Tag Archives: Government Waste

We Need to Audit the Pentagon

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“THE PROJECT ON GOVERNMENT OVERSIGHT (POGO)”

“In 1994 Congress passed legislation requiring every federal agency to be auditable.

Since then every agency has complied—except for the Department of Defense.

“We have known for many years that the Department’s business practices are archaic and wasteful, and its inability to pass a clean audit is a longstanding travesty,” Chairs John McCain (R-AZ) and Mac Thornberry (R-TX) of the Senate and House Armed Services Committees said recently in a joint statement. “The reason these problems persist is simple: a failure of leadership and a lack of accountability.”

The Department’s… inability to pass a clean audit is a longstanding travesty

Increasing Pentagon spending under these circumstances is the opposite of fiscal responsibility. In fact, giving the Pentagon $54 billion and finding out why later is bad budgeting.

Both the Republican and Democratic party platforms included the need to audit the Pentagon, and Congress should resist calls to give more money to an agency they know to be irresponsible with taxpayer dollars.

You can learn more about the seemingly endless saga surrounding the Pentagon’s utter failure to get a clean audit opinion here.”

http://www.pogo.org/straus/issues/defense-budget/2017/pentagon-audit-needed-oversight.html

 

 

 

 

 

Budget Control Act and the Pentagon – The Elephant in the Room

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Image:  Vestedway.com

“NATIONAL DEFENSE MAGAZINE”`

“The Elephant in the room is the Budget Control Act [BCA] that imposes strict limits to federal discretionary spending.

Mattis’ budget guidance goes out the window if the BCA is not repealed.

Defense pundits and industry watchers were surprised this week when the Pentagon released extensive new “budget guidance” from Secretary James Mattis that spells out the process for how the Pentagon will justify its upcoming funding request to Congress. The proposed budgets will seek to plug immediate funding holes but also set in motion the military buildup that President Trump promised.

Photo: Defense Secretary Jim Mattis meets with the Joint Chiefs of Staff at the Pentagon (DEFENSE DEPARTMENT)

“It’s our hope and intent that we can operate in a budget environment outside of sequestration,” said Defense Department spokesman Navy Capt. Jeff Davis. “We’ll continue to work these budget submissions very closely with the Office of Management and Budget.”

Mattis has held private discussions with members of Congress on the issue but Davis would not comment on whether the secretary is confident that the BCA caps will be lifted any time soon.

The restrictions in the Budget Control Act are in effect until fiscal year 2021. “We have not seen any plan to lift or strike the BCA and foresee difficulty getting a major hike through fiscal conservatives and Senate Democrats,” noted industry analyst Roman Schweizer, of Cowen Washington Research Group. “OMB’s budget blueprint is expected this month and the reaction to it will be the first indicators of likelihood.”

It is noteworthy that the Pentagon is putting out documents on its budget “sausage-making” when there are no top-line targets yet from OMB, Schweizer observed.

Davis said Mattis intends to build the budget request from the ground up, based on legitimate needs rather than artificial targets. “We don’t just pick a number and fill it in with capabilities,” he said. “We’ll come up with very real capabilities we need to restore readiness and balance programs. Then we’ll work to get the appropriate price tag for it.”

This will not be a free-for-all, Davis said. “Secretary Mattis has said he wants to be a faithful steward and get maximum value for the taxpayer dollar. That’s what this process is designed to do.”

According to the three-phase plan, the Pentagon will request by March 1 an emergency budget amendment for fiscal year 2017 to fund immediate needs like precision-guided munitions and pilot flying hours. The fiscal year 2018 budget proposal due May 1 would seek longer-term investments to increase the size and capability of U.S. forces. The foundation for the 2019-2023 five-year budget would be a new National Defense Strategy that the Pentagon is now drafting. The Trump administration also has ordered a nuclear posture review and a missile defense review, both of which could add significant new expenditures.

The Pentagon’s budget not only faces huge political and fiscal pressures but also practical constraints such as a narrow window of time on the congressional calendar.

“There is lots to do, and not much time,” said Bloomberg Government analyst Rob Levinson. A deadline to increase the national debt limit looms March 16. Federal funding for fiscal year 2017 runs out April 28, when the current continuing resolution expires and action will be needed to prevent a government shutdown.

There are larger variables at play, too, Levinson said during a Bloomberg webinar. “Trade-off decisions could be affected by changes in relations with Russia,” he said. The Pentagon’s ambitious “third offset” strategy is predicated on the need to counter rising powers like China and Russia. “Trump appears to feel differently about Russia than many in Washington, but is concerned about China, which could steer more money to the Navy and Air Force at the expense of the Army.”

Trump, like every president, will be forced to make tradeoffs between spending plans, tax cuts and deficits, said Levinson. “A most likely outcome is increases — not necessarily equal — for defense and domestic spending with resulting deficit growth. No faction will get everything they want: not the fiscal hawks, defense hawks, Democrats or the president.”

http://www.nationaldefensemagazine.org/blog/Lists/Posts/Post.aspx?ID=2411

$4 Billion Stealth Destroyer DDG-1000 Biggest Trials Lie Ahead

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BREAKING DEFENSE

“Problems developing and testing a weapon system at the same time.

It’ll be two more years before combat systems delivery occurs, and then the ship can begin IOT&E (Initial Operational Test & Evaluation) and starting the training cycle to deploy.

As shipbuilder Bath Iron Works laid the keel for the third and final destroyer of the DDG-1000 class, the Navy and industry were struggling to understand embarrassing breakdowns on the first ship, the USS Zumwalt. Congress fears there could be worse to come. “The hard work hasn’t really begun yet in terms of delivering the capability of the ship,” frets one Hill staffer. “We don’t even know really what we don’t know yet about the combat systems because they hadn’t done testing.”

On DDG-1000, there are months of testing still to come even as the third ship, the future Lyndon Baines Johnson, is nearly 60 percent complete (in the form of pre-assembled modules yet to be attached to the keel). “There’s definitely a lot of concurrency,” the staffer said. “It’ll be two more years before combat systems delivery occurs, and then the ship can begin IOT&E (Initial Operational Test & Evaluation) and starting the training cycle to deploy.”

Naval Sea Systems Command is still working out the root causes of engine breakdowns that, among other things, required the $4 billion ship to be towed out of the Panama Canal. But that’s the easy part. What failed in Panama was a relatively simple component called a lube oil cooler, something ships have used “since Noah had an ark,” lamented NAVSEA’s commander, Vice Adm. Thomas Moore. What the Navy has yet to test — indeed, what the Navy has yet to turn on as a single, integrated, ship-wide system — is the ship’s far more complex array of unique, high-tech combat systems:

  • the “integrated fight-through power” system to distribute the ship’s massive amount of electrical power to the highest-priority equipment while re-routing around battle damage, a lot like the fictional starship Enterprise;
  • the two 155 mm Advanced Gun System (AGS) cannon, designed to fire rocket-propelled precision shells that proved so costly the Navy is looking at cheaper but shorter-ranged replacements;
  • the AN/SPY-3 radar, which is new to the Zumwalt destroyers and the similarly troubled carrier USS Ford;
  • and the unique ship-wide computer system meant to control it all, the Total Ship Computing Environment Infrastructure, with over five million lines of code, based on open-source Linux software.

Even when the Zumwalt appears to resemble earlier classes, it’s significantly different. For instance, the Mk 57 Vertical Launch System that allows the Zumwalt to fire a wide variety of missiles is slightly different than the Mk 41 VLS on the Navy’s mainstay warship, the DDG-51 Arleigh Burke class. In particular, the Zumwalt‘s missile tubes are squeezed in around the periphery of the ship, rather than forming one easy-to-load central block as on an Arleigh Burke.

“The combat system testing is a significant concern, since so much of it is new,” said Bryan Clark, a retired Navy commander now with the Center for Strategic & Budgetary Assessments. “The Mk57 VLS launcher, AGS, SPY-3, and volume search radar are all unique to DDG-1000. While each system has been tested individually to some degree, the integration testing of all these new systems is likely to identify unforeseen problems, and subsequent delays in the ship’s first deployment.

Guns and Voltage

Even once everything is working and all systems are go aboard ship, Clark continued, the Navy will need to build a support infrastructure on shore. That means special training programs for the crews of the three DDG-1000s, distinct from other destroyers, he said, “because of all the DDG-1000’s unique systems, including a different electrical system, generators, propulsion system, combat systems, and hull equipment.” The DDG-1000 even draws a different voltage of power from other destroyers, he said, which means it’ll compete for high-voltage pier space with big-deck amphibious assault ships and nuclear-powered aircraft carriers.

Then there’s the cost of ammunition. The ship was built around its two 155 mm guns, a caliber used by no other ship in the Navy. The Advanced Gun System in turn was built to fire a unique hybrid of artillery shell and missile, the rocket-boosted Long-Range Land-Attack Projectile (LRLAP), able to strike targets about 100 nautical miles away. Unfortunately, as the DDG-1000 program kept getting cut back, and the production run of ammo with it, the cost-per-round rocketed to somewhere around $800,000. Now the Navy’s not actually buying LRLAPs and instead looking at the Excalibur round, which is precision-guided but not rocket-boosted: Excalibur costs about $70,000 a shot — less than 10 percent the LRLAP’s price — but can hit targets at most 26 nautical miles away — about 25 percent the LRLAP’s range.

That’s a tactical tradeoff that undermines the whole raison d’etre of the Zumwalt class, shore bombardment, argued naval historian and analyst Norman Polmar. “Less range? It doesn’t have enough range now (with LRLAP)!” Polmar told me. With everyone from China and Russia to Lebanese Hezbollah and Yemeni Houthis boasting anti-ship cruise missiles nowadays, “amphibious forces have to stay at least 25 and preferably 50 miles off shore,” Polmar said. With modern aircraft like the V-22 Osprey and the CH-53K helicopter, he went on, “we’re not going to land troops on the beaches…. We’ve got a capability of going more than a 100 miles inland easily.” So adding the distance ships must stand out to sea and the distance ground forces will go inland, you get ranges that even the LRLAP couldn’t cross, let alone Excalibur.

So what does DDG-1000 do? “It was designed for a mission that’s no longer relevant,” Polmar said, but bombardment of land targets with big guns isn’t the only mission the Zumwalt can do. Take away the guns and, “what do you have? A large ship with a lot of electricity,” he said. “The ship has phenomenal capabilities in terms of its power plant, so let’s get rid of the guns and let’s start putting lasers and other high-tech weapons on the ship.”

“The best things about DDG-1000 have to do with its electrical power (76MW) and internal volume,” agreed Clark. “It will be a great testbed and developmental platform for electric weapons like lasers, high-power radio frequency weapons, and railguns.”

The Hill staffer wasn’t so sure: “The idea that you would reopen the shipbuilding contract to put in a railgun begs for more trouble” on a program that’s already seen plenty. (That doesn’t rule out expensively extracting the 155mm guns and replacing them with railguns later, though).

On the other hand, the contract structure and the advanced state of construction makes it impractical to cancel the third ship, as the Pentagon once studied doing. “(DDG-)1001 and 1002 both are on fixed price contracts,” the staffer said. “The idea of not building the third one doesn’t make any sense; we’ve already paid for it” — all but $200 million — “so we’d better get a ship.”

So what, at this stage, can be done to fix and improve the Zumwalt class? The Navy is reviewing the ships’ missions and studying Concepts of Operation (CONOPS), which will likely reflect the reduced range of the guns. Congress will watch the combat systems testing closely, and it’s already reformed one aspect of shipbuilding. After the Navy commissioned the Zumwalt in October and formally accepted delivery of the ship from Bath, Congress enacted language in the 2017 National Defense Authorization Act (Section 7301) defining delivery to occur only when “all systems contained” are ready and ordering the Navy to amend the Zumwalt class’s delivery dates accordingly. That statute should help prevent concurrency from rearing its troublesome head on future shipbuilding programs.

Then there’s the longer-term lesson of the DDG-1000 and similarly ambitious ships like the aircraft carrier Ford and the Littoral Combat Ship. On both sides of the Potomac, the emerging consensus is that the hoped-for 355-ship fleet should be built with incremental upgrades of proven classes, not with more ambitious, leap-ahead ships packed with new technologies like the Zumwalt.

“I think the ship has a lot of potential,” the Hill source said, “but we shouldn’t believe it until we see it demonstrated.”

http://breakingdefense.com/2017/02/stealth-destroyer-ddg-1000s-biggest-trials-lie-ahead/

 

Government Financials a Mess, Improper Payments Rise Again

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Photo Credit: Tax Credits / Flickr

“THE PROJECT ON GOVERNMENT OVERSIGHT”

Improper payments are payments made by the federal government in the wrong amount, to the wrong people, or for the wrong reason

Reported improper payments have reached another all-time high after increasing for the third year in a row, from $137 billion to $144 billion, according to the Government Accountability Office’s (GAO) fiscal year 2016 financial audit of the federal government.

The GAO discusses these totals and how the majority of change resulted from increases in outlays of Medicare and other large programs, but that ignores the larger issue: the accuracy of improper payments estimates are still not complete or reliable in many agencies, so these numbers do not fully encompass the scope of the issue.

Congress and the executive branch have been trying to determine the extent of this problem since 2002; but a 2016 House Oversight and Government Reform Committee report paints a not-so-bright picture of the government’s progress. Representative Mick Mulvaney (R-SC), President Trump’s nominee for director of the Office of Management and Budget, also highlighted similar issues in his confirmation hearing, specifically discussing agency non-compliance with current laws and the urgent need to solve this issue.

The GAO audit supports both the Oversight Committee’s report and Representative Mulvaney’s testimony, pointing out a number of challenges that hinder the government’s ability to understand the scope of the improper payment problem:

  1. Incomplete, unreliable, or understated estimates
  2. Risk assessments that do not accurately assess a program’s risk to make improper payments
  3. Noncompliance with federal laws that try to address the above

The importance of having complete, reliable, and accurate estimates is pretty clear: without them, we will never be able to identify the true causes of financial mismanagement in the government or find a way to stop it. And even if all the current estimates are accurate, we still aren’t analyzing all relevant programs for improper payments. Having accurate risk assessments is important because improper payment estimates are only required for programs that are found to be at a high risk for them. If risk assessments are incorrect, then programs with significant improper payments may not be getting analyzed for such payments, and thus likely never stop misspending taxpayer money.

These issues are compounded and complicated by the fact that various agencies are not complying with laws already in place to address them. The Oversight Committee reported that 16 agencies failed to comply with improper payment laws in 2015 and that 9 agencies have never complied. The GAO audit found that 18 federal programs at risk for improper payments did not report estimates in 2016 as required by law. Ensuring complete compliance with the laws already in place should be a first, seemingly not-difficult step for the government to take towards fixing the improper payment problem.

Improper payment oversight is not the only fiscal area in which the government is lacking, however.

The GAO was again unable to provide an opinion on the entirety of the government’s financials due to long-standing deficiencies, including:

  1. Persistent financial management problems at the Department of Defense
  2. The government’s inability to account for and reconcile certain transactions
  3. An ineffective process for preparing the consolidated financial statements

The government is and will continue to be unable to provide policymakers with reliable financial and performance data, information that is “crucial for the difficult spending decisions that lie ahead.” Without effective processes to accurately determine the full extent to which financial mismanagement occurs, the federal government has no reasonable assurance that the use of federal funds is occurring effectively, appropriately, or in line with the needs of taxpayers.”

http://www.pogo.org/blog/2017/01/govt-financials-a-mess-improper-payments-rise-again.html

Bringing Pentagon Efficiency and Effectiveness to the Forefront

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Image:  “The Project on Government Oversight”

 

“DEFENSE NEWS”

“It is time to explore what can be achieved by bringing business considerations up front to help us navigate the treacherous national security waters ahead.

Archaic and inefficient, the Defense Department’s processes used to acquire and manage resources have ultimately become counterproductive in supporting the military’s war fighting mission.

In James Mattis’ confirmation hearing before the Senate two weeks ago, most of the questions directed at him appropriately focused on threats to the United States. There were thoughtful exchanges on Russia and Iran. And discussions about sequestration. However, one of the greatest threats not receiving appropriate attention is the Pentagon’s current business processes. Archaic and inefficient, the Defense Department’s processes used to acquire and manage resources have ultimately become counterproductive in supporting the military’s warfighting mission.

National defense too often is only discussed in context of size and cost in relation to external threats. While those are unquestionably important considerations, more emphasis must be placed on internal efficiency and effectiveness. Processes that monitor and reward output as opposed to processes that focus exclusively on inputs illuminate opportunities for dramatic improvements in our military posture.

As a former business leader, Donald Trump is well suited to prioritize business processes. And as president, he can direct Defense Secretary James Mattis and his staff to explore what can be achieved by elevating the primacy of efficiencies and effectiveness within the Pentagon.

Reconsidering how the Pentagon collects and uses data to make decisions will be particularly important. Indeed, better and more proficient employment of existing business process technologies and associated data has the potential to enable new capabilities, drive efficiencies, and promote more informed management decisions. Advanced analytics can provide insight into effects of even micro-level changes on readiness, with hope that current reporting could forecast how today’s decisions impact future military readiness.

Defense acquisition – historically the symbol of the slow-to-decide-and-act defense bureaucracy – is another area worthy of review. Pentagon procurers must have the opportunity to embrace and expand on the principles of rapid innovation. Rapid innovation has been adopted by Silicon Valley start-ups through some of our largest corporations, and its model would better attract existing and future military suppliers while providing our military world-class capability at lower costs.

The president and secretary of defense should also pursue measures that shed uniformed military responsibility of non-core services. The Pentagon has already seen success of such measures when they privatized military housing decades ago. There have been several studies over the years identifying other non-core military services that can be done more efficiently.

To move the Pentagon toward best-in-class processes and practices, the president must begin by outlining his support for efficiency and cost-savings reform in his budget. Notably, the budget must advance progress on auditability.

Under the current  plan, all four services must be audit ready by the end of September, with independent auditors in 2018 determining whether they passed or failed. Few are optimistic that the services will return a clean opinion, but the process is vital for prudent fiscal oversight while shedding light on how senior Pentagon leaders can run their organization more effectively. What is more, it provides a step toward full cost accounting which would provide even greater insight by capturing direct and indirect costs, driving decision making accordingly.

Another key provision would be support for eliminating, consolidating or repurposing excess infrastructure and facilities; to include requesting a new round of Base Realignment and Closure (BRAC). While unpopular in Congress, divesting unneeded infrastructure is basic best business practice and another BRAC round is well overdue. The last round occurred over a decade ago.

Our military and defense leadership is trained to operate in ambiguous and uncertain conditions — and that is necessary and appropriate for the battlefield. But we can and must do better when it comes to process, management, and generally keeping our own house in order. Indeed, a key rationale of strengthening business processes is to reduce the frequency of decision-making-by-gut-feel.”

http://www.defensenews.com/articles/bringing-pentagon-efficiency-and-effectiveness-to-the-forefront

 

 

The Army Handgun: A New Poster Child for Acquisition Malpractice?

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“DEFENSE NEWS”

“A handgun is not an aircraft carrier.

The Army’s search for a new service pistol officially began in 2011 — long before that if you include the years when concerns with the existing M9 Beretta first emerged. More than a decade by Senate Armed Services Committee Chairman John McCain’s own estimates.

The system is broken.

Consider what went down in the handgun buy: There were a couple years of information-gathering industry days. There was a draft solicitation that noted an expected date for a final bid request, but that got pushed back and yet another industry day was scheduled. And there was Beretta, the incumbent, which pushed back on the planned replacement, then formally proposed altering the existing contract, so it could provide a different model that would address the concerns for less money. That, of course, was something government had to consider. More time.

So, what the market got in return for supposed due diligence was delays, often with an explanation that read something like this: “to allow for improvements to the RFP as a result of feedback received from Industry.”

And Army soldiers continued to wait. As Sen. Joni Ernst said during the confirmation hearings for retired Marine General James Mattis earlier this month, “The joke that we had in the military was that sometimes the most effective use of an M9 is to simply throw it at your adversary.” That’s less a cut on the Beretta handgun and more a slam on the process, which includes so much bureaucracy that a product is too often a dinosaur by the time its replacement actually happens.

It wasn’t that long ago when government was forced to look long and hard at how it procured cybersecurity products and services. The existing model was just too slow and arduous to keep up with the threat. While still not perfect, new models came out to enable agencies to roll out cyber products and services fast. I note this not to imply that a handgun is any more like a cybersecurity tool than an aircraft carrier, but rather to point out that acquisition models can be adapted. And the much-feared prospect of procurement reform does not need to be some massive undertaking that transforms how the Pentagon and all agencies do business with industry, across all markets.

Companies want fairness, but they also want predictability. And excessive bureaucracy in the name of fair competition, where contracting officers treat all competitions with kid gloves in fear of getting reprimanded if something goes awry, is counterproductive. It will simply drive companies not to bother, which in turn will cause competition to deteriorate.

Diligence is one thing. Foolishness is another.”

http://www.defensenews.com/articles/the-army-handgun-a-new-poster-child-for-acquisition-malpractice

America’s Military Has a Big Problem: It’s Dead Broke

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“THE NATIONAL INTEREST”

“The Pentagon has made big plans for which it lacks the money.

DoD has breathtaking liabilities—as much as $88 billion a year—that ought to be addressed before procuring a single additional plane, ship or tank.

“We’re broke.” In essence, that’s the message Deputy Secretary of Defense Bob Work delivered to Defense-Secretary-in-Waiting James Mattis at the December 5 Future Strategy Forum.

Military leaders have testified to the problems caused by five straight years of budget cuts and how these cuts, combined with an extraordinarily high operational tempo, have resulted in a smaller, less capable military force.

What has received less attention is the degree to which the Pentagon’s future plans bank on questionable assumptions and budgetary sleight-of-hand to balance the books for 2018 and beyond. These gimmicks include: relying on rosy future estimates for the cost of labor, fuel and currency exchange; pushing the costs of large modernization programs like the nuclear triad into the ill-defined “out years,” and using Overseas Contingency Operations funds to help cover normal DoD operating costs. Taken together, these liabilities, combined with the administration’s decision to submit budgets in excess of the Budget Control Act caps, constitute about $100 billion dollars per year of unbudgeted liabilities or risk—a staggering sum that will severely limit the new administration’s ability to quickly rebuild the U.S. military.

In October 2016 a Pentagon spokesman publicly acknowledged, and Secretary Work confirmed, what many have known for some time: that as much as half of the money requested in the DoD Overseas Contingency Operations (OCO) funding is planned to go to normal Pentagon operations such as training soldiers, steaming ships or flying planes—not the extraordinary wartime operations which OCO was designed to cover.

The President-elect’s nominee to head the Office of Management and Budget, Rep. Mick Mulvaney, (R-SC), has decried such misuse of OCO funds, calling it a “backdoor loophole” in the budget process. Considering that comment, if Congress and the country want DoD’s normal operating costs captured in the appropriations process versus the wartime funding mechanism, this $30 billion annual cost must be eventually covered in the base budget, further adding to DoD’s liabilities. And while it may be a worthy goal to move these enduring costs into the base appropriation it’s important to note that this shift by itself won’t do anything to restore military capabilities.

Here are some other liabilities Secretary Work didn’t mention:

Future Costs of Labor

Section 1009 of Title 37 United States Code requires military pay raises to equal the Economic Cost Index (ECI), a common measure of the cost of labor, unless the president invokes his authority to request an alternative pay raise. The Congressional Budget Office estimated in August that “the ECI will grow by more than 3 percent a year, on average over the next several years.” However, in its budget request, DoD has planned on much smaller raises than CBO forecasted. The 2017 DoD budget projects pay raises of only 1.6 percent for 2017-2019, and 1.8 percent and 2.1 percent for 2020 and 2021, respectively.

From 2014-2016 President Obama used his authority to lower the requested pay raises, and Congress complied. After three years of smaller than prescribed pay raises, this year Congress disregarded the president’s recommendation and set the pay raise at 2.1 percent in the 2017 NDAA, matching the growth in ECI.

Because the DoD has banked on being able to lowball military and civilian pay raises for the next five years, the liability incurred by Congress’ inconvenient compliance with law this year, and potentially in the future, will run to the tens of billions of dollars. Just next year’s change in pay will cost DoD about $800 million in 2017 than planned.

Hopeful Fuel Cost Assumptions

The DoD budget estimate projects that fuel costs for fiscal year 2017 will drop 8.2 percent from 2016. For future years, DoD used planning assumptions that reflected minor increases ranging from 4.8 percent in 2018 to only 1.8 percent in 2021.

However, the latest forecast from the U.S. Energy Information Administration predicts crude oil prices will gradually rise, not fall, next year. And future year energy estimates vary widely, with high end price per barrel of crude oil reaching $150 by 2020. If energy costs grow at even a modest rate of 5 percent annually, the Pentagon will be short billions of dollars compared to its plan.

Living Large In an “Out-year”

Former Secretary of the Army John McHugh famously commented that he always wanted to “live in an out-year.” In Pentagonese, “out-years” fall outside the rigid five-year planning window; they are, consequently, years in which unrealistic procurement plans magically come to fruition and normal budget rules don’t apply.

DoD is notorious for planning to acquire major systems such as planes, submarines and ships in quantities that are patently unaffordable in the next five years, but will be brought on-board when the money somehow materializes in an “out-year.”

This Pentagon has double-downed on that technique. In addition to the unpaid bills associated with the recapitalization of the nuclear triad mentioned by Secretary Work, the replacement for the Ohio class submarine and many other major systems are also all awaiting an out-year deus ex machina to save the day.

For example, the Navy’s current, approved 30-year shipbuilding program only gets them to 308 ships—even though they just announced they need 355, nearly matching the president-elect’s promise to get to 350 ships. Yet when the Congressional Budget Office analyzed the Navy’s 308-ship plan, they found it would cost $3-5 billion dollars more per year than what was budgeted.

In an excellent study of the out-year issue, CSIS’s Todd Harrison suggested that just to execute the DoD’s planned modernization programs would require approximately 7 percent more funding— around $40 billion per year—than was budgeted. This includes nothing of the re-building that President-elect Trump has promised.

Other problems lie ahead. DoD has made optimistic assumptions about foreign currency exchange rates, counting on them to remain near where they are today, which is very favorable for the United States. Another liability includes Pentagon requests for changes to military health care programs that the 2017 NDAA did not fully support.

At the Bottom of a Very Deep Hole

The liabilities described above will build to about $100 billion a year over time, seriously complicating matters for a president-elect who has pledged to rebuild our depleted military.

The Pentagon can save some money through efficiencies, base realignment and closure, restructuring and better business practices, and some of these efforts are already underway. But those savings won’t be nearly enough to close liabilities of this magnitude. It’s unfortunate this critical information hasn’t been part of a national discussion by our nation’s leaders, including the president, prior to the imminent transition.

In It’s a Wonderful Life, George Bailey’s financial problems were solved with a crowdfunding solution among the residents of Bedford Falls. General Mattis won’t be so fortunate. It’s among the many challenges that the new administration’s leaders will have to grapple with in their first hundred days to begin the necessary restoration of our military.”

http://nationalinterest.org/feature/americas-military-has-big-problem-its-dead-broke-18956?page=show

 

Can Defense Procurement Be Great Again?

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“NATIONAL DEFENSE MAGAZINE”  by Steven M. Speakes

“As the CEO of a small defense contractor, I see hope for a brighter future. We are excited not just at the prospect of a permanent end to sequestration and a return to more funding for defense but also at the prospect that the broader issues of the electorate discontent manifested in Trump’s win will be felt and heeded by our government.

We believe that government exists to serve citizens. In government contracting, for instance, bureaucracy and bureaucrats have become accustomed to ruling over their fellow Americans. The recent past has been characterized by process gone amuck.

As small business leaders, we feel victimized by a lack of redress to issues such as an acquisition system that takes forever, relies on arcane rules, involves lawyers at every opportunity and requires top-tier lobbyists to obscure accountability.

Following are some new rules that America’s small businesses would like to see in defense procurements:

Write requirements in plain English. Use modern commercial technology to take the “black art” out of the process. Instead of forcing contractors to employ expensive legal firms, use modern software like “Legal Zoom” to provide readily available contract language to small firms. Set a reasonable time limit for government proposals. Establish timelines for steps in processes and live by them by enforcing penalties on the government for non-performance. Cash flow is an issue for small firms that cannot risk months or years of bureaucratic processing to gain decisions.

End the DoD war on intellectual property rights. Firms that are inventive deserve the right to profit from their success. The federal government’s current approach to intellectual property would not be accepted in the music and publishing industries. In those sectors the sanctity of intellectual property is respected and serves as the engine that drives re-use of the most clever ideas.

Enforce transparency in decision-making. Under the guise of “protecting the process,” government is able to make decisions with minimal accountability, particularly with small contract awards that are so often the bread and butter for smaller firms.

Make civil servants and military officers accountable. While a heroic few work extremely hard and are deeply devoted to their professional responsibilities, too many are not. When you contact world-class commercial organizations with a problem, you expect to speak to a human being who understands that we expect accountability. Emails are responded to promptly. Satisfying the customer is key. The commercial world believes that relations with partners and customers are long term and mutually beneficial, not adversarial. Emails receive responses and communication is evaluated for results. None of this is true with the government, where the contractor is often viewed with disregard and occasionally with contempt.

Adopt modern commercial principles of innovation. It is the foundation of much that is going well in America. We started the country with innovators in charge. Early founders such as Benjamin Franklin and Thomas Jefferson popularized the view that the creative, questioning human spirit is the spark of greatness. Our foundations of government reflect this view. Unfortunately the reality of the DoD bureaucracy hinders innovation.

Initiatives by Secretary Ash Carter to “bolt on” innovation to DoD are of limited relevance. Innovation principles are by now well established in industry and can be applied to DoD, but only if senior leaders are committed to the task. Innovation needs to be undertaken in partnership with all contractors, including the small and midsize businesses that bend metal and make hardware.

Coach DoD leaders that lawyers provide “legal opinion” and not “the law.” Uniformed and civilian leaders hide behind their lawyers who dominate government decision-making with the power to delay, obfuscate and just say no. The responsibility of leadership is to act and to take responsibility for decisions. We all know that the opposite is true as too often inaction becomes the goal. While we all recognize that issues of senior leader misconduct are serious, we need better procedures to ensure swift and fair resolution of allegations to make the business of DoD work better.

Make American jobs count. Many small businesses that are defense contractors are struggling to survive. DoD’s focus on the industrial base centers all too often on the top 100 firms and not the small manufacturers that possess unique qualities of innovation, agility and enormous capability. Let’s establish a framework — if the president-elect gets involved to save 1,000 jobs, then when should a secretary of defense or general get involved? It will take that kind of focus to cause DoD to change its indifferent operating focus.

So where is the future of the U.S. government headed for small businesses? It must move in a new direction. We feel sure of that. As contractors, we must embrace a goal of creating a new DoD culture, peopled with agile, committed leaders and followers who understand partnership, embrace service and respect as core ethics and are prepared to multiply the value of the $600 billion our nation invests annually in this most noble cause.”

Stephen M Speakes, a retired U.S. Army lieutenant general, is president and CEO of Kalmar Rough Terrain Center LLC, in Cibolo, Texas.

http://www.nationaldefensemagazine.org/archive/2017/January/Pages/CanDefenseProcurementBeGreatAgain.aspx

 

Government Fraud Recovery Bounces Back in 2016

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fraud-recoveries-2016

“THE PROJECT ON GOVERNMENT OVERSIGHT”

“It is  a substantial increase over last year’s total.

A large number of recoveries came from contract fraud cases involving some of Uncle Sam’s most prominent suppliers of goods and services.

The Justice Department announced on Wednesday it had recovered for taxpayers more than $4.7 billion through settlements and judgments from False Claims Act cases in fiscal year 2016. According to the announcement, it is the third highest annual recovery in False Claims Act history. It is also a substantial increase over last year’s total.

Of the $4.7 billion recovered, $2.5 billion came from health care fraud cases. An additional $1.7 billion came from settlements and judgments in cases alleging false claims in connection with federally insured residential mortgages.

  • Boeing: $18 million to settle allegations that it overcharged the US Air Force for aircraft maintenance services at Boeing’s Long Beach, California, depot. (In 2014, Boeing paid $23 million for allegedly overcharging maintenance work at its depot in San Antonio, Texas.)
  • Centerra Services International: $7.4 million to resolve a lawsuit accusing the company of overbilling the Army for firefighting services in the Middle East
  • Computer Sciences Corporation: $1.35 million for billing the Defense Information Systems Agency for subcontract workers who lacked the required security clearances
  • Deloitte Consulting LLP: $11.38 million to resolve overbilling claims on a General Services Administration contract
  • DRS Technical Services: $1 million to settle charges that employees billed the Army for hours they did not work
  • L-3 Communications: $25.6 million to settle claims of selling the government defective weapon sights
  • Lockheed Martin: $5 million for allegedly misleading federal and state regulators about noncompliance with environmental regulations at the Paducah Gaseous Diffusion Plant in Kentucky
  • SRA International: $1.1 million for alleged false billing on military contracts
  • United Technologies: $11 million in penalties, interest, and disgorgement of profits for overcharging the Air Force for jet engines in the 1980s
  • URS Corporation: $9 million to settle allegations that a subsidiary defrauded the government into awarding it construction contracts that it was not eligible to receive. In a different case, URS paid $580,000 for allegedly overbilling labor rates on a bridge reconstruction project.

The False Claims Act is the government’s primary tool to redress fraud in the areas of health care, defense and national security, food safety and inspection, federally insured loans and mortgages, highway funds, small business contracts, agricultural subsidies, disaster assistance, and import tariffs. In 1986, Congress strengthened the Act by increasing incentives for whistleblowers to come forward with allegations of fraud. Most false claims actions are filed by whistleblowers in qui tam lawsuits. Since 1986, the government has recovered slightly over $53 billion, awarding more than $6.3 billion of that to the whistleblowers who filed the lawsuits—often at great risk to their careers.

On the same day the Justice Department announced its annual fraud recoveries, it also announced it had collected nearly $15.4 billion in civil and criminal cases in FY 2016, one-third less than last year’s total. This amount includes recoveries in all civil and criminal enforcement cases (including those involving the False Claims Act), fines imposed on individuals and corporations for violations of federal financial, health, safety, civil rights, and environmental laws, and collected debts owed to the federal government.

How will the False Claims Act fare under the Trump administration? At least one expert foresees very little change.

Taxpayers Against Fraud acting president Patrick Burns recently observed that Senator Jeff Sessions (R-AL), President-elect Trump’s choice for Attorney General, “has never winked at companies that harm American workers and consumers” and “understand[s] the value of whistleblowers and whistleblower laws when it comes to fighting corporate theft and crony capitalism.” He noted that Sessions has supported strengthening the False Claims Act and has a good relationship with Senator Chuck Grassley (R-IA), the law’s key champion in the Senate.

Burns’ prediction gives us hope that active enforcement of the False Claims Act—and billions of dollars in annual recoveries—will continue for years to come.”

http://www.pogo.org/blog/2016/12/federal-fraud-recoveries-fy-2016.html

Air Force One Is Just the Tip of the Pentagon Cost Overrun Iceberg

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                                                       The F-35A at Eglin Air Force Base -“Vanity Fair”

“THE AMERICAN SPECTATOR”

“Even the F-35 pilot’s helmet costs $400,000 apiece.

[Total Program] price now is an estimated $1.4 trillion for far fewer than the 2,443 planes originally planned. Put another way, the Pentagon is spending far more on this plane than Australia’s entire GDP ($924 billion).

In test flights the F-35 has failed to outperform the F-16, a plane it is supposed to replace. It will be, hands down (or flaps up), the most expensive weapons system in history — at least until the next Pentagon doozy comes along.

In addition to being over budget, it will also be very late. The F-35 program had originally promised 1,013 fighters by fiscal year 2016 but has delivered only 179. The last of the F-35s won’t be delivered until 2040, at which point who knows how they will perform against next generation aircraft, possibly all drone fighter jets.

The new Ford class aircraft carrier is yet another example of massive cost overruns by Pentagon contractors. The $13-billion USS Gerald R. Ford is already two years behind schedule, and the U.S. Navy’s newest aircraft carrier is facing more delays after the Pentagon’s top weapons tester concluded the ship is still not ready for combat despite expectations it would be delivered to the fleet this past September.

The USS Ford is the first of three Ford-class carriers ordered by the Navy with combined cost expected close to $42 billion. At a recent meeting of the Senate Armed Services Committee, Chairman John McCain was sharply critical of the delays and cost overruns, “After more than $2.3 billion in cost overruns have increased its cost to nearly $13 billion, the taxpayers deserve to know when CVN-78 will actually be delivered, how much developmental risk remains in the program, and if cost overruns will continue.” He is absolutely right. Taxpayers are entitled to some answers.

Changing the Pentagon procurement habits will be as slow as changing the course of a 100,000 ton aircraft carrier. So, given Trump’s obsession with “on time and on budget,” he may be tearing out his long, orange locks in frustration over endless Pentagon budget overruns and delays over the next four years.

But, I’m sure the project to gold-plate the interior of the new Air Force One will come in under budget and ahead of schedule. Yeah, right!”

https://spectator.org/air-force-one-is-just-the-tip-of-the-pentagon-cost-overrun-iceberg/