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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