The Imperative of Defense Reform: Serious Challenges for a Serious SecDef

Editor’s Note: This article is the first in a series of issue papers for the Defense Reform Committee of The Project for the Common Defense.

 

I cannot suggest support and stability for the defense budget without at the same time frankly noting that not every defense dollar is spent as well as it should be. The taxpayer cannot comprehend…cost overruns, lack of accounting and accountability, needless overhead, and the like. This must stop.  – Ashton Carter

 

With his opening remarks last week, the Obama Administration’s nominee to be the 25th Secretary of Defense summarized a towering barrier to our military’s effectiveness. The United States faces daunting security challenges around the globe: rising Chinese aggression in the Pacific, increased instability and terrorist threats in the Middle East, as well as Russian revanchism in Eastern Europe. However, the Department of Defense’s (DoD) Quadrennial Defense Review and more recently, the bipartisan National Defense Panel noted that U.S. military forces will be hard pressed to meet these and other national security challenges in the coming years, largely due to continued shortfalls in investments and the forthcoming sequestration mandated cuts. Thus, there has been a great deal of debate about the appropriate force and funding levels for U.S. ground, air, and maritime forces and capabilities in recent months.

While these issues are extremely important, it is by no means certain that Dr. Carter will be able to move the needle substantially from the strategic and budgetary course that the Administration has set. That being said, he has a real opportunity to make a lasting impact in some essential areas that could put DoD on firmer footing heading into the next presidential administration. Regardless of how budget and force levels are adjusted in the coming years, the development of significant defense capabilities critically depends on the performance of key enabling factors that support the U.S. defense enterprise. Specifically, four crosscutting factors play a large role in helping organizations across the department create the systems that U.S. forces use and determine how effective those forces will operate in various contingencies around the world:

The U.S. defense industrial base, which develops, delivers, and supports the capabilities of the American warfighter;

The defense acquisition system that establishes the requirements for, prioritizes and budgets for, and ensures the delivery of those capabilities;

The security cooperation system, which sets policies for and regulates how we collaborate and share technologies with, sell systems and services to, and operate with our allies and partners around the world; and

The defense business enterprise that comprises the key DoD headquarters and facilities, defense business functions, and support services that undergird the DoD business.

The degree to which these factors are innovative, agile, efficient, and effective will have a significant impact on ensuring that U.S. forces are prepared to address the full spectrum of defense and security challenges in the coming years as well as the overall health of the Department.

Maintaining a robust and innovative defense industrial base

Defense spending has declined over 20% in real terms in the past three years. Sequestration will return in 2016 without further congressional action. This has led to significant perturbations in the industrial base, including: the right-sizing of companies through significant trimming of overhead staff, including engineering and other important talent; mergers and consolidations among smaller and mid-tier defense companies; and substantial decreases in research and development (R&D) in the private sector.

While the full implications of these shifts are not yet clear, the trend lines are concerning. To ensure that the U.S. defense industrial base remains the engine for DoD innovation, defense leaders need to focus on emerging imperatives such as decreasing the barriers for non-traditional defense suppliers (e.g. Silicon Valley tech companies) to tailor commercially-derived technologies for military use as well as creating opportunities for non-U.S. headquartered companies to provide critical capabilities and technologies in support of U.S. forces.

Transforming the defense acquisition system

Reform of the defense acquisition system is a hardy perennial in defense circles. Despite the very best of intentions, however, DoD-led efforts—such as the Better Buying Power initiative—struggle to deliver reform. Instead, Better Buying Power reinforces the persistent tendency of the DoD bureaucracy to add oversight and complexity to the already byzantine acquisition process. Such initiatives continue to foster contracting mechanisms that reward the lowest cost solutions at the expense of the innovation that DoD needs to address complex defense challenges.

What is needed is an acquisition system that encourages the type of rapid innovation and delivery solutions that were developed in the Joint Improvised Explosive Device Defeat Organization (JIEDDO) and the Army’s Rapid Equipping Force (REF), both of which are highly successful organizations created during the wars in Afghanistan and Iraq. These organizations represented true wartime acquisition as capabilities to be developed rapidly and fielded to meet urgent battlefield requirements. The traditional acquisition bureaucracy proved incapable of meeting the compressed timelines or demonstrating the administrative agility needed to meet the challenge. Despite this failure, DoD acquisition has responded with an intense focus on cost and seems to be ignoring the desperate need to understand and incorporate the wartime experiences of JIEDDO and the REF. The recent Defense Innovation Initiative and other potential initiatives should ensure that innovative acquisition approaches fostered by organizations such as JIEDDO and the REF remain central components of the DoD acquisition system while increasing the flexibility of the Defense Federal Acquisition Regulation Supplement to address pressing DoD requirements.

Enabling effective security cooperation with our key allies

While several efforts to reform how the United States works with its key allies and partners are currently underway through the ongoing presidential initiative on export control reform and the recent Vision 2020 strategic plan released by the Defense Security Cooperation Agency, significant challenges remain. For example, despite the transfer of many defense items from State to Commerce control lists, the defense licensing process remains riddled with delays, unpredictability, and unnecessary burdens. The international marketplace has become dramatically more competitive with customers demanding technology transfer so that “buying America” through U.S. Foreign Military Sales (FMS) is no longer sufficient in many markets. Additionally, customer demands for industrial participation are creating significant obligations in many countries while offset policies are often rigid, impractical, and require persistent attention and advocacy.

Addressing these security cooperation challenges will require a significant change in approach and scale. In addition to furthering the current export control reform effort, such as through improved licensing and technology release processes, defense leaders need to take other steps to facilitate closer collaboration with key U.S. allies and partners. They should significantly increase the priority and funding for DoD efforts to develop more innovative business models for international defense sales and to increase the exportability of major defense acquisition programs. Furthermore, by clarifying the roles and responsibilities and potentially streamlining the number of DoD security cooperation stakeholders as well as reviving the interagency task force on offsets, defense leaders can better align U.S. national security and business priorities.

Managing the DoD enterprise

The Department of Defense is the largest governmental organization in the world. In recent years, the department has looked aggressively for efficiencies through cuts in headquarters and other initiatives. While these efforts have made some progress, significant challenges remain: unlike their corporate counterparts, DoD senior leaders do not have effective mechanisms to measure the performance of their organization; the department has a surplus of bases and real estate, estimated in excess of 20% by the Government Accountability Office, which raises the cost of doing business; and transactional costs such as the geographic dispersion of the DoD workforce significantly raise expenses for back office functions such as financial management.

Addressing these enterprise-wide challenges will require the broad scale adoption of private sector best practices such as creating effective performance management measures to help the secretary measure the effectiveness of organizations across the department. While another round of the Base Closure and Realignment Commission remains attractive, DoD should put its efforts into immediate steps to streamline DoD’s real estate portfolio and reduce the cost of excess infrastructure such as consolidating its footprint on existing bases and using existing congressional authority to open up DoD facilities to other U.S. government agencies. Lastly, promoting wide scale adoption of commercial best practices such as shared service centers can significantly reduce cost and increase effectiveness across DoD.

Should Ash Carter be confirmed as secretary of defense, addressing these problems over the next two years will not eliminate the shortcomings in other parts of DoD, but these efforts will improve how the Pentagon conducts its business, whatever the force or budget level. Fortunately, he has a deep background and a solid track record in all of these areas, but the twilight of the Obama administration will place an urgent need to make demonstrable progress before 2017. Thus, it is imperative that departmental leaders make real progress in order to foster innovation in the defense industrial base, ensure that a nimble acquisition system deliver the right capabilities at the right time, promote effective security cooperation efforts, and make the defense enterprise effectively support the warfighter in garrison or overseas.

 

Dr. Jerry McGinn is Chairman of the Defense Reform Committee of the Project for the Common Defense and President of McGinn Defense Consulting LLC. He has held numerous senior roles in industry, government, think tanks, and the military during the course of his career in national security affairs.

Stephen Rodriguez is Managing Partner of Coldon Strategic Advisors and specializes in running growth-stage, venture-backed investments. He serves on three corporate boards, is a Term Member at the Council on Foreign Relations and President of the Foreign Policy Initiative’s Leadership Council.

Peter Lichtenbaum is a partner at Covington & Burling LLP and co-chairs the firm’s international practice. He formerly served as Vice President at BAE Systems, Inc. and as Assistant Secretary of Commerce for Export Administration.