The Defense Department will no longer force contractors to shoulder part of the cost of Pentagon research and development projects, Pete Aldridge, undersecretary of defense for acquisition, technology and logistics, said Wednesday. For years, Pentagon acquisition officials have tapped contractors to subsidize research on new weapons projects. But the practice hurts contractors at a time when the Pentagon's industrial base is declining, said Aldridge. "If you talk to people on Wall Street, the last place they want to invest is the aerospace industry," said Aldridge in a speech at the National Press Club. "[The Defense Department] should fully fund programs we need and not tap contractors." Aldridge announced the ban on contractor funding for Pentagon research in a May 16 memo
to the military services. One exception to the new policy involves projects with a clear commercial application, where contractors may still foot some research costs. Aldridge used his address to announce other measures to prop up the Pentagon's ailing industrial base. The Pentagon will continue a Clinton administration initiative to reimburse large contractors for a greater share of the costs they incur while completing projects, he said. The Defense Department may also allow contractors that make operational improvements to keep some of the savings from such projects, he said. This policy switch would give contractors with cost-based contracts an incentive to improve efficiency, according to Carol Covey, deputy director of defense procurement for cost pricing and finance. In a cost-based contract, a contractor is paid according to the costs it incurs on a project. "On contracts that are cost-based, if a contractor does something that saves money, we save, and they don't," said Covey. A November report by the Defense Science Board urged the Pentagon to pass along half of all savings achieved through company restructuring back to contractors. Besides improving the health of the Pentagon industrial base, Aldridge announced four other top priorities for his tenure as acquisition czar:
- Improving the credibility and effectiveness of the acquisition and support process. This includes cutting the time and cost of building new weapons systems and putting the real cost of new projects in the budget.
- Revitalizing the quality and morale of the acquisition workforce. The Pentagon will use special hiring authorities granted by Congress to recruit acquisition experts with science backgrounds, Aldridge said. At Defense, the average age of acquisition workers is in the mid-40s, and more than half will be eligible for retirement between 2005 and 2007.
- Aligning weapon systems and infrastructure with a new Defense strategy being developed by Secretary Donald Rumsfeld.
- Pushing next-generation technologies that will ensure military dominance. Defense has increased spending on research and development to 3 percent of the fiscal 2002 Pentagon budget, a 20 percent increase from current levels.
Aldridge will pursue these goals in part by enlisting the new service secretaries to take a "hands on" role in procurement, he said. The Pentagon's acquisition shop will develop measurements of their progress on this agenda, he said.