Thursday, June 13, 2013

6/13/13 RD Bulletin: The High Cost of National Security Contractors

 
Highlights
 
News: The House of Representatives will conclude consideration of the annual National Defense Authorization Act this week just as appropriations season begins in earnest with both chambers’ spending committees moving forward with their annual defense spending bills.
 
News: With news breaking that a private contractor was the source of highly classified leaked information, attention in Congress has returned to the large number of private contractors employed at the Pentagon and other national security agencies.
 
PDA Perspective: The growing cost of the new Ford-class aircraft carrier and Navy plans to procure more is a telling instance of what Congressman Randy Forbes has called Navy “fantasy” about their budget reality.  There are good strategic, as well as budgetary, reasons to slow or pause the procurement of this expensive naval asset.
 

State of Play
 
Legislative: This week, the House of Representatives will complete consideration of its version of the National Defense Authorization Act for Fiscal Year 2014.  The bill would authorize $526.6 billion for the Pentagon’s base budget, $17.8 billion in additional national security spending, and $85.8 billion in war funding.  This topline far exceeds the amount of defense spending authorized by the Budget Control Act’s sequester provision.  As a result, if the NDAA were to become law, and appropriators fully funded the Pentagon’s budget at the authorized level, then come January 2014, the Office of Management and Budget will again issue sequestration guidance bringing the defense budget down to approximately $475 billion (excluding war funding, military construction, family housing, and mandatory spending). 
 
When the House Armed Services Committee debated the NDAA last week, little attention or consideration was given to the fact that the bill does not conform to current law spending restrictions.  In fact, it was not until 1:30 am that a member of the committee proposed providing the Pentagon with $20 billion in expanded transfer authority as a means of mitigating the impact of the across-the-board spending reductions. 
 
The amendment’s sponsor, Representative Jim Cooper (D-TN), lamented the fact that his amendment was “the only comprehensive attempt during the entire 16-hour markup to reduce the harm caused by sequestration.”  He further chastised his colleagues by adding, “both Republicans and Democrats have been unwilling to reach a grand bargain that would eliminate sequestration entirely, or even to offer government agencies flexibility so that the sequestration cuts are not so arbitrary and harmful.”   Cooper’s amendment was defeated 45-16 during committee markup. 
 
Among the amendments that are expected to be offered to the NDAA on the House Floor this week, is a bipartisan proposal from Reps. Earl Bluemenauer  (D-OR), Mick Mulvaney (R-SC), and Kerry Bentivolio (R-MI) that would reduce the statutory requirement for aircraft carriers from eleven to ten.  Reps. Mulvaney and Blumenauer are also teaming up with Reps. Morgan Griffith (R-VA) and Jared Polis (D-CO) to offer an amendment that would withdraw additional U.S. personnel from Europe.  And Reps. Chris Van Hollen (D-MD), Jim Moran (D-VA), Mulvaney, and Rob Woodall (R-GA) are offering an amendment that would reduce the authorization for war funds by about $5 billion – thus matching the President’s budget request.  The House should wrap up work on the NDAA by tomorrow.  The White House has already issued a veto threat. 
 
With news breaking this weekend that a private contractor was the source of highly classified leaked information, attention in Congress has returned to the large number of private contractors employed at the Pentagon and other national security agencies.  At a Senate Appropriations subcommittee hearing on military spending, the panel’s new chairman, Senator Dick Durbin (D-IL), chastised the department for the high cost of private contractors: “Recent reports have again emphasized that the average contract employee costs two to three times as much as the average DOD civilian employee for performing similar work,” Durbin remarked. 
 
The chairman further noted that the Pentagon spends approximately half of its budget on private contractors, even though they only comprise 22 percent of the department’s workforce.  Secretary of Defense Chuck Hagel, who appeared before Durbin’s panel, reassured the senator that the Pentagon has reviewed all contracts and contractors as part of its Strategic Choices and Management Review, the results of which should be released sometime this month or next. 
 
Executive: Though the details of the strategic review have not yet been made public, it is expected to recommend culling savings from the nuclear weapons budget as a means of shoring up other Pentagon priorities.  The idea of modest nuclear weapons reductions has been prevalent in Washington ever since Senator Carl Levin (D-MI), the chair of the Armed Services Committee, hinted at replacing the sequester of military funds with savings from the nuclear weapons budget a little over a year ago. 
 
According to Elaine Grossman of Global Security Newswire, if Hagel decides to pursue deep contracting personnel cuts as part of the strategic review, this could impact which nuclear weapons programs are cut.  Grossman writes, “Among the possible targets for cuts in coming years could be the modernization of nuclear platforms: A new Long-Range Strike bomber aircraft, replacements for today’s Ohio-class ballistic missile submarines, updated ICBMs or cruise missiles. Each of these efforts could also be affected by any move to reduce contractor support personnel.” 
 
Under the guise of the Strategic Choices and Management Review, the Pentagon is preparing two different budget scenarios for Fiscal Year 2015.  One scenario assumes that sequestration holds while the other assumes that Congress nullifies the automatic cuts.  Should sequestration cuts hold, the Pentagon will begin formally incorporating them into the budget planning process for Fiscal Year 2015.  For Fiscal Year 2014, Deputy Secretary of Defense Aston Carter is currently reevaluating the administration’s recently submitted budget request to see how it could better conform to post-sequester spending levels.  This exercise is expected to be completed next month. 
 
Three years ago, then-Secretary of Defense Robert Gates froze Pentagon bureaucracy positions at Fiscal Year 2010 levels.  However, according to data compiled by Defense News, the Pentagon’s vast bureaucracy grew by more than 15 percent from 2010 to 2012. The 'Fourth Estate,' as the collective organizations are known, includes the Office of the Secretary of Defense (OSD), Joint Staff, and combatant commands (COCOM). These growth levels do not even include the estimated 700,000 contractors working within the Department of Defense or the almost 800,000-strong civilian workforce.
 
Weapons: One of the biggest concerns with the F-35 Joint Strike Fighter program has been its extensive use of concurrency development, in which the system is procured before it has been independently tested and evaluated.  The Pentagon has been trying to reduce concurrency costs by forcing Lockheed Martin, the F-35’s prime contractor, to bear some of the cost-overruns.  As a result, the Pentagon last week announced that concurrency costs associated with the F-35 program had fallen by half a billion dollars.  Still, the Project on Government Oversight’s Winslow Wheeler was not impressed, asserting that “DOD now claims that the added unit costs of fixes to concurrency screw ups is now $500 million less than was predicted earlier, even if those costs are unknown and will remain so until the end of initial OT&E in 2019 and operational flying thereafter.” 
 
Concurrency issues are not isolated to the F-35 program.  According to DoD Buzz, Pentagon acquisition chief Frank Kendal has decided to begin full-rate production of the P-8A Poseidon surveillance aircraft before an independent tester has evaluated whether life expectancy requirements have been met.   A summary IG report argues that “additional critical testing should be completed before the full-rate production (FRP) decision” or else it could result in “costly retrofits to meet lifespan and mission and system performance requirements.” 
 
The P-8 program is estimated to cost $34.9 billion for 122 aircraft meant to replace the aging P-3C Orion.  In a report authored by analysts at the Cato Institute and Project on Defense Alternatives last year, the group recommended cutting the number of planned P-8A purchases and instead exploring a more cost-effective mix of other aircraft and unmanned drones.
 
 
Project on Defense Alternatives Perspective
 
“We cannot run the U.S. Navy on fantasy [numbers],” said House Seapower and Projection Forces subcommittee chair, Rep. Randy Forbes (R-VA), of the Navy’s Fiscal Year 2014 30-year shipbuilding plan. Of particular concern to Forbes is that the shipbuilding plan would require a nearly 40 percent increase in funding beginning in FY19 compared to the average annual cost in Fiscal Years 2014-2018.
 
An example of just how unrealistic Navy planning is can be found in an item that Forbes reported out of his committee and into the NDAA now being considered on the House Floor:  it increases the cost cap for the first Ford-class carrier by an additional $1.15 billion, bringing the total procurement cost of this ship to $12.9 billion.  By comparison, the last carrier procured, the George H. W. Bush (CVN-77), cost about half as much.
 
Carrier program procurement funding for the next five years (FY14-FY18) is $11.5 billion.  For the previous five years (FY09-FY13) it totaled $8.9 billion, due in part to Pentagon decisions to slow the procurement of the CVN-78 in order to save money.  Now, just when the Budget Control Act forces budget constraints, the Navy plans to increase its average annual bill for building carriers by half a billion dollars. 
 
Carriers are not stand-alone battle platforms.  They require air wings and a variety of ships for their strike groups, including a surface battle component of up to five cruisers, destroyers and/or frigates, two attack submarines, and one or more supply and repair ships.  The total capital investment in a carrier strike group is upwards of $40 billion.
Current law requires the Navy to maintain eleven operational carriers, though Navy planning has the number shrinking to ten for a couple of years before rising again to as high as twelve in FY22-24.  In the House, Reps. Blumenauer and Mulvaney have introduced an amendment that reduces to ten the statutory requirement for operational carriers.  The Project on Defense Alternatives, Cato Institute, and Sustainable Defense Task Force have all advocated reducing the carrier fleet down to eight or nine vessels.
 
For a variety reasons that are not primarily budget-related, this is an excellent time to reduce the number of carrier strike groups in the Navy.  The surface component of a carrier strike group is a non-stealthy very high-value target for the increasingly sophisticated missiles of potential opponents, leading combatant commanders to adopt potentially destabilizing offensive counter-measures sometimes involving provocative deployment postures during crises.  In addition, more and more of the carrier strike group’s military capability is dedicated to anti-missile defense.
 
Carriers last about forty years, but the Ford-class supercarriers will likely be obsolescent within twenty when a naval air wing may be composed of as many unmanned as manned aircraft.  The optimal carrier design (and operational doctrine) for that future wing configuration will almost certainly be very different than that of the Ford-class.  In the meantime, the United States should build the minimum number of these legacy carriers that will allow the US to keep 9 or 10 carriers operational – ending planned procurement of this version with the commissioning of the CVN-78 later in this decade or the CVN-79 in the late 2020s.
 
 
News and Commentary
 
“America likes the idea that we have made a solemn promise to generously compensate our military service members. After all, the argument goes, how can we ever fully repay them for risking their lives for us? Providing  benefits like low-cost premium health care, comfortable pensions, housing allowances, grocery discounts, tuition assistance, tax breaks and much more, feels like the right and honorable response… Americans view it as their obligation, as well, to take exquisite care of those personnel and their families after they return from combat. There is, however, another unspoken contract between Americans and our forces in uniform: we will make sure you get the best weapons and technology, along with the best intelligence, training and logistics money can buy. The goal is simple: we want to ensure you are never in a fair fight. Should fighting start, we tell them, we’ve done everything we can to make sure the enemy will die and you will live.”  (6/13/13)
 
TIME: When Will the Contractors Contract? – Chuck Spinney
“Neoliberal economics has been an ideological mantra of Republicans and Democrats alike since President Jimmy Carter began the wave of privatization that exploded during the succession of Republican and Democratic presidencies after 1980. The central premise of the dogma is that the private sector can do just about anything more cheaply and more efficiently than the public sector (perhaps even the conduct of war, if the rise of mercenaries is any indicator).”
 
“The U.S. military has still not fully planned or accurately calculated the cost of repositioning Marine Corps forces in the Pacific, despite warnings from Congress, according to a report by federal auditors published this week. The Government Accountability Office found that no master plan exists, and the current $12.1-billion price tag omits many of the expenses that must be included in moving Okinawa-based Marines to Guam, Hawaii, Australia and the U.S. mainland. It is the second GAO report since 2011 to warn that what may be the largest shift in military forces in the Pacific since World War II should be better planned. The report was prepared for Congress, where senators have frozen all Pacific realignment funding for several years while demanding the Department of Defense draft a master plan and better cost estimates.”  (6/12/13)
 
“It’s an old battle: executive branch expertise on how it thinks taxpayer dollars should be spent versus the congressional power of the purse. This story plays out often in the yearly authorization and appropriations bills for the Department of Defense. This year is not any different as a White House statement from Tuesday makes clear. Here is how this usually works: The Pentagon and the White House submit a budget request to Congress. That budget assumes the cancellation and phase-out of certain weapon systems and eliminates funding for them… In response, Congress, or at least certain members of Congress, do not agree with the executive branch’s decision for a range of reasons. They range from legitimate disagreements to less-principled ones involving homestate jobs to campaign contributions from interested parties.”  (6/12/13)
 
“Lawmakers want to push the services to agree on a common combat camouflage uniform. The move is being considered because the military services currently field 10 different types of camouflage uniforms, up from only two as recently as 2001. Now, the Army — the largest of the services — is considering yet again replacing what it is using. Consolidating the number of uniforms, which would affect almost all of the 2.2 million men and women in the active and part-time armed forces, could save up to a quarter of a billion dollars, according to proponents. But it also could alienate many uniformed troops and be a blow to the morale of the different services at a time when the military community is already reeling from deep budget cuts and a series of sexual-assault scandals.”  (6/11/13)
 
“A senior HASC aide acknowledged last week that, by budgeting to a level so much above sequester levels, lawmakers are operating in a ‘fantasy world.’ Like Obama, lawmakers are presenting Pentagon budget plans that could only be implemented after Congress and the president strike a sequester-canceling ‘grand bargain’ fiscal deal this summer. But there’s no deal in sight. Former officials tell Defense News this ‘fantasy world’ mindset, and a political objective held by Republicans and Democrats to ‘screw’ the other party, means another sequester cut starting Oct. 1 is likely.”  (6/10/13)
 
“The Pentagon has been paying hundreds of millions of tax dollars a year to people and companies that don't deserve it, but its financial management shortcomings are so severe that it's made little progress in halting the errors or even measuring their magnitude, according to a report released by a Senate committee Thursday. Although the Defense Department reported making over $1.1 billion in overpayments in FY 2011 to military personnel and retirees, civilian defense workers, contractors, and others, investigators from the Government Accountability Office said that figure is not credible due to missing invoices and other flawed paperwork, as well as errors in arithmetic.”  (6/7/13)
 
New York Times: Skepticism Over U.S. Involvement in Foreign Conflicts – Mark Landler, Allison Kopicki
“Americans are increasingly skeptical about whether the United States should thrust itself into conflicts overseas, according to the latest New York Times/CBS News Poll, but that reluctance does not extend to preventing Iran from obtaining a nuclear weapon. After 12 years of war and amid signs of a sustainable economic recovery, nearly six in 10 people said the United States should not take a leading role among all other countries in trying to solve conflicts, the poll found, while only about a third said it should remain at the forefront.” (6/6/13)
 
Foreign Policy: The 7 Deadly Sins of Defense Spending – David Barno, Nora Bensahel, et al.
“The Department of Defense faces a stark budgetary choice that will profoundly affect the future of the U.S. military. During past drawdowns, DOD chose to save money by cutting force structure, readiness, and modernization, while retaining the fundamental ways in which it does business. This time, however, skyrocketing internal costs are consuming so much of the defense budget that this path would require even deeper cuts to military capabilities. The resulting military would be much smaller and far less capable, and would almost certainly require the United States to change its long-standing global strategy. Another, more difficult path exists, which preserves as many capabilities as possible by addressing the underlying causes of DOD cost growth. It involves reforming the structural underpinnings of the department, adopting modern business and personnel practices, and eliminating excess capabilities. This path requires difficult and unpopular decisions, but it would preserve a strong and highly capable U.S. military and thereby sustain the current global strategy for years and even decades to come.”  (6/6/13)
 
“Despite more than a decade of tortured development that has seen repeated delays, cost increases, performance downgrades and groundings owing to technical flaws, the F-35 — history’s priciest weapons program — survives and even thrives, continuing to receive no less than $10 billion a year from a cash-strapped Pentagon. Lockheed’s PR efforts no doubt help protect the Joint Strike Fighter… Piecing together the endorsement requests, government lobbying, donations and pro-F-35 blogs helps explain how the much-criticized F-35 stays flying.”  (6/5/13)
 
 
Reports
 
 
 
 
Department of Defense: Base for Reprogramming Actions (June 2013)
 
 
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