Affordability, Not Just Appetite, Must Be Designed Into Weapons Programs: Carter

The era of rapidly rising defense budgets has ended; its time to end the waste and abuse that became standard practice while the money spigot gushed over the last decade; its also time for defense firms to stop charging outlandish sums for late and underperforming weapons systems; we’re going to “incentivize” industry to be more productive and efficient; oh, and expect more program cuts going forward.

That was the message delivered to defense industry executives yesterday by the Pentagon’s chief weapons buyer Ashton Carter, a message he relayed to military acquisition officials and then to the press later in the day. Read Carter’s memo here.

He questioned why weapons systems always increase in cost every year when in the private sector most products and services prices drop over time. “Your computer costs less every year, why not defense weapons?”

Its all part of Defense Secretary Robert Gates effort to wring savings out of the defense budget top line that can then be reinvested into weapons for the wars we’re fighting today. Gates’ ambitious target is to realize 2-3% annual growth in spending on “warfighting capabilities” without increasing the DoD budget.

“We want our managers to acquire weapons for what they should cost,” Carter said, and his office will use historically informed independent cost estimates to arrive at that “should-cost” figure.

On all new weapons programs, “affordability and not just appetite must be designed in from the start.” Carter said affordability will be the mandate in new programs such as: the SSBN-X, the presidential helicopter, the Ground Combat Vehicle, and the Air Force/Navy long range strike family of systems.

The new acquisition approach intended to restore affordability and productivity in Pentagon buying means there will be fewer, a lot fewer, cost-plus contracts, and a lot more fixed price contracts. Carter said if a firm is inventing some new technology that nobody quite knows how much it will eventually cost, then cost-plus is appropriate.

However, on those systems where the technology is well known, when the military knows what it wants, then fixed-price contracts make more sense. He used the KC-X tanker as an example. It’s not an invention, he said, it’s a commercial aircraft with minor modifications. The builder should know what it will really cost. “The rule of reason needs to apply.”

Carter singled out the Air Force’s underperforming and costly Global Hawk drone (pictured) as an example of a program that will feel the full weight of his office’s new acquisition value proposition.

How will he know if the new “value” initiative is working? When program costs stop growing or even start coming down, he said. “We’ve gotten so used to seeing program costs grow inexorably, you don’t see that in typical industries.”

— Greg Grant

  • http://www.facebook.com/profile.php?id=561067924 Christopher Bloom

    I guess this is what we get when the Defense sector gets whittled down too three major contractors.

    • Sev

      I don’t know why we don’t just cut the social programs that eat up more than half our budget (and is growing). The first think the politicos threaten to cut is defense. Thats bull! It is outlined in the constitution that the government is required to provide for the common defense, not social security, welfare and healthcare! Cut their budgets!

      • Greg

        Why sev? We have more then double the bombers of the rest of the world combined. Can’t you see or are you blinded by weapon bling?

        • William C.

          Is is about OUR requirements, not what the rest of the world has. And considering Russia’s force of Tu-22Ms, I doubt we have double the number. We only have 20, B-2As, 65+ B-1Bs, and 90+ B-52Hs. Not very much historically.

      • Doog62

        Sure sounds good. Wouldn’t want the government to ensure the well-being of their citizens when they can line the pockets of the defense contractors and not receive anything for it. But hey a $45 mil. plane for $120 mil is a bargain at twice the price or whatever it will be if they ever actually start producing them or how about an LCS that doesn’t have a weapons package it’s all good, after all it’s for defense.

        • William C.

          So we should follow the example of Greece and pay for job benefits and healthcare we can’t afford while gutting defense? Brilliant! You should work for the current administration.

        • Sev

          One, its NOT the government looking out for the well being of it’s citizens when it takes money from working citizens to pay for those who don’t work. Its not the governments job! Stay the **** out of my paycheck! I earned the money, you didn’t so no I’m not going to pay for your retirment, your healhcare, your welfare or your foodstamps. Go to a charity! There are plenty of them around. And look at Greece! Thats what’s going to happen here! And I’m NOT saying defense spending could’nt be done BETTER but we still MUST maintain our superiority in that field. If you haven’t noticed, there are plenty of peope (China, muslims, Russians) That would like the US to give up its edge in military strength. ANd just because you’re deluded enough to think that these threats aren’t real and that the Cold War is over, doesn’t make these threats go away!

      • Wildcard

        Exactly how does cutting social programs lower the cost of ‘late and under performing’ weapons programs, the later being the subject of this article?
        I suppose cutting the social programs would allow you to purchase more hardware, and once that money has been depleted, you could cut education, agriculture, justice and so on… all the while weapons programs arrive over budget, late, under perform.

        • William C.

          The point is we have a huge deficiet and the Democrats and RINOs immediately pull out their knives to cut the defense budget. Yet they don’t care about the HUGE amount of waste everywhere else and the ever increasing amount of mandatory spending we are involved in.

  • JEFF

    QUOTE:
    He questioned why weapons systems always increase in cost every year when in the private sector most products and services prices drop over time. “Your computer costs less every year, why not defense weapons?”

    There are several reasons. Take something like a cell phone when those first come out they’re $300+ a piece but can eventually come down to $100. Part of that is profit margin and willingness to take a smaller profit now that a product is established. The other part of that is that electronics companies reduce the quality of their products over time. Compare a motorazor now to one from 4 years ago; the old ones were aluminum with a handful of plastic, the new ones are almost entirely plastic a break even more easily.

    • JEFF

      Two of the most common means of costing down designs are not accessible to defense industry. Margin is often contracted and additional margin is only made if the company can find ways to more efficiently produce. To reduce the quality of design and materials would be an up hill fight; just to change a material of a component of an established design is a buearacratic nightmare let alone all the secondary deisgn changes to compensate for it and then any qualification testing must be repeated. In both instances their is no incentive to do these things for the Government. They do the first thats their money, doing it for the government unless they’re paid to, would only cost them money. The second instance its alot of work that amounts to starting over from scratch.

      • JEFF

        A third way industry brings down cost is by volume. If production quantities were higher prices come down. Even now the volume of orders are not on the order of magnitude that would achieve this advantage. F35 comes closest to the idea but is still far off. Working with other nations or NATO to agree on certain standard designs of subsystems and common materiel and purchasing those together would provide the quantities needed, but this isn’t practical. Simply, unless WWII happens again we’re unlikely to ever see the quantities needed for this.

        • Jimbo

          Unfortunately the government still single sources highly important electronics parts making them beholden to a single supplier. They’re surprised when they say they need 100k parts, it turns into 200k parts after 10 years and the vendor can’t or lies about the ability to revive a 10 year old manufacturing process. Since the military doesn’t purchase the original design plans, they’re forced to redesign the entire subsystem starting the problem all over again for 10’s of millions of dollars. For some reason this only happens in electronics and it screws the government royally.

          Silicon manufacturing processes start disappearing after 3-5 years, so if you need your electronics platform to last 30 years, you either have to do a huge upfront buy, or you need the capability to restart manufacturing from the original part plans and recipe. Unfortunately, the military planners refuse to do either to save insignificant short term costs at the expense of huge long term costs.

  • JEFF

    From an economics stand point, the government has a high inflexible demand with high standards. Economic practice dictates there will be a high price for whatever is produced. So the Pentagon wants less cost, they have to bring down complexity and requirements or increase the aggregate demand in the market to push for higher volumes of purchases. Without either of those occuring the Pentagon will face more bid requests with no bid or only a single bid.

  • William C.

    Jeff brings up some good points. Take the F-22A, it was in production and steadily getting “cheaper” as production methods were refined and made more efficient. Yet it was cancelled after a mere 187 examples. If the F-35 or F-16 were only built in those numbers, it would be very expensive as well.

    B-2A, only 21 were built as opposed to the 120+ planned, thats why each costs $1 billion if you factor in development costs.

    DDG-1000, only 3 planned, so much for that fire support promised for the USMC, and each will have a very high unit cost.

  • Marvel

    I like the last two points, but I think Carter’s point is that optimizing production methods ought to be part of the design process. Also, let’s remember, asking for better performance from contractors is not the same as selling out the military. After all, they are not cutting the defense budget-they are cutting unnecessary programs in order to pay for the support our troops currently need in the field.

    • Mr B

      “optimizing production methods ought to be part of the design process”

      You cannot put the cart before the horse. You cannot improve a process until you know how it is deficient. You won’t know that it is deficient until you actually try it. If you want the engineers to build the perfect process the first time, your development costs will skyrocket because the engineers will have to try out each variation before they commit to one. This will eat up gobs of time and materials.

      The best way to do it is to just go with your best estimate and improve as necessary.

  • BobC

    Here we go again! This has got to be the 6th or 7th major swing in the Defense budget in 60 years. Each time we lose industrial capability and high tech jobs that cannot be recovered later. The engineering and math schools at our Universities already are predominately filled with foreign students.

    It would seem that a more measured approach to the Defense budget would be more effencient and have less impact on the country and the economy. Lets replace high tech income and revenue producing jobs with handouts.

    Oh, but the way, the government set and increases the requirements for weapon systems and these requirements set the cost. In addition the government encourages/forces the Defense industry to bid optimistic cost on projects and then points the finger at industry when cost go up later.

    “Broom handle rifles, cardboard tanks” and less training is just one more sign of the Nations continuing slide into mediocracy.

  • charles222

    I thought the “computers are cheaper every year, why not defense weapons?” quote was pretty dumb. I’m sure that if Microsoft had spent the last twenty years developing Windows 7 and the populace only bought 187 of them, those would be quite expensive as well.

    Defense weapons are bought in comparatively small numbers; that’s why they’re expensive. Plus R&D is an insanely long process nowadays. Weapons were cheap fifty years ago because their growth cycle was quick. As an example:

    Between the end of WW2 and the end of Vietnam (an approximately 28-year period), the US developed two major types of combat rifle (the M14 and M16) something like five or six different models of tank, a dozen or so varied bomber models, and dozens of new classes of warships. Cancelled programs were rare.

    In the same time frame today (1982-2010) there have been two bombers introduced, no new rifles, one new tank, two new submarine programs, and one new destroyer class introduced. LHX, Crusader, A-12, GCS, Super Tomcat, OICW, XM8, and a bunch of others I really can’t remember are all major programs that were cancelled or curtailed after years in development and billions of dollars spent.

    • Jimbo

      You’re only partly correct. The reason why their expensive is because the military doesn’t build silicon obsolescence into it’s design plans. It’s a highly predictable game, but the military keeps treating custom silicon designs like bolts thinking that it’s easy to magically restart a bolt manufacturing line at any time. On top of that, they have no idea what their burn rates on parts are anymore. Only the defense contractors know this and they keep angling to have systems “redesigned” from scratch because it’s higher margins.

      • JEFF

        Its not always an “angling” for redesign its often just driven by necessity. I’ve worked on projects where the Govt. wanted to restart a 10yr old missile production line and enough parts are no longer made or something similar that its just not possible. In that situation you might try to incorporate modern parts into the design but the beauracratic hoops and design challenges amount to being in effect a redesign even if it isn’t by name. For example, I know with a number of wire guided missiles they’ve gone to R/F just because no one in the US produces the wire at length anymore. So the drive for redesign is just a result of designs becoming so antiquated to quickly they can’t be restarted.

    • chaos0xomega

      I think you have it backwards, the cost of an F-22 didn’t increase because only 187 of them were purchased. We only purchased 187 of them BECAUSE the cost increased. Our initial expectation was to purchase what, about 1000? Then the price went up, so we cut it to 600, then the price went up, so we went to 300, etc. If the price hadn’t gone up in the first place, we wouldn’t have stopped at 187.

      On the topic of development costs, I don’t think we should be paying for those unless we are asking for a contractor to develop a completely new technology. That alone should go a long way to solve many of our acquisitions problems. There are plenty of lower cost solutions to many of our needs, but there is less incentive for contractors to pursue them if they have virtually unlimited funding to do with as they please.

      • Locarno

        Look up reference to ‘cost overrun death spiral’ or similar phrases.

        Yes, costs increased (due to a variety of reasons), and as a result the number to be purchased was cut.

        BUT, doing that pushes the price per unit up further. Which encourages you to cut the buy further. Which pushes the price up…..you get the idea.

        “On the topic of development costs, I don’t think we should be paying for those unless we are asking for a contractor to develop a completely new technology.”

        Then I assure you you’ll never get a new design more complex than an assault rifle again. Seperating development from production is one thing, but I sincerely doubt a company can afford to bankroll the development of something like Raptor without government support. Not to an industrially produceable design, anyway.

        Small arms has a high enough turn-over market that there’s always someone buying something, and they’re not technically that complex. It allows a designer to afford to ‘fiddle’ with a model quite easily.

        • Dfens

          “Then I assure you you’ll never get a new design more complex than an assault rifle again. Seperating development from production is one thing, but I sincerely doubt a company can afford to bankroll the development of something like Raptor without government support.”

          What a bunch of crap! The defense contractors were able to design the century series of fighters on their own nickle. The SR-71 was designed with contractor funds, as was the F-20 Tigershark and most lately the J model of the C-130 Hercules. Stealth techology was developed by contractor R&D funds. Almost every major advancement in aircraft technology of the 20th century was funded by defense contractors themselves. Even the digital avionics airplanes currently use are a pure rip off of commercial technology.

          Government funding is a death sentence for technology development. Hell, that’s why NASA and the Soviet Union failed.

  • Jimbo

    One of the things I’ve noticed is that both the military and major defense contractors have no idea how obsolescence works in silicon design. They seem to think they are the driving force behind technology when they are such a bit player that they only register in economic downturns. The hubris is amazing.

    Military acquisition types also shoot themselves in the foot by under predicting parts needs for highly specialized parts (i.e. ordering a special bolt that no one else makes, and not ordering enough of them), not having a contingency plan for needing more parts (what do we do when we actually run out of our special bolts), and not requiring delivery of designs and plans in order to be able to go back to production later with any vendor they chose (having no idea how the original bolts were made because the plans were thrown away by the vendor 5 years prior).

  • http://twitter.com/7thwave @7thwave

    Here is why weapons systems cost so much…defense sets the requirements…industry designs the product…defense adds 10 new requirements for product…congress asks defense why product is not up to standards, and cuts money to program…requirements are now redefined…more capability that is introduced, driving costs up…military adds new requirements, product prices go up further….congress cuts numbers bought…costs go up further…finally,after a lengthy design and review process, with more capabilities that either do not work as planned, or not at all, the product is purchased. By this time the product cost from development to fielding has risen 50-110%. A classic example of this today is the global hawk program.

    As the military becomes more technology dependent, you will see more examples of programs being run like I just described. This is not saving money.This is called poor requirement planning,and poor purchasing decisions. This is how the dod operates. Unless requirements are clearly defined, original design requirements are not changed, there is no way to keep the costs of weapons down. So, in closing I say this…the military needs to screw its head on straight and define what it wants in weapons programs, stick to the original designs, because as Ashton Carter likes to brag, the days of bloated military spending are over. Now dod needs to get with it or else.

  • Formerly…Skeptic

    I cannot stand the statement “Your computer costs less every year, why not defense weapons?” It is simply not true unless you are planning to buy an obsolete piece of junk. I have bought about 4 desktop and 3 notebook computers over the years and guess what? My costs have been about the same, it’s the capabilities that keep changing. The big defense programs are usually on the “bleeding” edge of technology (the only thing worse than spending too much money for a highly capable military is spending any money on an incapable one). That is not to say that improvements in process can’t be made and numerous commenters above have hit on good points, I just think it is a false comparison.

  • Dfens

    You idiots. You pay us more to screw you than you do if we are to come in with a product on-time and on-budget, then you can’t figure out why we screw you. Duh.

    The F-22 cost twice as much and takes twice as long to design as the B-2. Same generation stealth, and the much smaller second airplane costs twice what the first one costs to develop. Think there’s a problem? Gee, I don’t know…

    • Day

      careful there dfens, there probably looking for an excuse to jack up b2 maintanance costs as we speak…..

  • SMSgt Mac

    All in all, some pretty good observations right out of the gate.
    Which drives the Idiotarians crazy. Awww I wrote too soon, Looks like it caused ‘Depen(d)s’ there to blow out his didey.

  • http://www.facebook.com/profile.php?id=100001038242731 Stephen Russell

    Give incentives for “affordability” then see Defense Ind change & then do these:
    o CUT DoD costs
    o CUT Pentagon bureaucracy in system alone, save 2B.
    o Streamline bidding rules
    o Background check new Co. for bidding by DIA?
    o Make Uniform Rules basics for Co to use.
    o Make online (secure acess).]
    o Open bid to NATO allies in EU, Japan.
    o Think Outside the Box
    o Hire New Blood (non defense BUT know purchasing alone).
    o Hire ex vets for positions in DoD & companies etc.
    Be Radical, Unique & Realistic.
    Bottom line Kick Ass for Less Bucks.

    • Locarno

      “Hire ex vets for positions in DoD & companies etc. ”

      There was a lot of stuff in “Americas Defence Meltdown” that I’m not convinced by, but one thing that I did heartily approve of was the concept for the procurement;

      1) Procurement authority held by de-mobbed force members (ideally combat veterans).
      2) Taking such a role permenantly bars you from ever working, at any level, for a defence contractor.

  • http://twitter.com/Earlydawn @Earlydawn

    Cuts to anything are never good, but this seems like a solid framework to reform defense spending.

  • Dfens

    Make the defense contractors spend their own money for product development like they did up to the mid-70’s when everything went to hell in a handbasket in the defense industry. That’s a no-brainer. Look at sniper rifles right now. Who paid for the R&D and development of the .50 BMG sniper rifle? Not the US taxpayer. Had we paid for the development of that class of weapons they’d still be robbing us blind. There would be dozens of defense contractor leaches sucking on that corpse, just like all those damn leaches soaking up your tax dollars to come up with an M-16 replacement. When private companies fund the R&D and development, it costs less and moves faster than when the US government funds it. Hell, if you’re making a profit on R&D or product development, why ever build anything? Only an idiot kills the goose that laid the golden egg. And before you start beating the, “they should be patriots” drum, remember, these companies are traded publically. They have just as many “owners” who are oil shieks as are American citizens. Put your incentives behind what you want or stop your damn whining.