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Gates details $100 billion in defense cuts

By Dana Hedgpeth
Washington Post Staff Writer
Wednesday, September 15, 2010; A17

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

Pentagon spending has doubled, when measured in current dollars, in the past decade but its budget is expected to grow only slightly each year over the next decade.

Gates announced new guidelines, which signal a shift in how the Pentagon buys goods and services with the goal of continuing to save costs. The guidelines push for more "fixed price incentive fee" contracts, which typically require a supplier to take the hit for cost overruns but also reward the contractor for meeting a project's cost targets. Under the new guidelines, stricter rules won't allow expensive weapons projects to go forward if they don't stay within projected costs.

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

Gates on Tuesday said the Pentagon must get "more bang for the buck by shifting resources from overhead to the military capabilities needed today and in the future."

"Consumers are accustomed to getting more for their money - a more powerful computer, wider functionality in mobile phones - every year," Gates said. "When it comes to the defense sector, however, the taxpayers had to spend significantly more in order to get more. We need to reverse this trend."

The push to rein in the Pentagon's roughly $700 billion-a-year in spending began 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 looked for ways to eliminate inefficiencies and unnecessary overhead, according to Carter.

The savings plan Gates detailed 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 including advanced aircraft, ammunition and submarines and 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 decide what it can afford to pay for a weapons system 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 contracts, and reduce unnecessary, bureaucratic reports.

"In too many instances, cost estimates that are based on past programs - I might say past mismanagement - have deprived us of incentives to bring down costs," Gates said.

Defense industry analysts say it is unclear whether the savings plans will stick once Gates leaves. He has said will retire next year. Also, his goals could face congressional opposition. But others say it is possible that Gates's initiatives will remain intact.

"Gates has shown that he knows how to be forceful and even force Congress to do what he wants," said Winslow Wheeler, a defense industry expert. "It is clear to me that if he wants to make it happen, he can make it happen."

Gates's retirement could be a sticky spot. "If his replacement is a weenie," Wheeler said, "the bureaucracy will rush to undo all of his stuff."

Gates said he thinks the cost savings efforts would continue.

"I have no doubt that for years to come, these efforts will continue as these civilian and military leaders continue to see the benefit in adopting processes that not only save the taxpayers money but 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 ballistic-missile submarine for the Navy, the Army's Ground Combat Vehicle and the Air Force's "long-range strike" system.

Gates said the Pentagon would put in place an "affordability target" on weapons programs and not allow them to go to production if they aren't hitting the projected targets.

Ash Carter, the Pentagon's top weapons buyer, said in an interview Monday at the Pentagon that officials are looking to trim "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.

The Pentagon said it will ask Congress to buy F-18s on a multiyear 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 to $92 million per aircraft in 2010 from $50 million each in 2000.

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, are expected totrim $8 billion from the 2011 defense spending bill.

The Senate subcommittee also included no money in its 2011 budget proposal for 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 and Britain's Rolls Royce were working to build the second engine. Pratt & Whitney, a unit of United Technologies, 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," he said, "and we need to cut it."

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, 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 trim requirements to get an affordable submarine, we need people who know about submarine design," he said.

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