Unrealistic cost estimates and schedules are damaging the Defense
Department’s ability to manage its weapon programs and to
maintain a healthy industrial base, said the former chief of the
Pentagon’s testing office.
“Many contracts are structured with no incentive to continue
to develop, to improve the system and every incentive to get into
production as soon as possible. ... The contractual environment
requires defense companies to make unrealistic bids simply to stay
in the defense business,” said Philip E. Coyle, who was the
director of operational test and evaluation at the Defense Department
from September 1994 until January 2001. “If you have tracked
the stock prices of defense industry stocks, you can see that Wall
Street has figured this out.”
One way to turn these problems around, said Coyle in a recent interview,
is to change acquisition practices that discourage contractors from
focusing on early development and testing, because their main goal
is to reach full-rate production as quickly as possible.
Since his departure from the government in January, Coyle has been
trying to “get his message across” that the Pentagon
may lose its ability to deploy cutting-edge technologies, unless
it changes the way it compensates contractors.
“They need to permit a reasonable profit for development
work,” he asserted.
Defense contractors typically lose money in development contracts
and only get to recover their losses if they get a large production
contract. But, during the past decade or so, the Pentagon has cut
back its procurement budget drastically, so production contracts
are becoming more rare and smaller in the quantities of items ordered.
That is a sure recipe for destroying the U.S industrial base, said
Coyle. “We need to allow defense industry to make a reasonable
profit in all phases of development, engineering, manufacturing
and production,” he said. The Defense Department “has
put too much emphasis on making it up in production.”
One way to protect the defense industrial base is to “maximize
stability for defense companies,” said Coyle. “There
are several ways this might be done, and I don’t believe they
would take formal congressional approval in the form of new statutes.”
One change that Coyle recommended is to return to the former practice
of making development costs allowable expenses. Until about 12 years
ago, up to 90 percent of development costs were cost-reimbursable
under Pentagon contracts. Today, in many contracts, he said, “development
is discouraged, leading companies to drive forward in production,
despite unresolved development issues.”
The Pentagon, additionally, should contract for research and development
on a multi-year basis, Coyle said. Many defense R&D contracts
are funded one year at a time. “This discourages higher risk,
longer-horizon work in favor of ‘quick hits’ that can
be realized in a year or so,” he said. “If defense companies
are not sure the Defense Department will ever fund a second, third
or fifth year of research, they tend to minimize their own exposure
if the R&D work is stopped.”
Incentives for high-risk development work could be offered, by
awarding higher percentage fees, depending on the level of risk,
he said.
A revision of the Pentagon’s acquisition rules, called the
5000 series, was issued last year. Among the changes was more emphasis
on early testing, which Coyle supported. “The whole idea is
to be able to get new military capabilities from the lab to the
field as early as possible.” But the regulations do not discourage
the pursuit of rigorous testing, he said.
Defense programs benefit from early simulation and modeling work,
which helps fix the kinks before the system goes to the field, Coyle
said. “Too often, the program waits until they’ve gotten
into trouble with cost and schedule and then they come to the testers
and ask to cancel the test to save money and time. They want to
do a simulation instead.” At that point, he said, “it’s
almost always too late” to fix the problems. “Developing
the simulations often is more difficult than building the system
itself,” said Coyle. “We’ve seen this with the
[Air Force] F-22 simulator, which has been as difficult [to develop]
as the F-22 avionics itself.”
The Navy-Air Force joint trainer aircraft program, called JPATS,
experienced problems, among other reasons, because it was treated
as an “off-the-shelf acquisition,” even though the aircraft
had military-unique requirements, said Coyle. “You really
have to be careful about that.” Commercial technology often
“is not what people think it is,” he said. “The
military environment is just different.”
The new leadership at the Defense Department needs to “make
a new beginning” in acquisition reform, Coyle asserted. “They
need to give it a different name.” The bureaucracy can be
cynical, he said. “That is why they need to take a new approach
and a new name, so that it is clear there will be a new approach.”
The nominee to replace Coyle as the top Pentagon tester is Thomas
Christie. He heads the operational evaluation division of the Institute
for Defense Analysis, a federally-funded think tank.
Coyle praised Christie’s in-depth knowledge of operational
testing issues. “He may know the business better than I do,”
he said.