In an address last month at the Atlantic Council, Secretary of the Air Force Deborah Lee James announced a new service initiative to rein in spiraling procurement costs. According to a write-up on the announcement by Sandra Erwin of National Defense, the reform effort is “less ambitious than past efforts and focuses on how to communicate better with contractors.” Unfortunately, even taking into account the limited scope of the program, it is unlikely to succeed.
The new “Bending the Cost Curve” initiative aims to cultivate better communication between the service’s program managers and the private sector. The hope is that better communication will provide program managers with more information on new technology and market conditions before purchases are made. In staying abreast of new information in these areas, James believes that the Air Force can “accelerate the pace of innovation”—which the current system tends to stifle. The ultimate goal is to allow for better estimates of how much a program costs up front and to avoid cost overruns during the development.
These are reasonable goals, but the new initiative is likely to end the same way similar efforts have in the past. As discussed on this blog previously, the problems driving up acquisition costs and stifling innovation are systemic.
As Erwin notes, “Pentagon leaders in recent decades—like former Secretary of Defense Robert Gates and others—sought, mostly unsuccessfully, to change a procurement culture that seeks ‘exquisite’ weapons even when there are less expensive options that meet most of the requirements.” But because weapon systems will continue to take so long to develop, the services have every incentive to continue reaching for “exquisite” technologies that drive up program costs. And with the lack of competition between the services, there is little incentive for them to provide civilians with information on the flaws or failures of weapons another service is seeking—as well as little incentive to change the status quo through innovation.
On the industry side of the equation, greater communication will not remove the incentive to lowball initial bids. The defense industry is monopsonistic, with multiple sellers interacting with a single buyer. This system creates a great deal of risk for the companies involved. They underestimate costs in the beginning to secure contracts and then recoup their investment later in the development phase, once the Pentagon and Congress have themselves invested in the program. While no one should shed tears for defense contractors, absent the ability to make a profit on the back end of a program, many might consider exiting the industry. Greater communication does not remove that risk, and thus does not remove those incentives. Moreover, closer relationships between program managers and defense contractors may lead to industry capture and the opposite effect as James’ initiative intends.