Leon Panetta, President Obama’s nominee to succeed Defense Secretary Robert Gates, faces significant challenges in using a declining defense budget to support an aging military fleet. Our national debt has put us on an unsustainable path. As the new Secretary of Defense, Mr. Panetta must reconcile the need to reduce defense spending while equipping our military men and women with the best weapons systems.
As president of the GE Rolls-Royce Fighter Engine Team (FET) and general manager of the F136 Joint Strike Fighter (JSF) engine program, I know all about spending cuts. Dramatic budget pressures drove Congress to cancel our JSF engine after 14 years of bipartisan support, thus forfeiting billions of dollars in savings down the road through competing JSF engines.
However, this budget crisis creates the right environment in which to fundamentally change the way private defense contractors do business with the Pentagon. Acquisition officials should rethink the cost-plus contractual arrangements with private industry which often allow for cost-overruns and poor performance. It’s time for contractors to financially contribute to development programs and to be held to fixed-price contracts that demand programs be executed on time and on budget.
In the commercial aviation world, contractors cover their own development costs. The return on this investment is assured through successful product sales and after-market support. It’s true that the risks attached to developing next-generation weapons systems can be greater. But the practice must end where defense contractors simply underbid the price on a program at the beginning on the assumption that additional funds will be allocated later – thus leading to cost overruns.
Taxpayers can no longer afford to foot the entire bill for the development of new weapons and technology. Contractors must share some of the cost – and risk – with taxpayers. We should be compelled to bring our commercial best practices to the table, approaching the government like any other customer, competing against each other and doing all we can to deliver the most satisfactory products for the most satisfactory prices.
The GE/Rolls-Royce team is trying to drive such reform by proposing a self-funding development of our JSF engine through fiscal year 2012. When our F136 was terminated by the Department of Defense, the development was 80 percent complete and on schedule. Meanwhile, the lead JSF engine from Pratt & Whitney faces significant cost overruns and delays. GE and Rolls-Royce believe that continuing our JSF engine development on our own dime is good business, and good for the country. It also shows our confidence in our program. Continuing the development of a competing JSF engine could save taxpayers $20 billion over the life of the JSF program, according to the Government Accountability Office.
But contractor financial contribution to development programs isn’t enough. As Defense Secretary, Mr. Panetta will need to address procurement tactics. The Defense Department should carefully assess the needs of new weapons systems and reduce changes to system specifications – a top driver of cost increases – and be more disciplined about adhering to the specs it chooses. Too often, cost overruns can be explained away by blaming the Pentagon for changing its mind. If contractors can be confident in the goals of the systems they design, there will be increased pressure to achieve those goals in the most cost-effective manner possible.
The Department must also develop fair exit criteria used in tracking progress in technical, schedule and management risk areas for systems development. It must account for inevitable off-ramps, such as material cost increases, but should explicitly define them from the start. A firm understanding of these criteria will help contractors carefully consider their program costs as they plan – and eliminate another common excuse for overruns.
Defense acquisition reform has been attempted numerous times in the past, from the Nunn-McCurdy Amendment of 1982 to the Weapons Systems Acquisition Reform Act of 2009, which mandated competition between contractors on major weapons subsystems. These and other measures were certainly steps in the right direction in helping ensure efficient military procurement spending – but so far, their effectiveness has been decidedly limited.
A new approach is necessary. We are looking forward to working with the new Secretary of Defense, as we achieve better cooperation between the Department of Defense and the defense contractor community to enhance the future of our military – and our economy. We also hope that GE and Rolls-Royce’s unique offer to self-fund our JSF engine’s continued development will be one of many creative ways to drive the meaningful acquisition reform.
Al DiLibero is president of the GE Rolls-Royce Fighter Engine Team.