With the latest National Defense Authorization Act (NDAA) heading to conference, acquisition reform is getting a great deal of attention. The House version of the bill includes proposals crafted by House Armed Services Committee Chairman Mac Thornberry, which take a gradualist approach to reform. The Senate version includes Senator John McCain’s farther reaching proposals, which would devolve some authority over the management of weapons programs from the undersecretary of defense for acquisition, technology, and logistics—the Pentagon’s chief weapons buyer—to the military service chiefs.
Needless to say, Frank Kendall, the man who currently holds that position, is not pleased with the latter proposals. Unfortunately, his critique of McCain’s reforms, while valid in some ways, misses the real problem: the senator does not go far enough.
In an interview with Colin Clark of Breaking Defense, Kendall argued that now, with the defense budget constrained by Budget Control Act spending limits, is the “worst time” to shift authority away from his office to the services. In what Clark described as at times an “emotional” interview, the undersecretary complained:
The thing that bothers me the most about the SASC [Senate Armed Services Committee] bill is that it destroys my ability to lead. I’ve been really trying hard to lead from this office for five years. And that act will destroy my ability to lead the department in acquisition because it will move decision making to the services. They will be able to ignore me and it will send a very, very strong message to the departments that I am not in charge anymore.
While such a statement can easily be read as a bureaucrat bemoaning the loss of power over his fiefdom, Kendall understandably wants to finish what he has started. He has initiated a series of efforts, such as the recently released Better Buying Power 3.0, to keep costs down. And by all accounts, Kendall is as smart and capable a leader as the Department of Defense could ask for. For instance, he understands that most past acquisition reforms—whether they increased or decreased regulation, altered contract types, or imposed risk-mitigation strategies—have mostly gone for naught.
The problem, however, is that Kendall believes that maintaining centralized authority over program management is a better way to address problems such as cost overruns and schedule delays. The truth is that neither McCain’s proposals nor the status quo will change the incentive structure. For instance, Kendall rightly argues that the services want to buy as many weapons as they can as quickly as possible. This desire leads them to offer overly optimistic estimates of a program’s acquisition cost. According to a recent study from the Institute for Defense Analysis (IDA), this tendency is worse during times of budget constraint because the services have to lowball their estimates even further. Kendall believes that McCain’s proposed 3 percent penalty for cost overruns will not have the desired disciplining effect because it will not kick in until years after the decision to move forward on a program is made.
These are all useful critiques, but there are several missing pieces. For example, if the tendency of the services to offer overly optimistic cost estimates is a constant, then it means lowball estimates are being made both when budgets are tight and when the Pentagon is flush. Moreover, the tendency during flush times is to start as many programs as possible and then to fight to maintain them when spending is constrained. So when Kendall says that now is the “wrong time” to devolve more program authority to the services, he is really saying it should never be done.
Unfortunately, the status quo does nothing to ameliorate that problem either. The current centralized acquisition system also creates information gaps between the organizations that will ultimately use the weapons and the one approving decisions to purchase them.
But Kendall is also likely right that McCain’s proposed 3 percent penalty will do little to encourage more realistic upfront estimates. There is a better way, however, to ensure the military services are held accountable: make them compete with one another for budget share. Until service budgets face the real threat of losing resources to another service as a result of continued acquisition problems, the services have little incentive to realistically estimate program costs. Moreover, when services work together, their unified front makes it much harder to cancel programs that face frequent overruns and delays. A service is more likely to provide information about problems with another service’s programs if the first believes it can garner a bigger budget as result. This would enable more effective oversight.
Kendall correctly identifies one of the inherent problems with defense acquisition, as well as important issues with Senator McCain’s attempt to fix it. Unfortunately, while Kendall seems to understand the structural incentives that encourage lowball estimates, he ignores that the status quo does little to address them. The real problem with McCain’s proposals is not that they go too far in bringing the military services back into the acquisition process, but that they do not go far enough.