By Calvin Biesecker
As part of the defense spending and productivity efficiency initiatives outlined by the Pentagon yesterday, affordability will be a key feature of all new programs, Defense Secretary Robert Gates said.
“Affordability will be incorporated right at the beginning as a firm requirement for each new program,” Gates said at a Pentagon briefing to discuss the efficiency initiatives, which are part of an effort to save the Defense Department $100 billion during the next five years. “So, for example, we don’t end up with another half-billion dollar presidential helicopter.”
In addition, programs will be required to have cost estimates based on the way they are currently being managed and what they should cost if managed effectively, Gates said.
“In too many instances, cost estimates that are based on past programs, I might say past mismanagement, have deprived us of incentives to bring down costs,” he said.
The ultimate goal of the savings is to be able to redirect it to other priorities over the next five years, a period in which real defense spending is expected to grow at much smaller rates than in the past decade.
Among the marquis new program starts that Gates mentioned are another shot at the Marine Corps presidential helicopter replacement program, which was canceled by the Obama administration, the Navy’s SSBN-X ballistic missile submarine, “where we are trimming requirements without compromising critical capability.” He noted that the per unit cost estimates for the sub had been as high as $7 billion, which has been cut to $5 billion, a 27 percent reduction.
Other new starts mentioned are the Army’s Ground Combat Vehicle, which is being started in the wake of the terminated Future Combat System, and Long-Range Strike Systems for the Air Force and Navy.
Gates also said that the efficiency initiatives could result in the Navy establishing a multi-year contract for its purchase of Boeing [BA]-built F/A- 18 fighters, allowing the contractor to develop a more efficient plan for constructing the aircraft.
Over the next five years new, program starts are expected to cost $50 billion, presenting an opportunity for substantial savings to be shifted to other priorities if just a fraction of what the Navy has saved on the SSBN-X program are achieved, according to a 24-page guidance memo to the Defense Department’s acquisition community that contains the actions to be taken.
All told, there are 23 actions being directed by Ash Carter, the under secretary of defense for Acquisition, Technology and Logistics, for the Defense Department’s acquisition community.
The efficiency initiatives will also focus on many and varied services, including facilities upkeep and weapons maintenance that DoD contracts out for and which account for about half of the $400 billion spent annually on goods and services.
“Believe it or not, our statistics show that we’re performing even worse in the acquisition of services than in the acquisition of weapons,” Carter said at the briefing. “A lot less attention has been paid to this area.”
One problem with contracted services in general, Carter said, is that in many instances they are a secondary concern for the particular office that is acquiring them, which is typically for help with fulfilling some other mission. That’s no one’s fault, but they need help to improve the way these services are contracted for, he said.
In the acquisition guidance memorandum, specific actions for improved service contracting include creating a senior manager of acquisition services in each military and other defense acquisition component executive office responsible for managing and executing service contracts. Another action is adopting uniform taxonomy for different types of services, enabling a way to measure productivity here.
The efficiency actions are segmented into five categories:
- Target Affordability and Control Cost Growth. These actions include “affordability as a requirement” mandate, improve productivity with the “will cost” versus “should cost management,” eliminate redundancies within warfighter portfolios such as the Army’s recent cancellation of the Non Line of Sight Launch System that was becoming too expensive given its contribution to the overall fight, and create shorter program timelines that can be managed too;
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Incentivize Productivity and Innovation in Industry. Actions here include rewarding contractors for successfully managing their supply chains and indirect expense management, increasing the use of fixed-price incentive firm target contracts with a 50-50 share savings between government and industry, adjust progress payments to incentivize performance, and extend the Navy’s Preferred Supplier Program to a DoD-wide pilot;
- Promote Real Competition. These include finding ways to reduce one-source competitions, including requiring open architectures and set rules for the acquisition of technical data rights, and increase the roles of small business in competitions;
- Improve Tradecraft in Services Acquisitions. In addition to a uniform taxonomy and senior acquisition managers for service contracting, provide help with defining requirements and require more frequent recompletes of knowledge-based services; and
- Reduce Non-Productive Processes and Bureaucracy. These actions include reducing the number of Office of Secretary of Defense level program reviews, eliminating low value added statutory processes, which will require congressional help, and cut by half the volume and cost of internal and congressional reports.
Carter said that to effect the changes will require behavioral, not cultural adjustments. He believes that given the intense focus at senior military and civilian levels of leadership within DoD, that he has the necessary buy-in to make the changes work. He also believes that the defense industry, which has been consulted on the reforms during over the past few months, is also behind them.
“If you have a contract that has a 50-50 share line, that means if the contract under-runs the contractor and the government share the benefit,” Carter said. “It also means that if the contract overruns, the contractor has to pay their share of the overrun. The other thing that the secretary Gates has made pretty clear over the last year is programs that overrun get canceled.”