Frank Kendall cringes when he hears the term “acquisition reform.” The Pentagon’s top weapons buyer instead prefers the term “acquisition improvement,” which he says focuses more on the continued refinement of the entire process by which the Defense Department conceives, develops and purchases everything from ships and aircraft to trucks and ammunition.
By almost any measure, the system is broken. Consider this: The Defense Department spent at least $46 billion between 2001 and 2011 on a dozen weapons systems that never even entered production, according to the Center for Strategic and Budgetary Assessments. The two most expensive programs were run by the Army. The service spent $18 billion on the Future Combat Systems—a collection of networked vehicles and sensors—and nearly $8 billion on the Comanche stealth helicopter. That’s more money wasted in just two programs than the combined annual budgets of NASA and the National Nuclear Security Administration.
An October poll by the Government Business Council, Government Executive’s research arm, found more than 25 percent of Defense personnel were not at all confident that the acquisition process provides the military services with the weapons they need (42 percent were only somewhat confident).
“We have seen enough attempts at acquisition reform to know that there is no easy or simple way to dramatically improve acquisition outcomes,” Kendall wrote in a compendium published by the Senate Homeland Security and Governmental Affairs Investigations Subcommittee in October.
That’s why, since he was confirmed as the Pentagon’s undersecretary for acquisition, technology and logistics in May 2012, Kendall has incrementally laid out a series of projects aimed at improving the procurement process. Dubbed Better Buying Power, the program is beginning to yield results. Whether the results ultimately will be sufficient or sustainable remains an open question—63 percent of acquisition personnel who responded to the GBC poll say they are “not at all confident” the program will resolve major problems.
“The whole philosophy behind Better Buying Power has always been about continuous improvement,” Kendall says. “It’s always been about the idea that we learn as we go. We try things. If they work, we reinforce them . . . If they don’t work, we abandon them and we go to other things.”
As defense spending declines and innovations in technology can quickly render weapons obsolete, sometimes before they are even fielded, the need for delivering new weapons faster and cheaper is the driving force behind Kendall’s efforts. But the stakes are high, and the Defense Department has a lousy track record of fielding new weapons on time and on budget.
Expensive fighter jets, submarines and ground vehicle programs are crowding out other important acquisition projects down the road. For example, the F-35 Joint Strike Fighter, the Pentagon’s largest procurement program, is eating up about 41 percent of the Air Force’s $18.5 billion annual procurement budget. As a result, the service in recent years delayed purchasing a new rescue helicopter and a jet trainer, simply because there was not enough procurement money to go around.
Since Congress imposed federal spending caps in the 2011 Budget Control Act, the Pentagon’s procurement and research-and-development budgets—the so-called modernization accounts—have been in steady decline. In some cases, money has been shifted or deferred to pay for training and operations. And rising military health care and benefits costs have further put the squeeze on modernizing the military. Put another way, the Pentagon has been buying, or plans to buy, fewer items across the board.
“It is an enormous competition for resources right now, so it’s going to make it hard to do anything,” Kendall says.
Pentagon procurement spending has fallen nearly 58 percent since its $165.7 billion high point in 2008. By comparison, the Defense Department has asked Congress to approve $96.7 billion for new weapons in 2015. At the same time, research-and-development spending has declined more than 21 percent since topping $80 billion in 2009 and 2010.
One of the central goals of the Better Buying Power program is to develop new technologies that could give the U.S. military an asymmetrical advantage over potential adversaries for decades to come.
“I am greatly concerned that our military’s technological superiority is being challenged in ways we’ve never experienced before,” Defense Secretary Chuck Hagel said in September at an industry conference in Rhode Island.
For nearly a year, Kendall has been sounding the alarm that the United States is losing its technological edge. He began to notice this trend when reading technical intelligence reports in 2010 when he came to the Pentagon as then-acquisition chief Ashton Carter’s deputy.
“I was struck very quickly by the modernization program of China in particular, and to a lesser extent Russia, and how aggressively modernization was proceeding and how strategically focused it was on the objective of defeating the United States, if necessary,” Kendall says. “If you look at the things that are being developed out there—ballistic and cruise missiles, electronic warfare systems, air-to-air capabilities, counter-space capabilities, cyber capabilities—it’s quite clear [and] quite obvious their intent is to basically confront us with a dilemma that we do not want to have to face.”
The latest version of Better Buying Power, the third in four years, addresses this by placing a stronger emphasis on developing new technology, specifically “things that get us better products . . . that matter to the warfighter and give us an edge,” Kendall says.
Previous versions of Better Buying Power focused heavily on lowering program costs and empowering the acquisition workforce. The latest improvement plan will codify more than a year’s worth of verbal guidance Kendall has been giving the department’s acquisition staff and defense firms.
During that time, Kendall has been pushing companies to invest more of their own money in research and development. That could ultimately help Defense over the long term, since Pentagon-funded R&D has taken a significant funding hit in recent years.
“The idea here is that we focus our available R&D resources more effectively,” Kendall says.
The focus on innovation in Better Buying Power 3.0 represents a comprehensive approach to addressing technological investment, says David Berteau, senior vice president and director of the National Security Program on Industry and Resources at the Center for Strategic and International Studies think tank in Washington.
“You can’t do technology investment one year at a time, you’ve got to have a long-term plan in order to really guide technology investment properly,” he says.
Kendall is also overseeing a study on long-range R&D spending that will determine where the Pentagon invests its research money in 2016 and beyond. “We need to think about what’s going to give us the next generation of dominance,” Kendall says.
The idea here is that we focus our available R&D resources more effectively.Frank Kendall
Using a model from the 1970s, the department, together with defense industry, will determine where to focus investments. The emphasis will be on “maturing technologies to the point where they could be used in a product,” Kendall says.
In the 1970s, a previous period of austerity in military spending, such R&D investment strategy laid the groundwork for smart precision munitions, networked capabilities, stealth and wide area surveillance sensors, all systems that have arguably given the U.S. military an edge over its adversaries for decades. Deputy Defense Secretary Robert Work wants to replicate that model through what he calls an “offset strategy.”
“Our technological superiority is not assured, and in fact it is being challenged very effectively right now,” Kendall wrote in a white paper on the latest Better Buying Power initiative.
The reaction to Kendall’s R&D investment guidance has been mixed. Some companies have boosted their research funding, but others have argued that DOD should pony up the development money.
Kendall’s guidance would be more impactful if there was money behind it, in prototyping, for instance, says Byron Callan, an analyst with the policy research firm Capital Alpha Partners. Another approach would be to purchase systems funded on industry’s dime, such as the Textron-Airland Scorpion, an all-composite tactical jet that uses many commercial components.
“At a certain point, the rhetoric has to be backed by money because that’s what’s going to get people’s attention,” he says.
The Pentagon plans to expand its use of prototyping, something it did a lot of in the 1950s and 1960s. Kendall says this will help preserve industry’s engineering design teams, since there are fewer major Defense programs for them to work on.
Companies also have argued that Defense needs to better articulate the types of technologies it wants so companies don’t waste money developing something the Pentagon isn’t interested in buying. The latest version of Better Buying Power, experts say, could address that concern.
“I think what Better Buying Power is trying to do . . . is give industry the kind of demand signal that they need to have in order to know where to invest their scarce R&D dollars,” Berteau says.
Since 2001, the military has spent more than $46 billion on a dozen weapons that were canceled before they were ever fielded.
Here are the most expensive.
|Future Combat Systems||$18.1 Billion|
|Expeditionary Fighting Vehicle||3.3|
|Transformational SATCOM satellite||3.2|
|Crusader artillery system||2.2|
Source: Center for Strategic and Budgetary Assessments
Reining in Costs
Despite all of the Better Buying Power updates, there is a common goal: reducing the cost of new weapons. One approach is to use affordability caps and cost targets to prevent program growth. The caps are designed to control costs by forcing prospective bidders to prioritize requirements within certain budget constraints, Kendall says.
“We do not want to start programs we are going to have to cancel because we find out several years into development or even early production that they’re too expensive,” Kendall says.
Experts say the Better Buying Power initiatives are having an impact by reducing costs or preventing cost growth. But judging how much is difficult.
The affordability caps, laid out in the initial version of Better Buying Power, are real and are penetrating, according to Berteau. He notes that where cost increases have occurred, they’re largely due to the Pentagon buying fewer items as a result of federal budget caps, which can significantly drive up per-unit costs in large programs.
“I think there’s been a lot of penetration of things that we just haven’t been able to see the visible results of because they’re not assembled in a way that we can tie them back to the Better Buying Power initiatives,” he says.
The Pentagon is also turning to more fixed-price contracts to control costs. That was the approach the Air Force took for a portion of its new tanker program. The plane, which refuels other aircraft in flight, is largely based on a commercial airliner. As a result, Boeing, not the taxpayer, had to eat hundreds of millions of dollars in unplanned costs to fix a wiring problem discovered earlier this year.
Ellen Lord, president and chief executive officer of Textron Systems, believes that Defense should have more fixed-price competitions instead of cost-plus arrangements, in which a company is paid a profit above the costs it incurs.
Other Better Buying Power objectives have proved more difficult to achieve. Despite pushes by Kendall and his predecessor Carter to generate more competition for Pentagon projects, the percentage of competitively awarded contracts has been declining slowly since 2008, according to a 2014 DOD report on acquisition.
“We’re going to try to increase that,” Kendall says. “A part of that is looking out for sources of technology globally, not just in domestic markets or not just in defense companies, to bring other sources of competition into some of our programs.”
John Lehman, an investment banker who served as Navy secretary during the Reagan administration, says the lack of competition is felt beyond the initial selection of a contractor.
“The current system rewards the winner with all of the production with prices determined by a negotiation process that leaves the supplier firmly in control of prices,” he wrote in the Senate panel’s compendium.
The Pentagon is looking to buck this trend with the multiservice F-35 fighter aircraft by injecting competition throughout the life of the program. But with development and production cost estimates near $400 billion and a lifetime sustainment estimate topping $1 trillion, “affordability” isn’t a term often applied to the F-35.
The Big Squeeze
Since 2010, Pentagon funding for procurement and research and development has steadily fallen.
Totals include DOD base and war supplemental funding.
Many argue that to seriously address the cost issue, the Pentagon needs to tamp down its managers’ impulses to load up programs with highly specific—and expensive—requirements and treat cost control itself as a fundamental requirement. Earlier versions of Better Buying Power did just that by mandating affordability.
According to Jamie Morin, director of the Pentagon’s Cost Assessment and Program Evaluation office, the Air Force cut billions of dollars from the Space Fence, a ground-based radar system to track satellites and space debris, by scaling back requirements after receiving exorbitant cost projections before acquisition.
“The Space Fence case . . . illustrates how the department can sometimes save billions in program costs by developing smaller, technically viable solutions that still meet warfighter requirements,” he wrote in the Senate compendium. “Less technically complicated, lower cost acquisition efforts can often be delivered more rapidly, so while there may be compromises in terms of what requirements are met, timely fielding can also help to reduce overall risk by narrowing gaps in military capability.”
Previous versions of Better Buying Power have focused on empowering the acquisition workforce, but the latest version takes it a step further by making sure the right people are in the right jobs.
“The success of the acquisition system will always be dependent on the judgment and choices of those empowered to make resource allocation, program management and other decisions,” J. Michael Gilmore, DOD’s operational test and evaluation director, wrote in the Senate report.
I feel strongly that if you’re going to lead a development program or manage a development program, you should have a technical background.Frank Kendall
“It is therefore unlikely that the acquisition system can be ‘fixed’ solely by the passage of policy updates or legislative reforms,” he wrote. “Program success ultimately derives from the leadership’s ability and willingness to make sound decisions and hold people, including itself, accountable.”
Kendall says Better Buying Power 3.0 addresses program manager experience:
“I feel strongly that if you’re going to lead a development program or manage a development program, you should have a technical background.”
Whether Kendall’s priorities have penetrated the entire acquisition workforce is another question.
“It’s just not clear that this has really found its way down to the front lines yet,” says Callan of Capital Alpha Partners.
More important, according to Berteau, has been oversight at the top level—from Kendall to Hagel—which shows the priority that has been placed on achieving success. “That’s really powerful to me,” he says.
Kendall meets regularly with staff to review progress on each of his acquisition improvement initiatives. In addition, unlike many of the Pentagon’s top civilians, he has committed to staying through President Obama’s final term in the White House.
“That’s the level of senior management attention it takes,” Berteau says.
Ultimately, the best way to significantly speed up the process of buying weapons would be a thorough scrub of antiquated procurement laws, something that could yield the most significant defense acquisition overhaul since the Packard Commission launched major reforms nearly 30 years ago, experts say. Rep. Mac Thornberry, R-Texas, vice chairman of the House Armed Services Committee, has joined forces with Kendall, whose position was created by the Packard Commission, to do just that.
“We’re at a historic opportunity here in terms of the ability to rationalize government acquisition in general, and defense acquisition in particular because we’ve got alignment between congressional interest, executive branch interest and industry’s interest,” Berteau says. It’s an issue Berteau knows well—he was the Packard Commission’s executive secretary.
We’re at a historic opportunity here in terms of the ability to rationalize government acquisition.David Berteau, Center for Strategic and International Studies
For the past year, Thornberry and Kendall have been combing through volumes of acquisition policy, looking for ways to reduce red tape without compromising oversight.
“Even if all you did was create common thresholds and common report cycles, you’d save so much time and money in terms of just compliance alone, without any reduction in the actual amount of valuable oversight,” Berteau says.
Callan agrees that aligning new policy with the budget is key.
“The thoughts are definitely there; it’s can you align it with policy and budget?” he says. “That’s, I think, where you go: OK this is now going to become sticky as opposed to something that’s still pretty ephemeral.”
Marcus Weisgerber is the global business reporter for Defense One covering the intersection of business and national security. Previously, Marcus was the senior Pentagon correspondent for Defense News, an international newspaper that focuses on military procurement and operations, for nearly four years. There, he wrote about broad-ranging policy, acquisition and budget issues affecting the U.S. military. He also covers multibillion dollar acquisition programs, including the F-35 Joint Strike Fighter and KC-46A tanker. Weisgerber has reported from Afghanistan, the Middle East, Europe and Asia and often travels with the defense secretary and other senior U.S. military officials. He has covered major international air shows in Farnborough, England, Dubai, and United Arab Emirates. He has appeared C-SPAN, HuffPost Live, BBC and Defense News’ nationally syndicated television program. Prior to joining the Defense News, Weisgerber was the chief editor of Inside the Air Force, an Arlington, Va.-based newsletter and online publication that covers military acquisition, programs and policy. Before coming to Washington, he was an education reporter for Foster’s Daily Democrat in Dover, N.H., and an Internet news manager at Newsday in Long Island, N.Y. He holds a bachelor’s in journalism from the University of New Hampshire. A Long Island native, Weisgerber is an avid New York sports fan and can often be found playing ice hockey in his spare time.