WASHINGTON, Sept. 14, 2010 — The Defense Department’s $400 billion-a-year system for buying goods and services is about to undergo major changes designed to save taxpayer money without affecting mission readiness, a senior Pentagon official said today.
“We’re asking you to do more without more,” Ashton B. Carter, undersecretary of defense for acquisition, technology and logistics, said in a memo to his senior acquisitions staff released today.
Carter later outlined the plan at a news conference with Pentagon reporters. It contains 23 areas of improvement to make the department’s procurement offices and defense contractors more efficient.
The procurement changes are the first detailed announcement as part of Defense Secretary Robert M. Gates’ initiative, announced last month, to save $100 billion over the next five years without negatively affecting warfighters.
Under the changes, the department is to mandate affordability in contracts and control cost growth. No longer will major weapons systems have to be cancelled after years in the making and billions of dollars in cost overruns have been spent, Gates said speaking before Carter at the news conference.
Procurement officers will consider not only what goods and services cost, but what they should cost, Carter explained. An example is the F‑35 Lightning II joint strike fighter, for which the cost estimate ballooned from $50 million in 2002 to $93 million this year, he said. The contractor later agreed to absorb some costs.
The SSBNX ballistic submarine, the long-range strike system, the Army’s Ground Combat System, and the Marine Corps presidential helicopter all are examples of systems that are being procured under the new rules, at a cost of about $200 billion, he said.
Carter used the submarine as an example of the possibility of significant cost savings, saying the new sub’s price dropped from $7 billion to $5 billion after officials reduced the scope of the design – something he said engineers must do on the front end of projects.
The new system will reward companies that consistently deliver affordable systems on time, and those that share in any necessary cost overruns, he said.
Contractors will now have to produce systems in a specified and shorter time than has been allowed, Carter said. The contract for the F‑18 Hornet fighter jet, for example, has been set at five years, allowing for better management and oversight, he said.
“These all the ways you get productivity in an industrial activity,” Carter said of the changes.
In other changes, procurement officers will:
— Eliminate redundancy in warfighter portfolios;
— Give industry incentives to reduce, rather than increase, costs;
— Put processes in place to ensure real competition;
— Require open-system architecture; and
— Increase the role of small businesses.
The changes will require particular attention to contracted services, an area that has grown substantially over the last 10 years to become a $200 billion annual cost to the department, Carter said. “Half of our costs are for services, and we’re performing worse there,” he said. “It’s grown so large, we simply have to manage it better.”
The department also will look inward to its “unproductive bureaucratic processes,” Carter said, that waste time and resources and force unnecessary costs on contractors. “We can’t leave ourselves out of this,” he said. “We contribute to low productivity in the industry, and we need to step up and take responsibility for it.”
Carter called the changes “very reasonable goals” that will ensure warfighters have what they need. “It’s entirely possible to find $100 billion [in savings] in the $400 billion we spend every year in contracting,” he added.
Carter vowed to be “relentless” in the implementation of the goals, which he said are very specific and measurable. He added that he will oversee progress daily and will provide progress reports to Gates monthly.
“To those who hesitate, to those who fear to go down this path, they need to consider the alternative: broken promises, cancelled programs, unpredictability and uncertainty that is bad for industry, erodes taxpayer confidence, and worst of all, results in lost warfighter capabilities,” he said.
U.S. Department of Defense
Office of the Assistant Secretary of Defense (Public Affairs)