Acquisition Failures Can Be Good Sometimes (UPDATED)

7/21/2011
By Sandra I. Erwin
 
A new study on the Pentagon’s 2012 budget request notes that after a decade of rampant growth in defense spending, the military’s inventory is shrinking and getting older. Thereport, by Todd Harrison, senior fellow at the Center for Strategic and Budgetary Assessments, concludes that the post 9/11spending explosion has barely increased the nation's war-fighting capacity.
Harrison partly attributes the modernization slump to wasteful spending on programs that were started but later canceled before any equipment was ever fielded.
He lists $46 billion worth of major defense programs that were terminated during the past decade:
 
Harrison's analysis concludes that money spent on cancelled programs is money wasted, and an indictment of the Pentagon acquisition system. (See UPDATE at the end of this blog post)
“These are weapons systems that have been started and then canceled without using any of them," Harrison said, according to a transcript of his July 18 briefing. "Not one system [was] fielded as a result of these programs. ... We can’t keep starting programs that are unrealistic and unaffordable and getting them canceled without getting anything out of it.”
In some ways, that complaint is sound. At least some of these programs suffered troubles made predictable by an acquisition process that often allowsoverly ambitious projects to break the bank. The Marine Corps’ Expeditionary Fighting Vehicle is an example.
The main problem with CSBA's analysis is the implication that the correct acquisition failure rate is zero. Reward rarely comes without risk. Successful enterprises often fail. Apple failed with theNewton. Great base stealers often get thrown out.
Militaries are particularly prone to missteps because of their uncertain environment. Their business is competitive as can be, but the competitions (wars) are rare and thus hard to predict. Platforms last longer than enemies and cutting-edge technology. This uncertainty means that programs should often be found wanting and canceled. The question is not how to build an acquisition system that never fails but the right ratio of success to failure.
CSBA's $46.4 billion estimate for programs that got canceled before procurement is a big number. But it is a modest failure rate. It’s just 6.3 percent of total RDT&E (Research, Development, Testing and Evaluation) spending in the period, 2.4 percent of total acquisition spending (RDT&E plus procurement) and 2.7 percent of the Pentagon’s ongoing major acquisitionprograms. You could add a percentage point or two in each category by including programs that got canceled after the Defense Department bought only a handful, like the Navy's DDG-1000 destroyer.
I don’t know what the perfect rate of failure is. But I see no reason why this one is unsustainable, as Harrison asserted. I actually suspect, for a couple reasons, that the numbers are too low; that the Pentagon should fail more.
First, bad programs often survive thanks to the iron triangle — service bureaucracies that want a new platform, contractors that make it, and Congressmen representing districts where they build. Cancellation shows that the political system can make choices serving the national interest at the expense of parochial ones. Parochialism usually wins.
Second, the Pentagon foolishly limits competition that would increase cancellations. The four services largely manage their own procurement, with oversight from feuding officials in two branches. This dispersal of power producesdiverse solutions to military challenges. The Pentagon also launches more acquisition programs than it can afford, encouraging low bids to hide costs that everyone knows are coming. Wealth encourages us to replace manpower with technology, increasing the need for innovation. The natural result of these forces is competition for survival among programs. Contrary to conventional wisdom, that competition is useful. It encourages program managers to outshine rivals on cost and capability.
Rather than harvest thiscreative destruction, we suppress it. The Pentagon’s culture of “jointness” quiets public fights where program managers attack rival programs. Fixedbudget shares encourage them to cover procurement shortfalls by growing the entire pie, rather than competing. Ever-increasing defense budgets delay reckoning. Embracing competition would produce more innovation and more canceled programs, which CSBA would call waste.
 
Benjamin H. Friedman is a research fellow in defense and homeland security studies at the Cato Institute.
UPDATE: The author of CSBA's FY12 budget analysis, Todd Harrison, says his report in no way implies that acquisition programs should never fail, and agrees that some program failures can produce positive outcomes. Additional analysis on this issue can be found on pages 36-37 of hiscomprehensive report on defense spending trends.

Topics: Defense Department, DOD Budget, Procurement, Acquisition Reform

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