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Acquisition Reforms Don’t Cut Costs: Kendall Cites Study

Posted by Colin Clark on


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WASHINGTON: Most Americans think it’s obvious: Change the rules to ensure the Pentagon will save money and it will save money. Congress after Congress has tried this, most recently in the form of the widely praised Weapons Systems Acquisition Reform Act.

Sadly, the assumption that acquisition reform makes things better does not appear to stand up to reality, at least as analyzed in a report by the respected Institute for Defense Analyses. We’re looking at this because Frank Kendall, the head of Pentagon acquisition, mentioned the study yesterday during a House Armed Services Committee hearing on acquisition; his comments clearly caught the attention of reform-minded new Chairman Mac Thornberry. So we asked for a copy of the study, which you can read below.

 

Here’s the nub of the report:

“First, there is no statistically significant improvement or worsening of PAUC [Program Acquisition Unit Cost] growth correlated with the different acquisition policy regimes… Second, PAUC growth tends to be substantially higher in a Relatively Constrained funding climate than in the Relatively Accommodating climate.”

Here’s how Kendall put it to the committee yesterday. “What this is telling me is that behaviors change when we have tight budgets,” Kendall told the HASC. Bureaucrats try to “hang on to things we really can’t afford.” and the defense industry is hungrier and pushes harder to keep revenue flowing. “This has an impact far beyond anything else we are looking at.”

Initially, this would seem to lend credence to the old shibboleth — usually offered by industry — that unstable funding caused by congressional whim or executive folly leads to higher costs and schedule problems (which often incur even more costs).

The report offers a careful analysis of this idea: “Funding instability is a chronic condition, present to some degree in all periods. What this paper observes is a recurring pattern—that MDAPs that passed MS II/B during periods when the DoD topline was Relatively Constrained, on average, had much higher PAUC growth than those that passed MS II/B during a period of Relatively Accommodating funding climate.”

We offer this translation. When the Pentagon budget was tight, big weapons programs had “much higher growth.”

The report does not offer a “solution” to the patterns it spots, not that it should. But you can be sure members of Congress and the professional staff of the four defense committees will mull this compelling analysis as they tear into the 2016 defense budget. Perhaps it will help reshape both the short-term debate over sequestration — set to return in ’16 — and the long-term debate over Pentagon acquisition. We can hope, can’t we?

What do you think?