Pentagon leaders start push for affordable defense contracts

Pentagon leaders on Monday called on the Department of Defense’s Acquisition Corps
and on defense companies to make contracts more affordable and to eliminate
unnecessary spending on weapons and services. 

It is a “matter of principle and political reality to make sure every taxpayer
dollar counts,” Defense Secretary Robert Gates said Monday.

{mosads}Gates has started a sweeping initiative to find about $100 billion in savings over
the next five years. His goal is to pour those savings into the fighting force
and the modernization of weapons systems.

As part of the effort, Pentagon acquisition chief Ashton Carter on Monday met
with hundreds of military procurement leaders and executives of defense
contractors. He directed them to identify “unproductive” overhead, or as he
called the effort, “doing more without more.”  

“We have not seen productivity growth in the defense
economy,” Carter said at a press briefing on Monday. “More has been
costing more. We need to restore affordability to our programs.”

Executives from major defense companies such as Lockheed Martin, Boeing,
Northrop Grumman, General Dynamics and BAE Systems all attended the meeting
Carter held at the Center for Strategic and International Studies on Monday
morning. Representatives from the Aerospace Industries Association, the National
Defense Industrial Association and the Professional Services Council also
attended the meeting, which included more than 200 people, according to one
source in attendance.

The Pentagon spends about $400 billion on products and services out of a budget
of about $700 billion a year, Carter said. Pentagon leaders are seeking 2
percent to 3 percent in savings of that $400 billion, Carter said. That could
amount to savings between $40 billion and $60 billion over the next five years.

Under the new initiative the Pentagon acquisition corps will be tasked to find
the proper contract types for both weapons systems and services. They will look
to reduce costs with fixed-price contracts that require defense companies to
bear cost overruns, and through encouraging “real” competition between
contractors.

Carter sought to allay concerns within the defense industry that the new
initiatives may curb profits to companies.

“It’s not about reducing profit. It is about reducing cost,” Carter said. He
stressed that profits “can be made in fixed-price contracts” by “performing
well.” He said that the Pentagon is prepared to use profit as an incentive to
productivity within the defense industry.

Carter said the Pentagon will actively seek ideas and support for the
effort from defense companies. He asked the company executives on Monday to
look at their companies’ own processes for unnecessary costs to look to gain
more productivity.

Carter said Monday that defense companies’ production processes “can be leaned
out, with fewer people or less material.”

Carter also said that he is open to suggestions on what the right incentives to
the industry would be to find savings.

Carter said that the Pentagon wanted to see more small businesses enter the
defense sector, as well as commercial companies that normally do not deal with
the defense sector.

“They are lean and efficient and we want that influence within defense,” Carter
said at the briefing.

Some of the new banner programs that likely will be considered under the terms
of the new initiative are the Army’s new ground combat vehicle contract, the
Navy’s Ohio-class submarine replacement, a family of systems for long-range
strikes and the new presidential helicopter.