Program Management and Leadership
Program Management and Leadership
April 16th, 2008
The GAO (U.S. Government Accountability Office) recently released its yearly report on Department of Defense procurement programs. The report, which can be found on the GAO homepage (See: GAO-08-467SP Defense Acquisitions: Assessments of Selected Weapon Programs at:
http://searching.gao.gov/query.html?qt=defense+acquisitions+
gao-08-467sp&rf=2&amo=0&ayr=0&bmo=0&byr=0&col=aud
prod&col=lglview&charset=iso-8859-1) provides an assessment of 72 Department of Defense Weapons Procurement Programs.
What it tells is not easily condensed except to say there is a fairly long litany of either cost overruns or programs coming in one or two years (or more) behind schedule. These overruns are fairly large numbers, running into billions or even tens of billions of dollars on many programs. While there are comments to the effect that the cost overruns are getting worse, there are also comments that because program offices are still not using a ‘knowledge based approach’ to their programs that decisions are being made when technology is still immature, but that where they are starting to use the ‘knowledge based approach,’ they have managed to control cost growth.
On that last point there is room for skepticism. That is because cost overruns are not really anything new, nor is the occasional on budget program. There have been significant (one might even say massive) cost overruns in the past: the B-1 program, the MX missile, the B-2, the Seawolf class submarine all had very large cost overruns and were all delivered well behind schedule. Nor was it confined to just the cold war: huge, expensive programs have always been a fact of life, both in the US and elsewhere. i
All of which leads to several quick points which need to be made, particularly in an election year.
1st – This is not a Republican or Democrat issue – both parties have poor records controlling the costs of various procurement programs, if you look back in time.
2nd – This is not a “George Bush is Evil” issue – What is happening under Bush has happened under most Presidents over the last 219 years.
3rd – This is not a big Business is Evil issue – The particular corporations vary, particularly from year to year, some thrive, some go out of business over the years, and few Defense Contractors have remarkable profit margins. A quick review of data from Fortune Magazine shows the major Defense Contractors have average profit margins at 7.2% in 2007 against a Fortune 500 average of 5.9%. ii
4th – This is not a Lobbyists are Evil issue – Lobbyists may play a roll in getting a program approved, but they don’t play a significant roll in continual and prolonged cost overruns.
5th – This is not a “the Pentagon is stupid issue;” this happens in every department, it’s just that DOD has the largest procurement budget in any given year, so it is easy to see there.
6th – This is not a demonstration of the incompetence of Congress or a demonstration of corruption in Congress, unless one is going to make the case that every Congress since the 1790s was either corrupt or incompetent. iii
7th – There are no easy answers to this problem.
There are however, several definitive points that can be made:
1st - The market within which government procurement takes place is monopsonistic, that is, there is a single consumer and multiple suppliers, an inefficient market situation at best. This particular monopsonistic market is a peculiar one at that, as the amount of money being spent is fairly well known, that is, in any given program there is a good deal of knowledge within industry of exactly how much money will be made available in any given year to procure aircraft and ships and tanks, etc. An aircraft manufacturer knows well in advance of the event how many tactical aircraft the USAF wants to buy in any given year, how much money they expect to spend on those aircraft, and this is known years in advance. The manufacturer takes that “market data” into account as it structures its programs. If the USAF wants a force of 600 aircraft, purchased at a rate of 30 aircraft per year, and the aircraft will be replaced every 20 years, and they expect to pay $3 billion per year to purchase those aircraft (at $100 million per aircraft), it would not make much sense for the manufacturer to develop an aircraft that costs $20 million per aircraft and lasts 10 years.
This is not much different then an auto maker who knows that the average family wants to keep their cars for three years, that they are prepared to spend $30,000 for the car and that there are 1 million folks buying cars next year: they will design the car and size their production run based upon their estimate of what percentage of that market they expect to “capture.”
Furthermore, and directly to the point of the cost overruns discussed in the GAO report, the lone consumer (the US Government) is actually made up of a host of interested parties, few of whom have tangible incentives to reduce costs; meaning, if they reduce costs on one item they can spend the money elsewhere. Rather, as Congress appropriates the money, if money were not spent on Program X, it would theoretically be returned to Congress. On the other hand, since Congress has approved any given program, there is a clear understanding that Congress has interest in acquiring that program (or at least in spending the money). When added to the long development and procurement time lines and the rapidly evolving technology that goes into these many platforms, there is also a natural tendency to continually ‘improve’ and ‘upgrade’ each and every program. Congress wouldn’t want a system to arrive in five years or so that was already obsolete, would they?
And so, the offices that manage various programs routinely upgrade, improve and expand on various capabilities as technology advances or becomes available.
A good example is the follow-on helicopter for the President. Originally planned as a 26 aircraft buy (23 operational aircraft and 3 test aircraft), but later expanded to 28 aircraft, the original program was expected to cost a bit over $6 billion, with $3.3 billion for research and development and a bit more than $2.7 billion to procure the 25 operational aircraft. In the three years since that contract was signed, the Navy and Marines have added various capabilities and requirements to the aircraft, to include state of the art counter-measures gear to protect the aircraft from man portable surface to air missiles as well as various upgrades to communications gear. (There have also been improvements in seating and passenger comfort which, though they are not the big dollar items, make for good headlines). All of which took place before the aircraft has flown, which significantly changes the development costs. The result of these changes has been to raise the total cost of the program from $6.1 billion to $11.2 billion. iv
But, this doesn’t mean the program has been cancelled. Rather, the program will be restructured and the Pentagon, along with the aircraft manufacturer (a consortium), will work to reduce the overall cost of the program. But it is unlikely that the program will be cut for two reasons: first, the current aircraft do need to be replaced, and second, Congress wants to maintain several helicopter manufacturers, and Lockheed built a brand new helicopter airframe integration facility in Oswego, NY to put these helicopters together.
The point, and it is critical, is that there is only one consumer in the case of these aircraft and weapon systems: the US Government, and the US Government sets the boundaries of the market. This leads to the second point.
2nd - The government, that is, the bureaucracy, both on Capital Hill and in the Pentagon (in uniform and out), are massively, overwhelmingly conservative in the dictionary sense: they are strongly resistant to real of change. Accordingly, the argument is commonly advanced by the military – and readily accepted by Congress -- that production capacity (referred to as the ‘industrial base’) needs to be preserved; the argument that, for example, the US needs to maintain its capability to build and maintain tanks or submarines, even when there are none under construction, resonates with the DOD senior managers (in and out of uniform). This leads to long drawn out procurement plans to ensure that the factory remains open and the production expertise remains employed. Thus, ships and aircraft are made at facilities that are sized to make those ships and aircraft at rates well in excess of the average annual production rate, the extra, unused capacity being regarded as a security investment in the event the US were to need to surge production for a prolonged major war.
This idea also resonates particularly well with Congressmen who are responsible for representing (they are “Representatives”) the needs and concerns of their districts, the districts where parts to all these ships and aircraft are produced. Abruptly terminating construction of submarines at a shipyard in one east coast state ripples through scores of districts across the nation. It is not difficult to see why Congressmen will naturally assume a “defensive crouch” around those production capabilities and will respond positively to a suggestion that, instead of building 30 submarines in 15 years for cost X, which would leave the yard without any building program for a number of years, the production run can be stretched to 30 submarines in 30 years – leaving the yard available to then build the follow-on submarine as the first submarine is retired after a 30 year career. The fact that this might make each individual submarine cost 25% or 30% more is viewed as a bearable expense, particularly when weighed against the alternative of terminating operations at the shipyard.
This idea has, in fact, motivated more than one Congressman or Senator to support programs that leave the US with substantially more production capacity than is needed. The US supported two separate space lift production capabilities (one under Boeing and a second under Lockheed for many years) despite a requirement that could be easily met by either one of them. However, the two separate production lines (each dispersed over a number of states) were sustained ‘in case.’ This finally ended several years ago and there is now a combined project with both corporations participating jointly. Space lift is still very expensive, but not quite as bad as it might have been.
Similarly, with the latest aerial refueling/tanker program, designed to replace the old KC-135 aircraft flown by the Air Force, there will now be a large assembly plant constructed in Alabama to build these aircraft. There will also be a large Boeing production facility, the B-767 plant, which will start to shut down, as it will represent excess capacity. It would be reasonable to expect that there will be some cost overruns involved in the setting up of a new facility, to build a new aircraft, and the hiring of a host of new workers. The Northrop-Grumman-EADS aircraft is an excellent aircraft and will provide valuable service to the DOD. But cost considerations are not the sole or even the number one driver of these decisions. In this case, one made by DOD and so far endorsed by Congress.
As for the DOD bureaucrat, he or she would probably respond that the market does respond over time, but not on cue, and that this is a risky venture and that we shouldn’t place the nation’s security at risk. v The fact that most legislators are not particularly fond of the idea of supporting a program process that leaves people unemployed in their districts, and are also lawyers or career politicians with little hands on experience with the creativity of the marketplace, makes this idea of protecting the industrial base and refusing to accept risk that much easier a concept to swallow. vi
At the same time, the average bureaucrat – in uniform or out, elected or appointed – places little thought or trust in the idea that the marketplace would actually create a new and better response to a need then the one we already have, that is, a revolutionary change. While the words are used, the fact is that the nature of the bureaucratic process supports very gradual, evolutionary change in deployed technology rather than any revolution and the accompanying risk, because it allows for gradual metamorphoses of rules and day-to-day operations and hence does not place doctrine or organizations at risk. vii
As a result, there is a strong impetus to keep every facet of a given ‘industry’ actively engaged. Once you finish procuring a fighter for example, research and development money is made available to begin development of the ‘next generation.’ In order to ensure there are no abrupt changes in the health and well-being of a given production base, there is a process of gradual transition from R&D to testing and evaluation to low rate initial production to ‘full scale production.’ viii This can become a very long process: work on the F-22 began in the 1980s, the first squadron became operational just a couple of years ago. While defended on the grounds that these long development periods are needed to allow for the proper integration of sophisticated technology, there is little in the spending records that suggests we are substantially better or cheaper at integration of technology when we are given many years vice only a few. Yet program after program is allowed to move slowly – and expensively – through each step of the process, and at each step opportunities are presented to allow further increases in the budget for that system. xi
3rd – Finally, there is an additional ‘market force’ – Congress – which acts on the market for a wide range of other reasons, not all of which are strictly economic; some of which are not economic at all. Those acts will take place no matter what the GAO says or the DOD does. And whenever Congress does so act, there will be an economic cost to bear.
To look at it another way, Members of Congress (both the House and the Senate) are interested in helping the state or district; DOD program officers are interested in making sure their programs survive and improve; industry and labor is interested in sustaining contracts. It is in everyone’s short term self interest to continue performing in the manner described in the GAO report.
What Can Be Done
So, all that being said, what can be done to control the cost of DOD (and other government) procurement?
The short answer is that the only real solutions can be found if we recognize this as a leadership issue.
This problem will not be solved by using a different program management process (the knowledge based approach the GAO report cites). Other tracking efforts in the past have been touted as essential to the solution, and programs have continued to rise in cost.
This problem will not be solved by training more procurement specialists in uniform. That idea was begun in the 1980’s and programs have actually become more expensive since they were first named.
This problem will not be solved by more Congressional oversight of either the DOD program managers or Defense contractors, who despite their sometimes poor reputations are, in fact, overwhelmingly honest, hard working people. More oversight will simply result in more cost.
In fact, these kinds of ‘solutions’ usually devolve into covers so that the real answers don’t come up. Nor can legislation do away with the facts of a monopsonistic market.
In fact, what is needed is mostly intangible.
DOD: The largest single share of ‘ownership’ of this problem lies with the DOD. Congress, the American people, Labor and Industry place a great deal of trust and faith in the DOD and the services and have a decided tendency to believe the services when they state that they need a given system or need to modify that system, and the money is usually forthcoming. It is incumbent on the DOD to spend more wisely.
Nevertheless, as taxpayers and bearers of the burden of these expensive systems we can lament that the DOD brass (civilian and military) needs to recognize what is already known by those closer to the “pointy end of the spear:” performance of a integrated weapons platform (a ‘system of systems’ to use the DOD jargon) is more dependent on personnel and training then it is on the latest technology. The right technology is great, but it doesn’t replace people or training. Continual, incremental improvements in technology are often offset by the inability of crews to fully utilize the new capabilities for months (sometimes years) and often the new capabilities have almost no bearing on the actual operations conducted by the ‘boots on the ground.’ A more selective, stair-step approach to deployed technology can yield just as capable a military if properly managed. Simply throwing newer technology at the military will never compensate for training.
Ever improving technology also can turn into a goal of its own, resulting in missed opportunities. One such example is the slow progress all the services have made in using unmanned vehicles. Unmanned aircraft in particular have been used in limited venues for decades, but many members of the aviation communities in the services have resisted deployments of these systems, viewing them as threats to their ‘communities.’ As a result, programs like F-35, P-8, and EPX continue on, despite tests that suggest that the bulk of the missions these aircraft will be tasked with might be handled by UCAVs (Unmanned Combat Air Vehicles) within the next ten years, well before the major deployments of these airframes.
But that is in reality a short-term answer. The most important piece of the solution to this complex problem lies with the DOD and the insistence by the Secretary of Defense (and insistence by the White House) that the service secretaries develop and utilize long term plans that are in consonance with both the grand strategic goals of the President as well as with the needs of the combatant commands. The service staffs will respond that they are. In fact, they are not, except by accident. Year after year combatant commands put forward their lists of their top needs; year after year they are superceded by needs that spring up out of whole cloth in Washington. Invariably, these needs reflect the concerns of the services to keep major programs well funded, whether they fit the needs of combatant commanders or not. x
Bureaucratic fixes may be of some value: placing a submariner in charge of aviation programs, and an aviator in charge of submarine programs. But, that is unlikely to result in major changes: they would quickly learn what was bureaucratically expected and bend to that pressure. The system would have compensated and little would have changed.
Instead, long term plans need to be drafted that identify all the major facets of the problem, to include concern over a ‘critical industry’ or a ‘critical technology’ or a ‘critical skill.’ Each should then be addressed from the broad perspective of the strategic plans of each appropriate department of the government. It should be a DOD requirement to defend the need for given capabilities, not necessarily how they are achieved. Let Industry and the marketplace do that.
Industry and Labor: The answer for industry and labor is a bit fuzzier. Industry and labor can both accurately assess that long drawn out contracts are just what they need for sustained profits, continued work force employment and stable and growing market share (and stock price). At the same time, we have a participatory government. Certainly, with the proper amount of disclosure we could ensure that industry and labor representatives could participate in elements of government planning. Instead of having the federal government subsidize industries past their natural deaths, why can’t we develop the appropriate branches and sequels to our plans to assist industry transitions to follow-on technologies and skill-sets?
Congress: Congress needs more discipline. While the US has always had cost overruns in it’s procurement of various items, the overruns have grown as the budget cycle has become more convoluted and as military-industrial integration has matured since World War II. Budgets are not passed on time, continuous resolutions are the norm seemingly every year, and the continual churn and indecision adds costs to every program every year. While there were a few years in the mid 1990s when Congress seemed to have taken some control of the budget cycle, that ended with the departure of Speaker Gingrich. Speaker Gingrich provided a level of discipline and leadership that had not been visible in either chamber in many years. No similar leadership has emerged since his departure. Without that first key step – real leadership to provide the clarity and focus, to make hard decisions and to enforce some real discipline on the Congress, we can expect little change in the current proceedings. xi
Certainly, without real leadership, and a sense of ‘enlightened’ self-interest, there will be no chance of eliminating the resistance to change and the effort to defend the existing industrial base.
There are any number of engineering arguments that will be offered, and are offered, to address these overruns. Proper balance of highly sophisticated weapons and platforms and more numerous lower technology platforms, changes in our force structure and doctrine, etc. And, arguably, there is a good deal to be gained by moving away from the procurement model that says that ship hulls, airframes and the like should be retained for many years.
As is being seen now with the F-15s, as well as with the Navy’s older ships (and some not so old), maintenance becomes very expensive once large, complex platforms like these reach a certain age. One argument is that the services receive a much more sophisticated and capable platform when the platform is designed to last 20 or more years vice one designed and built with the intention of lasting only half that. If ships and aircraft were designed, built and procured with the intention of replacing a destroyer for example after 25 years would the Navy receive a different result? Would the cost overruns be less? Would the ships be as capable? Would System development continue at the same place or slow down or accelerate?
It is certainly clear that the US is rapidly approaching an “all its eggs in one basket” mentality. The US Navy has one class of destroyers (the Burke class DDG) and it will be replaced by the DDX. So, DDX cannot be allowed to fail. And if it does, we will need to fall back on building more Burke destroyers. There are no other options. The Air Force is buying the F-22 in reduced numbers and the F-35 in large numbers in several years (the Navy and Marines are also buying the F-35). If the F-35 runs into problems (what program hasn’t?), the USAF, USN, and USMC will be in a situation where they will have to tell Congress “Please buy it, no matter the cost and the delay.”
Additionally, personnel management practices need to be amended so that they allow people time to actually master their “trade” and avoid the “check in the block” career paths and practices that seem to be taking over the services. xii At the same time senior personnel – who regard tours in Washington as essential for promotion - are applauded (and rewarded with additional duties and promotions) for having ‘done a good job’ by defending the programs they are sent to manage – even if the nation may no longer need it, or by eliminating a program and ‘saving taxpayer dollars’ even when the nation may have really needed that program. But who is to say whether we need a program? xiii
Such questions don’t surface often enough in the Pentagon. Instead, ‘programmatics’ – which might be defined as the interest in the specific procurement programs relative to your community – is the driver of day-to-day efforts. Thus, the F-18 community sends officers to Washington to defend the F-18 programs, and the P-3 community sends officers to Washington to defend the P-3/P-8 program. Few people are running around the Pentagon trying to figure out how best to find submarines because they ‘already know;’ if they are from the P-3 community the answer is the follow-on maritime patrol aircraft (the P-8), if they are submariners the answer is more submarines, etc. In literally every case mentioned in the GAO report there are intelligent people on Capital Hill and in the Pentagon, with what they believe are the most noble of intentions, who will defend their particular program as an essential part of the nation’s security. All of them believe, usually fervently, that they are on the side of the angels.
In short, the answer won’t be found in developing more ‘procurement law’ or ‘procurement policy;’ nor will it be found in the latest technology, better engineering, or in management tools. The answer lies in a coherent debate on US strategic needs, a debate which has had little enough substantive time and effort devoted to it, and the leadership – in the Executive Branch, in the DOD, in Congress, and in Industry and Labor – to develop coherent plans and work forward from them.
Presently, every argument on procurement ‘degrades’ to a discussion on a specific favorite system from this or that participant, more protection of US industrial base (invariably also a favorite sector) and little real effort to identify what are the real goals we hope to achieve and how best to use all our assets to achieve those goals. xiv In practical terms the difference between simple self-interest and the ‘enlightened self-interest’ sought by de Tocqueville, is the distinction between short-term rewards and long-term rewards. What is needed here is clarity on both a military strategy and an industrial strategy (and an energy strategy and an agricultural strategy, etc., etc., etc.) These should be integrated under a grand strategy. Within the military strategy (and in every other sector of the federal government) procurement should reflect that strategy and should be adjusted as the strategy is developed and adjusted. The military strategy should be aware of and reflect the reality of the industrial and energy strategies, but is should not be woven together into one single military-industrial strategy. And industrial strategies need to reflect the reality of a creative and robust market-place that creates new capabilities every day, and not be tied to centralized, frightened, statist thinking that is terrified of the future.
To get to that point requires leadership: leadership in the executive branch, leadership both in and out of uniform in the Pentagon, leadership in Congress and leadership in industry and labor. Long-term benefits have to be weighed against short-term political and economic payoffs, and Congress should try to focus on transitions of industry over the long term rather than playing favorites and maintaining its defensive crouch around various economic sectors.
Bureaucrats will rarely accept risk, and will never want to deal with the consequences of their decisions. Leaders will and do.
April 16th, 2008
The GAO (U.S. Government Accountability Office) recently released its yearly report on Department of Defense procurement programs. The report, which can be found on the GAO homepage (See: GAO-08-467SP Defense Acquisitions: Assessments of Selected Weapon Programs at:
http://searching.gao.gov/query.html?qt=defense+acquisitions+
gao-08-467sp&rf=2&amo=0&ayr=0&bmo=0&byr=0&col=aud
prod&col=lglview&charset=iso-8859-1) provides an assessment of 72 Department of Defense Weapons Procurement Programs.
What it tells is not easily condensed except to say there is a fairly long litany of either cost overruns or programs coming in one or two years (or more) behind schedule. These overruns are fairly large numbers, running into billions or even tens of billions of dollars on many programs. While there are comments to the effect that the cost overruns are getting worse, there are also comments that because program offices are still not using a ‘knowledge based approach’ to their programs that decisions are being made when technology is still immature, but that where they are starting to use the ‘knowledge based approach,’ they have managed to control cost growth.
On that last point there is room for skepticism. That is because cost overruns are not really anything new, nor is the occasional on budget program. There have been significant (one might even say massive) cost overruns in the past: the B-1 program, the MX missile, the B-2, the Seawolf class submarine all had very large cost overruns and were all delivered well behind schedule. Nor was it confined to just the cold war: huge, expensive programs have always been a fact of life, both in the US and elsewhere. i
All of which leads to several quick points which need to be made, particularly in an election year.
1st – This is not a Republican or Democrat issue – both parties have poor records controlling the costs of various procurement programs, if you look back in time.
2nd – This is not a “George Bush is Evil” issue – What is happening under Bush has happened under most Presidents over the last 219 years.
3rd – This is not a big Business is Evil issue – The particular corporations vary, particularly from year to year, some thrive, some go out of business over the years, and few Defense Contractors have remarkable profit margins. A quick review of data from Fortune Magazine shows the major Defense Contractors have average profit margins at 7.2% in 2007 against a Fortune 500 average of 5.9%. ii
4th – This is not a Lobbyists are Evil issue – Lobbyists may play a roll in getting a program approved, but they don’t play a significant roll in continual and prolonged cost overruns.
5th – This is not a “the Pentagon is stupid issue;” this happens in every department, it’s just that DOD has the largest procurement budget in any given year, so it is easy to see there.
6th – This is not a demonstration of the incompetence of Congress or a demonstration of corruption in Congress, unless one is going to make the case that every Congress since the 1790s was either corrupt or incompetent. iii
7th – There are no easy answers to this problem.
There are however, several definitive points that can be made:
1st - The market within which government procurement takes place is monopsonistic, that is, there is a single consumer and multiple suppliers, an inefficient market situation at best. This particular monopsonistic market is a peculiar one at that, as the amount of money being spent is fairly well known, that is, in any given program there is a good deal of knowledge within industry of exactly how much money will be made available in any given year to procure aircraft and ships and tanks, etc. An aircraft manufacturer knows well in advance of the event how many tactical aircraft the USAF wants to buy in any given year, how much money they expect to spend on those aircraft, and this is known years in advance. The manufacturer takes that “market data” into account as it structures its programs. If the USAF wants a force of 600 aircraft, purchased at a rate of 30 aircraft per year, and the aircraft will be replaced every 20 years, and they expect to pay $3 billion per year to purchase those aircraft (at $100 million per aircraft), it would not make much sense for the manufacturer to develop an aircraft that costs $20 million per aircraft and lasts 10 years.
This is not much different then an auto maker who knows that the average family wants to keep their cars for three years, that they are prepared to spend $30,000 for the car and that there are 1 million folks buying cars next year: they will design the car and size their production run based upon their estimate of what percentage of that market they expect to “capture.”
Furthermore, and directly to the point of the cost overruns discussed in the GAO report, the lone consumer (the US Government) is actually made up of a host of interested parties, few of whom have tangible incentives to reduce costs; meaning, if they reduce costs on one item they can spend the money elsewhere. Rather, as Congress appropriates the money, if money were not spent on Program X, it would theoretically be returned to Congress. On the other hand, since Congress has approved any given program, there is a clear understanding that Congress has interest in acquiring that program (or at least in spending the money). When added to the long development and procurement time lines and the rapidly evolving technology that goes into these many platforms, there is also a natural tendency to continually ‘improve’ and ‘upgrade’ each and every program. Congress wouldn’t want a system to arrive in five years or so that was already obsolete, would they?
And so, the offices that manage various programs routinely upgrade, improve and expand on various capabilities as technology advances or becomes available.
A good example is the follow-on helicopter for the President. Originally planned as a 26 aircraft buy (23 operational aircraft and 3 test aircraft), but later expanded to 28 aircraft, the original program was expected to cost a bit over $6 billion, with $3.3 billion for research and development and a bit more than $2.7 billion to procure the 25 operational aircraft. In the three years since that contract was signed, the Navy and Marines have added various capabilities and requirements to the aircraft, to include state of the art counter-measures gear to protect the aircraft from man portable surface to air missiles as well as various upgrades to communications gear. (There have also been improvements in seating and passenger comfort which, though they are not the big dollar items, make for good headlines). All of which took place before the aircraft has flown, which significantly changes the development costs. The result of these changes has been to raise the total cost of the program from $6.1 billion to $11.2 billion. iv
But, this doesn’t mean the program has been cancelled. Rather, the program will be restructured and the Pentagon, along with the aircraft manufacturer (a consortium), will work to reduce the overall cost of the program. But it is unlikely that the program will be cut for two reasons: first, the current aircraft do need to be replaced, and second, Congress wants to maintain several helicopter manufacturers, and Lockheed built a brand new helicopter airframe integration facility in Oswego, NY to put these helicopters together.
The point, and it is critical, is that there is only one consumer in the case of these aircraft and weapon systems: the US Government, and the US Government sets the boundaries of the market. This leads to the second point.
2nd - The government, that is, the bureaucracy, both on Capital Hill and in the Pentagon (in uniform and out), are massively, overwhelmingly conservative in the dictionary sense: they are strongly resistant to real of change. Accordingly, the argument is commonly advanced by the military – and readily accepted by Congress -- that production capacity (referred to as the ‘industrial base’) needs to be preserved; the argument that, for example, the US needs to maintain its capability to build and maintain tanks or submarines, even when there are none under construction, resonates with the DOD senior managers (in and out of uniform). This leads to long drawn out procurement plans to ensure that the factory remains open and the production expertise remains employed. Thus, ships and aircraft are made at facilities that are sized to make those ships and aircraft at rates well in excess of the average annual production rate, the extra, unused capacity being regarded as a security investment in the event the US were to need to surge production for a prolonged major war.
This idea also resonates particularly well with Congressmen who are responsible for representing (they are “Representatives”) the needs and concerns of their districts, the districts where parts to all these ships and aircraft are produced. Abruptly terminating construction of submarines at a shipyard in one east coast state ripples through scores of districts across the nation. It is not difficult to see why Congressmen will naturally assume a “defensive crouch” around those production capabilities and will respond positively to a suggestion that, instead of building 30 submarines in 15 years for cost X, which would leave the yard without any building program for a number of years, the production run can be stretched to 30 submarines in 30 years – leaving the yard available to then build the follow-on submarine as the first submarine is retired after a 30 year career. The fact that this might make each individual submarine cost 25% or 30% more is viewed as a bearable expense, particularly when weighed against the alternative of terminating operations at the shipyard.
This idea has, in fact, motivated more than one Congressman or Senator to support programs that leave the US with substantially more production capacity than is needed. The US supported two separate space lift production capabilities (one under Boeing and a second under Lockheed for many years) despite a requirement that could be easily met by either one of them. However, the two separate production lines (each dispersed over a number of states) were sustained ‘in case.’ This finally ended several years ago and there is now a combined project with both corporations participating jointly. Space lift is still very expensive, but not quite as bad as it might have been.
Similarly, with the latest aerial refueling/tanker program, designed to replace the old KC-135 aircraft flown by the Air Force, there will now be a large assembly plant constructed in Alabama to build these aircraft. There will also be a large Boeing production facility, the B-767 plant, which will start to shut down, as it will represent excess capacity. It would be reasonable to expect that there will be some cost overruns involved in the setting up of a new facility, to build a new aircraft, and the hiring of a host of new workers. The Northrop-Grumman-EADS aircraft is an excellent aircraft and will provide valuable service to the DOD. But cost considerations are not the sole or even the number one driver of these decisions. In this case, one made by DOD and so far endorsed by Congress.
As for the DOD bureaucrat, he or she would probably respond that the market does respond over time, but not on cue, and that this is a risky venture and that we shouldn’t place the nation’s security at risk. v The fact that most legislators are not particularly fond of the idea of supporting a program process that leaves people unemployed in their districts, and are also lawyers or career politicians with little hands on experience with the creativity of the marketplace, makes this idea of protecting the industrial base and refusing to accept risk that much easier a concept to swallow. vi
At the same time, the average bureaucrat – in uniform or out, elected or appointed – places little thought or trust in the idea that the marketplace would actually create a new and better response to a need then the one we already have, that is, a revolutionary change. While the words are used, the fact is that the nature of the bureaucratic process supports very gradual, evolutionary change in deployed technology rather than any revolution and the accompanying risk, because it allows for gradual metamorphoses of rules and day-to-day operations and hence does not place doctrine or organizations at risk. vii
As a result, there is a strong impetus to keep every facet of a given ‘industry’ actively engaged. Once you finish procuring a fighter for example, research and development money is made available to begin development of the ‘next generation.’ In order to ensure there are no abrupt changes in the health and well-being of a given production base, there is a process of gradual transition from R&D to testing and evaluation to low rate initial production to ‘full scale production.’ viii This can become a very long process: work on the F-22 began in the 1980s, the first squadron became operational just a couple of years ago. While defended on the grounds that these long development periods are needed to allow for the proper integration of sophisticated technology, there is little in the spending records that suggests we are substantially better or cheaper at integration of technology when we are given many years vice only a few. Yet program after program is allowed to move slowly – and expensively – through each step of the process, and at each step opportunities are presented to allow further increases in the budget for that system. xi
3rd – Finally, there is an additional ‘market force’ – Congress – which acts on the market for a wide range of other reasons, not all of which are strictly economic; some of which are not economic at all. Those acts will take place no matter what the GAO says or the DOD does. And whenever Congress does so act, there will be an economic cost to bear.
To look at it another way, Members of Congress (both the House and the Senate) are interested in helping the state or district; DOD program officers are interested in making sure their programs survive and improve; industry and labor is interested in sustaining contracts. It is in everyone’s short term self interest to continue performing in the manner described in the GAO report.
What Can Be Done
So, all that being said, what can be done to control the cost of DOD (and other government) procurement?
The short answer is that the only real solutions can be found if we recognize this as a leadership issue.
This problem will not be solved by using a different program management process (the knowledge based approach the GAO report cites). Other tracking efforts in the past have been touted as essential to the solution, and programs have continued to rise in cost.
This problem will not be solved by training more procurement specialists in uniform. That idea was begun in the 1980’s and programs have actually become more expensive since they were first named.
This problem will not be solved by more Congressional oversight of either the DOD program managers or Defense contractors, who despite their sometimes poor reputations are, in fact, overwhelmingly honest, hard working people. More oversight will simply result in more cost.
In fact, these kinds of ‘solutions’ usually devolve into covers so that the real answers don’t come up. Nor can legislation do away with the facts of a monopsonistic market.
In fact, what is needed is mostly intangible.
DOD: The largest single share of ‘ownership’ of this problem lies with the DOD. Congress, the American people, Labor and Industry place a great deal of trust and faith in the DOD and the services and have a decided tendency to believe the services when they state that they need a given system or need to modify that system, and the money is usually forthcoming. It is incumbent on the DOD to spend more wisely.
Nevertheless, as taxpayers and bearers of the burden of these expensive systems we can lament that the DOD brass (civilian and military) needs to recognize what is already known by those closer to the “pointy end of the spear:” performance of a integrated weapons platform (a ‘system of systems’ to use the DOD jargon) is more dependent on personnel and training then it is on the latest technology. The right technology is great, but it doesn’t replace people or training. Continual, incremental improvements in technology are often offset by the inability of crews to fully utilize the new capabilities for months (sometimes years) and often the new capabilities have almost no bearing on the actual operations conducted by the ‘boots on the ground.’ A more selective, stair-step approach to deployed technology can yield just as capable a military if properly managed. Simply throwing newer technology at the military will never compensate for training.
Ever improving technology also can turn into a goal of its own, resulting in missed opportunities. One such example is the slow progress all the services have made in using unmanned vehicles. Unmanned aircraft in particular have been used in limited venues for decades, but many members of the aviation communities in the services have resisted deployments of these systems, viewing them as threats to their ‘communities.’ As a result, programs like F-35, P-8, and EPX continue on, despite tests that suggest that the bulk of the missions these aircraft will be tasked with might be handled by UCAVs (Unmanned Combat Air Vehicles) within the next ten years, well before the major deployments of these airframes.
But that is in reality a short-term answer. The most important piece of the solution to this complex problem lies with the DOD and the insistence by the Secretary of Defense (and insistence by the White House) that the service secretaries develop and utilize long term plans that are in consonance with both the grand strategic goals of the President as well as with the needs of the combatant commands. The service staffs will respond that they are. In fact, they are not, except by accident. Year after year combatant commands put forward their lists of their top needs; year after year they are superceded by needs that spring up out of whole cloth in Washington. Invariably, these needs reflect the concerns of the services to keep major programs well funded, whether they fit the needs of combatant commanders or not. x
Bureaucratic fixes may be of some value: placing a submariner in charge of aviation programs, and an aviator in charge of submarine programs. But, that is unlikely to result in major changes: they would quickly learn what was bureaucratically expected and bend to that pressure. The system would have compensated and little would have changed.
Instead, long term plans need to be drafted that identify all the major facets of the problem, to include concern over a ‘critical industry’ or a ‘critical technology’ or a ‘critical skill.’ Each should then be addressed from the broad perspective of the strategic plans of each appropriate department of the government. It should be a DOD requirement to defend the need for given capabilities, not necessarily how they are achieved. Let Industry and the marketplace do that.
Industry and Labor: The answer for industry and labor is a bit fuzzier. Industry and labor can both accurately assess that long drawn out contracts are just what they need for sustained profits, continued work force employment and stable and growing market share (and stock price). At the same time, we have a participatory government. Certainly, with the proper amount of disclosure we could ensure that industry and labor representatives could participate in elements of government planning. Instead of having the federal government subsidize industries past their natural deaths, why can’t we develop the appropriate branches and sequels to our plans to assist industry transitions to follow-on technologies and skill-sets?
Congress: Congress needs more discipline. While the US has always had cost overruns in it’s procurement of various items, the overruns have grown as the budget cycle has become more convoluted and as military-industrial integration has matured since World War II. Budgets are not passed on time, continuous resolutions are the norm seemingly every year, and the continual churn and indecision adds costs to every program every year. While there were a few years in the mid 1990s when Congress seemed to have taken some control of the budget cycle, that ended with the departure of Speaker Gingrich. Speaker Gingrich provided a level of discipline and leadership that had not been visible in either chamber in many years. No similar leadership has emerged since his departure. Without that first key step – real leadership to provide the clarity and focus, to make hard decisions and to enforce some real discipline on the Congress, we can expect little change in the current proceedings. xi
Certainly, without real leadership, and a sense of ‘enlightened’ self-interest, there will be no chance of eliminating the resistance to change and the effort to defend the existing industrial base.
There are any number of engineering arguments that will be offered, and are offered, to address these overruns. Proper balance of highly sophisticated weapons and platforms and more numerous lower technology platforms, changes in our force structure and doctrine, etc. And, arguably, there is a good deal to be gained by moving away from the procurement model that says that ship hulls, airframes and the like should be retained for many years.
As is being seen now with the F-15s, as well as with the Navy’s older ships (and some not so old), maintenance becomes very expensive once large, complex platforms like these reach a certain age. One argument is that the services receive a much more sophisticated and capable platform when the platform is designed to last 20 or more years vice one designed and built with the intention of lasting only half that. If ships and aircraft were designed, built and procured with the intention of replacing a destroyer for example after 25 years would the Navy receive a different result? Would the cost overruns be less? Would the ships be as capable? Would System development continue at the same place or slow down or accelerate?
It is certainly clear that the US is rapidly approaching an “all its eggs in one basket” mentality. The US Navy has one class of destroyers (the Burke class DDG) and it will be replaced by the DDX. So, DDX cannot be allowed to fail. And if it does, we will need to fall back on building more Burke destroyers. There are no other options. The Air Force is buying the F-22 in reduced numbers and the F-35 in large numbers in several years (the Navy and Marines are also buying the F-35). If the F-35 runs into problems (what program hasn’t?), the USAF, USN, and USMC will be in a situation where they will have to tell Congress “Please buy it, no matter the cost and the delay.”
Additionally, personnel management practices need to be amended so that they allow people time to actually master their “trade” and avoid the “check in the block” career paths and practices that seem to be taking over the services. xii At the same time senior personnel – who regard tours in Washington as essential for promotion - are applauded (and rewarded with additional duties and promotions) for having ‘done a good job’ by defending the programs they are sent to manage – even if the nation may no longer need it, or by eliminating a program and ‘saving taxpayer dollars’ even when the nation may have really needed that program. But who is to say whether we need a program? xiii
Such questions don’t surface often enough in the Pentagon. Instead, ‘programmatics’ – which might be defined as the interest in the specific procurement programs relative to your community – is the driver of day-to-day efforts. Thus, the F-18 community sends officers to Washington to defend the F-18 programs, and the P-3 community sends officers to Washington to defend the P-3/P-8 program. Few people are running around the Pentagon trying to figure out how best to find submarines because they ‘already know;’ if they are from the P-3 community the answer is the follow-on maritime patrol aircraft (the P-8), if they are submariners the answer is more submarines, etc. In literally every case mentioned in the GAO report there are intelligent people on Capital Hill and in the Pentagon, with what they believe are the most noble of intentions, who will defend their particular program as an essential part of the nation’s security. All of them believe, usually fervently, that they are on the side of the angels.
In short, the answer won’t be found in developing more ‘procurement law’ or ‘procurement policy;’ nor will it be found in the latest technology, better engineering, or in management tools. The answer lies in a coherent debate on US strategic needs, a debate which has had little enough substantive time and effort devoted to it, and the leadership – in the Executive Branch, in the DOD, in Congress, and in Industry and Labor – to develop coherent plans and work forward from them.
Presently, every argument on procurement ‘degrades’ to a discussion on a specific favorite system from this or that participant, more protection of US industrial base (invariably also a favorite sector) and little real effort to identify what are the real goals we hope to achieve and how best to use all our assets to achieve those goals. xiv In practical terms the difference between simple self-interest and the ‘enlightened self-interest’ sought by de Tocqueville, is the distinction between short-term rewards and long-term rewards. What is needed here is clarity on both a military strategy and an industrial strategy (and an energy strategy and an agricultural strategy, etc., etc., etc.) These should be integrated under a grand strategy. Within the military strategy (and in every other sector of the federal government) procurement should reflect that strategy and should be adjusted as the strategy is developed and adjusted. The military strategy should be aware of and reflect the reality of the industrial and energy strategies, but is should not be woven together into one single military-industrial strategy. And industrial strategies need to reflect the reality of a creative and robust market-place that creates new capabilities every day, and not be tied to centralized, frightened, statist thinking that is terrified of the future.
To get to that point requires leadership: leadership in the executive branch, leadership both in and out of uniform in the Pentagon, leadership in Congress and leadership in industry and labor. Long-term benefits have to be weighed against short-term political and economic payoffs, and Congress should try to focus on transitions of industry over the long term rather than playing favorites and maintaining its defensive crouch around various economic sectors.
Bureaucrats will rarely accept risk, and will never want to deal with the consequences of their decisions. Leaders will and do.
i - The GAO report provides figures in current dollars which, because the Gross Domestic Product (GDP) continues to grow have become quite large. As a percentage of GDP, that is when the figure of merit is the percentage of the yearly national ‘wealth’ placed against a specific program, the B-29 program is still the most expensive single program the US has ever produced, consuming roughly $3 billion dollars over a period of four years when real GNP was roughly $100 billion. This equates to ¾ of one percent of GNP for four years, roughly equivalent to $420 billion in today’s terms. (US GNP in 1941 was roughly $100 billion; after Pearl Harbor wage and price controls went into effect that prevent any meaningful comparison; officially, US GNP grew to $230 billion by 1945, but nearly all of that growth was a direct result of government deficit spending on top of the wage and price control).
As for other countries and problems with cost versus return, it is enlightening to remember that Robert Goddard (the inventor of the liquid propelled rocket, who died in 1943) manufactured a liquid fueled rocket that, according to Werner von Braun was two years ahead of his rocket. Goddard had spent perhaps 3 or 4 millions dollars in development, the Germans had probably spent closer to a billion dollars.
ii - From Fortune Magazines Fortune 500 edition for 2007 and 2008:
Aerospace and Defense [I list just the top 10 corporations and their profit margins]
...............................................................2007..........2008
Boeing........................................................4%..............6%
United Technologies.....................................8.................8
Lockheed Martin..........................................6.................7
Honeywell International................................7.................7
Northrop Grumman.......................................5.................6
General Dynamics.........................................8.................8
Raytheon.....................................................6.................11
L-3 Communications......................................4..................5
Textron.......................................................5..................7
Goodrich.....................................................8%..............7%
iii - The first major US weapons procurement program, the purchase of six frigates for the US Navy under the Armaments Act of 1794 (the USS Constitution was one of the six), was structured by the Navy, with the knowledge of Congress, to ensure the ships were made in several different shipyards in different states, with parts (wood for planking, spars, rope, tar, copper, guns, etc., etc.) from every state, with piers and facilities for the ships in different states, in order to ensure both support in Congress and visibility among the people of their Navy, while ensuring tax revenues were evenly distributed among the states.
iv - This particular cost overrun is not reflected in the GAO report, which was printed before these facts came to light. The numbers are from recent newspaper reports. See Atlantic.com and Global Security.org for more details.
v - As one senior officer put it several years ago, ‘if we operated like this a hundred years ago, the US would still have horse and buggies, there would be people in the Pentagon calling for titanium buggies with GPS and data links – and Congress would fund it.’
vi - The US shipbuilding and shipping industry is a great example: from the 1820s until the beginning of the Civil War US shipbuilding grew from a small industry to a huge one, and was on the verge of challenging the UK for the top position in the industry. The Confederate states raiders, particularly CSS Alabama, caused US ship owners to re-flag their ships under European flags to avoid the raiders. Ship construction contracts followed. As the industry declined, a series of steps were taken by Congress, often with the support of the Navy, to protect what was left of the industry. With the exception of the two World Wars, the industry never recovered. Now, with nearly a century and a half of a whole host of protectionist steps in place to defend the industry, US shipbuilding is substantially dependent on naval construction for survival. If long-term strategic goals had been considered instead of short-term fiscal and political concerns, other steps might have been taken and the entire US maritime industry might be a good deal larger today than it is.
vii - One example of this is the incredibly slow progress the Navy and Air Force have made in adopting unmanned aircraft to various roles, with plans for manned aircraft playing the leading role in virtually every mission well into the 21st century.
viii - Full scale production is truly a misnomer, as noted earlier; most of the production facilities are sized for much higher production rates if the DOD or Congress called for it; the excess capacity is justified as providing the US a ‘what if’ capability.
ix - The speed (or lack thereof) is often defended with the mantra ‘technology is changing so fast that…’ This is not simply hot air, it’s wrong. In 1880 the US Navy had completely forgotten the lessons of technology it had learned in the Civil War (iron ships, propellers not sail, gun turrets, etc.) and returned to sail. In 20 years the Navy converted completely over into iron ships that were ten times larger then anything they had ever had built, had moved from sail to coal powered reciprocal engines to the first steam turbines, had built a series of ever more complex naval guns with ranges (and associated tactics and doctrine) that were an order of magnitude more complex then those of the 1880s. Similarly, from 1935 to 1955 aviation went from reciprocating radial engines and un-pressurized aircraft, to jet powered supersonic fighters, the first truly intercontinental aircraft, payloads increases of 1000% and 2000%, the introduction of long-range ballistic missiles and the introduction of nuclear weapons and computers.
x - Service staffs, that is, the large staffs in Washington, generally believe that they have a better feel for the future needs of the services then do the people in the field. They usually have the statistics to back up their position. This is how the US came to have the M-16 and the 9mm pistol. More than forty years after the introduction of the M-16 soldiers and Marines still complain about it, despite the many modifications that have been tacked onto it. It is interesting to note that no Special Forces unit uses the weapon. As for the 9mm pistol, soldiers and Marines still are calling for larger bullets, reflecting a lesson learned 100 years ago in the Philippines, a lesson which led to the introduction of the .45 automatic in 1911, the weapon the 9mm replaced.
xi - Comments that ‘Congress needs to be held accountable’ are nonsensical: Congressmen are held accountable by their constituents every election. The fact is that many voters agree with their Congressman when he votes to keep a plant or shipyard open, even when such an act results in a more expensive weapon system.
xii - Several examples will suffice: there is now – apparently – a policy in place in one of our services to limit command tours to 18 months so that everyone can get a command. As a result a recent unit commander took command of his unit on the day it returned from deployment in the Mid-East, spent 18 months training it to be ready to deploy, then turned over command the day the unit re-deployed to the Mid-East. That makes so little sense that no further comment is needed.
A second example was a discussion I had with the crew of a US intelligence collection aircraft who spoke in glowing terms about the technical capability of their opposite number from the UK. When I later visited the UK crew I found that the gear that they were using, by their own admission, did not match that which the US aircraft and crew had. But the difference was that the UK crew had been flying together as a crew for an average of 12 years, that the newest crewmember had joined them more than 8 years earlier, and that three men had been together for nearly 18 years. They truly functioned as a “team.”
xiii - Its been my observation that real professionals are usually the least sentimental about a given thing, and are more willing to accept changes in how their mission is accomplished and what ‘tools’ are used. They are also wiling to tell you that ‘all that is needed here is a hammer.’
xiv - As one student said at the Naval War College several years ago: ‘the only right answer to the question “How many carriers do we need?” is “Depends on what you want to do with them.” The same is true of any weapon system.
posted by Pete O'Brien @ 5:38 PM
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