Price Wars

As budgets tighten, the Pentagon and its contractors look for ways to cut costs.

The post-Sept. 11 defense spending boom is over. That's the message Defense Secretary Robert Gates sent to Pentagon officials and military contractors this spring when he ordered a "hard, unsparing" review of how the department is staffed, organized and operated.

"The purpose is to significantly reduce our overhead costs in order to free up the resources needed to sustain our force structure, to modernize and to create future combat capabilities," Gates said in June at the Pentagon.

Specifically, Gates wants to find $100 billion in overhead savings over the next five budget cycles, beginning with the 2012 budget, to fund needed equipment and weapons during what is projected to be a period of slowed or flat military spending. "An important part of achieving that goal is working closely with our industry partners and departmental contracting professionals," he said.

In June, Ashton B. Carter, undersecretary of Defense for acquisition, technology and logistics, met with corporate executives and military acquisition leaders to discuss how the department can fund modernization programs by eliminating unproductive overhead and transferring the savings to war-fighting capabilities: "In effect, doing more without more," as Carter put it.

Industry seems to be getting the message. According to a roundup of corporate layoffs published on, defense giants Lockheed Martin Corp. and Boeing Co. both plan to cut hundreds of jobs this year. For its part, Northrop Grumman Corp. announced in July that it would close one of its seven shipyards and perhaps spin off its entire shipbuilding business.

In addition, Lockheed, the Pentagon's perennial top contractor, said in July it would offer early retirements to top executives as part of a broad effort to streamline management and reduce costs. "Our customers are facing increasing demands with constrained resources, and they are relying on us to give them the very best value within those constraints," Chief Executive Officer Robert J. Stevens said in a statement, citing "the new reality of our business environment."

Not all programs are feeling the budget squeeze, of course. Ongoing operations in Afghanistan and Iraq have ensured there remains a formidable appetite for new weapons systems, such as robotic vehicles and unmanned aircraft, including the Predator and Reaper reconnaissance and strike systems, as well as the long-endurance Global Hawk surveillance system. Likewise, the mine-resistant ambush-protected family of vehicles will continue to see wartime growth.

Current operations notwithstanding, the Pentagon is waging a two-front war in its efficiency initiative, and getting contractors on board with the streamlining program could prove far easier than convincing Congress to lay off the military pork. While cost overruns and technological challenges forced the department to cancel the final seven of 10 planned new Navy DDG-1000 destroyers, the Pentagon continues to face strong resistance to cutting programs it deems unnecessary, especially the C-17 transport program and the alternative engine for the Joint Strike Fighter. The outcome of those battles was uncertain at press time.

New programs, including a ballistic missile submarine to replace the Ohio-class sub, a new Army ground combat vehicle, the presidential helicopter and a new family of systems for long-range strike and electronic attack, all will face unprecedented scrutiny. "We need to make sure affordability and not just appetite is designed in from the start," Carter said.

What the Pentagon is trying to achieve with its efficiency initiative is what economists call productivity growth. "In the rest of the economy, we expect this," Carter says. "You get a better computer every year, and cheaper. But we haven't seen productivity growth in the defense economy. More has been costing more. And we need to reverse that trend and restore affordability to our programs."

Click here for the top 100 Defense contractors.

Stay up-to-date with federal news alerts and analysis — Sign up for GovExec's email newsletters.
Close [ x ] More from GovExec

Thank you for subscribing to newsletters from
We think these reports might interest you:

  • Sponsored by G Suite

    Cross-Agency Teamwork, Anytime and Anywhere

    Dan McCrae, director of IT service delivery division, National Oceanic and Atmospheric Administration (NOAA)

  • Data-Centric Security vs. Database-Level Security

    Database-level encryption had its origins in the 1990s and early 2000s in response to very basic risks which largely revolved around the theft of servers, backup tapes and other physical-layer assets. As noted in Verizon’s 2014, Data Breach Investigations Report (DBIR)1, threats today are far more advanced and dangerous.

  • Federal IT Applications: Assessing Government's Core Drivers

    In order to better understand the current state of external and internal-facing agency workplace applications, Government Business Council (GBC) and Riverbed undertook an in-depth research study of federal employees. Overall, survey findings indicate that federal IT applications still face a gamut of challenges with regard to quality, reliability, and performance management.

  • PIV- I And Multifactor Authentication: The Best Defense for Federal Government Contractors

    This white paper explores NIST SP 800-171 and why compliance is critical to federal government contractors, especially those that work with the Department of Defense, as well as how leveraging PIV-I credentialing with multifactor authentication can be used as a defense against cyberattacks

  • Toward A More Innovative Government

    This research study aims to understand how state and local leaders regard their agency’s innovation efforts and what they are doing to overcome the challenges they face in successfully implementing these efforts.

  • From Volume to Value: UK’s NHS Digital Provides U.S. Healthcare Agencies A Roadmap For Value-Based Payment Models

    The U.S. healthcare industry is rapidly moving away from traditional fee-for-service models and towards value-based purchasing that reimburses physicians for quality of care in place of frequency of care.

  • GBC Flash Poll: Is Your Agency Safe?

    Federal leaders weigh in on the state of information security


When you download a report, your information may be shared with the underwriters of that document.