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Bert22306
I'd like the popular press to compare the profits of, say, Apple, with those of ...
george.leopold
I agree that congressional appropriators often add or earmark weapons programs ...
DoD's dubious achievement awards
George Leopold
6/29/2012 12:58 PM EDT
WASHINGTON – It’s awards season over at the Pentagon. The latest list of “value engineering achievement award” winners announced this week (June 27) runs for seven pages, leading one to conclude that the Defense Department hands out awards much like the Little League presents every ballplayer a trophy regardless of where his team finished in the standings.
What is value engineering and how do you win this award? It turns out that VE is “an important contributor to the ‘Better Buying Power’ program of continuous improvement in defense acquisition,” explains Frank Kendall, the Pentagon’s acquisition czar. Without explaining how it calculated the number, Kendall claims the program has delivered no less than $51 billion in savings and “cost avoidance” since 1980.
That’s a lot of dough, even by Pentagon standards.
We don’t doubt that the value engineering award winners are deserving of recognition. Our problem with the program and others like it is that it simply doesn’t square with the facts about U.S. weapon procurement, which is fraught with waste, lack of oversight and a cost-plus mentality the encourages contractors to jack up development costs.
A classic example of the problem was uncovered recently by veteran Pentagon reporter Walter Pincus of the Washington Post. Pincus is old school. He actually read the 514-page Senate Armed Services Committee report defense authorization bill.
Here’s what Pincus found: For one weapon program alone, the F-35 Lighting II Joint Strike Fighter, the report quoted the program manager as acknowledging a budget “miscalculation” that will cost tax payers an additional $7.9 billion dollars and delay overall aircraft development by almost three years.
That’s $7.9 billion that won’t be available to U.S. troops fighting in Afghanistan.
The F-35 “miscalculation,” it turns out, was about “concurrency,” the Pentagon’s term for the overlapping development of subsystems like avionics, aircraft testing and production. Advanced fighter aircraft development appears to have become so complex that attempts to move down multiple development and production tracks no longer works.
Meanwhile, the soaring cost of the F-35 program continues to grow. Reuters reported in March that the total cost to develop, buy and operate the aircraft is now estimated at an astounding $1.45 trillion.
Does the U.S. military need more than 2,400 fifth-generation stealth fighters? I would argue that our current fleet of fighter aircraft led by the F-22 is sufficient. But the F-35 is too far down the road, with contractors (giant U.S. weapon manufacturer Lockheed Martin Corp is the prime contractor) and subcontractors in nearly every state, to be shelved.
There were no Air Force “value engineering” awards announced this year. We’re guessing there won’t be anytime soon for the F-35 program.
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RM_ATX
6/29/2012 3:21 PM EDT
"That’s $7.9 billion that won’t be available to U.S. troops fighting in Afghanistan."
Is this a joke? Or are you really complaining that one ridiculously bloated military-industrial program is keeping money from being spent on another ridiculously bloated military-industrial program? That's also $7.9 M that won't be returned to the taxpayer; or spent on infrastructure, schools, healthcare, etc... Do those not count since they aren't directly related to killing people in other countries?
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george.leopold
6/29/2012 5:14 PM EDT
No, it's not a joke. We've got thousands of troops fighting overseas who are getting limbs blown off everyday. These troops then come home and find they can't get any relief from the stresses of battle. Believe me, I'd prefer to see these funds spent on education, health care and the other things you mentioned. But the funds I'm referring to happen to reside in the DoD budget. My point is we don't need a new fighter, we need to take care of our troops.
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george.leopold
6/29/2012 6:02 PM EDT
Here's what I'm talking about:
http://content.govdelivery.com/bulletins/gd/USDOD-46d324?reqfrom=share
I get several of these from the Defense Department every day.
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junko.yoshida
6/30/2012 3:11 AM EDT
Thanks for bringing this to our attention. I mean, defining Value Engineering (VE) as “an important contributor to the ‘Better Buying Power’ program of continuous improvement in defense acquisition” is definitely a joke. Who knew?
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Robotics Developer
6/30/2012 9:41 PM EDT
I wonder what you have to really do to get the award? While I am all for supporting our troops with working systems and the best in weapons it seems that if we had a tighter control over these types of "cost overruns" we would have a lot more to spend taking care of the troops and providing properly maintained systems. I guess that is just "crazy talk" (as a friend of mine was fond of saying). What ever happened to fixed price contracts? Are they not considered due to the complexity and technical challenges that must be faced when developing new systems?
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ChipBuilder
7/1/2012 11:00 AM EDT
George, there is a reason your readership is in decline, just like the Washington Post that you proudly reference. I do not wish to try to educate you and explain the massive changes the industry has gone through to impove performance, but you should have done more research before you and Junko dog pile on a bunch of hard working innovators in the US. Please add a delete account button.
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danlutes
7/5/2012 1:11 PM EDT
Great Point, there are far more entertaining and better researched sites I can read to get political economic reporting. Clearly that's all this article contains. There is not even ONE sentence of Electrical Engineering, which presumably is the area of expertise for "EE Times". Perhaps I'll consult a BBC foreign affairs correpondent for advice on implementing my next system.
Although there is no "delete account" button, clicking on "My Account" and then "Manage Newsletters" worked for me.
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http://www.lulu.com/spotlight/poconoarmchairreview
7/5/2012 11:00 PM EDT
Engineering Economics was part of my engineering education, so I'd say this article was relevant to the profession. On the other hand, I'm loathe to attack a national engineering powerhouse such as our defense industry. I've seen waste there, too, but maybe the way to address it is to have the government change incentives so that there is less waste, without jeopardizing the real engineering miracles the defense industry is capable of. Come up with some kind of incentive besides the Walt Disney Be-a-Better-Contractor Award. Or, instead of incentives, maybe the government should require more defense engineers to have combat experience.
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DrQuine
7/1/2012 5:20 PM EDT
In an article about "DoD's achievement awards", I'd be interested to hear about some programs that won the award and how they saved money. These award winners should have some lessons learned that could help the programs that did NOT win awards because they did not save money. Showing how the award winners could have prevent waste in the remaining programs would make for a VERY interesting and helpful article.
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Tim R Johnson
7/2/2012 1:04 AM EDT
This reminds me of watching "Battle of the X Planes" on Nova when it was first broadcast in 2003 on the contest between Lockheed Martin and Boeing to win the JSF contract. DOD had said that they wanted an affordable fighter. Boeing emphasized our plane is affordable, the airframe was designed to be built with fewer assemblies, and advanced manufacturing technologies transferred from our airliner business will be used, both to keep costs down. LM pointed to the Raptor and said we know how to build the best performing fighters. Guess who won. With hindsight, perhaps DOD chose the wrong supplier.
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george.leopold
7/2/2012 9:39 AM EDT
This illustrates the "cost-plus" contracting culture that drives up weapon development costs and delays programs. Then there is the question of what is the mission of a fifth generation stealth fighter when the fourth and third generation versions can maintain what amounts to U.S. air superiority.
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Duane Benson
7/2/2012 11:52 AM EDT
At least someone, somewhere in the system is thinking about cost controls. I can't even remotely imagine how difficult it must be to manage a project as complex as some of these new systems are. It's very disheartening reading about "$7.9 Billion" accounting errors and such, but it's bound to happen when project management is politically influenced.
Non-defense industries have exactly the same problem, though generally not to the same scale, so while I'm disheartened, I'm not never surprised to read about such things.
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Bert22306
7/2/2012 6:09 PM EDT
I disagree with much, in this generic lambasting of DoD programs. Mostly because there's too much unsubstantiated "shooting from the hip."
Back in the mid 1980s, I saw two figures almost simultaneously.
The "lead ship" of the Arleigh Burke class guided missile destroyer would cost $1.5B. (And after than it was down to some $800M.)
And Ford invested $3.3B to develop the Taurus.
So tell me this, guys. If Ford were going to sell, say, 60 Ford Taurus', to make the "economies of scale" comparable, how much would they have to charge for each one?
And can we begin to compare the systems in a car compared with a Navy destroyer?
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Eric.Bresie
7/3/2012 10:00 AM EDT
Was disappointed the article turned from a "dubious achievement awards" to a F-35 bashing article. Why not focus on the winners included instead of reference of programs not even included in the "achievement award"? I am sure there are plenty of programs not included that you could bash.
This is a long term program, not a short term program. The figures mention are for the whole life cycle of the aircraft, not just a given year, which is expected to be over a longer period of time.
Some of the prices increases are partly due to reductions of purchase quantities (economies of scale). If you have a bulk purchases rate, then reduce the # purchase, naturally the price per aircraft will raise. Basic econimics.
The program is expected to replace many aircraft for many countries, which of course would result in a complex program.
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http://www.lulu.com/spotlight/poconoarmchairreview
7/5/2012 11:04 PM EDT
That would be a cool future article: what makes winners of DoD performance awards into winners?
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Work to Ride comma Ride to Work
7/5/2012 11:43 AM EDT
George, have you ever worked on a defense contract or have served in the military?
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george.leopold
7/6/2012 11:38 AM EDT
No to both, but I covered defense electronics for the weekly publication Defense News for seven years and have been covering the military off an on since the 1980s.
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Work to Ride comma Ride to Work
7/6/2012 12:31 PM EDT
I've been in this since the early 80's and I've spent a little less than half my working years on active duty and the other half plus working as a defense contractor and a Reservist. Perceived high costs can be attributed to two things. First, the requirements for military hardware by necessity drive costs and the other thing is that procurement requirements levied on the contractors by the government drive those costs as well. We have to ask ourselves a fundamental question: Are we willing to put commercial grade hardware without the pedigrees in the hands of the young men and women who fight in defense of our nation?
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Work to Ride comma Ride to Work
7/6/2012 12:32 PM EDT
I've been on both sides of this fence and the key to cost reduction lies in the procurement processes of the government, not the contractors. Cost-plus programs are agreed upon by the government and the contractors. Quite frankly, as contractors we make a lot more profit on fixed-price contracts because typically it is a high volume production on a well-understood product. Cost-plus comes into effect when we're stretching the technological limits and risk is shared by both the government and the contractor. Profits however are strictly limited by cost-plus contracts to single digits 5-6%. That's not much ROI for investors. It keeps the lights on, but not much else. Change happens very slowly in our government but hopefully, the Defense Acquisition University, Ft. Meyer VA and other locations can show the way to more efficient procurement policies that can work their way into the FAR. Nobody in defense contracting goes into a contract looking for ways to bust the budget, slip the schedule and fleece the customer. We want to give our fighting men and women the best tools possible when they go into harms way to give them the greatest opportunity for success and best chance possible they will come home alive. Because Congress is the one funding the DoD, politics unfortunately/fortunately play a significant role. The DoD customer has needs, the Congress is only willing to fund so much, and the contractor has to find a way to please both. Pushing the limits opens the process to risk. Risk mitigation is a critical part of program management but nothing in life is certain.
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george.leopold
7/6/2012 1:37 PM EDT
I agree that congressional appropriators often add or earmark weapons programs to the defense budget even though the military did not ask for them and does not want them. Too often, lawmakers treat the defense budget as a jobs program to deliver the goods for their districts. Add in the byzantine DoD procurement process and it's no wonder weapon costs soar.
Your point about fixed-price contracts being more profitable was a surprise to me, but your explanation makes it clear why they are.
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Bert22306
7/6/2012 4:19 PM EDT
I'd like the popular press to compare the profits of, say, Apple, with those of ANY defense contractor they choose.
Sorry, but most of the traditional complaining you see in the press is simply uninformed. For example, one of the reasons for cost plus program costs to soar is that the government keeps changing requirements. Whether this is unavoidable, done for cutting edge technology, or whether it's done for other reasons, contractors can't be clairvoyant. Rework takes time and money.
And again, the main reason why military hardware is so expensive, aside the obvious reasons that it has to work under extreme conditions, is the non-economies of scale. When you only build dozens of copies of the same design, rather than 100s of thousands or millions, do the math.
This holds true for even those proverbial toilet seats. If you get pages and pages of specific specifications to describe how the toilet seat must be built and tested, and then you order only a few hundred, what in the world does anyone expect? It's not like you can go to Home Depot and buy them.
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