I just published an OpEd piece in American Military News after looking at the FY 2019 DoD Budget again. I can’t believe we aren’t asking for more Tomahawk Land Attack Missiles. The Reason? We are going to build a new Land Attack Missile by 2028…..that’s around 10 years folks! Any bets on a 2028 delivery? Anyone? Bueller? Anyone? Anyway, I think the piece says it all, so I invite you to read it. Here’s the link to the article…..Closing the Tomahawk Line is Risky Business.
I just finished reading this article concerning the Air Force waiting for things to break in their shore infrastructure instead of doing preventative maintenance. My first thought was, “I sure hope that doesn’t include nukes!!!” From what I can tell from the article, maybe yes, maybe no. So that has me a little worried. But there were several other things about that article that worried me.
First, it said that the Services only submitted about 80% of what they needed for facilities maintenance because they wanted to put priority on training and operations instead of maintaining their buildings. I believe the idea was to fix things as they fail. Who wants to be in a building that might “fail”? Not me. I’m puzzled as to why they wouldn’t ask for everything needed since the money for such things comes from different appropriations than training and operations. By the way, they got all that they asked for which leaves me wondering what would have happened if they asked for what they really needed.
Second, what makes them think there’s going to be any more money in the out-years to make things right? If we are deferring maintenance, then it stands to reason that it’s only going to cost more to fix next year. We already know that money is not going to be there. Personally, I’m not so sure about jumping on an elevator in an Air Force building knowing that it hasn’t been maintained and the threshold for them to do any maintenance on it is me getting stuck between floors. I’d also be careful about walking around on an AFB if I were you. You never know when something above might “fail.”
Thirdly, one Commander in the article is worried that money for repair is so short, that even when things break there will not be enough money to fix them. Little wonder, since they only asked of 80% of what they needed. I suppose they are hoping for some sort of natural disaster so they can go in for supplemental funding to fix everything.
Once something happens, there will be a feeding frenzy at the supplemental trough to fix not only what was damaged by said disaster, but also stuff that was damaged by neglect. What a world!
Finally, it says that the Air Force is not planning on returning to “full spectrum readiness” (whatever that means) until 2023. That must mean they have a plan….but since when has any service been able to stick to a plan more than a couple of years???? Heck, in the Navy, we change the 30 Year Shipbuilding plan just about every year!
As for the using maintenance dollars to buy readiness, I thought that is what the Overseas Contingency money was supposed to do. Remember the almost $60 Billion in OCO for 2016? So even as a former practitioner of the mystical and black art of Defense budgeting, I just can’t figure out why we didn’t ask for all the money we needed to maintain our infrastructure in “war fighting condition.” After all, especially in the Air Force, their bases are where they fight wars from…It’s analogous to the Navy’s ships. I guess the old saying that the Air Force only builds runways after the O”Club, golf course, pool, commissary and exchange are built isn’t true anymore. I guess now is should be, “If it ain’t broke, don’t fix it. If its broke, good luck getting it fixed!”
I recall reading an article not long after the Berlin Wall fell which said the conditions in East German bases were puzzling. The barracks the soldiers were living in were barbaric…..but just across the street, the tanks, personnel carriers, trucks, artillery and lots of other weapons were sitting in pristine condition in air conditioned splendor. This is what happens when we value things over people. Hey, recruiting is at an all time high. We could probably stand a few people jumping ship anyway. Why not skimp on their facilities so that we can continue to pay for the cost overruns of the JSF and other out-of-control acquisition programs?
On the other hand, I suppose you could say that this problem is yet another symptom of the need for another round of BRAC. Good luck with that!
Oh, by the way, no facilities were damaged in the writing of this article.
So I guess you have to be an old guy like me to remember Keith Jackson, long-time ABC Sportscaster, shouting “Whoa Nellie” but that’s what came to mind as I read the latest on the US Marine Corps audit saga. Apparently GAO has forced the DoD Inspector General to retract the Marine Corp’s clean audit opinion because of problems in the suspense accounts. Here’s a link to an article in Defense News with the details. I have opined on DoD audits on several occasions….first shouting with joy at the accomplishment, then wondering if it really mattered and finally pointing a limp finger towards the Defense Finance and Accounting Service for using “plugs” to fix differences with the Treasury.
So for the record……I told you so! It’s hard for me to believe that the underlying problem has existed for so long without apparent remedy. Here’s a link to a 2005 GAO Report in which GAO finds:
Until DOD complies with existing laws and enforces its own guidance for reconciling, reporting, and resolving amounts in suspense and check differences on a regular basis, the buildup of current balances will likely continue, the department’s appropriation accounts will remain unreliable, and another costly write-off process may eventually be required.
That was almost 10 years ago folks! This has been a continuing report topic for the GAO with various status updates being published throughout the years. Here’s an excerpt from the Summary of a more recent GAO report from December 2011:
Neither the Navy nor the Marine Corps have implemented effective processes for reconciling their FBWT[Funds Balance With Treasury].
Huh? Navy and Marine Corps have been preparing for audit for years and yet it doesn’t appear that they were able to make any progress in fixing a problem identified by GAO way back in 2005 as a key impediment to a clean audit opinion.
So what are the “Suspense Accounts” that are causing such a problem? Technically GAO defines them as “Combined receipt and expenditure accounts established to temporarily hold funds that are later refunded or paid into another government fund when an administrative or final determination as to the proper disposition is made. “ Translation: The place where a transaction is put when the documentation is incomplete so that it can not be assigned to a specific appropriation before it’s written off. To get an idea of scale, in 2005 GAO reports it was an absolute value of $35 Billion. Who knows what it is now? But I point out that it’s just about the amount of the DoD Sequestration hit. Perhaps if they fixed this problem, sequestration wouldn’t have such a bad effect? It seems to be to be awfully hard to go the the Hill and say that $35 Billion in spending cuts would kill the Department, when they are not exactly sure about $35 Billion already sitting around. Those on the defensive will say that the differences are eventually reconciled, but I am skeptical…and since they are already written off, does it really matter? My guess is the money goes straight into the US Treasury Black Hole that all checks drafted to the US Treasury go…you know…that big ever increasing dense ball of greenbacks sitting in the Treasury Department basement.
This problem is precisely why DoD needs to get on with the audit….so they can be sure they know where the money is and provide accurate estimates of the impact of budget cuts. If my kids came to me and said” We need more allowance”, and when asked what did they did with allowance I already gave them they reply, “We don’t know, but we need more!”, I would be highly skeptical of their requirement.
As it stands now, the Army, Navy, Air Force and Marines will spend around $45 Million this year for audits they already know will fail because of the DFAS Suspense Account issues. Why not spend the money to fix that problem before plodding ahead for a pre-ordained result? To be sure it’s a tough problem…after all we have her unable to fix it for 10 years.
Who’s to blame, you ask? Well, there’s enough to go around….DFAS for not fixing it, but also the Services for not taking actions to fix the paperwork before it gets to DFAS. Ultimately, the fault probably rests on the shoulders of all those folks in DoD who improperly enter information at the command level. I would also guess that given the kludge of IT systems required to record transactions, that errors are also introduced between systems, hand-jammed data is incorrectly transferred, and by improperly trained people entering data. This is what is referred to as a “Wicked Problem,” in management parlance. A “Wicked Problem” is defined as ” a problem that is difficult or impossible to solve because of incomplete, contradictory, and changing requirements that are often difficult to recognize. The use of term “wicked” here has come to denote resistance to resolution, rather than evil. Moreover, because of complexity, the effort to solve one aspect of a wicked problem may reveal or create other problems. For more info on “Wicked Problems” you can download the original paper written by C. West Churchman for $30 here.
Is the problem of unresolved transactions so complex that it defies correction? Perhaps given the current architecture within DoD it is, and that alone is reason for the new DCMO to tackle it. A fresh look is needed and the DCMO might be just the person to do it. Right now DoD has an acting DCMO, and given the current political environment, I am not too sure the current nominee, Peter Levine will get confirmed….But for now Mr. Dave Tillotson has the dot. Can someone in an “acting” position draw enough water to tackle this problem? Don’t know, but why not give it a whirl. If and when Mr. Levine gets in the chair, it would be a great legacy to fix this problem once and for all. Given his reputation, I have no doubt that he could fix it.
I guess it’s that time of year when one must talk about all things budget. And since I am only a small gnu within the herd, I too will opine on the obvious. Several thoughts came to mind as I was reading some of the commentary on the budget. It’s always fun to read the DoD press releases and to see the latest spin. How well-educated and experienced people can say some of this stuff with a straight face is a mystery to me. Take the DoD article on its press site today, “Budget Request Balances Today’s Needs Against Tomorrow’s Threats.” The article is a summary of a press conference held by DoD Comptroller, Mike McCord. I love his characterization of the budget: “although planners were aware of financial constraints, the budget is a strategy-driven construct.” Translation–we ignored the budget caps. As an aside, you all know how I hate the way the Pentagon takes common words and complicates them…like “construct“. Don’t they mean plan? I confess that I used to be as bad as the next Pentagonian in inflating words to add an air of sophistication and deep-thoughtedness to them. The “construct” word stands out in my mind because I used it one day while briefing the Chairman of the House Armed Services Committee, Ike Skelton. He stopped me and asked, “What the heck does that mean…construct’? I replied, ” Well, you know…the product of the assimilation of a multitude of facts and non-facts into a non-coherent stream of pseudo-strategy designed to defend an un-defendable position.” Mr. Skelton replied,” Just say plan. Don’t make it so complicated with strange words.” AMEN…..And after that, I tried to avoid Pentagonisms like the plague.
Once again this budget side-steps many of the large issues, like the runaway Joint Strike Fighter budget and focuses in on the marginal stuff…TRICARE rate hikes, cutting Commissary hours, as well as proposing the impossible…base closure, A-10 retirement and the like.
But that’s not the subject of today’s blog, so I will move on from that unpleasantness…….Today’s topic is about HOW the Pentagon arrives at its budget. Of course, it’s fairly common knowledge to this audience that it uses the Planning, Programming Budgeting and Execution (PPBE) system.
A very regimented (or so it used to be) process with a clearly and elegantly articulated set of roles, rules, responsibilities, and schedules. Here is a link to a very well written Army War College paper by LTC Thomas T. Frazier on the history of PPBE system (originally PPBS). Here’s the Cliff Notes version. PPBS was instituted by Secretary of Defense Robert McNamara in the early 60’s because his opinion what that there was no clear process of deciding what to fund and how much to fund. Here is a link to my presentation on how the PPBE system works. Over the last few years the process has morphed from the nice neat process because of Continuing Resolutions, shutdowns, furloughs, war and all manner other issue. Anyway, Secretary McNamara felt that the Pentagon budget process was really one of Incrementalism…just adding more money each year with little thought of where it was going. Interestingly, the things which drove the change came down to six flaws in 1961:
Budget decisions were largely independent of plans
Duplication of effort among the Services
Service budgets prepared largely independent of one another with little balancing across Services
Services felt they were entitled to a fixed share of the budget, regardless of contribution to overall defense needs
The budget process focused on next year, with little regard for future impacts
Little analysis behind the numbers
Sound familiar? I submit that all of these factors exist today to some degree or another, perhaps for different reasons than in 1961, but they exist nonetheless. That’s why I think it’s time for a serious discussion about changing the process. Over the past half-century we have fallen back into some very bad habits. They were good reasons for change then, and equally good for change now.
Many would say today’s budgets are very independent of plans. Despite the efforts of the 24,000 or so Pentagon workers, in the end the budgets are determined in large measure by political decisions. I note that the elegant planning process in the Pentagon has recommended decommissioning the A-10, laying up Aegis Cruisers, another round of BRAC, and on and on. These proposals were developed by thousands of planners chewing up millions of man hours, yet the analysis is ignored by the Congress. As the Navy’s N8 I came to the conclusion that at any given moment probably 90% of the people in the Pentagon are working on some part of the budget. But to what ends? At the end of the day, the budget never changes more than about 1% -1.5%, despite the hundreds of thousands of man hours devoted to changing it? Why bother? Given there is so little change, why not stop all the madness of millions of minor budget data base changes which in the end have less than a 1% impact? We could get by with half the people in the Pentagon and let them do something more constructive.
There’s no doubt that we have still to tackle the duplication of effort issue. We still have an unexplainable excess of tactical aircraft in the Air Force, Navy and Marine Corps because no one is willing to give the mission up. Look how much money that one is costing us in the guise of the JSF.
With regard to independent budget development by the Services, that’s still a problem too. How often do you think Air Force budgeteers sit down with the Navy guys to go over their current budget plans…Answer: never…It’s not until OSD gets the budgets that the Services find out what each is really up to. Heck, the Marines don’t share much of their budget with the Navy until end-game, and they are in the same Department!
The one-third rule ( every Service is entitled to roughly a third of the DoD budget) is still alive and well in the Pentagon. But because of the growth of the Fourth Estate (DoD agencies and combatant commands according to SECDEF nominee Ash Carter) the pie has been further divided. It’s almost the one-fourth rule now. What’s up with that? The process will never work if one assumes equal shares for all.
As far as budgets being focused on one year, despite the best efforts of DoD to lay in a 5 year plan, it is essentially redone every year. I used to submit the Navy’s 30 Year Shipbuilding plan almost every year with major changes. What kind of long-range plan is that? The truth is that with the way we fight the budget wars from year to year, coupled with the inability of the Congress to regularly and reliably pass funding and authorization legislation, DoD has no choice but to focus on one year. It has become so challenging to execute the budget and build several (the base budget, the sequester budget, the President’s budget, Overseas Contingency Ops budget) that it is impossible to focus on later years.
Perhaps the bright spot is the improvement in the department’s analytical capabilities. We certainly have a world class capability, which produces fantastic analysis. The problem is that it is sometimes ignored by those that matter..either in the Pentagon or on the Hill. To be fair, I should say the analysis is selectively ignored. If the analysis supports your program, it’s cited again and again. If it doesn’t, then one has to play the “experience” or “uncertainty” card. You have all heard that argument: “It’s an uncertain and dangerous world and the analysis does not adequately take that into account. We must rely on our experience and intuition.”
Of course, the PPBE is only one way in which the DoD manages its money. A few years back I gave a presentation on “How DoD Manages Money” in which I cited the following techniques:
Management by topline
Management using the “More Money” rule
Management by appropriation
Management by Service
Management by rice bowls
Management using the 1/3 Rule
Management by congressional district
Management by PPBE
It’s too complicated to explain here, but check out the presentation. Even though it was done in 2009, I think it’s relevant today.
So that’s my rail of the day. We need to change the PPBE. I don’t know how. I am not that smart. Maybe some smart combination of the above management systems… I do know that the same reasons we decided to re-twicker the DoD budget process in 1961 exist today. We should convene a group of smart folks (and not just old fogies like me who got us into this mess in the first place) to consider how to develop a process which eliminates the 1961 reasons. It’s time for some new and innovative thinking, done by all interested parties (Congress, DoD, Administration) on how to fix the problem.
“Opportunity, Growth, and Security” Initiative: Slush Fund
Innovation: Not in DoD dictionary
Multi-lateral Security Architecture: Treaty
Force Planning Construct: Size
Efficiencies: Negative Budget Wedges
As I was reading the news this morning, I found this article on the name change of the “Air Sea Battle” concept in DoD Buzz. So forget about Air-Sea Battle and let me introduce you to Joint Concept for Access and Maneuver in the Global Commons! True to form, the Joint Staff has managed to take a relatively simple name and complicate it to the point of non understanding. Of course what would a new concept be without its accompanying acronym, JAM-GC? I suppose the pronunciation will be JAM-Jic or something like that. I can here the conversation in the Pentagon Food Court now, “What are you working on now?”….”Oh, I’m now the JAM-Jic lead and believe you me there’s lots of jamming and jickin to be done now that this Air-Sea thing has vaporized.”
So, I was never a fan of the Air-Sea Battle thing. IMHO, it was just a budget ploy by the Air Force ( and a somewhat reluctant Navy) to show relevance in an era where it’s relevance was waning. It’s not the first time the Air Force, after becoming alarmed by increasing dependence on and relevance of naval forces, began to seek ways to move into Navy mission territory. This always puzzled me, because in my mind it’s always be a air-sea-land battle. Especially as the perceived budget pressures have forced all the Services to cut force structure. In any serious and protracted campaign, the Navy needs Air Force tanking and command and control capabilities. And the Air Force relies on the assets from the Navy with little or no support requirements to beef up the Joint Force. It was never clear to me why Air Force and Navy needed to invent a “new concept” for something that has always existed….except for the issue of the Joint Strike Fighter. This $160 Billion over-budget, 7 year-late program is costing the King’s treasure and consuming all other aspects of the budgets of both services. Why not influence operational concepts as well? The story line? Air Force and Navy are inextricably linked by the Air-Sea Battle Concept and we must have the JSF to make it work. To the Hawks on the Hill, this can be a very compelling argument. One wonders what was going through the minds of the Army folks while they watched this little menage a deux develop.
Well, I guess the Army dusted things up enough to cause a name change, albeit no less threatening to their budget. As they say in the Patriot’s locker room, “All’s fair in love and war!” So to appease the Army, it appears we now have a new concept. And the name is a doozy…..Joint Concept for Access and Maneuver in the Global Commons. Access is there to appease the Air Force and Navy, while Maneuver is there to keep the Army below the horizon of the doctrinal landscape.
I have to comment that the new name doesn’t do much for me…..especially the Global Commons piece. To this dinosaur, Global Commons is just a hoity-toity pretentious way for the Pentagon illuminati to show how deep their thoughts are. What is/are the Global Commons? Here’s what Wikipedia says:
a term typically used to describe international, supranational, and global resource domains in which common-pool resources are found. Global commons include the earth’s shared natural resources, such as the deep oceans, the atmosphere, outer space and the Northern and Southern polar regions, the Antarctic in particular. Cyberspace may also meet the definition of a global commons.
I am assuming that in the context of the Pentagon’s understanding, global commons to us unenlightened means “the places we want to be, that others don’t want us to be.” My suggestion for the name of the concept would be the “Enter, Conquer,Stay, Operate” Concept, ECSO or EkSo. It’s sooooo much nicer than Jam-Jic, Don’t you think?
Anyway, as we face serious and deadly threats from everywhere and everything, Syria, Afghanistan, ISIS/L,Budgets, cyber, meteorites, ebola, global warming, etc., it’s good to know we still have thinkers working on US access and maneuver in the Global Commons.
I have written about the Navy’s Littoral Combat Ship kerfuffle before. The recent “non-decision” by outgoing SECDEF Hagel concerning the fate of the LCS fleet has prompted me to write again on the subject. For those you you who haven’t followed this “crisis of our own making,” my previous musing, Rethinking LCS, provides some background which I will not repeat here. But I know it’s a hassle to click on the link, so here’s the Cliff Notes version:
LCS concept was for affordable, brown water vessel with modular capabilities to fulfill the presence mission in key locations around the globe.
LCS modular concept meant that not all missions could be done at once, keeping costs lower and enhancing adaptability for new missions.
LCS was not designed as a front-line warship, bristling with armament, but was configured to protect itself in most likely operating areas.
Navy bought two designs, hoping to down-select, but alas, since the only decisions that are generally (or admirably, if you prefer in this case) made in the Pentagon are pre-decided, the decision was made to not decide and buy both forever.
Elements in DoD leadership decided LCS didn’t have enough firepower and was vulnerable and directed the Navy to explore alternatives.
Navy commissioned a big study to scratch the OSD itch.
All breathlessly awaited the Uber-SECRET study results, knowing the Unter-SECRET answer: Navy can’t afford anything else…….(shhhhhhhh don’t tell anyone!!!!!!)
I found these slides in an article by the US Naval Institute and they are attributed to the US Navy, however I couldn’t find them on the Navy website.
So that brings us to the big pre-made decision by SECDEF, after consulting, conferring and otherwise hobnobbing with the Pentagon cognoscenti. (Who are the cognoscenti you ask? Read SECDEF’s statement and find out.) And the decision was:
Drum Roll Please
……stay with two LCS designs, bump them up a bit (maybe $53 or $61 Mil or so) and move on. I think the only one surprised by the answer may have been SECDEF himself! Otherwise, why bother? I shudder to think about the amount of money and time spent on this study which had only one answer. I haven’t seen the actual study, but from what I’ve read about it, no stone was left unturned (apparently 192 stones to be exact). Option after option considered, analyzed, pondered, etc……..by those who already knew there was only one answer……we can’t afford anything else, nor can we afford the time required to start the acquisition process all over again. The answer was pre-decided. My guess is most of the changes announced would have been made anyway.
These pre-decided decisions are common in the Pentagon, but all too often staffs are forced to do the kabuki dance to give an air of legitimacy to them. Those in disagreement get to say their peace and then dismissed as “having an input”, even though no one was really listening. I recall this vividly while working on budget end-game around the 2006 timeframe. The Service programmers (three star resource folks) would be herded down to OSD about an hour before SECDEF was to receive a decision briefing on an issue, shown the slides prepared for him and then dismissed. I barely had enough time to run back to the Vice Chief to brief him on what I had seen, let alone provide him with any analysis of what OSD had pre-decided. Of course, if the Vice Chief were to raise an objection during the SECDEF briefing, the OSD Poobahs would announce,” Your folks have seen this and nothing was said.”
The point of this little tirade is that we waste money on these types of exercises all the time. I think about all the good we could have done for our wounded warriors with the money we wasted on this study. I think about all the time consumed by some very smart people who could have been working on something really important…how to deal with sequestration, how to keep the technological edge, how to fix our broken nuclear infrastructure…and any number of other problems.
Why does the Pentagon continue to do this? I suggest it’s because they have an endless supply of people and money. No one pays for people, they just have them. No one has to justify the cost of doing such a study because cost is not an issue. If I had done that in my civilian P&L life, I would have been shown the door. I had to spend my money and time on things that mattered and contributed to the bottom line. Since there’s no bottom line at DoD, everything tends to become equally important. Once on the Joint Staff I remember a staff briefing one day when the two topics discussed were the reduction of the nuclear arsenal by 50% and the Joint Staff savings bond campaign. We spent the same amount of time on each…in the end it was decided we should brief the Deputy Director daily on the savings bond campaign and as needed for the nuclear issue.
Only in the DoD acquisition world would this sound like a good deal! But before we cast too many arrows at the acquisition community, I must admit the idea is mine. I developed this idea over the course of years of working in the Bizarro World of DoD ship financing. You remember Bizarro? It’s the world where everything is backwards….the name of the bizarro world planet is Htrae (so clever!) and the world is square. As I recall, it was featured occasionally in Superman comics in the 1960’s. One of the mottos in Bizarro World was ” Us do opposite of all earthly things.” Bizarro bonds were a hot item on Htrae because they were “guaranteed to lose money.” So I don’t think it’s a huge stretch to make the analogy here.
As I learned during my time as Chief Resources and Requirements Officer for the Navy, the normal things you learned about economics don’t necessarily hold true when it comes to buying ships. My initial experience was during my first year on the job. We were working on balancing the budget and were about $400 Million off. The staff proposed that we slide the purchase of a ship we were buying for the Army called the LMSR (contrary to popular belief, the Army moves primarily by sea, not air). The price tag was about $400 Million and the staff had determined that we could stand to slide it a year. “Sounds good to me!” I answered, happy at the prospect of putting a bow on the $130 Billion Navy budget and delivering it to OSD just in time for Thanksgiving. By the way, that’s how you make sure that you don’t get rejected right away…..Submit something just prior to a big holiday so no one is around to grade your work. This rule works in a variety of scenarios:
DoD generally drops significant RFPs just before holidays to force contractors to work feverishly at the expense of their families to get the proposal complete by some arbitrary deadline (which generally gets extended anyway).
The Congress always passes bills at the eleventh hour before big holidays, in hopes that the particulars will escape the media. What’s more interesting? The details of the CR passed the day before Thanksgiving or the press conference where the President pardons the turkey? Or maybe the 3 minute spot on the evening news which shows the neighbor’s Christmas lights display of 100,000 watts, synchronized to “All About That Bass.” I vote for the turkey pardon and the light show!!!!!(and sadly, so do most)
Controversial changes to Federal Register seem to always drop the day before a holiday in hopes that no one will notice.
My favorite, RFP’s released with 5 days to respond…(a favorite way to make sure the desired contractor wins)
Anyway, I’m sure you have your own sea story that would make mine look minor. But back to the LMSR caper……
A few days after the decision was made, the staff came back and noted that since we slid the ship a year, it’s going to cost more…..I don’t remember how much, but it was around $100 Million or so. “Really?” I commented. ‘Oh, yes,” came the reply, ” money will cost more the next year, we have shipyard loading issues that we will have to pay for, the cost of steel is going up, blah, blah blah.” So I began to understand that the economics of shipbuilding were different. I formulated The Shipbuilding Entropy Rule: “Nothing ever costs less. NO matter what you do, it will always cost more.” You buy less, they cost more. You cancel the buy, you still have to pay the overhead. You remove capability, it costs more to redo drawings. Its all very counter-intuitive. This became very clear to me during the following year’s budget build when the staff came back and said “We made a mistake. We have to move the LMSR back to the original purchase year.” “Fine,” I replied, “No harm, no foul.” Sensing it wasn’t “Fine“, based on the furtive glances between the staffers (an admiral sees a lot of those looks in the Pentagon) I asked “What’s wrong?” Turns out, if we moved the ship back into the original purchase year, it added another $100 Million to the cost! Whadakknow? We essentially did nothing and paid $200 Million not to do it! That, my friends, is Bizarro accounting!
Anyway I could go on and on about this, but I want to get to the reason I chose the title of this article, One for the Price of Three.
The DDG-1000 (AKA CG(X), Arsenal Ship, Zumwalt Destroyer, DD21, DD(X), etc) was originally intended to have a buy of around 32 ships or so. They became so expensive and the requirements bounced around so much, we began advertising it as a fire support ship vital to the survival of the Marines during amphibious assaults. As such, we only needed about 10-12, just enough to support the number of amphibious ready groups (ARGS) we had at the time. The Marines were happy about that, even though they preferred to have 2 per ARG. I even went over to the Hill with my Marine counterpart extolling the virtues of the DDG-21 as the perfect fire support ship for the Marines. But once the Marines realized that the cost of the ship was so high that it would probably limit the amount of other stuff they could buy, they dropped it like a hot potato…..they would much rather have the 360 V-22’s than 24 DD(X)’s. So in the space of about a month we changed our tune from”vital” to “not so vital.” Now that they are $3 Billion a copy, we are only building 3 of them and I’m not sure there’s a real requirement out there. As my Grandmother said when she got her first taste of champagne in one of those dinky champagne flutes at my son’s baptism, “That’s not enough to wet my whistle.” So it is with DDG-1000 IMHO. The real requirement as far as I can tell is to have something for Bath Iron Works to build ( they will build all three) so they can stay in business in order to address industrial base concerns. Hence the title of the article.
I propose instead of spending $9 Billion for 3 ships we don’t need, why not pay the shipyard to build it, take it apart and then build it again? It keeps them busy. The Navy doesn’t have to shoulder the Operations and Maintenance costs necessary to support a ship class of 3 ships, and we don’t have rustle up the personnel and training facilities which must be specially developed on this one-of-a-kind weapons systems. Heck, we will save money by doing that! Of course, this idea only works on Bizarro World.
That, by the way, is how Bizarro JosBanks works too. You pick out one suit and pay for three!
I saw a reprint of an article done by Reuters the other day entitled “Special Report: The Pentagon’s doctored ledgers conceal epic waste” and even though it’s almost a year old, I think it still applies. In just a few days, all the big accounting firms that do business with DoD will be submitting proposals to conduct audits of the the Army, Navy and Air Force Statements of Budgetary Activity (SBA)……that’s a high level balance sheet that has little applicability to the actual management of anything. Experience in auditing the Marine Corps proved that trying to do anything else was futile. One just has to read the Reuters article on “Plugs” to see just how daunting a task auditing any of the services really is. Inventing phantom ledger entries or “plugs” to explain away imbalances in the “goes-intas” and the “goes-outtas” is apparently the norm at the Defense Finance and Accounting Service. What’s a little disturbing about this whole audit thing, is that many of these sins will go unexamined because they do not necessarily impact the SBA. See my article “DoD Audit: Is the cure worse than the disease?” for the details about just what the SBA is all about.
In fairness, I think the article’s title is misleading in that I doubt if the motivation behind plugging in numbers is a desire to conceal waste, but rather it’s the normal way of balancing the books in order to satisfy the Treasury Department. The real motivation is to keep the heat off oneself ……does that sound familiar? Think about recent VA scandal…..I doubt if the real motivation was to make sure deserving veterans didn’t get appointments, but it was done to keep the front office happy. Never mind that the green eye shades at Treasury are apparently more interested in balancing the numbers as opposed to the reliability of the numbers used to balance (a la VA!). It’s been going on for years, so that’s a good indication that nobody cares. Unlike the VA however, the DFAS guys were caught and still nobody cares!
But we do care these days about getting the DoD auditable. And the Pentagon’s efforts to get to auditability have been extensive and expensive, with some modest results. Take a look at the USMC……their SBA has passed audit scrutiny for two years running now. Some months ago I wrote an article on the USMC audit, “Hall of Heroes and Auditors“, which is worth reviewing for context for what follows.
I support the efforts of DoD to get auditable, but only in so far as those efforts are done for the right reasons….not to keep the front office happy, but to make sure DoD is properly accounting for dollars….When they say “We don’t have money for pay raises”, or “Retiree health care is costing us too much,” or “We have to furlough employees,” are they using data from the system that “plugs” in nonexistent dollars to satisfy the front office? Who knows if the numbers they are quoting are accurate, given the evidence that the numbers are inherently inaccurate! My point is DoD audits are only interesting science projects for green eyeshades if we are only auditing things that don’t matter. SBA audits are interesting, but not compelling. We must follow on and audit all the other aspects of DoD financial accounting and property, plant and equipment inventories. That’s the plan (I think), but after DoD has spent collectively over $200 Million just to get to SBA audit, will they have the fortitude to go further into the things that really matter? Will Congress let them? Will the operational pressures in an very unstable, terrorist filled world trump mundane administrative exercises like audits? Stay tuned, but I think with sequestration about to raise its head once again, the President under pressure to mount military responses to multiple spots around the globe, and political stalemate in the Congress, betting on continued funding for DoD audits is at best like wagering on red or black at the roulette wheel at Trump Towers in Atlantic City (ooppppsss, it’s out of business, so how about The Nugget in Las Vegas?).
So don’t get too worked up and break out the champagne if it turns out the the service SBA’s pass audit ( they are likely to do so because of the limited scope and usefulness). Instead remember:
It’s only the SBA, a very limited look into DoD finances.
No one uses the SBA to manage anything.
It only looks at one year…Past sins are ignored.
DFAS is still using plugs to balance the books.
It may be done by the cheapest bidder (As a stockholder, would you want the firm you have your life savings in to use the cheapest auditor?).
Because all the audits are being done at the same time, chances are all the firms will be battling for manpower and may not be hiring the most competent auditors (assuming they hire auditors). We may even have to open up an auditor refugee camp to handle the influx of auditors to the Beltway.
So to sum it all up, I wholeheartedly support ensuring the DoD manages it funds effectively, efficiently and accurately. I’m not sure an audit of the SBA does any of those things. Victory is not a clean opinion on the SBA, it’s a clean opinion on the whole enchilada.
PS: Please do not reverse the order of this article’s title, no matter how applicable it may seem 😉
I saw an interesting article this morning on the NDIA Blog site which said Secretary Frank Kendall, the Under Secretary of Defense for Acquisition, Technology and Logistics USD(AT&L), was unhappy that DoD did not meet the goal for having more competition for defense-related contracts. I’m not surprised at that because given the irrational focus of DoD on vendor profits, they have managed to make bidding on defense contracts so unattractive that fewer and fewer companies are making the effort to bid. In my view, it’s not just one reason:
There are less contractors out there to bid
DoD rules and regulations limit profitability on contracts (only the big guys can survive at the margins expeced by DoD)
FAR requirements are so onerous (and increasing) that it’s too expensive to bid on many contracts
FAR requirement are so onerous that it’s too risky to bid on many contracts
The specter of having DCAA establish a parasitic site in your corporate HQ to monitor your finances is too distasteful
Uncertainty of funding streams, including the ability of DoD to cancel any contract for any (or no) reason
Too many ID/IQ contracts in order to avoid protests. They are just beauty contests.
I think I will stop at those seven for now, but there are more. What’s fascinating to me is that these reasons are ignored as DoD attempts to develop a fix for limited competition. The DoD solution is to increase regulation, increase reporting frequency (so the bad news comes more quickly I suppose), and continue to monkey around with contractor profits, even on fixed-price contracts. The best way, is to reduce the number of requirements, like those cited above, and let natural instincts and market forces drive competition.
In order to have more bidders, it must become more attractive to bid!
Hello? Did i just say that? Why isn’t the leadership focused on how to make bidding and working on government contracts more attractive? Can it be that simple? I think the answer is yes.
So what does the sewing machine have to do will all of this? This past weekend, the lovely Mrs. Crenshaw volunteered to do a little sewing to get one of our granddaughter’s uniforms ready for school. In order to do this, she needed her sewing machine liberated from the darkest recesses of the attic. I felt like I was in the basement of the Smithsonian as I rummaged throughout the boxes of brass plaques accumulated over the 32 years of my naval career (I’m not allowed to display them). I found a medal I received from the Russians, a box of challenge coins, some old text books from the Naval Academy (why I still have a book on differential equations is beyond me), and various other flotsam and jetsam accumulated over 40+ year of marriage. I finally found the sewing machine, Singer Syle-o-Matic Model 328 (now listed on E Bay as “vintage”). Setting it up after many years of disuse was challenging. It’s a mystery to me why sewing machines work anyway, much like the DoD acquisition process. I started fiddling around with the upper thread tension, adjusting the needle alignment, resetting the timing, changing the motor belt, tweaking the bobbin tension, etc. Before you know it, I had adjusted just about everything on that machine and I had no idea of what the original settings (which worked fine the last time we used it) were. I should have left it alone, done some basic maintenance (a drop of oil perhaps) and let it do its thing. But NOOOOOOOoo! I had to fiddle around with every possible adjustable part and got it so far out of whack that the only option was to go back to basics and take it to a professional. Now it works just fine. I think the same is true in the world of DoD acquisition We have monkeyed around with so many parts that we have lost sight of the original settings—-namely good, old-fashioned competition, unhindered by excessive regulation or government meddling in corporate finances. Why not turn over the management of corporate finances to the professionals (that would be corporate leadership) and let them do what they do best, COMPETE!
So my suggestion on how to increase comptetion is simple: make it more attractive to bid. One does this by eliminating the barriers to bidding, not by adding more.. Take a look at my seven reasons above. If we focused on fixing those, I guarantee you there would be more competition. In the end, the government would get better value for the dollars it spends, not just cheap, mediocre work for which the government is becoming increasingly famous (or infamous, I suppose).