Shadow Government

Gates and Carter tackle Defense budget

No one doubted that Secretary of Defense Robert Gates was serious when he announced that he would seek efficiencies amounting to at least $100 billion over the next five years. Gates made it clear that he understood that unless he could curb the Pentagon’s seemingly insatiable budget appetite, either the White House (in the form ...


No one doubted that Secretary of Defense Robert Gates was serious when he announced that he would seek efficiencies amounting to at least $100 billion over the next five years. Gates made it clear that he understood that unless he could curb the Pentagon’s seemingly insatiable budget appetite, either the White House (in the form of the Office of Management and Budget) or Congress would put the DOD on a starvation diet. Only if he could identify real cost efficiencies did Gates feel he would be justified in requesting modest growth in defense spending.

Gates has asked his undersecretary for acquisition, Ashton Carter, to oversee the efficiency drive. In turn, Carter has identified five major areas that are critical to meeting Gates’ objectives.

First, Carter wants both the acquisition force and DOD suppliers, to plan programs on the basis of what they should cost, and not merely extrapolate on the basis of historical cost figures. Second, he would create incentives for contractors to control costs through improved business practices. Third, he will seek real competition by eliminating the practice of "directed" purchases from multiple suppliers, which effectively guarantees both suppliers a share of a program and reduces any incentive for them to compete against each other. Fourth, he plans to come down hard on the bureaucracy’s management of service contracts, which account for more than $200 billion of the $400 billion acquisition accounts. Finally, Carter would reduce the number of reports that the Pentagon produces, or that contractors produce for the Pentagon.

Carter’s plan is a worthy one. But it is not entirely new. Long serving — and often cynical — senior bureaucrats will claim that they have seen it all before. 

There have been many attempts to impose ‘should cost" approaches to system acquisition. None have succeeded. As for contractor incentives, these too are not new. Until now contractors could receive "award fees" for performance; they are being eliminated for development and initial production contracts because the awards rarely accounted for cost control. But another problem with these contracts is that awards often became almost automatic, and at times therefore seemed to have little to do with actual contractor performance. 

Again, there have been attempts in the past to avoid having "directed" competitions, which, as Carter rightly points out, are not competitions at all. Yet these too seem to endure.

Clearly, what will make a difference in each of these three areas will be the enforcement of Gates’ plan and Carter’s objectives. If "should cost" methods are not properly applied, will those responsible for producing the cost estimates be fired? Will the programs be halted immediately? Will award fees and similar incentives be granted only when contractors really deserve them? Carter points to a pilot program called "Preferred Supplier." Will the program get past the pilot stage?

Finally, Carter points to the Navy’s Littoral Combat Ship program as an example of the Department’s cutting back on directed buys. But the program is still in its nascent stages — it involves the selection of one of two competing hull designs that has yet to be made. Meanwhile, the cost of the ship has skyrocketed. Carter points to program savings of $1 billion. He will need a lot more than that.

All of the foregoing challenges reflect a culture of inefficient spending that has become embedded in the collective bureaucratic psyche of the Department of Defense. The culture of inefficiency also underlies the other two areas that Carter has highlighted, and in which he is truly breaking new ground.

Service contracts have proliferated in the past two decades. This development was due to the cutback in the size of the military during the 1990s, which created vacancies that contractors — generally retired military or civil servants — would fill, often by continuing to do the work they had done while in government, but now with a contractors’ identification badge. Moreover, as a result of this development, both the military and civil servants came to realize that, by capitalizing on what is euphemistically termed ‘staff augmentation" contracts, they could both dump work on contractors, who would work long hours and weekends (while the "govvies" could leave work at 4:30 or 5:00 PM), and then lay the blame on them for anything that went wrong.

In cracking down on the worst practices associated with service contracts, Carter will have to go after the root cause of the problem, which is not the contractors, but those who hire them. It will take nothing less than a change in bureaucratic culture for him to succeed.

Carter is also right to clamp down on the proliferation of reports that threaten to denude our forests and gather mountains of dust on back room shelves. Too much money is being spent on too many reports that too few people bother to read. And the reports get redone almost annually, precisely because no one pays much attention to what has already been reported. Again, Carter’s challenge is cultural, and resides within the bureaucracy. The contractors will churn out the reports if they are asked — and paid — to do so. If the money is not available, contractors will look elsewhere for work.

Because they are tackling the Pentagon’s culture, Carter and Gates face an uphill battle. Ultimately, they will not succeed unless they can meet two critical conditions. They will need to convey the same sense of urgency to their successors, and indeed, ensure that those who succeed their successors do not drop the efficiency baton. In addition, they will need the support of the Congress, and the behavior of the Virginia delegation over the closing of the Joint Forces Command does not bode well in that regard. 

The culture of Congressional parochialism is every bit as much of a threat to the future of a balanced defense program as is the Pentagon’s culture of inefficiency. Gates and Carter will therefore have to fight on two fronts if they are to have any chance of even coming close to finding $100 billion in savings, and they will need as many Congressional allies as they can attract. If the Congress is unwilling or unable to change its own culture, the Gates-Carter initiative will go down in the history books as yet another heroic but failed attempt to find efficiencies in that massive endeavor called the defense program. 

Dov Zakheim is the former Under Secretary of Defense.

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