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DoD’s cost-control guinea pigs

By Philip Ewing Thursday, April 28th, 2011 3:09 pm
Posted in Air, Land, Naval, Policy

Top Pentagon weapons-buyer Ash Carter has identified 15 programs that will be the first to use a new management approach that he hopes will make for lower costs and better performance, writes Nick Schwellenbach of the Project On Government Oversight. The notion is called Should-Cost and Will-Cost, and Carter has instructed the managers of these programs to use them and get him new projections about their costs by Nov. 1.

This New Math approach to program management seems to work like this: Managers are supposed to develop Should-Cost calculations to figure out, based on detailed reviews, what they should reasonably expect to pay as they go forward. They should draw up their budgets based on Will-Cost calculations, a hard-nosed, no-kidding look at real numbers going forward, based if possible on prior experiences.

With all the number-crunchatation and spreadsheetery taken care of, Schwellenbach writes:

You use independent cost estimate will-cost to help plan budgets over the long run, tame unreasonable expectations at the onset, and control for the contractors’ and military services’ rosy expectations of technological performance, integration, and cost. You use should-cost to help negotiate better contracts with a relatively uncompetitive defense industry. Ideally, you beat the will-cost expectations, but there are risks.
This is the theory, at least. While it’s good that there’s some high-level emphasis on both should-cost and will-cost, in Washington it almost always comes down to implementation.

Quite so. And, forgive a silly question, but — doesn’t DoD already do this? Could the key to the Pentagon’s survival in Austerity America be as simple as reasonable expectations, tough negotiating, and competent management? Maybe so – Michael Gilmore, DoD’s director of test and evaluation, told House lawmakers in March that “the Department of Defense still is the department of wishful thinking, in many ways.” Another reminder about hard-headedness can’t hurt.

Still, this seems like the equivalent of trying to train a big-league pitcher by handing him a ball and saying, “Look, it’s simple: Just throw this past that man with the bat so he can’t hit it.” This stuff is a little more complicated.

Per Schwellenbach’s post, here are the first programs that will owe reports to Carter this fall:

Air Force: F-35A; Global Hawk blocks 30 & 30; Space-Based Infrared System; Evolved Expendable Launch Vehicle; Advanced Extremely High Frequency Satellite.

Army: Joint Air-Ground Missile; UH-60M Black Hawk; Ground Combat Vehicle; Paladin Product Improvement; NETT Warrior.

Navy: F-35B and C; E-2D Advanced Hawkeye; the presidential helicopter; the Littoral Combat Ship; and SSBN(X).

Join the Conversation

	BreakTheCycle April 28th, 2011 at 3:18 pm lipstick on a pig
	Nick Schwellenbach April 28th, 2011 at 3:44 pm Hey, thanks for linking to my very wonky blog post. One correction: you need to switch will-cost and should-cost in your second paragraph. Will-cost is supposed to be based mainly on historical costs of analogue programs whereas should-cost is more of a bottoms-up kind of review to improve contract negotiation.
	Nick Schwellenbach April 28th, 2011 at 3:48 pm Also, budgeting and planning should be based on Will-Cost estimates.
	Byron Skinner April 28th, 2011 at 4:58 pm Good Afternoon Folks, This has been done before and it’s nothing but a shell game for industry. They will low ball the price, the government manager says see I got it at a better deal, but not so fast. The project manual doesn’t say anything about…, or how about adding a…, we need this togo faster or carry the new… that will be a change order thank you. Cost plus 10%. The fact is under current procurement programs that run for decades after the first contract is signed inflation, advances in technology, the services changing their minds about what they want from administration to administration make this idea just a joke with the taxpayer being the brunt of it. Now body is willing to freeze development on a program that they won’t deliver it’s first operational units for 10–20 years out. But in lieu of any other answer this silliness prevails. Unfortunately what we see here is the intellectual limits of the DoD understanding of the problem. So we will get some useless numbers, the DoD will say see we can do this and six months later congress will be handed a must have change in a project that increases the price. Hey what is the DoD going to do cancel an order and buy from somebody else. This is Reagan supply side economics at work letting the market provide goods and services for the DoD, they will build it, the DoD will buy it of military procurement. ALLONS, Byron Skinner
	@E_L_P April 28th, 2011 at 5:04 pm No stable design means no production learning curve. This includes there is no benefit from making a lot of jets when you don’t even know what you are making. There is lots more reengineering costs coming too; putting “fixes” on mistake jets in the production line that have never flown. And how can you know what you are building with only 4 percent of the flight testing done and over 4 years later, they haven’t explored the full flight envelop? Mr. Carter et al can talk all he wants on what something should cost but with the F-35 program, those are empty words. Something he should have thought about when they did the whitewash last year with the recert of Nunn-McCurdy for its second breach. Good luck with that worldwide supply chain which is already building way less widgets then they were promised on a certain timeline in the PowerPoint Ponzi scheme. They have investors you know who put up the cash for the magic show. Will Congress hand over the money for all 35 jets in LRIP-5? And remember, the above about the worldwide supply chain when in 2003, LRIP-5 alone would have been 120 jets. Then in 2009, LRIP-5 showed up on briefs as 61 jets. No offense, but even Carter and Panetta as the role of rodeo clowns won’t be able to keep this bull from killing the cowboy.
	Oblat April 28th, 2011 at 7:31 pm Ah yes the endless search for a metric that doesn’t embarrass the procurement people while at the same time allowing business as usual. One strategic advantage India and China have is that they have competition between suppliers. While we are mired in a soviet like system. I look forward to the announcement of further innovations as the following volumes of the Journal of Scientific Communism are translated.
	Byron Skinner April 28th, 2011 at 8:26 pm Good Afternoon Folks, I give up, I agree with @E_L_P and Oblat, under the current conditions any controls over the defense industry is a joke. What the writer failed to mention Boeing one of the biggest beneficiaries of this kind of procurement yesterday announced a 21% increase in profits for the last quarter of 2010. With that kind of profit increase in a single quarter, is Boeing going to want to rock the boat? On rather interesting point on the India fighter purchase that didn’t come up is the Russian Mig 35, the “hot” generation 4.5 or 5 fighter that was suppose to smoke the F-22. It should have been the logical choice for India. At $35–50 million USD’s it definitely was the bargain basement plane and India and Russia have a long history of Russian licensing agreements for Russian military hardware. India is currently in production under a licensing agreement with The Russian Federation of the Mig 29K’s and Mig 29KUB’s. So what’s wrong with the Mig 35? Perhaps the Mig 35 been over sold much like the Chinese J-15’s, J-18’s and J-20’s which are variations of the Su.27 of the 1970’s. There has been not logical reason (s) given why the Russian Mig 35 was rejected by the Indian Government. India like doing business with the Russian. It looks like that the military web sites who are tools/mouth pieces of right wing tanks once again over sold a piece of hardware in order to promote more needless platforms and systems to fight an enemy that doesn’t quite exist. ALLONS, Byron Skinner
	sferrin April 28th, 2011 at 8:49 pm Not sure what you’ve been smoking but the Mig-35 isn’t even a Super Hornet, let alone an F-22 or Eurocanard.
	Bob April 28th, 2011 at 10:31 pm Byron, I see you continually lament that contractors are always ripping off the government and the military acquisition communities are a bunch of bumbling idiots. Let’s accept your premise for the moment. What do you propose we should do. I see you throwing a lot of turds in the punchbowl but not really coming up with any original ideas or for that matter any original criticisms. You sort of just vomit up unoriginal thought while lacking any back bone to support your own ideas. Coward.
	Oblat April 28th, 2011 at 10:39 pm Since you accept the premise — what would you do ?
	Bob April 28th, 2011 at 11:27 pm 1. Remove the ability of Congress to have conflicting Authorizations and Appropriations. 2. Remove the ability for Authorizations/Appropriations to direct funding or procurement contracts to specific contractors in specific districts or any district. 3. Remove the ability for Senators or Congressman to direct acquisition strategies. (That’s what program mangers are for) 4. Disallow members of Congress to own any defense related stock, period.…since they currently write the language that appropriates those dollars. 5. Disbar staffers who have worked for any defense contractor from becoming a “professional staffer” on any committee that influences defense appropriations. 6. Reduce the FAR book by 98% in volume. 7. Open all Request For Proposal’s to foreign contractors. 8. Get rid of the execution reviews and incentivize the ability for services to “give back” monies at the end of the fiscal year. 9. Let the contractors implode if they can’t compete..see #2. People won’t like this one because it will mean the loss of American jobs unless they compete but you can’t have it both ways. You guys who spew forth that this is a “Republican” issue are idiots. Diane Feinstein can’t get over the fact that a specific requirement is being met by a certain contractor and not the one who resides in her hip pocket. She is bound and determined to give the warfighter a shittier and more expensive system for less capability regardless if it costs the taxpayer more money or takes longer to acquire. Shall I go on Oblat? Shall I go on Oblat????????????
	Dfens April 28th, 2011 at 11:28 pm No way, dude. The Soviets have a much better system than we have. You have to look to the “free world” to find people stupid enough to pay a contractor more to screw up and drag out a development program, then wonder why they get screwed up and drug out. If someone pulled this kind of crap in the Soviet Union, or even in one of it’s one time component countries, they’d not only kill you, your family would be killed in front of you first. We are much more enlightened.
	Dfens April 28th, 2011 at 11:32 pm I know what I’d do. I’d stop paying contractors more to screw me and figure out a system where their profit incentives only kick in if they provide a good product at a reasonable cost, you know like the system we had before we started paying contractors to develop weapons. I mean, that’s just me thinking…
	Dfens April 28th, 2011 at 11:35 pm Still a true believer in the system, eh, Nick? You never get tired of those defense contractors using you?
	Bob April 28th, 2011 at 11:49 pm Great Dfens, please define “good product” and “reasonable cost” for the uninformed.
	Oblat April 29th, 2011 at 12:13 am Please do lets get the full list
	Bob April 29th, 2011 at 12:29 am Is that it? That’s your policy repartee? Yawn, zzzzzzzzzzzzzzzzzzzzz.
	Guest April 29th, 2011 at 12:57 am Its all a dog and pony show for voters, the game’s already decided. SSBN(X) is good to go, so is all versions of the F35 under this new scheme. Looks like Airforce and Navy get everything they want and all the Army stuff gets cancelled, again.
	Byron Skinner April 29th, 2011 at 4:13 am Good Morning Bob, You must be new around here. The US use to be able to build weapons with in budget and deliver them on time, that’s how we fought and won WW II. Here is how it works the military designs and specifies a platform or a system. The government puts it to industry to price also the government itself owns or lease manufacturing facilities that compete with non-governmental contractors. Such manufacturing facilities as shipyards, tank factories, air plane were either owned or leased by the government. Often such as in build aircraft the manufacturing management would be leased out to say Ford, General Motors, Kaiser Steel, DuPont etc. The project management and production controls including QA was actually done by people in uniform. If you want a case study program that started out in the old system and transitioned into what we have now at the TOMAHAWK. It really wasn’t until the 1980’s and the dumb a** idea of out sourcing and market competition that really screw military procurement up. ALLONS, Byron Skinner
	"Pukin Dog" 01 April 29th, 2011 at 4:28 am F-35 is DEAD. The Plug and Bank Account between the DOD and LM is now CUT. The folks in Texas will now have to get a real job.
	"Pukin Dog" 01 April 29th, 2011 at 4:42 am $165,000,000.00 Million Dollar Piece of Shit with NO internal Gun and Cannot destroy a Bridge without loading a Pylon. Gates cancelled this Program last week. Why are we still talking about this platform. You must not be informed. I suppose if you did not attend the meeting last week or you would have the facts.
	William C. April 29th, 2011 at 6:51 am So all of those workers who would have been building the thing don’t have “real” jobs? Quit being such a damned idiot. Oh and the F-35 isn’t dead, the A variant carries and internal gun, and it can carry munitions that could take out a bridge internally.
	Nick Schwellenbach April 29th, 2011 at 8:04 am Dfens, if you read my piece, I actually am pretty skeptical of this. I did two things in my post: 1) I explained how these approaches are supposed to work in concert, and 2) then explained some of the ways these two approaches might be undermined or not change anything at all. There’s certainly a lot more to criticize.
	Dfens April 29th, 2011 at 8:11 am Well, let’s see, if I actually believed any of that “capitalism” crap, what would I do. Oh yeah, I’d let the people who use the weapons regularly decide what was a good product and what sucked. In fact, if I held a competition, I’d let them rate the weapons tested (instead of some committee of bureacrat leaches) and then let my procurement people negotiate the best weapon for the best price. Of course, it’s probably way too risky to leave the buying of weapons up to some arbitrary capitalist approach like this that’s been used in this country for hundreds of years.
	halcyon April 29th, 2011 at 11:01 am This new policy is just an attempt to head off externally imposed control and reduce the (well deserved) reputation that the system is only about enriching contractors. It’s PR plain and simple. I personally have very little confidence this will fix anything. It doesn’t matter how smart you run a poorly conceived project. Things like the JSF are always going to run over budget and behind schedule simply because of the idea at the core of such projects. With Leon Panetta in charge I think we are going to see some serious slash and burn of new projects. I just hope we don’t toss the baby out with the bath water.
	halcyon April 29th, 2011 at 11:34 am Why not just step up the X programs and build a ton of technology demonstrator aircraft and pay the contractors costs if they produce a prototype that meets the project goals but no profit. Set a deadline on projects so say 2 companies produce 2 aircraft that meet some single goal and the project will run for 5 years ( I picked a random number). If a company fails to produce results they will be banned for N number of years. Also set a fixed upper limit to what can be paid out. With a rich X program there would ideally be less of learning curve when it comes to a real project since much of the technology would ideally already have been tested and built. For real procurement projects the contractor isn’t paid until the final product is complete or they are paid 1/3rd up front, 1/3rd after training units are released and the final amount after completion. If they fail to produce or go bankrupt the government holds an auction and licenses off the X project’s technology and splits the profit in some percentage (80/20 or whatever). This would help reimburse the government for any payments lost in the money pit and would encourage the contractor to get things right.
	William C. April 29th, 2011 at 11:58 am The system is a horrible, broken, backwards mess but it isn’t about enriching contractors. It is about getting work (thus votes) in your political district first and getting the military what it needs second. Naturally contractors do their best to adapt and take advantage of this.
	freefallingbomb April 29th, 2011 at 12:16 pm To the poster “Dfens” You wrote: “You have to look to the ‘free world’ to find people stupid enough to pay a contractor more to screw up and drag out a development program, then wonder why they get screwed up and drug out. If someone pulled this kind of crap in the Soviet Union, or even in one of it’s one time component countries, they’d not only kill you, your family would be killed in front of you first.” I wonder to what extent the managers and workers of the North Korean, estatal arms and ammunition factories dared to fleece their two “Dear Leaders” since 1948 ? When Communists say “incisive cost cuts”, they mean it literally.
	Lance April 29th, 2011 at 2:02 pm Come on CSAR-X will be there too. Thats just a waste of money as F-35B alternative engine.
	halcyon April 29th, 2011 at 4:48 pm Oh sure, but it has the reputation or perhaps I should have written appearance of existing to enrich contractors. I believe this is earned because it does in fact happen even if not on every project.
	halcyon April 29th, 2011 at 4:56 pm I fully agree that the system is a benefit to the military only as a secondary concern. Badly handled projects get canceled and our boys in the field are the only ones who seem to suffer by having to rely on ever older and less dependable equipment. I think you make a great point there. How do we flip the priorities? The Generals or top military people are already in charge of these projects and the military is still not the chief benefactor of this system.
	Phil April 29th, 2011 at 6:21 pm It is a sad day in the governance of the department when the top leaders acknowledge and direct that programs be managed to two sets of books. Shame on you!
	pfcem April 29th, 2011 at 7:05 pm Broken record that wasn’t even half right the first time it played…
	pfcem April 29th, 2011 at 7:26 pm What a bunch of pathetic nonsense. As if you can really determine with any accuracy what a program will/should cost based on the cost of decades-old programs. We COULD NOT hope to develope the F-16 (or any other weapons program you chose) today in the same amount of time OR for the same amount of [inflation adjusted] money as we did. There are two primary reasons why most/all recent weapons programs have taken longer & cost more than originally planner. 1: the nonsense that time & cost to develope weapons systems decades ago in a reasonable guide to what they will cost now & in the future. 2: FAR too much government intrusion into EVERYTHING.
	Dfens April 30th, 2011 at 5:47 pm True enough. Your article was not well characterized by this one. My aologies. The whole “should cost” “will cost” thing was best characterized by the very first comment by BreakTheCycle. It’s just lipstick on a pig. More pretend reform to make it look like someone gives a damn.
	BreakTheCycle May 1st, 2011 at 4:42 pm it’s not the system, it’s the people. we have politicians who care about their districts more than they care about national security. we have industry that cares more about profit than national security. we have government officials who care more about their careers than national security. we have corruption and incompetence at all levels. in such an environment, to attempt the riskiest technology programs in history makes no sense. It makes a perfect recipe for sustained, repeatable, predictable failure after failure.
	Dfens May 2nd, 2011 at 8:50 am In the past, X plane competitions have been fairly quick, but that was mainly due to the competitive nature of the competitions, with multiple contractors building prototypes for a fly-off. lt seems to me that the competitive nature of these prototype development programs is what gave us the quick and low cost turn around, so why not preserve that aspect in production programs? But then as we’ve seen in engine development, specifically the cancellation of the F136 engine, there doesn’t seem to be much willingness by the public to spend money on competing designs. I think your approach where the public funds some portion of development has more promise. My recommendation would be that the DoD tie all development funding to the delivery of something. For example, a contractor might be paid a pre-negotiated amount for supplying avionics prototype software at the preliminary design review and then passing that review instead of just giving them 1/3rd up front. These would be tangible deliverables from which real design progress could be measured. Anyway, except for a few details, I believe you are thinking about the right things we need to solve the procurement problems facing us.
	Dfens May 2nd, 2011 at 9:05 am A system that rewards incompetence cannot be said to be beyond improvement. We should put a cap on the cost of a “cost plus award fee” or “fixed price plus fee” contracts at half a million dollars. Anything more expensive should either be developed at the expense of the competitors’ business, or should be performed by a publically funded politburo.
	Dfens May 3rd, 2011 at 9:45 am The positive incentives of a capitalist system still work the best, though. In the defense industry today most companies have eliminated their technical promotion system. It used to be that an engineer or scientist could be promoted within the technical promotion system to be on the same level with a company vice president without managing anyone, based only on their technical skill level. Today you can get promoted about 3 to 4 levels due to technical skills, after that, you have to be a “manager”. The problem is, most technical people don’t want to be managers. They don’t have the people skills to be managers. So now these companies take good technical skills and make them suck ass managers which makes everyone unhappy. It’s no big deal to the company because every inefficiency only helps to increase profit.
	Oblat May 3rd, 2011 at 10:37 am You asked and I said provide the full list. You arn’t a circus clown paid to entertain us. If thats it then just say so. Otherwise on you go.
	Old Warrant May 5th, 2011 at 12:53 am He’s how it works. Bid the RFP as tight as you legally can. Government RFPs are filled with errors and “oh no“s . Encourage “on the wing” scope change, present scope change as simple then reap the benefits of chaos. Their is more money to be made on Government incompetence then in the primary award. Welcome to reality. Defense Management Training for PMs tends to overlook this.
	Rockeye_Mk20 May 5th, 2011 at 11:08 am The Government and Congress complain about contract performance yet miss the fact that conditions change over time. Additionally, some heroes of defense contracting were responsible for programs like the TFX. The number of cancelled programs is staggering over the past decades with nothing to show for them. Let me ask the Marines here: With the EFV (AAAV) cancelled, and the LTVP-7 getting on in years — How are you planning to get ashore on a defended shoreline? When programs are cancelled without a solution, how is this saving us money? By sacrificing the lives of the service personnel?

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