Sidney Freedberg of Breaking Defense reports that the Pentagon’s top weapons buyer is getting nervous about America’s edge in military technology. For three generations, the U.S. joint force has relied on superior technology to compensate for the numerical and geographical advantages of adversaries. But now, Under Secretary of Defense Frank Kendall warned an industry conclave this week, “We’ve become complacent… Our technological superiority is very much at risk… We’ve got to wake up.”
That’s a striking admission, coming from a policymaker who has spent much of his recent tenure at the Pentagon encouraging acquisition personnel to favor what contractors disparagingly refer to as “lowest price technically acceptable” suppliers — in other words, low bidders. The emphasis on getting the best price has been so persistent that some companies have been forced to accept big losses up front to win a berth on key programs. For instance, Boeing will lose hundreds of millions of dollars developing the Air Force’s next-generation tanker because the Pentagon put it in a cutthroat competition with Airbus where price was the main discriminator. Airbus is subsidized by foreign governments; Boeing got the opposite of that on the tanker — it subsidizes the government.
The notion that benefits will be generated by draining resources away from the nation’s biggest technology exporter was always questionable, but now Kendall seems to be realizing that there’s a larger problem with always favoring the lowest-cost provider. When profit margins are razor-thin, companies can’t afford to take risks, and innovation suffers. To cite another example, several years back Oshkosh Corporation displaced incumbent BAE Systems from a contract to build armored trucks for the Army; it won by bidding a 1% profit margin contingent on state and local aid. The Army decided it preferred the Oshkosh bid and now BAE has shuttered its truck plant in Texas. It’s doubtful Oshkosh made money on the program, because the Army elected to prematurely terminate production.
How likely is it that military contractors are going to experiment with new concepts and processes when they have to compete under such circumstances? Lockheed Martin’s F-35 fighter may in the end turn out to be, in Senator John McCain’s phrase, “the greatest combat aircraft in the history of the world,” but so far the company has booked a modest 7% profit margin on the effort and the program has been repeatedly delayed by an excess of caution on the part of policymakers. Imagine insisting that a new aircraft needs to go through 8,000 flight tests before it can be certified as operationally ready! Does that encourage the kind of risk-taking and experimentation with new technology that Secretary Kendall now worries has disappeared from the acquisition process?
In Kendall’s defense, the Obama Administration entered office harboring a lot of naive ideas about military contracting, and Kendall wasn’t in charge of acquisition at that point anyway. But now he is, so he’s in a position to do something more about the military’s waning technological edge than just give a speech. As his office continues to refine its buying practices, creating incentives to take risks rather than playing it safe in developing weapons might be a helpful step. After all, America didn’t become the global leader in military technology by playing it safe — it took some big gambles on programs like the Polaris missile and the B-2 bomber. Such bets don’t always pay off, but they’re the best way to stay ahead of competitors like China.
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