Presentation to The Elliott School of International Affairs, George Washington University
It has been six years and three days since the Al Qaeda attack on the American homeland. I doubt anyone in this room woke up on September 12th, assuming you were able to sleep that night, thinking it would be more than six years before America would be attacked again.
On September 10th, 2001, our military, industrial, diplomatic and intelligence apparatuses were not well configured for the terror war. Yet they have responded with impressive speed and success. America and our allies have hammered Al Qaeda, overthrown two terror regimes on the other side of the world, and realigned a third.
Few would have predicted that on September 12th. The away game launched by the American military-industrial-intelligence complex has thus far kept our families and cities safe for 72 months from further attack.
Back in the defense aerospace recession of the 1990s, you also never would have guessed that within a few years our defense industrial sector – both public and private – could have handled an operation that includes a big NATO mission in land-locked central Asia, standing up a new Africa Command, and American Marines crossing the Iraq-Syrian border searching for and killing terrorists…600 miles from their sea-bases. But American weapons, logistics, and technology have once again delivered for a global operation that is so ambitious even Napoleon would blush.
During the 1990s public and private sector defense players were fighting over scraps from multiple Base Closing rounds, while the public sector depots were being sealed off from private competition by a Congress controlled by supposedly conservative Republicans. Giant defense companies were dabbling in unlikely business ventures like cruise ships and the internet. But as the terror war unfolded this decade, public-private partnerships emerged at the heart of the defense industrial base and logistics chain, and they are working.
Commercial companies like UPS are flying pallets into airfields in Iraq and Afghanistan on a daily basis, and flying broken parts back to America for repair. DHL and FedEx do daily deliveries to coalition bases across Iraq. Gold-plated industrial giants like Honeywell and Caterpillar are conducting repairs and managing supply-chains for the Army and Navy. And Kellogg, Brown and Root has emerged as the private sector equivalent of the Defense Logistics Agency. That company is so deep into the anti-terror fight it has now lost 110 dead and 325 wounded in Iraq and Afghanistan.
At the publicly-owned but privately managed ammunition plant in Lake City, Missouri, the Army and Alliant Techsystems surged from producing 300 million rounds of small caliber ammo to one billion rounds in one year. Lake City will deliver 1.4 billion small caliber rounds to the government this fiscal year. Since 2000, 5.56mm production is up 367%, 7.62mm is up 880%, and .50 cal is up 1200%.
The ammo surge has been so huge the Army decided it better establish a second source of supply if for any reason this single critical source was disrupted. PEO Ammo made that decision just as Katrina was crossing the Louisiana coast.
Navy Inventory Control Point is driving its Performance Based Logistics contracts from 20% to 50% of the total value of their maintenance budgets. NAVAIR would like to go even higher. The Navy’s F-18 E/F PBL has raised reliability and improved availability to 85% relative to the older model F-18 C/D, which is at 67%. Cost savings are projected to be roughly $1 billion over the 30 year life cycle of the Super Hornet – averaging $33.4 million a year.
The Army has thrown open its public sector depot gates to private contractors. The Army Materiel Command’s Anniston, Alabama depot may be the most impressive operation of all. Its civilian government leadership has pioneered public-private cooperation and co-production, starting well before 9-11. General Dynamics manages its M1 Abrams tank lines there, while also doing final assembly of all its Stryker armored vehicle variants at the depot.
At Red River Army Depot in northeast Texas, the Army and BAE Systems are also resetting and upgrading Bradley Fighting Vehicles, again as a public-private partnership.
At the Army’s major helicopter repair depot in Corpus Christi, Texas, General Electric has brought Lean management practices inside the gate and helped the government drive down the engine overhaul time of sand-eaten, weather-beaten choppers by 80%.
In two government shipyards General Dynamics is managing the conversion of four nuclear powered ballistic missile submarines into cruise missile and SEAL platforms. GD also performs repairs and maintenance on attack submarines at her own Groton, Connecticut shipyard.
At the privatized Kelly Air Logistics Center in San Antonio, Texas, Boeing, Lockheed Martin, and Standard Aero now manage an aircraft logistics center that some key Air Force loggies consider an asset as valued as one of their own public sector depots.
The F-22 Support Partnerships between the Air Force, Lockheed Martin, and Pratt and Whitney also break new ground. Lockheed provides system integration and all logistics support management for our new air superiority fighter. Pratt provides all depot-level maintenance and ensures a guaranteed engine availability at a fixed price. But rather than send engines back to their company sites, they use the facilities and labor at the Oklahoma City depot, and provide an on-site management team.
The granddaddy of all Performance Based Agreements is the Air Force’s C-17 Globemaster Sustainment Partnership. The Air Force and Boeing are teamed on a PBA that has saved the taxpayer $503 million since 1998. The contract is servicing 165 aircraft at eight bases, generates new work both inside and outside the depot gates, and has dramatically improved readiness on America’s premier strategic airlifter.
What is most remarkable about these initiatives is that military and public sector leaders are more often than not the real drivers behind the partnerships. They recognized that if they didn’t become more efficient they might not be able to deliver supplies and weapons to the warfighter on time. And since they also had to answer to the political system and the taxpayer, they might be out of a job. There is no doubt the military would be doing even more with the private sector if they were not constrained by Congressionally-mandated rules and regulations.
Of course, none of this comes without problems. The government turned over too much acquisition power to the private sector after the cold war, and the Coast Guard and Navy are rebuilding their ability to organically evaluate and execute difficult modernization programs. And while too much power has been handed to the private sector in the weapons procurement arena, it is imperative that government acquisition and logistics professionals understand that private companies need to make a profit – indeed a healthy profit – if they are expected to deliver excellent and timely products. Risk is paid for with profit margins.
Also, there are sometimes gripes in the field when better paid contractors are embedded with the deployed military. However, it is doubtful that military personnel have run the numbers on the full, life-time value of their pension, housing and health-care benefits, which likely dwarf anything a private contractor is collecting. Better metrics are needed to compare costs between using public and private providers for logistics and support services. And it is also imperative that military personnel understand that by using contractors for services, they will free up more resources and can hire more shooters to fight and win wars.
Finally, Congress should consider giving the military even more flexibility to use the private sector, perhaps by modifying the 50-50 rule which often restricts the use of private contractors inside government depot gates. I have heard from high level ALC, Army Materiel Command, and DLA leaders on how badly 50-50 restricts their business options.
There are some indications the Congressional Depot Caucus is beginning to move beyond the view that industry is the enemy. They are open to new ideas and reforms. They realize the Air Logistics Centers are not going to be shut down. There is not going to be another Base Closing round anytime soon, if at all. The wars this decade have proven the worth of both the public and private sectors. There is some chance for legislative reform language that would make 50-50 more flexible, give the Air Force and the other services more time to make their numbers, and move away from the wild mood swings of past debates. Senator Inhofe actually asked the Oklahoma City ALC earlier this year to go slow pulling work out of San Antonio and Pemco, and to make sure they really had to do it. The ALC was shocked when he said that.
This is not 10 years ago. Money is being invested in the depots. Lean and Six Sigma are saving big money. If and when the 50-50 strings get loosened we will need to be cautious and make sure the underpinnings for the depots remain in place. But the wartime success of public-private partnerships this decade suggest we may be on the verge of a new era in after-market management and reform.
When the airplanes hit on September 11th the US was already in the midst of a recession and stock market crash. But the recession ended the next quarter, and the economy has been growing ever since. We have not had a single quarter of negative growth since 2001. We are close to full employment, and have surged to unprecedented levels of household and corporate wealth, all the while running and funding this massive global military operation on only 4% of our GDP.
Among the other marvels of American fortitude and creativity, it turned out we could once again count on our defense industrial base – both public and private – to deliver for our troops, on short notice and at pitched levels totally unexpected by any planners. As Grover Dunn, a top Air Force logistician says, “no one ever expects the industrial base to come through. But it always does.”
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