Gates starts outlining cuts to save $100 billion for defense

Aug. 11 (Bloomberg) -- William Cohen, chief executive officer of the Cohen Group and a former U.S. defense secretary, discusses the outlook for U.S. military budget cuts. Defense Secretary Robert Gates said the Pentagon needs to save money by further reducing a "cumbersome" U.S. military hierarchy, setting up potential battles with members of Congress who support targeted programs. Cohen speaks with Margaret Brennan on Bloomberg Television's "InBusiness." (Source: Bloomberg)
By Dana Hedgpeth
Washington Post Staff Writer
Tuesday, September 14, 2010; 3:25 PM

Defense Secretary Robert M. Gates on Tuesday started laying out some details of his plans to save $100 billion over the next five years as he tries to run the Pentagon more efficiently.

Over the past decade, the Pentagon's spending has averaged a growth rate of 7 percent a year, adjusted for inflation, including the costs of the wars in Iraq and Afghanistan. But that rate is expected to slow to 1 percent as the wars wind down.

Money saved in cutting overhead and other inefficient costs on weapons programs will go toward modernizing and recapitalizing military equipment and sustaining troops, Pentagon officials said.

Gates on Tuesday said the Pentagon must get "more bang for its buck and shift its focus to the military's needs for the future."

"We've not seen productivity growth in defense," Gates said. He noted that consumers buy "more powerful computers and mobile phones every year, but the taxpayer has had to spend significantly more in order to get more. We need to reverse this."

The push to rein in the Pentagon's roughly $700 billion-a-year in spending started last year when Gates trimmed several big-ticket military hardware programs. Last month, he ordered the closing of the Joint Forces Command in Norfolk. And he took aim at reducing spending on "support contractors" by 10 percent each of the next three years, which could hurt local defense companies that provide professional, administrative and computer services. Also, for several months now, about 40 top acquisition officials have been looking for ways to squeeze the fat and eliminate inefficiencies and unnecessary overhead.

The savings plan he's detailing Tuesday includes a five-step road map on how the Pentagon can be more efficient when it buys roughly $400 billion worth of goods and services that range from advanced aircraft, ammunition and submarines to contracts for feeding U.S. troops overseas, mowing lawns at military bases and running complex computer networks.

As part of the plan, the Pentagon will set a price of what it can afford to pay for a weapons system that would fit within its budget. Analysts say that often contractors bid on weapons and then return with ideas that can lead to runaway cost increases. The plan also includes incentives for contractors to keep costs low; better manage how contracts are run; and get rid of some unnecessary, bureaucratic reports.

"In too many instances, past mismanagement has deprived [contractors] of the incentives to bring down costs," Gates said. Giving contractors performance incentives should "lead to higher financial reward, higher profit," he said.

Defense industry analysts say it is unclear whether the savings plans will stick once Gates leaves. He has said he will retire next year. "There's a lot of speculation about whether these efforts will continue once I'm gone," Gates acknowledged but added he believes the cost savings efforts would continue because designing them "has been a team effort of both civilian and military leadership" of the Pentagon.

"I have no doubt that for years to come, these efforts will continue as they see the benefit of adopting these processes that will allow us to transfer money from overhead to real military capabilities," Gates said.

The Pentagon is closely considering what it can afford on several weapons programs, including the presidential helicopter, a new class of missile submarines, a long-range strike system and ground combat vehicles.

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