Once again, Congress demands something for less. The House Armed Services Committee expects defense contractors to cut prices by 15 percent in the face of rising weapon costs.
How do they do that? Well, there are two ways to do more for less. One is to find a better, cheaper, faster way to acquire a product — but wasn’t that what acquisition reform promised to do? And it was, by most accounts, a dismal failure. Not only did it not deliver on its promises, but it seemed to be — at least in part — responsible for many of the failures that we are witnessing today throughout the services. So that does not appear promising as a solution to the problems decried by Rep. Duncan Hunter (R-Calif.) and others.
Perhaps a better approach would be to develop a more reasonable system for predicting the cost of next-generation systems prior to investing billions of dollars in research and development costs. The element of competition has had the unfortunate effect of motivating defense contractors to promise impossible performance and cost savings in the hope of winning award of contracts for these systems. When the systems ultimately cost what they do, it is seen as an example of the contractor’s failure, rather than recognizing that the failure often lies within the system.
In order to rectify this problem with program cost growth, the House wants contractors to promise to shave an additional 15 percent off the cost of systems that were priced in an atmosphere that rewarded impossible promises to begin with.
Isn’t it the responsibility of the contractors to deliver what they promise? Could the answer be that these defense contractors are incompetent and should be held accountable for their failures? In the business of space it would seem that if there were one or two failures, this would be a simple matter of using performance as a vehicle to decide which contractors get future business with the Defense Department.
Unfortunately, as Rep. Hunter and his fellow members of the Armed Service Committee should be well aware, in the area of space acquisitions the failures are of such a serious nature and there are few successful contractors to reward for their performance.
When work on the Future Imagery Architecture is taken away from Boeing and given to Lockheed Martin, what does that say about Lockheed’s performance on the Space Based Infrar ed System (SBIRS) program? How can you reward Lockheed with business from Boeing when Lockheed has had two Nunn-McCurdy violations of its own?
SBIRS is a classic example of a program caught up in series of unreasonable expectations. A brief history of SBIRS can provide a perspective on some of the problems faced by strategic planners and may serve as a case study for other programs facing many of the same problems that the SBIRS Program Office has faced.
Initially, the Air Force was looking for a follow-on system to replace the Defense Support Program (DSP). The DSP provided an early warning surveillance system that detected enemy missile launches during the Cold War. There were several starts and stops that occurred on DSP follow-on systems prior to the SBIRS program. These included the Follow-On Early Warning System and Alert Locate and Report Missiles programs. These programs did not make it into development for a variety of reasons, but the principal one was that of cost. The cost estimate for these programs was for a range of approximately $10 billion to $12 billion, which was determined to be too expensive and thus unaffordable. In order to get the SBIRS program off the ground, the price for the program had to be more in the $5 billion range. SBIRS was a product of acquisition reform and the contractor promised to bring the program in at a substantial reduction, in part by using contractor practices and the concept of Total Systems Performance Responsibility (TSPR).
TSPR is now a dirty word within the Air Force, but at the time, its proponents were sure that it would help (along with other acquisition reform initiatives or ” lightning bolts”) bring the next generation of space programs into being at a large savings. The Air Force got a follow-on program that had otherwise been stalled and the precedent was established: Promise a remarkable savings that might never materialize and your program had a chance to get beyond the concept exploration phase.
Under the cost-type contract format, the contract/program growth has resulted in two Nunn-McCurdy breaches. While there are multiple reasons for the cost growth, a large portion of the blame falls upon the unrealistic expectations that the program could be brought in at such an exceptional savings.
At the end of the day, the program most likely would cost the very same amount that was initially projected for the programs that were never initiated (i.e. Follow-On Early Warning System and Alert Locate and Report Missiles ).
It will, most probably, do an exceptional job of providing the technical capabilities that were originally promised (and then some). But it will be perceived by many, including the Defense Science Board/Air Force Scientific Advisory Board Joint Task Force on Acquisition of National Security Space Programs chaired by A. Thomas Young, as a failure, primarily because the government did not use sound, realistic predictive tools that would have given Congress and the customer a more reasonable cost estimate. The push-back from the warfighter may well be that it never would have come to fruition had it not been started under those somewhat optimistic cost predictions.
The solution to the problem comes down to two basic approaches, neither of which may be palatable to the leadership of the Defense Department or Congress. First, accept that requirements are expensive and stop promising the warfighter that you will deliver everything he wants, without requiring him to bring funding to the table for every additional requirement that he asks for.
Second, reward contractors who provide supportable cost estimates and use the source selection process to make it difficult to award contracts that have unrealistically low estimates of cost. In today’s acquisition climate, contractors see no downside to low-bidding based upon optimistic technical, schedule and cost estimates. Rather, they see business going away if they do not give the services cost data to support programs that should be estimated at substantially higher prices than they are. The military is rewarded by giving missions to the services that promise to do the most for the least cost.
Further, after artificially lowering the estimate for development and production, contractors see their funding cut on an annual basis, compounding the impact of those artificially low initial estimates. These funding cuts cause programs to slip, impacting the total program cost and making the initial estimates look even more absurd.
Space is looking for more practical, reasonable incentives to motivate contractor performance. Orbital incentives, award fee payback and other contractual approaches are under consideration. This may not be addressing the fundamental problem, which is how do we deliver on time and within budget systems that work? Sen. John McCain (R-Ariz.) is looking at the possibility to reverting to fixed price development contracts. This is a well-proven bad idea. It does not solve the problem of overrun contracts, it merely creates additional litigation for the courts to resolve.
Like most bad news, there is almost no support for making hard choices. Because all of the decisions are made in the spectrum of politics, the opportunity to promise something that requires huge sums of money in the out years becomes especially attractive. Due to the nature of development, many of the large weapon systems that begin under one administration do not hit the wall for funding until the middle of the next administration.
The turnover in senior leadership occurs on the average around two to four years and the weapon system does not experience problems for three to five years. This dynamic leaves little accountability to the individuals who made the initial decision to go forward with the new system. Of course, they are often left with the residual problems of programs that were initiated by their predecessors. Not an especially efficient system to develop and produce weapons that take a gestation period of seven to 10 years.
The problems created by unreasonably low estimates on contracts for major systems are exacerbated by the services, which are unwilling to stand up to Congress and protect the funding that should be available to ensure program success. Instead, they wait until the program has incurred hundreds of millions of dollars in costs before notifying Congress of the upcoming overrun (often through the Nunn McCurdy legislation requirements).
Congress also has to shoulder its share of the blame for cutting budgets and creating serious shortfalls on annual program needs. Even if these funds show up in later budgets, the impact to the programs is quite severe. We should not fail to include contractor failures in meeting the minimum contract/program expectation.
This should not be news although leaders pretend to be shocked at the problems of major systems acquisition. If they had bothered to read the reports issued by the commissions that are chartered every five years or so to investigate why weapon systems cost so much and are always behind schedule, it should be apparent that the problems are indeed systemic.
These commissions (from the Hoover commissions in the 1950’s through the Packard Commission to the Young Commission to the most recent one led by Air Force Lt. Gen. Ronald Kadish) inevitably make the same presentation of problems, come to the same conclusions and make the same recommendations to fix these problems.
Anyone with the most basic experience in the business of acquiring weapon systems can predict the results of this most recent study:
Work-force shortage of experienced professionals.
Unrealistic cost estimates for new systems.
Requirements creep with little funding to cover the increased expectations.
Little oversight into problems until they become severe and ultimately unaffordable.
Unrealistic expectations for state of the art advancement in high-risk technology.
Lack of proper systems engineering by government and contractors.
Funding turbulence both from Congress and the Defense Department.
It is not hard to identify the problems associated with the acquisition of major weapon systems. What is hard and will take great courage is the application of change to the system.
For the last 50 years there has not been an administration that was willing to implement the difficult choices that would be necessary to correct the problem. It is more simple to “kick the can” downstream and thank the commission for their recommendations, and make cosmetic changes to appear to be attempting to solve the inherent problem. In all likelihood, this commission will issue a report that can be filed with all of the others and go back to the way that we have always done acquisition.
Unfortunately, it may be that the problems have reached a magnitude that cannot be ignored; the only question is whether the system will have to implode in order to get the attention that it deserves from Congress and the Defense Department.
James Gill is a graduate of the University of Southern California’s Defense & Strategic Studies Program, a former professor in the CSSB National Security Studies Program and is currently employed at the Space and Missile Systems Center, Los Angeles Air Force Base. These views are solely those of the author and do not represent those of the U.S. Air Force.
