Defense Acquisition Reform

Floor Speech

Mr. McCAIN. Madam President, as consideration of the National Defense Authorization Act for fiscal year 2015 proceeds in earnest, and with the recent release and annual assessments of the Department of Defense major procurement programs by the Government Accountability Office and the Pentagon's Director of Operational Testing and Evaluation, we are, once again, reminded of the DOD's chronic inability to rein in costs associated with its largest and most expensive weapon and information technology systems.

This is, of course, a problem the DOD--the Department of Defense--has struggled with for years. During every one of these years, I brought this problem to the attention of the American people, both in the Senate Armed Services Committee and here on the floor of the Senate.

So I need not go over again the frustrating litany of costly procurement failures at the Department of Defense. At this point we are all aware of the future combat system, the Army's ``transformational'' vehicle and communications modernization program, in which the military and the U.S. Army wasted almost $20 billion developing 18 vehicles and drones, only one of which actually went into production. In other words, they blew $19 billion. As had been done on other programs, on the Future Combat Systems, the Army held a ``paper competition'' to select contractors far in advance of fielding any actual prototypes. But it awarded control to two separate companies and let them, not the government, hold their own internal competitions to determine who would test and build the vehicles and systems--encumbering the program with a dizzying array of conflicts of interest and preferred-supplier preferences that chipped away at the program from the inside out.

As for the Air Force, its Expeditionary Combat Support System--the ECSS program--wasted over 1 billion taxpayer dollars attempting to procure and integrate a ``commercial off-the-shelf'' logistics IT system. That effort resulted in no usable capability for the Air Force, and taxpayers were forced to pay an additional $8 million in severance costs to the company that failed in its mission. The Marine Corps, in turn, spent 15 years and $3 billion on its Expeditionary Fighting Vehicle before canceling the program in 2012--another $3 billion down the drain.

While there are so many other failures, we shouldn't forget the VH-71 program--the presidential helicopter program--with which the Navy attempted to procure a new presidential helicopter. Before that program's cancellation in 2009, taxpayers were forced to pay $3.2 billion and got exactly zero helicopters.

Our ``joint service'' programs have also faced profound difficulties. Even though the Department of Defense has not completed development testing on the F-35 Joint Strike Fighter, that program is already well into production, exposing it to the risk of costly retrofits late in production.

While today the Joint Strike Fighter Program is on a more stable path to succeed, during a recent Airland Subcommittee hearing on tactical aircraft programs, I asked the head of the program, Lt. Gen. Chris Bogdan, what lessons the DOD learned from that program's costly failures. By the way, it is the most expensive weapons system ever--a $1 trillion weapons system. He identified three lessons: the danger of overly optimistic initial cost estimates, the importance of reliable technological risk estimates, and the complexity and costs of building next-generation planes while still testing them.

That is, of course, a post mortem that we are all very familiar with, including on some of the failed acquisition programs to which I just alluded. For that reason, Congress enacted the Weapon Systems Acquisition Reform Act of 2009. That law instituted reforms to make sure that new major weapons procurement programs start off right, with accurate initial cost estimates, reliable technological risk assessments, and only reasonable ``concurrency,'' and stable operational requirements.

While the Government Accountability Office found this law had a ``significant influence'' on requirements, cost, schedule, testing, and reliability for the acquisition of new major weapons systems, there is still much to do, especially on the so-called ``legacy'' systems already well into the development pipeline. According to the Government Accountability Office, the cost of the Pentagon's major weapons systems--that is 80 systems in total--have swollen to nearly one-half trillion dollars over their initial price tags and have average schedule delays of more than 2 years.

I will repeat that for the benefit of the Pentagon, my colleagues here in the Senate, and the American people. The Government Accountability Office says the cost of the Pentagon's major weapons systems, of which there are 80 in total, have swollen to nearly one-half trillion dollars--that is T, trillion dollars--over their initial price tags--their initial cost estimates--and have average schedule delays of more than 2 years. That is not acceptable. That is not acceptable to the American people, it should not be acceptable to Members of Congress, and it sure as heck shouldn't be acceptable to the people who are responsible for these cost overruns. That is the Pentagon and that is these manufacturers.

Against this backdrop, I will briefly discuss two critical aspects of how the Department of Defense procures major systems--real competition and accountability. In my view, it is no coincidence that the period of remarkably poor performance among our largest weapons procurement programs has coincided with a dramatic contraction in the industrial base, due, in large part, to consolidation among the Nation's top-tier contractors. For this reason the Department of Defense must structure into its strategies to acquire major systems true competition--not like fake competition--as we saw in the Future Combat System or as proponents for an alternate engine for the Joint Strike Fighter once advocated. According to the Government Accountability Office, in fiscal year 2013, only 57 percent--I repeat, 57 percent--of the $300 billion the Department of Defense obligated for contracts and orders was actually competed. In other words, only in a little over half of the $300 billion--roughly

$150 billion--in contracts and orders was there actually any competition. Unacceptable. Competition should be driven through the subsystems level, and it should be reflected in approaches that foster innovation and small business participation throughout a system's entire lifecycle.

Especially within the Navy's ``shipbuilding and conversion'' account and the Air Force's ``missile procurement'' account, costs associated with the Ohio-class replacement submarine and the Evolved Expendable Launch Vehicle--that is our space effort--those programs respectively, will severely pressurize other procurement priorities within these same aspects of Pentagon spending.

So within these particular areas, harnessing competitive forces to drive down costs and keep them down will be enormously important. There can, however, be no doubt that during a year of declining budgets and, therefore, fewer opportunities to support an already diminished industrial base, this will be extraordinarily difficult. So we should be embracing competition--even the prospect of it--wherever and however we find it.

In the Littoral Combat Ship Program, the Navy's strategy to bring competition into the construction of the follow-on ships' seaframes successfully drove down those costs after the cost to complete construction of the lead ships' seaframes exploded--the costs exploded. While doing so resulted in a dual-award block-buy contract, which I thought, and continue to think, was ill-advised, and serious problems persist with the Littoral Combat Ship's mission modules--in other words, the ship's ability to carry out its assigned missions--there can be no doubt that competition was just what the program needed.

After having found in 2012 that competition for the Evolved Expendable Launch Vehicle, i.e., our space program, could lower costs for the government, the Government Accountability Office reiterated the importance of competition generally in a report released today, stating that, ``[c]ompetition is the cornerstone of a sound acquisition process.''

Remember those words by the Government Accountability Office, as I go on: Competition is the cornerstone of a sound acquisition process.

It is exactly for this reason I have been concerned with what I have seen in the Evolved Expendable Launch Vehicle, a critical national security space launch program. In the absence of competition and amidst a highly suspect effort to minimize internal Pentagon and congressional oversight of the program, which I corrected just a couple of years ago, the costs of this program have exploded. There are higher inflation costs for this program than any other program in the entire program. Only after that program critically breached cost thresholds under Federal law--the so-called Nunn-McCurdy--in other words, after the inflation of the costs were so high Federal law threatened its existence--did the Department of Defense finally recognize the value--indeed, the need--for competition.

Yet despite a directive by the Under Secretary of Defense for Acquisition, Technology, and Logistics to the Air Force to ``aggressively'' introduce competition into the program, and just weeks before the Air Force knew--the Air Force knew--that a prospective new entrant to the program would qualify as a bidder, the Air Force awarded a 3-year sole-source block-buy contract to the incumbent contractor. Just weeks before they knew there would be competition, they allowed and awarded a program to the one bidder, sole source, at a huge cost. The Air Force did so in a way that exposed only those launches designated for competition to the greatest risk of delay or cancellation. Then, just a few weeks ago, in connection with its budget request for fiscal year 2015, the Air Force proposed to cut the number of launches designated for competition in half. They gut the number of launches designated for competition to half, in part to satisfy the Air Force's existing obligation to the incumbent contractor under the sole-source block-buy contract.

Why the Air Force made all those decisions in that program, which so desperately needs competition, is unclear. But the evidence of incumbency favoritism I have seen to date was strong enough for me to refer the matter to the Department of Defense Inspector General for investigation. That favoritism apparently extended to the DOD's failure to ensure that the incumbent contractor's efforts to import rocket engines from Russia--we are importing rocket engines for our space launch program from Russia in a noncompetitive contract--did not run afoul of the President's Executive order sanctioning certain Russian persons in connection with Russia's activities in eastern Ukraine. It took a prospective bidder--not the Pentagon, but a prospective bidder; that is, a possible competitor--to file a lawsuit in Federal court to ensure compliance with the President's Executive order.

We all look forward to the inspector general's findings.

In addition to the EELV, I will also be monitoring the Army's modernization program to build nearly 3,000 armored personnel carriers. This program too appears to lack any meaningful competition, having obtained a waiver to skip over building working prototypes and thereby ignoring the acquisition best practice of fly before you buy.

Way back many years ago when Ronald Reagan became President of the United States, our then-Secretary of Defense Cap Weinberger said: Fly before you buy. Fly before you buy.

It is clear. I do not think anybody builds anything in America today if they do not test it out before they purchase it en bloc or produce it en bloc. Yet the Pentagon continues to ignore the fundamental principle of fly before you buy.

There is also clearly more that needs to be done to ensure accountability in how the Department of Defense procures major weapons and information technology systems. Ensuring accountability means having in place the right acquisition managers when large procurement programs start instead of bringing them in years after those programs have foundered. Those managers must see and be willing to enforce affordability as an operational requirement and know how to effectively incentivize their industry partners to control costs.

Also, within a system that better aligns their tenure with key management decisions on their programs, those managers--trained to be as competent and skillful a buyer as their industry counterparts are sellers--need to be empowered to make those decisions in their best professional judgment, and they need to do so within an overall system that holds them accountable if they are wrong and rewards them if they are successful.

Regrettably, that is not our defense acquisition system. In our system, instead of accountability, a systemic misalignment of incentives reigns--incentives that assign a premium to overly optimistic initial cost estimates and technological risk assessments. In our system, what is all-important is getting activity ``under contract,'' ``keeping the money flowing,'' and maintaining budgets. Our system allows the Department of Defense to start programs that are poorly conceived or inherently unexecutable with the aim of getting them ``on rails''--into the development pipeline--and, if possible, simultaneously into production.

At that point, given the extent to which they have been engineered so that their economic benefits are distributed among key States and congressional districts, those programs become notoriously difficult to terminate or meaningfully change. Why? Because our system keeps them alive, often at an exorbitant cost and, in the worst cases, without ever providing meaningful combat capability.

My friends, it is called the military-industrial-congressional complex. Dwight David Eisenhower, in his last major speech, warned us of the military-industrial complex. It is now the military-industrial-congressional complex. It is a politically engineered, ill-defined, massive ``transformational'' procurement program, with an unlimited tolerance for excessive concurrency, largely funded on a cost-reimbursable basis, with the prime contractor allowed to maximize profit without necessarily delivering needed capability to our service men and women on budget or on time.

To say that such a system is unsustainable is charitable. It is a system that, if allowed to continue unabated, will have us bestow on our children and theirs de facto unilateral disarmament for which they will have no say and from which our Nation will have no recourse.

Rather than wallow in discouragement, however, we must let that odious proposition motivate us to reform the current system with meaningful change, in particular to the Pentagon's culture of inefficiency that has eluded us for a generation.

One thing is clear: Today we have a choice. Tomorrow we will not.

I suggest the absence of a quorum.

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