4/29/09

Over the last eight years the defense acquisition process has deteriorated dramatically. 95 percent of the Pentagon’s major weapons programs are running two years behind schedule and $300 billion over budget. Proper management practices evaporated, more and more functions were outsourced to unaccountable contractors, and few sanctions were enforced on programs that spiraled out of control. The deterioration in the acquisition process combined with a lack of a coherent strategic focus has meant that despite massive increases in defense spending – the base defense budget increased by more than 60 percent during the Bush administration – there has been no significant recapitalization of military hardware and now almost every military service faces growing challenges.

As Senator Levin has noted, “when the federal budget is under immense strain as a result of the economic crisis, we simply cannot afford this kind of continued waste and inefficiency.” While DoD has a long history of problems in the acquisition field that pre-date the Bush administration, the last few years have demonstrated that the acquisition process: is not structured to support the war-fighter; fails to incorporate the best practices from industry; and lacks proper oversight and management as a result of the small size of the Pentagon’s acquisition staff. This led Secretary Gates at the release of the budget in early April to declare that “we must reform how and what we buy; meaning a fundamental overhaul of our approach to procurement, acquisition and contracting.” Gates has advocated expanding the Pentagon’s acquisition work force, which is essential to review and manage programs, and has supported the Levin-McCain bill that would help make weapons programs more accountable. As Secretary Gates testified today about supplemental funding for the wars, it is also vital that the Obama administration and the Congress work together to address this issue both in order to prevent the continued waste of taxpayer dollars and to ensure the continued strength of our military.

Despite soaring defense budgets during the Bush administration, much has been wasted due to poor management, planning, and strategic thinking – leaving each service in rough shape. Winslow Wheeler writes in Politico, “The defense budget is now larger than at any point since 1946, but the Army has fewer combat divisions than at any point in that period, our Navy has fewer war-fighting ships and the Air Force has fewer fighter and attack aircraft. The Pentagon refuses to tell Congress and the public how it actually spends the hundreds of billions of dollars appropriated to it each year, for the simple reason that it doesn’t know. In a strict financial accountability sense, it doesn’t even know if the money is spent, but trust me, it’s gone.” A recent report from the Center for American Progress concludes, “Soaring defense budgets have paradoxically failed to create a larger, more ready force. In fact, today’s force is smaller, older, and significantly more engaged than at any time since the Vietnam War. This situation has materialized despite the fact that, over the past eight years, the services have received $770 billion in their base budgets above and beyond what they planned on receiving in 2000. As many defense analysts have noted, large increases in the service’s base-budget spending have made the Pentagon’s problems worse. A budget devoid of spending limits and priorities has created an environment where the services have not had to make trade offs or difficult decisions when it comes to operations and support, and acquisitions programs... Controlling the runaway cost growth that has occurred in weapons research and development and acquisition process over the past eight years will be critical to keeping the future defense budget relatively flat... A report by the Pentagon’s own business board put the growth at $401 billion...The Department of Defense has been so poorly managed in the past eight years by its political appointees that if it were a private company, it would have had to file for bankruptcy.” [Politico, 3/16/09. CAP, 12/10/08]

There have always been problems with defense acquisition and procurement, but problems became dramatically worse under the Bush Administration. 95% of DoD’s biggest programs are 2 years behind schedule and billions over budget. Senator Levin noted that “Ninety-five of DOD’s largest acquisition programs are, on average, two years behind schedule and have exceeded their original budgets by a combined total of almost $300 billion.”  Between FY’03 and FY’07, the total growth of acquisition costs totaled over $300 billion dollars, according to the GAO. “The number of defense contracting fraud and corruption cases sent by government investigators to prosecutors dropped precipitously under the Bush administration, even as contracting by the Defense Department almost doubled” reports the Center for Public Integrity. [Aviation Weekly, 2/25/09. GAO, 3/3/09. GAO, 4/3/06]

Project cost overruns are rarely punished as required by law. The Nunn-McCurdy Amendment to the 1982 Defense Authorization Act mandated that if a program’s cost were to increase by more than 15% Congress would be notified, and if costs grew by more than 25% over the original estimate the project would be terminated unless the Secretary of Defense submitted a detailed explanation for that cost increase. To date, though many major defense acquisition projects suffer from a Nunn-McCurdy breach, they are rarely terminated or modified.  As the DOD Buzz, Military.com’s acquisition journal, detailed, “Nunn-McCurdy used to be two words to strike fear in the hearts of a program manager or the head of Pentagon acquisition and give heartburn to taxpayers and to Congress. But program after program — the presidential helo, Future Combat System, SBIRS (twice), the C-5 modernization program, EFV, JASSM and almost every major space program — has busted the Nunn-McCurdy cost and schedule restraints.” Senator McCain brought up the issues of cost overruns to the Senate Armed Services Committee, saying “the issue of Nunn-McCurdy—when it was first passed, we thought it was really important and effective. And for a while, it was. I think a breach of Nunn-McCurdy was a big deal. Now it seems to be a routine kind of event that it—the notification comes over, we see it, and, you know, ho-hum.” [Department of Defense, May 2002. Aviation Weekly, 2/25/09. Senator John McCain, 03/03/09]

The acquisition process does not emphasize the needs of troops in the battlefield. The Washington Post reports: “After reading a newspaper article's report that a particular armored vehicle had dramatically cut fatality rates in Iraq, Defense Secretary Robert M. Gates and other senior defense officials traveled 80 miles northeast to Aberdeen Proving Ground in spring 2007 to see for themselves how the V-shaped hull of the costly Mine Resistant Ambush Protected vehicle deflected the worst blast effects of buried explosives. Within weeks, and after some pointed demands for the MRAPs from Capitol Hill, Gates decided to make accelerated production of the vehicles his top priority, using a special task force that circumvented the department's normal purchasing methods – and the initial opposition of the Army and the Marine Corps. The results were not perfect – an inspector general's report said later that in its rush, the department overspent by tens of millions of dollars – but they were effective: Thousands of additional MRAPs flooded into Iraq and fatality rates dropped precipitously.” The Washington Post continued: “Gates concluded that ‘the building was not being responsive to the requests for these vehicles,’ his spokesman, Geoff Morrell, said…Gates has signaled his frustrations with the broken and ‘rigid’ purchasing system for months, and in a January article in Foreign Affairs magazine, he noted that the pursuit of perfect solutions combined with a lack of flexibility and innovation had made it ‘necessary to bypass existing institutions and procedures to get the capabilities needed to protect U.S. troops and fight ongoing wars.’” [Washington Post, 4/07/09. Secretary Gates, 4/06/09]

The Department of Defense’s acquisition staff is overworked, under-resourced, and undermanned. During a recent Senate Armed Services Committee hearing, Dr. Gansler, Chairman of the Defense and Science Board Task Force on Industrial Structure for Transformation, told the Committee, “I was shocked at how much it has been allowed to deteriorate, in terms of the acquisition workforce... we’ve ended up, now, as—dramatically—where we had about 500,000 people in 1990, we now have about 200,000 people. But, the dollars have gone up dramatically, so you have this huge gap between the dollars and the people.” He continued, “I was shocked to find that, in Iraq and Afghanistan, only 35 percent of the people that were in their jobs were qualified for those jobs, even with the minimal qualifications... And, besides that, most of the positions weren’t even filled, and they were almost all volunteer civilians, you know, that—in the war zone. We need to be able to get some senior military there, as well.” [SASC, 3/03/09]

The Department of Defense does not incorporate best practices from industry to evaluate acquisition projects. The GAO discovered that in the many acquisition projects that suffered from cost overruns, DOD would use rationales below industry standards for continuing with an acquisition project. “Most of the 52 programs GAO reviewed have proceeded with lower levels of knowledge than suggested by best practices... In commenting on a draft of this report, DOD stated that it is the department's policy that technologies should be demonstrated in at least a relevant environment before a program enters system development; whereas, GAO utilizes the best practice standard that calls for technologies to be assessed one step higher—demonstration in an operational environment.” Additionally, the use of cost-plus contracts has reduced incentives for the defense industry to deliver systems on time and on budget. “Cost-plus, or cost-reimbursement, contracts pay a contractor for all of its allowed expenses, typically up to a set limit. The ‘plus’ refers to an additional payment that allows a contractor to make a profit…Concerns about cost overruns could lead to a preference for more predictable fixed price contracts. Some argue that cost-plus contracts, particularly those with fixed fees, may provide insufficient incentives to reduce costs.” As Dr. Gansler explained to the Senate Armed Services Committee: “I think it’s very clear, when you have a stabilized and lower-risk program, that a fixed-price makes a lot of sense, it does give an incentive for the contractors. On the other hand, the cost-plus [contracts], I would say, we haven’t been using the incentives that [are] available with the cost-plus-type contracts as well as we should, and I think they’re—clearly, for research-and-development-type activities, cost-plus is an appropriate way to do it, but the ‘plus’ part is an incentive rather than a fixed fee, I think. And I would use the incentive more.” [GAO, 4/3/06.. CSIS, 10/18/08. SASC, 3/03/09]

Conservatives argue that privatizing government functions will guarantee improved service delivery at lowered costs, but acquisition cost growth has gone hand in hand with the expansion in the use of contractors. The Washington Times writes: “Mr. Obama's second step? A promise to stop all outsourcing services for the military... Mr. Obama might believe in government, but this sounds like a cost-increasing/quality-decreasing decision to us.” But instead of reducing costs, recent years’ cost growth in acquisitions has corresponded with an expansion in the use of contractors.  “[Between FY ’01 to FY ‘07]... the number of contracting actions valued at over $100,000 increased by 62 percent and dollars obligated on contracts increased by 116 percent, according to DOD. Moreover, DOD has reported that the number of major defense acquisition programs has increased from70 to 95. To augment its declining in-house acquisition workforce, DOD has relied more heavily on contractor personnel.” But GAO found “of the 31 program offices that reported information about the reasons for using contractor personnel, only 1 indicated that reduced cost was a key factor in the decision to use contractor personnel rather than civilian personnel.” [Washington Times, 3/05/09. GAO, 3/25/09]

Conservatives defend cost overruns, saying they pay for the development of new technology, but this confuses the difference between technology development and production development, obfuscating instead of clarifying acquisition reform. The Washington Times writes: “The president wants to invest in only technologies that ‘are proven’ so as to ‘end the extra costs and long delays.’ That is a nice sentiment, but in the real world cutting edge military technologies are difficult to work with. What might work well in a prototype can show unexpected surprises when you actually put something into production. Waiting until a project is ‘proven’ might mean real delays in getting our troops the tools that they need.”. But most acquisition reforms relate to production development, not technology development. Dr. Sullivan, Director of Acquisition and Sourcing Management at the Government Accountability Office, told the Senate Armed Services Committee: “the difference between technology development and product development probably needs to be better understood. Technology is the kind of thing you should think of when you think of scientists and lab coats and, you know, trial and error, and it’s done in an environment where you can kind of—a smaller-dollar environment, where you can test, and use trial and error, and make mistakes...You have to keep that off of these acquisition programs… that when you have a technology that’s not mature and it’s on an acquisition program that’s driving towards production, you have an entire workforce—an entire supply chain, for that matter—that’s waiting for that technology to mature.” Added Dr. Kaminski: “I’d emphasize that point. While everybody’s waiting, we’re paying. And so, what you want to do is decouple those two.” [Washington Times, 3/05/09. SASC, 3/03/09]

Levin-McCain bill [S. 454] is important legislation that begins to reform the acquisition process. “Carl Levin, the Michigan Democrat who heads the Senate Armed Services Committee, and senior Republican panel member John McCain of Arizona introduced legislation that would make it easier to kill weapons programs that spawn runaway development costs, while taking steps to improve competition in the heavily consolidated industry,” reports the Wall Street Journal. The Washington Independent adds: “First, the bill creates a new senior Pentagon official, known as the Director of Independent Cost Assessment, whose job it is to insert him or herself into critical steps of the development of major defense acquisition programs, assure accounting integrity in public reports, and produce independent cost estimates of big-ticket programs. The job appears to be pretty powerful: it’s a Senate-confirmable position.” The proposed bill will also create consequences when a project’s cost dramatically increases over the original estimate. “The new bill would assume cancellation of any program to exceed the Nunn-McCurdy restrictions ‘unless the secretary determines that the continuation of such program is essential to the national security.’ This is the big change; existing legislating does not assume cancellation.” Secretary Gates, in his announcement outlining the defense budget in FY ’10, said, “I welcome the legislative initiative of Senators Levin and McCain to help address some of these issues, and look forward to working with the Congress in this regard.’” The bill has been passed through committee and is awaiting a vote in the Senate. There is also a companion bill [H.R. 1830] introduced to the Armed Services Committee on the House side awaiting a committee vote.  [Wall Street Journal, 2/25/09. Washington Independent, 2/24/09. DoD Buzz, 2/24/09. Secretary Gates, 4/06/09]

Congress should support Secretary Gates’ efforts to match resources to needs for acquisition personnel. During his speech detailing the defense budget for FY ’10, Secretary Gates made several mentions of dramatically increasing the defense acquisition workforce. “The budget will support these goals by increase the size of the defense acquisition workforce, converting 11,000 contractors to full-time government employees and hiring 9,000 more government acquisition personnel by 2015, beginning with 4,000 in 2000—in FY ’10.” This effort would help improve oversight and management and lead to cost savings, as CSIS noted, “Perhaps the most critical step is to restore the capability of the U.S. government acquisition workforce, both before award and in managing contracts.” [Secretary Gates, 4/06/09. CSIS, 10/18/08]

DoD should incorporate industry “best practices” – benchmarks by which to advance or terminate major defense acquisition projects. In 2006, the GAO wrote, “Leading commercial firms expect that their program managers will deliver high quality products on time and within budget. Doing otherwise could result in the customer walking away. Thus, those firms have created an environment and adopted practices that put their program managers in a good position to succeed in meeting these expectations. Collectively, these practices comprise a process that is anchored in knowledge… Knowledge gaps have a cumulative effect. For example, design stability cannot be attained if key technologies are not mature. The majority of programs in our assessment that have held a design review did so without first maturing critical technologies.” DoD must implement stronger guidelines for ensuring that acquisition processes use industry best practices to avoid advancing investment in programs without a sound, technological foundation. Some DOD acquisition policy changes were enacted in December 2008 under Secretary Gates. The GAO says that the Department of Defense recognized “the need for more discipline in weapon systems acquisition and to implement Congressional direction, DOD recently revised its policy and introduced several initiatives. The revised policy, if implemented properly, could provide a foundation for developing individual acquisition programs with sound, knowledge-based business cases. The policy recommends the completion of key systems engineering activities, establishes early milestone reviews, requires competitive prototyping, and establishes review boards to manage potential requirements changes to ongoing programs.”  [GAO, 4/3/06.GAO, 3/3/09]

Create incentives to attract properly qualified personnel, both military and civilian, to work in acquisition policy at DOD. Changing the acquisition process at DoD is an issue of organizational culture as well as regulation. According to Dr. Paul G. Kaminski, member of the National Research Council, “Attracting ‘best and brightest’ to this work - and keeping them - will require a personnel system that will identify and track these important human resources and establish a career path to allow those who are successful to advance to senior program management and leadership positions.” Currently, these incentives are not in place for DoD’s acquisition personnel. “The Congress and the Department can assist by providing incentives for attracting and keeping key personnel (not only financial incentives, but educational, training, recognition, and most important – the opportunity to take on challenging developments and see that they can make a difference).” Jacques Gansler, Chairman of the Defense Science Board Task Force on Industrial Structure for Transformation, added: “I would start with the important role of the Service Chiefs and Secretaries in recognizing, and promoting senior acquisition personnel (military and civilian) in order to demonstrate their personal recognition of the critical nature of smart acquisition practices to American’s military posture in the 21st Century.” [Kaminski, 3/03/09. SASC, 3/03/09]

Prioritize projects so that fewer programs are fighting over a limited amount of money. Currently, “[t]here is a tendency to have too many programs vying for the acquisition dollars that are available to the Department on an annual basis. And when that happens, you get a very—kind of an unhealthy competition” Dr. Sullivan reported to the Armed Services Committee. His written testimony to the committee elaborated, saying the “[a]cquisition problems are also likely to continue until DOD’s approach to managing its weapon system portfolio facilitates better decisions about which programs to pursue and which not to pursue given existing and expected funding…Establishing a single point of accountability could help the department align competing needs with available resources.” [SASC, 3/03/09. GAO, 3/3/09]
 

What We’re Reading

The U.K. ended combat operations in Iraq, handing control over to local forces a month ahead of schedule.  Britain will send an additional 700 troops to Afghanistan, but they must be withdrawn by 2010.

The swine flu continues to spread, though the virus may not be as deadly as some have feared.  The WHO raised its pandemic alert level yesterday.

Ali Saleh Kahlah al-Marri, an al Qaeda suspect being tried in federal court, may plead guilty to a charge of conspiring with al Qaeda as early as today.

Attorney General Eric J. Holder indicated that European nations are willing to resettle some Guantanamo detainees.

NATO expelled two Russian diplomats from Brussels over a spying scandal.

Russia signed a border protection deal with the two Georgian separatist regions of South Ossetia and Abkhazia.

A series of gun attacks in Karachi, Pakistan, killed 34.  Civilians flee fighting in Buner province as the government makes some gains against the Taliban but faces resistance elsewhere.

Turkish warplanes bombed Kurdish rebel camps in northern Iraq.

Yesterday, six car bombs in Baghdad killed over 40 people and another six were defused.

Sri Lanka rejects “lectures” from Western foreign ministers on truce with the Tamil Tiger rebels.

Joseph Margulies, co-counsel for Abu Zubaydah, describes Zubaydah’s mental and physical suffering as a result of CIA interrogation tactics, and discusses his status within al Qaeda.

David Ignatius interviewed National Security Adviser Gen. Jim Jones on how he’s running the NSC and the Administration’s toughest foreign policy challenges.

Julia E. Sweig argues for giving Guantanamo back to Cuba.

The Financial Times discusses Albania’s importance to the EU.

The Wall Street Journal looks at how the swine flu paved the way for Taiwan’s historic acceptance into the WHO.