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4/13/2014

Congress Takes Another Stab at Fixing Pentagon Procurement
By Sandra I. Erwin



Congressional oversight committees have asked industry groups to help pinpoint specific trouble spots in the military procurement system. Frustrated by decades of failed reform efforts, lawmakers are taking a different tack and, instead of piling on new rules, they are first investigating why current laws and regulations have not worked as intended. They also are scrutinizing overhead costs as one of the root causes of soaring weapon prices.

“People are seriously looking not only at the cost and schedule of weapon systems but also at the administrative costs of the acquisition process itself, and the time involved,” said Jon Etherton, industry consultant and former staff member of the Senate Armed Services Committee. He is now a senior fellow at the National Defense Industrial Association and is coordinating industry input for an upcoming congressional review of the weapons acquisition process.

Etherton was involved in previous efforts to reform Pentagon procurement over the past two decades. The new congressional initiative is not more of the same, he said. “The conversation we are having this year is different than the one we were having a year ago, or the year before.”

When Congress last passed sweeping procurement reform legislation — the Weapon Systems Acquisition Reform Act of 2009 — the Pentagon’s budget had reached record levels and the mood at the time was to crack down on procurement fraud and abuse. Military spending has since plummeted, although the cost of major weapon systems has continued to rise. The Pentagon has warned it will have to terminate programs to free up funds for other portions of the military budget. This has compelled members of Congress, Pentagon acquisition officials and defense industry to join forces and figure a way out of the perpetual cycle of buying less for more.

Lawmakers are asking, “Can we afford to have the system that we have now, and are there alternatives?” said Etherton.

Rep. Mac Thornberry, R-Texas, who was put in charge of the HASC procurement reform review, told National Defense last month that the committee feels a sense of urgency. “I haven't found anybody who says the current system is working well,” he said. “What I hear is skepticism. We've tried this many times. Why is this going to be any different?” The answer is that “we don't have a choice,” Thornberry said.

In its most recent report card on Defense Department acquisitions, the Government Accountability Office credited the Pentagon for slight improvements in the performance of major weapon systems, but cautioned that trouble still lies ahead. “While many of the recent efficiencies achieved by programs decreased their costs without reducing quantities, it is unclear how much more savings can be obtained in this manner," wrote Gene L. Dodaro, comptroller general of the United States.

The Defense Department and Congress have taken “meaningful steps to improve the acquisition of major weapon systems, yet many programs are still falling short of cost and schedule estimates,” GAO said.

The estimated cost of 80 programs that GAO studied has increased by $14.1 billion, although 50 of the 80 have seen some cost reduction. The Pentagon will need about $682 billion to complete these programs, of which 45 percent represents cost growth from initial estimates. GAO called this a “clear indicator that the Defense Department needs to do more to control cost growth.”

The leaders of the Senate and House armed services committees from both sides of the aisle have asked nine industry associations to submit “recommended steps” to improve defense acquisitions. They also asked for these proposals to specify whether they would require changes to existing statute or regulations. Responses are due July 10.

If any of the suggestions are adopted by the committees, they would be part of the legislative debate leading up to the fiscal year 2016 National Defense Authorization Act.

Industry officials see this as a rare opportunity to tackle festering problems in the acquisition process. “When you look at the current acquisition system, it’s not how far we’ve come but how far we have to go,” said Retired Marine Corps Maj. Gen. Arnold Punaro, chairman of the National Defense Industrial Association. “We haven’t seen an opportunity for serious, thoughtful reform for a long, long time,” he said.

The industry is enthusiastic about the chance to work with the armed services committees and the Executive Branch on this issue, Punaro said. The Pentagon’s top weapons buyer Frank Kendall has been “very proactive,” he said. “They understand that they need to work collaboratively with the Congress. Rarely have we seen the two sides moving in the same direction,” said Punaro. “Typically it’s the Congress doing reforms and forcing them on the Pentagon. We haven’t seen this level of dialogue in a very long time.”

Etherton cautioned that the devil will be in the details. “I don’t think it will be smooth sailing,” he said. While everyone agrees that change is needed, each industry association and trade union has different priorities that will have to be reconciled. “There will be a lot of discussion about individual proposals,” he said.

“It is really fruitless to spend time worrying about political or structural factors we cannot change,” Etherton said. “We need to focus on what is within the realm of the possible, identify who has the authority to make needed changes, and suggest to them what specific changes to make, how to make them, and the outcomes we predict could occur.”

One of the toughest nuts to crack in military acquisitions is the lack of coordination within the Defense Department between the organizations that oversee weapons requirements and budgets, and those that are in charge of acquiring those systems. “One reason why past reform efforts were not successful is that we didn’t link requirements, acquisition and budget process as well as we should have,” Etherton said. “We dealt with each one separately,” he added. “Trying to get a sense of organic entity is going to be one of the biggest challenges.”

Close coordination among the three entities was one of the recommendations that the Defense Business Board — an industry advisory panel — included in a 2012 report, said Punaro, a former DBB chairman. “The service chiefs need to be more involved in linking the three and managing the careers of the military acquisition workforce which is now run by civilians,” he said. “Those items are worthy of serious consideration.”

The issue of bureaucratic bloat also will be part of the upcoming debate on defense procurement. According to various estimates, the goods and services the Pentagon buys carry a cost premium of 20 to 40 percent from overhead expenses such as administration and contractor oversight. Kendall has appointed Assistant Secretary Katrina McFarland to work with prime contractors on ways to lower administrative costs.

High overhead expenses are troubling, said Punaro, because they are eating into the Pentagon’s buying power. Even though the Pentagon’s overall budget is projected to be relatively flat over the next five years, the actual funds that will be paid out for contracts will plunge. Disbursements for weapon modernization programs will be dropping by $118 billion between 2012 and 2016. “We’re still in decreasing outlay mode for the next couple of years,” said Punaro. “We have to get more bang for the buck for the dollars that are available.”

Photo Credit: Thinkstock
Posted at 6:53 AM by Sandra Erwin | Permalink | Email this Post | Comments (1)

Comments

Re: Congress Takes Another Stab at Fixing Pentagon Procurement

It has now been over 25 years that I was an Army Product Manager.  As an Army officer with a Master's in contracts and acquisition management the one thing that I remember most is when the Undersecretary of the Army James Ambrose told a group of PMs " I don't want a PM who doesn't question the requirements".  This is one of the keys to controlling cost and schedule growth.  Requirements creep is not only very real but really expensive.  There are many other things , of course, that impact cost and schedule, but this is key.
Bill Houck at 4/14/2014 10:41 AM

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