I appreciate opportunity to be back at CSIS as well as all of the serious, important work that goes on here. In all of my interactions with CSIS experts over the years, I have benefited tremendously from their guidance and ideas and know for certain that the work that goes on here makes an important difference in our national discussions and in the course of our nation. Y’all are nice to come listen to me, but we could all benefit by listening to and taking notes from Dr. Hamre, David Berteau, Pierre Chao and others here on the topic of getting more value for our defense dollar–one of the many subjects in which CSIS makes important contributions.
I do have to note, however, that the last time I was at CSIS was for a cyber exercise in which I was asked to play the President, and Dr. Hamre has not invited me back since — until today. It must have been deeply disturbing for him. Chairman McKeon and I have been talking about a focused defense reform effort for some time. Among the issues he has asked me to tackle are: acquisition reform; organizational bloat; and the security clearance process,something House Intel Chairman Rogers is also very interested in.
Today, I’m just going to focus on the first of those topics, and I must confess that the first two questions that popped into my mind when the Chairman asked me to take on acquisition reform were: (1) is it possible; and (2) is it worth the effort. If that comes across as rather skeptical, then there is some reason for that. Every few years since I’ve been in Congress, we have passed some legislation on acquisition reform. It may be that some of it was helpful; some may have contributed to the problem. But looking at the whole picture, things are certainly no better – in fact the problem is in many ways worse – than it was 20 years ago. Let me give you a multiple choice question. A study was done to look at 6 specific problems in DOD programs: 1. schedule slippage 2. cost growth 3. lack of qualified personnel 4. high personnel turnover 5. inadequate cost estimation 6. insufficient training in managing contractors. What year? 1962, 1982, 2002, or 2012? It could have been any of them because the last 50 years, have seen 27 major gov studies and more than 300 nongovernmental, cited by Dr. Fox in his book.
As Frank Kendall mentioned here a few days ago, defense acquisition has been a significant issue for us since the Revolutionary War. At the same time, as Dr. Hamre has written, one of the key factors in our success in world leadership has been that “industry is the indispensable partner to our armed forces in the defense of the country.” We harnessed the energy and creative power of the profit motive to national security.”- which made a key difference in the Cold War. So, it’s a fundamental strength and yet a persistent problem. Most all of the studies over these 50 years make essentially the same points. During the same time period, there have been lots of legislative attempts to improve things with unsatisfactory results. So, we have to go deeper; learn why previous attempts have not been as successful as hoped; and get at root causes of problems, not merely symptoms.
We are talking about a lot of money. In FY 2012 – DOD obligated $360 b on federal contracts = 10% of entire federal budget and 52% of DOD’s obligations. (CRS) GAO testified 2 weeks ago about the trends in major acquisition systems. Found that from 2008 to 2012, The change in developments costs from first full estimate increased from 42% to 49%; (7% worse) Change in total acquisition costs from first full estimate increased from 25% to 38%; (13% worse) Average delay in initial operating capability increased from 22 months to 27 months. It’s not just acquisition of weapons and equipment. The Pentagon spends more on service contracts than on weapons. There it is even harder to know if taxpayers getting good value. We do know that contract spending down 10% in past 5 yrs, but bid protests up by 45%. (CRS) It seems that there is hardly a contract award without a protest.
What is the effect of these trends? They waste a lot of money and effort. More tail and less tooth. More overhead and less fighting capability. Let me give you another historical test. Who said this and when?:
“As long as we operate a system where the checkers (those charged with the responsibility of evaluating and approving) outnumber the doers (those responsible for carrying out the work), the doers are condemned to spend their time doing paper work for the checkers.” Could have been any time within the past year or two at any or all of the defense manufacturing facilities I’ve visited, but in fact it was: Adm. Hyman Rickover, quoted in a letter from Deputy Secy of Defense David Packard to George Shultz, Director of OMB on Oct. 27, 1970. We are to the point where it is estimated that 1/3 procurement dollars go to overhead. Not as agile and responsive as need to be in a dangerous, volatile world.
We face this festering problem of getting good value for taxpayers in a timely way within the larger context of two facts: 1. The world is not getting any safer or any less complex. As he retired in July, Deputy CIA Director Morrell said that he didn’t “remember a time when there have been so many national security issues on the front burner as there are today.”This from a veteran of 33 years in the CIA. Just a brief list of challenges like — cyber; proliferation; terrorism; Syria, Russia, China, Iran, N. Korea, alliances – makes the point. 2. Defense budgets will be tight as far as the eye can see. We have dug ourselves a deep hole of debt; We hope the economy improves. We need to reform entitlement programs where most of the spending is. We need to find a way to get our fiscal house in order without further across-the-board cuts in sequestration. We need more stable funding because the disruptions caused by uncertainty are undermining every attempt to improve the system and are costing us dearly.
But if everything works out just the way I want it, it is not enough. I know of no scenario that envisions a return to large yearly increases in the defense budget, short of some catastrophic event. Even in the best case, we’ve got to face a dangerous, complicated world with limited resources. So we must get more defense for the dollar. That’s the reason Chairman McKeon asked me to spearhead an effort on these three interrelated topics, focusing first on how the Pentagon buys goods and services. It’s purpose is not to cut defense spending or make it easier to cut defense. Purpose is to get more defense–more value– out of the dollars we spend.
There is a bipartisan and bicameral interest in acting. (Rep. Smith, Sens. Levin, Inhofe) We were very encouraged with what Frank Kendall had to say here 10 days ago. We will be happy to sit down with him and go line-by-line through the existing regulations to thin them out and simplify. All along the way, It is, of course, not only essential to work with DOD, but also with the Services up and down the chain of command. We also need industry participation.
The House Armed Services Committee had hearing on Oct 29 looking at 25 years of acquisition reform Continue conversations with people across the government and outside of government – so far, found a lot eagerness to participate. Expect working groups across organizations in coming months. We will have more hearings directly on the topic, but our goals will shape many, if not most, of our other hearings. We are not looking at this as 2 years study then come with massive bill Make progress along the way, as we can Answers are not all legislation – changes in our oversight and other activities. he questions we ask and the decisions we make at key milestones are an example of where we can influence the process.
One suggestion was have a hearing on a program that has gone well, pat them on the back, don’t just haul up the ones that run into problems Obviously, we need your input on how to make this work — Not only on what needs to be done but how to get it done.
Let me get back to my 2 questions: 1. Is it possible?; 2. is it worth it?
1. Is it possible? – A lot of understandable skepticism goes with at least 50 yrs of frustration. There are those who argue that there are only so many things you can try – centralize or decentralize; greater flexibility or more rigid mandates – emphasize government or emphasize contractors – we’ve tried ‘em all, not going to get better. We acknowledge that what we’ve done in the past has not worked as well as we hoped and that we will not make things better by piling on new mandates, new oversight offices, or greater micromanagement.
But, if automakers can take a car from concept to customer in less than 24 months; if a computer company can change its manufacturing requirements in a day; if Boeing can develop and field a new commercial aircraft in less than 5 yrs; Then we should be able to do better than we are doing now for the men and women who risk their lives to protect us and defend our freedom. Key factor we have to focus on is — people. Making it harder and harder for the people who know what they’re doing to serve in key positions effectively – at all levels. We have to hone in on reasons that good people in the system act rationally but not in the overall best interests of getting the best value for the money. Incentives are important.
Key question is: what does the system encourage someone to do? Spend it or lose it. Pierre Chao notes that the system would rather pay $1 billion with 5% profit than pay $500 million with 20% profit for the same thing. Those things have to change. We may well have before us a unique opportunity to change some of these built-in incentives – a set of circumstances today that give us a better chance and also a greater need of getting down to those root causes than at any time in the past 50 years.
Let me offer just a few of them, emerging from our hearings:
1. Defense industrial based consolidated – gone from 50 major contractors to 6 in last 25 years
2. DoD is becoming less influential buyer, and companies focusing on other customers. The harder and more expensive it is to do business with DoD, the fewer the companies that will.
3. Commercial tech are more often in the lead on innovation – we have to take advantage of it.
4. Data improving – giving us greater understanding of what is really going on.
5. Other countries are not sitting still
6. Iraq and Afghanistan proved what acquisition can do in saving lives – yet set up separate systems to acquire high priority items – MRAP’s – to get around normal acquisition process.
The DoD is in transition. Not only is it possible, it is a necessity, and the time is right. But is it worth the effort? Our goal is to help the Pentagon be a smarter buyer of goods and services. And to help get top quality weapons, equipment, and services contributing to our security quicker The difference to our security that comes from getting more defense for the dollar and from having a more agile responsive system is enormous.
In his book reviewing the history of warfare since 1500, Max Boot writes, “Innovation has been speeding up. … . That means that keeping up with the pace of change is getting harder than ever, and the risks of getting left behind are rising. Today, there is no room for error.”
That point was made over and over this weekend at the Reagan Defense Forum at the Reagan Library in California, that the pace of technological innovation is incredibly rapid, and speeding up at the time.
The British military writer, Sir Basil Liddell Hart wrote in 1944: “Military history is filled with the record of military improvements that have been resisted by those who have profited richly from them. Between the development of new weapons or new tactics and their adoption there has always been a time-lag, often of generations. And that time-lag has often decided the fate of nations.”
I won’t say that the fate of our nation depends on the success of this project. But I do know that there is a lot at stake, and that we have to do better, and that to overcome 50 years of frustration, we will need your help.