Fixing Procurement - Part 2

Never-Ending Development

Another issue that emerges in any discussion of procurement is just how long it takes to move any program from inception to operation. There are a number of reasons for this, but the major ones are:

No sense of urgency - Whenever there is any discussion of the problem of procurement someone will bring up how rapidly certain weapon systems were developed in the past. The U-2 went from concept to first flight in less than 8 months, the SR-71 from concept to first flight in less than 3 years, the Nautilus (first nuclear powered submarine) from concept to first sailing in 6 years, etc. And there is a great deal of truth in this statement. Of course, what is missed is that whenever we have developed ships, aircraft or systems at high speed we have done so at great cost. Further, we produced many different systems in the 1950s and 1960s that were not successful systems. A quick review of the various fighter aircraft that the Air Force and Navy introduced and then retired between 1950 and 1960 will provide the interested reader with the history of any number of nearly disastrous development programs. Rapid testing and prototyping can be of great value, but it is not a panacea.

The Research, Development, Test and Evaluation (RDT&E) ‘process’ – Not only have systems and platforms become more complex, the negative impact of poor performance once a system is deployed has made both contractors and systems commands in each service terrified of providing a weapon or system that has not been thoroughly tested. Thus US aircraft must endure literally years of testing before they enter initial ‘low rate production’ and additional years of testing after the first production before they become operational. This becomes its own problem; as systems finally reach operational status they are found to be lagging in certain technologies because the hardware and software have advanced so rapidly in the commercial sector while being frozen in the particular weapon system for years.

As anyone who has looked at the history of RDT&E for major procurement programs, the RDT&E can last for years. In the case of the B-2, the aircraft was first funded under an RDT&E program begun by President Carter (1979), it didn’t first fly until President Bush (1989), it reached initial operational capability under President Clinton (1 January 1997) and was first used in combat against Kosovo in 1999. These are very complex programs and require very complex RDT&E that not only lasts years (sometimes decades), but are very expensive. Again, the RDT&E is driven not by finances, but by requirements, and frankly, as someone who has personally benefited from the superlative capabilities of some of the US weapon systems, when people start shooting at you, no one cares about the price, but rather about whether the requirement for this or that weapon system was properly stated and met.

A Word on ‘Cost’

Inflation ‘sticker shock’ – As noted above, the level of national commitment to the Navy shipbuilding in 1798 was similar to the commitment today. But, to say that a ship costs more than ‘Ten Billion Dollars’ has a psychological impact all its own.

But, a warning about ‘cost’ is warranted. A B-29 (the strategic bomber that conducted the bulk of the bombing of Japan during World War II and the aircraft that dropped the atomic bombs on Hiroshima and Nagasaki) was truly the state-of-the art weapon system of its day, with a massive development program, one that was nearly as large as the atomic bomb. More than $3 billion was spent on the B-29 between 1942 and 1946, with 3970 aircraft being produced, after more than a half billion dollars was spent on development, and with an average production cost of just over $600,000.

During World War II the GNP of the US was on the order of $200 billion (actually less, as more than half of the nominal GNP was actually government spending). Thus, a half billion dollars equates to ¼ of one percent of GNP, or approximately $35 billion in current terms. Total production costs for the B-29 represented 1.2% of GNP or an equivalent of roughly $168 billion in today’s terms; and at $600,000 per airframe a B-29, measured as a percentage of national wealth is equivalent to a $42 million aircraft today.

Compare this to the B-2, another aircraft that was truly a state-of-the-art aircraft. Per various GAO reports, $23 billion was spent on RDT&E (in 1997 dollars). As the GDP was $8.5 trillion in 1997, this equates to .27% of GDP (spread over nearly 20 years), or $37.8 billion in current terms. The aircraft themselves (21 were procured) were procured for an additional $21.75 billion, or $1 billion per aircraft, equivalent to $1.65 billion per aircraft today. The cost of RDT&E are comparable, but unit prices have gone up. Of course, when we consider the expected production run – originally anticipated to be 132 aircraft, unit price would have been on the order of $170 million in 1997 dollars or roughly $260 million per aircraft in 2009. (While it might seem doubtful that the DOD would have received 132 aircraft for the same dollar figure as it paid for 21 aircraft, the history of budget overruns has shown that once a number is set for a production run, the total cost remains remarkably stable despite the number of aircraft purchased. This can be attributed to a great many things, but the most likely reason is Congressional support to the means of production.)

This isn’t meant to pick on the Air Force. Virtually every major weapons program in any service yields like numbers. What this does point out is the real angst. First, while the RDT&E for the B-29 took place over the course of just three years, the RDT&E for the B-2 (or F-35 or LCS or the Seawolf submarine, etc., etc.) took place over the course of nearly 20 years (as for each of the above programs.) Second, while the B-2 is a phenomenally capable aircraft, there are only 20 of them (1 crashed). And it is of little consequence to compare the technologies of the two aircraft and claim that one B-2 is ‘X times more effective’ than a B-29. During 1945 the B-29 was a remarkably survivable aircraft that out-flew most of the fighter aircraft in the Japanese inventory, as well as flying above most of the Japanese anti-aircraft weapons. Although tens of thousands of missions were flown, the Japanese were able to shoot down only 157 B-29’s, despite the fact the Gen. Lemay also used the B-29 in low altitude bombing of Japanese cities, a flight regime they were designed to avoid.

Objections that these bombers dropped hundreds, even thousands of weapons for each weapon that hit the target, versus the B-2 dropping one bomb and getting one hit actually addresses the weapons and weapons systems more than the airplanes. GPS or laser-guided bombs can be dropped off relatively simple aircraft with equal accuracy, assuming the right systems are mounted on the aircraft. Such a solution doesn’t address the aircraft survivability in a combat environment.

The $600 Hammer

Finally, a word needs to be added about those spectacular “little” items that make great headlines: the $600 hammer or the $500 toilet seat. First, a number of these stories were just flat wrong, as is born out later in the press (usually on page 17) where it is revealed that in fact the item in question only cost a few dollars. Second, some reflect efforts to hide money for “black” programs – very classified programs that are funded through money hidden in other programs so that our enemies and potential enemies will not know about the program itself (and which in and of themselves are often worthy of real efforts to hide the program and the money, and which are subject to a good deal of oversight by DOD and in all but very select cases Congress). Finally, some of these weird and seemingly outrageous bills are the result of, well, reality. One example will suffice to show the difficulties.

A number of years ago the DOD was building a series of large surveillance aircraft, but was only going to be purchasing perhaps a dozen per year. Aircrews were expected to spend 10 to 12 hours airborne at any one time and so a coffee machine was designed into the aircraft. A normal, commercial coffee machine was picked, and slightly modified for the power requirements on the aircraft and to ensure it couldn’t spill, etc. There was, however, a need (for safety reasons) to isolate the coffee machine in the remote but real possibility of fire and so it was encased in aluminum. To ensure that the case fit into the narrow space allotted to it, and to ensure that each case was identical and would fit into any of the aircraft, the case had to be made to ‘spec.’ As a result, metal-working machines had to be configured for the case, not an insignificant cost, and a quality control process put in place to ensure the case came out as designed. And then, only a dozen or so were made each year. All in all, perhaps $50,000 had been spent on setting up the machine and on training for the machine operator, with some small additional amount for the metal itself. Perhaps 100 of these cases were made over the period of eight or 10 years. And so, the average price of a ‘simple’ metal case was close to $1000.

These stories however, miss the point. Even with a thousand such stories a year, each totaling perhaps $50,000, the total would still amount to perhaps $50 million. A notable sum for all of us, but still a drop in the bucket compared to the several tens of billions of dollars spent each year on procuring weapons for the DOD. In short, ‘fixing’ these problems while ignoring the real issues is meaningless, and worse, may well introduce rules and oversight that would actually add cost to major programs. We need to focus on the ‘big fish.’

The Legislature

Finally, there is the issue of Congress. Congressmen are accurately called ‘Representatives.’ They are supposed to represent the interests of their state and district within the national debate. This has commonly been interpreted to mean that bringing contracts (jobs) to your district is a good thing and seeing those contracts (jobs) go away is a bad thing. A Congressman with a large defense plant of some sort in his district (aircraft manufacturing plant, shipyard, etc.) rapidly becomes very protective of that plant. This is not the same as earmarks, which have a connotation of unnecessary spending in one district. If the Air Force is buying big airplanes, Boeing is likely to get some money and it is a nation-wide construction program, just as it is with ships, where a hull might be assembled in Maine, but there are electronics and engines and weapon systems that come from around the country.

At a minimum, as demonstrated by the six frigates requested by President Washington, the Navy (or the DOD) will attempt to use to advantage this well known response by various Congressmen. There are some large defense programs that have parts made in nearly every single Congressional district. Several programs received a certain degree of fame (or infamy) for having parts made in nearly 400 separate Congressional districts.

The fact is that it is always going to be difficult for Congressmen to vote against a program that brings money and jobs to their district. Compounding this is the very real concern that certain skills and technologies, if not needed now, may be of great importance if ‘something’ happens. For example, there are only a small number of people in the US who have the skills to weld together the hull sections of submarines. It is a very special and very perishable skill. Congress rightly worries whenever the procurement process threatens those skills. If submarine production were to stop for more than several months these people would seek other work, and the US would loose that critical skill. Congress routinely looks at these kinds of issues and has repeatedly strung out various procurement programs in order to insure that such skills remain employed, despite the (considerable) added costs incurred when a program is stretched out.

As a result, despite what it might seem in public spats between Congressmen and corporate leadership, the fact is that Congress, corporate leaders and DOD leadership – uniformed and civilian – normally find themselves all wanting the same thing: keep a production line open, sustain the development program, and make the platform (ship, aircraft, etc.) as capable (sophisticated) as possible, and buy as many as we can afford.