It's Time To Protect The Pentagon From Itself

Why keep paying for technologies that we're not sure will work?

The house of representatives certainly made headlines this week when it passed a contentious $409 billion defense appropriations bill. But a far more significant battle over the future of defense spending is still taking place under the radar in Washington as part of the broad review of Pentagon procurement policies due to be completed next month. With 88 major weapons systems currently under development or in production at the astounding cost of $1.5 trillion, the stakes are high. And with so many divergent interests at play among politicians, the military, defense contractors, and taxpayers, it's easy to see how infighting and stalemate could protect the status quo.

That would be a mistake. Even Pentagon insiders admit that this is a broken system, hobbled by its lack of discipline and staggering under the financial weight of pursuing so many unfeasible or unfocused programs. With simultaneous military operations in Iraq and Afghanistan commanding their attention, Pentagon leaders paid too little attention to our ailing weapons-buying procedures. But now the escalation of defense spending -- at present, roughly a quarter of the federal budget -- caused in part by those two campaigns is forcing some hard financial choices on the Pentagon and its pork-barrel-oriented overseers in Congress and the White House. And the defense procurement review, due to be completed by early July, will be key in Washington's crafting of a smarter blueprint for buying America's weapons.

First, the review must push the Pentagon to eschew techno-overload and more closely align the types of weapons that it buys with the new threats it faces and what is technically and fiscally feasible. In an era when none of our currently identified foes can match U.S. technology in major weapons systems such as fighter aircraft or stealth systems, some military planners seem obsessed with adding untested and expensive features to those areas where America is already state-of-the-art. For example, the Cold War is over and the U.S. hasn't engaged in large-scale, dogfight-oriented warfare since the Korean conflict 50 years ago. Yet the Pentagon wants to spend $362 billion on new fighter aircraft. That looks fiscally irresponsible at a time when America can't get enough armor on its Humvees to protect soldiers fighting in today's gritty land-based conflicts.

Next, the Pentagon has to kick its longtime habit of requiring that contractors use technologies that are not yet ready for prime time -- a sure recipe for contract delays and budget overruns. The Pentagon's tradition of crossing its fingers as it signs its procurement checks would be excusable if such cutting-edge work were confined to targeted or demonstration projects. But, armed with a budget of nearly a half-trillion dollars and enabled by a Congress all too eager to splurge on high-tech weaponry during wartime, the Pentagon too rarely does things small or frugally. For example, the Government Accountability Office considers 52 of the 53 technologies included in the U.S. Army's Future Combat Systems modernization program are considered "not mature," which means there's no way of knowing yet if they'll work as planned. Boeing disputes that finding. Could that be one of the reasons that the Future Combat Systems project is now expected to cost up to $108 billion, almost 40% greater than original estimates?

Lastly, the procurement review should consider new ways to give contractors more economic incentives to flag impractical contracts during the bidding phase. This is particularly tricky because defense contracting doesn't follow normal market rules. There's usually only a single customer for a sophisticated weapon. Contractors don't assume huge research and development risks on their own. Most weapons are produced in volumes too small to profitably support multiple competitors. And political realities put caps on the returns that defense contractors can make. That's why most weapons-development contracts are "cost-plus" agreements. Contractors' profit margins can shrink, but with their costs covered, their risk is limited even if they bid on contracts that they know are financially or technically unsound.

That system keeps contractors from exerting more market discipline on the procurement process -- and leaves taxpayers shouldering the overruns. So at the very least, the procurement review should more closely link the interests of contractors and taxpayers, perhaps by awarding better bonuses or higher profit margins to contractors who, in effect, shield the Pentagon from its own specification mistakes or technology excesses early in the contracting phase. Indeed, adding even a small dose of business reality to the process could not only bolster the Pentagon's tight finances but also strengthen the defense industry. Now that's a battle worth fighting.

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