Tag Archives: Government Spending

Top Federal Contractors Spend Millions on Influence, Get Billions in Contracts

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Lobbying

“THE PROJECT ON GOVERNMENT OVERSIGHT (POGO)”

“POGO found that the median return on investment was $1,323 in contracts for every dollar spent on federal lobbying and election activities.

The federal government’s 100 largest contractors received an incredible return on their investment in lobbying and election contributions in FY 2016, spending just $289 million on political influence but receiving more than $262 billion in federal business.”


“This data comes in part from POGO’s Federal Contractor Misconduct Database (FCMD), recently updated with the government’s Federal Procurement Data System fiscal year 2016 ranking of the top 100 contractors. POGO’s database currently tracks 220 of the federal government’s largest providers of goods and services and contains more than 2,700 resolved and pending misconduct instances dating back to 1995. Over that time, these entities have paid nearly $99 billion in fines, settlements, and court judgments.

The top 100 companies were collectively awarded more than $262 billion in contracts in FY 2016, accounting for 55 percent of all contracts awarded that year. According to data compiled by the Center for Responsive Politics, the top 100 collectively spent more than $218 million on federal lobbying in 2016 and nearly $71 million in federal campaign donations during the 2016 election cycle, resulting in a median return on investment (dollar amount in contracts received for each dollar spent on lobbying and campaign contributions) of $1,323.

POGO also found a strong positive correlation between contract awards and lobbying/election expenditures for aerospace/defense contractors. By comparing the two data sets and analyzing it by industry sector, we found the median return on investment for aerospace/defense companies was $1,120 for every dollar spent lobbying, while for IT services firms it was an astonishing $5,296. Four IT giants have joined our database this year, including Carahsoft, Engility, Hewlett Packard Enterprise Company, and prestigious IT institution Stanford University.

Eight of the ten largest federal contractors in FY 2016 were military hardware suppliers. Of these eight, five were also among the ten biggest spenders on political influence. Lockheed Martin and Boeing topped both lists and earned relatively high returns on investment: $2,382 and $1,225, respectively.

Some contractors had deceptively low returns on investment. General Atomics received $377 in contracts for every dollar spent on influence, while General Electric received just $183. However, these companies get other returns from Uncle Sam, such as subsidies (grants, loans, and tax credits) and favorable tax, trade, and regulatory policies. According to Good Jobs First’s Subsidy Tracker database, in FY 2016 General Atomics received nearly $68 million in research grants from the Department of Energy, while General Electric received more than $42 million in federal grants, loans, and loan guarantees from various agencies.

In the past, POGO has recommended common-sense reforms to bring greater transparency and accountability to the contracting system:

http://www.pogo.org/about/press-room/releases/2017/top-federal-contractors-spend-millions-on-influence.html

 

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Two Years And COTS Required For Patchwork Fix/Replace Of Army $Multi-Billion WIN – T Network

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Army Network knife

“BREAKING DEFENSE”

The Army needs at least two years to figure out a new, war-ready communications network to replace its current, fragile systems, the acting secretarysaid this week.

There’s no a quick fix: The service is effectively starting over on what it’s long described as its No. 1 priority for modernization.”


“A recently created task force called a Cross-Functional Team (CFT) will overhaul the network architecture, Acting Secretary of the Army Ryan McCarthy told reporters, but its major recommendations won’t be ready until 2019, when the budget request for 2020 is submitted. In the meantime, to ensure that troops are ready to “fight tonight” against immediate threats like Russia and North Korea, the Army is urgently seeking off-the-shelf stopgaps from the commercial world.

“It’s going to take a few years. What do you in between?” said Gen. Mark Milley, the Army Chief of Staff, speaking alongside McCarthy at a Defense Writers’ Group breakfast Wednesday. “What happens if there’s a conflict? And that’s a real challenge, Sydney, that’s hard, and there’s an element of risk there.”

The Army is still issuing some units with the current battlefield network, WIN-T Increment 2, which began fielding in 2012 and still hasn’t reached the entire force. (The Hawaii-based 2nd Brigade, 25th Infantry Division is getting its WIN-T kit right now). But the Warfighter Integrated Network – Tactical program will end next year because it isn’t reliable and resilient enough for fast-moving operations against a sophisticated enemy who can jam or hack it. So after a decade working on WIN-T, the Army will take another two years or more to go back to the drawing board.

“Yes, it probably will take a couple of years to get it right. Changing the architecture of our network…the scale is massive,” McCarthy said. “We stood up these Cross-Functional teams a couple of weeks ago, to be honest with you. They are going to influence the ’20 budget” — not 2019.

Halt-Fix-Pivot

The Army strategy is “halt-fix-pivot,” Gen. Milley and Sec. McCarthy explained:

  • immediately halt programs that simply won’t hold up on a mobile battlefield under sophisticated cyber and electronic attack;
  • quickly fix systems that can be upgraded to withstand such harsh conditions;
  • and ultimately pivot from the current clunky patchwork to a new, coherent network architecture.

“We want to stop those subsets of the programs that we know with certainty will not work…for the combat environment that we envision,” Milley said. He wouldn’t say which specific programs were on the block: “Those are still under evaluation,” he said.

While some programs must go, Milley continued, “there are other parts of the system that we know can be fixed. We’ve had many meetings with industry (and) industry is already working on those piece parts of the quote, ‘network system’ that can be fixed in order to operate in a highly dynamic and very lethal maneuver battlefield.”

“And then, what we do is pivot the entire system of systems…to develop a holistic system that does operate in the (high-intensity) environment,” Milley concluded.

This isn’t about any one program: “It’s stepping back and looking at a common architecture, as opposed to particular issues with hardware (or) software,” McCarthy said. “It will take us several years to review the architecture and make fundamental changes.”

How fundamental? “We went back to the white board , literally, and we started laying out things like first principles,” Milley said. “We used that to evaluate not just WIN-T…but the whole suite.”

“We learned that a lot of these systems don’t talk to each other, within the army or the joint force,” Milley said. “We learned that the system is very, very fragile and is probably not going to be robust and resilient enough to operate in a highly dynamic battlefield with lots of ground maneuver and movement. We know that the system is probably vulnerable to sophisticated nation-state countermeasures.”

Short-Term vs. Long

Going back to the drawing board to fix these problems — the pivot phase — will take “years,” Milley acknowledged, “but the fix part is a much faster piece. Will we be fast enough? Time will tell,” he said. ” I know that we are working extremely hard, and we know we’re against the clock.”

The Army can’t afford another program like WIN-T that takes years just to develop new technology, let alone issue it across the service while private-sector processing power is doubling every 18 months. So McCarthy’s guidance to the Cross-Functional Team overhauling the network, and to the seven other CFTs working on other Army priorities, is to “take every opportunity to look into commercial industry. Buy it off the shelf.”

But this has pitfalls too. The Army and the other services already bypassed the procurement bureaucracy and rushed off-the-shelf equipment into service in Afghanistan and Iraq, from network tech to Mine-Resistant Ambush-Protected trucks (MRAPs). They had to take shortcuts to save lives, but the result was a lot of wasted money and a patchwork of incompatible equipment.

Ironically, the program that was supposed to bring order to this chaos was WIN-T. Now the Army is halting WIN-T and, once again, embarking on a multi-year quest for one network to rule them all. In the meantime, once again, the service has to keep kludging together partial solutions. The short-term fix may, once again, make the long-term solution harder. The risk of just repeating history is very real.”

https://breakingdefense.com/2017/11/army-needs-2-years-to-reboot-network-seeks-cots-stopgaps/

 

 

$9.29 Billion In F-35 Fighter Contract Awards to Lockheed in July 2017

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F-35 Award

F-35As at Luke Air Force Base

“BREAKING DEFENSE”

” [Friday, July 27 2017] – A $3.69 billion contract was awarded Lockheed Martin for 50 foreign F-35s and work on the Lot 11 LRIP.

Separately, Lockheed won an interim payment of $5.6 billion in early July to help pay for the 91 American F-35s jets in LRIP 11.”


“After the markets closed on a sleepy and rainy summer Friday afternoon, White House Chief of Staff Reince Priebus was ousted and DHS Secretary John Kelly named to take his place, and, oh, by the way, a $3.69 billion contract was awarded Lockheed Martin for 50 foreign F-35s and work on the Lot 11 LRIP.

What’s in play here?

Most of the money, $2.2 billion, goes to buy one British F-35B, one Italian F-35A, eight Australian F-35As, eight Dutch F-35As, four Turkish F-35As, six Norwegian F-35As aircraft, and 22 F-35As for Foreign Military Sales customers.

The F-35 Joint Program Office said the Pentagon would continue to negotiate the 11th low rate initial production contract with Lockheed Martin and expected an agreement by the end of 2017. The full contract should be finished by the end of the year, the JPO said in a statement. At the same time, they said they are negotiating a separate deal with Pratt & Whitney for the F135 engines, which should be done about the same time.”

http://breakingdefense.com/2017/07/one-big-f-35-contract-2-8b-of-3-7b-for-foreign-planes/

U.S. Wasted $28 Million on Afghan Uniforms – Color Does Match Terrain

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Afghanistan Uniforms

“MILITARY TIMES”

“The Combined Security Transition Command-Afghanistan selected the dark uniform  without determining whether it was right for Afghanistan.

DoD had purchased more than 1.3 million of these uniforms as of June.


Defense Secretary Jim Mattis scolded top defense officials for a “complacent” mode of thinking that allowed $28 million to be wasted on Afghan army uniforms that were inappropriate for fighting in Afghanistan.

The Special Inspector General for Afghanistan Reconstruction exposed the waste in June when it found that the Pentagon’s decision to procure a dark forest-patterned uniform for the Afghan army was incongruous with the country’s largely desert environment. Moreso, the SIGAR found, DoD bypassed its own digital patterns it owned and contracted a firm whose proprietary rights over the forest pattern significantly increased the cost of the shirt and pants purchases.

Mattis used SIGAR’s findings to highlight what he said he saw as wasteful complacency.

“Buying uniforms for our Afghan partners, and doing so in a way that may have wasted tens of millions of taxpayer dollars over a ten-year period, must not be seen as inconsequential,” Mattis said in his memo, addressed to the under secretaries for acquisition, policy and finance. Those departments head the Afghanistan Resource Oversight Council, a group responsible for decisions on procurement to support the Afghan National Security Forces.

“I highlight this report because it reveals two truths about our line of work. [First] our every action contributes to our larger mission,” Mattis said. Second, “our procurement decisions have a lasting impact on the larger defense budget.”

“Cavalier or casually acquiescent decisions to spend taxpayer dollars in an ineffective and wasteful manner are not to recur,” Mattis said.”

https://www.militarytimes.com/news/pentagon-congress/2017/07/24/mattis-28-million-wasted-on-afghan-uniforms-must-not-be-seen-as-inconsequential/

 

U.S. Government Writing Over $33 Billion in Blank Checks to Pentagon and Lockheed

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Blank Checks

“BREAKING DEFENSE”

“In a sign of how strange the budget process has become, the House Appropriations Committee has approved a defense spending bill that basically gives Secretary Jim Mattis a $28.6 billion blank check.

Scattered across seven different accounts in the base and Overseas Contingency Operationsbudgets, it’s called the National Defense Restoration Fund, and it makes up 4.3 percent of the bill’s $658.1 billion Pentagon budget.

That percentage may seem small, but it’s more than any previous SecDef has had at his discretion. The only requirement? To “notify” Congress 15 days before dedicating the funds to a specific purpose. In theory, that gives legislators time to stop a transfer they dislike, but it would require new legislation, and the Hill just isn’t set up to pass bills on a two-week turnaround. That is, of course, why, historically, almost everything has to go through the annual budget process.”

http://breakingdefense.com/2017/07/house-appropriators-give-secdef-blank-check-for-28-6b/

“DOD BUZZ”

“The Defense Department has awarded Lockheed Martin Corp. a $4.49 billion undefinitized contract action to continue production on the latest batch of F-35 Joint Strike Fighters even as it continues to negotiate a firm price for the fifth-generation jets.

The UCA — a type of contract in which bottom-line terms or prices have not been agreed upon before performance is begun — stipulates a max price of $5.6 billion for Lockheed to continue working on the Low Rate Initial Production, or LRIP, lot 11 jets, according to the F-35 Joint Program Office.”

https://www.dodbuzz.com/2017/07/07/pentagon-gives-lockheed-billions-to-keep-working-on-f-35s/

 

 

 

 

The Federal Government Annual Spending Spree

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Spending Spree -Static Politico dot com

Image: “Static Politico.com”

“FEDERAL TIMES” By Michael P. Fischetti, Executive Director of the National Contract Management Association.  

“Rapid actions at the end of the fiscal year, with contract managers working feverishly as the clock winds down, is never a recipe for prudent acquisition, not to mention management.

In recent years, the rush starts almost immediately once the budget is finally passed, with less than half of the year remaining before funds expire.

Near the end of each and every fiscal year, government agencies, for one reason or another, that were unable to fully obligate their budgeted funding completely and according to plan, find themselves going on “spending sprees” to ensure they completely exhaust those ever-more-scarce dollars available.

Every contract manager is well aware of the implications of the end of a fiscal year. Taking time off for annual leave is often prohibited during August and September while this heavy deluge of procurement requests from the many project managers rolls into the contracting offices — up to 80 percent of annual contracting obligations are often made in the last two months of each fiscal year. While “poor planning” on the part of requirements officials is no excuse for a crisis on the part of the contracting officer, the fact remains that contracting professionals are the final step in a process that starts with agency requirements and project managers determining their mission resource needs, including those to be fulfilled by contract.

This activity has become more pronounced in recent years, given the result of congressional appropriations dysfunction, whereby appropriations are generally not authorized in a timely manner, such as reasonably close to the start of a fiscal year in which they must be contractually obligated. Thus, agencies have ever fewer months in a fiscal year in which to execute their budgets. Instead of managing a 12-month budget beginning at month one, they may not know what their budget is until month three, four, six, etc. Agency priorities are compressed into fewer and fewer months and weeks and “the end of the year fiscal rush” becomes even more “rushed.”

Government agencies have long learned to adapt priorities (or “wish lists”) to move forward when funding may soon expire. These have historically included personal computers, furniture, carpeting, and other forms of housekeeping items. However, as the unknown dates of full annual funding become pushed further and further back into the fiscal year, the end-of-year rush starts to incorporate many basic agency mission activities, dependent upon contractor support. As many agencies are heavily reliant on obtaining products and services by contract, the reality of how this can occur without the required funding up front, with adequate time to buy smartly, and using agile practices, becomes increasingly at issue. Funding not filtering down to program managers until as late as the third or fourth quarter is no longer unusual.

Stop-gap funding mitigates this issue somewhat, but obviously the best response is program execution that occurs on time — after proper planning and before the fiscal year begins. The costs of today’s late budget to the taxpayer (who pays for it), or the citizens and constituencies thereby underserved, leaving aside the frustration and dismay of acquisition officials, is readily measured.

While contract managers — as well as finance, program, and indeed contractors — have all learned to muddle through (such as contractors willing to work “at their own risk” without a contract or guarantee of payment), they shouldn’t have to. This situation often includes the uncertainty of funding to maintain even their own employment. However, through their ingenuity, perseverance, and especially creativity, along with other government career professionals, they keep the trains running, despite the obstacles created by our current political polarization.”
http://www.federaltimes.com/articles/the-annual-spending-spree-commentary


For More on this subject please see:  https://rosecoveredglasses.wordpress.com/2017/04/26/the-one-year-budget-cycle-must-go/

 

Pentagon Declares Lockheed F-35 “Too Big to Fail”

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F-35 Too Big to Fail

(Photo Credit: Staff Sgt. Staci Miller/US Air Force)

“DEFENSE NEWS” By Michael P. Hughes

“Officially begun in 2001, with roots extending back to the late 1980s, the F-35 program is nearly a decade behind schedule, and has  failed to meet many of its original design requirements.

It’s also become the most expensive defense program in world history, at about $1.5 trillion before the fighter is  phased out in 2070.

The F-35 was billed as a fighter jet that could do almost everything the U.S. military desired, serving the Air Force, Marine Corps and Navy — and even Britain’s Royal Air Force and Royal Navy — all in one aircraft design. It’s supposed to replace and improve upon several current — and aging — aircraft types with widely different missions. It’s marketed as a cost-effective, powerful multi-role fighter airplane significantly better than anything potential adversaries could build in the next two decades. But it’s turned out to be none of those things.

The unit cost per airplane, above $100 million, is roughly twice what was promised early on. Even after U.S. President Donald Trump lambasted the cost of the program in February, the price per plane dropped just $7 million — less than 7 percent.

And yet, the U.S. is still throwing huge sums of money at the project. Essentially, the Pentagon has declared the F-35 “ too big to fail.” As a retired member of the U.S. Air Force and current university professor of finance who has been involved in and studied military aviation and acquisitions, I find the F-35 to be one of the greatest boondoggles in recent military purchasing history.

Forget what’s already spent

The Pentagon is trying to argue that just because taxpayers have flushed more than $100 billion down the proverbial toilet so far, we must continue to throw billions more down that same toilet. That violates the most elementary financial principles of capital budgeting, which is the method companies and governments use to decide on investments. So-called sunk costs, the money already paid on a project, should never be a factor in investment decisions. Rather, spending should be based on how it will add value in the future.

Keeping the F-35 program alive is not only a gross waste in itself: Its funding could be spent on defense programs that are really useful and needed for national defense, such as  anti-drone systems to defend U.S. troops.

Part of the enormous cost has come as a result of an effort to share aircraft design and replacement parts across different branches of the military. In 2013, a study by the think tank Rand found that it would have been cheaper if the Air Force, Marine Corps and Navy had simply  designed and developed separate and more specialized aircraft to meet their specific operational requirements.

Not living up to top billing

The company building the F-35 has made grand claims. Lockheed Martin said the plane would be far better than current aircraft — “four times more effective” in air-to-air combat, “eight times more effective” in air-to-ground combat and “three times more effective” in recognizing and suppressing an enemy’s air defenses. It would, in fact, be “ second only to the F-22 in air superiority.” In addition, the F-35 was to have better range and require less logistics support than current military aircraft. The Pentagon is still calling the F-35 “ the most affordable, lethal, supportable, and survivable aircraft ever to be used.”

But that’s not how the plane has turned out. In January 2015, mock combat testing pitted the F-35 against an F-16, one of the fighters it is slated to replace. The F-35A was flown “clean” with empty weapon bays and without any drag-inducing and heavy, externally mounted weapons or fuel tanks. The F-16D, a heavier and somewhat less capable training version of the mainstay F-16C, was further encumbered with two 370-gallon external wing-mounted fuel tanks.

In spite of its significant advantages, the F-35A’s test pilot noted that the F-35A was less maneuverable and markedly inferior to the F-16D in a visual-range dogfight.

Stealth over power

One key reason the F-35 doesn’t possess the world-beating air-to-air prowess promised, and is likely not even adequate when compared with its current potential adversaries, is that it was designed first and foremost to be a stealthy airplane. This requirement has taken precedence over maneuverability, and likely above its overall air-to-air lethality. The Pentagon and especially the Air Force seem to be relying almost exclusively on the F-35’s stealth capabilities to succeed at its missions.

Like the F-117 and F-22, the F-35’s stealth capability greatly reduces, but does not eliminate, its radar cross-section, the signal that radar receivers see bouncing back off an airplane. The plane looks smaller on radar — perhaps like a bird rather than a plane — but is not invisible. The F-35 is designed to be stealthy primarily in the X-band, the radar frequency range most commonly used for targeting in air-to-air combat.

In other radar frequencies, the F-35 is not so stealthy, making it vulnerable to being tracked and shot down using current — and even obsolete — weapons. As far back as 1999 the same type of stealth technology was not able to prevent a U.S. Air Force F-117 flying over Kosovo from being located, tracked and shot down using an outdated Soviet radar and surface-to-air missile system. In the nearly two decades since, that incident has been studied in depth not only by the U.S., but also by potential adversaries seeking weaknesses in passive radar stealth aircraft.

Of course, radar is not the only way to locate and target an aircraft. One can also use an aircraft’s infrared emissions, which are created by friction-generated heat as it flies through the air, along with its hot engines. Several nations, particularly the Russians, have excellent passive infrared search and tracking systems that can locate and target enemy aircraft with great precision — sometimes using lasers to measure exact distances, but without needing radar.

It’s also very common in air-to-air battles for opposing planes to come close enough that their pilots can see each other. The F-35 is as visible as any other aircraft its size.

Analysts weigh in

Lockheed Martin and the Pentagon say the F-35’s superiority over its rivals lies in its ability to remain undetected, giving it “ first look, first shot, first kill.” Hugh Harkins, a highly respected author on military combat aircraft, called that claim “a marketing and publicity gimmick” in his book on Russia’s Sukhoi Su-35S, a potential opponent of the F-35. “In real terms an aircraft in the class of the F-35 cannot compete with the Su-35S for out and out performance such as speed, climb, altitude, and maneuverability,” he wrote.

Other critics have been even harsher. Pierre Sprey, a co-founding member of the so-called fighter mafia at the Pentagon and a co-designer of the F-16, calls the F-35 “inherently a terrible airplane” that is the product of “an exceptionally dumb piece of Air Force PR spin.” He has said the F-35 would likely lose a close-in combat encounter to a well-flown MiG-21, a 1950s Soviet fighter design. Robert Dorr, an Air Force veteran, career diplomat and military air combat historian, wrote in his book “Air Power Abandoned”: “The F-35 demonstrates repeatedly that it can’t live up to promises made for it. … It’s that bad.”

How did we get here?

How did the F-35 go from its conception as the most technologically advanced, do-it-all military aircraft in the world to a virtual turkey? Over the decades-long effort to meet a real military need for better aircraft, the F-35 program is the result of the merging or combination of several other separate and diverse projects into a set of requirements for an airplane that is trying to be everything to everybody.

In combat, the difference between winning and losing is often not very great. With second place all too often meaning death, the Pentagon seeks to provide warriors with the best possible equipment. The best tools are those that are tailor-made to address specific missions and types of combat. Seeking to accomplish more tasks with less money, defense planners looked for ways to economize.

For a fighter airplane, funding decisions become a balancing act of procuring not just the best aircraft possible, but enough of them to make an effective force. This has lead to the creation of so-called multi-role fighter aircraft, capable both in air-to-air combat and against ground targets. Where trade-offs have to happen, designers of most multi-role fighters emphasize aerial combat strength, reducing air-to-ground capabilities. With the F-35, it appears designers created an airplane that doesn’t do either mission exceptionally well. They have made the plane an inelegant jack-of-all-trades, but master of none — at great expense, both in the past and, apparently,  well into the future.

I believe the F-35 program should be immediately canceled; the technologies and systems developed for it should be used in more up-to-date and cost-effective aircraft designs. Specifically, the F-35 should be replaced with a series of new designs targeted toward the specific mission requirements of the individual branches of the armed forces, in lieu of a single aircraft design trying to be everything to everyone.”

http://www.defensenews.com/articles/what-went-wrong-with-lockheeds-f-35-commentary

This article was originally published on The Conversation .

About the Author

Image result for Michael P. Hughes is a professor of finance at Francis Marion University.

Michael P. Hughes is a professor of finance at Francis Marion University. He served more than 21 years in the U.S. Air Force. During that time, he spent more than 14 years in nuclear treaty monitoring and related activities, while the initial 7 years were in the aircraft maintenance and engineering (propulsion) arena with F-4 and F-15 aircraft.

http://departments.fmarion.edu/business/hughes-michael-p.html

Frustrated by Industry Behavior, Defense Officials Put CEOs on Notice

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Kickthemallout dot com

Image:  Kickthemallout.com

“NATIONAL DEFENSE MAGAZINE”

“Defense contractors can expect the Pentagon to take increasingly tough negotiating positions as future procurements move forward.

That was in a nutshell the message delivered by senior officials last week at an industry conference in Washington, D.C.

In extensive comments to an audience of executives and investors, Director of Defense Pricing Shay Assad and F-35 Program Executive Officer Lt. Gen. Christopher Bogdan made it clear that they intend to push contractors into a corner.

Defense companies are in the best financial shape in years, but little of that windfall is trickling down into military programs, they complained. The government will seek to regain leverage and press contractors to “bring down the cost of DoD weapon systems,” Assad said at the annual McAleese Credit Suisse defense programs conference.

Government buyers and contract negotiators are encouraged by the Trump administration’s hard-line business approach, Assad said. “When you get somebody who is president of the United States and who understands precisely what you do for a living … This is terrific from my point of view.”

Assad for years has been a thorn in the side of Pentagon contractors as his office oversees pricing negotiations. He suggested the Defense Department is unhappy with the attitude of many defense companies that put profit ahead of the customer’s interest. His priorities going forward: Getting better deals for the Defense Department and looking for ways to increase competition in the market.

The F-35 joint strike fighter, the Pentagon’s largest weapons acquisition, is poised to become a litmus test for the new approach to negotiating with industry. “I am excited about the opportunities,” Assad said.

There is no one specifically to blame for the F-35 being far more expensive than anticipated, said Assad, but he believes that from now on, the Pentagon will look to  manufacturers to deliver cost reductions.

Executives from prime contractor Lockheed Martin have insisted that as soon as production ramps up, the unit price of the aircraft will drop. Assad is skeptical, however. “It’s not as simple as, ‘We increase the rate and that reduces the price,’” he said. “It’s not what this is about. This is about reducing the cost of building the product. We’ll get the inherent benefits of rate as we go along.”

As the Pentagon and Lockheed prepare for the next round of low-rate production contract negotiations, there are concerns that suppliers are not doing everything they could be doing to reduce the cost. “There is a lot of room for improvement at Lockheed Martin and the supply chain,” said Assad. One central question the government will ask is, “What should we be paying for the JSF?” he said. “We need to look deep. … We know what we’re paying. But what does it cost and, more importantly, what should it cost? I think you’ll see a focus on that over the next year.”

The Pentagon will be asking contractors to squeeze savings from their lower-tier suppliers, Assad and Bogdan noted. That will require a complex probe into how each component of the F-35 is made, a process they describe as a “delayering” of the supply chain. Under this approach, a company could consolidate subcontractors that do duplicative work, for instance. For every supplier, there’s additional administrative costs that are passed on and adds to the price of equipment.

Assad said the industry has to step up. “This is no secret to the investor,” he said. “The defense industry writ large in the last five years bought back $85 billion of their own stocks. That’s a pretty big number.” The Pentagon expects the industry to pour some of those returns into innovative technology for the military, he added. “We’re looking to find ways to make companies make meaningful investments.”

In conversations with leaders from non-defense commercial firms, Assad has been impressed by the “huge investments they make in areas so they can improve their market share. We don’t get a lot of that in this industry. And so we’re looking to find ways to reward companies that are stepping up to the plate.”

Assad took a swipe at the F-35 industry team for having suggested that the government co-fund a new round of “affordability” initiatives. In the commercial sector, customers do not give companies money to reduce cost, he said. “We’re looking for a sense of urgency. And frankly we want to reward the companies that do [these investments], and distinguish between those that do and those that don’t.”

He cautioned that he is not proposing that the government “suppress profit margins.” The Pentagon wants companies to be financially successful, he said, but needs the industry to help reduce prices.

In the F-35 program, Lockheed and top subcontractors BAE Systems and Northrop Grumman in 2014 funded a $170 million project called “Blueprint for affordability” to squeeze savings from the manufacturing process. Assad said that effort “has been modestly effective” but more is needed. Of a program that is forecast to produce at nearly 3,000 airplanes, “we only bought 400,” so there are billions of dollars in savings still to be extracted.

“We know companies are all trying to protect the interests of shareholders. And we respect that. We expect them to. But we are trying to protect the interests of the United States taxpayers and war fighters. Sometimes those two interests collide. And I don’t want to give any impression that somehow the JSF negotiation process is different than what we’re doing every day with other companies.”

The Pentagon intends to drive a hard bargain in other upcoming programs like the B-21 long-range bomber, the T-X trainer aircraft and the next-generation intercontinental ballistic missile, said Assad. “We should expect companies to be willing to invest in cost reduction. I’m not talking about buying in. I’m talking strictly making investments to reduce cost.”

Assad said he does not buy the industry’s argument that they are hesitant to invest because defense funding is unstable. And he rebuffed industry assertions that defense systems are expensive because red tape adds cost. By some estimates, defense-unique procurement regulations account for 20 to 30 percent of the cost of a system. “We hear a lot about the cost of doing business with DoD, a lot of angst and arm waving,” but Assad said he has yet to see reliable data that proves that point.

“Every time we go through these exercises nobody shows us the money.” In one case, he heard from a contractor who claimed the “earned value management” accounting system that DoD requires adds too much cost. When he asked for data, he said, the company came back 18 months later and the answer was that two additional people were needed to run EVM. “It is the cost of doing business, there’s nothing there, it’s all hypothetical discussion and no real data.”

Bogdan said the F-35 program is progressing and he is satisfied for the most part, except for the price. He recently concluded that there is more room for savings and lowered the bar — from an $85 million per airplane price tag by 2019 to $80 million by 2020.

“We have over 200 operational airplanes in the field. But the elephant in the room is affordability.” The $80 million goal is for an F-35A model, including the engine and contractor fee. said Bogdan. “That’s the target.”

Bogdan’s office will be negotiating F-35 production lot 11 this summer with Lockheed Martin. “What I see is a lot more has to be done to get cost out of the airplane.” Bigger production runs and multiyear contracts will help, but he wants the industry to take more aggressive actions now.

With a supplier base of 1,300 vendors, “we have to figure out how to delayer the supply chain. There is a lot to be gained in delayering 1,300 suppliers. I don’t disagree with Mr. Assad that there are things that industry could be doing today to drive cost out of this airplane that they ought to be doing themselves. If not, the government is going to help them do it.”

The message from Assad and others is that “we have to roll up our sleeves,” said Bogdan. “Just because I know what it costs doesn’t mean I should be satisfied.”

Like Assad, he seemed unimpressed by the Blueprint for Affordability initiative. “It was OK, just OK,” said Bogdan. “We took the low-hanging fruit. Industry invested $170 million in cost reduction initiatives. In my mind they didn’t invest in anything. It was money they didn’t have in their pocket for one to two years. They get paid back and get a premium. Savings were OK, but not as much as we thought we could have.”

The industry team has proposed a second phase of the Blueprint for Affordability. Initially the companies asked DoD to pitch in $100 million but the JPO said no. “As we move forward, we are looking for deeper savings, getting below the lower-tier suppliers,” said Bogdan. “I have to figure out how to energize the supply chain from the ground up, not from the top down.”

Lockheed Martin’s F-35 manager Jeff Babione, told reporters last week at a news conference that the company was taking significant actions to bring down costs. “Since the first LRIP we have reduced the price by 62 percent,” he said. “We are on a trajectory to get to $85 million in 2019. Between lots 11 and 14 the production will accelerate, which is essential to cost reduction, he said. “This is the opportunity to use economies of scale, apply additional pressure to reduce cost. This is extremely important, so we can procure parts at more cost effective rates. If we don’t have that ramp up the cost flattens.”

Is the $80 million goal achievable? “It’s all within the art of the possible,” said Babione. But he stressed that it’s mostly predicated on the number of airplanes ordered. “This allows us to plan better. I can buy 300 airplanes worth of stuff upfront. It’s like going to Costco. You get economies of scale.”

The details of the second phase of the Blueprint for Affordability are still being hashed out, said Babione. “We have a lot of great ideas. It will be about the same level of investment, $170 million, and we’ll be able to get billions out of the program.”

http://www.nationaldefensemagazine.org/blog/Lists/Posts/Post.aspx?ID=2463

Doing the Most with the Least – The Coast Guard Dilemma

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National Security Cutter Munro completed builder’s sea trials in August. HII Photo

“U.S. NAVAL INSTITUTE”

“No other service over the last decade has been hit harder by budget cuts and sequestration than the U.S. Coast Guard.

In a time when our maritime services have been asked to do more with less, the Coast Guard has been engaging increased maritime threats with its leanest force in decades.

While today’s focus is being steered towards the U.S. Navy’s 2016 Force Structure Assessment (FSA), which called for a 355-ship Navy, there has been relatively little discussion about increasing the size of the U.S. Coast Guard.

“We are depleted of resources.” Coast Guard commandant Adm. Paul Zukunft recently stated to a packed audience at the annual West 2017 conference in San Diego. “When you add both transnational criminal organizations, plus the Arctic…we need to move from being a bantam-weight fighter to being a welter-weight fighter.”

The mission requirements for the Coast Guard are mind-boggling.

Today, the Coast Guard protects and defends more than 100,000 miles of U.S. coastline and inland waterways. Additionally, it has the imposing requirement to safeguard an Exclusive Economic Zone (EEZ) encompassing 4.5 million square miles stretching from the far reaches of the Arctic Circle to the South Pacific and from the Caribbean/Atlantic to Guam in the Western Pacific. This U.S. EEZ is a vast area that includes nine time zones and is one of the largest EEZs in the world.

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In President Donald Trump’s recent address to Congress, he said, “We’ve defended the borders of other nations, while leaving our own borders wide open, for anyone to cross – and for drugs to pour in at a now unprecedented rate.” The salient point here is that a majority of illegal drugs, cocaine in particular, come into this country via the maritime routes – where the drugs are in their most concentrated and in their most vulnerable form. A critical asset in the campaign to combat this illicit trade is the Coast Guard’s Legend-class National Security Cutter.

During the Surface Navy Association symposium in January, Zukunft listed the accomplishment of the crew of latest NSC cutter USCGC Hamilton (WMSL-753) that included response to Hurricane Matthew and the interdiction of more than 52,000 tons in cocaine.

A significant shortfall in the force structure of the Coast Guard fleet is the current shortage of High-Endurance Cutters. During the height of the U.S. drug interdiction efforts, the Coast Guard had a fleet of 12 Secretary-class 378-foot High-Endurance Cutters. Today, only five remain in service and the cost to maintain these 50-year old ships has become an unsustainable burden on the Coast Guard’s budget.

In 2008, to start the replacement of the aging High-Endurance Cutters, the Coast Guard commissioned the USCGC Bertholf (WMSL-750), first of the Legend class. Shortly after commissioning in 2009, Bertholf completed an extended operational deployment and exceeded all operational expectations of a “first-of-a-class” vessel.

The major concern with the current planned Coast Guard force structure is that it calls for only eight (now nine) National Security Cutters to replace 12 High-Endurance Cutters. Since the commissioning of the Hamilton-Class High-Endurance Cutters in the 1960’s and 1970’s, the maritime security landscape for our nation has changed dramatically. With the Department of Defense heavily involved overseas, the Coast Guard has taken the lead, appropriately so, in protecting and securing America’s homeland and our own backyard, as illustrated in the Commandant’s Western Hemisphere Strategy (September 2014).

US agencies stop semi-submersible, seize 12,000 pounds of cocaine

“If you look at DoD’s statement of key priorities, they are not focused on the Western Hemisphere. We have the responsibility by default and design,” Zukunft stated. Stressing the Coast Guard’s force structure deficiency to combat illegal drugs and illegal migrants in the southern approaches to the U.S., Zukunft went on to say, “The Navy’s Perry-class frigates have gone away. On the best of days, you have three Coast Guard ships in the Caribbean. That is your entire force to deal with threats in that region.”

The Coast Guard’s focus on the Western Hemisphere also includes the Arctic, as illustrated in the Commandant’s Arctic Strategy. In fact, increasing activity from cruise ships, eco-tourism, oil exploration, fishing vessels, and commercial cargo vessels seeking a shorter route between Asia and Europe have necessitated the need for the National Security Cutters to go where they never planned to go before: the unforgiving, icy waters of the Arctic.

In addition, with China’s expansion in the South China Sea and the U.S. Navy’s shortage of assets in the region, there has been discussion of the Coast Guard providing a more persistent presence in the area. The Coast Guard would be the perfect service to work with our allies in the region. If assigned, the National Security Cutter – with its 12,000-nautical-mile range and its 60-day endurance – would be the ideal ship to perform this mission.

In summary, as the new administration strives to enhance our overall national security posture, there should be serious consideration given to building at least 12 National Security Cutters to replace the 12 retiring ships in the High-Endurance Cutter program. A “one-for-one” NSC for HEC replacement strategy would better secure our nation and help the U.S. Coast Guard combat a host of emerging national security threats on multiple flanks.”

https://news.usni.org/2017/03/09/opinion-doing-the-most-with-the-least-the-coast-guard-dilemma

 

  

 

Veterans Administration Patchwork System Eats Most Of $4B Tech Budget

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“DEFENSE ONE”

“VA, with its history of failed large-scale IT projects that cost taxpayers billions of dollars, is again grappling with IT issues.

The agency’s CIO says there’s no clear plan for replacing custom-built systems, two of which are more than 50 years old.

This time, it isn’t a single program bleeding taxpayer dollars that is troubling Congress. Rather, it’s the agency’s aging IT systems, two of which are more than 50 years old, according to testimony from Dave Powner, director of IT management issues for the Government Accountability Office.

The age of some of VA’s oldest systems and its disproportionate spending on legacy technology clearly bothered several members of the House Committee on Veterans Affairs.

“It appears 86 percent of the money in IT is used for maintaining systems,” said Chairman Phil Roe, R-Tenn., who pressed VA Chief Information Officer Rob Thomas about what industry best practices for legacy spending were. Earlier, Powner had revealed that only about $400 million of the over $4 billion VA spends annually on IT is used to research and develop new systems.

Our numbers are out of kilter from industry; we’d like to see 60 percent on maintenance and 40 percent on development,” Thomas said. “Right now, we’re turning at 85 to 90 percent sustainment, and we have to shrink that.”

Thomas told the committee VA stood up a modernization effort last year aiming to decommission old systems, close data centers and attempt to make a dent in the agency’s legacy spending. Thomas said that effort could help lead VA toward a buy-over-build approach to IT, which he himself supports.

Roe said the push for commercial-off-the-shelf solutions is encouraging, but tempered his enthusiasm. Congress has increased VA’s appropriations for IT an average of 7 percent over the past five years with little to show for it. While the Defense Department opted to go commercial for its electronic health records system two years ago, VA still grapples with whether to build its own system or follow DOD.

“My fear is that I’ve been sitting here eight years, listening to how it will get better, and I realize we have a lot of good, smart people working on this, and it’s obviously not easy,” Roe said. “But there are a lot of COTS products that can do scheduling and billing.”

Roe also voiced disgust at VA’s failed $5.3 million cloud migration contract.

“That money could have paid for so many other things,” Roe said. “Like 70 entry-level nurses in Johnson, Tennessee.”

VA’s consolidation of data centers is generally behind the rest of government. Despite being the fourth largest IT spender among all agencies, VA has closed only 20 of its 356 data centers, ranking 19th out of the 24 agencies GAO studied.

Powner said VA’s reported data center savings of $15 million since fiscal 2011 are pennies compared to the $2.8 billion other agencies saved collectively over the same period. VA also has yet to meet any metrics established by the Office of Management and Budget. To better keep tabs on progress at VA, Powner recommended the committee call VA personnel to Capitol Hill for quarterly updates. The committee agreed.

“We need to have clear transparency on what progress is being made, and when the goal posts change,” said Powner, referring to schedule slippages that are apt to occur in large software projects.

Thomas said VA has many large IT decisions to make in the near future, beginning as soon as President Donald Trump’s nominee for VA secretary, David Shulkin, is confirmed. Chief will be determining whether VA will transition to a commercial electronic health records system, though when pressed, Thomas said he had no idea how long it might take.

DOD is beginning pilots of its new EHR system, but its $9 billion contract was awarded almost two years ago. Acquisitions of that scale take time, and VA would be reluctant to cut corners given the scrutiny it is under.

Ranking member Tim Walz, D-Minn., said he wouldn’t suffer another decade of health records issues between VA and the  Defense Department, and was disappointed to learn—from Powner—there still isn’t a seamless transition of health data for troops who transition to veterans. He called on Congress to demand interoperability between VA and DOD.

“I have to tell you, I cannot talk to a veteran and justify why we’re going to spend countless dollars for two systems that do not communicate and do not improve veterans’ experience,” Walz said. “We need to demand interoperability for one system and be responsible. Ten more years of it, I can’t stand it.”

If VA were to transition to a commercial EHR system, Thomas said the department would not necessarily have to use the same Leidos- and Cerner-developed system the Pentagon uses. Other commercial platforms should be interoperable, he said”

http://www.defenseone.com/technology/2017/02/vas-patchwork-system-eats-most-its-4b-tech-budget-congress-wants-stop/135254/