Policy Report: Obama Should Learn Defense Budget Lessons From French

In an era when defense contractors monopolize technical expertise and determine pricing while Congress protects parochial interests, President Obama would do well to adopt lessons from French Defense, according to a recent Washington, DC think tank report.

The report (“Smart Defense Acquisition: Learning From French Procurement Reform“) published by the Center for New American Security (CNAS) and authored by CNAS nonresident senior fellow Ethan B. Kapstein, suggests that the $110 billion military procurement budget – the single largest discretionary item in the federal budget – undergo a reduction in the same fashion the French did in the late 1980s and early ’90s, resulting in a 20 percent decrease in the procurement budget between 1990 and 1997.

The Center for New American Security, founded in 2007 with the stated mission of developing “strong, pragmatic principled national security and defense policies,” has gained increased prominence under the Obama administration. Its founders, Kurt Campbell and Michele Flournoy, are serving top posts in the Obama administration, Assistant Secretary of State for East Asian and Pacific Affairs and Undersecretary of Defense for Policy, respectively.

Obama’s procurement reform proposals thus far “have been largely off the mark” because he “fails to take into account the complexity of modern weapons systems and the need for an incentive system that motivates both the government and the manufacturers to take reasonable risks on new technical solutions,” according to Kapstein, a retired naval officer and current professor at the University of Texas at Austin.

The report, which came out just ahead of this week’s Reuters Aerospace and Defense Summit in Washington, also stated that Obama has “not faced” the complex reasons for cost growth in military acquisition, which not only involves the way the Pentagon does business, but also “the role of Congress in micro-managing acquisitions policy in ways that benefit the parochial interests of each representative.”

The current acquisition system not only provides opportunity for waste and opportunism, but it has also worked against protecting service men and women. Citing the lack of armored vehicles in Iraq and Afghanistan, the report noted that despite the $110 billion, armed forces are often deprived of “the quantities of firepower they need when they go into harm’s way.” In the first two years of the Iraq invasion, US soldiers were forced to buy their own armor because the Pentagon’s procurement was inadequate.

During the period of re-examination in France, the report stated, the French realized that defense contractors were in a position to overcharge the government because of “the profound information asymmetries that existed between public and private sectors,” which led the French to a stronger recruiting program for engineers to join defense. With stronger technical expertise, the DGA (the equivalent to the US Department of Defense), initiated “pre-contractual” negotiations, which attempted to identify cost overruns and how to account for them.

The Obama administration’s experiment with fixed price negotiations, which puts all risk on the industry, is being severely criticized among industry leaders. “The inappropriate contract type at the wrong point in the contract can create a lose-lose situation,” said Northrop Grumman Corp Chief Executive Ron Sugar, according to a Reuters report last week.

While a pure adoption of the French system will not likely work, the report outlines some key recommendations for the Obama administration to consider.

The Department of Defense should implement a more robust recruitment program to obtain some of the country’s best engineers, said Kapstein. “Today, industry executives are rarely impressed by the public officials they must negotiate with.” Improving recruitment would make for a technically stronger acquisition team that could begin “to enter into more robust ex ante assessments of the risks associated with new weapons programs and anticipated project costs,” according to Kapstein. “Today, poor ex ante analysis means that projects are given low cost estimates, which then naturally rise once the contracts are let.”

Further, Kapstein advocates a stronger role for the media, think tanks and the Obama administration, all of whom should “object strenuously when Congress channels unnecessary funds to procurement that should be going directly to our ‘boots on the ground’ instead.”

Finally, Kapstein recommends a more centralized, coordinated effort within the Pentagon. “[S]eparation in the national security realm between the accountants who worry about the costs of weapons and the political and military leaders who worry about warfighting,” Kapstein concludes, “has ultimately done a disservice to America’s armed forces.”