Acquisition horror stories are nothing new at the Department of Defense (DOD).  The three most costly recent mishaps include the F-35 Joint Strike Fighter, which is approximately $170 billion over budget and has encountered numerous problems with its software and engine design.  Under Secretary of Defense for Acquisition, Technology, and Logistics (ATL) Frank Kendall referred to the purchase of the F-35 as “acquisition malpractice” in February 2014.  The Navy’s Littoral Combat Ship has also faced its share of problems, including concerns over its survivability, inadequate firepower, and corrosion due to a design flaw. 

The F-22 Lightning rounds out the trifecta; the plane has a historically high operational cost, experienced problems with oxygen delivery system, and suffers from perhaps the most damning criticism of all: a lack of a defined mission.  In fact, given how rarely it is employed in a combat role, Senate Armed Services Chairman (SASC) John McCain (R-Ariz.) famously suggested in May 2012 that the most fitting use for the F-22, which cost the U.S. approximately $79 billion, is entertaining spectators at air shows.

In an effort to counteract delayed programs and escalating costs, Sen. McCain has devised an aggressive strategy to mitigate future DOD acquisition disasters.

The proposal, which is included in the National Defense Authorization Act (NDAA) that was approved by the SASC on May 19, 2015, would shift control of weapons procurement authority for non-joint procurement programs from the Office of the Under Secretary of Defense for ATL to the acquisition executives of the individual services.  Secretary of Defense Ashton Carter, who was the under secretary of defense for ATL from 2009-2011, agreed with this concept during his confirmation hearing in February 2015.  The decentralized acquisition is designed to initiate a faster-paced process that would field new weapons in two to five years.  According to a May 23, 2015 Defense News article, a SASC staffer said that “the goal … is to make those senior officials ‘more accountable’ for their weapon programs.”

Perhaps the most striking aspect of the plan is that it would create incentives to reduce cost overruns.  According to a May 20, 2015 Politico article, “If programs managed by the services experience cost overruns, the services would have to pay a fee worth 3 percent of the overrun that would go into a fund managed by the Pentagon’s centralized acquisition office for the development of prototypes for new weapons.”  If a cost overrun exceeded 15 percent, the under secretary of defense for ATL would assume control of the program, and could decide to pull the plug.

The NDAA also includes a new policy to promote more fixed-price contracts, which place the burden of cost overruns on contractors.  It also attempts to remove barriers to entry for new companies that might wish to compete for military contracts but do not have a history of working with the Pentagon.  Two companies in recent years, Palantir and SpaceX, have demonstrated that, given a level playing field, innovative, upstart firms can often perform the job at a cost far below the rate charged by traditional defense contractors.

Sen McCain’s reforms are not guaranteed to make it into the final version of the NDAA; the Senate language needs to be squared with a reform proposal inserted into the House version of the bill by House Armed Services Committee Chairman Mac Thornberry (R-Texas).  His proposal has been criticized as being too friendly to industry as it allows more flexibility for DOD to use cost-plus contracts, which would force the Pentagon to pick up the tab for cost overruns, but it would also enable increased access for nontraditional firms wishing to compete in the DOD acquisition space.

Regardless of the final outcome, the debate initiated by Sen. McCain’s proposal is a step in the right direction for greater transparency and accountability in the defense procurement process.