EFFICIENTLY - The Stimson Center

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EFFICIENTLY - The Stimson Center

MANAGING the

MILITARY

more EFFICIENTLY

Potential Savings Separate from Strategy

Matthew Leatherman | Barry Blechman | Russell Rumbaugh


MANAGING the

MILITARY

more EFFICIENTLY

Potential Savings Separate from Strategy

Matthew Leatherman | Barry Blechman | Russell Rumbaugh

MAY 2013


EXECUTIVE SUMMARY

This report is a compilation of recommendations made in recent years by many boards, commissions

and study groups that have proposed efficiencies in how the U.S. Department of Defense spends money.

If implemented fully, the recommendations would save nearly $1 trillion over a decade, though it is

virtually impossible they will all be adopted. The proposals face varying degrees of political opposition

– some intense – and some recommendations are contradictory.

We are not endorsing any of the specific options but, by compiling the proposals, we have created a resource

that frames the many calls for efficiencies, providing context that the broader debate on defense

spending is currently missing.

The recommendations are organized into three critical areas: personnel compensation, manpower utilization

and procurement practices.

Personnel Compensation

Members of the armed forces make great sacrifices and willingly risk their lives to defend the United

States. The nation has a sacred obligation to keep faith with what they were promised. Yet any given pay

or benefit is just a policy – not something inherently sacred.

Many studies have found that the Pentagon could better provide service members with the care and

compensation they deserve by adopting better management practices. Options for better-managed

compensation include:

• Adjusting the formulas for cash compensation growth.

• Pegging pay to specialization in high-demand areas.

• Transferring non-cash compensation into cash compensation.

• Curtailing the pool of health care beneficiaries.

• Increasing health care fees and cost-sharing.

• Modernizing military retirement.

Manpower Utilization

The volunteers who step forward to serve in the U.S. Army, Navy, Air Force and Marines are the military’s

most important assets. They should be used as effectively as possible.

Examples of better manpower utilization taken from the recommendations compiled in this study include:

• Streamlining duplication and redundancy.

• Reducing the number of personnel providing overhead support.

• Using members of the military to perform inherently military functions.

• Trimming civilian manpower and contractor support.

• Better balancing between the active and reserve components.

EXECUTIVE SUMMARY | 3


Procurement Practices

The Pentagon has spent more than $360 billion on contracts in each of the last three years, but has

drawn criticism for not always spending these funds wisely.

The Government Accountability Office’s “high risk list” has included defense weapon systems acquisition

since 1990, defense contract management since 1992 and defense financial management since

1995.

Recommendations to improve Defense Department procurement include changing the ways that:

• Contracts are constructed.

The acquisition workforce is managed.

• Best practices are chosen.

• Requirements are generated.

In a time of tight budgets across the federal government, the key defense budget issue facing policymakers

today is not whether to cut, but where to cut.

Before cuts are made to military readiness, force structure, or needed weapons, some of the changes like

those in this report should be implemented. If the United States is to have the best defense possible, it

must spend its defense dollars in the most effective and efficient ways possible.

4 | MANAGING THE MILITARY MORE EFFICIENTLY


EXECUTIVE SUMMARY | 5


ACKNOWLEDGEMENTS

The authors would like to thank Ellen Laipson and Stimson management for their leadership and also

the Stimson Communications Department designing and producing the report.

Any errors are solely the responsibility of the authors.

This report was made possible by the generous support of the Peter G. Peterson Foundation.

ACKNOWLEDGEMENTS | 7


TABLE OF CONTENTS

Executive Summary

3

Acknowledgements

7

Introduction

11

Reforming Personnel Compensation

13

More Efficient Utilization of Manpower

25

Better Acquisition Practices

33

Conclusion

45

Endnotes

47


MANAGING THE MILITARY MORE EFFICIENTLY:

POTENTIAL SAVINGS SEPARATE FROM STRATEGY

Regardless of the amount that the U.S. spends on its defense, funds should be spent as efficiently as

possible. Everyone can agree with such a statement, but it’s easier said than done. Nowhere is the axiom

about one person’s trash being another’s treasure truer than in the defense budget. Each line is there

because someone defends it. If that champion disappears, another advocate will immediately step up to

shift the money left behind.

Nevertheless, efficiencies are possible. A July 2011 Defense Business Board (DBB) report determined

that “substantial budget cuts (5 to 15 percent) can be achieved without affecting future mission readiness

if there is an intense focus on reducing ‘overhead and infrastructure’ spending.”1 Countless authoritative

boards, commissions and study groups have suggested ways to save money in defense without

compromising military capabilities.

This report offers a top-level overview of that work. All of the options presented here have appeared

elsewhere. They did not originate with Stimson nor does Stimson specifically endorse any

of them. No one is likely to embrace them all – indeed, some issues are so complex that experts have

made contradictory suggestions – but most will find some choices and savings that they can accept.

Importantly, this report identifies efficiencies that might be possible irrespective of what kind of strategy

the United States pursues. The efficiencies are organized into three parts: personnel compensation,

manpower utilization, and procurement practices.

POTENTIAL SAVINGS SEPARATE FROM STRATEGY | 11


REFORMING PERSONNEL COMPENSATION

U.S. military personnel make great sacrifices for our country, and the United States has a sacred obligation

to those in uniform who serve their country. Their compensation must align with what they were

promised.

Particular pays and benefits are just a policy and not something inherently sacred by themselves, however.

There may be more efficient ways to provide service members with the care and compensation

they deserve. The Tenth Quadrennial Review of Military Compensation (QRMC), published in February

2008, found that:2

In general, this system works effectively to attract and retain the high-quality personnel needed

in the uniformed services of the 21st century. That said, there is room for improvement

to increase the system’s flexibility and better enable force managers to respond to changing

requirements in support of national security missions. Improvements can also increase member

choice, serving to enhance recruiting and retention efforts in the uniformed services.3

Options in this section represent ways military compensation might offer better care for service members

yet also achieve savings; e.g., adjusting the formulas for cash compensation growth; pegging pay

to specialization in a high demand area; transferring non-cash compensation into cash compensation;

revising the working-age retiree health care cost-sharing ratio, fee structure, and beneficiary pool; and

modernizing the retirement plan.

Adjusting the Formulas for Cash Compensation Growth

There are two commonly used measures of military compensation. Basic Military Compensation (BMC)

represents just the salary that a service member earns, while Regular Military Compensation (RMC)

also incorporates housing and food allowances, as well as income tax advantages.4 Even the broader

RMC formula excludes significant elements of a service member’s compensation package. The Tenth

QRMC proposed expanding the definition of military pay to better account for how service members

are compensated.

This assessment [of compensation adequacy] has been based on a comparison of cash compensation

between the [military and civilian] sectors… But this approach leaves out several

very important components… Benefits to service members are substantially more valuable

than those typically offered in the civilian sector, and members can also receive tax advantages

not available in the private sector. Taking these additional components into account shows that

service member compensation is much more generous relative to civilian compensation than

the traditional comparison of cash pay would suggest.5

It was on these grounds that the Tenth QRMC recommended that the military health care benefit,

retirement benefit and tax advantages from state jurisdictions and Social Security be included when

comparing military and civilian compensation.

REFORMING PERSONNEL COMPENSATION | 13


Military Compensation

Whether Figure 2-2 military compares annual and earnings civilian of enlisted service compensation members and can appropriately be compared is a sensitive question,

comparable civilians over a 20-year career. Average annual RMC for enlisted

given personnel the rises steadily dramatically over the 20-year period, different growing from demands about $37,000 in of military service. Although approaching the issue with

the first year of service to approximately $75,000 by the 20

a different charge and perspective th year. Civilian wages

increase as well, rising from about $18,000 for high school graduates than first entering the Tenth QRMC, the Eleventh QRMC still found that “[average

work experience. enlisted] Military compensation RMC is exceeds higher civilian earnings than at every the point wages of 90 percent of comparable civilians.”6 Meanwhile,

the workforce, to about $50,000 for those with two-year degrees and 18 years of

along the 20-year career period, with the greatest wage differences occurring

“average between military officer personnel and earnings civilians with high correspond school diplomas. Among to all about the 83rd percentile wages for the combined civilian

three civilian groups, the gap with military compensation increases after the 15-year

Military Compensation

comparison groups.”7

mark, as the growth in civilian earnings begins to slow and military compensation

continues to rise.

Thousands of Dollars

80

70

60

50

40

30

20

10

0

Enlisted

Civilians with AA degree

Civilians with some college

Civilians with high school diploma

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Years of Service

Figure 2-2. Enlisted Regular Military Compensation versus Civilian Earnings,

2009

Thousands of Dollars

140

120

100

80

60

40

20

Officers

Civilians with MA degree or higher

Civilians with BA degree

0

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Years of Service

Figure 2-4. Officer Regular Military Compensation versus Civilian

Earnings, 2009

Figure As 2-2. discussed Enlisted earlier, Regular the experience Military and Compensation training that service versus members Civilian receive Earnings,

while 2009, in the Report military of suggests The Eleventh that senior Quadrennial enlisted personnel Review should of be Military compared Compensation,

to more highly June educated 2012, p. civilians 27 than junior enlisted members—that is, college

graduates rather than high school graduates. Figure 2-3 compares compensation

of senior enlisted personnel (E-8s and E-9s) with civilians who have associate’s

Figure 2-4. Trends Officer in Military Regular and Military Civilian Compensation versus Civilian Earnings,

2009, The favorable Report wage of The comparisons Eleventh detailed Quadrennial above resulted Review from of a Military decade-long Compensation,

effort to raise June various 2012, components p. 29 of RMC, and make military compensation more

competitive with civilian pay. In fact, growth in RMC has outpaced civilian wages

and salary growth since 2002 (Figure 2-5).

This and bachelor’s differential degrees. During may the 15 support the Pentagon’s FY2014 budget request to slow the growth of military

th through 30 th years of service, military

Two primary factors influenced the growth in military pay. The first was a steady

compensation, in this case to 1 percent rather than the 1.8 percent

increase in basic

increase

pay. After a period

seen

of recruiting

by private

and retention

industry

difficulties the

employees.8

The Eleventh Quadrennial If extended Review of Military over Compensation time, this perhaps could 27 generate

late 1970s, Congress enacted an 11.7 percent military pay increase in 1981, and in

1982,

savings

a military pay

even

increase ranging

if the

from

Pentagon

10 to 17 percent depending

also

on

adopted

pay grade.

a

These increases restored comparability between civilian and military pay to the levels

companion recommendation from the Tenth QRMC to peg

established

regular

at the beginning

military

of the all-volunteer

compensation

force. However, during

to

the 1980s

the

and

80th

percentile of civilian compensation.9

1990s military pay again eroded relative to civilian earnings, with basic pay increasing

13 percent less than the Employment Cost Index (the benchmark for civilian pay

growth) between 1982 and 1998. As was the case in the late 1970s, the drop in

relative military pay created recruiting and retention problems for the services.

In its 2002 report, the 9

Congressional Budget Office (CBO) research found the same imbalance th QRMC concluded that military compensation was

not competitive with the earnings favoring of similarly educated civilians, compensation.

It determined in January 2011 that “the typical enlisted person receives more cash [salary, allowances, and subsidies] than three-quarters of comparable federal civilians.” Additionally,

and recommended

a series of increases to basic pay to bring military compensation more

“the disparity for officers exceeds the disparity for enlisted personnel,” and it “grows with increasing

years of experience.”10 Rather than recalculating the military formula, as the Tenth QRMC proposed,

CBO examined a budget option that would limit military pay increases over 4-5 years to half a point

below the accepted measure of inflation, with Selective Reenlistment Bonuses available to personnel in

occupations with shortages.11

The Eleventh Quadrennial Review of Military Compensation 29

A pay freeze has also been considered as an option, albeit an aggressive one. Civil servants’ pay table, including

for those at the Pentagon, has been frozen since January 2011 and is slated to remain so at least

through March of this year.12 The Simpson-Bowles Fiscal Commission’s illustrative option determined

that holding military pay constant would save more than $9 billion by 2015.13 Dr. Stuart Rakoff and

Dr. Neil Singer, a former Director in the Pentagon’s Office of Manpower Planning and Analysis and a

former Deputy Assistant Director of CBO’s National Security Division, respectively, similarly found in

an unpublished white paper that, “a two-year freeze on basic pay and housing allowances would generate

estimated savings of $4.3 billion.”

14 | MANAGING THE MILITARY MORE EFFICIENTLY


Pegging Pay to Specialization in High-Demand Areas

Concentrating compensation on high-demand personnel may make savings possible. According to

Rakoff and Singer:

Total pay does not vary much by specialty. As a result, basic pay needs to be high enough to

meet manning targets in hard-to-fill specialties. Pay at that level, however, typically is more than

sufficient to fill the requirements in other military occupations.

…An alternative approach to setting pay levels is to rely more heavily on targeted pays and

bonuses to meet manning objectives in most occupations. Under this approach, across-theboard

pay would be set at the minimum level needed to meet targets in the least hard-to-fill

specialty, and bonuses and special pays would be used more extensively than at present for

all other occupations.

Targeting pay to higher-demand specialties rather than overcompensating lesser-demand specialties

could be implemented by freezing the pay table for several years and phasing in the targeted pay

changes in parallel. Despite foregoing a cost-saving recommendation on this count, the Tenth QRMC

acknowledged this concept with a recommendation to increase the portion of compensation above

inflation that goes to special pays and incentives.14

Transferring Non-cash Compensation into Cash Compensation

Salaries and bonuses are just two parts of a complex military compensation formula. Service members

also receive a substantial part of their compensation through in-kind payments. As the Eleventh

QRMC found:

For active duty personnel, cash payments comprise approximately 51 percent of average military

compensation; in-kind benefits 21 percent; and deferred compensation for retirees, veterans, and

survivors another 28 percent. The percentage of military compensation Military Compensation made up of in-kind and deferred

benefits is considerably higher than the noncash portion of civilian compensation.15

$19

$17.7

$20.2

$0.7

$1.5

$15.9

$15.9

28%

51%

21%

Source: U.S. Government Accountability Office.

$56

$20.2

$4.6

$3.3

$5.6

$5.2

$1.1

Cash

■ Basic pay

■ Housing allowance

■ Subsistence allowance

■ Other allowances

■ Incentive pays

■ Tax advantage

■ Other cash

In-kind

■ Health care

■ Family housing/

barracks

■ Education

■ Other in-kind

Deferred

■ Retired pay accrual

■ Retiree health care

■ Veterans benefits

Total = $186.9 billion

Figure 2-1. Major Components of Military Compensation for Active Duty

Personnel, Fiscal Year 2010

Figure 2-1. Major Components of Military Compensation for Active Duty Personnel, Fiscal Year

2010, Report Cash of The Compensation

Eleventh Quadrennial Review of Military Compensation, June 2012, p. 17

Cash compensation comprises just over 50 percent of military compensation, the

major elements of which are basic pay and allowances for housing and subsistence.

In combination with the tax advantage resulting from the allowances not being

subject to federal income tax, these elements are referred to as RMC. Other cash

pays available to some members include special and incentive (S&I) REFORMING pays and other PERSONNEL COMPENSATION | 15

allowances. Each of these elements is described in further detail below.

v Basic Pay. Paid to all service members, basic pay accounts for 65 percent

of RMC. Pay rates are based on grade and years of service, with pay

rising as personnel are promoted to higher grades and continue to serve.

Monthly pay amounts for each grade and year of service are outlined in

the basic pay table. 15 Pay grades for enlisted service members range from

E-1 for entry-level positions, such as a private, to E-9 for the most senior


The Tenth QRMC pointed out the unique challenges of optimizing non-cash compensation, particularly

that its “value is less easily understood.”16 This reflected a much more general economic

principle, that individuals get more utility from compensation that maximizes their choice (i.e.,

cash) than from compensation that limits their choice (i.e., non-tradable in-kind compensation).17

One example is CBO’s option to consolidate the retail outlets on military posts and eliminate the

subsidy for commissaries in favor of a cash allowance for eligible active-duty personnel. CBO

estimated that this could save $9.1 billion from 2012-21 if the annual family subsidy were $400.18

CBO similarly examined an option in 2009 that would close the Domestic Dependent Elementary

and Secondary Schools system and replace it with an $8,600 per-student allowance, trimming $279

million over 10 years from the Pentagon budget.19 The Tenth QRMC examined this issue as well and

identified larger savings by reducing an overlapping Department of Education program alongside

streamlining the Defense school system.20

Revising the Health Care Beneficiary Pool

Military health care coverage is another major part of compensation. This service is provided free for

active-duty members, and there are no recommendations to change that. But this form of compensation

continues long after a member has left the active-duty rolls, either by retiring or returning to inactivated

Reserve Component status.

Figure 1: Distribution of Beneficiaries as of May 2012

Figure Reporting 1: Distribution to of the Beneficiaries Under as Secretary of May 2012, “Additional of Defense Analysis (Personnel of Costs and Benefits and of Readiness),

Potential Governance

Structure the Assistant Is Needed, Government Secretary Accountability of Defense Office, September (Health 2012, Affairs) p. 6 is the principal advisor

for all DOD health policies, programs, and force health protection

The cost of a health activities. care The program Assistant depends Secretary foremost of Defense on how (Health many people Affairs) receive issues the benefit. That pool

of non-active beneficiaries policies, procedures, expanded and for standards the military’s that govern TRICARE management program of on DOD several occasions during

the last decade. medical “TRICARE programs for Life,” and enacted has the authority as part of to the issue fiscal DOD year instructions, 2001 National Defense Authorization

Act, introduced Medicare wrap-around coverage for seniors at no fee. “TRICARE Reserve Select”

publications, and directive-type memorandums that implement policy

approved by the Secretary of Defense or the Under Secretary of Defense

passed as part of (Personnel the fiscal and year Readiness). 2005 authorization As the Director and expanded of the TRICARE coverage to inactivated Reserve Com-

Management Activity, the Assistant Secretary of Defense (Health Affairs)

is also responsible for awarding, administering, and overseeing

approximately $24.4 billion in fiscal year 2012 funding for DOD’s

purchased care network of private sector civilian primary and specialty

care providers. Additionally, the Assistant Secretary of Defense (Health

16 | Affairs) integrates the military departments’ budget submissions into a

MANAGING THE MILITARY MORE EFFICIENTLY

unified medical budget that provides resources for MHS operations;

however, the military services have direct command and control of the

military hospitals and their medical personnel. See figure 2 for the current

organizational structure of the MHS.


ponent members at premiums ranging from 28–85 percent of costs.21 And “TRICARE Young Adult”

was added in the fiscal year 2011 authorization to extend dependent eligibility through age 26 under

some circumstances.

These expansions are one reason — precipitous health care inflation being another — that military health

system costs grew from $19 billion in 2001 to an estimated $53 billion in 2013.22 The relationship between

health care benefits and military readiness also has been subject to question. The Center for Strategic

and International Studies (CSIS) used TRICARE Reserve Select as an example. The Reserve Component

“population knows they will get full coverage for free if they are called to active duty, a benefit that can,

unfortunately, serve as a disincentive to enroll” in TRICARE Reserve Select. Another unanswered “question

is whether [TRICARE Reserve Select] is a more cost-effective retention incentive for DOD than other

options, such as increased direct compensation.”23 That same issue may determine how effective benefits

like Medicare wrap-around coverage are for recruiting and retaining young service members. The biggest

and most direct health care savings might come from rolling back the extension of these benefits.

Adjusting the Cost-sharing Ratio and Fee Structure

Within a set beneficiary pool, health care costs depend heavily on the respective share paid by the

Pentagon and the inactive or retired beneficiary. Enrollment fees for working age (i.e., pre-Medicareeligible)

retirees on the TRICARE Prime rolls remained fixed at their 1996 values until fiscal year 2012.

Those fees previously stood at $230 per year for single beneficiaries and $460 per year for those with

families; they now cost $270 and $540 per year, respectively.24 Meanwhile, CBO estimated that the fee

would have had to more-than-double to keep pace with health care inflation.

Table 9.

Estimated Growth in TRICARE Prime’s

Family Enrollment Fee Using Selected

Measures, 1995 to 2008

THE EFFECTS OF PROPOSALS TO INCREASE COST SHARING IN TRICARE 21

The Defense Advisory Commission on Military Compensation

The Effects of Cost Sharing on the

Demand proposed for Health asking Care working-age retirees participating in the most

The magnitude of the reductions in health spending that

could

generous

be attained by

TRICARE

increasing cost sharing

plan

for

to

military

contribute at “levels commensurate

beneficiaries depends on how strongly they would

with premiums and cost sharing in civilian employer plans.” After

the one that hand, reset, if military it retirees would and their peg dependents future increases to the annual military

respond to the new fees, copayments, and deductibles.

On

did not respond by leaving TRICARE or by consuming

fewer retirement health care services, cost-of-living DoD’s estimated spending adjustment.25 The Tenth QRMC instead

considered

reductions would not be realized. If, on the other hand,

beneficiaries responded more strongly

using

than

Medicare

DoD had

Part B premiums as its benchmark

assumed, annual

for

reductions

resetting its spending

the cost-sharing

for health

ratio and determining the

care could exceed its estimates.

annual increase. Under its plan, single working-age retirees

(Dollars)

Estimated

Prime

Fee a

Consumer Price Index (Medical)

760

Premiums for the Federal Employees Health

Benefits Program 1,080

Gross Domestic Product Price Index

610

National Health Expenditures per Capita

960

In general, people can be expected to consume less of a

Memorandum:

good would or service have as it becomes paid more 40 expensive percent to obtain. of the Part B premium and those

Current TRICARE Prime Fee

460 But the degree of their response may vary widely, depending

with on many dependents factors, including the would availability have of substitutes

and the fraction of a household’s budget that is

paid 80 percent.26

Source: Congressional Budget Office based on the following: the

medical portion of the consumer price index, from the

involved. People would be expected to respond more

Bureau of Labor Statistics; data on premiums (specifically,

strongly

the average employee share) for the Federal Employees Three to changes years in the after price of the luxury Tenth vacations, QRMC, for in 2011, CBO reiterated the

example, than to changes in the price of gasoline, because

Health Benefits program, from the Office of Personnel

gasoline facts is viewed on this as more issue: of a necessity, with few substitutes

available. Economists measure the degree of respon-

Management; the gross domestic product price index,

from the Bureau of Economic Analysis; and per capita data

siveness with an “elasticity” and would therefore describe

on national health expenditures, from the Centers for

the DoD demand has for luxury estimated vacations that, as more in elastic 2009, than the a typical military retiree and

Medicare and Medicaid Services.

demand for gasoline.

a. The estimated amount of the fee in 2008 if its growth had mirrored

that in the measures noted. The original nominal value

his her family who enrolled in the [most generous] Prime

A price plan elasticity incurred measures about the change $860 in the in quantity annual of a out-of-pocket costs (that

used for the calculations was $460, the amount of the TRICARE

good or service demanded in response to a change in its

Prime enrollment fee in 1995.

price. is, If TRICARE the response co-payments is relatively mild, as and in the the case of enrollment fee). By contrast,

Comparing the enrollment fee proposed for the

gasoline, demand is said to be inelastic, and the measured

Table TRICARE 9. Estimated Standard Growth and Extra in TRICARE plans with Prime’s the average Family Enrollment price elasticity Fee Using is between Selected 0 Measures, and -1. For 1995 a good to that 2008, has a “The Effects of Proposals to Increase Cost Sharing in

TRICARE,” Congressional Budget Office, June 2009, p. 21 price elasticity in that range, an increase of 10 percent

fee-for-service premium paid by private-sector employees

in its price will reduce the quantity demanded by less

shows an even greater difference. Under DoD’s proposal, than 10 percent. If the quantity demanded is highly

the new enrollment fee for the Standard and Extra plans responsive to changes in price, demand is said to be elastic,

meaning that a 10 percent increase in price will

would have been about $150 in 2011 for family coverage.

By comparison, the average premium that civilians paid reduce the quantity demanded by more than 10 percent,

for fee-for-service coverage was $3,730 in 2008. 27 (However,

relatively few civilian employers still offer fee-for-

and the measured elasticity will be more negative than REFORMING -1. PERSONNEL COMPENSATION | 17

The inverse relationship between the price and the quantity

demanded means that price elasticities will almost

service plans.)

always be negative.

27. Ibid. The share of their health insurance costs that employees

(military or civilian) must pay is part of their overall compensation

package. A more comprehensive look at the issue of military

compensation relative to civilian compensation can be found in

Congressional Budget Office, Evaluating Military Compensation

In some ways, the demand for health care may not seem

to mirror the consumption of other goods. Many people

seek and purchase such services not solely on their own

initiative but because they have been referred for addi-


again according to DoD’s estimates, a similar retiree with family coverage who enrolled in an

HMO through a civilian employment-based plan typically paid $5,200 in premiums (not including

the share paid by his or her employer) and copayments. TRICARE Prime beneficiaries also use

the system more than do comparable civilian beneficiaries: DoD estimates that Prime enrollees

use services at rates that are higher by 77 percent for inpatient services and 55 percent for

outpatient services than the rates for civilian HMO enrollees.27

One CBO option in response to this situation projected the effects of raising the single working-age

retiree fee from $230 per year to $550, and from $460 per year to $1,100 for beneficiaries with dependents.

(Note these fees began growing with the retiree cost-of-living index in fiscal year 2012 and now

stand at $270 and $540, respectively.) This would have approximately restored the cost sharing from

when TRICARE was implemented in 1995, and future growth would have been indexed to health care

inflation. CBO estimated that it could save $29.7 billion from 2012-21.28 The Rivlin-Domenici Task

Force considered an option based on these terms, as well as introducing a small enrollment fee for

Medicare-eligible retirees.29

Another CBO option considered excluding working-age retirees from TRICARE Prime, giving these

beneficiaries a narrower choice of less generous plans. Some may find this appropriate because:

About three quarters of all retired military beneficiaries not yet eligible for Medicare have access

to employer-sponsored insurance through civilian employment… In 1999, 55 percent of

military retirees and their dependents had signed up for other health insurance, but by 2009

that figure had dropped to 29 percent.30

This option would have set the enrollment fee at 28 percent of costs for the less generous plans and

raised the maximum out-of-pocket expense from $3,000 to $7,500. CBO estimated that this would save

$111 billion between 2012-21.31

The DBB in its 2005 study sought to place more of the cost burden on employers by recommending

that TRICARE become a “secondary provider to ‘fill the gap’ for retirees for access to corporate health

care.” TRICARE already is used as wrap-around coverage to their employer-provided insurance for

Medicare-eligible retirees; this plan would have done the same for working-age retirees. Erosion in the

cost-sharing ratio would have been managed by indexing fees to industry deductibles, co-payments,

and premiums.32

Cost sharing applies to co-payments for prescribed drugs as well. The Tenth QRMC reported that “the

pharmacy benefit has been the fastest growing component of military health care since 2000” and consequently

proposed setting prescription co-payments at roughly two-thirds of that paid by civilians.

Importantly, the Tenth QRMC emphasized that, “prescriptions filled at military treatment facilities

should continue to be dispensed at no cost.” 33 CBO likewise considered an option that would extend

co-payments to military treatment facilities for beneficiaries not on active duty, finding $13 billion in

possible savings from 2012-21.34

18 | MANAGING THE MILITARY MORE EFFICIENTLY


Congress did allow annual enrollment fees to increase in fiscal year 2012 as well as to rise each year,

but at a rate no quicker than the retirement cost-of-living index.35 It took similar steps with respect to

the pharmacy co-payment beginning in fiscal year 2013.36 Still, the retirement cost-of-living index grows

significantly slower than health care costs, meaning that the Department’s health care costs will continue

to increase. Now as part of its fiscal year 2014 request, the Obama administration has submitted,

and Congress is considering, several more significant reforms of this type. The proposal would require

greater cost sharing from all working-age military retirees. After a four-year phased increase, fees for

the most generous plan would be bounded by a newly-created floor and ceiling within which they

would be pegged to 4 percent of retirement pension income. These increases are substantial and would

bring the cost-sharing ratio closer to its balance when TRICARE was created in 1995. Meanwhile, the

Pentagon’s request also would introduce enrollment fees and deductibles for its less generous plans.37

In addition to changes for working-age retirees, the Pentagon included similar proposals for Medicareeligible

retirees in its 2014 budget proposal. Specifically, it asked to introduce enrollment fees for the

Medicare wrap-around plan and for those fees to be pegged to 2 percent of retirement pension income,

also subject to a ceiling. Pharmacy co-payments “to fully incentivize the use of mail order and generic

drugs “are considered for increases as well. Lastly, the $3,000 catastrophic cap also would be indexed to

retirement income. 38

Modernizing the Retirement Plan

The most unique part of military compensation is the retirement package. Vesting for the retirement plan

operates on a “cliff” schedule. Personnel that separate prior to 20 years of service are not eligible for any

benefits, and those retiring at or after 20 years of service receive a full and defined benefit. There is no gradual

vesting; it is all-or-nothing, motivating personnel nearing eligibility to hang on until achieving it and then

to separate immediately thereafter. Reciprocally, it provides no benefit to those who get out before then.

Survival of Entrants to Given YOS

Officers

Enlisted Personnel

1.00

1.00

0.80

Army

0.80

Army

Survival Rate

0.60

0.40

0.20

Navy

MC

Survival Rate

0.60

0.40

0.20

Navy

MC

AF

AF

0.00

0 2 4 6 8 10121416182022242628

Years of Service

0.00

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28

Years of Service

Survival of Entrants to Given YOS, “Military Retirement Committee Report,” Defense Advisory Committee on Military

Compensation, July 20, 2005, p. 7

5

REFORMING PERSONNEL COMPENSATION | 19


According to a 2011 DBB study, constructing the benefit in this way has several adverse implications:

• First, the current military retirement system is unfair. For example, 83 percent of those serving in

the military will receive no retirement benefit… This cohort includes the majority of troops who have

engaged and will engage in combat… The distribution varies between officer and enlisted personnel;

43 percent of officers and 13 percent of enlisted personnel have historically received a pension.

• Second, the current military retirement system is inflexible and has disadvantages with regard to

force shaping…

• Third, in light of the budget challenges DoD is currently facing, the military retirement system appears

increasingly unaffordable. In FY11, the retirement plan will accrue 33 cents for each dollar of

current pay, for a total of $24 billion.39

Like the cash compensation system and the health care benefit, a number of components factor into the

military retirement formula, and each can be revised in order to affect costs. Unlike cash compensation

and health care, however, retirement components are especially interdependent. Savings options tend

to come as package deals rather than as a menu from which decision-makers can choose. Often these

pension packages will collectively consider age eligibility, vesting schedule, calculation of benefit, role

of retention bonuses and gate pays, need for a “defined contribution” corollary / substitute, and grandfathering

provisions.

Previous groups have recommended overhaul

• Defense Manpower Commission (1976):

– vest personnel in an old-age annuity after YOS 10

– pay immediate annuity to Combat Arms personnel after YOS 20 &

all others after YOS 30

• President’s Commission on Military Compensation (1978):

– vest personnel in an old-age annuity after YOS 10

– provide a cash transition fund financed by annual DOD

contributions into a TSP-like account

• President’s Private Sector Commission on Government Cost

Control (1985):

– vest personnel in an old-age annuity after YOS 5

– eliminate the second-career annuity

• Three recent DOD study groups recommended systems similar

to Federal Employee Retirement System (FERS)

– FERS vests early

– provides combination of old-age annuity & TSP contributions

7

Previous Groups Have Recommended Overhaul, “Military Retirement Committee Report,” Defense Advisory

Committee on Military Compensation, July 20, 2005, p. 5

The Defense Advisory Commission on Military Compensation suggested a gradual phase-in of its

recommendations. All currently serving military personnel would have been grandfathered to remain

in the current system but also could have chosen to accept voluntary buy-outs after 10 years

in selected occupations or to opt into DACMC’s new system. Savings would have accumulated more

slowly than if some members were not grandfathered, but more quickly than if some service members

didn’t have the buy-out or opt-in choices.

20 | MANAGING THE MILITARY MORE EFFICIENTLY


New members entering the service would have been enrolled automatically in a new retirement

system that distributed the benefit between working-age and full retirement. It would have introduced

a defined contribution equaling approximately 5 percent of base pay into a thrift savings or

401(k)-styled plan. Members would have begun saving immediately and the government contributions

would have vested between five and 10 years of service. Standard rules would have allowed

members to benefit from these types of plans while still of a working age. For full retirement, the

Pentagon would have continued offering a defined benefit annuity. Cliff vesting would have been

replaced by a graduated schedule from 10 to 40 years of service, with those reaching 40 years receiving

100 percent of their average pay from their highest earning three years. Payout would have been

postponed to age 60, though retirees would have remained eligible for health benefits after 20 years

of service. “Gate pays” at major career benchmarks would have helped retain personnel with highdemand

skills while “transition pay” would have helped ease a member’s return to civilian life if the

demand for their skills lessens.40

The Tenth QRMC’s retirement plan shared many of the same reforms as DACMC’s but handled

them somewhat differently. It also would have introduced a defined contribution plan alongside

the defined benefit, but would have pushed payout eligibility later for both of them. The defined

contribution element would have offered up to 5 percent of base pay, depending on years of service,

and would have vested at 10 years, but it would not have begun paying out until age 60. Meanwhile,

the defined benefit plan would have kept its calculation formula (i.e., High-3 pay x 0.025 x YOS)

and also would have vested at 10 years. Payout would have been delayed, however, to age 57 for

those that serve 20 or more years, and to age 60 for those that serve between 10 and 20 years. Like

DACMC, the Tenth QRMC also incorporated gate and transition pays to help manage retention

more precisely.

The pace of any savings generated by the Tenth QRMC plan was unspecified. Rather than considering

a specific implementation plan, the Tenth QRMC suggested a gradual transition beginning with

a multi-year demonstration project. Final terms of the plan, including the schedule and the savings

estimate, would have been determined after that test. 41

The Rivlin-Domenici Task Force considered a third package based largely on updates to RAND’s

1998 study, “Reforming the Military Retirement System.” Writing eight years before the DACMC

and 10 years before the Tenth QRMC, RAND tackled the same retirement concerns. “The military

retirement system has been subject to numerous criticisms, including that it is unfair to pre-20 years

of service separatees, excessively costly, inefficient, and inhibits force management flexibility.” The

alternative developed in that study had three parts:

The first is a retirement plan that is very similar to FERS, the retirement plan for civil service

employees, which we call the Military Federal Employees Retirement System, or MFERS. The

second part is a 7 percent across-the-board pay increase to compensate members for mandatory

contributions to the retirement plan, and the third part is a set of retention bonuses

targeted to specific groups (such as occupations) to address any retention problems. MFERS

would also consist of three parts: Social Security benefits, a defined benefit plan (called the

REFORMING PERSONNEL COMPENSATION | 21


asic plan) that vests employees at five years of service in an old-age annuity, and a defined

contribution plan (called the thrift savings plan) that vests employees at three years of service

and that matches employee contribution up to five percent of basic pay.42

This plan might have saved $3 billion from 2012-20, according to the Rivlin-Domenici Task Force’s updates

to RAND’s calculations. That projection assumed that personnel with more than 15 years of service would

have been grandfathered to remain in the current system and that benefits would have paid out at age 57.43

The DBB’s October 2011 assessment is the most current and aggressive retirement reform package.

Several findings were especially emphasized in the DBB’s study and may have motivated this appetite

for reform. “The military retirement system has not materially changed for over 100 years,” the Board

noted. Today, “retirement funds accrued for personnel serving less than 20 years are effectively applied

to the benefits of those serving more than 20 years. For those serving more than 20 years, the retirement

contribution is 10 times greater than the private sector.”44

The DBB responded to this analysis by proposing a wholesale replacement of today’s defined benefit system

with a new defined contribution plan based on the Uniformed Military Thrift Savings Plan currently

in place. Government contributions would have varied based on force management needs to include

increasing the benefit for combat service, but generally would have been “comparable to the highest end

of a private sector pension plan.” 45 Vesting could begin as early as after the first recruitment period, and

payout would have started between the ages of 60 and 65. Some partial withdrawals prior to age 60 would

have been permitted, including to facilitate transition to a second career or to cover costs associated with

education, health care, and emergencies. All current retirees would have been grandfathered to remain in

the current system. The pace of potential savings would have depended on how far into the current force

that grandfathering provision was extended. The DBB considered options at either end of that spectrum,

either no grandfathering for the current force or full grandfathering for the current force.

Bloomberg Government (BGov) estimated the savings should the DBB plan be implemented. It assumed

that the entire current force gets grandfathered to remain in the current system, and that

recruits in 2013 – the first service members to enter into the new system – would have arrived in the

same numbers as 2009. Savings came from the difference in the percentage of average salary that the

Pentagon has to accrue to cover retirement obligations. Thirty-three percent of military pay presently

is required, but BGov projected that only 16.5 percent would be needed under the DBB plan. On

the basis of those accrual rates and BGov’s assumptions, savings would have been $37 billion between

2013-21. 46

Parameters for Possible Savings

Our service members are the military’s most important asset, and their compensation is only part of

what the country owes them. But the specific policies are not sacred in and of themselves. There may

be ways to achieve savings even while better caring for our service members. Nevertheless, these are

politically-fraught questions and their answers cannot be assumed. The table below displays possible

savings for the options presented above.

22 | MANAGING THE MILITARY MORE EFFICIENTLY


APPROXIMATE POSSIBLE SAVINGS IN BILLIONS OF DOLLARS OVER 10 YEARS

Adjusting the formulas for cash compensation growth $20-$30

Pegging pay to specialization in high-demand areas $10

Transfer non-cash compensation into cash compensation $10

Curtail pool of health care beneficiaries $90-$100

Increase health care fees and cost sharing $40-$110

Modernize military retirement $5-$40

Total Possible Savings $155-$300

REFORMING PERSONNEL COMPENSATION | 23


MORE EFFICIENT UTILIZATION OF MANPOWER

The United States depends on a professional force of volunteers to provide the best military in the

world. Volunteers that step forward to serve our country are the U.S. military’s most important asset,

and the U.S. must be committed to using them as deliberately and efficiently as possible. That could include:

streamlining duplication and redundancy, reducing infrastructure billets, concentrating service

members on inherently military functions, trimming civilian manpower and contractor support, and

better balancing between the active and reserve components.

Streamlining Duplication and Redundancy

Streamlining duplication is a common way to cut overhead. Duplication in the military can be most visible

between the three separately-organized military departments – Army, Navy, and Air Force. Then-

General Colin Powell’s 1993 “Roles, Missions, and Functions” study, prepared in his capacity as Chairman

of the Joint Chiefs of Staff, is seminal in this regard. Acknowledging that not all redundancy is bad,

Powell focused on locating “unnecessary” duplication, selecting for review those areas in which “two or

more Services perform similar tasks, where restructuring might generate significant cost savings, and

where changes in our strategy and force structure made a comprehensive review appropriate.” 47 That

principle is one that might be applied to the following examples:

• SATELLITES: Responsibilities for acquiring space systems are diffused across various DOD organizations—including

the military services and the Missile Defense Agency—as well as the intelligence

community and [NASA]… Each military service or agency that acquires space systems has its own

lines of acquisition authority… A single authority responsible for ensuring coordination and setting

priorities… would be in a better position than any one department or agency to determine the best

use of limited funds and resources by more effectively prioritizing the most highly-needed space

programs, and would have the authority to reduce duplication across programs.48

• DEPOTS: The organic depot maintenance enterprise is large, incorporating 17 major facilities,

77,000 civilian employees, and annual operating expenses in excess of $16 billion… There is a

persistent question as to whether the overall organizational management structure of these activities

is sufficiently flexible, responsive, and cost effective… By law and mission, the military services have

the responsibility for planning and executing maintenance programs to meet their operational needs,

and to provide the resources to satisfy those requirements… The current structure further hinders

performance by the total depot enterprise, effective resource allocation for the full depot workload,

and timely accomplishment of major innovations across organizational and functional lines…. A full

and comprehensive reassessment of the current depot management organizational structure is overdue.49

• INFORMATION SYSTEMS: DOD reports that its business systems environment [e.g., civilian personnel,

finance, health, logistics, military personnel, procurement, and transportation] includes about

2,300 investments… DOD’s business systems environment has been characterized by (1) little standardization,

(2) multiple systems performing the same tasks, (3) the same data stored in multiple

systems, and (4) manual data entry into multiple systems… Because DOD spends over $10 billion

each year on its business systems and related information technology infrastructure, the potential

MORE EFFICIENT UTILIZATION OF MANPOWER | 25


Page 9

GAO-12-911 Defense Health Care

identifying and avoiding the costs associated with duplicative functionality across its business system

investments is significant.50

• FACILITIES MANAGEMENT: The services have not reduced spending in concert with the decrease

in square footage resulting from the completion of base closures in the past 10 years. While square

footage fell by 21 percent, spending increased by 18 percent in real terms. Spending for facilities

maintenance is now at close to 100 percent of requirements, and the services have also benefited

from additional funding provided in base closure funds for consolidations…. [The Simpson-Bowles Fiscal

Commission] option would reduce facilities maintenance spending on buildings by $1.4 billion or 18

percent below the $7.7 billion estimated for 2015.51

• HEALTH SERVICES: Under the current structure of DOD’s Military Health System, the responsibilities

and authorities for its management are distributed among several organizations—including the Assistant

Secretary of Defense for Health Affairs and the military services. Health Affairs is responsible

for creating and submitting a unified medical budget and allocating funds to the military services for their

respective medical systems; however, Health Affairs lacks direct command and control of the services’

military treatment facilities. Additionally, the three departments each have Surgeons General to oversee

their deployable medical forces and operate their own health care systems, including training for medical

personnel… [Per GAO’s 2011 “Duplication” Report,] realigning DOD’s military medical command structures

and common functions could increase efficiency and result in projected savings ranging from $281

million to $460 million annually.52

Unnecessary duplication may not be limited to just these cases. Others could include chaplains, judge

advocate generals, meteorologists, linguists / translators and possibly more.

Figure 3: Timeline of Military Health System Governance Studies

Figure 3: Timeline of Military Health System Governance Although many Studies, of these “Additional studies Analysis favored of Costs a unified and Benefits system of or Potential a stronger Governance

Structure Is Needed,” Government Accountability central Office, authority September to improve 2012, p. coordination 9 among the services, major

organizational change has historically been resisted by the military

services in favor of the retention of their respective independent health

care systems. In 1995, we reported that interservice rivalries and

conflicting responsibilities, hindered improvement efforts, 14 and noted that

the services’ resistance to changing the way military medicine is

organized is based primarily on the grounds that each service has unique

medical activities and requirements.

26 | MANAGING THE MILITARY MORE EFFICIENTLY

14 GAO, Defense Health Care: Issues and Challenges Confronting Military Medicine,

GAO/HEHS-95-104 (Washington, D.C.: Mar. 22, 1995).


Reducing Infrastructure Billets

The relationship of our military’s combat “tooth” to the overhead “tail” that supports it is another wellestablished

measure of personnel efficiency. In 2010, the McKinsey Corporation compared 30 industrialized

states, including many NATO Allies and potential rivals like China and Russia, and found that

only Switzerland has a ratio of combat-to-noncombat forces smaller than the U.S.53

Maximizing productivity in the tail could potentially save money by reducing the size of the force. The

Defense Manpower Requirements Report noted in 2011 that 35 percent of the active-duty force is in an infrastructure

billet. Three-quarters of those infrastructure positions belong either to central training, defense

health, central personnel administration, or departmental management.54 The Rivlin-Domenici Debt Reduction

Task Force, convened by the Bipartisan Policy Center, argued that military end-strength could be

lowered by 100,000 to control infrastructure positions.55

Concentrating Service Members on Inherently Military Functions

Defining activities that are inherently governmental, and further, those that are inherently military, is

essential to managing which duties are performed by service members, which by civil servants, and

which by contractors. The DBB determined in 2010 that 340,000 service members are performing commercial

duties that do not need to be performed by service members. Its recommendation was direct:

Eliminate 10 percent of the military’s commercial activity positions. It projected saving $5.4 billion annually

as a result, based on a $160,000 troop per year estimate.56

The Simpson-Bowles Fiscal Commission’s staff-built illustrative savings also reiterated the DBB’s conclusion

and matched its savings, but by converting contractors to civil servants:

This option eliminates 88,000 military personnel who are performing clearly commercial types

of activities and replaces them with 62,000 civilians, at considerable per-employee savings.

One-third of the military positions can be eliminated during the conversion because civilians are

not required to carry out military-specific duties on top of their commercial duties… this option

standardizes the share of military performing these commercial types of work, adopting the

lowest rate of military participation among the services, and converting the number of positions

above that level to cheaper civilian slots.57

Converting military billets to civil service positions, as the Fiscal Commission considered, would have

generated savings in part because health care cost sharing, retirement benefits, allowances, and in-kind

compensation cost the federal government substantially less for civilians.

Reduce Civil Service and Contract Personnel

It may be possible to simply reduce the number of civilian personnel as well; 791,000 civil servants

work for the Pentagon, in addition to the 1,478,000 uniformed personnel.58 The DBB highlighted

growth among civil servants just in the Office of the Secretary of Defense (OSD). Using those figures,

OSD has grown by 37 percent since the September 11th attacks. The DBB suggested cutting civil

servant employment across the Pentagon back to its fiscal year 2003 level of 650,000 personnel, or by

15 percent, whichever is greater. 59

MORE EFFICIENT UTILIZATION OF MANPOWER | 27


Trends in OSD Staff Size

Projection a/o June 2010

2900

2700

All in

estimate is

±5,100

In-sourcing

WSARA

OUSD(C)

2708

2636

FY11 in-sourcing

growth not yet

Included in projected

FY11 total

2500

2300

2100

1900

1700

Reagan

Administration

build-up

1765

2174

2170

FY98 NDAA

baseline for

25% MHA

reductions

Defense

Reform

Initiative

reductions

1974

2106

2258

1627

1500

FY80 FY85 FY90 FY95 FY00 FY05 FY10

Full-time Authorized Manpower

Note: Chart does not include active duty reservists, detailees, contractor manpower, or temporary overstrengths

Source: Carol Walker at ODAM June 2010

20

9-11

impact

begins

Projection:

In-sourcing,

WSARA,

DOEPP, CLO,

functional

transfers etc.

$5.5B spent

by OSD in

FY10

We think the

number of

contractors

adds + 2,000

people

Trends in OSD Staff Size Projection a/o June 2010, “Reducing Overhead and Improving Business Operations: Initial Operations,”

Defense Business Board, July 22, 2010, p. 20

The Defense Department also relies heavily on contractors to perform many duties. Pentagon Comptroller

Robert Hale estimated the contractor workforce at 300,000 full-time equivalents in February 2012

testimony before the Senate Budget Committee. 60 As with its recommendation on civil servants, the DBB

recommended returning contractor spending across the Pentagon to fiscal year 2003 levels. 61

Congress turned to these issues in the fiscal year 2013 National Defense Authorization Act. That legislation

requires the Pentagon to reduce civilian personnel and service contractor costs in proportion

to “the savings in funding for basic military personnel pay achieved from reductions in military end

strengths.” 62

Past debates focused on whether outsourcing work to contractors was cheaper than relying on civil

servants, but the most recent decade has been characterized more simply by growth. While these approaches

to finding efficiencies were blunt, they addressed those recent increases rather than the previous,

finer debates about whether civil servants or contractors are cheaper.

Balance between Active and Reserve Components

Many tasks are inherently military and cannot be considered for shifting to either civil or contracted

personnel. But not all service members carry the same cost burden, and some believe that savings

28 | MANAGING THE MILITARY MORE EFFICIENTLY


can be reaped by re-examining how different types of military manpower are used. Reservists and

National Guardsmen are a much more scalable labor force, for instance, able to surge specifically

when needed and require less cost when not needed. The Reserve Forces Policy Board determined in

a January 2013 report that Reserve Component personnel have a fully-burdened cost to the Pentagon

that is less than a third that of Active Component personnel –$34,272 relative to $108,307. These figures

include health care, dependent education, family housing and commissary benefits, in addition

to salaries. 63

The Reserve Component is and will continue to be a way to maintain the capability to conduct less

probable missions without bearing as much of the cost. In its latest budget priorities statement, the

Pentagon similarly said it “will maintain key combat support capabilities such as sustainment as well

as combat service support capabilities such as civil affairs maintained at a high readiness level in the

Reserve Component.” 64 It may be possible to save money by locating additional capabilities in the

Reserve Components.

Rebalancing between the traditional Active and Reserve Components also could be a way to increase

manpower flexibility and potentially save money. Easing service members’ ability to flow from one

type of commitment to another is a more direct, but also more unusual, approach. The division between

the Active and Reserve Components is stark at present. CSIS envisioned this polarized model

being replaced by a “continuum” model:

The 39-days-a-year ‘one size fits all’ [Reserve Component] model is no longer adequate. In

some cases… it unduly constrains DoD’s ability to develop units in high demand specialty

areas comprised of individuals who are willing to put in more than 39 days a year. Conversely,

it may also complicate DoD’s efforts to develop nontraditional contracts for reservists who

can perform critical functions without needing to drill one weekend a month plus two weeks

of training a year. Manning and maintaining the operational reserve could be greatly facilitated

by fully implementing what the Department of Defense calls a ‘continuum of service’ approach,

in which individual reservists can seamlessly transition in and out of active service to meet

various mission requirements over a lifetime of service. At the core of this concept is the notion

of creating many more ‘on ramps’ and ‘off ramps’ between active duty and reserve duty

in the US military.65

Such an approach might have optimized savings by allowing service members to transition between

active and inactive statuses as rapidly as the demand for their skills changes. Reserve Component professionals

in specializations like medicine, law, finance, and public affairs – as well as potentially those

in fields like logistics and civil affairs – often have very similar civilian jobs, benefit from training and

education in those jobs, and face irregular peaks and valleys in the military’s demand for their skills.

They may have the ability to flow seamlessly into and out of service. Building a framework that allows

them to do so may better match labor supply and demand. Savings could flow from permitting more

missions to be located in a “less-than-active” force and by minimizing the time needed for mobilization

when required.

MORE EFFICIENT UTILIZATION OF MANPOWER | 29


Parameters for Possible Savings

The ideas presented above represent some of the ways that utilizing manpower more efficiently may

make it possible to save money. Most of these ideas have been discussed many times. Some have been

implemented at least partially, while others still seem unadvisable to most. Together, they provide a

range of possible savings, as described in the table below. What savings can actually be achieved is a

question of political judgment rather than simply analysis.

APPROXIMATE POSSIBLE SAVINGS IN BILLIONS OF DOLLARS OVER 10 YEARS

Streamlining redundancy and duplication $25

Reducing infrastructure billets $100

Concentrating service members on inherently military functions $50

Reducing civilian manpower $200

Relying less on contractor support $110

Better balancing between the active and reserve components $35

Total Possible Savings $520

30 | MANAGING THE MILITARY MORE EFFICIENTLY


Joint

Capabilities Integration

CJCSI 3170.01 series

Planning,

Programming,

Budgeting & Execution

Process

DEPSECDEF Oversight

DoD 7000.14-R

Defense

Acquisition

DoDD 5000.01

Non-materiel

solutions

Joint Capabilities Integration and Development System - Acronyms

DCR – DOTMLPF Change Recommendation

DOTMLPF – Doctrine, Organization, Training, Materiel,

Leadership and Education, Personnel, & Facilities

FOC – Full Operational Capability

ICD – Initial Capabilities Document

Criteria

•ICD

•AoA Study Plan

•Exit Criteria

•Alternative Maintenance

& Sustainment Concepts

Initial

RAM-C

Report

Interpret User Needs,

Analyze Operational

Capabilities &

Environmental Constraints Trades

Develop Concept

Performance (& Constraints)

Definition & Verification

Objectives

Decompose Concept

Performance into

Functional Definition &

Verification Objectives

Decompose Concept

Functional Definition into

Component Concepts &

Assessment Objectives

JP 3-0 – Joint Publication 3-0, “Joint Operations”

JROC – Joint Requirements Oversight Council

MUA – Military Utility Assessment

KPP – Key Performance Parameter

KSA – Key System Attribute

Joint Operations Concepts

Concept of Operations

Technology Development Strategy

AoA Report

DoD Enterprise Architecture &

Solution Architecture

Technical Standards Profile

Trades

- CIO Confirmation of Compliance

• Capability Needs

• Program Security

• Top-Level Integrated Schedule Considerations

• Program Interdependency & • Test Planning

Interoperability Summary • Data Management &

• International Cooperation Technical Data Rights

Competitive Prototyping

• Industrial Capability &

Manufacturing Capabilities

Validation

Linkage

Verification

Linkage

Verification

Linkage

Verification

Linkage

Develop Component Concepts,

i.e., Enabling/Critical

Technologies, Constraints,

& Cost/Risk Drivers

MDAP/MAIS

• Life-Cycle Signature

Support Plan

• CBRN Survivability

Final RFP cannot be released

until TDS is approved

Draft RFP

•Preliminary System Spec

•Systems Engineering Plan

•T&E Strategy

•System Safety Analysis

•Support & Maintenance Concepts

& Technologies

•Inputs to:

-draft CDD -AoA -TDS -IBR

-Cost/Manpower Est.

-Product Support Strategy

MS A

Cert

Exit

Criteria

Refine

Supportability

Objectives/

Constraints

Threshold/objective tradeoffs –

Revised Performance Attributes

Information

Support

Plan

•ICD & Draft CDD

•Approved Materiel Solution

•Exit Criteria

•Support & Maintenance Concepts

& Technologies

•Systems Engineering Plan

•AoA o Report

•T&E Strategy

•Technology Development Strategy

•System Safety Analysis

Analyze/Assess

Interpret User Needs.

Concepts Versus

Analyze Operational

Defined User Needs &

Capabilities &

Environmental Constraints Environmental Constraints

Trades

Assess/Analyze

Develop System Performance

Concept & Verify

(& Constraints) Spec &

System Concept’s

Enabling/Critical Tech &

Performance

Prototypes Verification Plan

Assess/Analyze

System Concept

Versus Functional

Capabilities

Assess/Analyze

Enabling/Critical

Components Versus

Capabilities

MDAP

National Strategy Documents (updated as necessary)

Develop Functional

Definitions for Enabling/

Critical Tech/Prototypes &

Associated Verification Plan

Decompose Functional

Definitions into Critical

Component Definition &

Technologies Verification Plan

Authors Chuck Cochrane and Brad Brown For a single copy of this chart, send a request to daupubs@dau.mil Send recommendations to improve the content of this chart to wallchart@dau.mil

MDAP

To ICD &

JP 3-0

Validation

Linkage

Verification

Linkage

Verification

Linkage

Supportability

Requirements

Compliant

Technical

Solution

Standards &

Architectures Net-Ready interfaces

KPP

Information Net Centric

Assurance Data & Services

Strategy

J-3 – Operational suitability, sufficiency, &

supportability. J-4 – Facilities, sustainment, & energy

efficiency. J-5 – Alignment with strategy & priorities.

J-6 – IT/NSS interoperability & supportability.

J-7 – Systems training. J-8 – Weapons safety.

Reliability Availability Ownership

KSA KPP Cost

KSA

Materiel Availability &

Operational Availability

• Industrial Capability &

Manufacturing Readiness

• Business Strategy

updated as

necessary

Force

Protection

KPP

Demonstrations & other

prototype projects

Survivability

KPP

System Energy

Training Efficiency

KPP KPP

- CIO Confirmation of Compliance

• Capability Needs

Considerations

• Top-Level Integrated Schedule • Test & Evaluation

• Program Interdependency & • Data Management

Interoperability Summary • Life-Cycle Sustainment Planning

• International Cooperation • Life-Cycle Signature Support

Demo & Validate System

& Tech Maturity Versus

Defined User Needs &

Environmental Constraints

Trades

Demo/Model

Verification

Integrated System Versus

Linkage

Performance Spec

Design/Develop System Concepts,

i.e., Enabling/Critical Technologies,

Update Constraints, &

Cost/Risk Drivers

Demo System & Prototype

Functionality

Versus Plan

Demo Enabling/Critical

Technology Components

Versus Plan

MDAP/MAIS

MDAP

• Human Systems Integration

• ESOH

• Corrosion Prevention & Control

Final RFP cannot be released

until Acq Strategy is approved

Draft RFP

Contract

Closeout

PDR Report

•System Allocated Baseline

•PDR Report •Test Reports

•SEP •TEMP •PESHE •PPP •TRA

•NEPA Compliance Schedule

•Risk Assessment •LCSP

•Validated Systems Support & Maint

Objectives & Requirements

•System Safety Analysis

•Inputs to: -CDD -ISP -STA -IBR

-Acq Strategy

-Affordability Assessment

-Cost/Manpower Est.

Interpret User Needs,

Refine System

Performance Specs &

Environmental Constraints

Develop System Functional

Specs & Verification Plan to

Evolve System Functional

Baseline

Evolve Functional

Performance Specs into

System Allocated Baseline

MDAP

Joint Operations Concepts

Concept of Operations

System Threat Assessment

AoA (if updated)

DoD Enterprise Architecture &

Solution Architecture

Information Support Plan

Technical Standards Profile

MS B

Cert

Cost-Type

Contract Post-

Determination PDR A

(if applicable)

Exit

Criteria

PDR Report

APB – Acquisition Program Baseline

CDR – Critical Design Review

CBRN – Chemical, Biological, Radiological & Nuclear

DAB – Defense Acquisition Board

ECP – Engineering Change Proposal

FRPDR – Full Rate Production Decision Review

FDDR – Full Deployment Decision Review

IBR – Integrated Baseline Review

ITAB – Information Technology Acquisition Board

LRIP – Low Rate Initial Production

•Sys Performance Spec

•Acquisition Strategy

•Exit Criteria

•APB •CDD •STA •ISP

•SEP •TEMP •PESHE •PPP

•NEPA Compliance Schedule

•Risk Assessment

•Validated Sys Support & Maint

Objectives & Requirements

•Product Support Strategy

•System Safety Analysis

Interpret User Needs,

Refine System

Performance Specs &

Environmental Constraints

Trades

Develop System Functional

Specs & Verification Plan to

Evolve System Functional

Baseline

Required if PDR is

after Milestone B

Threshold/objective tradeoffs –

Revised Performance Attributes

Information

Support

Plan

Post-CDR Report

Oversight & Review and Contracting Acronyms

Performance-Based

Agreements

To ICD &

JP 3-0

Supportability

Requirements

Compliant

Technical

Solution

Standards &

Architectures Net-Ready interfaces

KPP

Information Net Centric

Assurance Data & Services

Strategy

J-3 – Operational suitability, sufficiency, &

supportability. J-4 – Facilities, sustainment, & energy

efficiency. J-5 – Alignment with strategy & priorities.

J-6 – IT/NSS interoperability & supportability.

J-7 – Systems training. J-8 – Weapons safety.

Reliability Availability Ownership

KSA KPP Cost

KSA

Materiel Availability &

Operational Availability

Exit

Criteria

MDD – Materiel Development Decision

NSS – National Security Systems

PDR – Preliminary Design Review

P-CDRA – Post Critical Design Review Assessment

P-PDRA – Post PDR Assessment

Rationale Report

RFP – Request for Proposals

RFI – Request for Information

TRA – Technology Readiness Assessment

TLCSM – Total Life Cycle Systems Management

•Statutory/Regulatory •Product Support Elements

•Source of Support

-Supply Support -Training

•Legacy Considerations -Maintenance -Support Data

•Conduct Product Support BCA -Manpower & personnel

Evolve Functional

Performance Specs into

System Allocated Baseline

Evolve CI Functional

Specs into Product

(Build to) Documentation

& Verification Plan

Business Case

Analysis

updated as

necessary

Product Support Integrator/

Product Support Provider

Demonstrations & other

prototype projects

Force

Protection

KPP

Survivability

KPP

System Energy

Training Efficiency

KPP KPP

(If program initiation, or if equiv to FDDR)

- CIO Confirmation of Compliance

• Capability Needs

• Test & Evaluation

• Top-Level Integrated Schedule • Data Management

• Program Interdependency & • Life-Cycle Sustainment Planning

Interoperability Summary • Life-Cycle Signature Support Plan

• International Cooperation • CBRN Survivability

• Industrial Capability &

Manufacturing Readiness

• Business Strategy

•Footprint Reduction

•Supply Chain Management

•Product Support Elements

•Finalize Product Support BCA

Technical & Logistics Acronyms

ASR – Alternative Systems Review

OA – Operational Assessment

AOTR – Assessment of Operational Test Readiness OTRR – Operational Test Readiness Review

CDR – Critical Design Review

CI – Configuration Item

LFT&E (with alternate

Waiver

LFT&E Plan)

(if appropriate)

Cost Acronyms

CARD – Cost Analysis Requirements Description

CCE – Component Cost Estimate

CCP – Component Cost Position

ICE – Independent Cost Estimate

MDAP – Major Defense Acquisition Program

MAIS – Major Automated Information System

PMO – Program Management Office

RDT&E – Research, Development, Test & Evaluation

Verification

Linkage

Lighter blocks reflect technical

efforts required if PDR is

required after Milestone B.

Verification

Linkage

Verification

Linkage

Safety & Occupational Health Evaluation

PDR – Preliminary Design Review

SECDEF Option

Fabricate, Assemble,

Code to “Build-to”

Documentation

Individual CI

Verification

DT&E

MDAP/MAIS

Verification/

Validation

Linkage

• Military Equipment Valuation &

Accountability

• Corrosion Prevention & Control

Final RFP cannot be released

until Acq Strategy is approved

Contract

Closeout

Draft RFP

(verified)

•Initial Product Baseline

•Test Reports

•SEP •TRA •PESHE •TEMP

•NEPA Compliance Schedule

•Elements of Product Support

•Risk Assessment

•Life Cycle Sustainment Plan

•System Safety Analysis

•Inputs to: -CPD -STA -ISP

-IBR -Cost/Manpower Est.

Integrated DT&E/OT&E/LFT&E

Demonstrate System to

Specified User Needs and

Environmental Constraints

Trades

System DT&E, OT&E, LFT&E

& OAs Verify System

Functionality & Constraints

Compliance to Specs

Integrated DT&E, LFT&E &

EOAs Verify Performance

Compliance to Specs

MDAP

MDAP

Exit

Criteria

Joint Operations Concepts

Concept of Operations

System Threat Assessment

AoA (if updated)

DoD Enterprise Architecture &

Solution Architecture

Information Support Plan

Technical Standards Profile

•Product Support Elements

•Support and Cost Baseline

•Contract for Sustainment

(organic & Commercial)

•Test Results

•Exit Criteria

•APB •CPD •SEP •TEMP

•Product Support Element

Requirements

•PESHE

•System Safety Analysis

Analyze Deficiencies

To Determine Corrective

Actions

Planning, Programming, Budgeting, and Execution Acronyms

OMB – Office of Management and Budget

MAIS

only

Threshold/objective tradeoffs –

Revised Performance Attributes

For software

intensive

systems

Information

Support

Plan

- CIO Confirmation of Compliance

• Capability Needs

• Test & Evaluation

• Top-Level Integrated Schedule • Data Management

• Program Interdependency & • Life-Cycle Sustainment Planning

Interoperability Summary • Life-Cycle Signature Support Plan

• International Cooperation • CBRN Survivability

• Industrial Capability &

Manufacturing Readiness

• Business Strategy

•Supply Chain Management

•Revalidate BCA

•Refine Life Cycle Sustainment

Plan

Verification/

Validation

Linkage

Modify Configuration

(Hardware/Software/Specs)

To Correct Deficiencies

MDAP/MAIS

• Military Equipment Valuation &

Accountability

• Corrosion Prevention & Control

Final RFP cannot be released

until Acq Strategy is approved

Draft RFP

Contract

Closeout

•Product Baseline

•Test Reports

•SEP •PESHE •TEMP

•System Safety Analysis

•Inputs to: -IBR

- Cost/Manpower Est.

- Product Support Package

Verify and Validate

Production

Configuration

MDAP

This chart is a classroom aid for Defense Acquisition University students. It provides a notional illustration of interfaces among three major

decision support systems used to develop, produce and field a weapon system for national defense. Defense acquisition is a complex process

with many more activities than shown here and many concurrent activities that cannot be displayed on a two-dimensional chart. Supporting

information is on back of this chart. For more information, see the Defense Acquisition Portal (http://dap.dau.mil).

MDAP

To ICD &

JP 3-0

BLRIP

Report to

Congress

LFTE

Report to

Congress

Supportability

Requirements

Compliant

Technical

Solution

Standards &

Architectures Net-Ready interfaces

KPP

Information Net Centric

Assurance Data & Services

Strategy

J-3 – Operational suitability, sufficiency, &

supportability. J-4 – Facilities, sustainment, & energy

efficiency. J-5 – Alignment with strategy & priorities.

J-6 – IT/NSS interoperability & supportability.

J-7 – Systems training. J-8 – Weapons safety.

Reliability Availability Ownership

KSA KPP Cost

KSA

Materiel Availability &

Operational Availability

A

Exit

Criteria

B

as required

P-

CDRA

Trades

A

C

Demonstrations & other

prototype projects

B

Trades

Force

Protection

KPP

FRP

•Public-Private Partnering •Continuous Tech Refreshment

•Supply Chain Management •Obsolescence Management

•PBA Modifications •Configuration Control

•Assessment of PSI/PSPs •Data Management

•Revalidate PBA/BCA •Monitor Performance & Adjust

Product Support

•Service Use Data

•User Feedback •Failure Reports

•Discrepancy Reports

•SEP

•System Safety Analysis

•Product Support Element

Requirements

Monitor & Collect

Service Use & Supply

Chain Performance Data

Analyze Data to:

Validate Failures &

Determine Root Causes

Determine

System Risk/

Hazard Severity

Develop

Corrective

Action

Survivability

KPP

System Energy

Training Efficiency

KPP KPP

C

P-

CDRA Increment 3

FRP

•Data for In-Service Review

•Input to CDD for next increment

•Modifications/upgrades to fielded

systems

•SEP •Test Reports

•System Safety Analysis

•Product Support Package

In-Service

Review

Implement and

Field

Assess Risk of

Improved System

Integrate and Test

Corrective Action

Post-Deployment

Review

•Peacetime •Joint Operations

•Training •Crises

•Revalidate BCA •Refine LCSP

Recycle/Reuse

Reprocessing

Disposal

Landfill

Contract

Closeout

Most

Acceptable

Least

Acceptable

BETTER ACQUISITION PRACTICES

The Pentagon has spent more than $360 billion on contracts in each of the last three years, and more

than $200 billion of that through its procurement and research and development appropriation titles.66

Weapon programs tend to be the most visible acquisitions, but contracting also includes very sizeable

sums spent on services, information technology, and commercially-available goods. Many believe these

sums are not spent as efficiently as they could be. The Government Accountability Office’s “high risk

list” has included defense weapons system acquisition since 1990. It likewise has included defense contract

management since 1992.

Related to, but broader than, acquisition practices is the issue of financial management. Transparency

and accountability are keys to efficiently administering any account at any government agency.

Since defense investment is so sizeable, the topic comes up especially frequently for the Pentagon

with respect to its acquisition programs. Defense financial management likewise has been on GAO’s

high-risk list since 1995.

Version 5.4 15 June 2010

DoD Decision

Support Systems

Effective Interaction

is Essential

Integrated Defense Acquisition, Technology, and Logistics Life Cycle Management System

Following the Materiel Development Decision, the Milestone Decision Authority may authorize entry into the acquisition process at any point, consistent with phase-specific entrance criteria and statutory requirements

& Development System

VCJCS Oversight

System

USD(AT&L) Oversight

Decision Points/Milestones

Joint

Capabilities

Integration &

Development

System

(need-driven)

Oversight

&

Review

Contracting

Major

Products

Logistics/

Sustainment

Defense

Acquisition

System

(event-driven)

Technical

Systems Engineering

Test and Evaluation

Supportability

Financial

Management

Strategic Guidance

Joint Operations Concepts

Concept of Operations

Operations Plans

Capabilities-Based

Assessment

ICD

JROC/

Component

Validation and

Approval

DCR

MDD

DAB/

ITAB MDA ADM

Exit

AoA Study

Guidance

Cost Estimation

Methods

Study

Contracts

MDD

MSA Phase

Fully Funded

Materiel Solution Analysis Phase

Complete Analysis of Alternatives to assess potential materiel solutions to

capability need, identify key technologies and estimate life cycle costs.

Consider commercial-off-the-shelf and solutions from both large and

small business. Identify materiel solution to capability need.

Complete Technology Development Strategy.

CDD – Capability Development Document

CPD – Capability Production Document

TLCSM

AoA Study

Plan

AoA

Alternative

Materiel

Solutions

IOC – Initial Operational Capability

IT – Information Technology

Clinger-Cohen Act (IT incl NSS)

- Compliance

MS

A

Draft

CDD

Technology Development Phase

Reduce technology risk, determine and mature appropriate set of technologies to integrate into full system,

demonstrate critical technology elements on prototypes, and complete preliminary design. Identify an

affordable program or increment of militarily useful capability, demonstrate technology in relevant

environment, and identify and assess manufacturing risks. Provide for two or more competing teams

producing prototypes of system and/or key system elements prior to or through Milestone B.

TLCSM

KPPs

Traceable

Joint Staff Review

J-1 – Joint manpower. J-2 – Intelligence/threat.

AoA

Contract Management ECPs/Changes

Acq

Plan

System Threat Assessment

Component/JROC

Validation &

Approval

MUA/Final Demo

Report for

Joint Capability Technology

Selectively Applied

CDD

KPPs

MS

B

Initiate Evolutionary Acquisition Strategy

Clinger-Cohen Act (IT incl NSS)

- Compliance

Source

RFP & Source

Selection

Proposals Selection

Plan

Engineering & Manufacturing Development Phase

Develop a system or increment of capability; complete full system integration, develop affordable and executable manufacturing process;

ensure operational supportability; reduce logistics footprint; implement human systems integration; design for producibility; ensure

affordability; protect critical program information; and demonstrate system integration, interoperability, safety, and utility.

Integrated System

System Capability & Manufacturing

Design

Post-

Process Demonstration

CDR A

ADM – Acquisition Decision Memorandum

AoA – Analysis of Alternatives

ESOH – Environment, Safety, and Occupational Health

EVM – Earned Value Management

KPPs

Traceable

MAIS – Major Automated Information System

MDA – Milestone Decision Authority

Joint Staff Review

J-1 – Joint manpower. J-2 – Intelligence/threat.

PSR – Program Support Review

RAM-C – Reliability, Availability, Maintainability & Cost

AoA

System Threat Assessment

Component/JROC

Validation &

Approval

MUA/Final Demo

Report for

Joint Capability Technology

Selectively Applied

CPD

KPPs

MS

C

Evolutionary Acquisition Strategy

Clinger-Cohen Act (IT incl NSS)

- Compliance

Exit

Exit

Exit

Exit

Exit

DAB/

TRA

TRA

PSR Criteria

ADM

APB Criteria

ADM

ADM Criteria MDA ADM

APB Criteria

ADM

PSR APB Criteria

ITAB MDA DAB/

Met

PSR

Met

ITAB MDA DAB/

Met

PSR

Met

ITAB MDA DAB/

Met

ITAB

Technology Development Strategy (TDS)

Acquisition Strategy

Acquisition Strategy

Acquisition Strategy

• Acquisition Approach

• Business Strategy

• Acquisition Approach

• Resource Management

• Acquisition Approach

• Resource Management

• Acquisition Approach

• Source & Related Documents • Resource Management

• Source & Related Documents • Program Security

• Source & Related Documents • Program Security Considerations

• Source & Related Documents

• Risk & Risk Management

• Technology Maturation &

Acq

Plan

• Life-Cycle Sustainment

Planning

Source

RFP & Source

Selection

Proposals Selection Technology

Plan

Development

Contract

IBR EVM

Surveillance

Materiel

Solution

Prototypes

• Risk & Risk Management

• Technology Maturation

Plan

• CBRN Survivability

System

Performance

Spec

Engineering &

Manufacturing

Development Contract

IBR EVM

Surveillance

Prototypes

Contract Management ECPs/Changes

• Risk & Risk Management

• Technology Maturation

Acq

Plan

Production

Representative

Articles

• Human Systems Integration

• ESOH

Develop Initial Product Support Strategy

Product Support Plan

Demonstrate Product Support Capability

Define

Set

Evaluate Product

Supportability

Initiate Product Support BCA

Product Support

Support Capabilities

(Define Ground Rules & Assumptions)

Strategy

Objectives

A

B

Post-CDR A

C

INPUTS

OUTPUTS

INPUTS

OUTPUTS INPUTS Performance-Based Logistics (PBL) Strategy (Preferred Product Support Approach)

OUTPUTS

Analogy

ITR

CARD

CCE

CCP

ASR

TD Phase

Fully Funded

Economic Analysis (MAIS)

ICE

SRR

SFR

FMECA

FTA

RCM

LORA

MTA

Economic Analysis (MAIS)

Manpower Estimate (MDAP)

CARD CCE CCP ICE

PDR

Affordability

Assessment

Full Funding

In FYDP

Parametric

SFR

Initial

Product

Baseline

BCA – Business Case Analysis

BLRIP – Beyond Low Rate Initial Production

PBA – Performance-Based Agreement

PESHE – Programmatic Environment,

DT&E – Developmental Test & Evaluation

PCA – Physical Configuration Audit

EOA – Early Operational Assessment

PRR – Production Readiness Review

ESOH – Environment, Safety & Occupational Health PPP – Program Protection Plan

FCA – Functional Configuration Audit

PSI – Product Support Integrator

FMECA – Failure Mode Effects & Criticality Analysis PSP – Product Support Provider

FOT&E – Follow-On Test & Evaluation

RCM – Reliability Centered Maintenance

FTA – Failure Tree Analysis

RMS – Reliability, Maintainability & Supportability

IOT&E – Initial Operational Test & Evaluation SEP – Systems Engineering Plan

ISR – In-Service Review

SFR – System Functional Review

ISP – Information Support Plan

SRR – System Requirements Review

ITR – Initial Technical Review

STA – System Threat Assessment

JITC – Joint Interoperability Test Command SVR – System Verification Review

LFT&E – Live Fire Test & Evaluation

TEMP – Test & Evaluation Master Plan

LORA – Level of Repair Analysis

TDS – Technology Development Strategy

MTA – Maintenance Task Analysis

TRA – Technology Readiness Assessment

NEPA – National Environmental Policy Act

TRR – Test Readiness Review

PDR

CDR

CARD

CCE

Production & Deployment Phase

Operations & Support Phase

Achieve operational capability that satisfies mission needs. Low-rate initial production (limited deployment for software intensive Execute support program that meets materiel readiness and

systems with no development hardware) and full-rate production (full deployment for software intensive systems). Deliver

operational support performance requirements and

fully funded quantity of systems and supporting material and services for program or increment to users.

sustains system in most cost-effective manner.

Full-Rate Production/Deployment Overlaps Production and Deployment Phase.

Low-Rate Initial Production

FRP

Life Cycle Sustainment

Disposal

DR IOC FDDR

FOC

System Threat Assessment

TLCSM

• Risk & Risk Management

• Technology Maturation

Clinger-Cohen Act (IT incl NSS)

- Compliance

KPPs

Traceable

Joint Staff Review

J-1 – Joint manpower. J-2 – Intelligence/threat.

ADM

Component/JROC

Validation &

Approval

MUA/Final Demo

Report for

Joint Capability Technology

Increment 2

Selectively Applied

Total Life

Cycle Systems

Management

Purpose of LRIP:

•Complete manufacturing development

•Establish initial production base

AoA

•Ramp to production rate

Source

•Produce systems for IOT&E

Source

Selection RFP & Source

Acq

RFP & Source

Selection

Proposals Selection

Plan

Proposals Selection

Post-Production Software Support Contracts

Plan

LRIP

Plan

Production

Contract Contract Management ECPs/Changes

Contract

Contract Management ECPs/Changes

CCP

FCA

Manpower Estimate (MDAP)

ICE

SVR

Initial

Product

Baseline

TRR

PRR

Affordability

Assessment

Full Funding

In FYDP

IBR EVM

Surveillance

Low-Rate Initial

Production

Systems

Product Support Package/PBL Implementation

Production Qualification

Testing

AOTR OTRR

IOT&E

Full-Up System Level LFT&E

Joint Interoperability

Certification Testing

JITC Joint Interoperability

Test Certification

INPUTS

Engineering

PCA

MDA

• Resource Management

• Program Security Considerations

• Human Systems Integration

• ESOH

Final

Product

Baseline

OUTPUTS

IBR

FRP

DR

Full Funding

Economic Analysis (MAIS) In FYDP

Manpower Estimate (MDAP)

CARD CCE CCP ICE

Validated and approved

CDD & CPD for each increment of

evolutionary acquisition

EVM

Sustainment Contracts

Surveillance

Full-Rate

Production

Systems

Product Support/PBL Management

Operations and Sustainment

INPUTS

FOT&E

Pre-IOC and Post IOC Supportability Assessments

OUTPUTS

• Process Change

- Operations/Maintenance Support

• Materiel Change

- Hardware/Product Support Package

Actual Costs

Disposal

PMO POM Input Types of

Funds

PMO Budget Estimate

RDT&E – Advanced Technology Development

RDT&E – Advanced Component Development and Prototypes

RDT&E – Management & Support

RDT&E – Systems Development & Demonstration

Procurement

Operations and

Maintenance

Planning,

Programming,

Budgeting

& Execution

Process

(annualcalendar-driven)

Military

Departments and

Defense Agencies

Office of the

Secretary of Defense

and Joint Staff

White

House

National Military Strategy

National Defense Strategy

National Security Strategy

POM/Budget Formulation

Defense Planning &

Programming Guidance

Fiscal Guidance

April

Fiscal Guidance

March

POM/Budget Submit

July

FYDP

updated

Issue Nominations/Disposition

Integrated Program/Budget

Review

August - November

Appropriated Funds To Support Contracts

Decisions

MBI

November

December

DoD Budget

OMB

January

FYDP – Future Years Defense Program

MBI – Major Budget Issues

FYDP

updated

President’s Budget to

Congress

February (1st Monday)

PMO – Program Management Office

POM – Program Objectives Memorandum

Budget

Committees

DoD Testimony

DoD Appeals

Authorization

Appropriation

Committees

Committees

Congressional Budget Process

February – September

Allocation

Apportionment

Authorization/

Appropriation

Acts Passed

Integrated Defense Acquisition, Technology, and Logistics Life Cycle Management System, Version 5.4, Defense Acquisition University, June 15, 2010.

BETTER ACQUISITION PRACTICES | 33


Many studies and commissions over the years have offered recommendations of how to reap efficiencies

and savings from the acquisition process. These recommendations can be binned into the following

categories: constructing contracts, managing the acquisition workforce, committing to best practices,

and generating requirements.

Constructing Contracts

Government contracts come in many different types. Contract vehicles can set an up-front price when

the government and the provider are especially clear about what is to be delivered or, when what is

desired is less clear, the contract can provide for regular invoicing with a profit margin on top. The

contract award can be determined based on the lowest price to minimize the government’s total cost

or based on best value to maximize the government’s return on each dollar spent. Acquisitions can be

made on a year-by-year basis to hedge the government’s commitment or on a multi-year basis to reap

the efficiency advantage from economies of scale.67

All these choices have cost ramifications. They can be subdivided into contractor selection, comparisons

between different contract types, and the interaction between government and contractor.

In its Better Buying Power Initiative, begun in September 2010 (“Version 1.0”) and updated in November

2012 (“Version 2.0”), the Pentagon emphasized a need to clarify different standards for selecting

among contractors proposals. “Best value” evaluates how well the contractor can do what it claims

even if its bid is not the lowest. But the Pentagon argues that “industry tends to default to threshold

performance levels because they are less costly and source selections seldom give predictable credit for

performance above threshold.” An insufficient understanding of how “value” is judged may mean that

contractors are not defending higher costs on the grounds that their value warrants it. “Lowest Price –

Technically Acceptable” is another structure for making a selection, but the Pentagon similarly noted

that these competitions “essentially default to the lowest bidder, independent of quality.” Better evaluations

of benefits relative to costs underpin the Better Buying Power emphasis on defining both “best

value” and “technically acceptable.”68

Comparisons between contract types also have been recurring parts of the debate. DBB has been clear

that contract type is not the defining problem for cost overruns. Still, in a January 2010 report it did

determine that the “preferred choice is fixed-price, then cost-plus, then time and materiel contracts.” It

also counseled using incentives in both cost-type and fixed-price vehicles as a way to balance risk and

motivate superior performance.69

The 2005 Defense Acquisition Performance Assessment (DAPA) took a wholly different approach and

challenged how government fundamentally interacts with contractors. Rather than the current solicitand-respond

structure that governs contract types generally, it suggested that the Pentagon propose

regulatory changes that would “formalize a risk-based source selection process in which cost proposals

are replaced by industry and government agreements on most probable cost. An affordability determination

is then made to determine when proposals are within the competitive range …”70 Under

this model, costs would have been determined in a more collaborative and iterative interaction with

34 | MANAGING THE MILITARY MORE EFFICIENTLY


industry, compared to a current approach that hinges more heavily on either accepting or rejecting a

contractor’s cost proposal.

In each of these issues – selecting a contractor, alternatives between contract types, and the interaction

between government and contractors – more informed choices may lead to more efficiency.

Managing the Contracting Workforce

All acquisition reforms depend on the judgment of the government acquisition professional that oversees

the contract. The way that the Pentagon constructs and manages this workforce greatly influences

how well the acquisition system functions. Concern about civil servants’ acquisition career paths date

back at least to the 1986 Packard Commission, a Presidential-level task force led by former Deputy Defense

Secretary David Packard. It found that:

The existing civilian personnel management system has not, however, allowed similar improvements

in career paths and education for civilian acquisition personnel [relative to the military

workforce]. To attract and retain a good work force requires a more flexible system for management

of contracting officers… Major innovations in personnel management and regulations

are needed.71

Writing in January 2010 and again in April 2012, DBB underscored the need to make defense acquisition

an attractive career prospect, especially by defining the key elements of a career path.72 Those

elements included “a tour with industry … prior to being a program manager,” “expanding programs

like the Defense Fellows Program with industry,” and considering ways to create incentives for military

personnel to pursue acquisition careers.73

A House Armed Services’ Committee panel co-chaired by Rep. Rob Andrews (D-NJ) and Rep. Mike

Conaway (R-TX) also reiterated needs similar to those identified by the Packard Commission. This panel,

charged by the committee with a full review of defense acquisition, recommended that the Pentagon

improve this career path by taking full advantage of authorized pay incentives and by institutionalizing

standards, including for recertification.74 Business Executives for National Security (BENS), a nonprofit

organization that channels private sector executive expertise into national security issues, also tackled the

issue. It raised the options of streamlined hiring and dismissal and a review of ethics regulations for the

benefit they offer relative to the barriers to entry they impose.75

The Pentagon’s approaches to improving the contracting workforce have addressed the total staff cadre

generally and acquisition leaders specifically. One workforce-wide initiative has concentrated on size.

Then-Secretary Gates decided as part of the 2010 budget request to insource 11,000 contract acquisitions

professionals and to add an additional 9,000 positions in order to better oversee requirements

creep.76 The Pentagon’s 2014 budget overview reported that 7,700 of those new positions have been

filled to date, though it also noted that the Department will “shift in focus from primarily recruiting and

hiring, to training and continuous improvement in the qualifications and experience set of the acquisition

workforce.”77

BETTER ACQUISITION PRACTICES | 35


Should all of these 20,000 new personnel be added to the civil service, it would take the total acquisition

workforce from 127,000 to 147,000 people, according to another January 2010 DBB report. 78 This 16 percent

increase raised concern about “chasing the numbers” rather than focusing on quality. The DBB

report responded emphatically: “Bigger isn’t better; better is better.” 79 Its primary recommendations

for Services and Components to focus foremost on quality and skill-based hires followed closely on that

finding. Engineers involved in acquisition oversight and decision-making received particular attention

when DBB returned to this topic in April 2012.80

Leadership of the acquisition workforce also is a point of emphasis for the Pentagon. Its Better Buying

Power 2.0 Initiative was direct about the goal to “establish higher standards for key leadership positions.”

Qualifications, not just certifications, were the standards on which it focused, including experience,

education, and training. 81

Meanwhile, DAPA considered the structure of acquisition management. One part would have included

an elevated role for Service Acquisition Executives to “ensure that clear lines of responsibility,

accountability, and authority for program execution are established and maintained.” It similarly

would have:

…establish[ed] Four-Star Service Systems Commands that… will be responsible for aligning the

acquisition workforce to include requirements and acquisition budget personnel, by establishing appropriate

certification requirements based on formal training, education and practical experience.

This organization provides advocacy for the acquisition workforce and will institute formal and

informal mentoring of program managers.82

DBB shared this focus on management. Rather than creating new institutions, however, it focused

on the service chiefs’ existing responsibilities. In its own words, “the Service Chiefs, in collaboration

with senior acquisition leaders, should be accountable for the career path management, training,

education, and particularly promotions and equal promotion rates of military acquisition personnel,

as required by law. 83

Whether it’s the leadership, the full cadre of the acquisition workforce, or the management structure

that guides how the two interact, better oversight and implementation may equate to an across-theboard

improvement in acquisition efficiency.

Coming to Best Practices

Contracts’ terms and the workforce that manages them are key parts of the structure for defense acquisition.

Within that structure, acquisition practice also is a significant indicator of efficiency. This section

now turns to techniques that may qualify as best practices.

Given the longstanding cost growth in acquisition programs, affordability is one of the most basic concerns.

The Pentagon’s Better Buying Power 2.0 initiative favored affordability caps for programs. Specifically,

it would have demanded long-term “investment planning to derive affordability caps;” used those

36 | MANAGING THE MILITARY MORE EFFICIENTLY


affordability caps to “force prioritization of requirements;” and urged senior acquisition officials to “halt

programs that will not be within the established cap.” In other words, cancel programs that have lost

control of costs. Better Buying Power 2.0 also sought to “implement ‘should-cost’ based management,”

in which the cost a program should incur is used as an analytical and negotiating counterweight to what

the program actually is costing.84

Timeliness also has drawn particular attention as programs tend not only to exceed their budgets but

also to suffer schedule slips. DAPA sought to improve timely and reliable delivery by prioritizing time

in developing a program. It would have:

…establish[ed] Time Certain Development as the preferred acquisition strategy for major

weapon system development. These strategies will require delivery of the first unit to

operational forces within approximately six years of the Milestone A decision. Through

early fielding of a basic capability, operational users will gain a clearer understanding

of requirements that should be incorporated during future block or spiral upgrades, and

technologies will mature that will enable producers to satisfy those requirements. Time

Certain Development differs from “evolutionary acquisition” in that a specific time frame is

established in which useful military capability will be fielded… The time frame will not be

adjusted to accommodate new requirements or capability enhancements prior to fielding

the useful military capability.85

CSIS also explored acquisition timeliness in its “Beyond Goldwater-Nichols” analysis. It noted options

for expediting an acquisition program and recommended increasing that authority for defense-wide

rapid acquisition. Specifically, it proposed waiving and exempting the Joint Rapid Acquisition Cell

from “regulations that impede responsive acquisition,” as well as endowing it with a billion-dollar capital

fund pulled from unobligated balances.86

The Andrews-Conaway panel took yet another path. It concluded that:

…for the most urgent operational needs, special acquisition processes are clearly warranted. At

the same time, the Panel believes the Department and Congress should not accept program development

timelines routinely measured in the double digits for most of the Department’s needs

as this approach will not be responsive to the Department’s operational requirements. The Panel

believes that the Department must begin to actually apply its policies expressing a preference for

evolutionary acquisition and open systems architecture in ways which result in different acquisition

strategies and shorter development timelines.87

Tailoring the contract process based on the need being met was again a theme for the Andrews-Conaway

panel as it considered information technology. In the words of a witness before the panel, the

standard acquisition process is:

Ill-suited for information technology systems. Phase A is intended to mature technology; yet information

technologies are now largely matured in the commercial sector. Phase B is intended

to ready a program for production; yet information technologies are not produced in quantity.

BETTER ACQUISITION PRACTICES | 37


Phase C is a production phase, which again is generally not relevant to information technology

that is not produced in quantity.88

The consequences of this mismatch between the good being acquired and the process for acquiring it

was clear to the panel:

The Department is unable to keep pace with the rate of IT innovation in the commercial

market place, cannot fully capitalize on IT-based opportunities, and seldom delivers IT-based

capabilities rapidly. By way of example, the private sector is able to deliver capabilities and

incrementally improve on those initial deliveries on a 12 to 18 month cycle; defense IT systems

typically take 48-60 months to deliver. In an environment where technology is obsolete

after 18 months, defense IT systems are typically two to three generations out of date by the

time they are delivered.89

The Andrews-Conaway panel responded to this assessment by recommending a separate acquisition

process for information technology, including milestone decision points more aligned with how the

private sector develops these tools. The Defense Science Board (DSB) also reached this conclusion in a

2009 acquisition study, and it offered even more detail: IT acquisition should occur in rapid increments

driven by successful prototyping in order to keep up with the pace of IT change, according to DSB, and

capabilities should be released as they become available even within increments. 90 In a larger frame,

both of these positions were responses to a need for the acquisition process to adapt according to the

type of goods or service being acquired.

Regulations affect how adaptable the acquisition process can be and defense acquisition is subject to a

massive scale and fine detail of regulation. The Packard Commission found 26 years ago that “federal

law governing procurement has become overwhelmingly complex.” Commissioners felt so strongly

about this problem that they recommended a wholesale recodification of government-wide procurement

into a single law.91 Yet these regulations still continue to frustrate. From the Pentagon’s viewpoint,

one example has been its Better Buying Power 1.0 announcement that it would “work with Congress to

eliminate the requirement for the full suite of Nunn-McCurdy [cost breach] assessments and reporting

activities in special circumstances where quantity-induced or other external reasons cause critical

breaches to occur.”92

The business community also has its concerns about procedural rigidity and a corresponding perspective

on regulatory flexibility. According to BENS:

A key to fundamental, systemic change lies with the Congress, which, through the body of

Federal law and its oversight function, shapes the regulatory framework and influences the

culture of defense acquisition. Any attempt to fix the system must first consider the antecedent

of today’s dysfunctional acquisition system, the body of acquisition law. Fundamental

reform of that body of law is clearly something neither the Pentagon, nor even the Executive

Branch, can undertake alone. The Task Force believes the impetus for reform must originate

with Congress.93

38 | MANAGING THE MILITARY MORE EFFICIENTLY


DBB likewise returned to the Packard Commission’s position in its April 2012 report, urging the Executive

and Legislative Branches to “zero base the entire system, including all directives and regulations.”94

Later it identified several regulations it would cut to help improve the relationship between industry

and the Pentagon. Specifically, it favored Congress and the White House “minimizing financial disincentives,

limiting recusals, allowing true blind trusts, providing tax incentives and longer divestures in

adverse markets,” as well as “reassessing the post-government prohibitions in order to shorten the time

period and limit the scope of coverage to specific programs.” 95

Prototyping is another frequently mentioned best practice, one that is specific to the acquisition of

goods. Extensive evaluation of prototype technologies, for instance, may provide firmer understandings

of cost and capability, permitting better managerial decisions as the program moves into procurement.

The Pentagon’s Better Buying Power 2.0 initiative set the goal of being more stringent in how proofof-concept

demonstrations are conducted.96 Prototyping was captured as well by the Packard Commission,

which prioritized “building and testing prototype systems and subsystems before proceeding

with full-scale development.”97 DSB in 2009 also emphasized prototyping as a way to achieve “more

thorough analysis … at the outset of system development and during key aspects of the development

process.”98

The risks of a development program can be avoided altogether if the needed system already exists.

DSB argued that, when possible, the Department of Defense should purchase systems proven on

the commercial market rather than a new development program. “Many advanced capabilities are

available on the commercial market and offer an important option for supplying U.S. forces,” DSB

determined.99 Part of acquisition best practice is knowing when to take advantage of these already

available capabilities.

DSB concluded its report with a far-reaching observation on best practices: “you can and will only improve

what you can measure.” It did not find a particular shortcoming in the Pentagon on this count but

rather reiterated that “the Secretary of Defense must personally insist on continuous improvement.” It

therefore recommended that:

The Secretary of Defense, with the Under Secretary of Defense for Acquisition, Technology,

and Logistics at the lead, should develop acquisition performance metrics for monitoring

the newly reengineered acquisition process – monitoring each program against performance

metrics for cost, schedule, and quality, with quarterly reporting. The metrics should be visible

to all. 100

Measurement is the essence of a much more general discussion about defense financial management.

The Pentagon is one of three federal agencies unable to meet the standards of financial audit and the

only one that lacks even a qualified audit.101 This is different than failing an audit. Rather, much of

the Pentagon lacks the data fidelity to begin an audit. GAO includes defense financial management

on its high-risk list out of concern over “DOD’s ability to control costs; ensure basic accountability;

anticipate future costs and claims on the budget; measure performance; maintain funds control; pre-

BETTER ACQUISITION PRACTICES | 39


vent and detect fraud, waste, and abuse; address pressing management issues; and prepare auditable

financial statements.” 102

In response to these financial management challenges, the fiscal year 2010 defense authorization

required the Pentagon to achieve audit readiness by September 2017. In October 2011 testimony

before the House Armed Services Committee, then-Secretary Panetta accelerated the deadline for

a core element of the audit package to 2014. Congress codified that sub-goal in the fiscal year 2013

defense authorization.103 This partially fulfills one aspect of the HASC Andrews-Conaway Panel’s

recommendation to comply with the audit standard well before 2017. That panel was firm in its

belief that the full deadline should move forward, however, on the grounds that “failure to do so

is fundamentally incompatible with the spirit of acquisition reform.” Consequently, it also recommended

that Congress’ defense committees withhold funding or apply penalties in the absence of

clear and quick progress.104

More rapid, flexible, accountable, and strategic acquisition – all elements of best practice – have clear

connections to efficiency.

Generating “Requirements”

Each of these acquisition process options has attracted the attention of experts and senior leaders. Many

believe, however, that they have a common root. The Packard commission in 1986 found the acquisition

systems’ problems “begin with the establishment of approved ‘military requirements’ for a new weapon, a

step that occurs before development starts.” 105 Twenty-four years later, the Andrews-Conaway panel encountered

the same sorts of problems. “The Panel heard at almost every hearing, regardless of the primary

content focus of the hearing, that obtaining consistent, realistic requirements as a basis for the acquisition

process is a critical problem in the defense acquisition system.” 106

The Pentagon’s Better Buying Power 2.0 initiative included a specific determination: “More than anything,

requirements drive cost.” 107 On that topic, it aimed to “improve requirements definition;

prevent requirements creep,” especially by improving the quality of planning.108 In its April 2012

report, DBB was equally frank: “Freeze requirements early after cost, schedule, and technical feasibility

trade-offs.”109 The centrality of requirements is a consensus point, and there is a litany of corresponding

perspectives.

One possible response to this challenge would be to change how different organizations help create

requirements. CSIS would have altered membership of the Joint Requirements Oversight Council,

which formally approves requirements, to add the Office of Cost Assessment and Program Evaluation

(CAPE) and to replace Service Vice Chiefs with Combatant Command Deputies. It also would

have refocused the Office of the Under Secretary for Acquisition, Technology, and Logistics on

research and engineering, dedicating this part of the institution to the long view, and would have

returned management and execution authority to the military Services. These changes could foster

service competition to meet COCOM requirements and permit the Office of the Under Secretary of

40 | MANAGING THE MILITARY MORE EFFICIENTLY


Defense for Acquisition, Technology, and Logistics (USD AT&L) to substantially reduce its staff.110

Meanwhile, moving the services back into management and execution could “clarify issues of accountability

and serve several Packard Commission design principles that remain valid today – to create

clear, unambiguous command channels, limit reporting requirements, keep staffs small and establish

close communication with the end user.”111

BENS also weighed in on the Joint Requirements Oversight Council membership. It shared CSIS’ concern

with the balance between near- and long-term focus, but its recommendation was nearly opposite.

BENS acknowledged that the COCOMS are leaders on immediate needs but found that the military

Services are more likely to take the long view that should guide the requirements process.112 Specifically

it recommended that:

Sustaining needs should remain with the Service Chiefs (and Defense Agencies, as appropriate)…

it should be the responsibility of the JROC to assure operational compatibility among the

Services, working through the joint requirements organizations with special attention and rapid

action for the near-term requirements.113

HASC’s Andrews-Conaway panel offered a bridge between the CSIS and BENS perspectives. It underscored

the importance of COCOM, CAPE, and USD AT&L perspectives on the Joint Requirements

Oversight Council and favored consideration of whether they should become voting members.

It emphasized taking those positions into account, however, over an institutional change to the

body’s composition, and made no suggestion that the Service Vice Chiefs should be replaced if the

COCOM Deputies joined. Instead, it recommended designating “a COCOM as the end-user proponent”

for all major defense acquisition programs as a means to include war fighter views in the process.

Meanwhile, the panel expressed concern that “the divide established in the Goldwater-Nichols

Act between acquisition and the military service chiefs has become so wide that it hinders both the

acquisition and requirements process … The service chiefs should also be given greater authority

and responsibility to oversee contract quality assurance, especially for contracts that are highly operational

in nature.”114

DBB addressed the role played by CAPE in this process. It determined that “CAPE cost estimates should

be presented, when relevant, at Functional Capability Boards, Joint Capability Boards, and as part of

JROC discussion.” Related to that, DBB also found that these cost estimates should influence the services

as they build their Program Objective Memoranda and that they should be part of programming

decisions made by USD/AT&L.115

DAPA targeted its recommendations more at the standards that underpin requirements than at Joint

Requirements Oversight Council membership itself. The standards it proposed dovetail closely with its

emphasis on Time Certain contracting. Specifically, it would have forgone schedule slips by releasing

technology only when the COCOM determined that it was operationally acceptable and/or operationally

usable, instead of when it fulfills criteria set out by the Director of Operational Test and Evaluation. 116

It likewise would have helped institutionalize these standards by:

BETTER ACQUISITION PRACTICES | 41


…replacing the Joint Capabilities Integration and Development System by designating the Joint

Chiefs of Staff/J-8 to lead the integration of the Combatant Commands’ extended planning annexes

into a Department wide, time-phased, fiscally-informed and prioritized Joint Capabilities

Acquisition and Divestment plan.117

Since many identify requirements as the root cause of cost growth in acquisition, controlling requirements

may have the biggest impact on achieving savings.

Parameters for Possible Savings

The sheer scale and complexity of the acquisition system creates a perpetual risk of inefficiency that must

be managed. Time after time, boards and commissions have found fault with the acquisition system.

The previous two sections have considered direct options to save money by compensating and utilizing

our service members more efficiently. Reforming acquisition practices could yield comparable savings,

in the eyes of some, by catalyzing better management. But these savings would be achieved indirectly.

Instilling more discipline in the requirements process or choosing contract vehicles more deliberately,

for instance, do not formulaically correspond to a savings figure, but rather allow the Pentagon to identify

efficiencies on a case-by-case basis. Some cost growth would probably occur even if all these reforms

were implemented. Consequently, the possible savings from these options should be considered

in the aggregate instead of as an itemized list.

GAO has helped to quantify the risk of inefficiency just in weapons system acquisition, setting aside

other programs for services or information technology. It reported that:

The total estimated cost of the Department of Defense’s (DOD) 2011 portfolio of 96 major

defense acquisition programs stands at $1.58 trillion. In the past year, the total acquisition

cost of these programs has grown by over $74.4 billion or 5 percent, of which about $31.1

billion can be attributed to factors such as inefficiencies in production, $29.6 billion to quantity

changes, and $13.7 billion to research and development cost growth.118

That circumstance stabilized somewhat during 2012. In its 2013 update to that report, GAO wrote that:

The Department of Defense (DOD) 2012 portfolio of 86 major defense acquisition programs

is estimated to cost a total of $1.6 trillion, reflecting decreases in both size and cost from the

2011 portfolio. Those decreases are largely the result of more programs exiting than entering

the portfolio, as well as reductions in procurement quantities due to program cancelations and

restructurings. Notably a majority of programs in the portfolio gained buying power in the last

year as their acquisition unit costs decreased. DOD’s 10 costliest programs, excluding the

Missile Defense Agency’s Ballistic Missile Defense System, drive most of the portfolio’s cost

performance and funding needs.119

42 | MANAGING THE MILITARY MORE EFFICIENTLY


Saving money requires not only stabilizing this trend, though, but also reversing it. The proposed fiscal

year 2014 defense plan would spend $1.9 trillion on procurement and research and development over

the 10 years from 2014-2023, which does not include many service contracts found in the operating

and maintenance appropriations.120 GAO found that major acquisition programs’ costs grew by five

percent in 2011 and stabilized in 2012. If acquisition reform proposals produced savings of only a few

percentage points, it is possible that savings stemming from acquisition reforms and better practices

could be on the order of a hundred billion dollars or even more over the next 10 years.

APPROXIMATE POSSIBLE SAVINGS IN BILLIONS OF DOLLARS OVER 10 YEARS

Constructing Contracts

Managing the Contracting Workforce

Coming to Best Practices

Generating “Requirements”

Total Possible Savings $100+

BETTER ACQUISITION PRACTICES | 43


CONCLUSION

Although many disagree about what the Defense Department should do and how much it should cost,

all agree that whatever it does should be done as efficiently as possible. This report has identified possible

savings of $300 billion over the next 10 years by reforming how personnel are compensated. It

identified almost $500 billion of possible savings through the more efficient use of manpower. And

although it is difficult to estimate an exact savings figure from improved acquisition processes, it is possible

that being more deliberate and disciplined could generate more than $100 billion in savings. If all

of these efficiencies were realized, they would represent close to $1 trillion, or almost 20 percent of the

planned defense budget over the next 10 years.

Few are likely to go that far. The options presented in this report have been proposed often, and for

many years. Some reforms similar to these proposals have been made in the past and have achieved

savings, but many more have not. Many of these options would require overcoming significant political

opposition or would be difficult to implement, requiring sustained change over long periods of time.

Offsetting effects might erode savings if some were implemented. The likelihood that these proposals

might be taken and how well they might perform is a question of political judgment. Each observer will

have a different take on each option and its likelihood.

Nevertheless, in the constrained budget environment the Defense Department faces, changes will be

made and efficiencies will be enforced. This report has captured some of the possible ways that efficiencies

can be gained. More importantly, efficiencies must be gained to ensure that U.S. defense dollars are

spent as wisely as possible and that American citizens get the best and most effective defense possible,

no matter what defense strategy the U.S. pursues.

CONCLUSION | 45


ENDNOTES

1 ”Corporate Downsizing Applications for DOD,” Defense Business

Board (21 July 2011): Slide 3: http://dbb.defense.gov/pdf/

FY11-07_Corporate%20Downsizing%20Applications%20for%20

DoD.pdf.

2 The Eleventh Quadrennial Review of Military Compensation was

published in June 2012 and it features in this report, as appropriate.

Its role here is more limited than that of the Tenth Quadrennial

Review of Military Compensation, however, because its remit

was considerably narrower. Each reference to a Quadrennial

Review of Military Compensation is designated as either Tenth or

Eleventh.

3 “Volume II: Deferred and Non-Cash Compensation,” Tenth

Quadrennial Review of Military Compensation (February 2008):

pg. xiii: http://prhome.defense.gov/MPP/docs/Tenth_QRMC

_Feb2008_Vol%20II.pdf/.

4 “Volume I: Cash Compensation,” Tenth Quadrennial Review of

Military Compensation (February 2008): pg.33: http://www.whs.

mil/library/doc/Tenth.pdf.

5 Tenth QRMC Vol. I, pp. xiv-xv.

6 “Report of the Eleventh Quadrennial Review of Military Compensation,”

Eleventh Quadrennial Review of Military Compensation

(June 2012): pg.26: http://militarypay.defense.gov/reports/

qrmc/11th_QRMC_Main_Report_%28290pp%29_Linked.pdf.

7 Ibid, pg. 28.

8 “Fiscal Year 2014 Budget Request: Overview,” Department of

Defense (April 2013): pg. 5-2: http://comptroller.defense.gov/

defbudget/fy2014/FY2014_Budget_Request_Overview_Book.

pdf.

9 Tenth QRMC Vol. I, pg. xv.

10 “Analysis of Federal Civilian and Military Compensation,”

Congressional Budget Office (20 January 2011): pg.4: http://

www.cbo.gov/sites/default/files/cbofiles/ftpdocs/120xx/

doc12042/01-20-compensation.pdf.

11 Budget Options, Volume II,” Congressional Budget Office (August

2009): Option 050-15: http://www.cbo.gov/sites/default/

files/cbofiles/ftpdocs/102xx/doc10294/08-06-budgetoptions.

pdf. “Reducing the Deficit: Spending and Revenue Options,”

Congressional Budget Office (March 2011): Discretionary Spending

Option 2: http://www.cbo.gov/sites/default/files/cbofiles/

ftpdocs/120xx/ doc12085/03-10-reducingthedeficit.pdf.

12 Obama, Barack. “Presidential Memorandum -- Federal

Employee Pay Schedules and Rates that are Set by Administrative

Discretion,” White House Office of the Press Secretary,

21 December 2012: http://www.whitehouse.gov/the-pressoffice/2012/12/21/presidential-memorandum-federal-employee-

pay-schedules-and-rates-are-set.

13 “$200 Billion in Illustrative Savings (Bowles-Simpson),” National

Commission on Fiscal Responsibility and Reform (November

2010): Option 41: http://www.fiscalcommission.gov/sites/fiscalcommission.gov/

files/documents/Illustrative_List_11.10.2010.

pdf. Note that this option includes savings from tax advantages

and retirement accrual, but not from bonuses.

14 Tenth QRMC Vol. I, pg. xvii.

15 Eleventh QRMC, pg. 16.

16 Tenth QRMC Vol. II, pg. xi.

17 This principle is generally one of “marginal utility” and specifically

a reflection of consumer choice theory. MIT microeconomics

curricula refers to it as the “Carte Blanche Principle”:

“Consumers make optimal choices for themselves given prices,

constraints, and income … Consumers are always weakly better

off receiving a cash transfer than an in-kind transfer of identical

monetary value. [Weakly better off in that they may be indifferent

between the two.]” Autor, David. “Lecture 4: Theory of Choice

and Individual Demand,” Massachusetts Institute of Technology,

Fall 2010: http://ocw.mit.edu/courses/economics/14-03-microeconomic-theory-and-public-policy-fall-2010/lecture-notes/

MIT14_03F10_lec04.pdf.

18 CBO 2011 Budget Options, Discretionary Option 6.

19 CBO 2009 Budget Options, Option 050-20.

20 Tenth QRMC Vol. II, xxvi.

21 Wormuth, Christine and Michele Flournoy, Patrick Henry, and

Clark Murdoch. “The Future of the National Guard and Reserves,”

Center for Strategic and International Studies (July 2006): pp.

110: http://csis.org/files/media/csis/pubs/bgn_ph3_report.pdf.

22 “Fiscal Year 2013 Budget Request: Overview,” Department

of Defense (February 2012): pg. 5-2: http://comptroller.defense.

gov/defbudget/fy2013/FY2013_Budget_Request_Overview_

Book.pdf.

23 Wormuth et al, pp. 110-111.

24 “TRICARE Prime Enrollment Fees,” Department of Defense

(Viewed April 2013): http://www.tricare.mil/Home/Costs/Health-

PlanCosts/PrimeOptions/EnrollmentFees.aspx.

25 “The Military Compensation System: Completing the Transition

to an All-Volunteer Force,” Defense Advisory Commission on

Military Compensation (April 2006): pp. xxviii: http://prhome.

defense.gov/RFM/MPP/docs/dacmc_finalreport7_11.pdf.

26 Tenth QRMC Vol. II, pg. xvi.

ENDNOTES | 47


27 CBO Budget Options 2011, Discretionary Option 3.

28 Ibid.

29 “Restoring America’s Future (Rivlin-Domenici),” Bipartisan

Policy Center (November 2010), pg 114: http://www.bipartisanpolicy.org/sites/default/files/BPC%20FINAL%20REPORT%20

FOR%20PRINTER%2002%2028%2011.pdf.

30 CBO Budget Options 2011, Discretionary Option 4

31 Ibid.

32 “Healthcare for Military Retirees Report,” Defense Business

Board (December 2005): Slide 11: http://dbb.defense.gov/pdf/

Healthcare-for-Military-Ret.pdf.

33 Tenth QRMC Vol. II, pg. xvii.

34 CBO 2011, Discretionary Option 5.

35 “Conference Report for the National Defense Authorization

Act for Fiscal Year 2012, §701,” http://www.rules.house.gov/

Media/file/PDF_112_1/legislativetext/HR1540conf.pdf.

36 “National Defense Authorization Act for Fiscal Year 2013,

§712,” http://www.gpo.gov/fdsys/pkg/BILLS-112hr4310enr/

pdf/BILLS-112hr4310enr.pdf.

37 FY2014 Budget Request Overview, Figure 5-2.

38 Ibid.

39 “Modernizing the Military Retirement System,” Defense Business

Board (October 2011): pp. 2-3: http://dbb.defense.gov/pdf/FY11-

05_Modernizing_the_Military_Retirement_System1.pdf.

40 DACMC, pp. xx-xxii.

41 Tenth QRMC Vol. II, pp. xiii-xiv.

42 Asch, Beth and Richard Johnson and John Warner. “Reforming

the Military Retirement System,” RAND Corporation (1998):

pp. xi-xii: http://www.rand.org/pubs/monograph_reports/2007/

MR748.pdf/.

43 Rivlin-Domenici, pg. 112.

44 DBB Retirement Report 2011, Slides 5-6.

45 Ibid, Slide 13

46 Levinson, Robert and Kevin Brancato. “Military Pension

Change Could Save the Pentagon $37 Billion,” Bloomberg Government

(14 December 2011): pp. 8, 10.

47 Powell, Colin. “Report on the Roles, Missions, and Functions

of the Armed Forces of the United States,” The Joint Staff (February

1993): III-1: http://www.airforce-magazine.com/SiteCollectionDocuments/

TheDocumentFile/Defense%20Reviews/Powell-

Report0293.pdf.

48 “2012 Annual Report: Opportunities to Reduce Duplication,

Overlap and Fragmentation, Achieve Savings, and Enhance Revenue,”

Government Accountability Office (February 2012): Option

22: http://www.gao.gov/assets/590/588818.pdf.

49 Avdellas, Nicholas and Joseph Berry, Michael Disano, David

Oaks, and Earl Wingrove III. “Future Capability of DOD Maintenance

Depots,” LMI Consulting (February 2011): pp. 6-1, 6-15:

http://armedservices.house.gov/index.cfm/files/serve?File_

id=5ea27615-e4fe-41ad-8884-d205988dd772. (Note: This

report is in fulfillment of §322 of the 2009 National Defense

Authorization Act.)

50 “2011 Annual Report: Opportunities to Reduce Duplication,

Overlap and Fragmentation, Achieve Savings, and Enhance Revenue,”

Government Accountability Office (February 2011): pg. 38:

http://www.gao.gov/new.items/d11318sp.pdf.

51 Bowles-Simpson, Option 56.

52 GAO 2012 Efficiencies Report, Option 36.

53 Gebicke, Scott and Samuel Magid. “Lessons from around

the World: Benchmarking Performance in Defense,” McKinsey on

Government (Spring 2010): pg. 7.

54 “FY2012 Defense Manpower Requirements Report,” Office

of the Under Secretary of Defense for Personnel and Readiness

(April 2012): Table 2-1: http://prhome.defense.gov/RFM/TFPRQ/

docs/FY12%20Defense%20Manpower%20Requirements%20Report%20%28DMRR%29%20--%20Apr%202012.pdf..

55 Rivlin-Domenici, pg. 100.

56 “Reducing Overhead and Improving Business Operations,” Defense

Business Board (July 2010): Slides 10, 25: http://dbb.defense.

gov/pdf/DBB_Overhead_final_07_22_Board_Meeting.pdf.

57 Bowles-Simpson, Option 53.

58 “National Defense Budget Estimates for FY2013,” Office

of the Under Secretary of Defense/Comptroller (March 2012):

Table 7-5: http://comptroller.defense.gov/defbudget/fy2013/

FY13_Green_Book.pdf

59 DBB Overhead & Business Operations 2010, Slides 20 and

40.

60 Hale, Robert. “Testimony before the Senate Budget Committee,”

28 February 2012.

61 DBB Overhead & Business Operations 2010, Slide 40.

62 FY2013 National Defense Authorization Act, §955.

63 “Eliminating Major Gaps in DoD Data on the Fully-Burdened

and Life-Cycle Cost of Military Personnel: Cost Elements Should

be Mandated by Policy,” Reserve Forces Policy Board (January

2013): http://ra.defense.gov/rfpb/_documents/RFPB_Cost_

48 | MANAGING THE MILITARY MORE EFFICIENTLY


Methodology_Final_Report_7Jan13.pdf.

64 “Defense Budget Priorities and Choices,” Department of

Defense (26 January 2012): pp. 12-13: http://www.defense.gov/

news/Defense_Budget_Priorities.pdf.

65 Wormuth et al, pp. 94-95.

66 USAspending.gov

67 The U.S. government provides a detailed overview of contract

types, available at https://www.acquisition.gov/far/current/html/

FARTOCP16.html.

68“Better Buying Power 2.0: Continuing the Pursuit for Greater

Efficiency and Productivity in Defense Spending” Office of the

Under Secretary of Defense for Acquisition, Technology, and Logistics

(13 November 2012): pp. 3-4: http://www.defense.gov/

news/BBPWorkforceMemo.pdf.

69“Best Business Practices for Fixed-Price Contracting,” Defense

Business Board (21 January 2010): Slide 12-14: http://dbb.

defense.gov/pdf/FY10-03_Best_Business_Practices_Fixed_

Price_Contracting.pdf.

70 “Defense Acquisition Performance Assessment (DAPA),”

December 2005, pg. 13: http://www.defense.gov/pubs/pdfs/

DAPA%2012-22%20WEB%20Exec%20Summary.pdf.

71 “A Quest for Excellence: Final Report to the President” The

President’s Blue Ribbon Commission on Defense Management

(Packard Commission) (June 1986): pp. xxiii: http://www.ndu.

edu/library/pbrc/36ex2.pdf.

72 “Acquisition Workforce Growth and Recommendations for

Insourcing,” Defense Business Board (21 January 2010), pp. 7,

13, 14: http://dbb.defense.gov/pdf/Acquisition_Insourcing_Report_FY10-04_Combined_29_Mar_2010.pdf.

73 “Linking and Streamlining the Defense Requirements, Acquisition,

and Budget Processes,” Defense Business Board (April

2012), Slide 20: http://dbb.defense.gov/pdf/FY12-02_Linking_

and_Streamlining_the_Def_Req_Acq_and_Budget_Processes.pdf.

74 “Panel on Defense Acquisition Reform Findings and Recommendations

(Andrews-Conaway),” House Armed Services Committee

(23 March 2010): pg. 38-40: https://acc.dau.mil/adl/en-

US/364298/file/50236/ HASC%20Panel%20on%20Defense%20

Acquisition%20Reform%20Final%20Report%2023MAR2010.pdf

75“Getting to Best: Reforming the Defense Acquisition Enterprise,”

Business Executives for National Security (July 2009): pp.

10-11: http://www.bens.org/document.doc?id=44.

76 Gates, Robert. “Defense Budget Recommendation Statement,”

Department of Defense (06 April 2009): http://www.

defense.gov/speeches/speech.aspx?speechid=1341.

77 FY2014 Budget Request Overview, pp. 3-10.

78 DBB Acquisition Workforce 2010, Slide 3.

79 Ibid, Slide 14.

80 DBB Requirements, Acquisition, and Budget Processes: Slide

21.

81 Better Buying Power 2.0, pg. 6.

82 DAPA, pp. 9-10.

83 DBB Requirements, Acquisition, and Budget Processes: Slide

20.

84 Better Buying Power 2.0, pg. 2.

85 Ibid.

86 Murdock, Clark and Michele Flournoy. “Beyond Goldwater-

Nichols: US Government and Defense Reform for a New Strategic

Era,” Center for Strategic and International Studies (July 2005):

pg. 97-98: http://csis.org/files/media/csis/pubs/bgn_ph2_report.pdf.

87 HASC Andrews-Conaway, pp. 8-9.

88 Ibid, pg. 16.

89 Ibid, pg. 17.

90 “Creating a DOD Strategic Acquisition Platform,” Defense Science

Board (April 2009): pg. 25: http://www.acq.osd.mil/dsb/

reports/ADA499566.pdf.

91 Packard Commission, pp. xxii & xxv.

92 “Better Buying Power: Guidance for Obtaining Greater Efficiency

and Productivity in Defense Spending,” Office of the

Under Secretary of Defense for Acquisition, Technology, and

Logistics (14 September 2010): pg. 15: http://www.acq.osd.

mil/docs/USD_ATL_Guidance_Memo_September_14_2010_FI-

NAL.PDF.

93 BENS, pp. 5-6.

94 DBB Requirements, Acquisition, and Budget Processes: Slide

17.

95 Ibid, Slide 24.

96 Better Buying Power 2.0, pg. 5.

97 Packard Commission, xxvi.

98 DSB, pg. 18.

99 Ibid, pg. 21.

100 Ibid, pg. 37.

101 “Citizen’s Guide to the 2011 Financial Report of the United

States Government,” Department of the Treasury, Table 2 (pg. 5):

http://www.fms.treas.gov/fr/11frusg/11frusg.pdf.

ENDNOTES | 49


102 “High-Risk Series: An Update,” Government Accountability

Office (February 2011): pg. 77: http://www.gao.gov/new.items/

d11278.pdf.

103 For the overall statutory requirement, see Section 1003 of

the FY2010 National Defense Authorization Act. For Panetta’s

decision to accelerate the Statement of Budgetary Resources,

see his 13 October 2011 testimony before the House Armed Services

Committee. For Congress’ codification of Panetta’s goal,

see Section 1005 of the FY2013 National Defense Authorization

Act.

104 HASC Andrews-Conaway, pg. 43.

105 Packard Commission, pg. 45.

106 HASC Andrews-Conaway Panel, pg. 22.

107 Better Buying Power 2.0, pg. 3.

108 Ibid, pg. 6.

109 DBB Requirements, Acquisition, and Budget Processes:

Slide 17.

110 Murdock and Flournoy, 84-85.

111 Ibid, pg. 94.

112 BENS, pg. 7.

113 Ibid, pg. 10.

114 HASC Andrews-Conaway, pp. 29-30.

115 DBB Requirements, Acquisition, and Budget Processes:

Slide 19.

116 DAPA, pg. 12.

117 Ibid, pg. 11.

118 “Defense Acquisitions: Assessments of Selected Weapon

Programs,” Government Accountability Office (March 2012): pg.

2: http://www.gao.gov/assets /590/589695.pdf.

119 “Defense Acquisitions: Assessments of Selected Weapon

Programs,” Government Accountability Office (March 2013): pg.

2: http://www.gao.gov/assets/660/653379.pdf.

120 “Budget Authority and Outlays by Function, Category, and

Program (Table 31-1),” Office of Management and Budget, (April

2013): http://www.whitehouse.gov/sites/default/files/omb/budget/fy2014/assets/31_1.xls.

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