WASHINGTON — Defense Secretary Robert M. Gates today outlined 23 changes for how the Defense Department contracts goods and services aimed, at creating greater efficiency and productivity in defense spending.
The strategy is part of Gates’ efficiencies initiative designed to save the department $100 billion over the next five years.
“We have not seen the productivity growth in the defense economy that we have seen and expect from the rest of the economy,” Gates told reporters during a Pentagon news briefing. Gates preceded Ashton B. Carter, undersecretary of defense for acquisition, technology and logistics who delivered a more detailed briefing of the changes. Many of the changes will take effect immediately, he said.
Defense contracting makes up roughly $400 billion out of the $700 billion the department spends each year, he noted.
“Consumers are accustomed to getting more for their money — a more powerful computer, wider functionality in mobile phones — every year,” Gates said. “When it comes to the defense sector, however, the taxpayers had to spend significantly more in order to get more. “We need to
reverse this trend,” he said. As part of the guidance, the department will require program managers to set a new affordability target that can’t be altered without authority from Carter. Managers must ensure the initial design is “constrained by its ultimate schedule and cost,” he said.
“This guidance will make programs more affordable without sacrificing capabilities,” Gates said, “and prevent us from embarking on programs that will need to be cancelled when they prove unaffordable.”
The Pentagon will be starting up several new programs in the near future, Gates said, including the next-generation ballistic missile submarine, the ground combat vehicle, long-range strike systems for the Air Force and Navy, and the Marine Corps presidential helicopter.
“The acquisition cost of these new programs is over $200 billion,” he said. “Designing to affordability, and not just desire or appetite, is critical.”
Affordability will be incorporated from the start for all new programs, Gates said. The goal is to avoid another “half-billion-dollar presidential helicopter,” he said.
To illustrate the affordability concept, Gates cited the next-generation ballistic missile submarine program, in which the Pentagon is trimming requirements without sacrificing capability. The per unit rate for the submarine had risen to $7 billion, he said, but now is about $5 billion. The goal is a reduction of 27 percent in a program where costs are projected to be more than $100 billion, he added.
Another area of the guidance involves creating leaner programs, Gates said. Programs will now require not only an estimation of what they will cost under business as usual, but what they should cost if programs are managed effectively and hit cost objectives, he said.
“In too many instances, cost estimates that are based on past programs, I might say past mismanagement, have deprived us of incentives to bring down costs,” he said.
Reaching these goals will benefit both government and industry, the secretary said, as higher performance leads to higher financial reward. A number of changes will reward increased productivity and innovation, he said.
Expanding the Navy’s Preferred Supplier Program departmentwide is one example, he said. The program rewards contractors that demonstrate superior performance in delivering quality products and services affordably and on time.
The department also is increasing the use of contracts in which the benefits of productivity and costs of overruns are shared by both the contractors and the department, Gates said.
“This method is being applied to the Joint Strike Fighter where we need and expect to begin reversing the cost growth that led me to restructure the program and change its management last year,” he said.
This method also could lead to a multiyear contract for the next buy of the FA-18, a win-win for the government and industry that will save $600 million, Gates said.
The guidance also focuses on competition as a source of productivity in the defense industry, and gives managers direction on driving real competition, Gates said. The littoral combat ship program is an example of this, he said, with the acquisition strategy shifting from directed to competitive buys.
“While I can’t discuss the bidding process in detail until it’s complete, I can tell you that if successful, the strategy will result in savings of more than a billion dollars over the next five years, with additional estimated savings throughout the life of that shipbuilding program,” he said.
In some cases, the department’s bureaucratic processes are contributing to contractor inefficiencies, Gates noted. To avoid this, the department will take steps to reduce inefficient processes and bureaucracy as well as costly and unnecessary reports.
The department spends more than $200 billion annually on contracting for professional services, information technology and facilities upkeep, Gates said. Starting today, measures will be introduced that will improve efficiencies in service contracts, including increasing the frequency of competitive bidding.
All of these changes will be evaluated as they are implemented, Gates said, noting that he’s asked Carter to provide a monthly progress report.
Gates added that he’s confident in these changes. Officials have established reasonable reduction targets, are focused on specific savings and can identify the excess after an “era of double-digit growth.” And the nation’s top leaders, from the president to the Joint Chiefs, are supporting this change to the way the Pentagon does business, he said.
However, Gates also acknowledged that the changes won’t come easily or overnight. “Like all important and necessary institutional reforms, this process will take time and real effort to overcome longstanding habits and assumptions,” he said.
Gates also addressed speculation about the possibility of his cost-reduction efforts discontinuing after his time as defense secretary ends. He’s certain that his efforts will continue long after he steps away from his post, he said, noting that these initiatives have been a team effort from the start.
“These enterprises, these initiatives, have involved a significant number of people across this department who are now invested in this process and who believe in it,” he said. “I have no doubt that for years to come, these efforts will continue as these civilian and military leaders continue to see the benefit in adopting processes that not only save the taxpayers money, but allow us to transfer money from overhead to real military capabilities.
“Ultimately, as leaders in government and industry, we owe it to the men and women of our armed forces to do what we can to provide them with the very best support to complete their mission and return home safely,” he added.
U.S. Department of Defense
Office of the Assistant Secretary of Defense (Public Affairs)