Performance-Based Logistics: A Primer for the New Administration

Research Study

President Obama faces a crisis in security as daunting as that in the economy. Simply stated, the costs of operations and support – in essence, the day-to-day costs of running the U.S. Department of Defense – are eating up the defense budget. Operations and support costs now account for two-thirds of all defense expenditures and show every indication of continuing to rise. At a time when the new administration appears on a path to decreasing future defense spending, it must figure out ways of economizing while maintaining a strong military.

One way of reining in defense spending is to adopt more economical ways of maintaining the vast array of hardware the military operates. In 2001, the Department of Defense undertook a radical new approach to reducing operations and support costs for weapons systems. Performance-Based Logistics (PBL) promises a break with the traditional approach to operating and maintaining the military. Performance-Based Logistics focuses on performance outcomes, not the acquisition of individual parts or particular repair actions. Performance outcomes can include delivery time, work-in-progress, and most important, availability of systems and material to the warfighter. Specific contracts to implement PBL, termed Performance-Based Agreements (PBAs), are structured to meet warfighters’ particular needs. Government oversight is still maintained through the program office, but at reduced cost.

To date, most PBAs have proven successful. They have increased markedly the availability of equipment and systems to our military in combat. Greater availability is a force multiplier as fewer items are unavailable. This translates into increased combat power. Performance-Based Agreements also appear to be saving the government money. A study of 23 PBAs showed an average annual savings of $21 million.

In some quarters, PBL is still controversial. The Government Accountability Office has criticized the Defense Department for its failure to consistently conduct business-case analyses to support the implementation of PBL. Critics have faulted PBL for requiring relatively long contract periods that reduce the government’s flexibility in using its resources. Some observers have noted that while PBL can reduce costs, savings achieved by the contractors are rarely shared with the government. These criticisms indicate not that PBL is a bad idea, but rather that on occasion it has not been implemented well.

The Department of Defense maintains hundreds of major weapons systems. Only a small percentage is supported through PBAs. Imagine the impact on the Defense Department’s warfighting potential and budget if the majority of them were maintained and supported through PBAs. In addition, there is the potential to extend PBAs to major logistics support areas such as medical care, water and mail delivery, and humanitarian relief. Additional savings and process improvements could be achieved if PBAs were implemented early in the acquisition process.

The incoming administration can have a significant, early positive impact on national security by directing the Department of Defense to move forward aggressively on PBL. It should also take the necessary steps to educate Congress on the value of PBL and oppose misguided attempts by some members to create barriers to a more efficient logistics system.

This report was written by Dr. Daniel Goure of the Lexington Institute.

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