May 1, 2009  

Let’s make a deal

An industry-government partnership would foster stability

The hubris of legislators apparently knows no bounds. Here we are again on the fast road to acquisition reform, trying to fix the damage done by the many previous acquisition reform attempts. The best we can hope for this time is that Congress begins with a clear understanding of the industry and its relationship to government. The defense market, it must recognize, is not a normal one. Unlike all others, it has only a few qualified sellers and a single buyer.

Thanks to earlier acquisition reform efforts, several rounds of base closings and the recent pressure for defense privatization that members of both parties encouraged, the defense industry, at the platform level, is a set of privately owned, publicly funded arsenals. The U.S. military cannot design, develop and build its own warships, aircraft, armored vehicles or missiles. Instead those tasks have become the jobs of Lockheed Martin, Northrop Grumman, Boeing, General Dynamics, Raytheon and BAE Systems.

But those companies, with Boeing a partial exception, live almost entirely on government money, especially Defense Department money. They have no business essentially without a Pentagon contract or approval. Lockheed could not sell the F-22 to Japan or Australia even if they were to fax in an order. And it is the U.S. Navy and no other that is allowed to own the Virginia-class submarine.

Having the Pentagon as your only buyer, however, is a mixed blessing. On the one hand, no other buyer is as rich or has more exotic tastes. On the other hand, this is a buyer that cannot make a decision that sticks. Remember, we were once going to buy more than 700 F-22s and lease 100 KC-135 tanker replacements. The House, the Senate, authorizers, appropriators, conferees, the services, the Joint Staff, the Office of the Secretary of Defense and the White House all get a say over and over again.


New business is obtained in collusion with the services by arguing that existing products are militarily obsolete. Given that we have piers, hangars and motor pools full of weapon systems, the only way to build again is by claiming that something out there is or conceivably could be faster and/or more lethal. Although continuing modifications to existing systems are needed, no mere modification will do. Threats to existing systems are big, real and very dangerous.

Understandably, exaggerations creep into the process. Agreements on new starts are hard to obtain given the inertia in the system and its many decision makers. “This is the greatest downturn since the Great Depression.” “Terrorists can strike anywhere, anytime.” “The Soviets are 10 feet tall.” It all seems deceptive, but without a bit of the irrational, nothing moves.

Promises are easy to make in this business: “Not only is the new system going to be two, three or four times better than the one we have, it is going to cost the same or barely more. After all, the technology needed is nearly in hand.” And when there are delays and contract overruns, we can’t give up because we actually do need replacement systems and many jobs are at stake.

Adding more threat reviewers, cost estimators and milestone hurdles to jump is the way of acquisition reform. We can have an acquisition czar, an acquisition corps or even an acquisition penal colony if we want. We can ban military officers working for contractors or contractor lobbyists working for government. All of this will not change the fact that the government is dependent upon the contractors for its weapons and the contractors have no business without the government.

We have recreated the arsenal system and ought to admit it. This is not in most of its aspects a competitive industry. Few firms are capable of making major weapon systems. Because there are so few firms and their capabilities are so expensive to create, those who lose competitions cannot be allowed to go out of business. There is no business without the government buyer, and it is that buyer that rations what other countries can buy.


It is time to make a deal. Instead of pretending defense is a normal market, we should seek to establish a buyer-seller collaboration in most segments of the industry. The government would guarantee a level of employment and profitability for the firms. The firms would collaborate with the government on the design and production of new systems.

There could be two or three aircraft design facilities, and two production lines. There could be two ship-design teams and two or three building yards. The details could be made to fit the existing structure. The key point would be not to add to that structure in the quest for nonexistent competition. No more shipyards or aircraft factories should be allowed to build weapon systems.

Stability would help tame costs. Design competition with prototyping would help ensure technical leadership. Assured, if low-level, production would preserve key workforce skills. This is the way we built nuclear weapons during the Cold War. It is also the way we build submarines today.

Dynamic segments of defense such as UAVs and sensors, where the technology is changing rapidly and economies of scale are not important, can be left open to competition. Here, new entries and unusual proposals should be encouraged. The deal is not intended to close out innovation.

But in the platform area, stability and predictability should be the goal. We want to preserve the capability without breaking the treasury. Reducing the uncertainty that contractors face should reduce the pressure they place on government for big, new projects. The services should feel assured of a source of dedicated technical support for existing weapon systems and the periodic start and production of replacement systems.

It is time to rebuild the defense team. The industry deal would put the arsenals back in business, though under private management. Innovation could come from within or without. And gone, one can hope, would be the parade of acquisition reforms that treat private arsenals as if they are normal competitive firms.

HARVEY M. SAPOLSKY is a former director at the Massachusetts Institute of Technology Security Studies Program.