December 1, 2005  

Price break

Lawmakers press Pentagon to rein in spiraling costs

U.S. Congress has set its sights on cutting what it perceives to be alarming rises in weapon costs. The head of the House Armed Services Committee is leading a campaign to force the U.S. Defense Department to start pressing manufacturers for discounts.

Committee chairman Rep. Duncan Hunter, R-Calif., said during a Nov. 2 hearing on defense acquisition that the military services should call in their best weapon engineers and meet with shipbuilders and aircraft makers to search for ways to cut prices by 15 percent.

The services also should make greater use of a “challenge program” already in law that permits companies to challenge contract holders if they think they can build weapons better, Hunter said.

“I think you ought to use the challenge program as robustly as you can,” he told the Pentagon’s acquisition chief and the top weapon buyers of each service.

The suggestions got a tepid response from service acquisition officials.

Navy acquisition chief John Young said he was already meeting with shipbuilders in an effort to control the runaway cost of the DD(X) destroyer. Proposed as a $750 million ship a decade ago, the DD(X) has ballooned into a $3.3 billion destroyer.

Army acquisition chief Claude Bolton said the Army has been working closely “from Day One” with contractors on the Future Combat Systems (FCS). The FCS has increased in price from $80 billion to as much as $145 billion, according to Army estimates earlier this year.

“The contractor is going to be the last one to show you where you can make cuts,” Hunter replied. The services must rely on their own weapon experts and on competition from other companies to pressure contractors to cut prices, he said.

Rising costs are raising anxiety among lawmakers.

While the DD(X) “is breaking through the $3 billion figure,” the next aircraft carrier is expected to cost $14 billion, Hunter said. The new carrier “is not going to fly any more F/A-18s than the Kennedy,” a 37-year-old ship that was built for about $1.5 billion, Hunter said.

“We don’t have effective mechanisms for reining in costs,” he said.

That includes the cost of ice-cube trays. The Defense Department has been paying a contractor $20 apiece for plastic ice-cube trays that sell over-the-counter for 85 cents, said Rep. Joel Hefley, R-Colo., citing an Oct. 23 report by Knight Ridder newspapers.

Why? Hefley asked Kenneth Krieg, the undersecretary of defense for acquisition, technology and logistics.

According to the report, the military bought the high-priced trays through a “prime vendor program” run by the Defense Logistics Agency. It also paid prime vendors $32,642 for a refrigerator for airplanes that cost $17,267 from the manufacturer, $81 for a coffee maker that the manufacturer sells for $29, and $43 for packs of coffee filters that usually sell for $11.

Krieg said he was aware of the report, but did not know the details. He said he did believe “the math is not right,” but left unclear whether he meant the military’s math or the newspaper’s. He promised to provide the committee a fuller report in writing.

“We’ve got to explain things like this,” Hefley said. “It’s embarrassing to the Pentagon and it’s embarrassing to us.”


Beyond embarrassing, high weapon costs may endanger national security, Hunter said.

“Look at China,” he said. Although China is not an adversary now, it could become one. And it has a very efficient shipbuilding industry. If the Chinese turn their shipbuilding capability toward warships, they could rather easily outproduce the United States, Hunter warned.

The threat foreign powers pose in the production of aircraft and satellites is not as extreme, but in terms of cost, the United States may not have the advantage, he said.

Much of the price escalation is driven by the military’s demand for ever-more sophisticated weapons, lawmakers said.

“Unfortunately, we’re in a system where somebody sees a new toy out there that they want and the [cost] estimating is done at a level they know they can’t meet,” said Rep. Terry Everett, R-Ala. “It’s almost inconceivable to me that you can come up with a program like SBIRS High [Space Based Infrared System high-altitude early warning satellites] at $4 billion, and now it’s $10 billion and it doesn’t work yet.”

Everett expressed similar dismay that after planning to buy six airborne laser aircraft for $5 billion, the Air Force has spent the money but does not yet have a working aircraft. When Everett asked Lt. Gen. Donald Hoffman about the programs, Hoffman replied only that space programs are “outside my portfolio.” Hoffman is the military deputy to the Air Force’s assistant secretary for acquisition. The post of assistant secretary for acquisition is vacant.

Krieg blamed some of the problem on programs that were begun in the mid and late 1990s by the previous administration.

Rep. Jo Ann Davis, R-Va., warned that rising costs threaten the future of programs such as the DD(X). “We have to consistently fight to keep the DD(X) funded, she said.

Young, the Navy acquisition chief, issued a warning of his own: If the DD(X) is killed, the cost of other ships will go up.

The destroyer is a research platform for new radar and combat systems that will be used on the next aircraft carrier, for example. Without the DD(X), the cost of developing those systems would have to be shifted to the carrier or other ships, he said.

Rep. Neil Abercrombie, D-Hawaii, suggested that the military adopt a system of capital budgeting, which involves paying for weapons over their lifetime. Thus, if a ship is to last for 30 years, it would be paid for over that period. He said the practice is commonplace in local governments. Small towns don’t pay cash for a fire truck, they pay for it over a number of years, he said.

Congress has long opposed that multiyear financing because members fear they would lose oversight authority over programs, Abercrombie said. But for now, “our oversight is not doing a whole hell of a lot of good,” he said.