DOD on a Glide Path to Bankruptcy

By John D. Christie

While the current JSF cost estimate is below the Augustine curve, the aircraft is still five years from initial operational capability. JSF unit cost projections have increased by an average of 9-10 percent annually over the last decade, reducing the probability that it will be produced within current cost estimates. 4

Augustine compared the growth rates of different types of military equipment to the growth rate of the defense budget. In Figure 3, he extrapolated that if trends continued, procuring a single tactical aircraft by 2050 would take the entire defense budget. Data covering 30 years since the first publication of Augustine's Laws add credence to his extrapolation.

A carrier unit cost line has been added to Figure 3. 5 If its trend continues, the entire defense budget would be required to buy one aircraft carrier early in the 22nd century. Thus, the problem is not just with aircraft. And while the Army is no longer developing tanks to compare to Augustine's earlier cost projections, estimates for the Future Combat System, the Army's current largest acquisition program, have increased more than 75 percent over the 2003 baseline estimate. 6

Figures 1-3 illustrate that our appetite for high technology has exceeded our ability to develop and procure systems in sufficient numbers to maintain the size of our force structure within the bounds set on overall defense funding for the last 25-40 years. 

False Hopes of Avoiding the Problem

To avoid the decline of force levels with rapidly growing acquisition unit costs,

  • U.S. GDP must grow fast enough to permit major increases in the DOD budget,
  • the DOD must receive an ever-increasing percentage of GDP, or
  • acquisition must receive an ever-increasing percentage of the defense budget.

None of these things has occurred during the last 30-year period reviewed here. 7  

  • The Fiscal Year 1976-2006 GDP average annual growth rate of ~ 6.9 percent is consistent with the GDP growth rate of ~ 7 percent on Augustine's Coolidge's Revenge figure (see footnote 5).
  • The FY 1976-2006 defense outlay average annual growth rate of ~5.5 percent is consistent with the ~ 4 percent defense budget growth rate on the Revenge figure.
  • The percentage of defense budget going to procurement decreased ~7-8 percentage points of defense funding since the late 1980s. This decrease was associated with increases of ~ 5 percent in Operations and Maintentance (O&M) and ~2-3 percent in Research, Development, Test, and Evaluation (RDT&E).

Recently defense budget requests have not included the majority of costs of the conflicts in Iraq and Afghanistan. Most wartime supplemental funding has been for increased operating costs plus replacement of consumable items. At the same time, accelerated use of military equipment is increasing the need for replacement of systems. Thus, recent supplemental funding is not easing the acquisition problem.

Movement of acquisition funds to other accounts is a major source of instability. Some acquisition managers argue that it is the major cause of schedule slippages, resulting cost growth, and quantity reductions. No known data substantiate this latter claim. The high-profile A-12 aircraft program, which had stable funding in the 1980s, still became a troubled program and was terminated. 8

World events have effected some major changes in the allocation or level of defense funding, and DOD can do little about it. However, most reallocations are forced by earlier unrealistic projections of acquisition and other costs. These are controllable and a basic cause of our acquisition problems.

Basic Causes—and the Solution

Numerous studies of acquisition-related problems have identified basic causes and suggested solutions. The Epilogue to Augustine's Laws cites ( inter alia ) the following causes of cost growth:

  • Overly ambitious requirements.
  • Immature technologies.
  • Unrealistically low projections of costs in all functional areas.

Similarly, a 1990 Defense Science Board Streamlining Study, covering some 100 major defense acquisition programs concluded that the failure to identify technical issues, as well as real costs, before entering into full-scale development was the overwhelming cause for subsequent schedule delays and the resulting cost increases.

Solving the problem will require three essential parallel DOD actions and important congressional supporting actions:

Requirements . Requirements developers need to ensure that every proposed requirement has a reasonable probability of being achieved within the desired time and that it will add value commensurate with its cost. Acquisition managers should not approve programs if requirements do not appear to be technologically mature, producible, and affordable in the desired time.Technology. Acquisition managers should use applied research programs and advanced technology demonstrations to mature technologies before inserting them in formal acquisition programs. Engineering development should not be started until the technologies to be included have been demonstrated in hardware.

Cost estimates . DOD resource allocation managers need to avoid large disruptive changes in all functional areas in later years. DOD leaders of every administration over the past 15 years have been shown internal Defense Planning Projections of what it would cost in future years to maintain the force structure, activity levels, and acquisition programs in the then-approved Future Years Defense Program. All these projections showed that the approved program, plus inflation, would more than consume the resources projected to be available. Yet little was done to adjust appetites or resources. DOD needs to use best estimates of acquisition and other program costs in programs and budgets. All DOD managers should neither impose nor accept unrealistic "stretch goals" to make their programs more saleable or for any other reason.

Important Supporting Actions

Congressional support for the three essential DOD actions will be essental for success. Congress should avoid micro-management of individual programs, act like a board of directors, and encourage highly qualified personnel to join and stay longer in government service to achieve more continuity of effort. Specifically, Congress should:

  • Restrict the number of political positions in DOD management.
  • Designate some key technical and management positions as non-career, with continuing service subject only to satisfactory performance (e.g., similar to PL 313 positions that existed 40 years ago).
  • Revisit post-employment restrictions to permit qualified persons to enter DOD in mid-career and then return to the private sector without severe restrictions.
  • Critically review individuals' qualifications, capabilities, and desire to do the job, versus to fill the position, before approving appointments.

Defense contractors currently have strong incentives to promise more than they can deliver just to get contracts, but they need to support reform because their future success depends upon getting DOD off the going-out-of-business curve. Corporate leaders should appreciate Augustine's quote from Soviet leader Nikolai Lenin: "Quantity has a quality all its own."

It may be hard for most people to believe that our defense establishment is in a serious decline at a time when we are spending more than $400 billion a year on defense, excluding supplemental appropriations. However, the facts bear out this alarming state of affairs. 9 U.S. defense forces will continue to shrink and age, and we rapidly will cease being a dominant military force in the world, unless we make major changes soon. To avoid failure, leaders need to focus on fixing basic problem causes, not treating the symptoms. The problems have been self-inflicted; the solutions can be as well.

 


1. Norman R. Augustine, Augustine's Laws (New York: American Institute of Aeronautics and Astronautics, Inc., 1982).

2. Data point sources (x symbols) are Selected Acquistion Report (SAR) Summary Tables as of 30 June 2006, DOD OUSD ARA/AM, 11 August 2006, and Defense Acquisitons Assessments of Selected Major Programs: GAO Report to congressional committees, posted on the Web, 3 April 2006.

3. Recent CVN-21 data point sources (x symbol) are the SAR Summary Tables and GAO report cited above.

4. SAR data from December 1996, 2001, and 2004 indicate both the RDT&E costs and procurement costs have been increasing at an average annual rate of ~9-10 percent over the last decade. This is over twice the growth rate of DOD's procurement accounts over the same period.

5. President Calvin Coolidge is reported to have asked in a moment of budgetary frustration over paying $25,000 for a squadron of aircraft: "Why can't we just buy one aeroplane and let the aviators take turns flying it?"

6. Source: SAR Summary Tables previously cited.

7. Source is "http://www.gpoaccess.gov/usbudget/fy06/hist.html" US Government Printing Office: Budget of the United States Government: Historical Tables Fiscal Year 2006: Table 6.1 Composition of Outlays: 1940-2010 (all numbers are in current dollars), and Table 5.1, Budget Authority by Function and Subfunction: 1976-2010.

8. Memorandum for the Secretary of the Navy, 28 November 1990, subject: A-12 administrative inquiry, Chester Paul Beach Jr., Inquiry Officer [and General Counsel of the Department of the Navy].

9. In a similar vein, few Americans would have thought 20 years ago that General Motors would have taken drastic actions in 2006 to survive as an independent corporation.

Dr. Christie is a Senior Fellow at LMI Government Consulting. He was Principal Deputy Assistant Secretary of Defense (Systems Analysis) in the early 1970s and returned to the Pentagon in 1990 as Director of Acquisition Policy and Program Integration in the Office of the Under Secretary of Defense (Acquisition). He has been a National Associate of the National Academies since 2002.

 

 

 

 
 

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