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programs, and would have the authority to reduce duplication across programs.48 ... due.49. • INFORMATION SYSTEMS: DOD
MANAGING the

MILITARY more EFFICIENTLY Potential Savings Separate from Strategy Matthew Leatherman | Barry Blechman | Russell Rumbaugh

MANAGING the

MILITARY more EFFICIENTLY Potential Savings Separate from Strategy Matthew Leatherman | Barry Blechman | Russell Rumbaugh MAY 2013

EXECUTIVE SUMMARY This report is a compilation of recommendations made in recent years by many boards, commissions and study groups that have proposed efficiencies in how the U.S. Department of Defense spends money. If implemented fully, the recommendations would save nearly $1 trillion over a decade, though it is virtually impossible they will all be adopted. The proposals face varying degrees of political opposition – some intense – and some recommendations are contradictory. We are not endorsing any of the specific options but, by compiling the proposals, we have created a resource that frames the many calls for efficiencies, providing context that the broader debate on defense spending is currently missing. The recommendations are organized into three critical areas: personnel compensation, manpower utilization and procurement practices. Personnel Compensation

Members of the armed forces make great sacrifices and willingly risk their lives to defend the United States. The nation has a sacred obligation to keep faith with what they were promised. Yet any given pay or benefit is just a policy – not something inherently sacred. Many studies have found that the Pentagon could better provide service members with the care and compensation they deserve by adopting better management practices. Options for better-managed compensation include: • Adjusting the formulas for cash compensation growth. • Pegging pay to specialization in high-demand areas. • Transferring non-cash compensation into cash compensation. • Curtailing the pool of health care beneficiaries. • Increasing health care fees and cost-sharing. • Modernizing military retirement.

Manpower Utilization

The volunteers who step forward to serve in the U.S. Army, Navy, Air Force and Marines are the military’s most important assets. They should be used as effectively as possible. Examples of better manpower utilization taken from the recommendations compiled in this study include: • Streamlining duplication and redundancy. • Reducing the number of personnel providing overhead support. • Using members of the military to perform inherently military functions. • Trimming civilian manpower and contractor support. • Better balancing between the active and reserve components.

EXECU TIVE S U M M A RY | 3

Procurement Practices

The Pentagon has spent more than $360 billion on contracts in each of the last three years, but has drawn criticism for not always spending these funds wisely. The Government Accountability Office’s “high risk list” has included defense weapon systems acquisition since 1990, defense contract management since 1992 and defense financial management since 1995. Recommendations to improve Defense Department procurement include changing the ways that: • Contracts are constructed. • The acquisition workforce is managed. • Best practices are chosen. • Requirements are generated.

In a time of tight budgets across the federal government, the key defense budget issue facing policymakers today is not whether to cut, but where to cut. Before cuts are made to military readiness, force structure, or needed weapons, some of the changes like those in this report should be implemented. If the United States is to have the best defense possible, it must spend its defense dollars in the most effective and efficient ways possible.

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EXECU TIVE S U M M A RY | 5

ACKNOWLEDGEMENTS The authors would like to thank Ellen Laipson and Stimson management for their leadership and also the Stimson Communications Department designing and producing the report. Any errors are solely the responsibility of the authors. This report was made possible by the generous support of the Peter G. Peterson Foundation.

ACKNO WL ED G E M E N TS | 7

TABLE OF CONTENTS Executive Summary 3

Acknowledgements 7

Introduction 11

Reforming Personnel Compensation 13

More Efficient Utilization of Manpower 25

Better Acquisition Practices 33

Conclusion 45

Endnotes 47

MANAGING THE MILITARY MORE EFFICIENTLY: POTENTIAL SAVINGS SEPARATE FROM STRATEGY Regardless of the amount that the U.S. spends on its defense, funds should be spent as efficiently as possible. Everyone can agree with such a statement, but it’s easier said than done. Nowhere is the axiom about one person’s trash being another’s treasure truer than in the defense budget. Each line is there because someone defends it. If that champion disappears, another advocate will immediately step up to shift the money left behind. Nevertheless, efficiencies are possible. A July 2011 Defense Business Board (DBB) report determined that “substantial budget cuts (5 to 15 percent) can be achieved without affecting future mission readiness if there is an intense focus on reducing ‘overhead and infrastructure’ spending.”1 Countless authoritative boards, commissions and study groups have suggested ways to save money in defense without compromising military capabilities. This report offers a top-level overview of that work. All of the options presented here have appeared elsewhere. They did not originate with Stimson nor does Stimson specifically endorse any of them. No one is likely to embrace them all – indeed, some issues are so complex that experts have made contradictory suggestions – but most will find some choices and savings that they can accept. Importantly, this report identifies efficiencies that might be possible irrespective of what kind of strategy the United States pursues. The efficiencies are organized into three parts: personnel compensation, manpower utilization, and procurement practices.

PO TENTIAL SAVINGS SEPARATE FRO M ST R ATE G Y | 11

REFORMING PERSONNEL COMPENSATION U.S. military personnel make great sacrifices for our country, and the United States has a sacred obligation to those in uniform who serve their country. Their compensation must align with what they were promised. Particular pays and benefits are just a policy and not something inherently sacred by themselves, however. There may be more efficient ways to provide service members with the care and compensation they deserve. The Tenth Quadrennial Review of Military Compensation (QRMC), published in February 2008, found that:2 In general, this system works effectively to attract and retain the high-quality personnel needed in the uniformed services of the 21st century. That said, there is room for improvement to increase the system’s flexibility and better enable force managers to respond to changing requirements in support of national security missions. Improvements can also increase member choice, serving to enhance recruiting and retention efforts in the uniformed services.3

Options in this section represent ways military compensation might offer better care for service members yet also achieve savings; e.g., adjusting the formulas for cash compensation growth; pegging pay to specialization in a high demand area; transferring non-cash compensation into cash compensation; revising the working-age retiree health care cost-sharing ratio, fee structure, and beneficiary pool; and modernizing the retirement plan. Adjusting the Formulas for Cash Compensation Growth

There are two commonly used measures of military compensation. Basic Military Compensation (BMC) represents just the salary that a service member earns, while Regular Military Compensation (RMC) also incorporates housing and food allowances, as well as income tax advantages.4 Even the broader RMC formula excludes significant elements of a service member’s compensation package. The Tenth QRMC proposed expanding the definition of military pay to better account for how service members are compensated. This assessment [of compensation adequacy] has been based on a comparison of cash compensation between the [military and civilian] sectors… But this approach leaves out several very important components… Benefits to service members are substantially more valuable than those typically offered in the civilian sector, and members can also receive tax advantages not available in the private sector. Taking these additional components into account shows that service member compensation is much more generous relative to civilian compensation than the traditional comparison of cash pay would suggest.5

It was on these grounds that the Tenth QRMC recommended that the military health care benefit, retirement benefit and tax advantages from state jurisdictions and Social Security be included when comparing military and civilian compensation.

REFO RMING PERSO NNEL CO MPE N S ATI O N | 13

Military Compensation

Whether and civilian compensation can appropriately be compared is a sensitive question, Figure 2-2military compares annual earnings of enlisted service members and comparable civilians over a 20-year career. Average annual RMC for enlisted given the dramatically different demands of military service. Although approaching the issue with personnel rises steadily over the 20-year period, growing from about $37,000 in the first year of service to approximately $75,000 by the 20 year. Civilian wages a different charge the Tenth QRMC, the Eleventh QRMC still found that “[avincrease as well, rising from aboutand $18,000perspective for high school graduatesthan first entering the workforce, to about $50,000 for those with two-year degrees and 18 years of erage enlisted] RMC is higher than the wages of 90 percent of comparable civilians.”6 Meanwhile, work experience. Military compensation exceeds civilian earnings at every point along the 20-year career period, with the greatest wage differences occurring “average officer earnings correspond to allabout the 83rd percentile wages for the combined civilian between military personnel and civilians with high school diplomas. Among three civilian groups, the gap with military compensation increases after the 15-year Military Compensation comparison groups. ”7 begins to slow and military compensation mark, as the growth in civilian earnings th

continues to rise. 80

140 120

60 Thousands of Dollars

Thousands of Dollars

70

50 40 30 Enlisted

20

Civilians with AA degree Civilians with some college Civilians with high school diploma

10 0

1

2

3

4

5

6

7

8

9

100 80 60 40 Officers Civilians with MA degree or higher Civilians with BA degree

20 0

10 11 12 13 14 15 16 17 18 19 20

Years of Service

0

1

2

3

4

5

6

7

8

9 10 11 12 13 14 15 16 17 18 19 20

Years of Service

Figure 2-2. Enlisted Regular Military Compensation versus Civilian Earnings, 2009

Figure 2-4. Officer Regular Military Compensation versus Civilian Earnings, 2009

discussed earlier, the experience andCompensation training that service members receiveEarnFigure As 2-2. Enlisted Regular Military versus Civilian while in theReport militaryofsuggests that seniorQuadrennial enlisted personnel shouldofbeMilitary comparedComings, 2009, The Eleventh Review to more highly civilians pensation, Juneeducated 2012, p. 27 than junior enlisted members—that is, college graduates rather than high school graduates. Figure 2-3 compares compensation of senior enlisted personnel (E-8s and E-9s) with civilians who have associate’s and bachelor’s degrees. During the 15th through 30th years of service, military

Figure 2-4. Officer Regular Trends in Military andMilitary CivilianCompensation Compensationversus Civilian Earnings, 2009, Reportwage of The Eleventh Quadrennial Review ComThe favorable comparisons detailed above resulted fromofa Military decade-long pensation, Junevarious 2012, p. 29 of RMC, and make military compensation more effort to raise components competitive with civilian pay. In fact, growth in RMC has outpaced civilian wages and salary growth since 2002 (Figure 2-5).

This differential may support the Pentagon’s FY2014 budget request to slow the growth of military Two primary factors influenced the growth in military pay. The first was a steady increase in basic pay. After a period of recruiting and retentionindustry difficulties in theemcompensation, in this case to 1 percent rather than the 1.8 percent increase seen by private late 1970s, Congress enacted an 11.7 percent military pay increase in 1981, and in a military payeven increase ranging fromPentagon 10 to 17 percent depending pay grade. The Eleventh Quadrennial Review of Military Compensation ployees.8 If extended over time, this perhaps could generate1982, savings if the alsoonadopted a These increases restored comparability between civilian and military pay to the levels at the beginning of the all-volunteer force. However, duringto the 1980s and80th companion recommendation from the Tenth QRMC to pegestablished regular military compensation the 1990s military pay again eroded relative to civilian earnings, with basic pay increasing 13 percent less than the Employment Cost Index (the benchmark for civilian pay percentile of civilian compensation.9 growth) between 1982 and 1998. As was the case in the late 1970s, the drop in 27

relative military pay created recruiting and retention problems for the services.

In its 2002 report, the 9th QRMC concluded that military compensation was

Congressional Budget Office (CBO) research found the same imbalance favoring compensanot competitive with the earnings of similarly military educated civilians, and recommended a series of increases to basic pay to bring military compensation more tion. It determined in January 2011 that “the typical enlisted person receives more cash compensation [salary, allowances, and subsidies] than three-quarters of comparable federal civilians.” Additionally, The Eleventh Quadrennial Review of Military Compensation “the disparity for officers exceeds the disparity for enlisted personnel,” and it “grows with increasing years of experience.”10 Rather than recalculating the military formula, as the Tenth QRMC proposed, CBO examined a budget option that would limit military pay increases over 4-5 years to half a point below the accepted measure of inflation, with Selective Reenlistment Bonuses available to personnel in occupations with shortages.11 A pay freeze has also been considered as an option, albeit an aggressive one. Civil servants’ pay table, including for those at the Pentagon, has been frozen since January 2011 and is slated to remain so at least through March of this year.12 The Simpson-Bowles Fiscal Commission’s illustrative option determined that holding military pay constant would save more than $9 billion by 2015.13 Dr. Stuart Rakoff and Dr. Neil Singer, a former Director in the Pentagon’s Office of Manpower Planning and Analysis and a former Deputy Assistant Director of CBO’s National Security Division, respectively, similarly found in an unpublished white paper that, “a two-year freeze on basic pay and housing allowances would generate estimated savings of $4.3 billion.”

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Pegging Pay to Specialization in High-Demand Areas

Concentrating compensation on high-demand personnel may make savings possible. According to Rakoff and Singer: Total pay does not vary much by specialty. As a result, basic pay needs to be high enough to meet manning targets in hard-to-fill specialties. Pay at that level, however, typically is more than sufficient to fill the requirements in other military occupations. …An alternative approach to setting pay levels is to rely more heavily on targeted pays and bonuses to meet manning objectives in most occupations. Under this approach, across-theboard pay would be set at the minimum level needed to meet targets in the least hard-to-fill specialty, and bonuses and special pays would be used more extensively than at present for all other occupations.

Targeting pay to higher-demand specialties rather than overcompensating lesser-demand specialties could be implemented by freezing the pay table for several years and phasing in the targeted pay changes in parallel. Despite foregoing a cost-saving recommendation on this count, the Tenth QRMC acknowledged this concept with a recommendation to increase the portion of compensation above inflation that goes to special pays and incentives.14 Transferring Non-cash Compensation into Cash Compensation

Salaries and bonuses are just two parts of a complex military compensation formula. Service members also receive a substantial part of their compensation through in-kind payments. As the Eleventh QRMC found: For active duty personnel, cash payments comprise approximately 51 percent of average military compensation; in-kind benefits 21 percent; and deferred compensation for retirees, veterans, and Military Compensation survivors another 28 percent. The percentage of military compensation made up of in-kind and deferred benefits is considerably higher than the noncash portion of civilian compensation.15 $15.9

Cash $19 $56

28% $17.7

51%

$20.2

$0.7 $1.5

$15.9

Source: U.S. Government Accountability Office.

Basic pay Housing allowance Subsistence allowance Other allowances Incentive pays Tax advantage Other cash

In-kind

21% $20.2

■ ■ ■ ■ ■ ■ ■

$4.6 $3.3 $5.6 $5.2 $1.1

■ Health care ■ Family housing/ barracks ■ Education ■ Other in-kind

Deferred ■ Retired pay accrual ■ Retiree health care ■ Veterans benefits

Total = $186.9 billion

Figure 2-1. Major Components of Military Compensation for Active Duty Personnel, Fiscal Year 2010 Figure 2-1. Major Components of Military Compensation for Active Duty Personnel, Fiscal Year Cash Compensation 2010, Report of The Eleventh Quadrennial Review of Military Compensation, June 2012, p. 17

Cash compensation comprises just over 50 percent of military compensation, the major elements of which are basic pay and allowances for housing and subsistence. In combination with the tax advantage resulting from the allowances not being subject to federal income tax, these elements are referred to as RMC. Other cash pays available to some members include special and incentive (S&I)REFO pays and otherPERSO NNEL CO MPEN S ATI O N | 15 RMING allowances. Each of these elements is described in further detail below. v

Basic Pay. Paid to all service members, basic pay accounts for 65 percent of RMC. Pay rates are based on grade and years of service, with pay rising as personnel are promoted to higher grades and continue to serve. Monthly pay amounts for each grade and year of service are outlined in the basic pay table.15 Pay grades for enlisted service members range from E-1 for entry-level positions, such as a private, to E-9 for the most senior

The Tenth QRMC pointed out the unique challenges of optimizing non-cash compensation, particularly that its “value is less easily understood.”16 This reflected a much more general economic principle, that individuals get more utility from compensation that maximizes their choice (i.e., cash) than from compensation that limits their choice (i.e., non-tradable in-kind compensation).17 One example is CBO’s option to consolidate the retail outlets on military posts and eliminate the subsidy for commissaries in favor of a cash allowance for eligible active-duty personnel. CBO estimated that this could save $9.1 billion from 2012-21 if the annual family subsidy were $400.18 CBO similarly examined an option in 2009 that would close the Domestic Dependent Elementary and Secondary Schools system and replace it with an $8,600 per-student allowance, trimming $279 million over 10 years from the Pentagon budget.19 The Tenth QRMC examined this issue as well and identified larger savings by reducing an overlapping Department of Education program alongside streamlining the Defense school system.20 Revising the Health Care Beneficiary Pool

Military health care coverage is another major part of compensation. This service is provided free for active-duty members, and there are no recommendations to change that. But this form of compensation continues long after a member has left the active-duty rolls, either by retiring or returning to inactivated Reserve Component status. Figure 1: Distribution of Beneficiaries as of May 2012

Reporting to the Under Secretary of Defense (Personnel and Readiness), the Assistant Secretary of Defense (Health Affairs) is the principal advisor for all DOD health policies, programs, and force health protection The cost of a health care The program depends foremost on how(Health many people activities. Assistant Secretary of Defense Affairs) receive issues the benefit. That pool policies, procedures, and that govern management of non-active beneficiaries expanded forstandards the military’s TRICARE programofonDOD several occasions during medical programs and has the authority to issue DOD instructions, the last decade. “TRICARE for Life,” enacted as part of the fiscal year 2001 National Defense Authorizapublications, and directive-type memorandums that implement policy tion Act, introduced Medicare wrap-around coverage for seniors at no fee. “TRICARE Reserve Select” approved by the Secretary of Defense or the Under Secretary of Defense passed as part of the fiscal and yearReadiness). 2005 authorization and expanded coverage to inactivated Reserve Com(Personnel As the Director of the TRICARE Management Activity, the Assistant Secretary of Defense (Health Affairs) is also responsible for awarding, administering, and overseeing approximately $24.4 billion in fiscal year 2012 funding for DOD’s purchased care network of private sector civilian primary and specialty care providers. Additionally, the Assistant Secretary of Defense (Health Affairs) integrates the military departments’ budget submissions into a 16 | M A N AGING T HE MILITARY MORE EF F ICIEN TLY unified medical budget that provides resources for MHS operations; however, the military services have direct command and control of the military hospitals and their medical personnel. See figure 2 for the current organizational structure of the MHS. Figure 1: Distribution of Beneficiaries as of May 2012, “Additional Analysis of Costs and Benefits of Potential Governance Structure Is Needed, Government Accountability Office, September 2012, p. 6

ponent members at premiums ranging from 28–85 percent of costs.21 And “TRICARE Young Adult” was added in the fiscal year 2011 authorization to extend dependent eligibility through age 26 under some circumstances. These expansions are one reason — precipitous health care inflation being another — that military health system costs grew from $19 billion in 2001 to an estimated $53 billion in 2013.22 The relationship between health care benefits and military readiness also has been subject to question. The Center for Strategic and International Studies (CSIS) used TRICARE Reserve Select as an example. The Reserve Component “population knows they will get full coverage for free if they are called to active duty, a benefit that can, unfortunately, serve as a disincentive to enroll” in TRICARE Reserve Select. Another unanswered “question is whether [TRICARE Reserve Select] is a more cost-effective retention incentive for DOD than other options, such as increased direct compensation.”23 That same issue may determine how effective benefits like Medicare wrap-around coverage are for recruiting and retaining young service members. The biggest and most direct health care savings might come from rolling back the extension of these benefits. Adjusting the Cost-sharing Ratio and Fee Structure

Within a set beneficiary pool, health care costs depend heavily on the respective share paid by the Pentagon and the inactive or retired beneficiary. Enrollment fees for working age (i.e., pre-Medicareeligible) retirees on the TRICARE Prime rolls remained fixed at their 1996 values until fiscal year 2012. Those fees previously stood at $230 per year for single beneficiaries and $460 per year for those with families; they now cost $270 and $540 per year, respectively.24 Meanwhile, CBO estimated that the fee would have had to more-than-double to keep pace with health care inflation. THE EFFECTS OF PROPOSALS TO INCREASE COST SHARING IN TRICARE

21

The Defense Advisory Commission on Military Compensation

Table 9.

Estimated Growth in TRICARE Prime’s Family Enrollment Fee Using Selected Measures, 1995 to 2008 (Dollars) Estimated Prime a Fee

Consumer Price Index (Medical) Premiums for the Federal Employees Health Benefits Program Gross Domestic Product Price Index National Health Expenditures per Capita

760 1,080 610 960

Memorandum:

Current TRICARE Prime Fee

460

Source: Congressional Budget Office based on the following: the medical portion of the consumer price index, from the Bureau of Labor Statistics; data on premiums (specifically, the average employee share) for the Federal Employees Health Benefits program, from the Office of Personnel Management; the gross domestic product price index, from the Bureau of Economic Analysis; and per capita data on national health expenditures, from the Centers for Medicare and Medicaid Services. a. The estimated amount of the fee in 2008 if its growth had mirrored that in the measures noted. The original nominal value used for the calculations was $460, the amount of the TRICARE Prime enrollment fee in 1995.

Comparing the enrollment fee proposed for the

The Effects of Cost Sharing on the proposed asking working-age retirees participating in the most Demand for Health Care The magnitude of the reductions in health spending that could be attained by increasing cost sharing for military beneficiaries depends on how strongly they would respond to the new fees, copayments, and deductibles. On the one hand, if military retirees and their dependents did not respond by leaving TRICARE or by consuming fewer health care services, DoD’s estimated spending reductions would not be realized. If, on the other hand, beneficiaries responded more strongly than DoD had assumed, annual reductions in its spending for health care could exceed its estimates.

generous TRICARE plan to contribute at “levels commensurate with premiums and cost sharing in civilian employer plans.” After that reset, it would peg future increases to the annual military retirement cost-of-living adjustment.25 The Tenth QRMC instead considered using Medicare Part B premiums as its benchmark for resetting the cost-sharing ratio and determining the annual increase. Under its plan, single working-age retirees In general, people can be expected to consume less of a good or servicehave as it becomes more to obtain. would paid 40expensive percent of the Part B premium and those But the degree of their response may vary widely, dependwith dependents would have paid 80 percent.26 ing on many factors, including the availability of substitutes and the fraction of a household’s budget that is involved. People would be expected to respond more strongly to changes in the price of luxury vacations, for example, than to changes in the price of gasoline, because gasoline is viewed as more of a necessity, with few substitutes available. Economists measure the degree of responsiveness with an “elasticity” and would therefore describe has estimated 2009, a typical theDoD demand for luxury vacations that, as morein elastic than the demand for gasoline.

Three years after the Tenth QRMC, in 2011, CBO reiterated the facts on this issue:

military retiree and his or her family who enrolled in the [most generous] Prime A price measures the change in thein quantity of a out-of-pocket costs (that planelasticity incurred about $860 annual good or service demanded in response to a change in its is, TRICARE co-payments and the enrollment fee). By contrast, price. If the response is relatively mild, as in the case of gasoline, demand is said to be inelastic, and the measured

price elasticity is between and -1. For 1995 a goodtothat has a“The Effects of Proposals to Increase Cost Sharing in Table 9. Estimated Growth in TRICARE Prime’s Family Enrollment Fee Using Selected0 Measures, 2008, TRICARE Standard and Extra plans with the average TRICARE,” Congressional Budget Office, June 2009, p. 21 price elasticity in that range, an increase of 10 percent fee-for-service premium paid by private-sector employees shows an even greater difference. Under DoD’s proposal, the new enrollment fee for the Standard and Extra plans would have been about $150 in 2011 for family coverage. By comparison, the average premium that civilians paid for fee-for-service coverage was $3,730 in 2008.27 (However, relatively few civilian employers still offer fee-forservice plans.) 27. Ibid. The share of their health insurance costs that employees (military or civilian) must pay is part of their overall compensation package. A more comprehensive look at the issue of military compensation relative to civilian compensation can be found in Congressional Budget Office, Evaluating Military Compensation

in its price will reduce the quantity demanded by less than 10 percent. If the quantity demanded is highly responsive to changes in price, demand is said to be elastic, meaning that a 10 percent increase in price will reduce the quantity demanded by more than 10 percent, and the measured elasticity will be more negative than -1. RMING PERSO NNEL CO MPEN S ATI O N | 17 REFO The inverse relationship between the price and the quantity demanded means that price elasticities will almost always be negative. In some ways, the demand for health care may not seem to mirror the consumption of other goods. Many people seek and purchase such services not solely on their own initiative but because they have been referred for addi-

again according to DoD’s estimates, a similar retiree with family coverage who enrolled in an HMO through a civilian employment-based plan typically paid $5,200 in premiums (not including the share paid by his or her employer) and copayments. TRICARE Prime beneficiaries also use the system more than do comparable civilian beneficiaries: DoD estimates that Prime enrollees use services at rates that are higher by 77 percent for inpatient services and 55 percent for outpatient services than the rates for civilian HMO enrollees.27

One CBO option in response to this situation projected the effects of raising the single working-age retiree fee from $230 per year to $550, and from $460 per year to $1,100 for beneficiaries with dependents. (Note these fees began growing with the retiree cost-of-living index in fiscal year 2012 and now stand at $270 and $540, respectively.) This would have approximately restored the cost sharing from when TRICARE was implemented in 1995, and future growth would have been indexed to health care inflation. CBO estimated that it could save $29.7 billion from 2012-21.28 The Rivlin-Domenici Task Force considered an option based on these terms, as well as introducing a small enrollment fee for Medicare-eligible retirees.29 Another CBO option considered excluding working-age retirees from TRICARE Prime, giving these beneficiaries a narrower choice of less generous plans. Some may find this appropriate because: About three quarters of all retired military beneficiaries not yet eligible for Medicare have access to employer-sponsored insurance through civilian employment… In 1999, 55 percent of military retirees and their dependents had signed up for other health insurance, but by 2009 that figure had dropped to 29 percent.30

This option would have set the enrollment fee at 28 percent of costs for the less generous plans and raised the maximum out-of-pocket expense from $3,000 to $7,500. CBO estimated that this would save $111 billion between 2012-21.31 The DBB in its 2005 study sought to place more of the cost burden on employers by recommending that TRICARE become a “secondary provider to ‘fill the gap’ for retirees for access to corporate health care.” TRICARE already is used as wrap-around coverage to their employer-provided insurance for Medicare-eligible retirees; this plan would have done the same for working-age retirees. Erosion in the cost-sharing ratio would have been managed by indexing fees to industry deductibles, co-payments, and premiums.32 Cost sharing applies to co-payments for prescribed drugs as well. The Tenth QRMC reported that “the pharmacy benefit has been the fastest growing component of military health care since 2000” and consequently proposed setting prescription co-payments at roughly two-thirds of that paid by civilians. Importantly, the Tenth QRMC emphasized that, “prescriptions filled at military treatment facilities should continue to be dispensed at no cost.” 33 CBO likewise considered an option that would extend co-payments to military treatment facilities for beneficiaries not on active duty, finding $13 billion in possible savings from 2012-21.34

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Congress did allow annual enrollment fees to increase in fiscal year 2012 as well as to rise each year, but at a rate no quicker than the retirement cost-of-living index.35 It took similar steps with respect to the pharmacy co-payment beginning in fiscal year 2013.36 Still, the retirement cost-of-living index grows significantly slower than health care costs, meaning that the Department’s health care costs will continue to increase. Now as part of its fiscal year 2014 request, the Obama administration has submitted, and Congress is considering, several more significant reforms of this type. The proposal would require greater cost sharing from all working-age military retirees. After a four-year phased increase, fees for the most generous plan would be bounded by a newly-created floor and ceiling within which they would be pegged to 4 percent of retirement pension income. These increases are substantial and would bring the cost-sharing ratio closer to its balance when TRICARE was created in 1995. Meanwhile, the Pentagon’s request also would introduce enrollment fees and deductibles for its less generous plans.37 In addition to changes for working-age retirees, the Pentagon included similar proposals for Medicareeligible retirees in its 2014 budget proposal. Specifically, it asked to introduce enrollment fees for the Medicare wrap-around plan and for those fees to be pegged to 2 percent of retirement pension income, also subject to a ceiling. Pharmacy co-payments “to fully incentivize the use of mail order and generic drugs “are considered for increases as well. Lastly, the $3,000 catastrophic cap also would be indexed to retirement income. 38 Modernizing the Retirement Plan

The most unique part of military compensation is the retirement package. Vesting for the retirement plan operates on a “cliff ” schedule. Personnel that separate prior to 20 years of service are not eligible for any benefits, and those retiring at or after 20 years of service receive a full and defined benefit. There is no gradual vesting; it is all-or-nothing, motivating personnel nearing eligibility to hang on until achieving it and then to separate immediately thereafter. Reciprocally, it provides no benefit to those who get out before then.

Survival of Entrants to Given YOS Enlisted Personnel

Officers 1.00

1.00

0.80

0.80

Army

0.60 Navy

0.40

Survival Rate

Survival Rate

Army 0.60

Navy

0.40

MC

MC

AF

0.20

0.20 AF

0.00

0.00

0 2 4 6 8 10121416182022242628

Years of Service

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28

Years of Service

Survival of Entrants to Given YOS, “Military Retirement Committee Report,” Defense Advisory Committee on Military 5 Compensation, July 20, 2005, p. 7

REFO RMING PERSO NNEL CO MPEN S ATI O N | 19

According to a 2011 DBB study, constructing the benefit in this way has several adverse implications: • First, the current military retirement system is unfair. For example, 83 percent of those serving in the military will receive no retirement benefit… This cohort includes the majority of troops who have engaged and will engage in combat… The distribution varies between officer and enlisted personnel; 43 percent of officers and 13 percent of enlisted personnel have historically received a pension. • Second, the current military retirement system is inflexible and has disadvantages with regard to force shaping… • Third, in light of the budget challenges DoD is currently facing, the military retirement system appears increasingly unaffordable. In FY11, the retirement plan will accrue 33 cents for each dollar of current pay, for a total of $24 billion.39

Like the cash compensation system and the health care benefit, a number of components factor into the military retirement formula, and each can be revised in order to affect costs. Unlike cash compensation and health care, however, retirement components are especially interdependent. Savings options tend to come as package deals rather than as a menu from which decision-makers can choose. Often these pension packages will collectively consider age eligibility, vesting schedule, calculation of benefit, role of retention bonuses and gate pays, need for a “defined contribution” corollary / substitute, and grandfathering provisions. Previous groups have recommended overhaul •

Defense Manpower Commission (1976): – vest personnel in an old-age annuity after YOS 10 – pay immediate annuity to Combat Arms personnel after YOS 20 & all others after YOS 30



President’s Commission on Military Compensation (1978): – vest personnel in an old-age annuity after YOS 10 – provide a cash transition fund financed by annual DOD contributions into a TSP-like account



President’s Private Sector Commission on Government Cost Control (1985): – vest personnel in an old-age annuity after YOS 5 – eliminate the second-career annuity



Three recent DOD study groups recommended systems similar to Federal Employee Retirement System (FERS) – FERS vests early – provides combination of old-age annuity & TSP contributions

7

Previous Groups Have Recommended Overhaul, “Military Retirement Committee Report,” Defense Advisory Committee on Military Compensation, July 20, 2005, p. 5

The Defense Advisory Commission on Military Compensation suggested a gradual phase-in of its recommendations. All currently serving military personnel would have been grandfathered to remain in the current system but also could have chosen to accept voluntary buy-outs after 10 years in selected occupations or to opt into DACMC’s new system. Savings would have accumulated more slowly than if some members were not grandfathered, but more quickly than if some service members didn’t have the buy-out or opt-in choices.

20 | M A N AGING T HE MILITARY MORE EF F ICIEN TLY

New members entering the service would have been enrolled automatically in a new retirement system that distributed the benefit between working-age and full retirement. It would have introduced a defined contribution equaling approximately 5 percent of base pay into a thrift savings or 401(k)-styled plan. Members would have begun saving immediately and the government contributions would have vested between five and 10 years of service. Standard rules would have allowed members to benefit from these types of plans while still of a working age. For full retirement, the Pentagon would have continued offering a defined benefit annuity. Cliff vesting would have been replaced by a graduated schedule from 10 to 40 years of service, with those reaching 40 years receiving 100 percent of their average pay from their highest earning three years. Payout would have been postponed to age 60, though retirees would have remained eligible for health benefits after 20 years of service. “Gate pays” at major career benchmarks would have helped retain personnel with highdemand skills while “transition pay” would have helped ease a member’s return to civilian life if the demand for their skills lessens.40 The Tenth QRMC’s retirement plan shared many of the same reforms as DACMC’s but handled them somewhat differently. It also would have introduced a defined contribution plan alongside the defined benefit, but would have pushed payout eligibility later for both of them. The defined contribution element would have offered up to 5 percent of base pay, depending on years of service, and would have vested at 10 years, but it would not have begun paying out until age 60. Meanwhile, the defined benefit plan would have kept its calculation formula (i.e., High-3 pay x 0.025 x YOS) and also would have vested at 10 years. Payout would have been delayed, however, to age 57 for those that serve 20 or more years, and to age 60 for those that serve between 10 and 20 years. Like DACMC, the Tenth QRMC also incorporated gate and transition pays to help manage retention more precisely. The pace of any savings generated by the Tenth QRMC plan was unspecified. Rather than considering a specific implementation plan, the Tenth QRMC suggested a gradual transition beginning with a multi-year demonstration project. Final terms of the plan, including the schedule and the savings estimate, would have been determined after that test. 41 The Rivlin-Domenici Task Force considered a third package based largely on updates to RAND’s 1998 study, “Reforming the Military Retirement System.” Writing eight years before the DACMC and 10 years before the Tenth QRMC, RAND tackled the same retirement concerns. “The military retirement system has been subject to numerous criticisms, including that it is unfair to pre-20 years of service separatees, excessively costly, inefficient, and inhibits force management flexibility.” The alternative developed in that study had three parts: The first is a retirement plan that is very similar to FERS, the retirement plan for civil service employees, which we call the Military Federal Employees Retirement System, or MFERS. The second part is a 7 percent across-the-board pay increase to compensate members for mandatory contributions to the retirement plan, and the third part is a set of retention bonuses targeted to specific groups (such as occupations) to address any retention problems. MFERS would also consist of three parts: Social Security benefits, a defined benefit plan (called the

REFO RMING PERSO NNEL CO MPEN S ATI O N | 21

basic plan) that vests employees at five years of service in an old-age annuity, and a defined contribution plan (called the thrift savings plan) that vests employees at three years of service and that matches employee contribution up to five percent of basic pay.42

This plan might have saved $3 billion from 2012-20, according to the Rivlin-Domenici Task Force’s updates to RAND’s calculations. That projection assumed that personnel with more than 15 years of service would have been grandfathered to remain in the current system and that benefits would have paid out at age 57.43 The DBB’s October 2011 assessment is the most current and aggressive retirement reform package. Several findings were especially emphasized in the DBB’s study and may have motivated this appetite for reform. “The military retirement system has not materially changed for over 100 years,” the Board noted. Today, “retirement funds accrued for personnel serving less than 20 years are effectively applied to the benefits of those serving more than 20 years. For those serving more than 20 years, the retirement contribution is 10 times greater than the private sector.”44 The DBB responded to this analysis by proposing a wholesale replacement of today’s defined benefit system with a new defined contribution plan based on the Uniformed Military Thrift Savings Plan currently in place. Government contributions would have varied based on force management needs to include increasing the benefit for combat service, but generally would have been “comparable to the highest end of a private sector pension plan.” 45 Vesting could begin as early as after the first recruitment period, and payout would have started between the ages of 60 and 65. Some partial withdrawals prior to age 60 would have been permitted, including to facilitate transition to a second career or to cover costs associated with education, health care, and emergencies. All current retirees would have been grandfathered to remain in the current system. The pace of potential savings would have depended on how far into the current force that grandfathering provision was extended. The DBB considered options at either end of that spectrum, either no grandfathering for the current force or full grandfathering for the current force. Bloomberg Government (BGov) estimated the savings should the DBB plan be implemented. It assumed that the entire current force gets grandfathered to remain in the current system, and that recruits in 2013 – the first service members to enter into the new system – would have arrived in the same numbers as 2009. Savings came from the difference in the percentage of average salary that the Pentagon has to accrue to cover retirement obligations. Thirty-three percent of military pay presently is required, but BGov projected that only 16.5 percent would be needed under the DBB plan. On the basis of those accrual rates and BGov’s assumptions, savings would have been $37 billion between 2013-21. 46 Parameters for Possible Savings

Our service members are the military’s most important asset, and their compensation is only part of what the country owes them. But the specific policies are not sacred in and of themselves. There may be ways to achieve savings even while better caring for our service members. Nevertheless, these are politically-fraught questions and their answers cannot be assumed. The table below displays possible savings for the options presented above.

22 | M A N AGING T HE MILITARY MORE EF F ICIEN TLY

APPROXIMATE POSSIBLE SAVINGS IN BILLIONS OF DOLLARS OVER 10 YEARS

Adjusting the formulas for cash compensation growth

$20-$30

Pegging pay to specialization in high-demand areas

$10

Transfer non-cash compensation into cash compensation

$10

Curtail pool of health care beneficiaries

$90-$100

Increase health care fees and cost sharing

$40-$110

Modernize military retirement $5-$40 Total Possible Savings $155-$300

REFO RMING PERSO NNEL CO MPEN S ATI O N | 23

MORE EFFICIENT UTILIZATION OF MANPOWER The United States depends on a professional force of volunteers to provide the best military in the world. Volunteers that step forward to serve our country are the U.S. military’s most important asset, and the U.S. must be committed to using them as deliberately and efficiently as possible. That could include: streamlining duplication and redundancy, reducing infrastructure billets, concentrating service members on inherently military functions, trimming civilian manpower and contractor support, and better balancing between the active and reserve components. Streamlining Duplication and Redundancy

Streamlining duplication is a common way to cut overhead. Duplication in the military can be most visible between the three separately-organized military departments – Army, Navy, and Air Force. ThenGeneral Colin Powell’s 1993 “Roles, Missions, and Functions” study, prepared in his capacity as Chairman of the Joint Chiefs of Staff, is seminal in this regard. Acknowledging that not all redundancy is bad, Powell focused on locating “unnecessary” duplication, selecting for review those areas in which “two or more Services perform similar tasks, where restructuring might generate significant cost savings, and where changes in our strategy and force structure made a comprehensive review appropriate.” 47 That principle is one that might be applied to the following examples: • SATELLITES: Responsibilities for acquiring space systems are diffused across various DOD organizations—including the military services and the Missile Defense Agency—as well as the intelligence community and [NASA]… Each military service or agency that acquires space systems has its own lines of acquisition authority… A single authority responsible for ensuring coordination and setting priorities… would be in a better position than any one department or agency to determine the best use of limited funds and resources by more effectively prioritizing the most highly-needed space programs, and would have the authority to reduce duplication across programs.48

• DEPOTS: The organic depot maintenance enterprise is large, incorporating 17 major facilities, 77,000 civilian employees, and annual operating expenses in excess of $16 billion… There is a persistent question as to whether the overall organizational management structure of these activities is sufficiently flexible, responsive, and cost effective… By law and mission, the military services have the responsibility for planning and executing maintenance programs to meet their operational needs, and to provide the resources to satisfy those requirements… The current structure further hinders performance by the total depot enterprise, effective resource allocation for the full depot workload, and timely accomplishment of major innovations across organizational and functional lines…. A full and comprehensive reassessment of the current depot management organizational structure is overdue.49

• INFORMATION SYSTEMS: DOD reports that its business systems environment [e.g., civilian personnel, finance, health, logistics, military personnel, procurement, and transportation] includes about 2,300 investments… DOD’s business systems environment has been characterized by (1) little standardization, (2) multiple systems performing the same tasks, (3) the same data stored in multiple systems, and (4) manual data entry into multiple systems… Because DOD spends over $10 billion each year on its business systems and related information technology infrastructure, the potential

MO RE EFFICIENT U TIL IZ ATIO N O F MA N P O W E R | 25

identifying and avoiding the costs associated with duplicative functionality across its business system investments is significant.50

• FACILITIES MANAGEMENT: The services have not reduced spending in concert with the decrease in square footage resulting from the completion of base closures in the past 10 years. While square footage fell by 21 percent, spending increased by 18 percent in real terms. Spending for facilities maintenance is now at close to 100 percent of requirements, and the services have also benefited from additional funding provided in base closure funds for consolidations…. [The Simpson-Bowles Fiscal Commission] option would reduce facilities maintenance spending on buildings by $1.4 billion or 18 percent below the $7.7 billion estimated for 2015.51

• HEALTH SERVICES: Under the current structure of DOD’s Military Health System, the responsibilities and authorities for its management are distributed among several organizations—including the Assistant Secretary of Defense for Health Affairs and the military services. Health Affairs is responsible for creating and submitting a unified medical budget and allocating funds to the military services for their respective medical systems; however, Health Affairs lacks direct command and control of the services’ military treatment facilities. Additionally, the three departments each have Surgeons General to oversee their deployable medical forces and operate their own health care systems, including training for medical personnel… [Per GAO’s 2011 “Duplication” Report,] realigning DOD’s military medical command structures and common functions could increase efficiency and result in projected savings ranging from $281 million to $460 million annually.52

Unnecessary duplication may not be limited to just these cases. Others could include chaplains, judge advocate generals, meteorologists, linguists / translators and possibly more. Figure 3: Timeline of Military Health System Governance Studies

Although many of these studies favored a unified systemoforPotential a stronger Figure 3: Timeline of Military Health System Governance Studies, “Additional Analysis of Costs and Benefits Governance Structure Is Needed,” Government Accountability Office, September 2012, p.coordination 9 central authority to improve among the services, major organizational change has historically been resisted by the military services in favor of the retention of their respective independent health care systems. In 1995, we reported that interservice rivalries and conflicting responsibilities, hindered improvement efforts, 14 and noted that the services’ resistance to changing the way military medicine is organized is based primarily on the grounds that each service has unique medical activities and requirements.

26 | M A N AGING T HE MILITARY MORE EF F ICIEN TLY 14 GAO, Defense Health Care: Issues and Challenges Confronting Military Medicine, GAO/HEHS-95-104 (Washington, D.C.: Mar. 22, 1995).

Page 9

GAO-12-911 Defense Health Care

Reducing Infrastructure Billets

The relationship of our military’s combat “tooth” to the overhead “tail” that supports it is another wellestablished measure of personnel efficiency. In 2010, the McKinsey Corporation compared 30 industrialized states, including many NATO Allies and potential rivals like China and Russia, and found that only Switzerland has a ratio of combat-to-noncombat forces smaller than the U.S.53 Maximizing productivity in the tail could potentially save money by reducing the size of the force. The Defense Manpower Requirements Report noted in 2011 that 35 percent of the active-duty force is in an infrastructure billet. Three-quarters of those infrastructure positions belong either to central training, defense health, central personnel administration, or departmental management.54 The Rivlin-Domenici Debt Reduction Task Force, convened by the Bipartisan Policy Center, argued that military end-strength could be lowered by 100,000 to control infrastructure positions.55 Concentrating Service Members on Inherently Military Functions

Defining activities that are inherently governmental, and further, those that are inherently military, is essential to managing which duties are performed by service members, which by civil servants, and which by contractors. The DBB determined in 2010 that 340,000 service members are performing commercial duties that do not need to be performed by service members. Its recommendation was direct: Eliminate 10 percent of the military’s commercial activity positions. It projected saving $5.4 billion annually as a result, based on a $160,000 troop per year estimate.56 The Simpson-Bowles Fiscal Commission’s staff-built illustrative savings also reiterated the DBB’s conclusion and matched its savings, but by converting contractors to civil servants: This option eliminates 88,000 military personnel who are performing clearly commercial types of activities and replaces them with 62,000 civilians, at considerable per-employee savings. One-third of the military positions can be eliminated during the conversion because civilians are not required to carry out military-specific duties on top of their commercial duties… this option standardizes the share of military performing these commercial types of work, adopting the lowest rate of military participation among the services, and converting the number of positions above that level to cheaper civilian slots.57

Converting military billets to civil service positions, as the Fiscal Commission considered, would have generated savings in part because health care cost sharing, retirement benefits, allowances, and in-kind compensation cost the federal government substantially less for civilians. Reduce Civil Service and Contract Personnel

It may be possible to simply reduce the number of civilian personnel as well; 791,000 civil servants work for the Pentagon, in addition to the 1,478,000 uniformed personnel.58 The DBB highlighted growth among civil servants just in the Office of the Secretary of Defense (OSD). Using those figures, OSD has grown by 37 percent since the September 11th attacks. The DBB suggested cutting civil servant employment across the Pentagon back to its fiscal year 2003 level of 650,000 personnel, or by 15 percent, whichever is greater. 59

MO RE EFFICIENT U TIL IZ ATIO N O F MA N P O W E R | 27

Trends in OSD Staff Size Projection a/o June 2010

2900

FY11 in-sourcing growth not yet Included in projected FY11 total

All in estimate is ±5,100

2700

In-sourcing WSARA OUSD(C)

2500

Defense Reform Initiative reductions

2300 2100

Reagan Administration build-up

2174

1900

FY98 NDAA baseline for 25% MHA reductions

1765

1700

2170

2708 2636

2258 2106

1974

$5.5B spent by OSD in FY10

9-11 impact begins

1627 1500 FY80

FY85

FY90

FY95

Projection: In-sourcing, WSARA, DOEPP, CLO, functional transfers etc.

FY00

FY05

Full-time Authorize d Ma npow e r

FY10

We think the number of contractors adds + 2,000 people

Note: Chart does not include active duty reservists, detailees, contractor manpower, or temporary overstrengths Source: Carol Walker at ODAM June 2010

20

Trends in OSD Staff Size Projection a/o June 2010, “Reducing Overhead and Improving Business Operations: Initial Operations,” Defense Business Board, July 22, 2010, p. 20

The Defense Department also relies heavily on contractors to perform many duties. Pentagon Comptroller Robert Hale estimated the contractor workforce at 300,000 full-time equivalents in February 2012 testimony before the Senate Budget Committee. 60 As with its recommendation on civil servants, the DBB recommended returning contractor spending across the Pentagon to fiscal year 2003 levels. 61 Congress turned to these issues in the fiscal year 2013 National Defense Authorization Act. That legislation requires the Pentagon to reduce civilian personnel and service contractor costs in proportion to “the savings in funding for basic military personnel pay achieved from reductions in military end strengths.” 62 Past debates focused on whether outsourcing work to contractors was cheaper than relying on civil servants, but the most recent decade has been characterized more simply by growth. While these approaches to finding efficiencies were blunt, they addressed those recent increases rather than the previous, finer debates about whether civil servants or contractors are cheaper. Balance between Active and Reserve Components

Many tasks are inherently military and cannot be considered for shifting to either civil or contracted personnel. But not all service members carry the same cost burden, and some believe that savings

28 | M A N AGING T HE MILITARY MORE EF F ICIEN TLY

can be reaped by re-examining how different types of military manpower are used. Reservists and National Guardsmen are a much more scalable labor force, for instance, able to surge specifically when needed and require less cost when not needed. The Reserve Forces Policy Board determined in a January 2013 report that Reserve Component personnel have a fully-burdened cost to the Pentagon that is less than a third that of Active Component personnel –$34,272 relative to $108,307. These figures include health care, dependent education, family housing and commissary benefits, in addition to salaries. 63 The Reserve Component is and will continue to be a way to maintain the capability to conduct less probable missions without bearing as much of the cost. In its latest budget priorities statement, the Pentagon similarly said it “will maintain key combat support capabilities such as sustainment as well as combat service support capabilities such as civil affairs maintained at a high readiness level in the Reserve Component.” 64 It may be possible to save money by locating additional capabilities in the Reserve Components. Rebalancing between the traditional Active and Reserve Components also could be a way to increase manpower flexibility and potentially save money. Easing service members’ ability to flow from one type of commitment to another is a more direct, but also more unusual, approach. The division between the Active and Reserve Components is stark at present. CSIS envisioned this polarized model being replaced by a “continuum” model: The 39-days-a-year ‘one size fits all’ [Reserve Component] model is no longer adequate. In some cases… it unduly constrains DoD’s ability to develop units in high demand specialty areas comprised of individuals who are willing to put in more than 39 days a year. Conversely, it may also complicate DoD’s efforts to develop nontraditional contracts for reservists who can perform critical functions without needing to drill one weekend a month plus two weeks of training a year. Manning and maintaining the operational reserve could be greatly facilitated by fully implementing what the Department of Defense calls a ‘continuum of service’ approach, in which individual reservists can seamlessly transition in and out of active service to meet various mission requirements over a lifetime of service. At the core of this concept is the notion of creating many more ‘on ramps’ and ‘off ramps’ between active duty and reserve duty in the US military.65

Such an approach might have optimized savings by allowing service members to transition between active and inactive statuses as rapidly as the demand for their skills changes. Reserve Component professionals in specializations like medicine, law, finance, and public affairs – as well as potentially those in fields like logistics and civil affairs – often have very similar civilian jobs, benefit from training and education in those jobs, and face irregular peaks and valleys in the military’s demand for their skills. They may have the ability to flow seamlessly into and out of service. Building a framework that allows them to do so may better match labor supply and demand. Savings could flow from permitting more missions to be located in a “less-than-active” force and by minimizing the time needed for mobilization when required.

MO RE EFFICIENT U TIL IZ ATIO N O F MA N P O W E R | 29

Parameters for Possible Savings

The ideas presented above represent some of the ways that utilizing manpower more efficiently may make it possible to save money. Most of these ideas have been discussed many times. Some have been implemented at least partially, while others still seem unadvisable to most. Together, they provide a range of possible savings, as described in the table below. What savings can actually be achieved is a question of political judgment rather than simply analysis. APPROXIMATE POSSIBLE SAVINGS IN BILLIONS OF DOLLARS OVER 10 YEARS



Streamlining redundancy and duplication

$25

Reducing infrastructure billets $100 Concentrating service members on inherently military functions

$50

Reducing civilian manpower $200 Relying less on contractor support

$110

Better balancing between the active and reserve components

$35

Total Possible Savings $520

30 | M A N AGING T HE MILITARY MORE EF F ICIEN TLY

BETTER ACQUISITION PRACTICES The Pentagon has spent more than $360 billion on contracts in each of the last three years, and more than $200 billion of that through its procurement and research and development appropriation titles.66 Weapon programs tend to be the most visible acquisitions, but contracting also includes very sizeable sums spent on services, information technology, and commercially-available goods. Many believe these sums are not spent as efficiently as they could be. The Government Accountability Office’s “high risk list” has included defense weapons system acquisition since 1990. It likewise has included defense contract management since 1992. Related to, but broader than, acquisition practices is the issue of financial management. Transparency and accountability are keys to efficiently administering any account at any government agency. Since defense investment is so sizeable, the topic comes up especially frequently for the Pentagon with respect to its acquisition programs. Defense financial management likewise has been on GAO’s high-risk list since 1995. Version 5.4 15 June 2010 Effective Interaction is Essential

DEPSECDEF Oversight DoD 7000.14-R

Joint Capabilities Integration & Development System VCJCS Oversight CJCSI 3170.01 series

Integrated Defense Acquisition, Technology, and Logistics Life Cycle Management System

DoD Decision Support Systems

Planning, Programming, Budgeting & Execution Process

Materiel Solution Analysis Phase

Defense Acquisition System

A

MDD

Decision Points/Milestones Strategic Guidance

Joint Operations Concepts Concept of Operations Operations Plans

Reduce technology risk, determine and mature appropriate set of technologies to integrate into full system, demonstrate critical technology elements on prototypes, and complete preliminary design. Identify an affordable program or increment of militarily useful capability, demonstrate technology in relevant environment, and identify and assess manufacturing risks. Provide for two or more competing teams producing prototypes of system and/or key system elements prior to or through Milestone B.

Joint Capabilities Integration and Development System - Acronyms IOC – Initial Operational Capability IT – Information Technology 3-0, “Joint Operations” JP 3 0–J i tP bli ti 3 0 “J i tO ti ” Joint Publication 3-0 JROC – Joint Requirements Oversight Council MUA – Military Utility Assessment KPP – Key Performance Parameter KSA – Key System Attribute

CDD – Capability Development Document CPD – Capability Production Document Recommendation Ch R d ti DCR – DOTMLPF Change DOTMLPF – Doctrine, Organization, Training, Materiel, Leadership and Education, Personnel, & Facilities FOC – Full Operational Capability ICD – Initial Capabilities Document

Capabilities-Based Assessment

Joint Operations Concepts Concept of Operations Technology Development Strategy AoA Report DoD Enterprise Architecture & Solution Architecture Technical Standards Profile

ICD JROC/ Component Validation and Approval

(need-driven)

MS

Compliant Solution Architectures

KPPs

Traceable To ICD & JP 3-0

Draft CDD

Net Centric Data & Services Strategy

Selectively Applied System Training KPP

J-1 – Joint manpower. J-2 – Intelligence/threat. J-3 – Operational suitability, sufficiency, & supportability. J-4 – Facilities, sustainment, & energy efficiency. J-5 – Alignment with strategy & priorities. J-6 – IT/NSS interoperability & supportability. J-7 – Systems training. J-8 – Weapons safety.

Information Support Plan

Joint Operations Concepts Concept of Operations System Threat Assessment AoA (if updated) DoD Enterprise Architecture & Solution Architecture Information Support Plan Technical Standards Profile

CDD KPPs

MUA/Final Demo Report for

Non-materiel solutions

Compliant Solution Architectures

Reliability KSA

Low-Rate Initial Production

Net Centric Data & Services Strategy

Component/JROC Validation & Approval

Energy Efficiency KPP

Joint Operations Concepts Concept of Operations System Threat Assessment AoA (if updated) DoD Enterprise Architecture & Solution Architecture Information Support Plan Technical Standards Profile

CPD KPPs

MUA/Final Demo Report for

Availability Ownership Cost KPP

- Compliance - CIO Confirmation of Compliance

Oversight & Review

MDA

ADM

PSR

Exit Criteria

AoA Study Plan

AoA

Contracting

DAB/ ITAB

Initial RAM-C Report

• Business Strategy • Resource Management • Program Security Considerations • Test Planning • Data Management & Technical Data Rights • Life-Cycle Sustainment Planning • Life-Cycle Signature Support Plan • CBRN Survivability

updated as necessary

Alternative Materiel Solutions

Logistics/ Sustainment

MDD

INPUTS

(event-driven)

•Preliminary System Spec •Systems Engineering Plan •T&E Strategy •System Safety Analysis •Support & Maintenance Concepts & Technologies •Inputs puts to: to -draft CDD -AoA -TDS -IBR -Cost/Manpower Est. -Product Support Strategy

ITR

ASR

Interpret User Needs, Analyze Operational Capabilities & Environmental Constraints Trades

Technical

Systems Engineering Test and Evaluation Supportability

A

OUTPUTS

Analyze/Assess Concepts Versus Defined User Needs & Environmental Constraints

Validation Linkage

Trades

Develop Concept Performance (& Constraints) Definition & Verification Objectives

Verification

Decompose Concept Performance into Functional Definition & Verification Objectives

Verification

Assess/Analyze Concept & Verify System Concept’s Performance

Linkage

Decompose Concept Functional Definition into Component Concepts & Assessment Objectives

Verification Linkage

Refine Supportability Objectives/ Constraints

Decompose Functional Definitions into Critical Component Definition & Technologies Verification Plan

CCE

MDAP/MAIS

Cost Estimation Methods

Demo & Validate System & Tech Maturity Versus Defined User Needs & Environmental Constraints

Verification Linkage

Verification Linkage

Verification Linkage

Develop System Functional Specs & Verification Plan to Evolve System Functional Baseline

Demo/Model Integrated System Versus Performance Spec

Demo Enabling/Critical Technology Components Versus Plan

CCP

ICE

MDAP

MDAP

CARD

CCE

MDAP/MAIS

CCP

ICE

MDAP

MDAP

(annualcalendar-driven)

Performance-Based Agreements

Business Case Analysis

Technical & Logistics Acronyms

Specs & Verification Plan to Evolve System Functional Baseline

ECPs/Changes

Contract

Contract Closeout

IBR

SFR

Affordability Assessment

C

Linkage

IOT&E

BLRIP Report to Congress

Post-Deployment Review

INPUTS

OUTPUTS

•Product Baseline •Test Reports •SEP •PESHE •TEMP •System Safety Analysis •Inputs to: -IBR - Cost/Manpower Est. - Product Support Package

PCA Verification/ Validation Linkage

Disposal

Reprocessing

INPUTS

OUTPUTS

In-Service Review

Monitor & Collect Service Use & Supply Chain Performance Data Trades

Trades

Determine System Risk/ Hazard Severity

CARD

CCE

MDAP/MAIS

CCP MDAP

ICE MDAP

Affordability Assessment

CARD

CCE

MDAP/MAIS

CCP

ICE

MDAP

MDAP

Implement and Field

Assess Risk of Improved System

• Process Change - Operations/Maintenance Support • Materiel Change - Hardware/Product Support Package

Actual Costs

Engineering Procurement

Operations and Maintenance

RDT&E – Management & Support

Appropriated Funds To Support Contracts

Military Departments and Defense Agencies

Office of the Secretary of Defense and Joint Staff

Planning, Programming, Budgeting, and Execution Acronyms

POM/Budget Formulation

FYDP – Future Years Defense Program PMO – Program Management Office MBI – Major Budget Issues POM – Program Objectives Memorandum OMB – Office of Management and Budget

POM/Budget Submit July

National Military Strategy National Defense Strategy

National Security Strategy National Strategy Documents (updated as necessary)

For a single copy of this chart, send a request to [email protected]

Fiscal Guidance April

Fiscal Guidance March

DoD Testimony

DoD Appeals

Issue Nominations/Disposition

Defense Planning & Programming Guidance FYDP updated

Allocation SECDEF Option

Integrated Program/Budget Review

Decisions

MBI

August - November

November

December

DoD Budget

Apportionment FYDP updated OMB January

President’s Budget to Congress February (1st Monday)

Budget Committees

Landfill

Integrate and Test Corrective Action

Develop Corrective Action

Full Funding In FYDP

Disposal

•Data for In-Service Review •Input to CDD for next increment •Modifications/upgrades to fielded systems •SEP •Test Reports •System Safety Analysis •Product Support Package

Analyze Data to: Validate Failures & Determine Root Causes

Economic Analysis (MAIS) Manpower Estimate (MDAP)

Most Acceptable

Recycle/Reuse

•Service Use Data •User Feedback •Failure Reports •Discrepancy Reports •SEP •System Safety Analysis •Product Support Element Requirements

Verify and Validate Production Configuration

•Joint Operations •Crises •Refine LCSP

Pre-IOC and Post IOC Supportability Assessments

FOT&E

Modify Configuration (Hardware/Software/Specs) To Correct Deficiencies

Full Funding In FYDP

Operations and Sustainment

as required

•Test Results •Exit Criteria •APB •CPD •SEP •TEMP •Product Support Element Requirements •PESHE •System Safety Analysis

Contract Closeout

•Peacetime •Training •Revalidate BCA

LFTE Report to Congress

Fabricate, Assemble, Code to “Build-to” Documentation

Manpower Estimate (MDAP)

ECPs/Changes

Sustainment Contracts

•Public-Private Partnering •Continuous Tech Refreshment •Supply Chain Management •Obsolescence Management •Configuration Control •PBA Modifications •Data Management •Assessment of PSI/PSPs •Monitor Performance & Adjust •Revalidate PBA/BCA Product Support

OTRR

RDT&E – Systems Development & Demonstration

RDT&E – Advanced Component Development and Prototypes

FRP DR

CDR

Cost Acronyms CARD – Cost Analysis Requirements Description CCE – Component Cost Estimate CCP – Component Cost Position ICE – Independent Cost Estimate MDAP – Major Defense Acquisition Program MAIS – Major Automated Information System PMO – Program Management Office RDT&E – Research, Development, Test & Evaluation

Contract Management

EVM

Surveillance

Product Support/PBL Management

Joint Interoperability Certification Testing JITC Joint Interoperability Test Certification

Individual CI Verification DT&E

Verification

FRP

Full-Rate Production Systems

Full-Up System Level LFT&E

TRR

Increment 3

Post-Production Software Support Contracts

Production Contract IBR

Final Product Baseline

Analyze Deficiencies To Determine Corrective Actions

Integrated DT&E, LFT&E & EOAs Verify Performance Compliance to Specs

Linkage

C PCDRA

Total Life Cycle Systems Management

Source Selection

Contract Closeout

Production Qualification Testing

AOTR

FRP

B

Final RFP cannot be released until Acq Strategy is approved

Draft RFP Source RFP & Selection Proposals Plan

ECPs/Changes

•Supply Chain Management •Revalidate BCA •Refine Life Cycle Sustainment Plan

•Product Support Elements •Support and Cost Baseline •Contract for Sustainment (organic & Commercial)

& OAs Verify System Functionality & Constraints Compliance to Specs

PDR

AoA Acq Plan

•SEP •TRA •PESHE •TEMP

Verification

MAIS only

Contract Management

Increment 2 A

Resource Management Program Security Considerations Test & Evaluation Data Management Life-Cycle Sustainment Planning Life-Cycle Signature Support Plan CBRN Survivability Human Systems Integration ESOH Military Equipment Valuation & Accountability • Corrosion Prevention & Control

EVM

•Initial Product Baseline •Test Reports

Lighter blocks reflect technical efforts required if PDR is required after Milestone B.

Evolve Functional Performance Specs into System Allocated Baseline

C

Exit Criteria

Product Support Package/PBL Implementation

OUTPUTS

Product Support Integrator/ Product Support Provider

Joint Capability Technology Demonstrations & other prototype projects

B

ADM

MDA

Surveillance

OA – Operational Assessment •NEPA Compliance Schedule OTRR – Operational Test Readiness Review •Elements of Product Support PBA – Performance-Based Agreement PESHE – Programmatic Environment, •Risk Assessment Safety & Occupational Health Evaluation •Life Cycle Sustainment Plan PDR – Preliminary Design Review •System Safety Analysis PCA – Physical Configuration Audit •Inputs to: -CPD -STA -ISP PRR – Production Readiness Review -IBR -Cost/Manpower Est. PPP – Program Protection Plan PSI – Product Support Integrator PSP – Product Support Provider FCA RCM – Reliability Centered Maintenance PRR SVR RMS – Reliability, Maintainability & Supportability SEP – Systems Engineering Plan Integrated DT&E/OT&E/LFT&E SFR – System Functional Review Verification/ SRR – System Requirements Review Demonstrate System to Validation STA – System Threat Assessment Specified User Needs and Linkage SVR – System Verification Review Environmental Constraints TEMP – Test & Evaluation Master Plan TDS – Technology Development Strategy TRA – Technology Readiness Assessment Trades System DT&E, OT&E, LFT&E TRR – Test Readiness Review

Linkage

Evolve CI Functional Specs into Product (Build to) Documentation & Verification Plan

Full Funding In FYDP

(verified)

DAB/ ITAB

Validated and approved CDD & CPD for each increment of evolutionary acquisition

Component/JROC Validation & Approval

• • • • • • • • • •

Low-Rate Initial Production Systems

Initial Product Baseline

•Footprint Reduction •Supply Chain Management •Product Support Elements •Finalize Product Support BCA

Verification

• Acquisition Approach • Source & Related Documents • Capability Needs • Top-Level Integrated Schedule • Program Interdependency & Interoperability Summary • International Cooperation • Risk & Risk Management • Technology Maturation • Industrial Capability & Manufacturing Readiness • Business Strategy

Draft RFP •Produce systems for IOT&E Source Source RFP & Selection Proposals Selection Plan LRIP

Parametric

RDT&E – Advanced Technology Development

White House

Authors Chuck Cochrane and Brad Brown

Purpose of LRIP: •Complete manufacturing development •Establish initial production base •Ramp to production rate

Final RFP cannot be released until Acq Strategy is approved

E it Exit Criteria Met

APB

Energy Efficiency KPP

MUA/Final Demo Report for

PCDRA

Acquisition Strategy

TLCSM

Demonstrate Product Support Capability

Post-CDR A

PSR

Exit Criteria

Resource Management Program Security Considerations Test & Evaluation Data Management Life-Cycle Sustainment Planning Life-Cycle Signature Support Plan CBRN Survivability Human Systems Integration ESOH Military Equipment Valuation & Accountability • Corrosion Prevention & Control

Performance-Based Logistics (PBL) Strategy (Preferred Product Support Approach)

LFT&E (with alternate Waiver LFT&E Plan) (if appropriate)

PMO Budget Estimate

Planning, Programming, Budgeting & Execution Process

Product Support Plan

INPUTS

LORA MTA

Economic Analysis (MAIS) Manpower Estimate (MDAP)

AoA

System Training KPP

Availability Ownership Cost KPP

- Compliance - CIO Confirmation of Compliance

ADM

MDA

• • • • • • • • • •

Production Representative Articles

Initial Product Baseline

•Statutory/Regulatory •Product Support Elements •Source of Support -Supply Support -Training -Maintenance -Support Data •Legacy Considerations •Conduct Product Support BCA -Manpower & personnel

PDR

Design/Develop System Concepts, i.e., Enabling/Critical Technologies, Update Constraints, & Cost/Risk Drivers

TD Phase Fully Funded

updated as necessary

EVM

ASR – Alternative Systems Review AOTR – Assessment of Operational Test Readiness BCA – Business Case Analysis BLRIP – Beyond Low Rate Initial Production CDR – Critical Design Review CI – Configuration Item DT&E – Developmental Test & Evaluation EOA – Early Operational Assessment ESOH – Environment, Safety & Occupational Health FCA – Functional Configuration Audit FMECA – Failure Mode Effects & Criticality Analysis FOT&E – Follow-On Test & Evaluation FTA – Failure Tree Analysis IOT&E – Initial Operational Test & Evaluation Interpret User Needs, ISR – In-Service Review ISP – Information Support Plan Refine System ITR – Initial Technical Review Performance Specs & JITC – Joint Interoperability Test Command Environmental Constraints Trades LFT&E – Live Fire Test & Evaluation LORA – Level of Repair Analysis MTA – Maintenance Task Analysis NEPA – National Environmental Policy Act Develop System Functional

Evolve Functional Performance Specs into System Allocated Baseline

FMECA FTA RCM

MAIS – Major Automated Information System MDA – Milestone Decision Authority MDD – Materiel Development Decision NSS – National Security Systems PDR – Preliminary Design Review P-CDRA – Post Critical Design Review Assessment P-PDRA – Post PDR Assessment PSR – Program Support Review RAM-C – Reliability, Availability, Maintainability & Cost Rationale Report RFP – Request for Proposals RFI – Request for Information TRA – Technology Readiness Assessment TLCSM – Total Life Cycle Systems Management

Contract Management

DAB/ ITAB

Acquisition Strategy

• Acquisition Approach • Source & Related Documents • Capability Needs • Top-Level Integrated Schedule • Program Interdependency & Interoperability Summary • International Cooperation • Risk & Risk Management • Technology Maturation • Industrial Capability & Manufacturing Readiness • Business Strategy

Acq Plan

•Sys Performance Spec •Acquisition Strategy •Exit Criteria •APB •CDD •STA •ISP •SEP •TEMP •PESHE •PPP •NEPA Compliance Schedule •Risk Assessment •Validated Sys Support & Maint Objectives & Requirements •Product Support Strategy •System Safety Analysis

SFR

Demo System & Prototype Functionality Versus Plan

Post-CDR Report

E it Exit Criteria Met

APB

PSR

Exit Criteria

Surveillance

B

Interpret User Needs, Refine System Performance Specs & Environmental Constraints

Analogy

Types of Funds

PMO POM Input

SRR

Trades

TRA

ADM

MDA

Engineering & Manufacturing Development Contract

Set Product Support Strategy

•System Allocated Baseline •PDR Report •Test Reports •SEP •TEMP •PESHE •PPP •TRA •NEPA Compliance Schedule •Risk Assessment •LCSP •Validated Systems Support & Maint Objectives & Requirements •System Safety Analysis •Inputs to: -CDD -ISP -STA -IBR -Acq Strategy -Affordability Assessment -Cost/Manpower Est.

•ICD & Draft CDD •Approved Materiel Solution •Exit Criteria •Support & Maintenance Concepts & Technologies •Systems Engineering Plan •AoA o Report epo t •T&E Strategy •Technology Development Strategy •System Safety Analysis

Linkage

PDR Report

E it Exit Criteria Met

ADM

Required if PDR is after Milestone B

Prototypes

OUTPUTS

Validation

PostPDR A

ADM – Acquisition Decision Memorandum AoA – Analysis of Alternatives APB – Acquisition Program Baseline CDR – Critical Design Review CBRN – Chemical, Biological, Radiological & Nuclear DAB – Defense Acquisition Board ECP – Engineering Change Proposal ESOH – Environment, Safety, and Occupational Health EVM – Earned Value Management FRPDR – Full Rate Production Decision Review FDDR – Full Deployment Decision Review IBR – Integrated Baseline Review ITAB – Information Technology Acquisition Board LRIP – Low Rate Initial Production

IBR

(Define Ground Rules & Assumptions)

Interpret User Needs. Analyze Operational Capabilities & Environmental Constraints Trades

(if applicable)

System Performance Spec

INPUTS

Assess/Analyze Enabling/Critical Components Versus Capabilities

CARD

Contract Closeout

Develop Initial Product Support Strategy Initiate Product Support BCA

Develop Functional Definitions for Enabling/ Critical Tech/Prototypes & Associated Verification Plan

Economic Analysis (MAIS)

Financial Management

ECPs/Changes

Cost-Type Contract Determination

Oversight & Review and Contracting Acronyms

Final RFP cannot be released until Acq Strategy is approved

EVM

Develop Component Concepts, i.e., Enabling/Critical Technologies, Constraints, & Cost/Risk Drivers

MSA Phase Fully Funded

PDR Report

Exit Criteria

Surveillance

Develop System Performance (& Constraints) Spec & Enabling/Critical Tech & Prototypes Verification Plan

Assess/Analyze System Concept Versus Functional Capabilities

Linkage

ADM

Force Survivability Protection KPP KPP

Selectively Applied

KSA Materiel Availability & Operational Availability

- Compliance - CIO Confirmation of Compliance

MS B Cert

MDA

Draft RFP Source Source RFP & Selection Proposals Selection Plan

Prototypes

Evaluate Product Support Capabilities

•ICD •AoA Study Plan •Exit Criteria •Alternative Maintenance & Sustainment Concepts

Defense Acquisition System

Contract Management

Materiel Solution

Define Supportability Objectives

DAB/ ITAB

• Resource Management • Program Security Considerations • Test & Evaluation • Data Management • Life-Cycle Sustainment Planning • Life-Cycle Signature Support Plan • CBRN Survivability • Human Systems Integration • ESOH • Corrosion Prevention & Control

AoA Acq Plan

Technology Development Contract IBR

E it Exit Criteria Met

Acquisition Strategy

TLCSM

Source Selection

APB

• Acquisition Approach • Source & Related Documents • Capability Needs • Top-Level Integrated Schedule • Program Interdependency & Interoperability Summary • International Cooperation • Risk & Risk Management • Technology Maturation • Industrial Capability & Manufacturing Readiness • Business Strategy

Final RFP cannot be released until TDS is approved

Draft RFP Source RFP & Selection Proposals Plan

Acq Plan

Study Contracts

Major Products

TRA PSR

Exit Criteria

FOC

System Threat Assessment

Technical Standards & interfaces

Net Centric Data & Services Strategy

Clinger-Cohen Act (IT incl NSS)

Clinger-Cohen Act (IT incl NSS)

- Compliance - CIO Confirmation of Compliance

MS A Cert

ADM

MDA

Technology Development Strategy (TDS)

• Acquisition Approach • Source & Related Documents • Capability Needs • Top-Level Integrated Schedule • Program Interdependency & Interoperability Summary • International Cooperation • Risk & Risk Management • Technology Maturation & Competitive Prototyping • Industrial Capability & Manufacturing Capabilities

TLCSM

AoA Study Guidance

E it Exit Criteria Met

Reliability KSA

A

(If program initiation, or if equiv to FDDR)

DAB/ ITAB

Net-Ready KPP

Joint Staff Review

Information Support Plan

Evolutionary Acquisition Strategy

Clinger-Cohen Act (IT incl NSS)

Supportability Requirements

Information Assurance

J-1 – Joint manpower. J-2 – Intelligence/threat. J-3 – Operational suitability, sufficiency, & supportability. J-4 – Facilities, sustainment, & energy efficiency. J-5 – Alignment with strategy & priorities. J-6 – IT/NSS interoperability & supportability. J-7 – Systems training. J-8 – Weapons safety.

Threshold/objective tradeoffs – Revised Performance Attributes

Joint Capability Technology Demonstrations & other prototype projects

KSA Materiel Availability & Operational Availability

Initiate Evolutionary Acquisition Strategy Clinger-Cohen Act (IT incl NSS)

IOC Compliant Solution Architectures

KPPs

Traceable To ICD & JP 3-0

Selectively Applied System Training KPP

FRP DR

FDDR

Execute support program that meets materiel readiness and operational support performance requirements and sustains system in most cost-effective manner.

Full-Rate Production/Deployment Overlaps Production and Deployment Phase. Disposal Life Cycle Sustainment

For software intensive systems

Force Survivability Protection KPP KPP

Technical Standards & interfaces

Net-Ready KPP

Joint Staff Review

Information Support Plan

C

System Threat Assessment

Supportability Requirements

Information Assurance

J-1 – Joint manpower. J-2 – Intelligence/threat. J-3 – Operational suitability, sufficiency, & supportability. J-4 – Facilities, sustainment, & energy efficiency. J-5 – Alignment with strategy & priorities. J-6 – IT/NSS interoperability & supportability. J-7 – Systems training. J-8 – Weapons safety.

Threshold/objective tradeoffs – Revised Performance Attributes

Joint Capability Technology Demonstrations & other prototype projects

KSA Materiel Availability & Operational Availability

DCR

Energy Efficiency KPP

Component/JROC Validation & Approval

Availability Ownership Cost KPP

Reliability KSA

KPPs

Traceable To ICD & JP 3-0

Achieve operational capability that satisfies mission needs. Low-rate initial production (limited deployment for software intensive systems with no development hardware) and full-rate production (full deployment for software intensive systems). Deliver fully funded quantity of systems and supporting material and services for program or increment to users.

MS

System Capability & Manufacturing Process Demonstration

PostCDR A

Force Survivability Protection KPP KPP

Technical Standards & interfaces

Net-Ready KPP

Joint Staff Review

Threshold/objective tradeoffs – Revised Performance Attributes

Integrated System Design

B

System Threat Assessment

Supportability Requirements

Information Assurance

Develop a system or increment of capability; complete full system integration, develop affordable and executable manufacturing process; ensure operational supportability; reduce logistics footprint; implement human systems integration; design for producibility; ensure affordability; protect critical program information; and demonstrate system integration, interoperability, safety, and utility.

MS

Operations & Support Phase

Production & Deployment Phase

Engineering & Manufacturing Development Phase

Technology Development Phase

Complete Analysis of Alternatives to assess potential materiel solutions to capability need, identify key technologies and estimate life cycle costs. Consider commercial-off-the-shelf and solutions from both large and small business. Identify materiel solution to capability need. Complete Technology Development Strategy.

USD(AT&L) Oversight DoDD 5000.01

Joint Capabilities Integration & Development System

This chart is a classroom aid for Defense Acquisition University students. It provides a notional illustration of interfaces among three major decision support systems used to develop, produce and field a weapon system for national defense. Defense acquisition is a complex process with many more activities than shown here and many concurrent activities that cannot be displayed on a two-dimensional chart. Supporting information is on back of this chart. For more information, see the Defense Acquisition Portal (http://dap.dau.mil).

Following the Materiel Development Decision, the Milestone Decision Authority may authorize entry into the acquisition process at any point, consistent with phase-specific entrance criteria and statutory requirements

Authorization Committees

Appropriation Committees

Authorization/ Appropriation Acts Passed

Congressional Budget Process February – September

Send recommendations to improve the content of this chart to [email protected]

Integrated Defense Acquisition, Technology, and Logistics Life Cycle Management System, Version 5.4, Defense Acquisition University, June 15, 2010.

BETTER ACQ U ISITIO N PR A CTI CE S | 33

Least Acceptable

Many studies and commissions over the years have offered recommendations of how to reap efficiencies and savings from the acquisition process. These recommendations can be binned into the following categories: constructing contracts, managing the acquisition workforce, committing to best practices, and generating requirements. Constructing Contracts

Government contracts come in many different types. Contract vehicles can set an up-front price when the government and the provider are especially clear about what is to be delivered or, when what is desired is less clear, the contract can provide for regular invoicing with a profit margin on top. The contract award can be determined based on the lowest price to minimize the government’s total cost or based on best value to maximize the government’s return on each dollar spent. Acquisitions can be made on a year-by-year basis to hedge the government’s commitment or on a multi-year basis to reap the efficiency advantage from economies of scale.67 All these choices have cost ramifications. They can be subdivided into contractor selection, comparisons between different contract types, and the interaction between government and contractor. In its Better Buying Power Initiative, begun in September 2010 (“Version 1.0”) and updated in November 2012 (“Version 2.0”), the Pentagon emphasized a need to clarify different standards for selecting among contractors proposals. “Best value” evaluates how well the contractor can do what it claims even if its bid is not the lowest. But the Pentagon argues that “industry tends to default to threshold performance levels because they are less costly and source selections seldom give predictable credit for performance above threshold.” An insufficient understanding of how “value” is judged may mean that contractors are not defending higher costs on the grounds that their value warrants it. “Lowest Price – Technically Acceptable” is another structure for making a selection, but the Pentagon similarly noted that these competitions “essentially default to the lowest bidder, independent of quality.” Better evaluations of benefits relative to costs underpin the Better Buying Power emphasis on defining both “best value” and “technically acceptable.”68 Comparisons between contract types also have been recurring parts of the debate. DBB has been clear that contract type is not the defining problem for cost overruns. Still, in a January 2010 report it did determine that the “preferred choice is fixed-price, then cost-plus, then time and materiel contracts.” It also counseled using incentives in both cost-type and fixed-price vehicles as a way to balance risk and motivate superior performance.69 The 2005 Defense Acquisition Performance Assessment (DAPA) took a wholly different approach and challenged how government fundamentally interacts with contractors. Rather than the current solicitand-respond structure that governs contract types generally, it suggested that the Pentagon propose regulatory changes that would “formalize a risk-based source selection process in which cost proposals are replaced by industry and government agreements on most probable cost. An affordability determination is then made to determine when proposals are within the competitive range …”70 Under this model, costs would have been determined in a more collaborative and iterative interaction with

34 | M A N AGING T HE MILITARY MORE EF F ICIEN TLY

industry, compared to a current approach that hinges more heavily on either accepting or rejecting a contractor’s cost proposal. In each of these issues – selecting a contractor, alternatives between contract types, and the interaction between government and contractors – more informed choices may lead to more efficiency. Managing the Contracting Workforce

All acquisition reforms depend on the judgment of the government acquisition professional that oversees the contract. The way that the Pentagon constructs and manages this workforce greatly influences how well the acquisition system functions. Concern about civil servants’ acquisition career paths date back at least to the 1986 Packard Commission, a Presidential-level task force led by former Deputy Defense Secretary David Packard. It found that: The existing civilian personnel management system has not, however, allowed similar improvements in career paths and education for civilian acquisition personnel [relative to the military workforce]. To attract and retain a good work force requires a more flexible system for management of contracting officers… Major innovations in personnel management and regulations are needed.71

Writing in January 2010 and again in April 2012, DBB underscored the need to make defense acquisition an attractive career prospect, especially by defining the key elements of a career path.72 Those elements included “a tour with industry … prior to being a program manager,” “expanding programs like the Defense Fellows Program with industry,” and considering ways to create incentives for military personnel to pursue acquisition careers.73 A House Armed Services’ Committee panel co-chaired by Rep. Rob Andrews (D-NJ) and Rep. Mike Conaway (R-TX) also reiterated needs similar to those identified by the Packard Commission. This panel, charged by the committee with a full review of defense acquisition, recommended that the Pentagon improve this career path by taking full advantage of authorized pay incentives and by institutionalizing standards, including for recertification.74 Business Executives for National Security (BENS), a nonprofit organization that channels private sector executive expertise into national security issues, also tackled the issue. It raised the options of streamlined hiring and dismissal and a review of ethics regulations for the benefit they offer relative to the barriers to entry they impose.75 The Pentagon’s approaches to improving the contracting workforce have addressed the total staff cadre generally and acquisition leaders specifically. One workforce-wide initiative has concentrated on size. Then-Secretary Gates decided as part of the 2010 budget request to insource 11,000 contract acquisitions professionals and to add an additional 9,000 positions in order to better oversee requirements creep.76 The Pentagon’s 2014 budget overview reported that 7,700 of those new positions have been filled to date, though it also noted that the Department will “shift in focus from primarily recruiting and hiring, to training and continuous improvement in the qualifications and experience set of the acquisition workforce.”77

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Should all of these 20,000 new personnel be added to the civil service, it would take the total acquisition workforce from 127,000 to 147,000 people, according to another January 2010 DBB report. 78 This 16 percent increase raised concern about “chasing the numbers” rather than focusing on quality. The DBB report responded emphatically: “Bigger isn’t better; better is better.” 79 Its primary recommendations for Services and Components to focus foremost on quality and skill-based hires followed closely on that finding. Engineers involved in acquisition oversight and decision-making received particular attention when DBB returned to this topic in April 2012.80 Leadership of the acquisition workforce also is a point of emphasis for the Pentagon. Its Better Buying Power 2.0 Initiative was direct about the goal to “establish higher standards for key leadership positions.” Qualifications, not just certifications, were the standards on which it focused, including experience, education, and training. 81 Meanwhile, DAPA considered the structure of acquisition management. One part would have included an elevated role for Service Acquisition Executives to “ensure that clear lines of responsibility, accountability, and authority for program execution are established and maintained.” It similarly would have: …establish[ed] Four-Star Service Systems Commands that… will be responsible for aligning the acquisition workforce to include requirements and acquisition budget personnel, by establishing appropriate certification requirements based on formal training, education and practical experience. This organization provides advocacy for the acquisition workforce and will institute formal and informal mentoring of program managers.82

DBB shared this focus on management. Rather than creating new institutions, however, it focused on the service chiefs’ existing responsibilities. In its own words, “the Service Chiefs, in collaboration with senior acquisition leaders, should be accountable for the career path management, training, education, and particularly promotions and equal promotion rates of military acquisition personnel, as required by law. 83 Whether it’s the leadership, the full cadre of the acquisition workforce, or the management structure that guides how the two interact, better oversight and implementation may equate to an across-theboard improvement in acquisition efficiency. Coming to Best Practices

Contracts’ terms and the workforce that manages them are key parts of the structure for defense acquisition. Within that structure, acquisition practice also is a significant indicator of efficiency. This section now turns to techniques that may qualify as best practices. Given the longstanding cost growth in acquisition programs, affordability is one of the most basic concerns. The Pentagon’s Better Buying Power 2.0 initiative favored affordability caps for programs. Specifically, it would have demanded long-term “investment planning to derive affordability caps;” used those

36 | M A N AGING T HE MILITARY MORE EF F ICIEN TLY

affordability caps to “force prioritization of requirements;” and urged senior acquisition officials to “halt programs that will not be within the established cap.” In other words, cancel programs that have lost control of costs. Better Buying Power 2.0 also sought to “implement ‘should-cost’ based management,” in which the cost a program should incur is used as an analytical and negotiating counterweight to what the program actually is costing.84 Timeliness also has drawn particular attention as programs tend not only to exceed their budgets but also to suffer schedule slips. DAPA sought to improve timely and reliable delivery by prioritizing time in developing a program. It would have: …establish[ed] Time Certain Development as the preferred acquisition strategy for major weapon system development. These strategies will require delivery of the first unit to operational forces within approximately six years of the Milestone A decision. Through early fielding of a basic capability, operational users will gain a clearer understanding of requirements that should be incorporated during future block or spiral upgrades, and technologies will mature that will enable producers to satisfy those requirements. Time Certain Development differs from “evolutionary acquisition” in that a specific time frame is established in which useful military capability will be fielded… The time frame will not be adjusted to accommodate new requirements or capability enhancements prior to fielding the useful military capability.85

CSIS also explored acquisition timeliness in its “Beyond Goldwater-Nichols” analysis. It noted options for expediting an acquisition program and recommended increasing that authority for defense-wide rapid acquisition. Specifically, it proposed waiving and exempting the Joint Rapid Acquisition Cell from “regulations that impede responsive acquisition,” as well as endowing it with a billion-dollar capital fund pulled from unobligated balances.86 The Andrews-Conaway panel took yet another path. It concluded that: …for the most urgent operational needs, special acquisition processes are clearly warranted. At the same time, the Panel believes the Department and Congress should not accept program development timelines routinely measured in the double digits for most of the Department’s needs as this approach will not be responsive to the Department’s operational requirements. The Panel believes that the Department must begin to actually apply its policies expressing a preference for evolutionary acquisition and open systems architecture in ways which result in different acquisition strategies and shorter development timelines.87

Tailoring the contract process based on the need being met was again a theme for the Andrews-Conaway panel as it considered information technology. In the words of a witness before the panel, the standard acquisition process is: Ill-suited for information technology systems. Phase A is intended to mature technology; yet information technologies are now largely matured in the commercial sector. Phase B is intended to ready a program for production; yet information technologies are not produced in quantity.

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Phase C is a production phase, which again is generally not relevant to information technology that is not produced in quantity.88

The consequences of this mismatch between the good being acquired and the process for acquiring it was clear to the panel: The Department is unable to keep pace with the rate of IT innovation in the commercial market place, cannot fully capitalize on IT-based opportunities, and seldom delivers IT-based capabilities rapidly. By way of example, the private sector is able to deliver capabilities and incrementally improve on those initial deliveries on a 12 to 18 month cycle; defense IT systems typically take 48-60 months to deliver. In an environment where technology is obsolete after 18 months, defense IT systems are typically two to three generations out of date by the time they are delivered.89

The Andrews-Conaway panel responded to this assessment by recommending a separate acquisition process for information technology, including milestone decision points more aligned with how the private sector develops these tools. The Defense Science Board (DSB) also reached this conclusion in a 2009 acquisition study, and it offered even more detail: IT acquisition should occur in rapid increments driven by successful prototyping in order to keep up with the pace of IT change, according to DSB, and capabilities should be released as they become available even within increments. 90 In a larger frame, both of these positions were responses to a need for the acquisition process to adapt according to the type of goods or service being acquired. Regulations affect how adaptable the acquisition process can be and defense acquisition is subject to a massive scale and fine detail of regulation. The Packard Commission found 26 years ago that “federal law governing procurement has become overwhelmingly complex.” Commissioners felt so strongly about this problem that they recommended a wholesale recodification of government-wide procurement into a single law.91 Yet these regulations still continue to frustrate. From the Pentagon’s viewpoint, one example has been its Better Buying Power 1.0 announcement that it would “work with Congress to eliminate the requirement for the full suite of Nunn-McCurdy [cost breach] assessments and reporting activities in special circumstances where quantity-induced or other external reasons cause critical breaches to occur.”92 The business community also has its concerns about procedural rigidity and a corresponding perspective on regulatory flexibility. According to BENS: A key to fundamental, systemic change lies with the Congress, which, through the body of Federal law and its oversight function, shapes the regulatory framework and influences the culture of defense acquisition. Any attempt to fix the system must first consider the antecedent of today’s dysfunctional acquisition system, the body of acquisition law. Fundamental reform of that body of law is clearly something neither the Pentagon, nor even the Executive Branch, can undertake alone. The Task Force believes the impetus for reform must originate with Congress.93

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DBB likewise returned to the Packard Commission’s position in its April 2012 report, urging the Executive and Legislative Branches to “zero base the entire system, including all directives and regulations.”94 Later it identified several regulations it would cut to help improve the relationship between industry and the Pentagon. Specifically, it favored Congress and the White House “minimizing financial disincentives, limiting recusals, allowing true blind trusts, providing tax incentives and longer divestures in adverse markets,” as well as “reassessing the post-government prohibitions in order to shorten the time period and limit the scope of coverage to specific programs.” 95 Prototyping is another frequently mentioned best practice, one that is specific to the acquisition of goods. Extensive evaluation of prototype technologies, for instance, may provide firmer understandings of cost and capability, permitting better managerial decisions as the program moves into procurement. The Pentagon’s Better Buying Power 2.0 initiative set the goal of being more stringent in how proofof-concept demonstrations are conducted.96 Prototyping was captured as well by the Packard Commission, which prioritized “building and testing prototype systems and subsystems before proceeding with full-scale development.”97 DSB in 2009 also emphasized prototyping as a way to achieve “more thorough analysis … at the outset of system development and during key aspects of the development process.”98 The risks of a development program can be avoided altogether if the needed system already exists. DSB argued that, when possible, the Department of Defense should purchase systems proven on the commercial market rather than a new development program. “Many advanced capabilities are available on the commercial market and offer an important option for supplying U.S. forces,” DSB determined.99 Part of acquisition best practice is knowing when to take advantage of these already available capabilities. DSB concluded its report with a far-reaching observation on best practices: “you can and will only improve what you can measure.” It did not find a particular shortcoming in the Pentagon on this count but rather reiterated that “the Secretary of Defense must personally insist on continuous improvement.” It therefore recommended that: The Secretary of Defense, with the Under Secretary of Defense for Acquisition, Technology, and Logistics at the lead, should develop acquisition performance metrics for monitoring the newly reengineered acquisition process – monitoring each program against performance metrics for cost, schedule, and quality, with quarterly reporting. The metrics should be visible to all. 100

Measurement is the essence of a much more general discussion about defense financial management. The Pentagon is one of three federal agencies unable to meet the standards of financial audit and the only one that lacks even a qualified audit.101 This is different than failing an audit. Rather, much of the Pentagon lacks the data fidelity to begin an audit. GAO includes defense financial management on its high-risk list out of concern over “DOD’s ability to control costs; ensure basic accountability; anticipate future costs and claims on the budget; measure performance; maintain funds control; pre-

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vent and detect fraud, waste, and abuse; address pressing management issues; and prepare auditable financial statements.” 102 In response to these financial management challenges, the fiscal year 2010 defense authorization required the Pentagon to achieve audit readiness by September 2017. In October 2011 testimony before the House Armed Services Committee, then-Secretary Panetta accelerated the deadline for a core element of the audit package to 2014. Congress codified that sub-goal in the fiscal year 2013 defense authorization.103 This partially fulfills one aspect of the HASC Andrews-Conaway Panel’s recommendation to comply with the audit standard well before 2017. That panel was firm in its belief that the full deadline should move forward, however, on the grounds that “failure to do so is fundamentally incompatible with the spirit of acquisition reform.” Consequently, it also recommended that Congress’ defense committees withhold funding or apply penalties in the absence of clear and quick progress.104 More rapid, flexible, accountable, and strategic acquisition – all elements of best practice – have clear connections to efficiency. Generating “Requirements”

Each of these acquisition process options has attracted the attention of experts and senior leaders. Many believe, however, that they have a common root. The Packard commission in 1986 found the acquisition systems’ problems “begin with the establishment of approved ‘military requirements’ for a new weapon, a step that occurs before development starts.” 105 Twenty-four years later, the Andrews-Conaway panel encountered the same sorts of problems. “The Panel heard at almost every hearing, regardless of the primary content focus of the hearing, that obtaining consistent, realistic requirements as a basis for the acquisition process is a critical problem in the defense acquisition system.” 106 The Pentagon’s Better Buying Power 2.0 initiative included a specific determination: “More than anything, requirements drive cost.” 107 On that topic, it aimed to “improve requirements definition; prevent requirements creep,” especially by improving the quality of planning.108 In its April 2012 report, DBB was equally frank: “Freeze requirements early after cost, schedule, and technical feasibility trade-offs.”109 The centrality of requirements is a consensus point, and there is a litany of corresponding perspectives. One possible response to this challenge would be to change how different organizations help create requirements. CSIS would have altered membership of the Joint Requirements Oversight Council, which formally approves requirements, to add the Office of Cost Assessment and Program Evaluation (CAPE) and to replace Service Vice Chiefs with Combatant Command Deputies. It also would have refocused the Office of the Under Secretary for Acquisition, Technology, and Logistics on research and engineering, dedicating this part of the institution to the long view, and would have returned management and execution authority to the military Services. These changes could foster service competition to meet COCOM requirements and permit the Office of the Under Secretary of

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Defense for Acquisition, Technology, and Logistics (USD AT&L) to substantially reduce its staff.110 Meanwhile, moving the services back into management and execution could “clarify issues of accountability and serve several Packard Commission design principles that remain valid today – to create clear, unambiguous command channels, limit reporting requirements, keep staffs small and establish close communication with the end user.”111 BENS also weighed in on the Joint Requirements Oversight Council membership. It shared CSIS’ concern with the balance between near- and long-term focus, but its recommendation was nearly opposite. BENS acknowledged that the COCOMS are leaders on immediate needs but found that the military Services are more likely to take the long view that should guide the requirements process.112 Specifically it recommended that: Sustaining needs should remain with the Service Chiefs (and Defense Agencies, as appropriate)… it should be the responsibility of the JROC to assure operational compatibility among the Services, working through the joint requirements organizations with special attention and rapid action for the near-term requirements.113

HASC’s Andrews-Conaway panel offered a bridge between the CSIS and BENS perspectives. It underscored the importance of COCOM, CAPE, and USD AT&L perspectives on the Joint Requirements Oversight Council and favored consideration of whether they should become voting members. It emphasized taking those positions into account, however, over an institutional change to the body’s composition, and made no suggestion that the Service Vice Chiefs should be replaced if the COCOM Deputies joined. Instead, it recommended designating “a COCOM as the end-user proponent” for all major defense acquisition programs as a means to include war fighter views in the process. Meanwhile, the panel expressed concern that “the divide established in the Goldwater-Nichols Act between acquisition and the military service chiefs has become so wide that it hinders both the acquisition and requirements process … The service chiefs should also be given greater authority and responsibility to oversee contract quality assurance, especially for contracts that are highly operational in nature.”114 DBB addressed the role played by CAPE in this process. It determined that “CAPE cost estimates should be presented, when relevant, at Functional Capability Boards, Joint Capability Boards, and as part of JROC discussion.” Related to that, DBB also found that these cost estimates should influence the services as they build their Program Objective Memoranda and that they should be part of programming decisions made by USD/AT&L.115 DAPA targeted its recommendations more at the standards that underpin requirements than at Joint Requirements Oversight Council membership itself. The standards it proposed dovetail closely with its emphasis on Time Certain contracting. Specifically, it would have forgone schedule slips by releasing technology only when the COCOM determined that it was operationally acceptable and/or operationally usable, instead of when it fulfills criteria set out by the Director of Operational Test and Evaluation. 116 It likewise would have helped institutionalize these standards by:

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…replacing the Joint Capabilities Integration and Development System by designating the Joint Chiefs of Staff/J-8 to lead the integration of the Combatant Commands’ extended planning annexes into a Department wide, time-phased, fiscally-informed and prioritized Joint Capabilities Acquisition and Divestment plan.117

Since many identify requirements as the root cause of cost growth in acquisition, controlling requirements may have the biggest impact on achieving savings. Parameters for Possible Savings

The sheer scale and complexity of the acquisition system creates a perpetual risk of inefficiency that must be managed. Time after time, boards and commissions have found fault with the acquisition system. The previous two sections have considered direct options to save money by compensating and utilizing our service members more efficiently. Reforming acquisition practices could yield comparable savings, in the eyes of some, by catalyzing better management. But these savings would be achieved indirectly. Instilling more discipline in the requirements process or choosing contract vehicles more deliberately, for instance, do not formulaically correspond to a savings figure, but rather allow the Pentagon to identify efficiencies on a case-by-case basis. Some cost growth would probably occur even if all these reforms were implemented. Consequently, the possible savings from these options should be considered in the aggregate instead of as an itemized list. GAO has helped to quantify the risk of inefficiency just in weapons system acquisition, setting aside other programs for services or information technology. It reported that: The total estimated cost of the Department of Defense’s (DOD) 2011 portfolio of 96 major defense acquisition programs stands at $1.58 trillion. In the past year, the total acquisition cost of these programs has grown by over $74.4 billion or 5 percent, of which about $31.1 billion can be attributed to factors such as inefficiencies in production, $29.6 billion to quantity changes, and $13.7 billion to research and development cost growth.118

That circumstance stabilized somewhat during 2012. In its 2013 update to that report, GAO wrote that: The Department of Defense (DOD) 2012 portfolio of 86 major defense acquisition programs is estimated to cost a total of $1.6 trillion, reflecting decreases in both size and cost from the 2011 portfolio. Those decreases are largely the result of more programs exiting than entering the portfolio, as well as reductions in procurement quantities due to program cancelations and restructurings. Notably a majority of programs in the portfolio gained buying power in the last year as their acquisition unit costs decreased. DOD’s 10 costliest programs, excluding the Missile Defense Agency’s Ballistic Missile Defense System, drive most of the portfolio’s cost performance and funding needs.119

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Saving money requires not only stabilizing this trend, though, but also reversing it. The proposed fiscal year 2014 defense plan would spend $1.9 trillion on procurement and research and development over the 10 years from 2014-2023, which does not include many service contracts found in the operating and maintenance appropriations.120 GAO found that major acquisition programs’ costs grew by five percent in 2011 and stabilized in 2012. If acquisition reform proposals produced savings of only a few percentage points, it is possible that savings stemming from acquisition reforms and better practices could be on the order of a hundred billion dollars or even more over the next 10 years. APPROXIMATE POSSIBLE SAVINGS IN BILLIONS OF DOLLARS OVER 10 YEARS



Constructing Contracts Managing the Contracting Workforce Coming to Best Practices Generating “Requirements” Total Possible Savings $100+

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CONCLUSION Although many disagree about what the Defense Department should do and how much it should cost, all agree that whatever it does should be done as efficiently as possible. This report has identified possible savings of $300 billion over the next 10 years by reforming how personnel are compensated. It identified almost $500 billion of possible savings through the more efficient use of manpower. And although it is difficult to estimate an exact savings figure from improved acquisition processes, it is possible that being more deliberate and disciplined could generate more than $100 billion in savings. If all of these efficiencies were realized, they would represent close to $1 trillion, or almost 20 percent of the planned defense budget over the next 10 years. Few are likely to go that far. The options presented in this report have been proposed often, and for many years. Some reforms similar to these proposals have been made in the past and have achieved savings, but many more have not. Many of these options would require overcoming significant political opposition or would be difficult to implement, requiring sustained change over long periods of time. Offsetting effects might erode savings if some were implemented. The likelihood that these proposals might be taken and how well they might perform is a question of political judgment. Each observer will have a different take on each option and its likelihood. Nevertheless, in the constrained budget environment the Defense Department faces, changes will be made and efficiencies will be enforced. This report has captured some of the possible ways that efficiencies can be gained. More importantly, efficiencies must be gained to ensure that U.S. defense dollars are spent as wisely as possible and that American citizens get the best and most effective defense possible, no matter what defense strategy the U.S. pursues.

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ENDNOTES 1 ”Corporate Downsizing Applications for DOD,” Defense Business Board (21 July 2011): Slide 3: http://dbb.defense.gov/pdf/ FY11-07_Corporate%20Downsizing%20Applications%20for%20 DoD.pdf. 2 The Eleventh Quadrennial Review of Military Compensation was published in June 2012 and it features in this report, as appropriate. Its role here is more limited than that of the Tenth Quadrennial Review of Military Compensation, however, because its remit was considerably narrower. Each reference to a Quadrennial Review of Military Compensation is designated as either Tenth or Eleventh. 3 “Volume II: Deferred and Non-Cash Compensation,” Tenth Quadrennial Review of Military Compensation (February 2008): pg. xiii: http://prhome.defense.gov/MPP/docs/Tenth_QRMC _Feb2008_Vol%20II.pdf/. 4 “Volume I: Cash Compensation,” Tenth Quadrennial Review of Military Compensation (February 2008): pg.33: http://www.whs. mil/library/doc/Tenth.pdf. 5 Tenth QRMC Vol. I, pp. xiv-xv. 6 “Report of the Eleventh Quadrennial Review of Military Compensation,” Eleventh Quadrennial Review of Military Compensation (June 2012): pg.26: http://militarypay.defense.gov/reports/ qrmc/11th_QRMC_Main_Report_%28290pp%29_Linked.pdf. 7 Ibid, pg. 28. 8 “Fiscal Year 2014 Budget Request: Overview,” Department of Defense (April 2013): pg. 5-2: http://comptroller.defense.gov/ defbudget/fy2014/FY2014_Budget_Request_Overview_Book. pdf. 9 Tenth QRMC Vol. I, pg. xv. 10 “Analysis of Federal Civilian and Military Compensation,” Congressional Budget Office (20 January 2011): pg.4: http:// www.cbo.gov/sites/default/files/cbofiles/ftpdocs/120xx/ doc12042/01-20-compensation.pdf. 11 Budget Options, Volume II,” Congressional Budget Office (August 2009): Option 050-15: http://www.cbo.gov/sites/default/ files/cbofiles/ftpdocs/102xx/doc10294/08-06-budgetoptions. pdf. “Reducing the Deficit: Spending and Revenue Options,” Congressional Budget Office (March 2011): Discretionary Spending Option 2: http://www.cbo.gov/sites/default/files/cbofiles/ ftpdocs/120xx/ doc12085/03-10-reducingthedeficit.pdf. 12 Obama, Barack. “Presidential Memorandum -- Federal Employee Pay Schedules and Rates that are Set by Administrative Discretion,” White House Office of the Press Secretary, 21 December 2012: http://www.whitehouse.gov/the-pressoffice/2012/12/21/presidential-memorandum-federal-employee-

pay-schedules-and-rates-are-set. 13 “$200 Billion in Illustrative Savings (Bowles-Simpson),” National Commission on Fiscal Responsibility and Reform (November 2010): Option 41: http://www.fiscalcommission.gov/sites/fiscalcommission.gov/ files/documents/Illustrative_List_11.10.2010. pdf. Note that this option includes savings from tax advantages and retirement accrual, but not from bonuses. 14 Tenth QRMC Vol. I, pg. xvii. 15 Eleventh QRMC, pg. 16. 16 Tenth QRMC Vol. II, pg. xi. 17 This principle is generally one of “marginal utility” and specifically a reflection of consumer choice theory. MIT microeconomics curricula refers to it as the “Carte Blanche Principle”: “Consumers make optimal choices for themselves given prices, constraints, and income … Consumers are always weakly better off receiving a cash transfer than an in-kind transfer of identical monetary value. [Weakly better off in that they may be indifferent between the two.]” Autor, David. “Lecture 4: Theory of Choice and Individual Demand,” Massachusetts Institute of Technology, Fall 2010: http://ocw.mit.edu/courses/economics/14-03-microeconomic-theory-and-public-policy-fall-2010/lecture-notes/ MIT14_03F10_lec04.pdf. 18 CBO 2011 Budget Options, Discretionary Option 6. 19 CBO 2009 Budget Options, Option 050-20. 20 Tenth QRMC Vol. II, xxvi. 21 Wormuth, Christine and Michele Flournoy, Patrick Henry, and Clark Murdoch. “The Future of the National Guard and Reserves,” Center for Strategic and International Studies (July 2006): pp. 110: http://csis.org/files/media/csis/pubs/bgn_ph3_report.pdf. 22 “Fiscal Year 2013 Budget Request: Overview,” Department of Defense (February 2012): pg. 5-2: http://comptroller.defense. gov/defbudget/fy2013/FY2013_Budget_Request_Overview_ Book.pdf. 23 Wormuth et al, pp. 110-111. 24 “TRICARE Prime Enrollment Fees,” Department of Defense (Viewed April 2013): http://www.tricare.mil/Home/Costs/HealthPlanCosts/PrimeOptions/EnrollmentFees.aspx. 25 “The Military Compensation System: Completing the Transition to an All-Volunteer Force,” Defense Advisory Commission on Military Compensation (April 2006): pp. xxviii: http://prhome. defense.gov/RFM/MPP/docs/dacmc_finalreport7_11.pdf. 26 Tenth QRMC Vol. II, pg. xvi.

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27 CBO Budget Options 2011, Discretionary Option 3. 28 Ibid. 29 “Restoring America’s Future (Rivlin-Domenici),” Bipartisan Policy Center (November 2010), pg 114: http://www.bipartisanpolicy.org/sites/default/files/BPC%20FINAL%20REPORT%20 FOR%20PRINTER%2002%2028%2011.pdf. 30 CBO Budget Options 2011, Discretionary Option 4 31 Ibid. 32 “Healthcare for Military Retirees Report,” Defense Business Board (December 2005): Slide 11: http://dbb.defense.gov/pdf/ Healthcare-for-Military-Ret.pdf.

Report0293.pdf. 48 “2012 Annual Report: Opportunities to Reduce Duplication, Overlap and Fragmentation, Achieve Savings, and Enhance Revenue,” Government Accountability Office (February 2012): Option 22: http://www.gao.gov/assets/590/588818.pdf. 49 Avdellas, Nicholas and Joseph Berry, Michael Disano, David Oaks, and Earl Wingrove III. “Future Capability of DOD Maintenance Depots,” LMI Consulting (February 2011): pp. 6-1, 6-15: http://armedservices.house.gov/index.cfm/files/serve?File_ id=5ea27615-e4fe-41ad-8884-d205988dd772. (Note: This report is in fulfillment of §322 of the 2009 National Defense Authorization Act.)

33 Tenth QRMC Vol. II, pg. xvii.

50 “2011 Annual Report: Opportunities to Reduce Duplication, Overlap and Fragmentation, Achieve Savings, and Enhance Revenue,” Government Accountability Office (February 2011): pg. 38: http://www.gao.gov/new.items/d11318sp.pdf.

34 CBO 2011, Discretionary Option 5.

51 Bowles-Simpson, Option 56.

35 “Conference Report for the National Defense Authorization Act for Fiscal Year 2012, §701,” http://www.rules.house.gov/ Media/file/PDF_112_1/legislativetext/HR1540conf.pdf.

52 GAO 2012 Efficiencies Report, Option 36.

36 “National Defense Authorization Act for Fiscal Year 2013, §712,” http://www.gpo.gov/fdsys/pkg/BILLS-112hr4310enr/ pdf/BILLS-112hr4310enr.pdf. 37 FY2014 Budget Request Overview, Figure 5-2. 38 Ibid. 39 “Modernizing the Military Retirement System,” Defense Business Board (October 2011): pp. 2-3: http://dbb.defense.gov/pdf/FY1105_Modernizing_the_Military_Retirement_System1.pdf.

53 Gebicke, Scott and Samuel Magid. “Lessons from around the World: Benchmarking Performance in Defense,” McKinsey on Government (Spring 2010): pg. 7. 54 “FY2012 Defense Manpower Requirements Report,” Office of the Under Secretary of Defense for Personnel and Readiness (April 2012): Table 2-1: http://prhome.defense.gov/RFM/TFPRQ/ docs/FY12%20Defense%20Manpower%20Requirements%20Report%20%28DMRR%29%20--%20Apr%202012.pdf.. 55 Rivlin-Domenici, pg. 100.

40 DACMC, pp. xx-xxii.

56 “Reducing Overhead and Improving Business Operations,” Defense Business Board (July 2010): Slides 10, 25: http://dbb.defense. gov/pdf/DBB_Overhead_final_07_22_Board_Meeting.pdf.

41 Tenth QRMC Vol. II, pp. xiii-xiv.

57 Bowles-Simpson, Option 53.

42 Asch, Beth and Richard Johnson and John Warner. “Reforming the Military Retirement System,” RAND Corporation (1998): pp. xi-xii: http://www.rand.org/pubs/monograph_reports/2007/ MR748.pdf/.

58 “National Defense Budget Estimates for FY2013,” Office of the Under Secretary of Defense/Comptroller (March 2012): Table 7-5: http://comptroller.defense.gov/defbudget/fy2013/ FY13_Green_Book.pdf

43 Rivlin-Domenici, pg. 112.

59 DBB Overhead & Business Operations 2010, Slides 20 and 40.

44 DBB Retirement Report 2011, Slides 5-6. 45 Ibid, Slide 13

60 Hale, Robert. “Testimony before the Senate Budget Committee,” 28 February 2012.

46 Levinson, Robert and Kevin Brancato. “Military Pension Change Could Save the Pentagon $37 Billion,” Bloomberg Government (14 December 2011): pp. 8, 10.

61 DBB Overhead & Business Operations 2010, Slide 40.

47 Powell, Colin. “Report on the Roles, Missions, and Functions of the Armed Forces of the United States,” The Joint Staff (February 1993): III-1: http://www.airforce-magazine.com/SiteCollectionDocuments/ TheDocumentFile/Defense%20Reviews/Powell-

63 “Eliminating Major Gaps in DoD Data on the Fully-Burdened and Life-Cycle Cost of Military Personnel: Cost Elements Should be Mandated by Policy,” Reserve Forces Policy Board (January 2013): http://ra.defense.gov/rfpb/_documents/RFPB_Cost_

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62 FY2013 National Defense Authorization Act, §955.

Methodology_Final_Report_7Jan13.pdf.

79 Ibid, Slide 14.

64 “Defense Budget Priorities and Choices,” Department of Defense (26 January 2012): pp. 12-13: http://www.defense.gov/ news/Defense_Budget_Priorities.pdf.

80 DBB Requirements, Acquisition, and Budget Processes: Slide 21.

65 Wormuth et al, pp. 94-95. 66 USAspending.gov 67 The U.S. government provides a detailed overview of contract types, available at https://www.acquisition.gov/far/current/html/ FARTOCP16.html. 68“Better Buying Power 2.0: Continuing the Pursuit for Greater Efficiency and Productivity in Defense Spending” Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics (13 November 2012): pp. 3-4: http://www.defense.gov/ news/BBPWorkforceMemo.pdf. 69“Best Business Practices for Fixed-Price Contracting,” Defense Business Board (21 January 2010): Slide 12-14: http://dbb. defense.gov/pdf/FY10-03_Best_Business_Practices_Fixed_ Price_Contracting.pdf. 70 “Defense Acquisition Performance Assessment (DAPA),” December 2005, pg. 13: http://www.defense.gov/pubs/pdfs/ DAPA%2012-22%20WEB%20Exec%20Summary.pdf. 71 “A Quest for Excellence: Final Report to the President” The President’s Blue Ribbon Commission on Defense Management (Packard Commission) (June 1986): pp. xxiii: http://www.ndu. edu/library/pbrc/36ex2.pdf. 72 “Acquisition Workforce Growth and Recommendations for Insourcing,” Defense Business Board (21 January 2010), pp. 7, 13, 14: http://dbb.defense.gov/pdf/Acquisition_Insourcing_Report_FY10-04_Combined_29_Mar_2010.pdf. 73 “Linking and Streamlining the Defense Requirements, Acquisition, and Budget Processes,” Defense Business Board (April 2012), Slide 20: http://dbb.defense.gov/pdf/FY12-02_Linking_ and_Streamlining_the_Def_Req_Acq_and_Budget_Processes.pdf. 74 “Panel on Defense Acquisition Reform Findings and Recommendations (Andrews-Conaway),” House Armed Services Committee (23 March 2010): pg. 38-40: https://acc.dau.mil/adl/enUS/364298/file/50236/ HASC%20Panel%20on%20Defense%20 Acquisition%20Reform%20Final%20Report%2023MAR2010.pdf

81 Better Buying Power 2.0, pg. 6. 82 DAPA, pp. 9-10. 83 DBB Requirements, Acquisition, and Budget Processes: Slide 20. 84 Better Buying Power 2.0, pg. 2. 85 Ibid. 86 Murdock, Clark and Michele Flournoy. “Beyond GoldwaterNichols: US Government and Defense Reform for a New Strategic Era,” Center for Strategic and International Studies (July 2005): pg. 97-98: http://csis.org/files/media/csis/pubs/bgn_ph2_report.pdf. 87 HASC Andrews-Conaway, pp. 8-9. 88 Ibid, pg. 16. 89 Ibid, pg. 17. 90 “Creating a DOD Strategic Acquisition Platform,” Defense Science Board (April 2009): pg. 25: http://www.acq.osd.mil/dsb/ reports/ADA499566.pdf. 91 Packard Commission, pp. xxii & xxv. 92 “Better Buying Power: Guidance for Obtaining Greater Efficiency and Productivity in Defense Spending,” Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics (14 September 2010): pg. 15: http://www.acq.osd. mil/docs/USD_ATL_Guidance_Memo_September_14_2010_FINAL.PDF. 93 BENS, pp. 5-6. 94 DBB Requirements, Acquisition, and Budget Processes: Slide 17. 95 Ibid, Slide 24. 96 Better Buying Power 2.0, pg. 5.

75“Getting to Best: Reforming the Defense Acquisition Enterprise,” Business Executives for National Security (July 2009): pp. 10-11: http://www.bens.org/document.doc?id=44.

97 Packard Commission, xxvi.

76 Gates, Robert. “Defense Budget Recommendation Statement,” Department of Defense (06 April 2009): http://www. defense.gov/speeches/speech.aspx?speechid=1341.

99 Ibid, pg. 21.

77 FY2014 Budget Request Overview, pp. 3-10.

101 “Citizen’s Guide to the 2011 Financial Report of the United States Government,” Department of the Treasury, Table 2 (pg. 5): http://www.fms.treas.gov/fr/11frusg/11frusg.pdf.

78 DBB Acquisition Workforce 2010, Slide 3.

98 DSB, pg. 18.

100 Ibid, pg. 37.

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102 “High-Risk Series: An Update,” Government Accountability Office (February 2011): pg. 77: http://www.gao.gov/new.items/ d11278.pdf. 103 For the overall statutory requirement, see Section 1003 of the FY2010 National Defense Authorization Act. For Panetta’s decision to accelerate the Statement of Budgetary Resources, see his 13 October 2011 testimony before the House Armed Services Committee. For Congress’ codification of Panetta’s goal, see Section 1005 of the FY2013 National Defense Authorization Act. 104 HASC Andrews-Conaway, pg. 43. 105 Packard Commission, pg. 45. 106 HASC Andrews-Conaway Panel, pg. 22. 107 Better Buying Power 2.0, pg. 3. 108 Ibid, pg. 6. 109 DBB Requirements, Acquisition, and Budget Processes: Slide 17. 110 Murdock and Flournoy, 84-85. 111 Ibid, pg. 94. 112 BENS, pg. 7. 113 Ibid, pg. 10. 114 HASC Andrews-Conaway, pp. 29-30. 115 DBB Requirements, Acquisition, and Budget Processes: Slide 19. 116 DAPA, pg. 12. 117 Ibid, pg. 11. 118 “Defense Acquisitions: Assessments of Selected Weapon Programs,” Government Accountability Office (March 2012): pg. 2: http://www.gao.gov/assets /590/589695.pdf. 119 “Defense Acquisitions: Assessments of Selected Weapon Programs,” Government Accountability Office (March 2013): pg. 2: http://www.gao.gov/assets/660/653379.pdf. 120 “Budget Authority and Outlays by Function, Category, and Program (Table 31-1),” Office of Management and Budget, (April 2013): http://www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/31_1.xls.