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Turbulent Times Ahead for Pentagon Weapon Programs
By Sandra I. Erwin



Mandatory budget cuts in 2013, the prospect of more reductions in 2014, staff furloughs and an unpredictable political environment spell disruption for most Defense Department acquisition programs.

Sequester is “affecting everything,” said Undersecretary of Defense for Acquisition, Technology and Logistics Frank Kendall.

In the weapons procurement business, the goal now is to do “damage limitation,” Kendall told reporters at the Pentagon April 24.

“We don’t know what will happen in 2014. … [We want to ensure] minimum damage to our programs,” he said.

But Kendall left no doubt that Pentagon procurement programs  — from weapons systems to contract services — are headed for a bumpy ride.

Budget cuts of $41 billion for the fiscal year that ends Sept. 30 have triggered a scramble to reallocate funds to cover shortfalls in operations and maintenance accounts, particularly in the Army. So-called “reprogramming” requests are being drafted and soon will go to Capitol Hill for congressional approval. Kendall would not provide details on which specific programs might be affected by the reprogramming. He made it clear, however, that the ramifications of sequester will be seen in virtually every program.

In technology development efforts, he said, work will be deferred. Orders of equipment that is already in production will be reduced. Not only is this bad news for military forces that need equipment and for manufacturers, but also for taxpayers, said Kendall. “Stretching out programs means efficiency goes down,” he said. “Time is money ... Programs will take longer … Sequestration across the board is leading to greater inefficiency.” Buying smaller quantities is always wasteful because the same cost is spread over fewer items. Exactly how much will be cut and from which program are decisions that are still being debated, he said.

The Obama administration’s 2014-2017 budget proposal unveiled April 10 already includes $14 billion worth of savings from acquisition programs. Kendall’s comments suggest that deeper cutbacks are almost inevitable. The $526 billion request includes $99.3 billion in 2014 for procurement of new weapons. Unless the administration and Congress agree on a deficit-reduction plan that would reverse sequester, the Pentagon would face a $52 billion cut in 2014, and every year through 2021.

“We are going to have to figure out, frankly, what we do in ‘14 as a result of the implications of ’13,” Kendall said. Uncertainty is one of the program manager’s worst enemies, he noted. “We have to get to some stability so we can execute to a plan. Right now we don’t have that.”

Sequester already is being felt acutely at the Pentagon, where every civilian employee faces 14 days of unpaid furlough leave over the next five months. Most of the Defense Department’s 150,000-strong procurement and contracting workforce will be affected. Workers also have had their pay frozen for the past two to three years. About 13,000 new procurement workers have been hired in recent years but growth is not likely to continue for the foreseeable future.

“This is a tough time for the workforce,” said Kendall. He credited the acquisition corps for having achieved a rare feat: A favorable review by the Government Accountability Office, which in its latest report on weapons programs gives the Pentagon kudos for improved performance.

Kendall and other senior officials also are considering downsizing their staffs as part of Defense Secretary Chuck Hagel’s plea to shrink overhead spending. Contractors are being asked to trim their executive ranks, too, said Kendall. Companies already have offered buyouts and laid off thousands of workers across the industry, but “more needs to be done,” he said.

To soften the blow from budget cuts and ensure the Pentagon “gets more value for its money,” Kendall introduced a set of procurement policy guidelines in November known as “Better Buying Power 2.0.” He unveiled a new document April 24 that explains how these policies should be implemented.

The 1.0 version was rolled out in Sept. 2010, when then-Defense Secretary Robert Gates warned that the post-9/11 money gusher was drying up, and the Defense Department needed to prepare for austerity.

Kendall cautioned that these guidelines do not call for sweeping change in how procurement programs are carried out, but instead, encourage managers to “think” and make smarter decisions. BBP 2.0., he pointed out, is not substantially different from the 1971 guidelines introduced by then Deputy Defense Secretary David Packard, which became the basis for subsequent efforts to reform Pentagon acquisitions.

“There is nothing fundamentally new on what the right things are in terms of acquisition,” Kendall said.  BBP 2.0 puts more “emphasis on people and the judgments people have to make to do their jobs.” His message to the workforce: “Here are the tools you need. … You have to be professional and understand what has to be done. … You have to be careful how you spend money.”

Contractors who might fear their profits will be targeted should not worry, Kendall said. “We are not after industry profits,” he said. “We want to tie profits and performance.” Current profit levels, he added, are “reasonable, not outrageous. We understand business has to make money.” BBP 2.0 urges managers to learn how to negotiate base profit rates and provide incentives to contractors to reduce costs.

Kendall also is seeking to simplify the byzantine regulations that govern military procurement. He is working with congressional committees to bring together the body of law that has been built up since the 1986 Goldwater-Nichols act and try to turn it into a simpler, more coherent set of rules. “As I look through 5000.2 [defense acquisition regulations], it’s a maze that a program manager has to work is way through. I think we can simplify it quite a bit.”

Kendall hopes that these efforts will help turn around a blemished record of Pentagon acquisitions. “I have been watching programs get canceled because they weren't affordable. We have done too much of that,” he told industry representatives last month at a conference. Over the past decade alone, the Defense Department terminated $50 billion worth of programs, and has nothing to show for it.

Countless efforts to reform weapons-buying rules, including major legislation that Congress passed in 2009, so far have been mostly powerless against cost overruns. Every defense secretary since at least the Nixon administration has sought, mostly unsuccessfully, to reduce waste in Pentagon programs by rewriting policies, changing regulations and increasing oversight.

“There aren’t easy, simple solutions that are going to ‘reform’ acquisition and make everything infinitely better overnight with one or two policy changes,” Kendall said in November when he unveiled BBP 2.0.

The seven focus areas of BBP 2.0 are:
• Achieve affordable programs.
• Control costs throughout the product lifecycle.
• Promote productivity and innovation in industry and government.
• Eliminate unproductive processes and bureaucracy.
• Promote effective competition.
• Improve tradecraft in acquisition of services.
• Improve the professionalism of the acquisition workforce.

Photo Credit: Defense Dept.

Comments

Re: Turbulent Times Ahead for Pentagon Weapon Programs

BBP 2.0 will NEVER work! OSD can flap their gums as much as it wants, but it is the Services that control their own budgets, as dictated by Congress, and from my experience the Service heads end-up doing almost whatever they want in the acquisition area. Also financial reporting is poor at best; the GAO has said so for the last 15 years, so will anyone know how much is really to be saved from intiatives to reduce TCO.
Ron Giuntini at 5/3/2013 8:58 PM

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