Wrenching Changes

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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