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Raytheon's International Sales Manual Draws Rave Reviews
By Sandra I. Erwin



What started out as an internal reference handbook for employees of defense contractor Raytheon Co. has become a coveted resource for executives and government officials involved in the business of international arms sales.

Raytheon recently published the fourth edition of “A Basic Guide to International Sales." At just 154 pages, it is the Cliffnotes for international defense executives.

First published by Raytheon in 2007, it was updated in 2009 and 2011. The guide’s original purpose was to give company employees an "easy to use reference manual to better understand and navigate the rules, policy statements, regulations and protocols attendant to doing defense and commercial business in the international arena," says the introduction. The guide is well known within the FMS (foreign military sales) community in the United States and abroad. Raytheon offers it free-of-charge to friendly defense officials and trade associations. The intended audiences are those “interested in understanding the basics of defense and aerospace international sales.”

FMS is big business, involving sales and assistance to 227 countries. Only a few countries are ineligible, including Iran, Venezuela, North Korea, Belarus, Cuba, China, Cyprus, Somalia and Syria. The U.S. government office that oversees FMS, the Defense Security and Cooperation Agency, currently manages 12,800 active FMS cases valued at $394 billion.

In five chapters, Raytheon’s guide offers a crash course in direct commercial sales, foreign military sales, foreign military financing, export licensing, the Foreign Corrupt Practices Act and offsets.

The updated handbook arrives just as U.S. military contractors are being hit by declining Pentagon sales and are increasingly turning to foreign customers. As the guide points out, "With U.S. defense sales falling as the result of sequestration, U.S. defense and aerospace companies will be looking to increase their foreign sales in order to ease the impact of falling U.S. sales."

The guide explains in detail the Obama administration’s latest export reforms, which are hard to follow even for seasoned professionals. The changes seek to simplify the export licensing process for U.S. manufacturers by consolidating multiple fiefdoms in the Defense, State and Commerce Departments into a single export control list, a single export enforcement agency, a single information technology system and a single export licensing agency.

These efforts will “hopefully lead to major changes in the way the U.S. does export licensing in the near future,” says the manual.

FMS neophytes are warned to pay attention to terms that may sound similar but are entirely different, such as FMS and FMF (foreign military financing). “FMS refers to a method or channel used to procure U.S. origin defense articles and services. FMF refers to a source of funds used to pay for such articles and services.”

FMF is a vital resource for U.S. exporters because it provides loans and grants to 71 eligible nations for the purchase of U.S. equipment and services.

The U.S. government, for instance, authorized $5.2 billion for foreign military financing in 2012. Most of the funds went to the “Big Three” of the FMF world: Israel ($3 billion), Egypt ($1.3 billion) and Jordan ($300 million).

In the aftermath of the Egyptian military coup that ousted Mohammed Morsi and the Muslim Brotherhood in Egypt in early July 2013, the Obama administration moved to withhold “certain large-scale military systems and cash assistance.” The State Department said it would still provide spare parts for U.S. military equipment as well as military training and education.” But the administration this week reversed course and decided to approve the sale of Apache helicopters to Egypt to help fight extremists in the Sinai.

The lesson from this, the manual says, is that the State Department “can decide to withhold FMF funds to any country at any time.”

Raytheon’s guide has won accolades in the international defense sales community for breaking down the complex FMS lingo. A defense procurement official at the Swiss Embassy called it the “best FMS reference manual in town.” At the State Department’s international cooperation and military affairs offices, the guide is used to train and educate new employees.

The company warns that it takes no responsibility for how the information in the guide might be used. “This guide is not intended to, nor does it, provide legal advice,” says the handbook. “The topics addressed in this guide are complex and users are encouraged to seek their own legal counsel.”



Credit: Raytheon's tube-launched, optically-tracked, wireless-guided (TOW) missile is sold to more than 40 countries. (Raytheon photo)
Air Force Chief: Shelving A-10 Makes 'Eminent Sense' Given Budget Constraints
By Dan Parsons



The Air Force’s highest ranked officer said the contentious decision to divest the entire fleet of A-10 Thunderbolt II aircraft is the only option that allows the service to perform its core missions within the budget allowed by Congress.
 
Retiring the A-10 fleet will save the Air Force $4.2 billion. “It’s not emotional. It’s logical," Air Force Chief of Staff Gen. Mark Welsh said April 23 in a speech at the National Press Club in Washington, D.C. "It makes eminent sense from a military perspective if you have to make these kinds of cuts,” he said.
 
The decision is unpopular on Capitol Hill and may be reversed by lawmakers whose districts are home to A-10 units and maintenance facilities.
 
Members of both houses of Congress have promised to amend the fiscal 2015 National Defense Authorization Act with language that would block shelving the close air support aircraft.

Getting rid of the entire fleet was necessary to achieve large-scale savings, Welsh said. If the service kept only the Warthogs that have been fitted with new wings in recent years, it would save only $1 billion. The additional $3.2 billion in savings would pay for half of the service’s annual flying hours, he said.
 
“We decided to do that because we can’t find billions of dollars of savings in many places,” he said.
 
The service considered cutting hundreds of aircraft from both the F-15 and B-1 fleets. It also considered pushing the purchase of the F-35 outside the five-year defense plan, “which drives [up] costs in lots of other areas, by the way. ... We looked at all those options, we took each one independently and ran it through an operational analysis … and we came very clearly to the conclusion that of all those horrible options, the least operationally impactful was to divest the A-10.”
 
The A-10 was developed in the 1970s to provide close-air support for ground troops. It was intended to destroy tanks on the plains of Europe if the Cold War ever escalated to a full-blown conflict.
 
Designed to fly low and slow to cover ground troops, the A-10 is unlikely to survive a high-threat, contested airspace, Welsh said. While the A-10 is only capable of performing one mission, the F-15, F-16, B-1 and AC-130 all can perform close air support, he said.
 
The Air Force has five key mission areas: maintaining airspace superiority, global strike, intelligence gathering, strategic airlift and providing command and control. Eliminating the A-10 was the only option that yielded a fleet’s worth of savings without irreparably damaging the service’s ability to fulfill those missions, Welsh said. He said the decision was made only after cuts to each mission set were considered.
 
When the service capped its F-22 buy, it had to support the fifth-generation fighter with another aircraft to be able to provide a “theater’s worth of air superiority,” Welsh said. Until the F-35 comes online, the F-15C Eagle is filling that role.
 
“We are cutting F-15s out of the fleet this year as part of the budget cuts, but we can’t eliminate the entire fleet because we won’t be able to do the air superiority mission and our combatant commanders won’t accept that.”
 
To achieve savings equal to killing the A-10, the service would have to divest 363 F-16 fighters, which is equivalent to 14 squadrons. Achieving air superiority in a large-scale conflict with the resultant level of fighters “would be almost impossible to achieve,” Welsh said.
 
“Fleets let you save big money,” he added. “You get rid of logistical infrastructure and all the back supply channels, all those things that cost a whole lot of money.”
 
Air Force planners also looked to its intelligence, surveillance and reconnaissance assets for budget savings. But the number-one item on combatant commanders’ wish lists — and the equipment that is perennially in short supply — is ISR, Welsh said.
 
“We are already cutting ISR in this budget, from every mission area, but they would not support us cutting any more than projected,” he said of regional commanders.
 
Cuts were considered also to global strategic airlift. Because both the Air Force and Army are reducing end strength as a result of budget cuts, Welsh considered reducing the number of airlift assets in kind. Army Chief of Staff Raymond Odierno balked at the notion because a smaller Army needs to be more flexible and mobile, Welsh said.
 
The Air Force also considered cutting its current and future fleets of aerial refueling tankers, Welsh said. Cutting the KC-10 fleet was a viable option, but was ultimately decided against because fulfilling the need for aerial refueling with the smaller KC-135 would be “ugly,” Welsh said. It would have taken three times as many KC-135s to achieve the same savings as divesting the KC-10 fleet and at that level, the mission could not be accomplished, Welsh said.
 
Because the Air Force is the only service capable of providing command and control capabilities throughout an entire theater, no one in the Pentagon advocated cutting systems in that area, Welsh said. That left only strike platforms to supply the necessary savings.
 
The bomber fleet is aging but necessary, so neither the B-2 nor B-52 were considered for major cuts, Welsh said.
 
Measured cuts are being made to each core mission area without wholly eliminating any other fleets or capabilities.
 
The Air Force is cutting its desired modernization programs by half, Welsh said. A few key programs are being protected from deep cuts out of necessity, however. Those include the KC-46 tanker, the F-35 joint strike fighter and a future long-range strike bomber.
 
Those programs have been spared the budget ax “for operational reasons, so that we make sure we have a viable Air Force 10 years from now,” Welsh said.
 
“We’re doing everything we can to maintain that balance between being ready to do the nation’s business today and being capable of doing it 10 years from now against threats that are clearly getting more capable and in some cases are getting more complicated,” he said.
 
Budget projections for 2015 from just three years ago were $20 billion higher than what the Air Force actually requested for next fiscal year, Welsh said. Designing an Air Force that in three years could operate with a 20 percent reduction in funding called for significant adjustments to force structure and aircraft fleets and is one reason why the divestment of aircraft seems dramatic, he said.
 
“Trimming around the edges as we made our budget proposal just was not going to work,” he said. “We had to look at some pretty dramatic things. … One of those things was cutting fleets of aircraft.”

Photo Credit: Air Force
Pentagon Undecided on Future Path for Space Systems
By Sandra I. Erwin



Defense officials agree that the military must change the way it buys satellites and space services. They just can’t settle on exactly how it should be done.

The debate over the future of military space programs has dragged on for years. There is consensus within the Defense Department and space agencies that military satellites are too complex, and expensive to buy and maintain. And everyone agrees that satellites will become increasingly vulnerable to anti-satellite weapons, jamming and cyber attacks.

There is also widespread agreement that the market offers attractive alternatives to the status quo. Companies are designing smaller, cheaper satellites that can do most of the functions now performed by military spacecraft. Satellites that already are being built for civilian users could host military payloads.

But parties remain split over how the Defense Department should go about transitioning to a less expensive, more secure future in space. Despite concerns about spending cuts across the military, the Pentagon still has a considerable budget of $17 billion a year for space systems. Some officials have argued the military should continue to develop its own systems because commercial technology is not as trustworthy. The U.S. Air Force, which oversees military space programs, and satellite manufacturers point out that the cost of space vehicles and launches has been coming down in recent years. Some officials have warned that moving away from traditional procurements in favor of commercial systems might be too big a risk.  

These are not easy decisions, said Gil Klinger, deputy assistant secretary of defense for space and intelligence. The Pentagon is looking to improve the resilience and lower the cost of space systems at a time when demand for services keeps growing, Klinger told the House Armed Services Committee.

The Pentagon’s space policy office and U.S. Space Command have been immersed in a year-long study of how the military could acquire “protected” satellite communications services at less cost. A Space Command white paper in 2013 noted that the U.S. military’s preference for billion-dollar “aggregated” satellites might no longer be affordable, and that the United States ought to consider moving toward small-satellite, distributed or “disaggregated” architectures that would be spread over more platforms and be more difficult for enemies to take down.

Any future modernization plan has to ensure the security of satellites and the military’s access to space services, said Doug Loverro, deputy assistant secretary of defense for space policy. “Over the last 15 years, other nations have watched us closely and have recognized that if they are to challenge the United States, they must challenge us in space,” Loverro said.

“We don't want space to become our Achilles’ heel,” he told industry executives during a recent gathering.

Loverro cast doubts on the “disaggregation” idea as a trendy concept that is potentially too simplistic. “I don't like the term disaggregated,” he said. “It’s too narrow.”

As part of its space strategy, the Defense Department should promote closer cooperation with allies so countries can pool resources, he said. The United States, for instance, will seek closer ties between Europe’s Galileo navigation satellite program and the U.S. GPS constellation. Similar collaborations should be pursued for spy satellites, too, said Loverro. The more allies the United States has in space, the tougher it will be for enemies to cause debilitating damage, he said. “The enemy is going to shoot down one satellite but not hundreds.”

In the area of satellite communications, the Pentagon depends greatly on commercial providers. That is not likely to change, said Loverro, although the Pentagon is searching for more efficient methods of buying commercial satcom. “We have a robust commercial industry, but we don't have a robust way of accessing it,” he said. The Defense Department now buys one-year leases, which in aggregate cost more than signing up for long-term deals.

The Defense Department is not going to stop buying commercial satcom, Loverro said, even though commercial systems are more susceptible to jamming and cyber attacks than military spacecraft. The “protected satcom” provided by the Air Force’s advanced extremely high frequency (AEHF) satellites cannot be matched by civilian technology, he said. “You can't find that in the commercial world.” The state of technology in wideband communications satellites, on the other hand, is advancing rapidly in the commercial sector. The question is how the Defense Department should negotiate deals with vendors. “Why don't we have access to hundreds of satellites, in ways better than single-year leases?” Loverro asked.

The military wants to increase use of commercial Ka band broadband communications, he said, but it needs suppliers to accommodate some unique Defense Department needs. “Ka band is becoming the next unexploited area for the satcom industry,” he said. Services could be configured differently for military use, for example, by floating between commercial and military spectrum. That would save the Pentagon millions of dollars by not having to buy new receivers, said Loverro. “Why not use company [research and development investments] to make it easier for the government to exploit Ka band with current receivers?”

It should be no surprise that the Pentagon is struggling to define an acquisition plan for future space systems, said Todd Harrison, senior fellow and budget analyst at the Center for Strategic and Budgetary Assessments. Harrison published a study a year ago in which he suggested the Defense Department should adapt its satcom architecture to operate in hostile environments, and do so at less cost. “Increasing protected satcom capacity by starting new programs or continuing to conduct business as usual is unwise given the fiscal constraints,” Harrison said.

Change is not going to happen overnight, said Harrison in a recent interview. In wideband communications, there is slow movement toward buying it as a service rather than owning satellites, he said. The military is not rushing into anything because it doesn’t have to, Harrison said. It owns a constellation of six wideband satellites made by The Boeing Co., and four more are under contract. As it considers how it will replace this constellation, the Pentagon might opt to buy wideband communications as a service, said Harrison.

The problem is that, to get the best prices, it will need to sign up for long-term contracts. “They will need help from Congress to get approval for multiyear leases and do it in such a way that commercial industry gives the Defense Department a good price,” he said. “They're not jumping on this right away. They don't need to, and they need time to work with Congress.”

Several members of Congress are watching this closely. In last year’s defense authorization legislation, Congress directed the Government Accountability Office to scrutinize the Pentagon’s plan for acquiring secure satcom.

For secret communications, the Pentagon has bought six AEHF satellites from Lockheed Martin Corp. What comes next after AEHF is the subject of contentious discussions these days. “There are indications that they're looking at alternatives like hosted payloads,” said Harrison. “But they have to work out the details.”

This is also an area where international alliances could pay off for the Pentagon, he said. Harrison has had conversations with Japanese government and industry officials on the idea of using Japanese satellites to host protected communications payloads for the United States. “It could be part of our protected satcom,” Harrison said. The Pentagon would save billions of dollars by piggybacking on Japan’s investments in satellites and launch vehicles. The other benefit is that it would forge ties with a key ally, Japan, at a time when the Pentagon is shifting forces to the Pacific Rim and will needed more satcom capacity. “If we're trying to focus on the Pacific, we need to expand our protected satcom capacity and work with allies,” said Harrison.

Taking a leap into nontraditional procurements is always difficult for the Defense Department, said Harrison. “This is a threat to business as usual.” Hosted payloads will not provide all the layers of protection that AEHF offers. “But you don't need it for tactical communications. You only need AEHF top level protection for strategic communications,” such as during a nuclear war. “Hosted payloads are a much cheaper way of providing protected tactical communications.”

It could take years for Defense Department officials to make up their minds. Gen. William Shelton, commander of Air Force Space Command, said it is too soon to commit to any particular approach to space acquisitions. “There are a number of studies underway right now to determine whether or not disaggregation is the right approach,” Shelton told the House Armed Services Committee. “It seems like it's a good thing to pursue based on the need for additional resilience in our constellations given the new threats that are coming.” All options are on the table, he said. “Hosted payloads is a possibility, disaggregation is a possibility, having more reliance on commercial services, having multiple sources, having international cooperation.”

Loverro noted that the military already has created several disaggregated space systems, although not deliberately. There are probably about 50 to 100 weather satellites, with a variety of sensors, all of which contribute to the weather picture. “If I were an adversary trying to target the weather capability, I wouldn't know what to shoot at, because there's just too many targets,” he said.

GPS is also a somewhat disaggregated system in that, if you lose one, you don't lose the capability. That makes the GPS constellation more resilient than the AEHF system where if you lose one satellite, you lose coverage for an entire hemisphere.

The Pentagon in an ongoing “analysis of alternatives” is examining different ways of acquiring protected satellite communications. “The focus of that effort is to identify alternatives beyond AEHF vehicle six, which is the last vehicle in the existing program,” said Klinger.

The Air Force is eyeing new approaches. It recently leased a transponder on a commercial satellite to test how the military potentially might go “all commercial” and forgo dedicated military wideband satellites.

Space industry executives, meanwhile, are warning the Pentagon to set realistic expectations. Secure military satellites supply only 3 percent of demand in current military operations. “The problem is that we want more protected satcom but government satellites are expensive,” said Rick Skinner, director of business and advanced systems development at Northrop Grumman Aerospace. The company is a major supplier of AEHF electronics.

Protected satcom demand seems to be “growing without bounds,” and the Pentagon will likely have to fill that need with commercial services until it can figure out how to build satellites more economically, Skinner said during an Aerospace Industries Association forum on Capitol Hill. The answer is to adapt existing satellite designs and build them with cheaper off-the-shelf components, he said. “You can make the satellites light enough so they can launch from commercial vehicles, and you should remove requirements we don't need such as nuclear command and control.”

Skinner said current billion-dollar spacecraft would be replaced by $350 million systems. “It's in the range of commercial satellites. … It provides 80 percent of the capability of AEHF for about one third of the price.” Without having to design all the complex electronics, production is “pretty inexpensive,” said Skinner. “The bumper sticker is ‘protected for the price of unprotected.’”

Skinner does not see a big future for hosted payloads. “Commercial operators have their own business models. If you have to pay the equivalent cost of a transponder, you will find out that the hosted payload is not as appealing,” he said. “The average cost could make the economics of hosted payloads a lot more difficult to achieve.”

The Pentagon should tread carefully as it plans future acquisitions, warns the Government Accountability Office. Defense officials are studying the disaggregation of space systems, but they lack expertise on the subject, noted Christina Chaplain, defense programs analyst at GAO. “While our prior work shows these concepts can potentially reduce costs and development time, the Defense Department does not yet have the knowledge it needs to make a transition to disaggregation on a wide scale,” Chaplain said at a hearing of the Senate Armed Services Committee’s subcommittee on strategic forces.

Chaplain also raised doubts about the credibility of the Pentagon’s past studies on alternatives satellite procurements. “Some within the department do not consider these studies to be conclusive, because they were either not conducted with sufficient analytic rigor or do not consider the capabilities, risks and trades in a holistic manner,” she said. “More analysis about disaggregation is important.”

GAO does have some good news for the Defense Department. Chaplain said major satellite programs such as AEHF and the missile-warning space based infrared system have overcome troubled pasts and are moving forward. “There are still technical and manufacturing programs affecting key programs, such as, MUOS [mobile user objective system] and GPS 3,” said Chaplain. “But the portfolio as a whole is not seeing problems on a scale it saw last decade.”

Credit: A United Launch Alliance Delta IV rocket blasts off with a national security payload for the National Reconnaissance Office. (Air Force photo)
Study: U.S. Combat Aviation Stuck in the Industrial Age
By Sandra I. Erwin



U.S. combat air forces are ill equipped to fight a technologically empowered enemy, and it could be years or decades before the Pentagon deploys more advanced weapons. Such is the grim picture painted in a new study by the Center for Strategic and Budgetary Assessments. The authors, retired Air Force Lt. Gen. David Deptula and CSBA analyst Mark Gunzinger, make the case that aviation forces are not up to the challenges of 21st century warfare and the Pentagon has only itself to blame.

"Fourteen years into the 21st century, the U.S. military is still living off investments in combat aircraft that were made prior to or during the Reagan administration," Gunzinger told an Air Force Association forum in Arlington, Va.

For instance, the Air Force’s combat force primarily consists of aging A-10s, F-15s, F-16s, B-1s, B-52s, B-2s, and a handful of new F-22s. "Overall, the Air Force’s combat force is the smallest and oldest that it has ever fielded," he said.

Shortsighted Pentagon budget decisions have weakened the aviation fleet, the authors contend. The United States Air Force only has a small number of its most advanced aerial weapons — the B-2 bomber and the F-22 fighter jet — and the next generation of systems is still years away. The Pentagon terminated production of the B-2 bomber in 2000 at 20 aircraft and the F-22 stealth fighter in 2010 at 187 airplanes. The thinking was that these aircraft were too expensive and soon would be replaced with more affordable alternatives. "Apparently this saved money," Deptula said with sarcasm. In hindsight, the military is paying a big price for these decisions, he said, because new systems are far more expensive and nowhere close to being ready. "Numbers matter," he said. The Air Force is buying new aircraft today, but most are cargo planes or unmanned surveillance drones. The military has more than 11,000 unmanned aircraft, but most are not equipped to survive enemy air-defense missiles.

Although no enemy air force has yet challenged the United States, the study predicts it is only a matter of time before the U.S. military is put to the test.

The risk posed by enemy technologies also applies to the Navy and Marine Corps, the study noted. The Corps continues to rely on non-stealthy AV-8B vertical/short takeoff and landing ground attack aircraft that were designed in the 1970s. The replacement F-35B Joint Strike Fighter is still in development.

“The Navy’s fixed-wing combat aircraft force is not as old as the Air Force’s because it is just completing its F/A-18 fighter program,” Gunzinger said. “However, the F/A-18 is non-stealthy, and the wisdom of deploying carriers within range of anti-ship ballistic and cruise missiles so their short-range fighters can reach their objective areas is doubtful at best.”

With the exception of the F-22s and B-2, the Pentagon’s fighters and bombers have “lost their ability to operate in high-threat areas without the risk of significant losses or the need for very large supporting force packages to suppress enemy air defenses,” the CSBA study said. "America’s recent focus on counterinsurgency operations has given China, Iran, North Korea, and other competitors breathing room to develop anti-access, area-denial (A2/AD) capabilities that could threaten U.S. access to areas of vital interest," the report said. "The proliferation of guided ballistic and cruise missiles, anti-satellite weapons, cyber threats, integrated air defense systems and other asymmetric threats are intended to erode the U.S. military’s ability to effectively intervene in crisis situations."

The term A2/AD is Pentagon-speak for an enemy's ability to neutralize the traditional advantages of U.S. weaponry. Command and control networks may susceptible to electronic jamming. Air bases may be vulnerable to precision-guided missiles, and U.S. non-stealthy aircraft — manned and unmanned — may not be able to enter hostile airspace without risking major losses. "Enemy antiship ballistic and cruise missiles that are supported by space-based sensors and long-range surveillance aircraft may force U.S. aircraft carriers to operate a thousand miles or more offshore," the study said.

To overcome enemy technologies, the U.S. military needs more than just new hardware, Deptula said. It needs its weapon systems to operate like a network, where information is shared across all services. The Pentagon has championed for decades the idea of “network centric” warfare, but in reality each service and each program operate independently, he said. “We're in the era of information-age warfare, and we are having a bit of a challenge managing that transition,” said Deptula. “We need to think how we can better share information that turns into relevant knowledge and we need to do it automatically.” The Pentagon functions in budget-line items, not as an integrated enterprise, he said. “You need to get beyond the traditional labeling of systems, which is last century’s perspective. We need to think about how all systems in space, land and sea and air can operate in an integrated fashion.”

The need for information-focused weapon systems will be the subject of an 18-month study by the Air Force Association’s Mitchell Institute, which Deptula leads. The military should have for a "combat cloud" where information can be shared regardless of what weapon system is used, he said. “It is difficult to explain, and that is one of our challenges as it is not a ‘thing’ or even a collection of ‘things,’ but rather an approach.” Deptula told National Defense. Aircraft today are connected as sensors and shooters. “While this limited collaboration is positive, future developments in data sharing promise to dramatically enhance the way in which combat effects are attained as individual airborne assets are fully integrated with sea, land, space and cyber systems,” he explained. “Individual systems connected to the broader ‘combat cloud’ are able to leverage their respective strengths.”

To move its weapons into the 21st century, the Pentagon also needs help from Congress, Deptula added.

If the recent round of military oversight hearings on Capitol Hill is any guide, Congress is less worried about the modernization of the U.S. fleet than it is about protecting favored projects and jobs in members' home districts.

Air Force leaders have argued that, in times of declining budgets, they cannot afford to continue to sink money into aging airplanes and should redirect funding to new systems such as the F-35, a refueling tanker and a long-range bomber. While the plan sounds reasonable in theory, it has turned into a political football. Air Force officials have been hammered by lawmakers for their proposal to retire the entire A-10 fighter force, 46 older C-130 aircraft and the entire U-2 reconnaissance aircraft fleet.

These budget quagmires only keep the military saddled with older technology, the CSBA study said, and contribute to the erosion of the nation’s manufacturing base. “Fifty years ago, the Defense Department was in the process of building six fighters, three bombers, and two antisubmarine warfare aircraft,” said the report. Today, there is one new American fighter in production — the F-35 — and three that are about to end their production runs. “With the exception of the Air Force long-range bomber, the Navy’s P-8 maritime aircraft, and possibly a carrier unmanned combat aircraft, there are no other major new combat aircraft in the Defense Department’s program of record.”

Credit: F-16 Fighting Falcons (Air Force photo)

Homeland Defense Advisory Firm Taps Into Demand for Market Intelligence
By Sandra I. Erwin



The homeland security business is mind-boggling, for both buyers and sellers. Agencies need products but may not know where to find them. And sellers have trouble locating customers in the maze of federal, state and local agencies that are responsible for homeland defense.

“Unlike the defense market, homeland security is very disparate,” says Bradley C. Schreiber, president of Homeland Security Solutions. He is a former adviser to the Department of Homeland Security who started the company in January in an effort to capitalize on the confusion that exists in this sector.

“Many small and mid-size companies have tremendous challenges getting their technology to federal, state and local first responders, and to the critical infrastructure industry,” Schreiber says. Finding potential buyers can be like searching for a needle in a haystack. There’s the Department of Homeland Security, the governments of 50 states and five U.S. territories, and more than 3,100 counties. Each has its own first responders and law enforcement operations. DHS distributes more than a billion dollars in grants every year to state and local communities to buy equipment. “For companies that develop products for a single market segment, this is very challenging,” says Schreiber.

He and a team of experts designed a proprietary market analysis software program that helps to match buyer needs with sellers’ offerings. “Companies go to the wrong people to sell products,” he says. “It is challenging to work with DHS.” In the critical infrastructure market, there are 16 segments, 85 percent of which is controlled by the private sector.

Buyers, too, are perplexed by the diversity of products and vendors’ claims. “We see a lot of ‘junk’ out there that people are trying to develop as the next big widget, and trying to sell to customers without talking to the end users,” says Schreiber. “We look for products and try to separate the wheat from the chaff.”

The company’s clients also include investors who for years have spent money on companies but don’t really understand the efficacy of the product. Investors also want to investigate how products or services can be customized to make them more attractive to a wider audience.

One of the greatest frustrations Schreiber encounters is that, when disaster strikes and the government needs to coordinate activities with the private-sector, there is no coherent communications strategy. “We are helping set up links and dialogue between the public and private sectors, before, during and after an emergency,” he says. “That’s a gap that exists in emergency management.”

Some of Schreiber’s private-sector clients are current and former Pentagon contractors. They find that, to work in the homeland defense arena, they have to change their tactics. “The contractor community has been using an outdated model for a very long time,” he says. “The Defense Department has a specific method. DHS is different. Contractors have to look at their targets differently.” One big difference is that, in homeland security, the private sector is a “stakeholder,” he says. “The private sector is a consumer base for homeland security vendors.”

Homeland defense contractors also have to work in an environment of intense congressional oversight of DHS programs that even the Pentagon does not get. “DHS has way too much congressional oversight, more than any other federal agency,” says Schreiber. “Every committee and subcommittee claims some level of jurisdiction.”

In times of leaner budgets, there will be greater pressure on DHS to spend its funds wisely, he says. “The days of every jurisdiction buying their own trucks and equipment are coming to an end." Agencies will need to consolidate their requirements, says Schreiber. “We need to pool buying power, and do more sharing of assets.”

Congressional analysts have found inefficiency in how DHS buys equipment. This year’s DHS budget of $44.7 billion includes about $1.2 billion for science and technology. Dana A. Shea, a policy and technology analyst at the Congressional Research Service, notes in a March report that the DHS’ science and technology directorate “may not always know of technologies or products available in the private sector that could meet DHS’s general needs or specific requirements.”

To identify technologies developed in the private sector, the directorate is investing in “technology foraging,” using scientific periodicals, the Internet, and other sources to seek existing products that may be readily adaptable to meet homeland security needs. 


Credit: Ground crews fight a fire in Lakewood, Colo. (Department of Homeland Security photo)
F-35 Program Manager: More Buyers Needed to Help Lower Production Costs
By Sandra I. Erwin
 


The Pentagon released new cost estimates for 78 major weapon systems that has a mix of good and bad news for the F-35 Joint Strike Fighter. While the long-term costs of the program are slightly down, production expenses have increased by $7.4 billion over the past year.

The 2013 congressionally mandated "selected acquisition report,” which the Pentagon submitted April 17, measures the performance of weapon systems from year to year, and projects future costs.

The officer who oversees the F-35, Air Force Lt. Gen. Christopher C. Bogdan, downplayed the significance of the report as a bellwether for the program. Aircraft procurement cost is up, Bogdan said, not because program expenses are out of control but because Pentagon budgets are down and the military services are buying fewer airplanes.

“It's a fact of life that when you move airplanes to the right, they are going to cost more,” Bogdan told reporters April 17. Another contributor to the price hike are higher labor rates charged by aircraft manufacturer Lockheed Martin Corp., engine maker Pratt & Whitney, and subcontractors BAE Systems and Northrop Grumman.

Bogdan predicted that an expected surge in orders from foreign buyers will help bring production costs back down. He said he also is putting continuing pressure on the contractors to squeeze cost out of the program.

The only bright spot in the SAR report is that F-35 operations and support costs — the cost of operating the entire fleet of 2,443 U.S. aircraft through 2065 — dropped $96.8 billion, or nearly 9 percent, from $1.1 trillion to $1 trillion. But acquisition costs from 2012 to 2013 increased $7.4 billion, or about 2 percent, from $391.2 billion to $398.6 billion. Aircraft production costs increased $3.1 billion (1 percent) from $326.9 billion to $330 billion. The F-35 engine costs climbed $4.3 billion (6.7 percent) from $64.3 billion to $68.6 billion.

The F-35 program includes 1,763 F-35A models for the Air Force, 340 F-35Bs for the Marine Corps and 340 F-35Cs for the Navy. Several hundred are being bought by foreign allies.

Bogdan said the SAR estimates do not tell the complete story of F-35 cost trends. “This is a very complicated program. It is where it is,” he said. He said the SAR does not show the true price of the airplane. “It is a projection out to 2065.” The per-unit price of the airplane last year was $112 million whereas the SAR said it was $123 million, Bogdan said. Higher procurement costs in the 2013 SAR is only a blip, he added. “I can explain it and understand it,” he said. The F-35 is “not a program out of control in terms of not knowing how and where costs are moving.” What the SAR says is that “this year, the rate at which I have to pay [contractors] in the future has gone up. Anytime anyone moves airplanes to the right, the price goes up.”

The surest way to lower cost, he said, is to bring in more foreign buyers into the program. The SAR estimates, he noted, do not include a possible order of 40 F-35s by South Korea, or anticipated future purchases by Singapore and Israel.

“We are pretty sure that Israel is not going to stop at 19,” Bogdan said. Another potential customer is Japan, which has a fleet of about 200 F-15s, half of which have been modernized. “At some point they will have to make a choice,” he said. “I can't influence that decision, other than keep driving the price of the airplane down. Then these FMS [foreign military sales] customers will make choices.”

Today, about 30 percent of F-35 components are made outside the United States, which exposes U.S. aircraft buys to fluctuations in foreign currency rates.

Bogdan insisted that the impact of budget cuts by the United States and other F-35 buying nations on aircraft cost projections should not be underestimated. In the Pentagon’s fiscal year 2015 budget proposal, the Navy delayed purchases of 33 aircraft and the Air Force postponed four. Turkey and Canada slipped their buys by one year, and the Netherlands slashed its order from 80 to 37. The cumulative effect of these changes, said Bogdan, is a cost increase of 2 to 4 percent to the price of each airplane. If sequester-level budgets are enforced by the Congress between 2016 and 2019, 17 fewer U.S. aircraft would be produced.

According to the SAR report, the average unit cost of F-35 aircraft is $131 million in 2012 dollars, and $162 million in “then-year” dollars, which projects what the aircraft will cost by the time the program is completed.

“This is always a tricky business,” Bogdan said of SAR estimates. Regardless, he said, “We have got to get the price of this airplane down, we have got to get the cost of sustaining the airplane down,” said Bogdan. “If it is not affordable, people will not buy it.”

He said he was encouraged that O&S costs are “trending in the right direction,” but disappointed that procurement costs are up. “It's not a surprise, and it's not a degradation of actual performance.”

The program still faces major hurdles, he said. “We are only 55 percent into flight testing.” During the next two to three years, the Air Force and Marine Corps variants are expected to be in full operation. The program overall has logged 15,000 flight hours so far.

High-rate production is scheduled to start in 2018, when 154 airplanes (90 for the United States) would be built. By 2019, production would rise to 168, of which 96 would be for the United States.

Bogdan set a goal of lowering the per-airplane price of F-35 to between $80 million to $85 million by 2019. That price would include the engine and contractor fees. Key to hitting that target is to ramp up production, he insisted. “For every dollar that we save in the production cost of this airplane, 80 percent can be attributed to economies of scale.” The other 20 percent comes from building airplanes and engines more efficiently. A case in point is the canopy that currently is manufactured with manual labor. “That produces scrap and rework and costs more than if you automated the manufacturing,” said Bogdan. The Defense Department and Lockheed are jointly funding a new system to automate the canopy assembly. “We have many projects on the books that are being implemented or about to be implemented,” he said.

Bogdan is asking Lockheed and Pratt to negotiate lower prices with their subcontractors. Both firms in the past have been reluctant to commit to long-term deals with suppliers, fearing that the F-35 was on fiscally shaky ground, he said. That “business risk” is not there anymore, said Bogdan, and he expects primes to “go to their supply base and make multiyear buys.” The Defense Department cannot by law sign a multiyear contract with Lockheed or Pratt, “but there's nothing to stop primes from going to their supply chain.”

The Pentagon has proved that it is committed to the program, he said. “We went through two years of sequestration and this program basically came out unscathed.”
Bogdan had harsh words for Pratt & Whitney and blamed the company for rising engine prices. The F-35 program office and the engine maker are still in negotiations for the next low-rate production lot. According to Bodgan, the company has not met cost targets that it had promised. “What they told me is, ‘when you buy more engines, the price comes down.’” That may be partly true, said Bogdan, although he suspects that the reason why engine prices are up is that Pratt has reduced engine production but not overhead costs. “I don't like that,” he said. “We'll be working with Pratt to continue the war on cost.”

Bogdan said he is frustrated by not having enough leverage with Pratt because the company is the sole manufacturer of the F-35 engine. A second engine manufacturer, General Electric, was eliminated from the program three years ago to cut costs. “There is only one engine, the F-135,” said Bodgan. “Whatever acquisition program you're in, when you are in a sole-source environment, it is difficult to find the right levers and motivation to drive cost out of a program,” he said. “One of the most effective ways to do that is through competition,” he said. “In my experience, contractors are slow to shed costs when their business base changes. … [Pratt] ought to rationalize their business base with their overhead.”

Photo Credit: Lockheed Martin
Plan to Deploy More U.S. Troops in Africa Faces Logistical Hurdles

By Sandra I. Erwin


Pentagon officials are finding that greater U.S. military involvement in Africa will be harder than they had imagined.

Despite an impressive logistics machine that regularly deploys and supplies troops around the globe, the U.S. military will have difficulties in Africa because it lacks the support infrastructure that the United States has in other parts of the world, senior officials said. 

The size of Africa, itself — twice as wide as the United States from East to West — creates a significant transportation problem, said Marine Corps Lt. Gen. Robert R. Ruark, director of logistics on the Joint Chiefs of Staff. 

U.S. forces currently are deployed in Niger, Mali, South Sudan, Somalia, the Central African Republic and Djibouti. The Republic of Djibouti is in the Horn of Africa, on the North East tip of the continent. The U.S. base there serves as the main hub for military operations because it is the only location on the continent that can provide the required services. This limits commanders' response time if they have to move troops to other regions of Africa, Ruark said. "We seem to be operating mainly from one enduring location."

Africa's size and geography "affect our response options and times," he said April 15 at the National Defense Industrial Association's logistics forum in Washington, D.C.

The Joint Chiefs are studying this problem, Ruark said. Officials believe that more work is needed to create a reliable network of suppliers and transportation providers that can support small teams of U.S. forces that may have to deploy on short notice.  

"The challenge is to develop a sustainment concept that supports distributed operations," said Ruark. Distributed operations is a term the Pentagon uses to describe the deployment of small military units. The U.S. government does not intend to send large-size forces to Africa but believes it needs a limited presence to help train local allies to fight extremist groups whose influence there is growing.

Among the obstacles for U.S. forces in Africa are limited access to sources of supplies and a distribution network that is not reliable, Ruark said. Unlike full-size Army brigades, smaller units must travel light and rely on outside means of support. "Distributed operations increase our self-sustaining requirements," said Ruark. 

Another weakness is poor communications systems, he said. "We need a robust and agile global distribution network with multiple nodes that are secure and resilient," he said. Decades of basing forces in Europe and the Middle East helped build a support infrastructure for the U.S. military that it lacks in Africa. The goal is to forge alliances with local governments there that can be trusted to provide the needed support, Ruark said. “We'll need healthy, multinational partnering agreements in the operating area.”

For operations in Africa, the military also will need more U.S. and local support contractors, said Ruark. As a former director of logistics at U.S. Central Command, Ruark was impressed by contractors’ abilities to deliver “door-to-door services” during the wars in Iraq and Afghanistan, he said. “Contractors picked up cargo in Fort Bragg [North Carolina] and took it all the way to FOBs [forward operating bases] in Afghanistan,” Ruark said. “I don't think that's ever been done before. I think that is fascinating. … It was the only politically acceptable solution. It keeps troops off the road,” he said. “We probably need to invest more in operational contractor support.”

The military’s expanded role in Africa is part of the Obama administration’s four-part strategy to strengthen democratic institutions, develop trade and investment, boost security and promote development. 

“DoD plays principally in peace and security, but will have a role to play in the other pillars as well,” said Deputy Assistant Secretary of Defense for African Affairs Amanda J. Dory.

“In times of fiscal austerity, some could ask how investing in African peace and security halfway across the globe is in our national interest,” Dory said recently at a Pentagon news conference. The answer is that terrorists, criminal organizations, militias and pirates “exploit ungoverned and under-governed territory on the continent and in its surrounding waters,” she said. “The potential for rapidly developing threats, particularly in fragile states, including violent public protests and terrorist attacks, could pose acute challenges to U.S. interests.”

The commander of Germany-based U.S. Africa Command, Army Gen. David M. Rodriguez, said between 5,000 and 6,000 troops are now under his purview. “It fluctuates based on exercises and training and the time of year,” he said. Rodriguez noted that Djibouti is currently a “huge strategic location, but not centrally located to all the challenging areas.”

The military is considering building a more permanent presence in West Africa. “What we're really looking at doing is putting contingency locating sites, which have some just expeditionary infrastructure that can be expanded with tents to put people in there temporarily to help support response to crises, and protect U.S. personnel,” Rodriguez said.

The picture in Africa is “not all bright,” he said. “In some regions, weak governance, corruption, uneven development, disease, food insecurity, crime, and violent extremism have contributed to instability and conflict.” Al-Qaida and its affiliates, he said, “have taken advantage of regional instability to continue to expand their activities.” 

U.S. Africa Command has been promoting “military-to-military relationships in a region where the United States has little forward presence,” he said. In Somalia, six African countries participate in the African Union mission that is fighting with the Somali national army against the Islamic group Al-Shabaab. 

African Union and European Union forces are training Somali national army forces, leading multinational counter-piracy operations and supporting other peacekeeping efforts, said Rodriguez. U.S. forces are helping provide maritime security in the Gulf of Guinea and involved in the fight against the Lord's Resistance Army in Central Africa. “The size of the continent alone poses challenges in this regard,” he said. “And just to remind you, the distance between Tunis, Tunisia, and the tip of South Africa is the same distance from Washington, D.C., to Honolulu.”

At the Pentagon, another ongoing discussion is whether the military will have sufficient logistics support forces to send to Africa. In the Army, 85 percent of logistics units are in the Reserve and National Guard. Ruark said the Joint Chiefs worry that the military services will not be able to keep enough reservists trained and ready to deploy on short notice. 

“If we're going to rely on reserve components to respond, they are going to have to have the capacity and the readiness,” said Ruark. “I have no problem with reserve components. They have served us very well. But to be responsive they have to be ready fast,” he said. “We have to address that readiness equation.”

Lt. Gen. Raymond Mason, Army deputy chief of staff for logistics, said there is a heated debate underway in the Army about the future readiness of reserve forces. The Army’s heavy dependence on the Reserve and the Guard could slow down the response to a crisis, he said. Reservists are responsible for essential jobs such as driving fuel trucks. 

“The challenge is they only get 39 days of training a year,” whereas the active-duty Army trains 300 days, he said. “They're just not going to be at the same level.”

The Army is working with regional commands, including AFRICOM, to arrange short deployments of reserve units so they can be better prepared in case of a crisis, he said. “Even if it's just for 14 days, we can gain from the readiness we invested in."


Photo: U.S. soldiers train Djibouti forces during an exercise at Camp Ali Ouney, Djibouti, Africa (Defense Dept. photo)

Kendall: Pentagon Learning to Live With Budget Uncertainty
By Sandra I. Erwin



Since the Defense Department’s budget proposal was unveiled March 4, Pentagon officials have harbored hope that, by now, they would have received a “signal” from Congress that it was willing to compromise and meet the administration halfway. But hope is fading fast, said Frank Kendall, undersecretary of defense for acquisition, technology and logistics.

A year ago, the gap between the funding the Pentagon wanted and the amount authorized by Congress was more than $50 billion. In budget year 2016, the Obama administration wants to shrink that gap to $25 billion. But even that is beginning to look like a bridge too far. “I don't see any political prospect of that any time soon,” Kendall said April 15 at the National Defense Industrial Association’s logistics forum in Washington, D.C.

“Whatever happens in the election coming up, I think we'll still be in the same position … probably for an indefinite period of time,” said Kendall.

The ups-and-downs of the past three budget years wreaked havoc on defense programs, said Kendall. “This is probably the worst budget environment I've seen.” Facing a political climate that is increasingly unfavorable, the Pentagon is bracing for an extended period of topsy-turvy budgets. “Uncertainty is something we are just going to have to manage our way through,” Kendall said. “We are trying to figure out how to manage.”

“At one point there was a $50 billion difference between the number we made detailed plans for, and the budget we might actually get. Our recent budget submission is less severe,” said Kendall. Last year’s Bipartisan Budget Agreement gave the Defense Department some stability for fiscal years 2014 and 2015 and softened the blow of the 2011 Budget Control Act. The bipartisan agreement, though, did not spare the Pentagon from deep automatic cuts from 2016 through 2021.

The fiscal year 2015 defense budget top line is $495.6 billion. The five-year plan for 2016 through 2019 included in the 2015 budget request exceeds the budget caps for those years by about $115 billion. For that additional funding to be appropriated in 2016 and beyond, Congress would have to ditch the BCA spending caps.

When those spending limits were enforced a year ago, the Defense Department was caught unprepared. It was hoping that sequestration would go away “if we just hang on one more year, until we get a signal from the Congress,” Kendall said. “But the problem is that sequestration is a 10-year law. It doesn't go away unless Congress does something to take it away.”

Although the specifics of the administration’s 2016 budget proposal will not be known until early 2015, Kendall said President Obama is unlikely to submit defense budgets to Congress that comply with BCA spending levels. “This is not definitive, and I don’t want to get ahead of the president, but I will tell you that it is extremely unlikely that we will ask for less money than the president thinks he needs to defend the country,” Kendall said. “We are not going to send budgets over, I believe, at sequestration levels. We are going to send budgets for the amount of money this administration thinks it really needs for defense. That is what we did this year and I suspect it's what we'll do in the future.”

A sequester-level 2016 budget, he said, would be “pretty unpleasant.” BCA-compliant budgets were examined under Defense Secretary Chuck Hagel’s “strategic choices management review” last year, and the conclusion was that the Pentagon could not absorb a $50 billion cut every year without gutting the military and turning it into a “hollow force,” said Kendall. “I lived through a hollow force in the 1970s as an Army captain in Europe,” he said. “We don't want to go back to that.”

Washington remains as divided over defense budgets as it was when disagreements over taxes and spending led to the Budget Control Act and the sequester as a mechanism to control spending. A recent budget proposal by House Budget Committee Chairman Rep. Paul Ryan, R-Wisc., seeks to restore $274 billion to defense over the next 10 years. But the plan stands no chance politically, and has been widely criticized for boosting the military budget at the expense of domestic social programs and other non-defense discretionary accounts such as homeland security and diplomacy.

Photo Credit: Army

Military Budgets Fall in the West, Rise in China, Russia, Middle East
By Sandra I. Erwin



The United States still is by far the world’s largest military spender, with a budget of $640 billion in 2013. But U.S. defense spending is down from a a year ago, while the next three largest military powers — China, Russia and Saudi Arabia — have made substantial increases, according to new data by the Stockholm International Peace Research Institute.

SIPRI estimates China’s military budget at $188 billion, Russia’s at $87.9 billion and Saudi Arabia’s at $67 billion. Saudi Arabia leapfrogs the United Kingdom, Japan and France to become the world’s fourth largest military spender, said SIPRI. China, Russia and Saudi Arabia are among the 23 countries around the world that have more than doubled military budgets since 2004.

China’s spending increased by 7.4 percent in real terms since a year ago, said Sam Perlo-Freeman, director of SIPRI’s military expenditure program. “While China has been behaving more assertively in recent years in territorial disputes with Japan in the East China Sea, and with the Philippines and Vietnam in the South China Sea, these heightened tensions do not seem to have changed the trend in Chinese military spending, which represents a long-term policy of rising military spending in line with economic growth,” he said.

Russia upped defense spending by 4.8 percent. Its share of defense as a percentage of gross domestic product (4.1 percent) exceeded that of the United States (3.8 percent) for the first time since 2003, SIPRI noted. Russia’s spending is fueled by its so-called “state armaments plan” that calls for investment of 20.7 trillion rubles ($705 billion) on new and upgraded armaments, the report said. The goal is to replace 70 percent of equipment with modern weapons by 2020.

For U.S. defense contractors that are eyeing new markets, there are good and bad news in SIPRI’s military-spending rankings. Rising powers’ China and Russia defense defense markets are not accessible to U.S. suppliers, although their expansionist policies are fueling regional military spending by countries that are U.S. allies.

Saudi Arabia has become a key customer for U.S. arms suppliers. Its projected expenditures on Boeing-made F-15 SA fighters could total $10.6 billion through 2019, according to the consulting firm Avascent. “It is the largest ongoing procurement initiative and also the largest foreign military sales transfer to Saudi Arabia,” said Avascent analyst Sebastian Sobolev. Sales of munitions for the F-15 SA could mean an additional $6.8 billion in sales. The Saudi Air Force is also expected to begin taking deliveries of the Lockheed Martin-made C-130J and KC-130 cargo aircraft, a $6.7 billion deal announced in 2012. “Though much of the recent investment has focused on airborne and ground platforms, Saudi Arabia seems set to shift focus to naval modernization,” Sobolev said. “Though requirements remain ill-defined, this program could include the procurement of large surface combatants and submarines.”

Saudi Arabia and Iraq dominate arms spending in the Middle East, which increased by 4 percent in 2013, to about $150 billion, SIPRI estimated. Saudi Arabia’s spending alone soared by 14 percent, to reach $67 billion, said Perlo-Freeman, “possibly due to tensions with Iran but also the desire to maintain strong and loyal security forces to insure against potential Arab Spring type protests.”

SIPRI analysts said 2013 saw falling defense budgets in Western countries, led by the United States, while military spending in the rest of the world, excluding the United States, increased by 1.8 percent. Global military expenditures reached $1.75 trillion in 2013, a drop of 1.9 percent in real terms since 2012.

A 7.8 percent slide in U.S. spending in 2013 is the result of the end of the war in Iraq, the beginning of the drawdown from Afghanistan, and the effects of automatic budget cuts passed by the U.S. Congress in 2011, Perlo-Freeman noted. “Meanwhile, austerity policies continued to determine trends in Western and Central Europe and in other Western countries.”

Chart credit: SIPRI

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

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