The Truth about Efficiencies

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It is a fundamental principal of the Better Buying Power initiative promulgated by Pentagon acquisition executive Ashton Carter that affordability is now king. Under the umbrella of affordability we find the pillars of cost, schedule and technical consideration. Affordability does not mean “cheap,” nor does it mean “getting less.” The expectation that the U.S. Department of Defense (DoD) will get more bang for its buck is not new. The “best value” approach to acquisition has been ingrained in program managers and acquisition executives for most of the 35 years that I have been involved in major systems acquisition.

Despite much rhetoric to the contrary, the DoD has never advocated throwing money at major systems development as a method of providing the warfighter with the cutting-edge technology that he needs when entering battle. There has been much criticism (some of which has been valid) of the way the DoD develops weapon systems. Nonetheless, it is safe to say that, given the choice of all weapon systems, those developed by the United States are preferred by a wide margin. There is a reason for this: The U.S. does a better job at fielding systems that are relevant to the fight than does any other acquisition system in the world.

As we enter another period of belt-tightening, and yes, there have been other periods when the budget for weapons was squeezed, we discover several recurring themes, the first of which is that weapons “cost too damn much.” How do we know this? Mostly because we spend a great deal on them. The intuitive response is that there must be a way to reduce the costs.

Actually, there are several ways to reduce the costs. The first is to spend less and buy less. The second is to get “more for less;” cut wasteful practices and you can get the same amount of weapons for less money. The third is to reallocate your priorities and work around your need. Synergies through adaptability can provide an advantage by mixing systems and avoiding the need for new ones. Use these existing systems to address new requirements. This can be done when there is a change in the potential adversary, such as was the case with the shift from the Cold War to the war on terrorism. And finally, use “soft power” to mitigate potential threats, negating the need for weapons. This can be done by the use of treaties, realignment of national priorities, partnering with potential adversaries and other nonmilitary solutions to national security threats.

Carter has suggested that the first option has been accomplished during the round of cancellations that have occurred the past several years; programs such as the Future Imagery Architecture, National Polar-orbiting Operational Environmental Satellite System, Transformational Satellite system, Future Combat Systems and Space Radar were dropped for affordability reasons (they “cost too damn much”). Other systems are now facing the reality that they need to address cost and schedule issues in order to avoid a similar fate. But how do these systems control costs without jeopardizing mission success?

They do it through the use of “should costs” in conjunction with fixed-price contracts. Neither of these concepts is original in nature. The Federal Acquisition Regulation has always stated that fixed-price contracts are the preferred method of contracting for goods and services. “Should costs” were in vogue during the 1970s and 1980s and were a useful, though costly, tool to improve contractor performance. The original aspect of the new use of “should costs” is that while there will be little evidence of the likely success from the implementation of these initiatives at the time that the fixed-price contracts are awarded, the contractor is expected to accept the savings as a basis for them.

Under the new paradigm, the government collects data from previous efforts — perhaps production-related, perhaps development-related. It then develops a savings estimate, based upon either a cost analysis of the historical data or a bottom-up analysis of the processes and practices that have been in use by the contractor in the past. It then recommends improved processes and projects savings from the implementation of the new processes or the avoidance of costs that were experienced in previous performances due to ineffective management or system immaturity for the earlier buys. These suggested savings are then factored into a model that projects savings for the next buy, and that revised estimate becomes the “should cost” amount for assessing the success or failure of the program.

It is somewhat questionable whether the government will be able to persuade the contractor to accept a fixed-price contract with a target and ceiling price based upon the “should cost” expectation.

Without data to support the conclusions of the “should cost” team, why should a contractor accept a fixed-price contract based upon those projected savings? How much risk is it reasonable to ask from a contractor? Many, if not all, of the most recent major systems being developed by the DoD have had significant overruns and schedule delays during their development cycles. Were these overruns the result of poor management or unanticipated issues (unknown unknowns) that are a normal expectation in a highly complicated, state of the art, envelope-pushing environment?

The drive for efficiencies is a good thing; the projection of savings from efficiencies prior to any anecdotal experiences is not. The DoD has done this in the past, usually without much long-term success, unfortunately. It is always somewhat disingenuous to back into an answer, and certainly intellectually dishonest — however, that is what has been done in the past and seems certain to continue with the efficiency initiatives. We need to save $100 billion to support budget priorities, therefore the efficiency initiatives will save $100 billion by definition.

During the 1990s the mantra of “acquisition reform” promised savings to help offset the “peace dividend” from the end of the Cold War. We manipulated the data to say that we would be able to “save” billions of dollars through initiatives such as Total Systems Performance Responsibility. This turned out to be a form of snake oil salesmanship that had the end result of many cost overruns and schedule delays. We returned to the basics in no small part due to the recognition that you cannot have your cake and eat it too. Let us hope that we do not experience a similar result under the guise of “efficiency initiatives.”

 

James Gill works at the U.S. Air Force Space and Missile Systems Center. The views expressed in this article are solely those of the author and do not necessarily reflect those of the Air Force.