war on the rocks

If You Want More Defense Innovation, Spend Less on Legacy Platforms

August 20, 2018

An important effort, led by the Senate Armed Services Committee, to address an alarming shortfall in defense research and development investment by changing the “acquisition system’s ‘rules of the game’” is bound to fail. Why? Because a resource problem can’t be solved by changing organizations and processes. If the Department of Defense is spending too much money on legacy weapon systems and too-big-to-fail successors to those systems, the answer is not to change processes. The answer is to buy different things. The shortfall in defense innovation is not a problem of organization and process, it is a problem of resource allocation — and it won’t be solved without making new and different resource choices.

Acquisition Process Solutions

The problem is real: The U.S. military is at risk of losing its technological edge, because it continues to spend the vast majority of its investment funds on 20-year programs to build unimaginative successors to legacy systems, while China and Russia are rapidly developing and fielding disruptive new technologies. In the last administration, Undersecretary of Defense Frank Kendall said that U.S. technological superiority was at risk because the small number of new U.S. weapon programs initiated in a period of extremely tight budgets did not match up well against the rapid modernization program undertaken by the Chinese.

Against the background of revitalized military competition from China and Russia, the United States has devoted fewer and fewer resources to defense innovation. After more than a decade and a half of largely uninterrupted military operations in Afghanistan and Iraq and the imposition of sequestration-driven budget limitations, the Congressional Research Service reported in July that the Department of Defense spent fewer dollars on research and development contracts in Fiscal Year 2017 than it had in FY2000. As a percentage of overall contract spending the decline was eye-opening: The report found that research and development spending dropped from 17 percent of total contract dollars in 2000 to just 8 percent in FY2017.

Sen. John McCain attacked the issue with his signature energy in a 2015 speech to the Chamber of Commerce, declaring that the American military had become “larger but less capable, more complex but less innovative, more proficient at defeating low-tech adversaries but more vulnerable to high-tech ones.” As a result, he concluded, “the Pentagon faces an emerging innovation gap.” Executive branch leaders soon endorsed the concern, telling McCain’s committee that their top priority would be to “reverse the decline in technology overmatch” and “regain our nation’s technological edge.”

As McCain saw it, the technology shortfall was the result of a “broken acquisition system, with its complex regulation and stifling bureaucracy,” which prevented the department from accessing critical technologies. “We will never stay ahead of our adversaries,” he told the Chamber of Commerce, “with an acquisition system in which it takes years just to fill out the paperwork for a new capability.” The solution to the innovation gap, in McCain’s view, was acquisition reform.

Under McCain’s lead, Congress enacted a series of organizational and process changes designed to streamline the defense acquisition process. The legislative reforms included the creation of the new position of undersecretary of defense for research and engineering, the delegation of gatekeeping authority for major weapon systems to the military services, and multiple avenues for expedited contracting, including the expanded use of commercial contracts and other transaction authority. The new undersecretary, the congressional report on the 2017 National Defense Authorization Act asserted, would be more likely to “take risks, press the technology envelope, test and experiment, and have the latitude to fail, as appropriate.”

With the change in administrations, the Defense Department jumped aboard the acquisition reform bandwagon. In April 2018, Secretary of Defense Jim Mattis told the Senate Armed Services Committee:

The Department is transitioning to a culture of performance and affordability that operates at the speed of relevance. … A Defense Acquisition System that facilitates speed and agility in support of mission accomplishment is key.

Senior acquisition officials echoed this message, asserting that they were moving in the direction of “faster innovation, experimentation, demonstration, and rapid prototyping,” with the understanding that “it’s okay to fail early—and quite frankly, often.”

The Defense Department not only endorsed the McCain reforms but proposed additional changes of its own. The Army spent the better part of a 2018 working to establish a new Futures Command to “consolidate the service’s modernization enterprise under one roof.” The Navy established an Accelerated Acquisition Board and a Maritime Accelerated Capability Office to “leverage technological innovations.” The Air Force promised to seek more authorities from the Defense Department and delegate them to “empowered program managers” to “deliver capability from the lab bench to the warfighter faster than ever.”

In 2018, a congressionally-chartered acquisition reform panel — the so-called “Section 809 panel” — added its voice to the mix, announcing that “the Defense Acquisition System requires greater speed and ability to be responsive in a dynamic environment.” In January, the panel proposed streamlined commercial purchasing statutes and reduced contract audit requirements. In July, it suggested that the department should abandon its existing “program-centric” management structure and adopt a new “Capability Portfolio Management” approach to defense acquisition.

As is to be expected, these reforms carry both potential benefits and significant risks. For example, the delegation of acquisition decision-making authority to the military services could reduce bureaucracy, but also risks undermining the disciplined acquisition process that has dramatically reduced cost overruns on major weapon programs in recent years. The new rules for commercial items and other transactions provide an important tool for developing and acquiring cutting-edge technologies from unconventional sources, but could also be subject to abuses of the kind seen 15 years ago when the Army decided to use one of these streamlined arrangements to spend billions of dollars on the never-delivered Future Combat System, and again earlier this year, when the Defense Department tried unsuccessfully to purchase a billion dollars’ worth of commercial cloud services under a similar arrangement.

The Need for Flexible New Funding

Even if the recent rounds of acquisition reform can be implemented without unintended side effects, however, they will not address the underlying problem of defense innovation. Defense officials and congressional leaders alike have stated that U.S. military needs more innovation, experimentation, demonstration, and rapid prototyping. The obvious way to achieve this objective is to spend more money on innovation, experimentation, demonstration, and prototyping. If the Pentagon needs the flexibility to take risks and try lots of new things with a willingness to fail early and often, then the department needs a flexible funding source that allows it to devote money quickly to promising new projects — and withdraw money from the projects that fail.

In 2016, Congress established a “rapid prototyping fund” to provide for the rapid development of fieldable prototypes to demonstrate new capabilities and innovative technologies. A substantial commitment of resources in this fund — and the establishment of other, similar flexible funding approaches — would show that the defense establishment is serious about innovation.

An investment of $5 to $10 billion a year in flexible funding lines for rapid innovation and prototyping, for example, should enable the Defense Department to initiate as many as 20 to 30 innovative technology demonstration projects per year and even to transition the more successful projects into production and fielding. This level of investment would do far more to close the emerging “innovation gap” than any change in acquisition rules or reshuffling of the acquisition deck chairs in Defense Department headquarters organizations.

Unfortunately, that is not the direction that either Congress or the Pentagon has been going. Only $100 million per year has been budgeted for the rapid prototyping fund, and the department has reportedly been slow to obligate even this small amount of funding. The military services have touted a handful of rapid prototyping projects of their own, but these, too, appear to amount to just a few tens of millions of dollars — far short of the investment needed to move the needle on defense innovation.

Similarly, every year since FY2012, the department has requested a modest amount of money, generally $100 million, to fund high-priority innovation programs known as Joint Urgent Operational Needs for the next year. Such funding would have provided flexibility to respond to developing threats and deploy new technologies to meet the needs of deployed troops, especially in Afghanistan and Iraq. However, Congress has never supported even this relatively small effort to fund innovation directly related to ongoing operational challenges, insisting on the slower and less agile reprogramming route to fund such new ideas.

The Same Old Resource Decisions

Instead of funding innovation, Congress and the Pentagon alike have continued to pour money into legacy weapon systems and long-standing successor programs. Faced with the consequences of sequestration-level budgeting from 2012 to 2017, Congress made a bad problem even worse by insisting on delayed retirement and continued robust funding for aging weapon systems that the Defense Department sought to divest, like the A-10 attack aircraft, AWACS and JSTARS command-and-control aircraft, F-18 fighter aircraft, Global Hawk unmanned aerial vehicles, and U-2 reconnaissance aircraft, adding funding for legacy ships and airplanes, and largely rejecting innovative proposals like the Pentagon’s phased cruiser modernization plan.

Presented with a $55 billion windfall by the budget agreement of 2018, the defense establishment opted again to bet big on the legacy force and not on innovation. The revised Pentagon budget added $20 billion for operation and maintenance and $25 billion for equipment procurement, including increases of $3.4 billion for shipbuilding, $9.5 billion for aircraft, and $1.6 billion for missile defense — leaving just $10 billion for everything else.

The decision to increase the size of the Army and pursue a 355-ship Navy, like earlier decisions to retain and recapitalize legacy platforms, will undoubtedly ease stress on the force and increase our ability to project power and meet national security objectives in the short- to medium term. However, the tens of billions of dollars required to sustain added force structure and legacy systems will strain even an increased defense budget for the foreseeable future, placing a tight squeeze on the resources available for the innovation that has been promised by Congress and the Pentagon.

The revised Pentagon budget added several billion dollars of research and development funding — but almost all of this money went to development costs for ongoing major weapon programs like the F-35 Joint Strike Fighter, the new Air Force bomber program, the JSTARS recapitalization program, and the Ohio-class submarine replacement. Only $120 million was added for science and technology, and no funding at all was added to the rapid prototyping fund.

The allocation of research and development funding pursuant to the 2018 budget agreement is symptomatic of a long-term deficiency in the funding of research and development in the Department of Defense. Every year, the department spends about $50 to $60 billion on the advanced component development and prototypes, system development and demonstration, and operational systems development that are needed to mature technology to the point where it can actually be fielded. However, almost all of this advanced development spending is devoted to major defense acquisition programs — the huge investments that the department makes in new weapon platforms.

For example, the $35 billion Air Force budget for advanced development in FY2019 included $23 billion for operational systems development on existing weapon platforms and $5 billion for the systems development and demonstration of ongoing major defense acquisition programs. The remaining $6.5 billion was committed to advanced component developments and prototypes — but almost half of this money was dedicated to the next-generation bomber and the next-generation fighter, and much of the remainder was dedicated to major satellite programs and other large follow-on weapon systems.

As Ben FitzGerald, formerly of the Center for a New American Security, pointed out in a 2016 paper, the Defense Department’s failure to adopt a diversified investment strategy has led to an increasing reliance on “capability monocultures and an ever-dwindling variety of weapons systems, procured at higher prices and in lower quantities than ever before.” Unfortunately, FitzGerald backed away from advocating hard decisions to shift funding away from traditional weapon platforms, suggesting instead that a “new acquisition pathway”—a process solution — could solve the resource allocation problem.

A Fatal Mismatch Between Problem and Solution

Traditional development expenditures for operational systems, major defense acquisition programs, and follow-on platforms are a vital investment in the modernization and recapitalization of the force. Without them, the Defense Department would not be ready to fight today, tomorrow, or in the future. However, they are not the flexible investments in innovative new technologies that Congress and the Pentagon say that they want, and no change in the department’s acquisition organization or procedures will convert them into such investments.

The Defense Department’s multibillion-dollar major defense acquisition programs are, almost by definition, too big to fail. To succeed on one of these mega-programs, the department needs a disciplined approach, including a firm cost and schedule baseline, stable funding, and reliance on mature and predictable technologies. If a single critical technology fails to materialize, or a manufacturing or integration issue occurs in the development of a major defense acquisition program, hundreds of millions of dollars can be lost as the entire program and the associated contractor and subcontractor workforces wait for the problem to be addressed. This is not an environment that encourages rapid innovation, flexible solutions, or a willingness to fail.

If the U.S. military is serious about maintaining its technological edge and filling the void in new programs with rapid innovation and prototyping, major defense acquisition programs won’t get it there. Neither will new procedures and organizations. The Department of Defense needs new funding sources that allow it to develop and mature new technologies outside major defense acquisition programs, in an environment where failure is an option and experimentation is a virtue. That means making the hard trade-offs necessary to provide such funding within a constrained top-line for overall defense spending.

Buried deep in the 540-page second volume of the section 809 panel’s three-volume report is a one-sentence subrecommendation: The department should establish a new defense-wide budget line under the control of the new undersecretary for research and engineering to focus on innovation in each of the department’s major investment portfolios. This single sentence may be more important than anything else in the report. Without a flexible new source of technology development funding, the new undersecretary for research and engineering can develop new architectures and try to get the military services to comply with them, but will not be able to solve the department’s innovation problem.

If the American military wants innovation, it is going to have to pay for innovation. If instead the Pentagon keeps spending its money on increased force structure and more legacy platforms, all it can hope to get is increased force structure and more legacy platforms. No new organizations or new rules, no matter how creative, can solve a shortfall in resources. Only a significant change in the allocation of resources can do that.

 

Peter Levine is a senior research fellow at the Institute for Defense Analyses. He served in the Pentagon as deputy chief management officer and acting undersecretary of defense for personnel and readiness in the Obama administration. From 1996 to 2014, he handled acquisition policy and defense management issues as general counsel and then staff director of the Senate Armed Services Committee.

Image: U.S. Air Force photo/Jim Haseltine, adapted