A VH-71 helicopter

A VH-71 helicopter Image via Flickr user blueforce4116

New Pentagon Equipment Is No Longer Pushing the Envelope

Acquisition chief Frank Kendall says the cost of the Defense Department’s major projects are falling, but the arms being purchased are less technologically advanced.

For the past six years, a newly cost-conscious Pentagon has aimed to buy arms that are less complex and use more existing or commercial technology. And it’s worked. The cost of major projects is dropping, says Frank Kendall, the defense undersecretary for acquisition. And he has the data to prove it.

But the bad news, Kendall says in a new 210-page report, is that Pentagon arms buyers have become so risk-adverse that America’s cutting-edge weapons aren’t quite so cutting-edge. And that’s allowing China and Russia to catch up.

“In my view, our new product pipeline is not as robust as it should be at a time when our technological superiority is being seriously challenged by potential adversaries,” Kendall said in his report, which analyzes the state of Pentagon’s massive, multibillion-dollar acquisition establishment.

He’s not alone. Last month at a military conference in London, the Dutch air force chief called out the U.S. Army’s effort to build future helicopters, saying it doesn’t push the envelope enough. Lt. Gen. Alexander Schnitger declared that the two primary designs now being evaluated are unambitious and could fall far short of what NATO needs to win a war in 2040.

Kendall has been sounding the alarm that the U.S. military’s technological superiority over its potential foes is narrowing, particularly when it comes to new Chinese equipment.

“In some areas we may not be pushing the state-of-the-art enough in terms of technical performance,” he wrote.

Historically, big Pentagon weapons programs have been susceptible to “requirements creep,” the accretion of program goals that have slowed development and sent costs skyward. The VH-71 effort to replace Marine One — the presidential helicopter — fell apart in large part because the requirements were still being changed even as aircraft were being built.

To fix this, Kendall and others have instituted changes — under the broad name of Better Buying Power that locked down program requirements early on. But in a rapid-changing world, and with U.S. weapons-development timelines still measures in years, Kendall’s new report seems to question whether locking in requirements early is the best way to proceed.

Now he argues that not all cost growth is bad, particularly when it responds to a global threat.

“Simply delivering what was initially required on cost and schedule can lead to failure in achieving our evolving national security mission — the reason defense acquisition exists in the first place,” he writes.

On the flip side, Kendall says, many of the acquisition reforms put in place by him and his predecessor, current Defense Secretary Ashton Carter, are working. Defense firms are making more profit based on performance and companies are “doing a better job of meeting cost targets.”

An initiative called “should-cost,” appears “to be taking hold,” which is a “major cultural change,”  Kendall wrote. Should-cost “requires our managers to actively seek ways to save money and to set targets for doing so, not just to stay within their budgets,” he said.

Shay Assad is the director of defense pricing — the person who determines what projects should cost the Pentagon. He cited a “space-related procurement” in which the Pentagon saved $900 million in a single year. In another project, the Pentagon saved more than $2 billion over a five-year period.

“We’ve saved billions of dollars, I know we have,” Assad said.

In a certain helicopter deal, the Pentagon entered negotiations predicting that a multiyear contract might save 10 percent; instead, they squeezed 20 percent out, he said.

“What we’re trying to get the companies to focus on is accepting challenging, but doable cost,” Assad said in a July interview. “Those companies that are, they’re making more profit.”

Kendall’s report found that subcontractors to major firms are making a higher percentage of profit than the company’s they are supplying. “Since 2001, first-tier subcontractors earned higher margins than their associated prime contractors on the same program,” he wrote.

The report also fired shots at lawmakers — including Sen. John McCain, R-Ariz., chairman of the Senate Armed Services Committee — who have proposed to give more acquisition power to the uniformed service chiefs. After 2017, according to the proposed legislation, new major projects would be overseen by the military services, while the defense undersecretary for acquisition would thereafter control only joint projects or service-specific ones the defense secretary delegates.

McCain and supporters of his legislation argue the changes add accountability to acquisition projects. Kendall says the data in his report shows that Better Buying Power is working and that lawmakers shouldn’t just make change to make change.

“I encourage the stakeholders of defense acquisition to examine this report, prior reports, and other data-driven analyses to help guide ongoing discussions and policymaking,” he said. “While it is important to continue improving our policies and practices, change for change’s sake isn’t the answer. We should use experience supported by data-driven analysis to help ensure we don’t embrace policy reforms that carry unintended adverse consequences.”