Keeping Pentagon out of wild blue yonder. Escalating arms costs have experts hunting ways to wring out excesses
The way defense costs are escalating, quips Norman R. Augustine, president of Martin Marietta Denver Aerospace, ''in the year 2054 the entire defense budget will purchase just one tactical aircraft.''
At least that is the way it seems in the wake of news reports that the military is buying $37 screws, $435 claw hammers, and $9,609 hexagonal wrenches.
Weaponsmakers, Defense Department officials, and defense spending critics agree that changes are needed in the way the nation buys weapons systems and the parts to keep them operating. But there is sharp disagreement about how much of the Pentagon's $84.4 billion procurement budget for 1984 is likely to be misspent and who is to blame for the waste.
Mr. Augustine, in recent testimony to Congress, said the Pentagon way of buying weapons ''is truly an example of the whole being less than the sum of the parts.'' And that comment comes from a former top Pentagon official and current chairman of the Pentagon's advisory Defense Science Board, as well as head of a corporate division that makes space and electronic systems for the military.
News reports of sky-high prices for small spare parts have helped to bring on a number of steps both by Congress and the Pentagon to improve procurement procedures.
For example, Congress has just passed a measure requiring Pentagon suppliers to provide warranties on their products and another bill requiring the Defense Department to establish an independent testing office. Meanwhile, the Pentagon is running its own 32-point ''Acquisition Improvement Program.''
But previous efforts to reform military purchasing have achieved only modest results, and many observers expect the current round to come to the same end.
''It is very hard to make some of these changes in a big bureaucracy,'' a congressional defense expert says. ''It is not that they don't want to do things better, it's just that there are conflicting interests.''
Even Pentagon weapon purchasing executives admit the need for changes. ''There is a lack of incentives to hold down costs,'' says Harvey Gordon, assistant deputy undersecretary of defense for acquisition. ''But it is not due to something directly attributable to the acquisitions work force.''
''No one in industry would say things'' are perfect, notes Frank Hinrichs, vice-president of the American Defense Preparedness Association, which represents major defense contractors. ''There are problems in term of incentives and competition and other things (like) spare parts.'' But he adds that procurement officials tend to be blamed for problems, including inflation and congressionally mandated changes in programs, over which they have no control.
While officials agree that there is a procurement problem, estimates of the waste vary widely. Earlier this year the Grace Commission appointed by President Reagan reported possible savings of $92 billion over a three-year period, with 40 percent coming from improved procurement. Meanwhile, Deputy Defense Secretary Paul Thayer told a contractors' meeting that weapons costs could be trimmed 10 to 30 percent if mistakes were caught before production began.
But Mr. Gordon claims that even if all the procurement changes advocated by the Grace Commission were adopted, ''you might save or avoid costs of $10 billion, and that is over a three-year period.''
And he argues that news stories about high spare-parts costs are misleading for a number of reasons. Many of the parts horror stories ''we uncovered ourselves,'' he notes. And some of the seemingly inflated price can be explained by the way the Pentagon buys goods, he says.
For example, congressional budget constraints mean that the military has the funds to buy parts only in small, and therefore uneconomical, quantities, Mr. Gordon asserts. And the price paid includes the cost to the supplier of filling the individual order, including cost of packaging, handling, inspection, engineering, and profit.
So if these costs total $750 on an order of 15 parts, each item, no matter how small, will bear an equal share. ''So a 10 cent washer gets charged with the perception of overpricing.'' But if the costs were not charged to the washer, they would have to be charged back to the Pentagon on some other item, he adds.
Still, he admits, ''I would not argue that there are not horror stories.''
In the broader issue of who is responsible for waste and cost overruns in defense procurement, there is sufficient blame to go around. One problem is the defense budget's very size. Even a modest amount of waste, on a percentage basis , adds up to billion-dollar sums. Then inevitable and repeated turbulence in congressional funding, production schedules, and weapons system objectives all add to the problem, as does the effort to have the very latest technology embodied in weapons.
''The last 10 percent of the performance sought generates one-third of the cost and two-thirds of the problems,'' Mr. Augustine says.
Military career paths also play a role, critics say. ''Upward mobility in the Department of Defense does not depend on saving money but on producing the system and getting it out as quickly as possible,'' asserts Gordon Adams, director of the Defense Budget Project at the Center on Budget and Policy Priorities.
And critics charge that military officers are sometimes reluctant to be tough on a contractor that may provide the officer with a job after he retires from the military.
At the same time, defense contractors, who are often paid a percentage of their costs as profit, have ''very little incentive . . . to do anything in a hurry, very little incentive to produce something which is going to save the government money,'' says Theodore Crackel, at the Heritage Foundation, a conservative think tank. Mr. Crackel is a retired Army officer who last served at the US Army War College.
And to get new weapons systems under way, the contractor, the military, and proponents in Congress often, as it is said, ''buy in'' to a system. They make optimistic estimates about total costs to convince Congress the program is worthy, knowing that once development is under way a powerful constituency for its continuation develops. Thus the program is almost impossible to stop.
Despite its highly visible handwringing over defense costs, Congress also plays a role in pushing up prices. It has usually been unwilling to kill existing systems or provide multiyear funding, which would permit buying in larger, more economical, quantities.
Whatever waste occurs in spare parts is a drop in the ocean ''compared with the money we are (wasting) by not getting timely authorization and appropriations bills and (not) being able to make decisions on major weapons systems, how many we are going to buy,'' says Defense official Gordon.
Efforts to improve military procurement have been under way for more than 35 years, Mr. Adams notes. While some reforms were carried out, ''by and large they got chewed up in the Defense Department.''