Sunday, April 28, 2013

Taking Issue with the Navy's Vice Chief on Acquisitions Approach

The U-T interviewed Admiral Mark Ferguson, the Vice Chief of Naval Operations (VCNO) on the impacts of sequestration to the Navy, especially the local impact.  With regards to acquisition cut backs, he had this to say:
On investments (in new equipment), we had to reduce quantities. We’re buying less — an E-2D, a P-8, some Broad-Area Maritime Surveillance (BAMS) unmanned aerial vehicles. Those quantities are reduced and we pushed them into the future.
What the VCNO didn't say is that the reduced production rates will have the predictable effect of increasing unit costs.  There are so many GAO reports over two decades that discuss the causal relationship between "low production rates" and higher unit cost that I will not link them here.  The administration has not taken the opportunity to look at acquisition programs in the light of the reduced budget and cut programs that are not performing.  Instead, the so called "salami slice" approach means that every program will bleed a little and underperform.

The Congress and the Department of Defense should look at programs that are likely to be obsolesced by technology and kill them.  It has been widely understood for some time that manned fighter and attack aircraft will be made irrelevant by unmanned aerial vehicles within a decade or so.  Here is what the GAO found in examining the JSF program:
Joint Strike Fighter restructuring continued throughout 2011 and into 2012, adding to cost and schedule. The new program baseline projects total acquisition costs of $395.7 billion, an increase of $117.2 billion (42 percent) from the prior 2007 baseline. Full rate production is now planned for 2019, a delay of 6 years from the 2007 baseline. Unit costs per aircraft have doubled since start of development in 2001. Critical dates for delivering warfighter requirements remain unsettled because of program uncertainties. While the total number of aircraft DOD plans to buy has not changed, it has for 3 straight years reduced near-term procurement quantities, deferring aircraft and costs to future years. Since 2002, the total quantity through 2017 has been reduced by three-fourths, from 1,591 to 365. Affordability is a key challenge–annual acquisition funding needs average about $12.5 billion through 2037 and life-cycle operating and support costs are estimated at $1.1 trillion. DOD has not thoroughly analyzed program impacts should funding expectations be unmet.
The extended quote is necessary, because those kinds of acquisition challenges for a fighter likely to be made obsolete make no sense.  Even if the JSF can marginally outperform unmanned vehicles, the risks of losing pilots to capture or death are going to make the unmanned option very attractive to decision makers, as we are already seeing with drone strikes in Yemen, etc.   There is plenty of savings available from killing one big program, that can help make more necessary programs healthy or can be used to meet budget targets.

This is the effect of the continued expansion of entitlements and rising debt, we have to make tough and risk decisions with regards to acquisition programs.  Without making tough choices we will end up wasting huge amounts of money on a wide variety of systems, but none will be procured in the quantity or quality needed.

The other area where acquisition reform is needed is in the procurement of of information technology for the services.  The Department of Defense would be the 17th largest economy in the world, were it a separate country.  Both the Congress and the leaders of the DoD insist on running it as if it were a business when it comes to IT systems.  But no one is able to scale IT across the diversity of business lines that make up the Army, Navy, Marine Corps and Air Force.  Big multinational firms that have multiple business lines don't try to unify their financials into single systems, they perform a roll up from separate feeder systems.  The poverty of the DoD's approach is illustrated by the recent Air Force decision to cancel an Enterprise Resource Planning project after blowing through $1 billion.  Rather than forcing the services to have a financial system that meets Sarbanes-Oxley standards, the Congress should just ensure that the services can track expenses (costs) and the value of capital equipment.  There is no need for further level of detail, because there is no need to assure investors of the ongoing value of the firm.

The insistence on killing large programs could lead to greater discipline in coupling programs to strategic need and actually produce better defense.  Predictably, the administration and the Congress will avoid strategic choices and waste your tax dollars.

There is a lesson in here that relates to government control of health care, but I will let the reader draw their own conclusions today.


  1. If you wanted to stimulate the economy and save money in the future, why not go on a capital equipment acquisition spending spree for the military? The Navy has an ancient fleet that is bleeding it white in maintenance costs. The ships are all built domestically, so building replacements would keep the money and jobs in the US.

    The answer is that this administration places zero value on the DoD and sees it as a threat to social justice in the world. Giving the military 365 fighter aircraft effectively ends our ability to be a "colonial" power.

  2. Thank you for this insightful post.