Procurement: Lifesavers Are Late And Over Budget

 

Last year, 98 major American military procurement projects were $402 billion over budget and, on average, 22 months late. Some 40 percent of the cost overruns are the result of suppliers submitting unrealistically low bids for new weapons, and then coming back for more and more money as “unforeseen problems” appear and costs kept escalating and delivery delayed. This has come to be called “lowballing.” Currently, procurement of weapons and major equipment make up about a third of the defense budget. While this is expected to decline over the next decade, as defense budgets shrink, the problem also extends to upgrades and refurbishment of existing equipment.

The military goes along with the lowball angle because it makes it easier to get Congress to approve the projects. Once a new project is in the military budget a few years, it is very difficult to get it cancelled. Since Congress has a short memory, the military does not take much heat for this never ending “lowball” planning process.

Actually, it’s poor planning in general that causes most of the high costs. It’s bad planning by the military, when coming up with the initial design, and bad planning on the part of the few manufacturers that have a monopoly on building certain types of weapons systems. Monopolies do not encourage efficiency. There are many examples of all these bad habits at work. Don’t expect any of this to change anytime soon. It’s the way things have worked for a long time. Many generals and admirals, members of Congress, and even a few manufacturer executives, have called for reform. But it just doesn’t happen, at least not to a large extent.

One encouraging post-Cold War trend has been an increased reluctance to build a lot of a weapon that became extremely expensive. Thus the B-2 bomber, Seawolf submarine, F-22 fighter, Crusader artillery system, Comanche helicopter, and DDG-1000 destroyer all got production cut sharply, or were cancelled, when their budgets went too far out of control. So there’s hope yet.

Another problem is that military spending has, over the last 50 years, continually declined as a percentage of GDP. Thus while ten years of war against Islamic terrorism (especially in Iraq and Afghanistan) has cost about $1.2 trillion, that’s not as big a chunk of change as it used to be. For example, World War II cost, at the time (in current dollars) over four trillion dollars. That amounted to over 33 percent of U.S. GDP at the time. The current war on terror is costing about one percent of GDP. So while war may appear to be getting more expensive, relative to the amount of money available, it’s actually getting cheaper.

Procurement: Lifesavers Are Late And Over Budget

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