Seventy percent of the lifetime cost of a weapons system is incurred after it is bought. There is the recurring maintenance that all complex systems require. If employed in combat, maintenance costs rise even if there is no real damage to be repaired. Add to these costs those associated with periodic upgrades as threats become more challenging and new capabilities become available.
This fraction of the total ownership costs can be even higher for older systems. The last of the venerable B-52H bombers was built in 1963. The remaining 76 B-52 bombers have already gone through several upgrade cycles and the Air Force plans to modernize them yet again so they can remain in the force until 2044. The Navy just retired its first nuclear-powered aircraft carrier, the USS Enterprise, after 50 years in service. In fact, the age of the equipment across the U.S. military is rising as older systems are kept in active service longer and there are fewer new program starts. So, while lowering the procurement cost of new equipment is important, the real savings come from reducing the costs associated with sustainment and upgrades.
Better Buying Power 3.0, the Department of Defense’s (DoD) current acquisition reform effort, focuses, in part, on reducing the life-cycle costs of weapons systems. One of the most important ways of doing this is by applying the best practices from the commercial marketplace in such areas as supply chain management, maintenance, repair and overhaul and product improvement engineering.
One of the best tools available from the private sector, which has seen significant, but still limited application in defense sustainment, is performance-based logistics (PBL). Under a PBL-based arrangement the government contracts with a company for an outcome, such as aircraft availability, rather than for parts and labor. The risks are essentially transferred to the company. Well-written PBL-based contracts have also included a sharing of cost reductions between the government and the company. The 17-year-old Air Force PBL contract for C-17 support has achieved a high level of aircraft availability while saving the government over $1 billion.
Consequently it is extremely significant when the Pentagon announces that it has decided to use a PBL approach for sustainment of the largest aircraft program, the F-35 Joint Strike Fighter (JSF). Apparently, DoD is now sufficiently comfortable with technical aspects of the program and the reduced procurement costs that it wants to address planning for the aircraft’s life-cycle costs. The Under Secretary of Defense for AT&L was quoted in a recent article, as follows:
“Basically, we want to have as much competition [between companies] as possible. We want to have strong financial incentives in to get us as good a performance as possible and we want to be sure we have a system that supports everybody involved in the program.”
Based on its past experience with PBL-contracts, the Pentagon says it should save between 10 and 15 percent on the sustainment costs for the F-35, which would mean as much as $100 billion. This is not only important for the U.S. military and the American taxpayer, but for our allies, too. Many of the countries that are part of the JSF consortium are struggling with their own defense budget woes. Reducing sustainment costs can go a long way to helping them stay in the program.
The defense department also is seeking to avail itself of special contracting mechanisms to reduce procurement costs for the F-35. The Pentagon is reported to be planning to ask Congress for authority to initiate a block purchase of up to 450 JSFs. Block buys have been used successfully to lower costs in other programs including the Virginia-class nuclear-powered submarine, V-22 tiltrotor aircraft and MH-60 helicopter. A block buy would allow for a more economical purchase of parts and materials and also a ramping up of the production rate at Lockheed Martin’s Fort Worth facility. This approach could result in lowering the price per aircraft by 10-15 percent.
DoD, generally, but AT&L, in particular, should be complimented for taking a pro-active stance with respect to reducing the costs of both the procurement and sustainment portions of the F-35’s life cycle. Applying contracting approaches that have a proven record of saving the department money to this largest of all acquisition programs could mark the start of a fundamental change in Pentagon acquisition policy.
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