New rules aim to rein in Defense spending

In an attempt to reap substantial savings by making the acquisition process more efficient, Defense Department officials on Tuesday announced far-reaching changes to how the department will buy weapons and services.

"This is a product of very intense effort," Defense Secretary Robert Gates said, noting department officials took into consideration hundreds of recommendations from industry in crafting new guidance that will for the first time make affordability a requirement and a key performance parameter in the acquisition process.

"Managers will ensure that a program's initial designs are constrained by its ultimate schedule and cost. Implementing this guidance will enable this department to make programs more affordable without sacrificing important capabilities and prevent us from embarking on programs that have to be canceled when they prove unaffordable," Gates said.

The announcement is part of a broader efficiency initiative begun last June to find $100 billion in overhead savings that instead can be spent on troops and weapons.

Ashton B. Carter, undersecretary of Defense for acquisition, technology and logistics, said, "There is every reason to believe the efficiencies we are seeking can be realized."

The 23 principal actions contained in the guidance fall under five broad categories: target affordability; incentivize productivity and innovation in industry; promote real competition; improve tradecraft in services acquisition; and reduce bureaucracy.

The guidance will apply to all new weapons purchases, officials said. The emphasis on affordability already is being applied to the next-generation ballistic missile submarine the Navy seeks. Estimated costs for a single sub had risen as high as $7 billion, but after applying new standards, the costs are now roughly $5 billion -- a reduction of 27 percent in a program expected to cost more than $100 billion.

"Designing to affordability and not just desire or appetite is critical," Gates said.

Gates and Carter both noted that while much of the focus on acquisition reform has been on weapons contracts, considerably more attention must be paid to services contracts. Fully half the $400 billion the Pentagon spends annually on contracts is for services such as technology support, facilities upkeep, weapons maintenance and transportation.

"Believe it or not, our statistics show we are performing even worse in the acquisition of services," said Carter. "We don't even have a standard way of talking about services. This guidance establishes a standard taxonomy. It's as though you were buying weapons and never distinguished between planes, ships and tanks. There are a lot of different kinds of services; they all require different managerial structures, they all have a different industrial base. This is a very rich area and because there is so much money, we really do believe we can do a lot better for the taxpayer," Carter said.

Stan Soloway, president and chief executive of the Professional Services Council, an industry trade association, said, "As we noted when Dr. Carter issued his June 28 memorandum announcing this initiative, the key to effective implementation will be careful, fact- and experienced-based analysis that fully accounts for the wide range of variables involved."

The council has expressed concerns about the Navy's preferred supplier program, which would be expanded across the department under the new guidance. The program "might generate real cost efficiencies, but could also diminish competition," Soloway said. "Likewise, creating a senior manager for the acquisition of services in each military department makes sense, but only if those individuals receive both the resources and authority to effect meaningful improvements."

PSC and other industry representatives will meet with Carter on Thursday to discuss their concerns about the new guidance.

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