The Pentagon building in Washington, D.C.
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Annual report finds U.S. military’s new focus on cost-cutting strategies is threatening its technological superiority.

By Clay Dillow
October 8, 2015

There’s some good news and bad news in this year’s annual assessment about the way the Pentagon spends its hundreds of billions of dollars. The good news, according to Pentagon acquisition chief Frank Kendall, is that a range of measures put in place over the last half-decade have made a positive impact on the Pentagon’s buying power while trimming costs across a range of major defense programs.

The bad news is that the Pentagon’s penny-pinching has created an arms-buying culture that values low-risk technologies, minimal complexity, and off-the-shelf solutions.

In the newly published report on Pentagon acquisition performance, Kendall worries that the Pentagon’s cost-conscious, risk-averse buying behavior is eroding the U.S. military’s technological edge.

“In some areas we may not be pushing the state-of-the-art enough in terms of technical performance,” Kendall writes in the report. “This endangers our military technical superiority. In my view, our new product pipeline is not as robust as it should be at a time when our technological superiority is being seriously challenged by potential adversaries.”

Speaking Tuesday at a function in Washington, D.C., Kendall noted that the technological superiority the U.S. enjoyed at the end of the Cold War has atrophied in significant ways. The U.S. military’s 15-year focus on counterinsurgency during the wars in Iraq and Afghanistan allowed other military powers—in particular China—to produce new equipment and modernize its forces at a rate that has Pentagon leaders concerned. “I don’t think we’re doing enough to stay ahead of the threat,” Kendall said, adding “It’s the things we’re not doing that bother me the most.”

Kendall has made overhauling the Pentagon’s acquisition shop a priority (as did his predecessor Ash Carter, now the Secretary of Defense). Through a program called “Better Buying Power” (BBP), Kendall and his staff have taken steps to incentivize productivity within private industry, cut bureaucracy, promote competition, and do a better job of sticking to schedules and budgets.

Those BBP reforms are yielding results, Kendall writes in the report. For instance, an initiative known as “should-cost” has effectively driven down the high price of many programs by requiring managers to determine what a given program or piece of a program should cost and then set targets for fitting the program into its cost paradigm. The idea that program managers should seek to actively save money rather than simply stay within budget is a “major cultural shift,” Kendall writes, and one that’s paying dividends.

The unintended consequence of this focus on cost savings is that Pentagon buyers aren’t taking risks. “There is evidence that we have been pursuing less complex systems with about the same or less risk since 2009,” Kendall writes. That’s no way to build cutting-edge systems and technologies, he says, and it’s starting to show.

“When you’re doing something that’s never been done before, you’re not going to figure everything out ahead of time,” Kendall said at Tuesday’s event. “And particularly when you’re trying to push the state-of-the-art and be a decade ahead of all the other people in the world, you have to take some chances.”

In other words, a risk-averse Pentagon is an ineffective Pentagon, and some cost overruns should be embraced as the cost of doing business. Moreover, as threats evolve so should spending and development priorities. The Pentagon’s mission is national security, Kendall writes, not earning gold stars for staying on schedule and budget. However, that’s not an argument for a license to spend, but acknowledgment that if an acquisition program goes over budget to meet an emerging challenge or threat, it should be considered a success rather than a failure.

That’s a tough case to make in a budget-constrained environment. Meanwhile, at the same event on Tuesday, some of the U.S. military’s top weapons buyers said their service branches would have to halt or drastically cut hundreds of acquisition programs if Congress doesn’t pass a new budget.

Under a continuing resolution passed last week in place of actual federal spending bills, Pentagon budgets are capped at 2015 levels, severely limiting the service branches’ ability to start new programs or even shutdown programs they don’t need anymore.

The Senate recently approved a $612 billion defense budget, but President Obama has vowed to veto the bill because of its use of the Pentagon’s Overseas Contingency Operations fund—a war chest intended to fund U.S. military actions overseas—to circumvent budget caps prescribed in the Budget Control Act. It remains unclear if Senate Republicans have enough Democratic support to override a veto.

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