As discussed here previously, Mark Cancian of the Center for Strategic and International Studies has helpfully organized a spreadsheet of critical defense reform issues identified during expert testimony before the Senate Armed Services Committee (SASC) as part of its Goldwater-Nichols review. One of Cancian’s nine broad reform categories deals with the need to reform defense agencies and reduce overhead at the Department of Defense. However, while offering some sound recommendations, the experts also missed some opportunities that could fundamentally change how the Pentagon functions.
As far as reducing overhead is concerned, several experts agreed on the necessary course of action: BRAC. The Base Realignment and Closure process was the mechanism installed at the end of the Cold War to do away with excess military infrastructure in an apolitical fashion. As former Undersecretary of Defense for Policy Michelle Flournoy explained in highlighting the need to reduce infrastructure:
[D]espite repeated testimony on the part of the Service Chiefs that an estimated 20% of the current defense infrastructure is excess to military need, despite numerous [Government Accountability Office] reports assessing that previous Base Realignment and Closure (BRAC) rounds have saved billions of dollars, and despite repeated requests from the last several Secretaries of Defense, Congress has not given [the Department of Defense] the authority to conduct another round of BRAC. The time for studying this issue has long past; what’s needed now is Congressional action. While I understand the difficult politics surrounding base closures and the potential impact on local jobs, I lament the fact that billions of dollars are being diverted from strengthening military readiness and investing in critical warfighting capabilities in order to sustain facilities and bases the military no longer needs or wants. Every dollar we spend on unwanted infrastructure is a dollar less to support the men and women who serve in harm’s way.
Despite the exhortations of Flournoy and others, however, BRAC remains a non-starter on Capitol Hill—with Republican Senator Kelly Ayotte including a prohibition on it in her subcommittee’s markup of the fiscal year 2017 National Defense Authorization Act. The reason behind congressional intransigence on BRAC is the same reason the process was necessary in the first place. Legislators fear that should military bases in their home states and districts be closed, the resulting lost jobswill hurt their chances at reelection. While the initial BRAC rounds saved a great deal of money during the post-Cold War defense drawdown, a 2005 round provided fewer savings—taking place as it did during the mobilization for the wars in Iraq and Afghanistan. The last BRAC therefore provides a convenient excuse for members of Congress to oppose potential base closures without having to cite obviously parochial concerns.
Though BRAC may be off the table for the foreseeable future, reforms need to look elsewhere to reduce overhead and the seventeen defense-wide agencies at the Pentagon provide an opportunity to do so. In fact, Secretary of the Navy Ray Mabus referred to several of these agencies as “pure overhead” in a discussion at the American Enterprise Institute in 2015. Secretary Mabus complained about the added costs the Navy incurred buying oil at above market prices from the Defense Logistics Agency (DLA) and the $300 million he claims the service paid to have the Defense Finance and Accounting Service write checks for them.
In an epic story released just after Christmas last year, Politico’s Bryan Bender exposed even more egregious examples of wasteful overhead at the DLA. Bender noted $9 million dollars worth of unneeded spare parts the DLA purchased for the V-22 Osprey and $700,000 it would pay over five years when it purchased around 166 spare airframes even though only 2 are needed each year. He further cites a 2010 Government Accountability Office report that found a three-year average DLA was $7.1 billion more than required.
Several of the recommendations to address problems like these center on either adopting practices from private business, or bringing more leaders from private industry to run Department of Defense agencies. For example, in his testimony, aerospace executive and former undersecretary of the Army Norman Augustine bemoaned policies that “strongly discourage” industry leaders from government service. Similarly, Flournoy complained that “[SASC] has imposed restrictions on incoming DoD political appointees that make it virtually impossible to recruit people with the kind of business and management expertise the Department desperately needs to improve its performance and efficiency.” Arnold Punaro, a former SASC staffer and retired major general in Marine Corps reserve, made similar comments to Bender about the failure of defense agencies to institute business practices, run as they are by three star generals with no private sector experience.
There is a slight problem with this diagnosis though: the Department of Defense is not a business. Industry leaders have served in numerous positions at the Pentagon with a mixed a record. Former Secretary of Defense Robert McNamara, who consolidated many of the DLA’s functions in its predecessor, the Defense Supply Agency, was one of the leading industry executives in the country at Ford Motor Company prior to his time in government. As discussed on numerous occasions, McNamara brought with him the state of the art in business practices to the Pentagon and the results have proved wanting. Donald Rumsfeld too was CEO of several companies in between his two stints as secretary of defense.
This is not to say that industry leaders and business practices have no place in defense administration, but it suggests that the overhead Mabus bemoans and the problems Bender identifies are more fundamental to government administration. And the latter’s story contains a passage that indicates why. In referring the excess inventory mentioned above, Bender writes, “Translation: Half of what the DLA has purchased may never be used. Wal-Mart, by comparison, turns over it entire worldwide inventory eight times a year.”
There is a reason Wal-Mart turns its inventory over so frequently, and it is the same reason why industry leaders and practices can only bring so much to defense administration: market demand. Wal-Mart is the largest corporation in the world because it serves millions and millions of customers who continually buy its products. The DLA does not. Wal-Mart is responding to the continual demand for what it supplies. The DLA is not. Wal-Mart is receiving consistent market feedback on its practices for supplying those products. The DLA is not.
Punaro may be entirely correct that defense agencies like the DLA—or the Defense Health Agency or Missile Defense Agency—are run inefficiently because they have failed to adopt modern business practices. But what incentive do they have to do so? And what incentive do they have to change when a practice become obsolete? An enlightened business leader may bring some efficiency to the process, but what happens when he or she leaves? Moreover, as government agencies, Pentagon administrative agencies are subject to a political process that often mandates practices that then makes them even harder to change when they become outdated.
There are no easy answers to those questions, and there is no way to guarantee that any organization—business or government—gets things right every time. But while market discipline is difficult to achieve in bureaucracies, quasi-market competition among agencies can provide some degree of feedback on best practices. For example, in his testimony before SASC, John Hamre of the Center for Strategic and International Studies argued that the DLA should combine with the U.S. military’s Transportation Command. According to Hamre’s testimony:
50 years ago, American corporations had separate warehouse departments and transportation departments. Now every successful corporation has combined these two functions. Yet we in DoD have stand-alone organizations that do transportation and depot warehousing. I hear all the time the tired argument of defenders of our current system that our demands are different—that our forces are moving and we can’t use a Walmart model. I think that is absolute nonsense.
Hamre’s suggestion is sound. But the question remains, what is likely to make the military adopt the type of practice he recommends? And more importantly, what will induce change if the practice proves wanting? As Hamre himself notes, separating warehouse and transportation functions were a common practice in the business world. But companies like Wal-Mart found a better way of operating. They are likely to again at some point. Congress could simply mandate the Department of Defense implement what is today’s best practice in the business world, but that will leave little flexibility should a new, better practice emerge in the future. Instead, introducing some form of competition within the bureaucracy provides a basis for comparison, and increases the likelihood that agencies will adopt better practices. Unfortunately, none of the experts who testified before SASC made such a recommendation.