Gates Cost-Cutting Crusade Would Benefit From More Use Of Performance-Based Logistics

Like Greece, Spain and the state of California, the Department of Defense (DoD) is on a crusade to reduce its overhead costs. The Secretary of Defense, Robert Gates, has set a target of reducing his department’s overhead expenses by $10 billion. With overall defense spending expected to decline and fixed expenses within the defense budget rising, the only way to find the money for maintaining and modernizing the force is by generating internal savings. Secretary Gates wants to cut headquarters staffs and reduce layers of management as a way of saving money. He would also like to eliminate what he sees as unnecessary and wasteful spending on programs such as the second engine for the F-35 fighter.

If the Secretary really is serious about saving money he should reduce DoD’s drive to insource work currently being done by the private sector and expand the use of Performance Based Logistics (PBL). Last year, Secretary Gates went on a crusade to reduce the department’s reliance on private contractors and increase the number of government employees involved in oversight, management and planning of defense activities and procurement programs. This policy flies in the face of his current interest in shrinking the size of staffs in order to save money. It doesn’t seem possible to both insource work now done by the private sector and also reduce staffs to save money.

The department has also gone on something of a “jihad” against PBL. Despite clear evidence that PBL works and that it improves the performance of both the public and private defense industrial bases, DoD components are using the Secretary’s directive on insourcing to bring work successfully performed by collaborative public-private teams back within the government. These insourcing decisions are often based on incomplete or even suspect cost analyses.

The new Lexington Institute study, Back to the Future – The Perils of Insourcing, clearly demonstrates that insourcing is a direct path to higher defense costs, reduced performance and less support for the warfighter. The data shows that it’s the private sector that knows how to reduce costs and improve performance. Well-structured support contracts employing PBL standards and methods save money, improve readiness and increase weapons system availability to the warfighter. According to a study by the Aerospace Industries Association, a review of some 220 ongoing PBL agreements concluded that these efforts have demonstrated material availability above 95 percent and commercial, world-class response times of 2-4 days (versus a DoD average of 16 days). Moreover, for a selected subset of 30 programs, the association was able to document an average cost reduction of 11 percent

Secretary Gates should be applauded for his focus on reducing DoD’s overhead costs. But he needs to get control over his subordinates and put a halt to the ongoing orgy of insourcing. Moreover, he should embrace the recommendations of the DoD Weapons System Acquisition Reform: Product Support Assessment and improve the way the department manages its PBL agreements rather than reducing their number and insourcing work that can and should be done by private-public teams.