Government Executive - Authors - Sandra I. Erwin

Wrenching Changes

Sandra I. Erwin — Thu, 15 Jun 2006 00:00:00 -0400

Don't let soaring Defense budgets fool you. It's just a matter of time until military spending tightens, cutbacks begin and weapons become unaffordable.

Pentagon budgets are climbing to levels not seen since the Cold War. Nevertheless, within military circles and on Capitol Hill there is a collective sense of frustration and uncertainty about the future of major weapons programs and the perceived failure of the Defense Department to reform its procurement system.

During the past five years, the Defense Department has doubled its planned investments in new weapon systems from about $700 billion in 2001 to nearly $1.4 trillion in 2006. Now the services are being warned to brace for cutbacks in procurement spending to offset federal deficits and escalating costs of fighting in Iraq and Afghanistan. Based on historical trends, the current spike in Defense expenditures is temporary and a prolonged dry spell is in the offing.

For buyers of military equipment, there is a "declining window of opportunity," says Army Maj. Gen. Jeffrey A. Sorenson, deputy for acquisition and systems management. He notes that of the Army's current budget of $160 billion, about $60 billion comes from emergency war supple- mental appropriations. "This is not going to last and will decline," he says. Since 2002, Congress has approved more than $300 billion in emergency funds to bankroll operations in Iraq and Afghanistan.

Predictions from independent analysts are gloomy. During the past four years, the long-term fiscal picture has deteriorated dramatically, says Steven Kosiak, budget studies director at the Center for Strategic and Budgetary Assessments, a Washington-based nonpartisan think tank. The fiscal 2007 Defense budget, which is expected to exceed $520 billion, continues the dramatic growth that began in 2002. Over the longer term, however, Kosiak says, "Once a decision is made to address seriously the ballooning federal deficit, history strongly suggests that cuts in Defense spending-or, at a minimum, slower rates of growth in Defense spending-will be part of the solution adopted." If history is any guide, major weapons acquisition programs are likely to exceed projected price estimates, he says. Similarly, operations and support activities are likely to cost more than anticipated.

Worries about a funding crunch are not new. Since the 1990s, experts have warned about a fiscal "train wreck." They also have issued dire alerts of a procurement bow wave years from now, when the Pentagon finds it has more programs in development and production than it can pay for. Further, a combination of soaring weapons costs and a spate of procurement fiascos at the Defense Department have prompted calls to reform acquisition rules and policies yet again.

Attempts to nix weapon acquisitions generally fail because elected officials face political backlash when jobs in their districts are threatened. But even lawmakers who traditionally have supported increases in Defense spending recently have voiced discontent about the Pentagon's inability to rein in the cost of programs and keep them on schedule. In last year's Defense authorization bill, the House and Senate Armed Services committees called for the Pentagon to better manage its highly bureaucratic process for determining what equipment it needs to buy-which often is divorced from budget realities, and is blamed for cost overruns and schedule slippages.

Two decades of procurement reforms have not tackled fundamental problems. The Government Accountability Office, in a study released in April (GAO-06-368), assessed 23 major programs and determined that 10 are experiencing cost overruns greater than 30 percent, or are more than a year behind in achieving technical milestones. GAO faults the Defense Department for rushing to produce weapons systems without sufficiently testing technologies and making sure they can perform effectively in combat. "The overall impact of these costly conditions is a reduction in the value of Defense dollars, and a lower return on investment," writes Michael Sullivan, GAO acquisition analyst.

Druyun Debacle

The Air Force still is trying to recover from a major procurement scandal last year involving the improper hiring of Darleen Druyun by Air Force contractor Boeing. Druyun was in charge of Air Force acquisitions when she was offered a job at Boeing. At the time, she was evaluating a multibillion-dollar Boeing bid for Air Force tanker aircraft. She subsequently was sentenced to nine months in prison for violating conflict-of-interest laws. The political fallout was so severe that the Air Force appointed a special assistant to the secretary of the Air Force for acquisition governance and transparency.

That special assistant, Kenneth E. Miller, says the Air Force has endured much embarrassment from the Druyun debacle. "It hasn't been pretty," he says. Of most concern is the service's credibility on Capitol Hill, where lawmakers have grilled Air Force officials over the past year for burgeoning costs and schedule slips in several space programs.

Air Force Secretary Michael W. Wynne asked Miller to diagnose what was ailing the service's acquisition business. Miller says he found inadequate planning and budgeting, lack of understanding of technology, and schedule and cost risks. The Air Force recently approved a revised space acquisition policy that directs programs to take a less risky, more incremental approach. Leadership also is lacking, Miller told an industry conference in Arlington, Va., in April. The way to fix that is by nurturing the professional acquisition workforce, which was severely downsized in the 1990s, Miller said. Since then, the services progressively have become more dependent on contractors to make key decisions.

The latest twist in Defense acquisition reform is a shift toward joint programs funded and managed by more than one military service. Pentagon officials for years have expressed discontent about the disjointed nature of military procurements, which often result in incompatible technologies and wasteful duplication of efforts. "We operate jointly, but we buy as services or agencies," says Diane Wright, director of air warfare and defense systems, at the office of the undersecretary of Defense for acquisition, logistics and technology. In the fiscal 2008 budget, she says, the Pentagon will direct the services to manage programs as portfolios of military capabilities rather than as individual projects. Examples of portfolios include intelligence, reconnaissance and surveillance, logistics and communications.

The Defense Department has yet to settle on specific changes in buying habits, however. "What's the right acquisition structure for joint programs?" Wright asks. Doing away with service-by-service acquisition seems an attractive solution, but it is unlikely because not every program is relevant to all branches of the military, Wright says.

The latest blue-ribbon panels to examine Defense acquisition suggested that joint programs have merits, but that the department would be better off decentralizing procurement oversight and allowing the services more control over their programs. That recommendation by the Defense Acquisition Performance Assessment panel, whose January final report was updated in March, was not well received by Pentagon leaders who favor additional supervision of service procurements. The newest process for reviewing programs calls for top-down guidance, says Army Maj. Gen. Michael A. Vane, vice director for force structure on the Joint Chiefs of Staff. "There's a top-down and a bottom-up point of view," he says. "Frankly, I think we need a better balance."

That the Defense Department essentially brushed off the DAPA proposals only reinforces cynics' view that procurement reform is hopeless. "After World War II, we had commission after commission after commission" studying Defense procurement, says Ronald Kadish, chairman of the DAPA panel, speaking at an industry conference hosted by the National Defense University Foundation in Washington last fall. Although the United States produces the best military equipment, he says, people think it still costs too much and takes too long, and nobody has found a solution.

The DAPA panel proved unoriginal in many of its proposals that first were put forth 20 years ago by the Packard Commission, created after a wave of procurement scandals in the 1980s. Among the retread recommendations: Shift accountability to the uniformed services, engage combatant commanders in setting requirements and reward contractors for making programs less risky. But DAPA also challenged the Pentagon with some advice about more recent problems. Panelists urged Defense to replace the current arcane process for setting requirements, known as the Joint Capabilities Integration and Development System. Under it, multiple study groups analyze every program based on its ability to deliver joint warfighting capabilities. "It's unwieldy," says Miller. JCIDS has been criticized for delaying weapon programs, and for making it more difficult for the services and contractors to justify the merits of their systems. Vane agrees that JCIDS has not been welcome in many circles: "We haven't done a very good job articulating the components." Part of the problem with the system is that it's still evolving, says Wright. JCIDS evaluation panels face a backlog of programs scheduled to move into their next stage of development. Simultaneously, these panels are trying to rewrite the process to accommodate joint programs, thus causing delays. Regardless, JCIDS reviews are here to stay, industry and government officials agree.

One of the few DAPA proposals the Pentagon has embraced is that field commanders should have more input into buying decisions. Combatant commanders report equipment shortfalls in several areas, says Vane. These include command-and-control, networks, information operations and situational awareness. Defense must better address these needs. "The services have done a pretty good job in providing traditional systems. But they need to work on these other areas," he says.

Delores Etter, assistant secretary of the Navy for research, development and acquisition, complimented the DAPA effort for highlighting the need for contractors bidding on complex technology developments to deliver realistic plans and cost estimates. "Contractor and program manager optimism causes a lot of challenges in our programs, particularly software," she told an industry conference sponsored by the Precision Strike Association in April. So many of the military's weapon systems are software-based that it "becomes a very important issue how we understand optimism, and try to control it so we can reduce volatility."

Ornaments vs. Ordnance

But regardless of which reforms come to fruition, in the end, it's all about the budget. If predictions of reduced spending-which would not materialize until a new administration takes office-become reality, the debate likely will shift from procurement reform to deciding which programs to cancel. A salient factor is how much military capacity the nation will need in the long term, assuming the war on terrorism continues. Army Chief of Staff Peter J. Schoomaker is one of those who believe a fundamental shift is needed in the way we think about Defense spending. Under his philosophy, procurement reform has to be about making sure the military is well equipped for the long haul, rather than worrying about the ups and downs of budget cycles.

He blames the spending cutbacks of the 1990s-a decade of relative peace-for the Army's $100 billion shortage in its weapons accounts. The gap has meant the service can't buy enough essential equipment, such as body armor and armored trucks, for Army troops in Iraq. The scarcity of critical gear caught officials off guard and prompted a mad scramble to mobilize suppliers and catch up with demand.

Defense budgets traditionally have peaked during war and dramatically dropped in peacetime, but today it's not as clear what constitutes peacetime or wartime. "This is such a dangerous time. This country has never been as vulnerable," Schoomaker says. "We cannot approach it the way we have historically. This is a world where you have to play full-court press all the time, and it's going to get worse." If spending does decline, the services still have to find a way to be combat ready. That means the nation cannot stop buying weapons during the down cycle in the hope that no major conflict erupts, he says.

Without counting war supplemental appropriations, the Defense base budget of $440 billion amounts to 3.9 percent of the nation's gross domestic product. By way of comparison, Schoomaker, speaking to a group of reporters in April, cited news reports that Americans spent almost the same amount-$438 billion-during the 2005 holiday season on gifts and ornaments. His analogy stirred a minor controversy, and his logic in making that claim has been questioned. But he succeeded in putting Defense spending into a larger context.

Tough questions most likely are the subject of ongoing deliberations as the Defense Department prepares its 2008 budget. But will we soon see a procurement "train wreck"? Not a chance, at least until the next administration comes to town.

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Heavy Seas Ahead

Sandra I. Erwin — Fri, 15 Jul 2005 00:00:00 -0400

The fleet and crew are poised to shrink, but the Navy's missions are growing.

Chief of Naval Operations Adm. Vernon Clark has studied the teachings of Jack Welch and other corporate gurus for the past six years, seeking ways to increase the return on the nation's $120-billion-a-year investment in the service's sailors, ships and other equipment. But as his July 22 retirement approaches, Clark leaves a host of unresolved issues. His successor, Adm. Michael G. Mullen, inherits a Navy that is getting smaller, and also busier. It is a Navy that, in Clark's words, is overstaffed, yet still needs more intellectual capital. And one that bases much of its strength on superior ships and technological clout, but continually must trim shipbuilding budgets as costs spiral out of control.

The rising prices for ships, and consequent plans to cut back purchases in fiscal 2006 through 2011, have made the Navy the target of much criticism in recent months. The spending reduction plan sparked heated debate within the Pentagon and on Capitol Hill about the future of the Navy-it already has shrunk by more than half since the end of the Cold War. The official word is that the number of ships is not what really counts, but rather the capabilities of each ship. But lawmakers and industry insiders aren't buying that.

Numbers matter to shipbuilders. Philip Dur, who recently stepped down as president of Northrop Grumman Ship Systems, for many months has called on the Navy and the Coast Guard to determine how many ships they need to meet national security requirements. Once that number is set, the industry can "right-size" itself, says Dur.

With only two major private shipbuilding companies remaining-Northrop Grumman Corp. and General Dynamics Corp.-any form of right-sizing would lead to politically unpalatable shipyard closings and layoffs. Just a year ago, Clark maintained the Navy needed 375 ships to meet its required missions. He backed away from that number when it became clear that Pentagon leaders would not support an expansion of the fleet from its current 290 ships. The Navy in April sent Congress an "interim" long-range shipbuilding plan. The proposal shows a Navy fleet that could, during the next three decades, be as small as 260 ships or as large as 325.

Shipbuilding advocates on Capitol Hill already have dismissed the plan as unrealistic. The Congressional Budget Office estimated in an April 25 report that the Navy would have to spend an average of $15 billion annually (in 2005 dollars) on ship construction to achieve a 260-ship fleet in 2035. Realizing a 325-ship fleet by that year would require an average shipbuilding budget of $18 billion annually. But the service projects shipbuilding budgets are unlikely to exceed $10 billion a year in the foreseeable future.

Ideally, the Navy should be able to forecast its needs much more accurately, but an estimate somewhere in the range of 260 to 275 ships is the best it can do right now, says Vice Adm. Joseph A. Sestak Jr., deputy chief of naval operations for warfare requirements and programs. "What I can't do, or I don't think anybody can, is predict with pinpoint accuracy how many ships we'll need in 35 years," he says. These decisions are "driven by the vagaries of the strategic environment," he adds.

Culture Clash

Meanwhile, the tenets of efficiency that Clark has promulgated would drastically change Navy culture. To get more productivity from the current fleet, Clark espoused a crew-swap program that keeps vessels deployed for two years, with sailors rotating every six months. Today's standard deployments generally occur once every 27 months and last for six months, during which the crew and ship are in theater for three to four months. The plan would be to keep ships out at sea longer while crews came and went.

But in November, the Government Accountability Office [GAO-05-10] reported that one experiment with crew rotation-Sea Swap, which keeps ships at sea two to four times longer and swaps crews every six months-produced serious morale problems that have led to a lower rate of re-enlistment. The need for more maintenance due to the ship's longer time at sea has led to less liberty time for crews, who have been forced to remain on board working when their ships pulled into port, while sailors from other vessels were allowed to go on shore leave.

Another of Clark's efficiency measures, the "fleet response plan," would reduce the number of ships required to be constantly out at sea. Instead, fleet response would position ships and crews to be ready to surge rapidly into action when called upon. Clark promised Defense Secretary Donald Rumsfeld that the Navy would be able to deploy up to six aircraft carriers within 30 days of getting the go-ahead. That marks a drastic departure from the days when carriers had predictable schedules and destinations.

The fleet response plan has been vilified privately by officers who believe the Navy's and the nation's strength is founded on the steady presence of its carriers around the world. Compounding the fears of those who support keeping a core number of aircraft carriers is the Navy's intent to downsize the fleet from 12 to 11 flattops, and possibly cut that number to 10.

Sestak recognizes the predicament the service confronts, but he stresses that the Navy must have a flexible plan that can accommodate emerging needs. "That does not mean we shouldn't have more stability" in the budget, he says. "That is what is most important to industry." Shipbuilders are becoming increasingly anxious about getting caught in the dreaded "death spiral" that often haunts big-ticket Pentagon programs. As the Navy buys fewer ships, the cost of each vessel rises, leading to yet more cutbacks. At that rate, even one shipyard would be too many, industry advocates lament.

$1.4 Billion Per Ship

GAO estimates that between 2001 and 2005, 5 percent to 14 percent of the Navy's annual ship construction budget, which totaled $52 billion during that five-year period, went to pay for the cost growth of ships funded in prior years. At a time when the Navy is in the early stages of buying the Virginia-class submarine, the futuristic DD(X) destroyer, the CVN 21 aircraft carrier and the new Littoral Combat Ship, its ability to acquire these ships as scheduled will depend on controlling costs, says GAO. Robert Work, senior analyst at the Center for Strategic and Budgetary Assessments in Washington, says the average cost of a Navy ship today is $1.4 billion. At those prices, it's no wonder the Navy is buying only four ships next year, he says. "Unless we change that, you are in a spiral that is impossible to get out of."

Even if the Navy's shipbuilding budget soars as projected, from $6.3 billion this year to $10 billion in the coming years, the fleet will drop to between 210 and 225 ships, Work says. But the United States has such overwhelming naval power that it's unlikely another country would challenge it on the seas, even if the fleet fell to 200 ships, he adds.

Shipyard officials hope that the $1.4 billion price tag will come down as a result of corporate efficiencies they've introduced in recent years. But those cost reductions will be marginal unless the Navy increases production. "In shipbuilding, when you do things in a repetitive way, you can do them more efficiently and you can lower costs," says C. Michael Petters, president of Northrop Grumman Newport News Shipbuilding.

It is premature to panic, he suggests. "We are at a time when it's not clear to anyone, I don't think even to the Navy, exactly what the way ahead is. . . . If you ask people at the Pentagon what the Navy of the future will look like, you'll get a different answer from everyone." The Pentagon's office of industrial policy, in a study published in May, predicted difficult times ahead for the Navy. "U.S. shipbuilders produce the finest warships in the world, but cost growth continues to erode the purchasing power of the Navy," says the study. The cost growth is attributed to "commencing construction with immature designs; material and other schedule delays; inexperienced labor; and drops in productivity due to new construction facilities or the introduction of a new series of a given combatant."

And while shipbuilding woes have commanded headlines, they are only one piece of a larger quandary facing military leaders: Deciding what kind of Navy the United States needs to fight terrorism overseas, defend the homeland and, in the process, ensure that all this comes at an "affordable" price. Comments from Navy leaders, so far, indicate that the future remains very much undefined.

Tough Trade-Offs

Senior Navy leaders working on the Pentagon's Quadrennial Defense Review are grappling with these issues. With the size of the Navy shrinking and ships becoming unaffordable, the service's strategy now being fed into the QDR is underpinned by expectations that it will be able to do more, even with fewer ships, explains a senior official who asked to remain anonymous. Three new areas are being added to the Navy's mission: law enforcement in the aftermath of military intervention, homeland defense and combating terrorism.

The Navy can afford this ambitious plan only by making trades between the capabilities assigned to traditional major combat operations and those allocated to new irregular challenges-a low-cost means of neutralizing the Navy's powerful high-tech fleet-such as ballistic missiles, swarming boats, mines and diesel submarines, the official says. "Where do you accept risk to be competent in all areas? That is the major focus of this building right now," the official says. "Much of what we need, it's already paid for. It's a question of how to leverage what we have."

As a backdrop to the exchange of ideas that is shaping strategies and budgets is Clark's long-held desire to beef up the service's intellectual capital, vaguely defined as those highly qualified individuals with the professional skills and the commitment to service that will bring the Navy completely out of the Cold War era and into the Information Age. "I believe we have a Cold War strategy that will not produce the kind of military that is required for the future," Clark told a March 31 conference in Washington sponsored by the Heritage Foundation, a Washington think tank.

The consensus is the Navy could simultaneously deploy more ships and downsize the force, because ships will be more technologically advanced and staffed with smaller, but skilled and better educated crews. A destroyer that typically goes to sea with 300 sailors would see crews as small as 100. An aircraft carrier, which usually has more than 5,000 sailors aboard, would deploy with about 3,000.

The Navy allots about two-thirds of its budget to personnel-related expenditures, so the money must be used wisely, Clark says. "We'll spend whatever it takes for the people who have committed their lives to defend the principles and the values this nation believes in. . . . But I don't want to spend a nickel for somebody that we really don't need." Clark's position that the Navy should not pay for people who don't have useful jobs already has been turned into action. Last year, the Navy budgeted for 7,900 fewer sailors, generating annual savings of $254 million.

But the high retention rates of the past two years have resulted in overstaffing and complicated planning, officials say. The Navy's workforce today is about 960,000 strong, including active-duty personnel, reservists, civilian employees and contractors. The size of the future force has yet to be determined, but it will be smaller.

Like many other industries, the Navy wants to replace manual labor with high technology. But doing this might be harder than it sounds, says Gregory Maxwell, director of human systems integration at the Naval Sea Systems Command. "We're constantly challenged with technology as the solution to taking people off of ships, and people say that like it's easy," Maxwell says. "I don't believe that all technology can replace sailors one for one. In fact, I think that needs to be assessed."

The Navy is accustomed to divvying up resources to its three major communities: surface, air and undersea. The emphasis now has moved to "total force" requirements: basing resource decisions on what makes sense in the context of joint operations with the other military services. In this context, it's not clear which Navy communities will be winners and losers in the ongoing budget wars. Although the surface Navy has high-level support for pricey new vessels, such as the DD(X) destroyer and the Littoral Combat Ship, both these programs are under intense scrutiny.

Ships used to transport Marines to war, such as the San Antonio class of amphibious transport dock ships, almost certainly will see cutbacks. Submariners could see a sizable drop in the number of new Virginia-class attack boats. The attack-submarine fleet, which once was estimated to require 55 boats to patrol the world's oceans, likely will drop to 41.

Predictions of a shrunken fleet also shaped base realignment and closure decisions unveiled May 13, when the Defense Department announced its intention to shut down two major naval maintenance facilities-Portsmouth Naval Shipyard in Kittery, Maine, and the New London Naval Submarine Base in Groton, Conn.

Even as he prepares to depart, Clark continues to preach his business mantra. "I'm studying the big boys of industry and figuring out how they've done it," he says. A new team of leaders preparing to take over may or may not embrace the same approach to running the Navy, but will, in one form or another, continue pursuing efficiency.

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