Who Really Is Responsible For The Deteriorating Relationship Between The Pentagon And Industry?

Over the past four years, the relationship between the Department of Defense (DoD) and the industrial base that exists to serve it has devolved into something akin to a Cold War. What began as an effort by the Obama Administration to rationalize DoD’s modernization program, rein in the costs of major weapons systems and reform the acquisition system so as to achieve better buying power for each defense dollar has morphed into something quite different, sometimes ugly and certainly not good for national security.

So bad has the relationship become that neither side tries any longer to pretend that the breach doesn’t exist. The Air Force has been particularly virulent in its criticisms of industry. In a speech at last year’s Air Force Association’s annual conference, then-Air Force Chief of Staff, General Norton Schwartz described the deteriorating government-industry relationship thusly: “The gravity of this situation reminds me of the old allegory of the scorpion and the frog that meet on the bank of a stream.” At this year’s AFA conference, Air Force Major General Christopher Bogdan, nominated to be the head of the F-35 Joint Strike Fighter Program Office, declared the relationship between his organization and Lockheed Martin, the company leading the effort to build the three-in-one airplane to be “the worst he has ever seen.” Late last year, Major General Wendy M. Masiello, Air Force Deputy Assistant Secretary for Contracting, spoke to an industry group about a “culture of excess” in which some companies were earning excessive profits and spending money on plush carpeting and leather sofas.

In fairness, these Air Force leaders are expressing views that are widely held throughout DoD. The attitude of many in the Pentagon is that defense contractors promise more than they deliver, do it slowly and at an exorbitant price. There is more than a grain of truth to support such an attitude. The list of major acquisition programs that went over their budgets and schedules or were cancelled outright over the past twenty years is quite long.

However, that is only half the story. Seen from the other side of the iron curtain that now separates the two parties, DoD has done much to create a dysfunctional and even hostile environment. For a start, how about tolerating an out of control requirements process? In a rare moment of candor, an Air Force general involved in the acquisition system described the situation in a public briefing this way:

• Our acquisition system drives Materiel Development Decisions before thorough review of the cost effectiveness and FYDP affordability of the system.
• Programs with questionable or unsupportable strategies often reach key milestones before senior leaders develop a consensus of support.
• We no longer compare the operational effectiveness with the incremental cost of requirements.

Perhaps even more significantly, the administration’s acquisition reform efforts have done much to poison the well. We can start with the policy of insourcing which was supposed to be focused on activities that were inherently governmental in nature but expanded to include virtually any support service performed by the private sector that DoD officials claimed could be done at a lower cost by government employees. Never mind that the analyses to support insourcing decisions were almost never based on a credible business case analysis. Then there were changes to acquisition laws, regulations and policies that, inter alia: 1) increased the role of the government-owned defense facilities in weapons systems maintenance; 2) asserted the Pentagon’s right to cost and pricing data for and the intellectual property associated with commercial items used in or modified for military systems; 3) demanded that private companies assume an unprecedented level of financial risk for major weapons systems development programs, and most recently; 4) directed acquisition officials to negotiate labor and overhead rates for future contracts based on the levels that existed in 2010. Finally, DoD has imposed on industry additional layers of oversight, new reporting requirements and legal constraints that slow the rate of progress and increase the costs of programs. One senior defense industry executive described the situation this way:

“We’re encountering a slew of new regulations, rulings and procedures government-wide that were intended to save costs but are, in fact, increasing complexity, increasing reporting requirements, increasing costs for contractors and the department, and that appear, taken as a whole, to reflect a deliberate effort to shift risk to and reduce profits for contractors.”

Some defense officials, both civilians and in uniform, would like to ascribe the current adversarial relationship solely to industry. In truth, DoD bears more than an equal share of responsibility for the problem. The Pentagon is a monopsony buyer with the power to change requirements, production levels or funding for programs at the drop of a hat. The department had failed to clean up its part of the acquisition mess, seeking instead to place the burden of improving performance and reducing costs on industry. No wonder the private sector feels, as one executive put it, that “we have a bull’s eye painted on our back.”