Saturday, December 31, 2011

Why We Lose Billions (Trillions!) In Defense Spending Without A Thought

Having worked in the defense industry (aerospace, mainly) for over 25 years, this is a tale I used to bemoan publicly. Probably to my current inability to ever gain professional employment (with or without benefits) again. (I also used to joke about the F-22 and the coming B2 Stealth bomber. Ha Ha on me, huh?)

Loren Thompson
Loren Thompson, Contributor

I write about national security, especially its business dimensions.

How To Waste $100 Billion: Weapons That Didn't Work Out

One of the most unsettling facets of federal finance is the way the government devalues past investments.  The political system is so focused on the next budget — and the next election — that it ignores sunk costs.  Thus, every program termination is considered “savings,” without regard to the money that was spent to get the project in question to its current state.

This fiscal myopia is especially pronounced in the defense budget, where the government makes most of its capital investments.  Cancellation of weapons systems that have been in development for a decade or longer is typically greeted as evidence that policymakers have made “hard choices” and had the courage to stand up to the “military-industrial complex.”  The fact that previous administrations may have spent billions of dollars trying to satisfy a valid military requirement is barely mentioned — as is the fact that future administrations will have to spend additional money starting over on a replacement project.

The Army has been the biggest offender in recent times, probably because it was awash in money appropriated for fighting ground wars in Asia.  It walked away from a mobile cannon called Crusader in 2002 after spending $2 billion on developing it because Army leaders decided it was too heavy to fit with their plans for a more mobile force.  Eight years later it canceled a potential successor system after spending $1.2 billion.  In 2004 it killed the Comanche next-generation “armed reconnaissance” helicopter, squandering $7 billion in sunk costs, then a few years later it canceled the proposed replacement — incurring hundreds of millions of dollars in additional losses.
It also has moved to terminate both of its next-generation air defense systems because threats “didn’t evolve as expected,” and now seems to be getting cold feet about its second try at buying a plane that can identify hostile radio emitters on the battlefield.

The Army’s biggest budgetary mis-step was a family of networked air and ground vehicles collectively called the Future Combat System.  Although prime contractor Boeing managed to keep the program on schedule and on budget through a series of restructures, Secretary of Defense Robert Gates decided in 2009 that the project wasn’t ready for prime-time and canceled it after a staggering $19 billion had already been spent.  Bloomberg Business News subsequently reported that the service had wasted $32 billion on doomed weapons projects since 1995.

The Army is not unique in its capacity to waste taxpayer dollars.  The Air Force has squandered vast sums of money over the last dozen years on cutting-edge technology projects that ended up being canceled or curtailed, due mainly to the poor judgment of political appointees outside the service. For instance, both of the Bush Administration’s big space initiatives — a constellation of orbital radars for tracking moving ground targets and a super-capable communications satellite — ended up being canceled after billions had been spent.
Before going down, though, they caused dislocations and delays in other programs designed for similar missions that added to the collateral damage.

As for Air Force planes and rotorcraft, the last ten years may have been the most wasteful period in the service’s postwar history, because so many projects were killed before coming to fruition after going through costly gestations.  A promising Airborne Laser project for shooting down hostile ballistic missiles at the speed of light was effectively terminated by Secretary Gates in 2009 after 13 years and billions of dollars in development outlays.
A much-needed replacement for aged search-and rescue helicopters was killed too, as was the F-22 fighter.
The fighter program at least delivered 187 very capable aircraft before biting the dust — half of the service’s operational requirement — but as with other canceled programs, failure to agree on requirements and stick to a plan resulted in money being spent wastefully.

Then there is the Navy Department, home of sailors and marines.  Two of the three new surface combatants that the Navy announced in 2001 have been canceled, and the third is still a long way from proving its warfighting utility.  One of the canceled ships was, or is, a next-generation destroyer capable of defending the fleet against air and surface attacks while supporting marines ashore with long-range guns. It is easily the most capable surface combatant ever conceived, but when the Navy saw the price-tag for the finished product it decided to buy only three rather than the 32 planned, meaning it spent billions of dollars to get to a point where it could build a mere handful of vessels.
The second canceled warship was a cruiser based on the same hull that could be optimized for defeating ballistic missiles, but the Navy gave up on that project after spending “only” a few hundred million dollars.

It also ganged up on the Marine Corps with Secretary Gates to kill a desperately needed Expeditionary Fighting Vehicle that would have delivered warfighters through the surf onto hostile beaches.  After spending $3 billion and nearly two decades perfecting the system, political appointees decided it cost too much per vehicle and terminated it — even though that would keep Marines in slow, vulnerable vehicles for many years to come and there was no proof that whatever followed the canceled vehicle would be cheaper or better.  This particular termination starkly illustrates how killing programs to “save” money often means risking the lives of warfighters.

No chronicle of wasteful weapons spending would be complete without a mention of defense agencies — the vast bureaucracies outside the military services that supposedly save money by consolidating management of joint activities.  The big culprit there is the Missile Defense Agency, which relative to its size has probably wasted more money on canceled technology projects than any other federal organization in modern times.  In recent years it has cut back or killed everything from a European missile-defense site to the fast-reacting Kinetic Energy Interceptor, squandering huge amounts of money in the process.  Its biggest success — the sea-based Aegis combat system — can trace its longevity mainly to the fact that the Navy was in charge rather than missile-defense proponents.

If you add up all the money spent on military systems that got funded but not fielded since the Cold War ended, it probably tops $100 billion. We’ll never know the full amount, because some of the biggest projects are hidden in secret spy-agency accounts. Defense contractors are reflexively blamed for the waste because politicians and policymakers are even less interested in accountability than they are in precise accounting.

What the record shows, though, is that weapons makers aren’t the real cause of the waste.  They only have one customer — the government — so they will do pretty much whatever that customer pays them to do. The real problem lies with the limited attention span of a political system that barely notices the sacrifices and assumptions of past administrations and cares only about the fiscal run-up to the next election.  Because the system is so indifferent to expenditures it cannot control, it devalues past investments and squanders billions of dollars every year in the guise of pursuing “savings.”


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