DEFENSE DEPARTMENT

As Pressure Grows to Cut Spending, the True Cost of Weapons Is Anyone’s Guess

9/1/2011
By Sandra I. Erwin
A decade of soaring Pentagon spending is coming to an end, and it is leaving behind considerable fiscal wreckage: A mountain of debt for future generations, and a massive national security apparatus that, in the words of the military’s top officer, Adm. Michael Mullen, has lost its “ability to prioritize, to make hard choices.”

A stark illustration is the weapons-buying business. Years of easy money have caused buyers to lose grasp of how much things cost.

The Pentagon is now headed for a spending downturn, and the trends point to a future where the military’s next-generation weapon systems will vanish into the dreaded “death spiral.” That is Pentagon lingo for a phenomenon that has plagued weapon programs for the past three decades: Costs climb, programs are delayed, and eventually are terminated because, surprise, they cost too much.

The Pentagon leadership is now scrambling to find ways to stop the bleeding. Defense officials and contractors are worried that the procurement budget will be squeezed — not just by outside pressures to cut defense — but also internally by soaring personnel and healthcare costs.

As chief Pentagon procurement officer, Deputy Defense Secretary nominee Ashton Carter has been at the forefront of a year-long effort — known as “better buying power” — that seeks to reverse the trends of the past by providing incentives to the Pentagon procurement bureaucracy and contractors to cut costs.  

As part of the Pentagon’s war on waste, Carter appointed a “director of defense pricing.” In a memo to his staff, he stressed that in every major acquisition, cost must be a target under
constant attack. It is no longer enough to conduct “independent cost estimates.” Now every program is required to tally up “should-cost estimates” which ideally ought to be lower than the independent estimates. 

Although this all sounds straightforward, it is far from that. Even four-star flag officers who watch over programs have no clue what “should cost” means. Is there a mathematical formula to calculate it? Or is a “should cost” estimate the product of someone’s sixth sense?

“I wish I knew,” said recently retired Vice Chief of the Joint Chiefs of Staff Gen. James Cartwright, who oversaw the entire Defense Department’s weapons portfolio.

“I’d like there to be science in it,” he said. “There’s a reasonable understanding that if you’re going to build the next-generation airplane, you should have some idea of how much it’s going to cost,” said Cartwright. But inevitably almost every program’s price tag balloons out of control, and the only choices are either to keep pouring money into it, or to cancel the program. Cartwright, more than 20 years ago, was involved in writing the initial requirements for the F-35 Joint Strike Fighter. “It was going to be the ‘cheap fighter,’” he quipped.

Shay Assad, a long-time Pentagon procurement official who recently was appointed director of defense pricing, said, “Affordability is the number-one priority.” But he acknowledged that the procurement system has yet to adapt to the “should cost” way of thinking.

Because the military services by law control their own budgets, the defense secretary’s office has limited sway over spending priorities.
 
The Army, for instance, wants to buy a new combat vehicle and has estimated it should cost no more than $10 million apiece. Is that affordable? That is TBD, Assad said. The Army laid down that number and now “has to determine what they can afford. They have to set priorities,” Assad said. “School’s out as to whether they are going to be able to accomplish that.”

A comparable situation is the Air Force’s future bomber. Service officials floated a price estimate of $550 million per bomber, but Assad called that wishful thinking.

Cartwright predicted the new bomber will be so expensive that it will end up, like the B-2, truncated to only a handful of aircraft, instead of the more than 100 that the Air Force wants. Assad said the service used historical data to calculate the bomber’s expected price tag. “But we are a ways away from determining exactly [how much] a new bomber might cost,” he said. “You can’t wish and hope” for lower costs, he added. “You actually have to have an execution plan for the ‘should cost.’”

The Navy’s test case for “should cost” is the new ballistic missile submarine. “We are mandating affordability as a requirement,” Carter said. The Navy will need a “mechanism to put constant pressure on cost,” he told an industry conference. “That submarine is not affordable at the initial estimates.”

If costs can’t be controlled, Carter said, the services must look for alternatives. He cited several Air Force space programs that are applying the new guidance and seeing results.

Defense acquisitions deputy Frank Kendall, said that “should cost” must be “fact based, not a number you pick out of the air.” Start with independent cost estimates, “constantly attack it.”
This is not easy, considering that the culture “tends to want to spend all the money,” he said during a briefing to defense contractors. The Pentagon still has no hard rules in place to hold managers accountable if they don’t meet cost targets, Kendall acknowledged.

 “We’re realists about it,” he said.

Time is not on the Pentagon’s side here. It could take years for program managers to institutionalize cost-consciousness.

In the past, Carter said, when programs were in trouble, “We always reached for more money.”

That modus operandi, if it continues, will only lead to more program cancellations and a military saddled with aging equipment.

Topics: Defense Department, DOD Budget

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