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The weapons industry has a 'need for speed' but can be accident prone

The weapons industry has a 'need for speed' but can be accident prone

Reformers inside the military want better 'innovation' but getting contractors money faster doesn't always result in better a product.

Analysis | Military Industrial Complex

President Biden requested more than $24 billion for Ukraine and associated assistance, making use of the debt deal loophole that excluded the Pentagon from spending caps imposed on other agencies. Within a week of Biden’s request, a new Pentagon reform panel published a report on its work to improve the department’s adaptability. 

It’s an interim report, and lawmakers can’t miss the opportunity to weigh in on the recommendations the commission has yet to finalize. Congress will soon have to consider the president’s Ukraine aid request while heeding calls for greater oversight of that aid — a task complicated by the fact that the House and Senate disagree on the need for a special watchdog for Ukraine.

But the Pentagon reform panel’s reporting directly impacts the U.S. ability to arm Ukraine going forward and should be a priority for lawmakers upon their imminent return to Capitol Hill.

Congress established the panel — formally named the Commission on Planning, Programming, Budgeting, and Execution (PPBE) Reform — to review and improve the Pentagon’s acquisition and budgeting processes, which are notoriously cumbersome. In pursuit of that effort, the commission is requesting feedback on several proposals intended to promote innovation and adaptability at the Pentagon.

One proposal gives the department more time to obligate funds while another grants the department the redistribution power “to ingest new technology and innovation or pivot effectively to an unplanned requirement without disrupting already spoken for resources.”

Some budget flexibility could help the department better adapt to potential national security threats, but lawmakers should be wary of proposals that further solidify military contractors’ influence on defense policy. Too often, efforts to “advance innovation” turn into reforms primarily focused on hastening the defense acquisition process and scapegoating oversight measures as the root of all ills. 

Time and again stakeholders assert that red tape and budget inflexibility inhibit the department from delivering new capabilities to warfighters. But, as RAND expert Jonathan Wong has pointed out, overly focusing on acquisition speed can also introduce unintended consequences, like costly sustainment issues (or profitable ones, depending on who you ask). Ensuring warfighters have the resources they need — when they need them — to do their jobs effectively requires contractor accountability, in addition to a streamlined PPBE process.

In fact, contractor accountability should be top of mind for lawmakers reviewing the commission’s recommendations for PPBE reform. That means challenging assumptions about what hampers innovation in the first place. The defense industry  — well represented in the PPBE commission — claims that it can’t invest in innovative technologies for the warfighters of tomorrow. 

The commission appears to agree with this, writing that one of the root causes of the department’s issues with innovation and adaptability is a “bias toward existing and traditional programs and approaches.” Commissioners explain that existing programs have a “leg up” in the PPBE process because they’re “not properly incentivized to spend money on new, innovative solutions that are riskier and need more time to develop.” They go even further by saying that “faced with a choice between buying down risk and improving performance on existing program content or taking on additional risk by spending money on new, untested program content, most Services seem likely to choose the conservative option.”

Tell that to taxpayers, who are footing the bill on at least a $1.7 trillion aircraft program with far greater issues than benefits, despite being marketed as the “the most advanced fighter aircraft in the world.”

The Littoral Combat Ship (LCS) is another great example of juice not worth the squeeze, with the Navy attempting to retire several before they reach maturity for at least 2 years running. And with good reason — the LCS doesn’t do much for the Navy. But what’s so egregious about the LCS is that it failed for the same reason the F-35 program did — the Pentagon started development before the design and thorough testing were completed. 

In other words, the Pentagon’s need for speed created lagging performance and unforeseen sustainment costs. In the F-35’s case, sustainment costs are the main reason the program is now the most expensive in U.S. history. The Pentagon’s alleged aversion to risk didn’t stop it from prematurely fielding these weapons, which now deliver little capability to warfighters on the hard-working taxpayer’s dime.

Lawmakers should question how risk-averse the department really is (especially when authorizing funding) and consider the external factors that hamper innovation and adaptability — namely, military contractors’ unwillingness to invest internally. Bureaucracy is no doubt a problem, but so are military contractors that consistently enrich their shareholders at the expense of internal investments needed to innovate.

Case in point: The defense industry increased cash paid to shareholders by 73% in the 2010s as compared to the 2000s. By contrast, contractor spending on internal capital investments and independent research decreased — despite improved profit margins and cash generation industry-wide over the same period. So the issue isn’t just bureaucracy — it’s also corporate greed. 

Indeed, the defense industry has claimed that profits are “insufficient to finance” investments, requiring private financing to advance the development of innovative technologies. Even assuming that’s generally true (which it isn’t, according to the Pentagon), the government ultimately reimburses most research and development costs, generating free revenue, profits, and cash flow for companies. 

Nevertheless, the interim report partially validates industry’s claim that it can’t afford investments toward innovation. Commissioners wrote that the PPBE process isn’t responsive enough to attract private capital to develop “emerging technologies or manufacturing capacity.” 

The commission neglects to mention the size and scale of this so-called capital deficit. Surely commissioners aren’t exclusively referring to small businesses, which certainly lack the financial wherewithal to pursue innovation independently but are also generally limited in their ability to fundraise. So how do the commission’s findings fit with data indicating that the industry is quite financially capable of innovation?

The commission’s scope is limited to understanding and evaluating the challenges within the PPBE process to improve it, but lawmakers are tasked with putting the commission’s input in context. Contentious debates on Ukraine aid and its oversight surely await them, but the PPBE reform process deserves their time and attention, as it will have lasting effects on U.S. ability to both provide aid and ensure it’s spent effectively.

Analysis | Military Industrial Complex
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