How the Government Pays Defense Contractors Tens of Billions for Nothing

By starting expensive technology programs but ending them before they bear fruit, the military has spent a taxpayer fortune without getting anything in return.

One of the 10 Expeditionary Fighting Vehicles in existence with Amphibious Vehicle Testing Branch, Marine Corps Systems Command, executes testing maneuvers 7 miles off the coast of Camp Pendleton.
National Journal
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Sara Sorcher
March 5, 2014, midnight

In 2011, the Army doled out its first con­tracts to de­vel­op new ar­mored vehicles that could carry a full nine-man in­fantry squad. Build­ing the fleet of 1,800 new vehicles was ex­pec­ted to cost a whop­ping $29 bil­lion.

In its 2015 budget re­quest Tues­day, the Obama ad­min­is­tra­tion of­fi­cially asked Con­gress to kill the ground com­bat vehicle pro­gram, with De­fense Sec­ret­ary Chuck Hagel re­quest­ing that mil­it­ary lead­ers draw up a “real­ist­ic” — read: less ex­pens­ive — re­place­ment.

But there’s a prob­lem: The Pentagon has paid some $1.2 bil­lion to de­fense con­tract­ors BAE Sys­tems and Gen­er­al Dy­nam­ics since 2011 to de­vel­op the pro­gram, ac­cord­ing to In­side De­fense.

And though the Army will not have a single vehicle to show for that spend­ing, it won’t be get­ting its money back.

The ground com­bat vehicle pro­gram is just the tip of the ice­berg. Since Pres­id­ent Obama took of­fice, his ad­min­is­tra­tion has spiked a slew of ma­jor pro­grams the gov­ern­ment spent tens of bil­lions of dol­lars to de­vel­op but will now nev­er fin­ish.

Some high­lights:

  • Fu­ture Com­bat Sys­tems. It was the biggest, and most am­bi­tious, ac­quis­i­tion pro­gram the Army ever planned: a bri­gade of weapons sys­tems, from tanks to drones and war-fight­ing soft­ware, all con­nec­ted over an ad­vanced wire­less net­work. Its pro­jec­ted budget swelled to $159 bil­lion. By the time then-De­fense Sec­ret­ary Robert Gates nixed the pro­gram in 2009, the Pentagon had already spent around $19 bil­lion to de­vel­op it.
  • Air­borne Laser. The U.S. spent 16 years and $5.2 bil­lion to de­vel­op the pro­gram dubbed “Amer­ica’s first light saber,” an air­craft armed with a laser cap­able of shoot­ing en­emy mis­siles out of the air. Gates killed plans for a second plane in 2009, and three years later the ex­ist­ing air­craft was put in­to stor­age in the “bone­yard” at an Air Force base in Ari­zona.
  • Ex­ped­i­tion­ary Fight­ing Vehicle. This am­phi­bi­ous as­sault vehicle, en­vi­sioned as a tank that swims from sea to shore with 17 Mar­ines on board, was can­celed in 2011 after bal­loon­ing costs and poor per­form­ance. Its de­vel­op­ment costs no­tori­ously ate up $3.3 bil­lion.

That’s just a smat­ter­ing. Oth­er un­fin­ished pro­grams spiked by the Obama ad­min­is­tra­tion in­clude the now-abor­ted VH-71 pres­id­en­tial heli­copter, the Trans­form­a­tion­al Satel­lite Com­mu­nic­a­tions Sys­tem, the Na­tion­al Po­lar-Or­bit­ing Op­er­a­tion­al En­vir­on­ment­al Satel­lite Sys­tem, the CG(X) Cruis­er, the Joint Tac­tic­al Ra­dio Sys­tem Ground Mo­bile Ra­di­os, and the Me­di­um Ex­ten­ded Air De­fense Sys­tem.

That list alone totals more than $50 bil­lion, and there are un­doubtedly oth­ers tucked with­in the Pentagon’s labyrinth­ine budget.

Re­gard­less of the ex­act tally, the wasted fund­ing does not ne­ces­sar­ily mean it’s a mis­take to kill the pro­grams. Do­ing so can save big money in the long term. If the mil­it­ary be­lieves it would be bet­ter served by a dif­fer­ent op­tion — or if the money is needed for a more cru­cial pro­gram — then con­tinu­ing to in­vest in these ex­pens­ive pro­grams would have been throw­ing good money after bad.

The Pentagon was un­avail­able for com­ment on this is­sue Tues­day, but the Army’s ac­quis­i­tions chief, Heidi Shyu, has said the ground com­bat vehicle was “sac­ri­ficed” to save oth­er pro­grams in a shrink­ing budget. There was simply no money to fund it, she said last week, and its can­cel­la­tion had noth­ing to do with its per­form­ance.

But even those who sup­port the de­cision to spike the pro­jects will con­cede that this is far from the ideal out­come, and that it would have been bet­ter if the pro­jects had nev­er been star­ted at all.

“[When] you in­vest in products you’re not go­ing to be able to af­ford to buy, you’re just wast­ing money,” Frank Kend­all, De­fense un­der­sec­ret­ary for ac­quis­i­tion, tech­no­logy, and lo­gist­ics, told an in­dustry con­fer­ence in Janu­ary. The Pentagon, Kend­all said, is try­ing to learn from its past mis­takes and to plan today’s in­vest­ments bet­ter so that the pro­grams they spawn can be around in dec­ades to come.

Kend­all, who pre­vi­ously worked as a con­sult­ant on the Army’s Fu­ture Com­bat Sys­tems, called it a “no­tori­ous ex­ample” of an overly am­bi­tious pro­gram that prob­ably was nev­er af­ford­able. “But nobody sat down and did that long-term plan­ning ana­lys­is to say, ‘Can we really do this? Are the budgets in the fu­ture go­ing to sup­port this?’” Kend­all said. “The an­swer would have been, I think pretty ob­vi­ously, ‘No.’ “

It’s not just the Pentagon that needs to be more dis­cip­lined to avoid squan­der­ing in­vest­ments.

Vir­tu­ally all the ma­jor forces in Wash­ing­ton have a hand in this.

Polit­ic­ally speak­ing, the De­fense De­part­ment — and Con­gress — of­ten view fu­ture pro­grams as easi­er tar­gets for re­duc­tions than older sys­tems with en­trenched con­stitu­en­cies on Cap­it­ol Hill. Con­gress has for years re­buffed Pentagon de­mands to close bases or slow the growth of mil­it­ary health care and be­ne­fits, and has over­turned the mil­it­ary’s de­cisions to re­tire aging plat­forms that bring jobs to their dis­tricts.

The stop-and-start nature of the budget in re­cent years, when law­makers have been un­able to pass a full year’s budget on time, has also taken its toll on the Pentagon’s com­plex web of lit­er­ally mil­lions of gov­ern­ment con­tracts, worth hun­dreds of bil­lions of dol­lars. “Con­gress needs to ex­er­cise more dis­cip­line in set­ting fund­ing levels and stick­ing to them,” said Todd Har­ris­on of the Cen­ter for Stra­tegic and Budget­ary As­sess­ments.

The in­tense budget pres­sure is a driv­ing force be­hind the can­cel­la­tions.

Since the start of the Obama ad­min­is­tra­tion, the Pentagon has com­mit­ted to cut­ting at least $500 bil­lion from its planned budget over 10 years as the mil­it­ary emerges from an era dom­in­ated by long wars in Ir­aq and Afgh­anistan. Even be­fore the Budget Con­trol Act of 2011 fi­nal­ized the De­fense De­part­ment’s con­strained budget tra­ject­ory, Sec­ret­ary Gates cut a slew of pro­grams in 2009 be­cause they were not per­form­ing well enough (or were not af­ford­able enough) to meet the tough­er bot­tom line he ex­pec­ted in the fu­ture.

But now, the Pentagon is in the throes of im­ple­ment­ing an­oth­er half-tril­lion-dol­lar cut­back it does not sup­port, be­cause Con­gress has so far failed to fully re­peal se­quest­ra­tion and agree on an­oth­er way to re­duce the de­fi­cit.

So even with its money-sav­ing ini­ti­at­ives, “the un­cer­tainty is driv­ing us crazy,” Kend­all told an in­dustry con­fer­ence last week. When the Pentagon cal­cu­lated some three years ago wheth­er the ground com­bat vehicle would be af­ford­able, he said, “we were look­ing at very dif­fer­ent pro­jec­tions for our budget.”

That un­cer­tainty trickles down to in­dustry. Con­tract­ors may be forced to raise their prices over the long term as their pro­grams are delayed. Cost over­runs and delays can make fu­ture pro­grams ap­pear even less de­sir­able.

Of course, Obama is not the only pres­id­ent to cut pro­grams after in­vest­ing in them. The Clin­ton, Re­agan, and George H.W. Bush ad­min­is­tra­tions also trimmed big-tick­et pro­grams. Even George W. Bush was no ex­cep­tion. For in­stance, he axed the Comanche heli­copter, in­ten­ded to be the Army’s ad­vanced, stealthy, and light at­tack heli­copter, in 2004 after pour­ing $7.9 bil­lion in­to its de­vel­op­ment.

Still, the $50 bil­lion worth of failed in­vest­ments in re­cent years is both a waste of tax­pay­er dol­lars and a missed op­por­tun­ity for the Pentagon, Har­ris­on said. Mil­it­ary pro­cure­ment funds surged in the last dec­ade of war as the de­fense budget in­creased — “but we didn’t get much out of it,” he said.

The Pentagon should be kick­ing it­self. “Be­cause in the next 10 years, we’re not go­ing to be able to spend that kind of money on de­vel­op­ing new sys­tems,” Har­ris­on said. “We’re go­ing to be stuck with what we’ve got.”