Gates starts outlining cuts to save $100 billion for defense

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.

Gates said those programs need to be designed to "affordability and not just to design." He added it was critical to keep costs in line "so we don't end up with another half a billion dollar presidential helicopter."

Ash Carter, the Pentagon's top weapons buyer, said in an interview that officials are looking to trim some of the "bells and whistles" on a new fleet of the Ohio class submarine. The program is expected to cost $100 billion, but the Navy's initial design was unaffordable. The service has since worked to reduce the initial cost estimates by 16 percent and is trying to reach a 27 percent cost savings.

To replace the canceled ground vehicles that were part of the Army's expensive Future Combat System program, Gates is pushing for a new ground vehicle to be built in a shorter time frame - as a way to cut cost overruns.

The Pentagon said it will ask Congress to buy F-18s on a multi-year contract instead of buying a few aircraft each year. Such a move could save $600 million, if it is approved by Congress. The Pentagon is also scrutinizing how to cut back on inefficiencies and overhead costs on designing and building the F-35 Joint Strike Fighter program. The price of the highly advanced fighter jet has jumped from $50 million per aircraft in 2000 to $92 million per aircraft in 2010.

In addition, the Senate's defense appropriations subcommittee approved cuts to buy fewer Joint Strike Fighter jets and to build just one Littoral Combat Ship, not two, in 2011. Those cuts, along with reductions in operation and maintenance accounts, are expected to help trim $8 billion from the 2011 defense spending bill.

The Senate subcommittee also included no money in its 2011 budget proposal to fund an alternative engine for the F-35 Joint Strike Fighter. The White House had threatened to veto a defense spending package if it included money for a second engine. General Electric Co. and Britain's Rolls Royce were vying to build the second engine. Pratt & Whitney, a unit of United Technologies Corp., builds the main F-35 engine.

With nearly a decade of increasing defense budgets, Carter said, many buyers and managers are used to there always being more money to spend. "That suggests there's fat that's crept in, and we need to cut it," he said.

While some defense analysts said it is a bit of a paradox that the Pentagon is looking for cost savings just as it is adding 20,000 acquisition workers - either in new hires or in converting contracted work to in-house assignments - Carter disagreed. He said the agency is hiring much-needed, skilled personnel that includes contracting officers, pricing experts and systems engineers expected to help keep program costs down.

"If we're going to get better at spending taxpayer money, we have to attract and retain people who are as good as the people they're buying from," Carter said. "If we're going to drive the costs down on programs, we have to have good cost estimators. If we're going to trim requirements to get an affordable submarine, we need people who know about submarine design."

Carter said the Pentagon also plans to reduce much of the tasks involved in filing forms and writing reports. Carter said some of the work is a "waste of time and money," noting that the Pentagon produced 719 reports at a cost of $350 million.

"We think that's excessive and we're looking at, 'Can we do that a little cheaper?' " Carter said. "We owe it to the taxpayer to stop it."

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