The era of rapidly rising defense budgets has ended; its time to end the waste and abuse that became standard practice while the money spigot gushed over the last decade; its also time for defense firms to stop charging outlandish sums for late and underperforming weapons systems; we’re going to “incentivize” industry to be more productive and efficient; oh, and expect more program cuts going forward.
That was the message delivered to defense industry executives yesterday by the Pentagon’s chief weapons buyer Ashton Carter, a message he relayed to military acquisition officials and then to the press later in the day. Read Carter’s memo here.
He questioned why weapons systems always increase in cost every year when in the private sector most products and services prices drop over time. “Your computer costs less every year, why not defense weapons?”
Its all part of Defense Secretary Robert Gates effort to wring savings out of the defense budget top line that can then be reinvested into weapons for the wars we’re fighting today. Gates’ ambitious target is to realize 2-3% annual growth in spending on “warfighting capabilities” without increasing the DoD budget.
“We want our managers to acquire weapons for what they should cost,” Carter said, and his office will use historically informed independent cost estimates to arrive at that “should-cost” figure.
On all new weapons programs, “affordability and not just appetite must be designed in from the start.” Carter said affordability will be the mandate in new programs such as: the SSBN-X, the presidential helicopter, the Ground Combat Vehicle, and the Air Force/Navy long range strike family of systems.
The new acquisition approach intended to restore affordability and productivity in Pentagon buying means there will be fewer, a lot fewer, cost-plus contracts, and a lot more fixed price contracts. Carter said if a firm is inventing some new technology that nobody quite knows how much it will eventually cost, then cost-plus is appropriate.
However, on those systems where the technology is well known, when the military knows what it wants, then fixed-price contracts make more sense. He used the KC-X tanker as an example. It’s not an invention, he said, it’s a commercial aircraft with minor modifications. The builder should know what it will really cost. “The rule of reason needs to apply.”
Carter singled out the Air Force’s underperforming and costly Global Hawk drone (pictured) as an example of a program that will feel the full weight of his office’s new acquisition value proposition.
How will he know if the new “value” initiative is working? When program costs stop growing or even start coming down, he said. “We’ve gotten so used to seeing program costs grow inexorably, you don’t see that in typical industries.”
-- Greg Grant