Defense Watch

June 2005

Procurement Probes Framed By Bleak Financial Forecast

By Sandra Erwin

A string of procurement debacles at the Defense Department has stirred, yet again, calls for drastic reforms in military acquisition rules and policies.

Storms of criticism surrounding several big-ticket programs have raised the obvious question: Is something systemically wrong with the way the Defense Department does business, or are these isolated cases of mismanagement, poor planning and lack of foresight?

Each for different reasons, multibillion-dollar procurement programs now under fire—such as the Army Future Combat Systems, the Air Force’s refueling tanker and C-130J, the Navy’s DD-X destroyer and several satellite projects—have created much hullabaloo that harkens back to the Reagan-administration days of $800 toilet seats and other gold-plated procurement atrocities.

Lawmakers already have scheduled a slew of hearings, and should have the opportunity to ask tough questions. Possibly, they may even scare military acquisition officials and defense contractors into trimming expenses from weapons programs.

But as they probe specific programs, lawmakers also need to look broadly at what is happening with defense spending. With a Pentagon budget bordering on $500 billion a year, seeking more accountability makes perfect sense—particularly at a time when, despite soaring expenditures, the military services are being asked to cut back on training exercises and flying hours, and U.S. soldiers and Marines in Iraq continue to get killed and wounded due to shortages of armored vehicles.

David M. Walker, comptroller general of the United States, contends that the issues underpinning today’s defense-spending debate are much more wide-ranging and fundamental than just procurement regulations.

“The Pentagon needs to face the fact that many of its basic business processes are outdated and wasteful,” Walker says. At the Defense Department, “inefficient practices continue to squander billions of dollars that could be used to boost readiness, improve the quality of life for our troops and fund investments in new systems and technologies,” Walker wrote last year in a commentary published in National Defense.

“The Defense Department is the best in the world at fighting and winning conflicts,” he explains. But on economy, efficiency, transparency and accountability, it gets a “D.”

The Government Accountability Office estimates that the Defense Department wastes $20 billion a year “due to inefficiencies in business transformation.”

The irony here is that the so-called business transformation is exactly what Pentagon officials have advocated for years, precisely in an effort to cut costs and make programs more efficient. Business reforms in fact have been de rigueur throughout the Defense Department for many years.

It’s easy to overreact and blame the Pentagon’s business reform efforts for current procurement woes, says Stan Z. Soloway, former deputy undersecretary of defense for acquisition reform.

The reality is that no matter how tight the regulations and the oversight process become, people always will find the loopholes and regulators often misapply the rules, notes Soloway, now president of the Professional Services Council, a trade association representing government contractors.

“Business reforms were not a bad idea,” he adds. “In some cases, acquisition reform didn’t work, but it doesn’t mean that all acquisition reform is bad.” Contracting techniques introduced in the mid-1990s, such as “best value contracting,” “commercial buying” and “past performance” have made a positive difference, Soloway contends. “The problem I see today is people are jumping to conclusions, rather than analyzing problems case by case.”

Walker agrees that the Defense Department has gained some level of efficiency in its contracting practices, but it hasn’t gone far enough.

In a speech last month to senior defense industry executives, Walker warned that a potentially crushing collapse of the U.S. economy—projected to happen about three decades from now—should provide enough motivation for the Defense Department and other agencies to take more aggressive action to rein in costs.

Computer models run by GAO paint a grim scenario stemming from a combustible mix of ballooning health-care benefits, unfunded government debt obligations and declining tax revenues. “In one scenario, the model blows up in 2044,” Walker says.

“Our financial condition is worse than advertised,” he adds. Future shortfalls in the much-maligned Social Security trust fund, by the way, “only account for 10 percent of the problem.”

One way to help the Defense Department get on the right track, Walker suggests, would be to appoint a Pentagon “business transformation” czar, who would have some degree of independence from the political leadership.

As comptroller general of the United States, Walker gets a 15-year term and is expected to maintain independence from the administration in power. Similarly, a Pentagon official in charge of business reform could receive a seven-year appointment, for example. “It would be a professional, not a politico,” Walker says.

But the sort of wholesale examination of defense business practices that Walker proposes is difficult for most political leaders to get behind, because it does not produce near-term payoffs or help win votes in the next election.

Several lawmakers, however, have expressed support for Walker’s proposal to appoint a Pentagon business-reform czar. Although the idea of adding yet another layer of bureaucracy at the Pentagon has not been well received in the building, sources said. According to one policy wag, “it would be like adding more lipstick on the same pig.”

Issues such as controlling defense spending, much like Social Security reform, generally do not motivate politicians to make hard decisions unless they hear it from their constituents, Walker says. “The message has to come from outside the Beltway into the Beltway. The reality is that elected officials, no matter what party, are not going to get too far ahead of the American people.”

Defense reforms and more stringent procurement oversight, no matter how far reaching, alone cannot halt the financial train wreck Walker warns about. But the scary picture of the nation’s financial health should be in the back of lawmakers’ minds as Congress continues to probe procurement irregularities.

Back To Top