Pentagon Works to Tackle Cost Overruns, Official Says

WASHINGTON, March 30, 2011 — Weapons and equip­ment that are more expen­sive than pro­ject­ed present a strug­gle every acqui­si­tion exec­u­tive in the Defense Depart­ment has faced, a senior Pen­ta­gon acqui­si­tion offi­cial told Con­gress yes­ter­day.
Tes­ti­fy­ing before the Sen­ate Com­mit­tee on Home­land Secu­ri­ty and Gov­ern­men­tal Affairs yes­ter­day, Frank Kendall, deputy under­sec­re­tary of defense for acqui­si­tion, tech­nol­o­gy and logis­tics, said cost over­runs have been an “intractable” prob­lem.

Under­stand­ing the problem’s root caus­es has to be the first step in address­ing cost con­trol, he said.
Both phas­es of defense acqui­si­tion -– plan­ning and exe­cu­tion -– have prob­lems lead­ing to increased costs, Kendall said. Plan­ning large­ly is a gov­ern­ment respon­si­bil­i­ty, he explained, and includes set­ting require­ments for new prod­ucts, set­ting key sched­ule dates, esti­mat­ing total pro­gram costs, estab­lish­ing bud­gets and eval­u­at­ing plans and indus­try bids.

“In each and every case, there are strong pres­sures on our insti­tu­tions and the peo­ple in them to be opti­mistic,” Kendall said. The Unit­ed States has been mil­i­tar­i­ly dom­i­nant in the world for decades, large­ly based on its supe­ri­or weapons sys­tems, he said. “We almost always set out to build a prod­uct that is bet­ter than any­thing that has been built before,” he added.

Like­wise, users put con­stant pres­sure on the acqui­si­tion sys­tem to field new capa­bil­i­ties faster, regard­less of the product’s scale or com­plex­i­ty, he said. “The acqui­si­tion sys­tem is fre­quent­ly crit­i­cized for tak­ing too long and being too risk-averse,” he said. “One has to ask, if we are so risk-averse, why do we have so many over­runs and sched­ule slips?”

Com­pe­ti­tion with­in the plan­ning sys­tem “pro­vides more incen­tives toward opti­mism,” he said, as pro­ject­ed pro­gram costs affect which new sys­tems are cho­sen. While defense plan­ners feel pres­sure to set high capa­bil­i­ty require­ments and fast pro­duc­tion sched­ules while keep­ing pro­ject­ed pro­gram costs low, indus­try also faces pres­sure to “be opti­mistic in bid­ding on new pro­grams,” Kendall said.

“A defense con­trac­tor can­not stay in busi­ness by bid­ding real­is­ti­cal­ly or con­ser­v­a­tive­ly and nev­er win­ning a con­tract,” he not­ed.

Gov­ern­ment can address this issue by insist­ing that indus­try jus­ti­fy its pro­jec­tions and cost ele­ments, he said, but he added that there is pres­sure to accept the low­est offer, “inde­pen­dent of the risk that’s being tak­en.”

The chal­lenge the defense acqui­si­tion work­force faces in plan­ning, he said, is to rec­og­nize the pres­sures toward opti­mism while doing every­thing pos­si­ble to push the sys­tem to deliv­er more and bet­ter prod­ucts soon­er and at low­er cost.

When new sys­tems move from plan­ning to exe­cu­tion phase, they large­ly become industry’s respon­si­bil­i­ty, Kendall said. “If the plan is sound, then cost over­runs [dur­ing] exe­cu­tion are a mat­ter of man­age­ment, engi­neer­ing and pro­duc­tion capa­bil­i­ty, or more harsh­ly, com­pe­ten­cy in these dis­ci­plines,” he said.

Kendall said in the past, he would have judged that most cost over­runs result­ed from plan­ning fail­ures. “I am no longer as cer­tain of that,” he added, not­ing that too many indi­ca­tors show that both gov­ern­ment and indus­try need to improve their capac­i­ty to man­age and exe­cute pro­grams.

“We have a lot of work to do over time to build or rebuild the capac­i­ty in our work­forces,” he said. Gov­ern­ment is mov­ing to strength­en its own capa­bil­i­ties, and is work­ing to spur industry’s progress, Kendall said.

“Incen­tives … are the pri­ma­ry tool the depart­ment has to influ­ence industry’s per­for­mance, and we need to use them cre­ative­ly and aggres­sive­ly,” he said.

The Defense Depart­ment has adopt­ed a set of 23 ini­tia­tives for “bet­ter buy­ing pow­er,” designed to con­trol and reduce costs not just in major pro­grams, but across all con­tract­ed activ­i­ties, Kendall said. The depart­ment also is increas­ing the size, capac­i­ty and capa­bil­i­ty of its acqui­si­tion work­force, he added.

“We ful­ly rec­og­nize the force mul­ti­pli­er [effect] a qual­i­ty acqui­si­tion work­force has on the ulti­mate suc­cess of our pro­grams,” he said. The strug­gle to con­trol defense costs will nev­er end, Kendall said.

“It is not a short-term bat­tle, [and] a sim­ple pol­i­cy change will not solve all our prob­lems,” he said. “It takes pro­fes­sion­al­ism, tenac­i­ty and sin­gle­ness of pur­pose at all lev­els of the acqui­si­tion enter­prise to make progress.”

The Defense Depart­ment is “total­ly com­mit­ted to bring­ing the costs of our pro­grams under con­trol, and reduc­ing them wher­ev­er pos­si­ble,” Kendall said.

U.S. Depart­ment of Defense
Office of the Assis­tant Sec­re­tary of Defense (Pub­lic Affairs)

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