Pentagon to Contractors: How About You Pay for Your Overbudget Gear

[unhappycamper]

Pentagon to Contractors: How About You Pay for Your Overbudget Gear
By Spencer Ackerman
November 16, 2010

It’s the rare military plane, truck, ship, gun, sensor or service that comes in on time and under budget. So the Pentagon’s acquisitions chief has a proposal to keep costs in line with what defense contractors and the military promise they’ll be: go halfsies on any dollar over the agreed price.

In a recent memo to the military (.PDF), Undersecretary of Defense Ashton Carter insists that future contracts for purchases include a “50/50 share line,” meaning that the Pentagon and the vendor will equally split the fee if a program goes over budget.

And not infinitely over-budget: Carter wants caps of 120 percent on big-ticket items. Go beyond that, and the contract might get revoked. “When we get to $120″ on a $100 item, Carter told an audience at the Center for American Progress in Washington, “I’m out of Schlitz and it’s all yours.”

But Congress might refill the kegs. The undersecretary said that no matter how severely the Pentagon budget may get constrained by the deficit and the weak economy, the budget “certainly won’t be going up.” That is, if you factor out the incoming chairman of the House Armed Services Committee.

Carter is the pointy end of the spear for Defense Secretary Robert Gates’ “efficiencies initiative,” a plan to wring $100 billion over the next five years out of the Defense Department’s overhead operating costs and invest it back in buying planes, ships and bombs. But part of the problem is that the costs of that hardware keeps rising. Every year, he said, “I go to Congress with same systems as last year, for more money.” Case in point: one variant of the Joint Fighter jet, the Air Force’s F-35A, which Carter’s team estimates will cost $92 million per plane, rather than the $50 million promised when the program was conceived.



unhappycamper comment: Let's clear up one little itty bitty point: The F-35 currently costs $243 million dollar a pop, delivered. Under these new rules (if they are ever applied) another $100 million dollars or so will be returned to the taxpayers.

I think the F-35 is still waaaaay overpriced at $150 million dollars.

[fasttense]

1. What, what, what, are we standing up to war profiters?

It can't be.

[ProgressiveProfessor]

2. The key here is honest program estimates up front and discipline to revisit them.

When the services plan a program, historically they had no real idea of what it cost. They put a "wedge" in to get things started and it went from there. Today there are a number of tools that are required to better identify lifecycle cost. They help a lot, but they are not perfect and kick in later in the development cycle. This is a drive to make things closer to perfect. I don't think it is the right answer.

The programs with cost issues are not the ones that buy MREs or boots. They are the high tech ones, and with that comes risk. What is more important is that the services and OSD revisit the cost/benefit and cancel ones where the ratio gets out of balance. Those tools are already in place, the discipline is not.

[RUMMYisFROSTED]

4. 3 overbudget bids and you're out- permanently.

[ProgressiveProfessor]

8. Again, there is the risk that has to be factored in for high tech programs

The low risk ones are procured fixed cost as it is.

[RUMMYisFROSTED]

11. Totally confused.

[RUMMYisFROSTED]

3. I've got a better idea: How about nonesies?

[uncle ray]

5. great, they'll just bid the contracts higher in the first place.

the best way to avoid going over budget, is to increase the budget.

[crikkett]

6. Are you making it sound as if honesty is a bad policy?

Why not say up front that an airplane will cost $250M instead of $90M?

(A: Because then the airplanes won't be built.)
(Q: But that's even better isn't it?)

[Yavin4]

7. Who's Coming After Us? What Nation Is Gearing Up To Attack Us?

Why are we spending on Cold War levels when the Cold War ended 20 years ago?

[Diclotican]

9. Yavin4

Yavin4

US is using 7 billion eatch year on war gear and to have the biggest, most powerfull military on the earth - the Al Qauda who attaced NYC in 2001, used mear 50.000 in all, to kill 3000 americans, and destroying two iconic buildings in NYC. In the front of the whole world...And give US a nervours breakdown they are not coming from yet Just to point to the difference

Diclotican

[DCKit]

10. Gates plan to "wring out $100 billion" is to privatize the military even futher.

I heard him say it.

I'm on board, 'cause EVERYONE knows that privatization is a great way to save money.:sarcasm: