I don’t believe that reducing defense spending will necessarily make the Department of Defense (DoD) more innovative, as some have claimed. DoD’s problem is not strategic or operational and the answer cannot be found in clever organizational designs or new technologies. The Pentagon’s challenge is how to reconcile in its force planning and investment strategies a profound disconnect between the American people’s apparent unwillingness to spend money on a large, sophisticated military and the appetite of the nation’s leaders to employ the military. As I noted in a recent blog, the Armed Forces have been nearly four times more active since the end of the Cold War than in the preceding four decades even as its size declined by half. There is no reason to believe that the need to deploy and employ the military will decline even as it gets smaller. The Army’s Campaign of Learning lays out the vision of a future world that is growing in complexity, increasingly volatile, more dangerous and rapidly changing. It concludes that the defense of the U.S. and its global interests will require an Army (really a Joint Force) that can rapidly deliver military effects at speed to match the pace of events. Such a military will not be cheap.

As Samuel Johnson is alleged to have observed, “the prospect of being hanged focuses the mind wonderfully.” If defense spending is going down but dangers are increasing and the demand for military responses remains high, DoD will be forced to do more with less. This is a problem that no amount of clever reorganizing, trendy leader development and training or silver bullet technology can fix. Moreover, as a newly published study by the American Enterprise Institute points out, "There just isn't enough money in procurement and readiness to meet the sequester tab. ... All of the low-hanging fruit has been picked." Perhaps now staring potential disaster in the face, the Pentagon will focus on fixing its broken acquisition system and, in particular, reducing the costs associated with an overly complex, too highly regulated and even adversarial process of acquiring goods and services.

It is ironic that the prospect of changing rules, regulations and procedures – and in the process letting go of tens of thousands of bureaucrats – seems to terrify DoD’s leaders more than a possible future when an ill-equipped and inadequately trained military will have to face a capable enemy in battle. It seems more important to ensure that no acquisition dollar is misspent, no component, part or system ever fails, no private contractor gets away with even ten cents worth of excess profits and nobody ever cheats the government than it is to make sure there are enough resources to support a robust, modern and well-trained military. And the additional costs imposed by this system are enormous. A Navy admiral recently observed that as a result of acquisition regulations and specifications, his service was required to pay three times more than the private sector’s cost for a particular power generator. Since the Pentagon cannot provide a cost-benefit analysis demonstrating that the burden of intense regulation, oversight and auditing results in net savings, one is left wondering if the costs imposed are excessive to the gains achieved.

We are talking about real money and lots of it. In 1994, a landmark study by the accounting firm Coopers and Lybrand found that on average 18 percent of defense acquisition expenditures are overhead, including all the regulatory, administrative and accounting requirements. A senior former government official, now head of the U.S. arm of a major international aerospace company, stated in Congressional testimony that 20 percent of the cost of everything DoD buys is administrative overhead. The HASC report, Challenges to Doing Business with the Department of Defense, concurred with this view but thought that overhead costs today were higher than in 1994. 20 percent of the estimated $400 billion that DoD spends annually on goods and services is a cool $80 billion. This amount does not include the many billions more that DoD spends on government personnel, infrastructure and equipment needed in order to conduct all these administrative activities.

The regulatory regime that controls DoD’s acquisition system has become so labyrinthine that the former head of the Defense Business Board, which had studied the problem, recommended taking the entire stack of regulations and setting a match to it. Short of that, the leadership of the department, specifically the Under Secretary of Defense for AT&L, Mr. Frank Kendall, should be given the authority to cut overhead costs by half. This would save $40 billion in direct costs to the government and perhaps another $10 billion in indirect expenses. Of course, such a campaign would necessitate eliminating all but the most essential regulations, specifications, and procedures. But these are desperate times. What DoD needs now more than anything is a “Manhattan Project” to refashion its busted acquisition system into one that reduces costs while preserving force structure and capabilities.

Daniel Goure, Ph.D.