In Army, sequestration will force about-face on acquisition reforms

Jared Serbu reports on the U.S. Army's annual winter conference.

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The Army has made huge progress over the last two years in reforming its acquisition processes and lowering the costs of major programs. But leaders say the current year’s budget chaos threatens to make that work irrelevant.

The service took a lot of heat over the past decade over costs and schedule overruns in its major acquisition programs. One recent Army-commissioned study found that the service was throwing away, on average, a billion dollars per year on programs that were ultimately cancelled because of their ballooning price tags.

But the service’s acquisition leaders insist that since 2010, there’s been a notable turnaround as they wholeheartedly embraced the concepts in the Pentagon’s acquisition improvement effort, Better Buying Power. The reforms, officials said, saved several hundred million dollars in fiscal 2012, and are on track to cut program costs by more than $2 billion more over the next five years.

Those smarter, more disciplined buying processes, however, are incompatible with the undisciplined budget cuts on the Pentagon’s horizon, said Heidi Shyu, the Army’s assistant secretary for acquisition, logistics and technology. What progress the Army’s made will reverse itself if Congress lets sequestration make across-the-board cuts to DoD’s budget, and if the department remains under a continuing resolution for a full year.

“Every Army acquisition program will be affected under sequestration,” she said in a recorded video message to the Association of the U.S. Army’s annual winter conference in Fort Lauderdale, Fla. “Schedules for [research, development, test and evaluation]-funded programs will be extended for anywhere between six weeks and 18 months. Procurement-funded programs will experience funding cuts, and the impacts will result in 16,000 jobs lost or not realized.”

Projected cuts from sequestration

She said the total tab for the procurement cuts would be $2.6 billion after each of the Army’s 450 procurement programs individually underwent the nine percent cut sequestration requires. The result, she said, would be higher costs in each program, because carefully-thought out strategies, such as more efficient multi-year contracts, would have to undergo modifications for lack of adequate funding.

“Each program that’s affected by cuts will encounter greater susceptibility to future delays in cost, as program managers are asked to take on greater risks to absorb this reduction,” she said. “Current year activities will be delayed or reduced to meet sequestration targets, with no assurance that funding will be restored in future years. These changes will extend program schedules, increase our unit costs and add to our programs’ overall risk next year and beyond.”

Sequestration aside, Shyu said the absence of an approved budget for fiscal 2013 creates more problems for doing more cost-efficient contracting. In this year alone, six of the programs the Army crafted under Better Buying Power can’t even begin, because new starts are prohibited while the Pentagon is funded under a continuing resolution.

“In aviation, the Army will be unable to award the Chinook helicopter multiyear contract or procure the planned quantities of the Apache helicopter, which is going to increase our unit costs,” she said. “It also impacts the General Fund Enterprise Business System, which is critical to our efforts to meet auditability goals. These are very real impacts.”

Contracting actions going up, workforce shrinking

The job of managing a wave of changes to acquisition programs will fall to the Army’s contracting workforce, a group the Army says it’s also invested a lot of time and money in building and training under Better Buying Power. But like every other workforce in DoD, it will also get smaller under sequestration beginning in April, when DoD civilians will start being placed on unpaid furlough for one day per week.

“We think there’s a potential here for a perfect storm,” said Gabe Camarillo, the Army’s principal deputy assistant secretary for acquisition. “The number of contracting actions is going to go up significantly at the same time we may encounter a shortfall in our workforce. It’s going to create some significant challenges for us in the coming weeks and months if in fact we have to implement these reductions.”

The savings the Army has realized so far under Better Buying Power came most significantly from a tenet of the program the Pentagon calls “should cost” management, officials said. The central idea is that acquisition professionals should manage their programs based on what they ought to cost in an ideal world, rather than what DoD’s history of cost overruns suggests they will cost.

The principle has turned out to work pretty well in practice, said Maj. Gen. Harold Greene, the Army Acquisition Corps’ deputy for acquisition and systems management.

“It’s paid real dividends. Our savings in fiscal 2012 that we could point to where we had concrete savings was approximately $370 million,” he said. “We expect more in future years. Our projection right now is $2.5 billion between 2013 and 2017.”

Successful acquisition approach

Greene offered up the example of the Nett Warrior program: The Army wanted a way to let dismounted combat leaders see their locations on a video screen, but the service designed the original program with gold-plated specifications that made it expensive to produce, and the test model also was too heavy for soldiers to reasonably carry.

After a restructuring, the Army settled on a revised program that relied heavily on commercial technology, including an off-the-shelf Android handheld device. The cost difference was almost $900 million.

Greene said the Army’s new acquisition approaches have worked out well for big systems too, such as helicopters. He said the Army is now using multi-year contracts to buy its heavy-lift workhorse, the CH-47.

“In the first multi-year contract for that helicopter, we saved about ten percent,” he said. “We have a second one ready for award, but unfortunately, since we have a continuing resolution, it’s in a hang-fire status right now. But when we do get to award it, it’s going to be about $3.4 billion, with a savings of $810 million from the expected cost. That’s real money.”

Greene also spoke at the Association of the U.S. Army’s winter get-together this week in Fort Lauderdale, Fla., which after 14 years, will be the last time the annual event is held. With travel and conference budgets getting squeezed across the federal government, attendance has dropped significantly for this week’s conference. Officials said there are almost as many attendees from foreign militaries as there are from the U.S. military this year.


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