Procurement: How To Hustle The Department of Defense


February 15, 2012: For decades the U.S. Armed Forces has been having problems with rapidly growing (much greater than inflation) costs of weapons. Congress passes laws to try and cope and the laws are ignored. One example is the laws calling for accurate life-cycle costs (for development, manufacturer, and maintenance of weapons over their entire service life). A recent study found out that, despite laws calling for accuracy and consistency in these numbers, most manufacturers manipulated the data to make their systems look less expensive than they actually were. The Department of Defense is increasingly taking extreme measures in the face of this corruption and cancelling more and more very expensive systems. But the manufacturers continue to use smoke and mirrors to get new projects started and failed ones funded.

New weapons get approved because of another form of procurement corruption, the Low Ball Bid. Last year the U.S. Air Force demanded that defense contractors stop low balling, which in practice means submitting unrealistically low bids for new weapons (to make it easier for Congress to get things started) and then coming back for more and more money as "unforeseen problems" appear and costs keep escalating and delivery is delayed. Currently, procurement projects are about a third over budget and most items are late as well. Procurement of weapons and major equipment make up about a third of the defense budget. While this is expected to decline over the next decade, as defense budgets shrink, the problem also extends to upgrades and refurbishment of existing equipment.

The most intractable problem is the decades old contractor practice of deliberately making an unreasonably low estimate of cost when proposing a design. The military goes along with this, in the interest of getting Congress to approve the money. Since Congress has a short memory the military does not take much heat for this never ending "low ball" planning process.

Actually, it's poor planning in general that causes most of the high costs. It's bad planning by the military, when coming up with the initial design, and bad planning on the part of the few manufacturers that have a monopoly on building certain types of weapons systems. Monopolies do not encourage efficiency. There are many examples of all these bad habits at work. Don't expect any of this to change anytime soon. It's the way things have worked for a long time. Many generals and admirals, members of Congress, and even a few manufacturer executives have called for reform. But it just doesn't happen, at least not to a large extent.

One encouraging post-Cold War trend has been an increased reluctance to build a lot of a weapon that became extremely expensive. Thus the B-2 bomber, Seawolf submarine, F-22 fighter, Crusader artillery system, Comanche helicopter, and DDG-1000 destroyer all got production cut sharply, or were cancelled, when their budgets went too far out of control. So there's hope yet.



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