At the heart of U.S. Defense Secretary Robert Gates's new gambit lie two bold guesses: first, that his budget cuts and force reductions will do more good than harm; and second, that Congress, the White House and even the public will accept the sacrifices and dig no deeper into warfighting capability.

This strategy constitutes an epic wager that, perhaps, only a trained historian like Gates can truly appreciate. And he is set to make its success or failure his legacy.

"I am determined to change the way this department has done business for a long time," he says.

It is almost personal. According to a closed-door meeting with a hand-picked group of analysts after a press conference announcing the changes, Gates expressed genuine frustration with budget rollbacks he witnessed firsthand after Vietnam and the Cold War, as well as repeated failure by Washington to address other federal spending such as entitlements. Now, House Democratic leadership, numerous liberal activists and members of President Barack Obama's bipartisan budget-cutting commission again are calling for defense spending to be considered in expected federal cutbacks. Conservatives from Gates's own Republican camp, too, are whipping up an anti-spending fervor.

In turn, he sees another round of "peace dividends" eyed after major combat operations end in Iraq and Afghanistan. "If you were to graph the defense budget going back the last 40 or 50 years, it would look like the EKG of a fibrillating heart," Gates says. "My greatest fear is that in economic tough times, people will see the defense budget as the place to solve the nation's deficit problems -- to find money for other parts of the government."

Instead, Gates's announcement -- on the first business day that lawmakers were out of town for their summer recess -- is designed to follow his call this spring for $101 billion in reallocated internal spending so that major weapon programs can be buttressed. As one of Obama's most-respected cabinet members, Gates and others believe he has secured from the White House about a 1% increase in annual, baseline Pentagon allocations for the coming years despite White House freezes elsewhere -- but weapon costs still will demand another 2-3% spending growth in their accounts. Gates had hoped that so-called insourcing, contracting reductions and other changes such as those in the Weapons Systems Acquisition Reform Act of 2009 would satisfy the gap; but by this month he acknowledged those reforms were falling short and greater sacrifices were necessary.

"What we need is modest, sustainable growth over a prolonged period of time that allows us to make sensible investment decisions and not have these giant increases and giant decreases that make efficiency and doing acquisition in a sensible way almost impossible," Gates asserts. To that effect, he proposes slashing three agencies that rely heavily on contractors, freeze and cut staffing levels including leadership, and gut the number of advisory panels and reports that feed a general spending atmosphere (see chart).

In a measure of Gates's reputation, practically everyone in industry contacted by Aviation Week or who offered reaction publicly praised Gates for his national security achievements, efficiency drive and even political savvy in pursuing these and other reforms since April 2009. "We support the secretary's desire to strike the right balance between government and private industry roles in our national defense," Pratt & Whitney representatives e-mailed Aviation Week.

In fact, Gates met with several executives in late July to pre-brief them on his moves, and some like ITT Corp. Chairman and CEO Steve Loranger already were expressing overall support toward shoring up U.S. defense budgeting.

"Gates is supposed to be a skillful bureaucratic infighter, so hopefully he knows what buttons to push to get the overhead cut," notes aerospace and defense finance specialist Wolfgang Demisch. But he also sounds a warning: "I wish him all the success in the world, but [I] am concerned that the contractors, who are very comfortable in this lah-lah land of endless contracts and near-zero competition, will impede his efforts."

Indeed, the Professional Services Council, a Washington trade group for government services providers, immediately challenged Gates for his "arbitrary" reductions in funding for contract support, as well as basing his decision to close U.S. Joint Forces Command (JFCOM), at least in part on the large number of contractor employees supporting it. Virginia officials said about 5,000 jobs could be at risk in their state.

And Washington law firm Venable's Robert Burton, who spent seven years as the top career procurement policymaker in the George W. Bush administration, says the proposed cuts in contractor support raise serious concerns. "First, small businesses will suffer most of the losses in jobs and revenue," he says. "If large [defense] prime contractors have to make cuts, they will first reduce their subcontractors, who are frequently small businesses."

Of course, Gates will not get a free ride from Capitol Hill either as lawmakers focus on job protection and growth ahead of November elections. In particular, most -- but not all -- of the bipartisan Virginia delegation and the commonwealth's governor declared a "united front" to defend the Norfolk-based JFCOM. Defense and intel contracting, in general, has shielded the state from the current recession and led to record wealth and job growth in Northern Virginia, where the Pentagon is, and the Norfolk area, which is the home of the U.S. military's largest collection of forces on the East Coast.

Gates may run into similar opposition from European allies. Since his Eisenhower Library speech in May, the secretary has used the legacy U.S. command footprint in Europe as one example of overhead ripe for culling. Unlike most other commands, the armed services have kept their own four-star-level headquarters there "long after the vast majority of their fighting forces have departed," Gates reiterated on Aug. 9. While European reaction has been slow owing to the August holidays, allies there already were sensitive to a loss of prestige as Washington looks to reorient toward Beijing strategically. In addition, U.S. bases are important to local jobs, while NATO's transformation office has been collocated at JFCOM.

How many of his recommendations Gates can achieve on his own authority is up for dispute. Base realignment and closures became so politically fraught starting in the 1990s that Congress established an extra-judicial commission process just to get anything done. But budget implications from Gates's recommendations will start to emerge in the Fiscal 2012 process, already underway inside the Pentagon, and they will not be all bad news.

For instance, Gates suggests that shipbuilding and cyberwarfare -- both important sectors to Virginia, incidentally -- could be some of the leading beneficiaries from the reallocations, and he is not shy in his deal-making. "If as a result of these efforts I am able to add a billion or $2 billion to the Navy's shipbuilding program of record, Virginia may well come out with a lot more jobs than it loses."

The defense secretary's Aug. 9 proposals include:

* Eliminate the U.S. Joint Forces Command, one of 10 combatant commands (Cocoms).

* Eliminate the Business Transformation Agency.

* Eliminate the assistant secretary of defense for networks integration and information, and J6 function, which deal with enterprise information technology (IT) and hardware issues.

* Reduce funding for service support contracts by 10% annually for three years.

* Stop replacing departing contractors with full-time personnel, except to build up the Defense Department's acquisition workforce as planned.

* Freeze Office of the Secretary of Defense, non-branch agencies and Cocom management staffing at Fiscal 2010 personnel levels for three years and conduct "clean-sheet" reviews of them by November.

* Cut at least 50 general and admiral positions and 150 senior civilian executive positions over the next two years.

* Consolidate IT assets, stand up an empowered chief information office, and assign greater responsibility to the Defense Information Systems Agency to take advantage of the Pentagon's buying power.

* Freeze the number of all department-required oversight reports and cut funding allocated to advisory studies by 25%.

* 10% reduction in funding for advisory and assistance contracts that support intelligence functions and agencies, and report on further recommendations by November.

* Attach a cost estimate to every new initiative proposed hereafter.

Photo: DoD