Pentagon leaders start push for affordable defense contracts

Pentagon leaders on Monday called on the Department of Defense's Acquisition Corps and on defense companies to make contracts more affordable and to eliminate unnecessary spending on weapons and services. 

It is a “matter of principle and political reality to make sure every taxpayer dollar counts,” Defense Secretary Robert Gates said Monday.

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Gates has started a sweeping initiative to find about $100 billion in savings over the next five years. His goal is to pour those savings into the fighting force and the modernization of weapons systems.

As part of the effort, Pentagon acquisition chief Ashton Carter on Monday met with hundreds of military procurement leaders and executives of defense contractors. He directed them to identify “unproductive” overhead, or as he called the effort, “doing more without more.”  

“We have not seen productivity growth in the defense economy,” Carter said at a press briefing on Monday. “More has been costing more. We need to restore affordability to our programs.”

Executives from major defense companies such as Lockheed Martin, Boeing, Northrop Grumman, General Dynamics and BAE Systems all attended the meeting Carter held at the Center for Strategic and International Studies on Monday morning. Representatives from the Aerospace Industries Association, the National Defense Industrial Association and the Professional Services Council also attended the meeting, which included more than 200 people, according to one source in attendance.

The Pentagon spends about $400 billion on products and services out of a budget of about $700 billion a year, Carter said. Pentagon leaders are seeking 2 percent to 3 percent in savings of that $400 billion, Carter said. That could amount to savings between $40 billion and $60 billion over the next five years.

Under the new initiative the Pentagon acquisition corps will be tasked to find the proper contract types for both weapons systems and services. They will look to reduce costs with fixed-price contracts that require defense companies to bear cost overruns, and through encouraging “real” competition between contractors.

Carter sought to allay concerns within the defense industry that the new initiatives may curb profits to companies.

“It’s not about reducing profit. It is about reducing cost,” Carter said. He stressed that profits “can be made in fixed-price contracts” by “performing well.” He said that the Pentagon is prepared to use profit as an incentive to productivity within the defense industry.

Carter said the Pentagon will actively seek ideas and support for the effort from defense companies. He asked the company executives on Monday to look at their companies’ own processes for unnecessary costs to look to gain more productivity.

Carter said Monday that defense companies’ production processes “can be leaned out, with fewer people or less material.”

Carter also said that he is open to suggestions on what the right incentives to the industry would be to find savings.

Carter said that the Pentagon wanted to see more small businesses enter the defense sector, as well as commercial companies that normally do not deal with the defense sector.

“They are lean and efficient and we want that influence within defense,” Carter said at the briefing.

Some of the new banner programs that likely will be considered under the terms of the new initiative are the Army’s new ground combat vehicle contract, the Navy’s Ohio-class submarine replacement, a family of systems for long-range strikes and the new presidential helicopter.