without ever providing meaningful combat capability.

“The golden egg our system produces, with the ‘unwarranted influence, whether sought or unsought’ of the military-industrial-congressional complex, is a politically-engineered, ill-defined, massive ‘transformational’ procurement program, with an unlimited tolerance for excessive concurrency, largely funded on a cost-reimbursable basis – with the prime contractor allowed to maximize profit without necessarily delivering needed capability to our servicemen and -women on budget or on time.

“To say that such a system is unsustainable is charitable. It is a system that, if allowed to continue unabated, will have us bestow on our children and theirs de facto unilateral disarmament for which they will have no say and from which our nation will have no recourse. Rather that wallow in discouragement, however, we must let that odious proposition motivate us to reform the current system with meaningful change, in particular, changes to the Pentagon’s culture of inefficiency that have eluded us for a generation.

“One thing is clear. Today, we have a choice. Tomorrow, we will not.

“Thank you, Mr. President.”

-ends-




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