USA — Gates Unveils Strategy to Cut Costs, Boost Efficiency

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)

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