It’s the rare military plane, truck, ship, gun, sensor or service that comes in on time and under budget. So the Pentagon’s acquisitions chief has a proposal to keep costs in line with what defense contractors and the military promise they’ll be: go halfsies on any dollar over the agreed price.
In a recent memo to the military (.PDF), Undersecretary of Defense Ashton Carter insists that future contracts for purchases include a “50/50 share line,” meaning that the Pentagon and the vendor will equally split the fee if a program goes over budget.
And not infinitely over-budget: Carter wants caps of 120 percent on big-ticket items. Go beyond that, and the contract might get revoked. “When we get to $120″ on a $100 item, Carter told an audience at the Center for American Progress in Washington, “I’m out of Schlitz and it’s all yours.”
But Congress might refill the kegs. The undersecretary said that no matter how severely the Pentagon budget may get constrained by the deficit and the weak economy, the budget “certainly won’t be going up.” That is, if you factor out the incoming chairman of the House Armed Services Committee.
Carter is the pointy end of the spear for Defense Secretary Robert Gates’ “efficiencies initiative,” a plan to wring $100 billion over the next five years out of the Defense Department’s overhead operating costs and invest it back in buying planes, ships and bombs. But part of the problem is that the costs of that hardware keeps rising. Every year, he said, “I go to Congress with same systems as last year, [and ask] for more money.” Case in point: one variant of the Joint Fighter jet, the Air Force’s F-35A, which Carter’s team estimates will cost $92 million per plane, rather than the $50 million promised when the program was conceived.
The answer is to build “efficiencies” into the contracts themselves, Carter said, like through paying prime contractors who perform responsibly more than ones who don’t — something the Pentagon doesn’t currently do. But it’s “not fair” to make companies eat the entire overage fee for cost estimates, Carter said: “That allows me to load on additional requirements he has to pay for.” It’s a point often raised by defense companies: the Defense Department puts out vague contracts for what a plane or a bomb needs to be, only to ask for more bells and whistles down the line that the contractor would be on the financial hook to provide.
“A 50-50 share line is a square deal,” Carter said. “I’m telling my contract people I want see 50-50 share lines, and if you depart from that, I want to see why.” Putting the burden too greatly on either the contractor or the military’s shoulders is “a trouble sign for me,” indicating that the project’s corporate and uniformed partners “have a different idea of the risk of this program.”
Carter’s probably not going to meet too many objections in Congress with that approach. But the premise behind it is a different story. The basic idea of the efficiencies initiative is that the Pentagon needs to spend more of its budget on vehicles, weapons and combat support. The post-9/11 money spigot is closing, so the Pentagon’s got to plan on doing more with less.
Intuitive, sure — these are tough economic times — but not necessarily correct. In a speech yesterday, Representative Buck McKeon, the likely incoming chairman of the House Armed Services Committee, made a robust case against cutting the defense budget, and argued that the budget growth that the Pentagon forecasts is actually a “net cut.” Many newly-empowered House Republicans view the efficiencies initiative as a stalking horse for looming cuts, which is why they’re lukewarm about it.
Formally speaking, the efficiencies initiative is agnostic between larger and smaller budgets. It just holds that the Pentagon needs to spend its money “as carefully and as parsimoniously as we possibly can,” Carter said. McKeon said yesterday he doesn’t object. He’d just like to see the military do more with more.
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