FCW Forum | Bailout
Asking the defense industry to give back
The defense industry could contribute to easing the nation's deficit with mild price reductions
- By Steve Kelman
- Mar 05, 2009
With the prospects of several years of trillion-dollar deficits, finding ways to staunch the red ink by saving money on existing government programs is imperative. President Barack Obama should call on the defense industry to make voluntary price reductions on existing contracts for weapons systems, spares and outsourced maintenance during the next two years. According to recent press reports, defense spending is a priority for savings.
Last year, the Defense Department spent $94 billion buying weapons and another $41 billion on sustainment, according to department sources. Sustainment includes fuel purchases and purchases of spare parts, which are not tracked separately, and outsourced maintenance services. I would suggest that the president call on the defense industry to reduce prices by 1 percent for weapons systems and 10 percent for spare parts and maintenance. The difference reflects differences in profit margins across these kinds of contracts.
Were the defense industry as a whole to accept the offer as suggested here — and assuming $30 billion of the sustainment money is for spares and maintenance — the savings to the government would be almost $4 billion a year for each of the next two years. This would, obviously, hardly solve the deficit, but it’s not pennies either. And the savings would occur without any sacrifice in programs or mission. More broadly, the fight to save money in the context of this gargantuan deficit more resembles house-to-house combat than shock-and-awe strikes. It has many battles, none of which will be decisive by itself.
For decades, government has been a good customer for the defense industry. And, thanks to government orders, this industry has suffered less pain than almost any other industry in the country. In the country’s time of need, it is appropriate that the defense industry pay back something to the government that has allowed it to prosper.
Since the idea here is for price reductions on existing contracts, the government can’t force the defense industry to take these steps. Consistent with President Obama’s emphasis on transparency, I would urge that the names of companies that accepted and rejected the government’s request be publicized on the Internet for the public to see. Additionally, contractors who participate in this effort should receive past-performance credit for their performance on contracts where they made voluntary price reductions.
This is an unusual proposal, a bit out of the box, to use the cliché. But I think we are going to need to think outside of the clichéd box to come up with various ways to achieve cost savings and efficiencies. Although clearly the big numbers involve changes in entitlement programs, the past dismal record of presidential efforts to eliminate programs, typically rejected by Congress, suggests that we need to be looking creatively for new places to save money. As was done during the Clinton administration, we should be going to career civil servants for suggestions and encourage them to be creative.
The defense industry, more than most, is populated by patriots, including many former military officers for whom service to and sacrifice for country is deeply ingrained. The industry should demonstrate its patriotism now.
Kelman is professor of public management at Harvard University’s Kennedy School of Government and former administrator of the Office of Federal Procurement Policy.