The audit effort covered more than $2.9 trillion in total assets and $2.8 trillion in liabilities, with 1,400 auditors, visiting 600 sites around the world and requesting more than 100,000 samples of equipment as they surveyed the department’s inventory.“
“Elaine McCusker, the Pentagon’s acting comptroller, told reporters ahead of the formal audit release — which occurred late on a busy Friday night in Washington — that “as expected,” the department would be receiving what is known as an “overall disclaimer,” a technical term that means the results of the audit did not come back clean.
Still, McCusker said she sees real progress being made. “I think the department has been pretty open with the fact that it’s got material weaknesses, it’s got things that need [to be] fixed,” she said. “But, you know, our ability to really demonstrate solid progress, I think is the headline.”
The department’s overall audit is really a series of 24 individual audits, led by the Department of Defense’s inspector general, in collaboration with the comptroller’s office. Of those, seven came back clean, an improvement by one (the Defense Commissary Agency) over the previous audit. Two audits are still ongoing and will be completed by January.
Through all that research, auditors found no evidence of fraud for the second straight year. They also turned up what McCusker called “completeness” of major military equipment inventories, which is to say, major defense articles are where they were supposed to be.
In a statement, acting inspector general Glenn Fine said the “Department of Defense has made progress in improving its financial management processes since the prior year audit, but much more progress is necessary. The Department of Defense still has a long way to go before it will be able to obtain a clean opinion.”
A 1990 law passed by Congress required audits for all government agencies. But the Pentagon had been the sole holdout, with leadership across several administrations arguing the building is too large and has too many systems that don’t link up, to give any kind of helpful result that would be worth the cost.
Of the 2,300 Notifications of Findings and Recommendations, which is to say specific issues found by the audit, issued after the FY18 effort, 23 percent were closed by the FY19 audit, which McCusker called “solid progress for our first year.” She also warned that the NFR number will grow “as auditors go deeper into our systems and processes. This is a good thing. We need continued focus on property accountability, inventory and property in the hands of contractors and our systems.”
According to the IG report, 1,300 new NFRs were discovered during the course of the audit.
The department also released a list of positives from the audit, including:
A deep dive into inventory at Naval Air Station Jacksonville identified $280 million of items not tracked properly. Of that, $81 million of material was identified as available for immediate use for Naval operations that the service had no idea it had on hand. Getting rid of old, unusable material freed up approximately 200,000 square feet of storage space.
The Army implemented a new automated solution for data entry into the U.S. Standard General Ledger. Moving to automation should save the service around 15,500 labor hours.
The Air Force also tapped automation, in order to identify user accounts that are no longer relevant in military IT systems, closing an average of 55 a month, which should improve cyber security.
That Air Force project ties into the biggest single area of concern identified by the FY18 audit: information technology realm, both from inventory issues and from failure to follow security recommendations. McCusker said the department closed roughly 30 percent of the overall NFRs in the IT area this year, with a particularly high closure rate among the services.
“We’re really getting at physical access controls, authority documentation, you know, policies that we were updating controls on privilege of users. We really went after all those areas,” she said. “Still plenty to do, but we did focus on that.”
The audit cost around $1 billion to execute, of which roughly half was the cost of fixing issues previously identified. McCusker said she expects the $1 billion figure to be “pretty consistent for a few years” going forward, and argued the investment was small compared to not just the financial return, but improvements for the warfighting capability of the department.
“As far as the return on investment from the audit, you know, when we do automation, and we reduce manual workloads, we free up manpower, and that’s a savings,” she said. “DLA did some inventory and saved over $200 million when they found some inventory that they put back into the system.”
However, those savings won’t be plowed right back into the 2021 budget plans, with McCusker saying “We’ve got a lot of I think examples that get to the savings side of things, but it’s not going to be something that I would translate into, you know, a trackable way that goes into the ‘21 budget, that would be more of some of the reform stuff that we’re doing and you’ll see that.”
For the Pentagon, happy days are here again (if they ever left). With a budget totaling more than $1.4 trillion for the next two years, the department is riding high, even as it attempts to set the stage for yet more spending increases in the years to come.
With such enormous sums now locked in, Secretary of Defense (and former Raytheon lobbyist) Mark Esper is already going through a ritual that couldn’t be more familiar to Pentagon watchers. He’s pledged to “reform” the bureaucracy and the spending priorities of the Department of Defense to better address the latest proposed threats du jour, Russia and China. His main focus: paring back the Pentagon’s “Fourth Estate” — an alphabet soup of bureaucracies not under the control of any of the military services that sucks up about 20% of the $700 billion-plus annual budget.
Esper’s promises to streamline the spending machine should be taken with more than the usual grain of salt. Virtually every secretary of defense in living memory has made similar commitments, with little or nothing to show for them in terms of documented savings. Far from eliminating wasteful programs, efforts pursued by those past secretaries and by Congress under similar banners have been effective in only one obvious way: further reducing oversight and civilian control of the Pentagon rather than waste and inefficiency in it.
Examples of gutting oversight under the guise of reform abound, including attempting to eliminate offices focused on closing excess military bases and sidelining officials responsible for testing the safety and effectiveness of weapon systems before their deployment. During the administration of President Bill Clinton, for instance, the slogan of the day — “reinventing government” — ended up, in Pentagon terms, meaning the gutting of contract oversight. In fact, just to repair the damage from that so-called reform and rebuild that workforce took another $3.5 billion. Gordon Adams, former associate director for national security and international affairs at the White House Office of Management and Budget, noted accurately that such efforts often prove little more than a “phony management savings waltz.”
Secretary of Defense Esper has also pledged to eliminate older weapons programs to make way for systems more suited to great power conflict. Past efforts along these lines have meant attempts to retire proven, less expensive systems like the A-10 “Warthog” — the close-air-support aircraft that protects troops in combat — to make way for the over-priced, underperforming F-35 jet fighter and similar projects.
Never mind that a war with either Russia or China — both nuclear-armed states — would be catastrophic. Never mind that more effort should be spent figuring out how to avoid conflict with both of them, rather than spinning out scenarios for fighting them more effectively (or at least more expensively). Prioritizing unlikely scenarios makes for a great payday for contractors, but often sacrifices the ability of the military to actually address current challenges. It takes the focus away from effectively fighting the real asymmetric wars the U.S. has been fighting since World War II. It leaves taxpayers with massive bills for systems that almost invariably turn out to be over cost and behind schedule. Just as an infamous (and nonexistent) “bomber gap” with the Soviet Union was used by the Pentagon and its boosters to increase military spending in the 1950s, the current hype around ultra-high-speed, hypersonic weapons will only lead to sky’s-the-limit expenditures and a new global arms race.
Esper’s efforts may end up failing even on their own narrow terms. Reforming the Pentagon is hard work, not only because it’s one of the world’s largest bureaucracies, but because there are far too many parochial interests that profit from the status quo. Under the circumstances, it matters little if current spending patterns aren’t aligned with any rational notion of what it would take to defend the United States and its allies.
A Revolving-Door World
The Department of Defense regularly claims that it has implemented “efficiencies” to ensure that every penny of your tax dollars is being wisely spent. Such efforts, however, are little more than marketing ploys designed to fend off future calls for cuts in the Pentagon’s still-ballooning budget. Here are just two recent examples of this sadly familiar story.
In September 2018, the Government Accountability Office (GAO) released a report stating that the Department of Defense had provided insufficient evidence that $154 billion in alleged “efficiency savings” from fiscal years 2012 to 2016 had been realized; the department claimed credit for them anyway.
Just this month, the GAO came to a similar conclusion regarding a proposed Pentagon reform plan that was to save $18.4 billion between fiscal years 2017 and 2020. Its report stated that the Pentagon had “provided limited documentation of… progress,” which meant the GAO “could not independently assess and verify” it. Consider that a charitable way of suggesting that the Department of Defense was once again projecting a false image of fiscal discipline, even as it was drowning in hundreds of billions of your tax dollars. The GAO, however, failed to mention one crucial thing: even if those alleged savings had been realized, they would simply have been plowed into other Pentagon programs, not used to reduce the department’s bloated budget.
Esper and his colleagues have argued that it will be different this time. In an August 2nd memo, his principal deputy, David Norquist, stated that “we will begin immediately and move forward aggressively… The review will consider all ideas — no reform is too small, too bold, or too controversial to be considered.”
Even if Esper and Norquist were, however, to propose real changes, they would undoubtedly run into serious interference within the Pentagon, not to mention from their commander-in-chief, President Donald Trump, a man determined to plough ever more taxpayer dollars into the military, and from members of Congress in states counting on jobs generated by the military-industrial complex. Inside the Pentagon, on the other hand, resistance to change will be spearheaded by officials who previously held jobs in the defense industry or hope to do so in the future. We’re talking, of course, about those who have made use of, or will make use of, the infamous “revolving door” between weapons companies and the government. Consider that the essence of the military-industrial complex in action.
Such ties start at the top. During the Trump administration, the post of secretary of defense has been passed from one former defense industry figure to another, as if it were literally reserved only for key officials from major weapons makers. Trump’s first secretary of defense, retired General James (“Mad Dog”) Mattis, came to the Pentagon straight from the board of General Dynamics, a position he returned to shortly after leaving the department. Interim Secretary Patrick Shanahan, who followed him, had been an executive at Boeing, while current Secretary Esper was Raytheon’s former chief in-house lobbyist. The Pentagon’s number three official, John Rood, similarly comes courtesy of Lockheed Martin. And the list only goes on from there.
This has been a systemic problem in Democratic and Republican administrations, but there has been a marked increase in such appointments under Donald Trump. A Bloomberg Government analysis found that roughly half of the Obama administration’s top Pentagon officials had defense contractor experience. In the Trump administration, that number has reached a startling 80%-plus.
That revolving door, of course, swings both ways. Defense executives come into government, where they make decisions that benefit their former colleagues and companies. Then, as retiring government officials, they go to work for defense firms where they can use their carefully developed government contacts to benefit their new (or old) employers. This practice is endemic. A study by the Project On Government Oversight found 645 cases in which the top 20 defense contractors hired former senior government officials, military officers, members of Congress, or senior legislative staff as lobbyists, board members, or senior executives in 2018 alone.
There is, of course, nothing new about any of this. The late Senator William Proxmire (D-WI) pinpointed the problem with the revolving door back in 1969:
“The easy movement of high-ranking military officers into jobs with major defense contractors and the reverse movement of top executives in major defense contractors into high Pentagon jobs is solid evidence of the military-industrial complex in operation. It is a real threat to the public interest because it increases the chances of abuse… How hard a bargain will officers involved in procurement planning or specifications drive when they are one or two years from retirement and have the example to look at over 2,000 fellow officers doing well on the outside after retirement?”
For his part, President Trump has repeatedly bragged about his role in promoting defense-related employment in key states, both from Pentagon budget increases and the sale of arms to repressive regimes like Saudi Arabia. In March, he held a one-hour campaign-style rally for workers at a tank plant in Lima, Ohio, at which he typically suggested that his budget increases had saved their jobs.
As for Congress, when the Army, in a rare move, actually sought to save a modest amount of money by canceling an upgrade of its CH-47 transport helicopter, the Senate struck back, calling for funding that the Pentagon hadn’t even requested in order to proceed with the program. The reason? Protecting jobs at Boeing’s Philadelphia-area factory that was scheduled to carry out the upgrades. Unsurprisingly, Trump seems fine with this congressional initiative (affecting the key battleground state of Pennsylvania), which still needs to survive a House-Senate conference on the defense bill.
The bottom line: Donald Trump is likely to oppose any changes that might have even the smallest impact on employment in states where he needs support in election campaign 2020. Defense industry consultant Loren Thompson summed up the case as follows: “We’re too close to the presidential election and nobody [at the White House] wants to lose votes by killing a program.” And keep in mind that this president is far from alone in taking such a stance. Similar reelection pressures led former President Jimmy Carter to increase Pentagon spending at the end of his term and caused the George H. W. Bush administration to reverse a decision to cancel the troubled V-22 Osprey, a novel part-helicopter, part-airplane that would later be implicated in crashes killing dozens of Marines.
“We Won’t Get Fooled Again”
What would a genuine Pentagon reform plan look like? There are areas that could easily yield major savings with sufficient political will and persistence. The most obvious of these might be the Pentagon’s employment of more than 600,000 private contractors, many of whom do jobs that could be done by government civilians for less. Cutting that work force to “only” about half a million, for example, could save more than a quarter of a trillion dollars over the next decade, as noted in a recent report by the Center for International Policy’s Sustainable Defense Task Force (of which both authors of this article were members).
Billions more could be saved by eliminating unnecessary military bases. Even the Pentagon claims that it has 20% more facilities than it needs. A more reasonable, restrained defense strategy, including ending America’s twenty-first-century forever wars, would make far more bases redundant, both at home and among the 800 or so now scattered around the planet in an historically unprecedented fashion. Similarly, the president’s obsession with creating an expensive Space Force should be blocked, given that it’s likely only to increase bureaucracy and duplication, while ensuring an arms race above the planet as well as on it.
Real reform would also mean changing how the Pentagon does business (not to speak of the way it makes war). Such savings would naturally start by simply curbing the corruption that comes from personnel in high positions who are guaranteed to put the interests of defense contractors ahead of those of taxpayers and the real needs of American security. (There are also few restrictions on former officials working for foreign governments and almost no public disclosure on the subject.) The Project On Government Oversight found hundreds of Pentagon officials leaving for defense industry jobs, raising obvious questions about whether decisions they made were in the public interest or meant to advance their own future paydays.
Real reform would close the many loopholes in current ethics laws, extend cooling-off periods between when an official leaves government and when he or she can work for an arms contractor, and make far more prominent information about when retired national security officials switch teams from government to industry (or vice versa). Unfortunately, since Esper himself has refused to pledge not to return to the world of the corporate weapons makers after his stint as secretary of defense, this sort of reform will undoubtedly never be part of his “reform” agenda.
One outcome of his initiative, however, will definitely not be money-saving in any way. It will be to boost spending on high-tech systems like missile defense and artificial intelligence on the almost laughable grounds (given the past history of weapons development) that they can provide more military capability for less money. Whether you look at the Navy’s Fordaircraft carriers — the first two costing $13.1 billion and $11.3 billion — or the Air Force’s aerial refueling tanker (which has taken nearly two decades to procure), it’s not hard to see how often vaunted technological revolutions prove staggeringly costly — far, far beyond initial estimates — yet result in smaller, less effective forces. As longtime Pentagon reformer Tom Christie has pointed out, to really change the acquisition system would require building in significantly more discipline. That would mean demonstrating the effective and reliable use of new technology through rigorous field-testing before advancing fragile weapons systems to the production stage, ensuring future maintenance and other headaches for troops in combat.
There is, in addition, a larger issue underlying all this talk of spending reform at the Pentagon. After all, Esper’s “reforms” are visibly designed to align Pentagon spending with the department’s new priority: combatting the security challenges posed by Russia and China. Start with one crucial thing: these challenges have been greatly exaggerated, both in the Trump administration’s national defense strategy and in the report of the industry-led National Defense Strategy Commission. That document, when you analyze its future math, even had the nerve to claim that the Pentagon budget would need to be boosted to nearly $1 trillion annually within the next five years, reports Taxpayers for Common Sense.
Russia has much to answer for — from its assistance to the Syrian army’s ongoing slaughter of civilians to its military meddling in the affairs of Ukraine — but the response to such challenges should not be to spend more on ships, planes, and advanced nuclear weapons, as current Pentagon plans would do. In reality, the economy and military of Russia, a shaky petro-state only passing for a great power, are already overshadowed by those of the U.S. and its NATO allies. Throwing more money at the Pentagon will do nothing to change Russian behavior in a positive fashion. Taking measures that are in the interests of both countries like renewing the New START nuclear reduction treaty and beginning new talks on curbing their massive nuclear arsenals would be extremely valuable in their own right and might also open the door to negotiations on other issues of mutual concern.
China’s challenge to the U.S is significantly more economic than military and, if those two nations wanted to make the planet a safer place, they would cooperate in addressing the threat of climate change, not launch a new arms race. Genuine reform of the Pentagon’s massive budget is urgently needed, but rest assured that Secretary of Defense Esper’s claims about implementing real changes to save taxpayer dollars while making the U.S. military more effective are the equivalent of bestseller-list Pentagon fiction. The motto of Congress, not to speak of the White House and the public, with respect to the Pentagon’s latest claims of fiscal probity should be “we won’t get fooled again.”
“With the Defense Department’s first audit in hand, lawmakers are scrutinizing the Pentagon’s request for $750 billion in 2020 with a new vigor and questioning what “future risk” really means for the nation.
Congress asked the Pentagon to deliver a budget in 2020 that creates an “acceptable level of risk” for the military in 2025. However, after DoD showed it could not account for most of the money it’s been spending over the years in it’s 2018 audit, Congress is questioning if the military truly needs such enormous budgets.”
“What critics of larger defense budgets are floating as a topline isn’t far off from the Pentagon’s request, — $733 billion — but those critics have new ammunition in the form of the audit to counter the military’s claim that it needs a higher $750 billion topline.
That ammunition was on full display during the April 2 House Armed Services Committee budget hearing with leaders.
“The issue is not knowing where this $750 billion is going to go,” said Committee Chairman Adam Smith (D-Wash.). “It’s impossible to overstate this point. We literally don’t know where a chunk of that $750 billion is going to go. We can identify some of it here and there, but by any normal accounting measure, you can’t tell us where you’re spending your money, or how much inventory you have.”
Only five of DoD’s 21 auditable agencies came back clean from the 2018 audit, and those clean agencies were smaller entities.
The Pentagon currently has 2,410 notices of findings and recommendations it needs to work on after its first audit. Another thing to keep in mind is that it took $1 billion alone just to complete the first audit.
While military leaders could only tell lawmakers that they were working to be more accountable on funds, they did have answers for what might happen if the military wasn’t fully funded to the $750 billion topline given the way DoD currently spends money.
Air Force Chief of Staff Gen. David Goldfein said the Air Force would suffer in its training ranges.
“What would be at risk is out ability to replicate the threat with the proper environment, both virtually and physically on our ranges going forward,” Goldfein said. “What’s also at risk is this significant movement that we started last year, and Congress supported this. It was a significant move for the Air Force to shift from a platform solution on command and control and battle management to a network solution going forward. That is our future in the business of joint warfighting, to ensure that we are taking every sensor and every shooter and connecting them together.”
Army Chief of Staff Gen. Mark Milley said the Army would have to trim back some of its manning and “not fill holes” it has been filling. The Army would also lighten some of its major training exercises.
“Right now, for example, we’re doing our first emergency deployment readiness exercise, deploying an armored brigade combat team out to Fort Bliss, Texas, all the way to Europe,” Milley said. “That’s the first time that’s been done in 25, 30, maybe even 40 years. Exercises like that would come down.”
He added that the Army would slow down the delivery and procurement of spare parts.
What is risk?
Smith challenged the military’s definition of risk, however, questioning if an “acceptable level of risk” is ever attainable no matter how much money Congress appropriates DoD.
“My point is, this has no end,” Smith said. “You cannot eliminate risk… We could spend $1 trillion and I’m halfway convinced that you’d all be sitting there telling us, ‘OK, that’s great, but here’s all the things we can’t do.”
Smith said he wants a long-term understanding of what risk entails.
“We could throw money at you all day long and you’re going to come back at us and say there’s still an unacceptable level of risk,” he said. “I don’t find that helpful.”
In the meantime, it seems like Congress will be battling over about $17 billion — the difference between a $733 billion and a $750 billion topline.
“The House Budget Committee, the number that they’ve talked about for defense is $733 billion,” Smith said earlier this month. “It’s a not insubstantial number. If you take out the roughly $10 billion in emergency spending that’s folded in, you’re not that far apart on the budget numbers. I don’t see that being a problem, but we will have to find savings in some places, obviously.”
The $9.2 billion DoD requested for emergency spending would be used mostly to build the wall along the southern border and refill military construction accounts it plans to use for wall construction in 2019 under the president’s emergency declaration.
Part of that money would also go into rebuilding Tyndall and Offutt Air Force Bases after they were impacted by extreme weather.
Another issue Congress needs to hammer out is exactly how DoD’s budget is allocated. Currently, the budget funds right up to the $545 billion budget caps and then makes up the rest of the budget with emergency war accounts that are not subject to the Budget Control Act.
Critics say putting base budget funding in emergency accounts shrouds accountability and makes it harder for DoD to plan for the future.”
“The two items on the high-risk list account for almost $2 trillion in taxpayer funds — about $1.66 trillion in investments of 86 major weapons systems and $300 billion in annual contracted services for the Pentagon. Both of the items have been on GAO’s high-risk list since the early 1990s. “
“Despite sweeping legislative and department changes over the past five years, progress on the Defense Department’s systems acquisition and contracting management remain basically stagnant on the Government Accountability Office’s 2019 High-Risk List of areas that are most vulnerable to waste, fraud and abuse.
The list, released Wednesday, states efforts to shore up problems with DoD weapons systems acquisition remain “unchanged” since GAO’s last high-risk list in 2017. GAO made the same assessment of the Pentagon’s contract management issues, though with a few positive caveats.
At the same time, GAO points out that the government’s inability to address climate change is causing national security issues and will cost DoD more money.
GAO’s report states DoD can get better returns on its weapons system investments by “following knowledge-based practices and developing an action plan for performance measures.”
Though Pentagon leadership undertook initiatives aimed at improving program outcomes, DoD demonstrated progress was lackluster in the past two years.
“DoD programs continue to not fully implement knowledge-based acquisition practices, which increases the risk of undesirable cost and schedule outcomes,” the report states.
The military still has not implemented leading practices and lessons to make greater use of existing financial awards for good performance and has only implemented four of 10 key practices to select, train, mentor and retain program managers.
Additionally, DoD has not identified a plan with specific goals or performance measures to implement across its acquisition portfolio to achieve better results.
The report comes as Congress and DoD have been implementing legislation from the past five years to overhaul and unburden the Pentagon’s acquisition process.
In past defense authorization acts, Congress pushed down milestone authority to the individual military service chiefs, made it easier to buy commercial-off-the-self products and completely rearranged the Pentagon’s procurement office.
Even with those changes and new authorities, DoD is still not up to par on acquisition. However, GAO does give DoD and Congress credit for implementing those reforms.
“DoD reported to Congress in August 2017 that the department was at risk of not being able to acquire and sustain major weapon systems at sufficient levels due to increasing cost,” the report states. “To counter this risk, DOD’s new position of undersecretary of defense for acquisition and sustainment is to focus on major defense acquisition program performance and on reducing costs to free up resources for further investment.”
The department also has not had much time to implement the measures. Last March, the military secretaries asked Congress to slow down its reforms so the military would have time to implement past ones.
“There’s some fascinating and interesting tools that we’re using and we are going to use and look forward to using, so thank you for those. I would ask for a stabilization period so that we can digest what we have and have the ability to come back to you if we need more, but right now the knife drawer looks full,” Navy Secretary Richard Spencer told Congress.
DoD faces many of the same problems with contract management. Even with congressional changes and authorities, the Pentagon’s improvements are lacking.
Contract management once again has leadership behind it, but DoD still has not implemented ways to improve its acquisition workforce, service acquisitions or operational contract support.
“Over the years since we added this area to our high-risk list, we have made numerous recommendations related to these high-risk issues, 18 of which were made since the last high-risk update in February 2017,” the report states. “As of November 2018, 41 recommendations related to this high-risk area are open.”
While DoD increased its acquisition leadership and bettered training, there is still no framework for the acquisition workforce that identifies key times frames, metrics or projected budgetary requirements associated with key goals or strategic priorities.
DoD still has not developed plans to use an annual inventory of contracted services for workforce and budget decisions, which is statutorily required, and the department still needs to develop metrics to track progress associated with shaping the future of the acquisition workforce.
One area gaining particular attention this year from Congress is the affect of climate change on the fiscal exposure of DoD.
Comptroller General Gene Dodaro said climate change is affecting DoD’s operations domestically and internationally.
“DoD needs to have a plan to look ahead as they are building their infrastructure and modernize their infrastructure to build in climate resistance policies and procedures,” Dodaro told members of the Senate Homeland Security and Governmental Affairs Committee Wednesday. “Congress required them to develop a plan and submit it to the Congress, which they did, but many members of the armed services committees weren’t satisfied with the plan. The Defense Department is now back preparing an additional plan.”
GAO will look at that plan when it’s ready and add recommendations.
Dodaro said DoD installations have coastal issues with rising sea levels, and previous storms like Hurricanes Michael and Florence have been very costly to the Pentagon.
He added that since 2005, the government has spent close to half a trillion dollars recovering from disasters.
“The cost of inaction is sort of incalculable, but it’s very high,” Dodaro told the House Oversight and Government Reform Committee. “For every dollar spent on hazard mitigation and resilience building, it will save $6 down the road.”
Dodaro went on to say that with disasters predicted to be more severe and more frequent, the government needs to invest in planning and mitigation.
Additionally, Dodaro said climate change is a national security issue internationally as droughts and disasters affect global migration patterns and socio-economic status of countries.”
“The Defense Department’s longstanding culture of internally sourcing and acquiring the best, most innovative capabilities is mostly dead; with the notable exception of some highly classified programs.
“Commercial entities now drive leading edge technology and its refresh rate, creating a need for changes to the legacy acquisition culture. “
“The department needs to move to a system featuring broadly written requirements describing what it wants to do to encourage and incentivize companies from a broad spectrum of America’s commercial sector and universities to compete for contracts based on existing and technologically possible solutions. Accomplishing this, though, requires the department to embrace acquisition risk in ways it has been reluctant to do.
First, the Defense Department needs to restructure its requirements process to address gaps in its acquisition system that constrain broad-based innovative solutions. It is simply not discovering innovative solutions it could rapidly acquire to dominate contested environments where military applications of emerging technologies may determine winners and losers. Why? Its legacy acquisition system is outdated and closed, with incentives that drive some current participants to resist change. Without change, however, the U.S. military will lose its technological advantage in the coming years.
Historically, the Pentagon could develop strategies and plans assuming its forces operated the most effective weapons systems because it funded most of the research and development that led to new technology. It also employed scientists and engineers who could operationalize new technology for warfighters. The Defense Advanced Research Projects Agency provides a great example: scientists and engineers leveraged Pentagon-funded R&D and found partners in industry who could manufacture/deliver specific capabilities from innovation breakthroughs. This collaborative effort has worked for more than 50 years.
Today, near-peer competitors embrace a commercial-based model that leverages new technology developed by the private sector; meanwhile, the Pentagon limits participation in acquisition by so narrowly defining the requirements in capability development documents that most U.S. companies cannot compete.
Adding to the system’s rigidity, Congress lacks incentives to disrupt the current process because traditional defense companies’ existing offices and manufacturing plants support well-paying jobs while future jobs, and thus constituents, by definition don’t yet exist.
An unintended consequence is traditional players have the resources, knowledge and structure necessary to master the existing acquisition policies, processes and bureaucracies, while most nontraditional companies see significant barriers to market entry. More risk is needed in the acquisition process now to drive down operational risk during future conflict.
So what are the mechanisms by which the Defense Department must restructure this system? With congressional support, it must significantly restructure and overhaul the requirements process to drive the broadest pool of competitors to participate in its procurement process. It must adapt an open, competitive system that spurs collaboration and encourages innovative nontraditional companies to leverage their commercial investments to deliver war-winning capabilities.“
Simplifying and broadening requirements alone will not spur innovation. The department must also encourage traditional and nontraditional companies throughout the nation to engage and to compete in the procurement process, signaling to the Pentagon the innovative capabilities they can offer. Through feedback, the department can then begin to adjust requirements, if necessary, to adapt a commercial solution to a military environment.
Not only will this create organic competition as the open process picks the winner, it harnesses future collaboration between innovation centers in Silicon Valley, public research institutions and successful traditional defense companies who adapt to this process. Increasingly, the Defense Department will need rapid access to new commercial technologies and prototypes that have military application.
The benefits of opening the acquisition system to a broad spectrum of America’s commercial companies and universities are many. It will provide the department with the broadest spectrum of solutions; it will drive the competition it needs but increasingly lacks. New rules should create fairness and simplicity in how contracts are written, cut bureaucratic red tape and increase buying power. The department should minimize programs with narrowly defined requirements to those with very specific security requirements.
Opening the acquisition process will link the Defense Department to new value chains and will offer more diversity to the traditional U.S. defense supply chain, with the potential of increasing and sustaining high-end U.S. manufacturing. Above all, reducing requirements barriers incentivizes nontraditional entities to work with the Pentagon instead of doing commercial work with near-peer competitors.
Developing acquisition policies and processes to encourage broad commercial sector competition is the only reasonable strategy for the U.S. military to maintain its technological advantage.
In order to successfully support the warfighter in a time of rapid technological change, the Defense Department needs to restructure its current bureaucratic process to ensure service members fight with the best, most capable weapons systems. Adversaries have already adapted to the new reality; the department must evolve or be at significant risk in future conflicts.”
“The Section 809 Panel — an influential advisory group established by Congress raised the prospect of replacing the traditional program executive officer role with that of a “portfolio acquisition executive,” and consolidating program element budgeting into one capability portfolio budget.
The advisory group envisions the Pentagon combining many different programs that have similar capability focuses, such as air superiority, cyber or space, and putting them under the same overseer. Assistant Secretary of Defense for Acquisition Kevin Fahey said the department is open to that idea.”
“The Defense Department is contemplating a major change in the way that acquisition programs are managed, a top Defense Department official said July 16.
“Currently the department really doesn’t manage its major weapon systems based upon capabilities,” Section 809 Panel Chair David Drabkin told National Defense in a recent interview after the “Report of the Advisory Panel on Streamlining and Codifying Acquisition Regulations: Vol. 2,” was published.
“They manage individual programs, individual systems, and it doesn’t provide them with the flexibility to move concentration of effort between various programs” that are geared towards similar mission sets, he added.
Assistant Secretary of Defense for Acquisition Kevin Fahey said the department is open to that idea.
“You see in the second [809 Panel report] … they actually started talking about portfolio management,” Fahey told reporters at the Farnborough International Airshow outside London. “At [the office of the secretary of defense], that’s how we’re thinking we’re going to change the way do business. Instead of overseeing, you know, 100 big programs we’re going to do portfolio management and oversee a few programs.
“We have various other people saying this is a good way to do it,” he added.
Fahey was asked if such a shakeup would that entail consolidating program executive offices under a broader portfolio manager.
“That’s the discussion of how do we actually implement” the reforms, he said. “That’s going to have to be a department [leadership decision] on how do we actually do that. And I think we’ll be willing to do that.”
Fahey said the Pentagon is generally supportive of the approach that the 809 Panel is taking toward acquisition reform. Members of the panel meet with him on a monthly basis to discuss their work, he noted.
“I don’t think we see anything in [the report] that we think is counterproductive,” he said. “I don’t think there is anything in there that we think in general what they’re saying is off base.” The biggest challenge will be working out the details of how to make the changes, he noted, citing proposals to make it easier for acquisition officials to purchase commercial items.
“There’s a whole bunch of good stuff in there on commercial items, but there’s a lot of stuff,” he said. “We’ve got to make sure we really understand it and we understand how we’re going to implement it.”
Fahey’s office and the panel are both looking for ways to speed up the acquisition of new technology. “Our focus is how do we change to be able to deliver capabilities at the pace of innovation … and how do we get the services the capabilities when they need it,” Fahey said.”
“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.”
“Acquisition Reform Seems More Like Industry Wish List”
………..let’s not throw out tools that help the government decide what to buy, how to buy it, and to oversee the $460 billion spent on contracts annually.
Come on, everyone’s doing it! So true, but who would have thought “it” would include recommending improvements to the way the government buys goods and services? The latest cool kids in town are the New Democrat Coalition (NDC), who are the “pro-growth, fiscally-responsible wing of the Democratic Party.”
The Project On Government Oversight doesn’t disagree with the basic concepts. Sequestration is resulting in non-strategic budget cuts. Contractors can provide innovative solutions. Competition is good for taxpayers. The workforce is stretched thin and more targeted caseloads will result in better buying. And government acquisition is a thankless job.
That said, some of the details for each theme seem more like the proposals advanced by contractors and industry squawk boxes than reforms that will help agencies provide savings or better results for taxpayers. The Professional Services Council (PSC), a contractor trade association, has even praised the NDC’s reforms and thanked it for working with the industry. PSC has pushed for acquisition reform for years. The industry often uses the word crisis to describe federal acquisition and contracting, and asserts that the “crisis” will continue if pro-contractor reforms are not implemented.
For example, despite the Acquisition Advisory Panel (AAP) and the Department of Defense (DoD) imploring Congress to tighten restrictions on commercial item contracting, the NDC is actually recommending that commercial buying restrictions be eased—in essence, adopting the contractors’ talking point on the issue. The AAP even stated in its report that industry has tried to expand “the definition of commercial services far beyond what the record indicates Congress and the FAR drafters intended.”
The basic premise of commercial buying was to force the government to buy goods that are offered in the phone book and at the local mall where competition already rules the day. Unfortunately, the government is buying a lot of “commercial” goods, and now services, that are not offered or actually sold anywhere but to the government, including military cargo planes, refueling tankers, and aircraft spare parts. Truth be told, the “commercial item” definition was developed by industry and enacted into law in the 1990s in order to prevent the government from obtaining cost or pricing data when adequate price competition—which exists for actual commercial items—does not exist. Simply stated, the government is buying goods and services that don’t have a commercial market and now it doesn’t have access to contractor data that would show whether or not we’re getting a good deal. Would you buy a car without seeing the sticker price? I hope not—but that’s essentially what the government is doing with the goods and services labeled “commercial.”
The NDC recommends expanding the definition of commercial, creating a “government-industry working group to develop market research and price analysis tools/techniques,” and restricting commercial item audits. Based on the number of DoD Inspector General audits that find contractors charging prices far above “fair and reasonable” prices, I hope those recommendations are rejected. DoD has purchased way too many screws or other spare parts that cost just a few cents in the actual commercial market, but for which contractors charged the government hundreds of dollars.
The NDC also recommends:
Cutting audits and contractor compliance measures
Allowing industry to create contract requirements
Permitting contractors to attend and teach government acquisition classes
Converting permanent acquisition personnel positions to rotating positions, essentially weakening DoD oversight and policy offices
Breaking out specific portfolios to allow experienced government professionals to make contracting decisions
The last recommendation makes sense if the industry isn’t allowed to cozy up too close to government purchasers. For example, the fear is that IT contracting officials might curry favor with prospective employers and the government might get a bad deal. However, the rest of the recommendations are more troubling and flat-out impractical.
Contract waste, fraud, and abuse cost taxpayers billions of dollars each year. The NDC’s recommendations will most likely add to the problem. At the risk of sounding cynical, all of these recommendations seem like efforts to hamper federal contract planning, administration, and oversight, and to outsource all phases of acquisition to contractors. These recommendations are based on the false notion that the industry assumes all risk and compliance burdens. Nothing is further from the truth, and real acquisition reform will only move forward when senior policymakers come to the realization that the government should not be responsible for propping up an inflated industry, spending taxpayer money without full transparency and oversight, or allowing contractors to run every aspect of the acquisition process.
I often hear about best practices and the ease of buying in the commercial sector, but many of the industry-driven so-called reforms actually get rid of the best practices that businesses use daily, including thorough market research, clear requirement definitions, ample competition, and the use of fixed-priced contracts. POGO agrees with the NDC that the acquisition workforce is stretched thin, but the solution isn’t to allow contractors to run the show—didn’t we learn anything when we “partnered” with industry and allowed contractors to decide what to buy and how to buy it as lead systems integrators? We should be investing in program and contracting personnel and focusing more on buying smarter, although that may not always be quicker or in a way that pleases contractors.