The Pentagon’s baroque process for buying weapons needs to be streamlined. Vast amounts of money are wasted on overhead functions that add nothing to the value of the combat systems being acquired. On the other hand, the Department of Defense has found a handful of buying practices that are highly useful in saving money and speeding the delivery of new technology to warfighters. One such practice is multiyear procurements, which require the government to commit to buying a product for two or more years in return for getting a break on the price. The price concession is made possible by the greater efficiency that results from contractors being able to plan ahead.
Take the V-22 Osprey tilt-rotor, a revolutionary aircraft that combines the vertical agility of a helicopter with the horizontal speed and range of a fixed-wing aircraft. The Osprey has greatly improved the combat performance of the Marine Corps and Air Force special operations units, but it is nobody’s idea of cheap so the services are constantly looking for ways of getting the cost down. With that in mind, the Naval Air Systems Command in 2008 awarded a five-year contract for 167 Ospreys — 141 Marine variants and 26 Air Force variants — with an eye to acquiring the tilt-rotor in the most economical fashion possible. Because the government made a five-year commitment, prime contractors Boeing and Bell Textron were able to maximize the efficiency of their plants and workforces, delivering substantial savings over the alternative approach of just ordering a new batch every year. A second multiyear contract for 99 Ospreys was signed earlier this year.
All of the services have embraced the multiyear model. The Navy wants to commit to a five-year buy of Virginia-class attack submarines in fiscal 2014, and the Army announced in June it will acquire 177 tandem-rotor Chinook helicopters using a multiyear procurement contract. However, Congress has imposed limits on when the government can commit years in advance for a set rate of production on major combat systems. The multiyear approach must yield substantial savings over alternative acquisition strategies, there must be confidence that cost estimates are realistic, the need for the items in question must be reasonably stable, and the design of the item must be stable too. If one of these conditions can’t be met then chances are the others can’t either, and a program would be deemed ineligible for multiyear procurement.
When all the necessary conditions are in place though, common sense dictates using multiyear contracting vehicles. Contractors can plan the size of their workforces, order materials, make investments and retain talent — all for years into the future, since they know what level of demand and revenues will be coming from the government customer. Because the multiyear procurement concept encourages contractors to make long-term commitments in pursuit of cost savings, contracts typically impose a penalty on the government for premature termination. That feature is, in effect, an insurance policy so that companies know they will not be exposed to losses if they make commitments several years into the future.
One reason Congress needs to replace the continuing resolution currently funding the government with a formal appropriation for fiscal 2014 is so that new multiyear contracts can be signed. Like most continuing resolutions, the present measure does not permit the government to make new long-term funding commitments. Until a measure providing more flexibility to Pentagon managers is signed into law, the fiscal 2014-2018 “block buy” of ten attack subs cannot proceed. Any delays run the risk of reducing fleet preparedness in the future while making the new subs less affordable. If the new multiyear can be signed in a timely fashion, taxpayers will reap savings of over a billion dollars without having to shrink the fleet to a point where U.S. security is at risk.
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