DoD Announces New Strategy to Cut Costs

DoD announced yesterday a new strategy to change how the Department will contract for goods and services. The hope is that this move will create greater efficiency and productivity in defense spending. DoD outlined 23 specific actions designed to save $100 billion over the next five years. According to Defense Secretary Gates, many of the changes will take effect immediately. Here is a rundown of a few of those actions.

The department will require program managers to set a new affordability target that can’t be altered without authority from the Undersecretary of Defense for Acquisition, Technology, and Logistics. Managers must ensure the initial design is “constrained by its ultimate schedule and cost. According to the Secretary, this guidance will make programs more affordable without sacrificing capabilities and prevent us from embarking on programs that will need to be cancelled when they prove unaffordable.”

Another area of the guidance involves creating leaner programs. Programs will now require not only an estimation of what they will cost under business as usual, but what they should cost if programs are managed effectively and hit cost objectives. “In too many instances, cost estimates that are based on past programs, I might say past mismanagement, have deprived us of incentives to bring down costs,” he said.

Increasing the use of contracts in which the benefits of productivity and costs of overruns are shared by both the contractors and the department is another strategy announced by Gates. “This method is being applied to the Joint Strike Fighter where we need and expect to begin reversing the cost growth that led me to restructure the program and change its management last year,” he said.

Increasing the use of competitive awards is always something that comes up whenever cost savings is discussed. Sure enough, Gates through this one into the mix. "Competition as a source of productivity in the defense industry, and gives managers direction on driving real competition", Gates said. The littoral combat ship program is an example of this, he said, with the acquisition strategy shifting from directed to competitive buys. This strategy alone is going to save $1 billion over five years.

In some cases, the department’s bureaucratic processes are contributing to contractor inefficiencies, Gates noted. To avoid this, the department will take steps to reduce inefficient processes and bureaucracy as well as costly and unnecessary reports (yeah? well, that remains to be seen).

Another area ripe for cost savings is the professional services, information technology and facilities upkeep contracts. The department spends more than $200 billion annually on these contracts. Starting immediately, measures will be introduced that will improve efficiencies in service contracts, including increasing the frequency of competitive bidding.

Gates acknowledged that the changes won’t come easily or overnight. “Like all important and necessary institutional reforms, this process will take time and real effort to overcome longstanding habits and assumptions,” he said.