When the Defense Department submitted its fiscal year 2014 budget, the possibility of sequester was not considered. Industry executives, administration officials and politicians on Capitol Hill all assumed that some solution would be found. The prevailing thinking could be summed up as follows: “Sequestration won’t happen, but I don’t know how it won’t happen.”
Well, it did happen, and maybe we all need to consider that if we don’t know how something won’t happen, then we need to prepare for it to happen. The resulting budget crisis has the Pentagon scrambling to catch up. To be fair, many leaders in the defense industry’s largest companies always expected the worst, and those firms, while hurting like other businesses, are much better positioned to weather the storm. The real problem, though, is the considerable damage that will happen to the nation’s industrial base at large as the military builds down in an unplanned and inefficient way.
Since the sequester for fiscal year 2013 was triggered March 1, the Defense Department has been allowed to reprogram funds to balance its accounts, and is preparing a major amendment to the 2014 budget. The 2015 spending plan, now in preparation, will assume that the Budget Control Act of 2011 (BCA) caps will remain in place. The real issue that now must be faced, and can no longer be ducked, is where will another $500 billion be found in an already depleted budget? The needs are many, but the pressing imperative for operations and maintenance funds puts research, procurement and force structure squarely in the crosshairs.
Investment funding represents approximately 30 to 40 percent of the budget. It remains to be seen how much of that money will be taken from these critical accounts to pay the BCA bill. Obvious answers are program cancellations and reduced procurement quantities.
There is a better way to save money, though, and that is through administrative changes to the Pentagon’s acquisition system. Many studies show that cost overruns in major acquisition programs average around 70 percent. Some large programs have unit costs overrunning many times the average unit cost targets. A much more efficient and disciplined acquisition system has the potential of lowering weapons costs substantially, perhaps as much as 10 to 20 percent. The savings over time could add up to hundreds of billions of dollars.
So how is this efficiency to be achieved? One place to start is the Goldwater-Nichols legislation, which needs to be adjusted to bring the service chiefs back into the acquisition chain of command. Only a service chief can effectively make tradeoffs among budget, requirements and program performance. There ought to be much more focus on disciplining the requirements process. Adjusting requirements downward is a much needed process that is done poorly. And “block” development, where a system is developed in increments, on time and on schedule, seems to have been forgotten.
Then, there is massive red tape. Every program is saddled with a plethora of reviews and administrative procedures that seem to have plunged the entire system in quicksand. Program managers spend more of their time building PowerPoint slides and briefing their program than they do on actual program management. This is nothing new. The Packard Commission identified the same problem in its seminal study on acquisition nearly three decades ago. “All of these pressures, both internal and external to DoD, cause the program manager to spend most of his time briefing his program. In effect, he is reduced to being a supplicant for, rather than a manager of, his program,” the commission said.
If anything, the process today is even more encumbered than it was in the time of the Packard Commission. Recall, too, that one of the objectives of Goldwater-Nichols was to create a direct line from program manager to program executive officer, and then to service acquisition executive. Today, this is being violated in the extreme.
One alarming consequence of this dysfunctional system is that talented program managers are becoming an endangered, almost extinct species. Managers who can push back against unreasonable requirements or burdensome processes, and can execute to cost and schedule, are hard to find.
We have a system that doesn’t properly select, grow and nurture acquisition talent. Nor do we have a system that frees up talented managers to execute programs that are unencumbered by excessive process. The system we have fails to recognize that acquisition is a profession much like law, medicine or investment and financial planning.
What is needed is a system where top leadership is deeply involved in the process of growing properly credentialed acquisition professionals, where that leadership is deeply involved in balancing budgets, requirements and program performance, and where program content is adjusted downward to preserve budget flexibility and balance.
This system needs to be staffed by top players and must have strong functional support in the areas of cost, engineering and contracting. It should focus on setting a “baseline” in programs and structure them in true evolutionary developmental fashion, by taking account of technology readiness at major program milestones.
This might seem hard to do, but in reality it is simple. The tough part is to back away from the excessive layering of processes that involves literally thousands of overseers who have a say in, but no responsibility for, acquisition performance. It is impossible to hold acquisition managers accountable when they have little to no say in program strategy. Indeed, it is impossible to hold anyone accountable for program performance in the system we have today. Clearly, we have more reviewers than workers.
But the system can be fixed, and the incentive is clearly there. The Defense Department needs to reduce spending and there is plenty of money to be squeezed from inefficient acquisition programs. A properly functioning procurement system could easily save about 10 percent of total defense spending. Poorly planned programs, with undisciplined requirements, that are burdened by excessive process with little accountability must become a thing of the past.
Defense programs that deliver incremental capabilities on cost and on schedule must be the goal. This will happen if we are willing to let go of the status quo.
That 10 percent budget savings in the investment accounts sure would be nice to have in this tough fiscal environment.
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