Why Acquisition Reform Fails

Senators Carl Levin and John McCain this week introduced legislation to improve how the Pentagon buys things – defense acquisition reform. The President is on the same page. So chances are the Pentagon’s acquisition workforce will have a new set of rules to learn some time this year.

Here’s the bill.  Highlights: a series of new reporting requirements about systems analysis of new programs, a new official to come up with cost estimates of weapons systems, another official to oversee developmental testing, a requirement for competitive prototyping of new weapons, which can be waived, and an effort to make waiving Nunn-McCurty breaches a little more onerous (the idea was that you cancel weapons systems that experience excessive cost growth, but it never happens), plus some other minor bureaucratic changes. McCain claims that the legislation will cut back on cost plus contracts in favor of the fixed price variety, but the legislation does not address that.

At best this bill will create some marginal improvements in defense acquisition. More likely it will simply add hassle.

Acquisition reform is practically seasonal at the Pentagon, as this PowerPoint slide show comically demonstrates. And things have only gotten worse – more programs over budget and behind schedule over time. (Read this recent testimony from a Congressional Research Service expert for details.) According to another expert, former Pentagon weapons testing chief Tom Christie, the trouble is not the existing acquisition rules but the failure to use them to control costs. He says so in a chapter for the book America’s Defense Meltdown, which we will be discussing here at a forum on March 13.

The reasons for the failure of acquisition reform are complicated, but one surely is that these are technocratic solutions to political problems. The trouble is what we want, which is several technological miracles in each new platform, not how we buy it, as my professor and sometimes co-author Harvey Sapolsky explains in a recent Defense News op-ed:

The truth is you can’t fix the acquisition system. All the insiders know this…We can’t fix it because we want crazy things. We want a system that can fire missiles from a submarine hiding beneath the surface of the sea and hit a target thousands of miles away. Or we want a tank that can survive a shaped charge round, pack its own lethal punch and is airlifted by a C-130.

Systems have to perform reliably in the snow, in the mud, in the sand. They have to communicate with every friend and not reveal themselves to any foe. And we want them soon, not later.

Worse, we already have a lot of first-class ships, aircraft, missiles and tanks; proposed new weapon systems have to be a lot better than them or any obvious modification we can make. To be worthy of our approval, the advocates of the new system have to dazzle us with expectations of what will soon be in our arsenal, something no enemy can match. It will likely cost billions, but it will be great.

With that gleam in their eye, the services seek bids for the weapons that will define their futures. Only a few contractors can qualify to make offers. After all, only a few firms know the acquisition regulations well enough and have sufficient engineering talent to manage complex projects.

Moreover, government-encouraged mergers have further thinned the ranks of eligible firms. Given that new starts in most weapon lines are once-in-a-decade-or-more events, project awards are survival tests. Not surprisingly, false optimism abounds.

For more, read his recently co-authored book.

What about using more fixed price contracts and less cost-plus contracts, as McCain suggests? Isn’t it obvious that unless you pay someone a set price rather than whatever he says it costs, he will rip you off? Actually, no, not in defense contracting. Chris Preble and I addressed this in an oped last October:

In a cost-plus contract, the contractor gets paid whatever it costs to make a good, plus a profit. McCain claims that these agreements encourage contractors to spend as much possible and send the government the bill. This argument is confused. Defense contractors have essentially one customer: the Pentagon. Repeatedly gouging your only customer, one with a small army of auditors, is likely to lead to bankruptcy.

New technology is hard to price. If we used fixed price contracts— as McCain proposes—for new complex projects, like the next-generation bomber the air force will soon build, the contractors would simply ask for more money up front to limit their risks. If we force a low price on them, they will likely blow through what is allocated and ask for a new contract. Because military services badly want the weapons they contract for—and starting over would take years—Pentagon officials would then be forced to rewrite the deal.

What acquisition reform would work? It might help to increase the number of civilian acquisition overseers and pay them more, given that their workload has expanded, and to allow them more flexibility in their work, not less, as this legislation would. But these are still minor fixes. You can’t fix acquisition until you change the incentive structure that produces its outcomes. Until the services and their Congressional backers start to accept platforms that push the technological envelop less, the problems will persist.

The Washington Times and Debunked Statistics

Yesterday, the Washington Times editorialized in favor of E-Verify, the inchoate government background check system for all American workers, saying, “[T]he system is 99.5 percent accurate, according to DHS, and it permits employers to verify work eligibility in minimal time (10 minutes or less) and at minimal cost ($419 per year for a federal contractor of 10 employees).”

Don’t be so sure. The DHS mantra of 99.5 percent accuracy was debunked long ago. The government doesn’t actually know the status of the 5.3% of workers that the system bounces out, an issue the Christian Science Monitor explored last summer.

I examined the numbers in detail here, also last summer. The 0.5% error rate that DHS acknowledges is the known error rate. Others bounced out of the system DHS assumes to be illegal aliens. This is almost certainly wrong, and the program is denying legal workers the ability to earn a living, as the Christian Science Monitor reported.

But in an op-ed published in the Washington Times last fall, lobbyist Janice Kephart argued the DHS line, as carelessly as one can be with statistics: “[T]he numbers rejected by E-Verify as not authorized to work closely parallels the estimated percentage of illegal aliens in the work force, about 5 percent.” Right, the numbers are close so the program is working. Nevermind that the livelihoods of American citizens and legal workers are in the balance.

Earlier this month, the Times printed Rep. Lamar Smith’s plea for E-Verify, which touted these (well, similar) discredited statistics.

It’s time for the Washington Times to stop shilling for the Department of Homeland Security and the anti-immigrant lobby by printing and reprinting discredited statistics about E-Verify.

Here’s an Idea: Don’t Do Either!

One of the biggest pieces of news coming from President Obama’s budget preview is that he’d kill federal guaranteed student lending – in which the feds subsidize private lenders – and move everything to direct lending straight from the government. He promises that cutting out the middle man would save about $4 billion a year.

In the short term, that savings figure might be possible, though whether or not that is the case is likely to be hotly contested. Washington does spend a lot subsidizing loans so that they carry almost no risk to the lenders and are, hence, low-interest and abundant. Eliminating those subsidies could save some dough. That said, there is absolutely no reason to believe that making Washington the monopolist student lender will produce any long-term efficiencies. In fact, all it will do is ensure gigantic bloat, as is the case with any government monopoly.

A recent story in the New York Times, coupled with a blog entry I wrote in November, illustrates why neither guaranteed nor direct federal lending should ever be expected to produce efficient outcomes.

On the blog I wrote about how, in order to keep things rolling during the “credit crunch,” the Bush Administration was essentially going to buy up any student loans that lenders thought were too insecure. At the time, the Education Department kept declaring that whatever the feds ended up doing it would be “cost neutral” – we wouldn’t feel a thing as they kept banks and students in the money. I wondered, skeptically, how exactly that would be done, but couldn’t find anything explaining it. All I found were Education Department promises that it would be made clear…eventually.

It turns out, I was very likely right to be suspicious. As the Times reported on Wednesday:

The program is supposed to cost taxpayers nothing, but the Obama administration has asked for additional analysis.

“We have reviewed the analysis with the staff here, and we do not have confidence in the bottom line,” said a senior official at the White House Office of Management and Budget, who insisted on anonymity, citing administration policy. Referring to differences between agreements entered into by the departing Bush administration and public descriptions of the program, the official added, “The documents on their face raise serious questions about whether it’s cost-neutral.”

So it seems likely that the government essentially lied to America. “Oh yeah – ‘cost neutral.’ Sorry. We thought you wouldn’t notice.”

What this little episode illustrates is something we frankly already knew: Government officials will happily deceive us if that’s what it takes to enact policies that they think will make them look good, especially in the short term (meaning, until the next election). With that in mind, whether the feds are working with a middle man or giving students the money directly, it almost certainly doesn’t matter: money will be lost, and probably in much bigger amounts than the public will be led to believe.

So what is government to do about student loans? Nothing! Washington should get out of the loan business and leave promising students and profit-seeking lenders to find each other in pursuit of mutual gain. (A student with high earning potential? A bank looking to make some bucks? Why, it’s a perfect match!) Then we wouldn’t have to choose between the frying pan and the fire, nor would we continue to encourage tons of people to pursue college educations they don’t need, can’t handle, or both. In other words, we’d return both some sanity and taxpayer justice to the world of college finance.

Week in Review: Obama’s Speech, a $3.6 Trillion Spending Plan and a New Cato Senior Fellow

Obama Outlines National Plan in First Address to Congress

President Obama’s first address to Congress laid out a laundry list of new spending and provided hints as to what will be contained in the budget – a so-called “blueprint for America’s future”– he submitted to lawmakers Thursday.

In a new video, Cato Institute scholars offer their analyses of the president’s non-State-of-the-Union Address.

While watching the speech, Cato scholars offered live commentary on Cato’s blog and Twitter feed.

Expanding on his recent article, “Obama’s Shock Doctrine,” Cato Executive Vice President David Boaz says that Obama’s speech further proves that his administration is using scare tactics and the financial crisis to further an agenda that will expand the size of government.

President Obama made good on his reputation for giving excellent speeches. He seemed calm and confident. It’s no wonder that instant polls show that most viewers liked it.

That reaction is all part of the guiding strategy of this administration: using a crisis atmosphere to amass more money and power in Washington. There’s a long history of government growth in times of crisis such as wars, natural disasters, or economic shocks. Think of FDR’s revolutionary “first 100 days” or LBJ’s driving through his Great Society programs in the wake of John F. Kennedy’s assassination.

George W. Bush did it, too, with both the Patriot Act and the invasion of Iraq after the shock of 9/11. And in so doing, he left his successor both a presidency and a federal government with unprecedented powers, ready to be employed for a different agenda.

For analysis of Obama’s speech, Cato scholars weigh in by topic on the president’s plans for America’s future.

Obama’s New Budget Includes $3.6 Trillion in Spending

On Thursday, the Obama administration introduced its new budget framework for the coming years, including $3.6 trillion in spending for the current fiscal year.

Chris Edwards, Cato’s director of tax policy studies, says that despite what Obama might say behind a microphone, the new administration has little interest in fiscal responsibility.

President Obama said some encouraging words about federal spending in his first major speech as president, but the budget released by his administration today reveals a substantial disconnect between his rhetoric and his policy.

The president says the money in his new budget will be spent wisely, but Boaz explains why it’s impossible for the government to spend trillions of dollars without waste or fraud.

In the new edition of the Cato Handbook for Policymakers, Chris Edwards offers six ways Congress should cut spending.

Cato Welcomes Tucker Carlson

Television commentator, author and journalist Tucker Carlson has joined the Cato Institute as a senior fellow.

Carlson will use his initial time with Cato to focus on writing a book on the state of the American polity. Through other writings as well as media and public speaking appearances, he will also seek to educate the broader public about how the libertarian philosophy differs from the standard liberal and conservative orthodoxies embodied in the two main U.S. political parties.

Carlson was co-host of the staple CNN debate program “Crossfire” and also had his own programs on MSNBC (“Tucker”) and PBS (“Tucker Carlson: Unfiltered”), as well as appearing regularly on numerous other news programs. Though sometimes showcased by these networks as the “conservative” point of view, Carlson became a dependable critic of numerous Bush administration policies, including wasteful spending and the war in Iraq.

Topics:

When Is an Iraq Withdrawal not a Withdrawal?

When it means leaving 50,000 troops in Iraq to train and fight.

Reports the Washington Post:

President Obama has invited members of Congress to the White House for a meeting later this afternoon to discuss his plans for drawing down troops in Iraq – a plan that has already drawn stiff criticism from his Democratic allies.

After Speaker Nancy Pelosi complained that the level of troops – 50,000 – who would remain in Iraq is too high, other senior Democrats voiced similar concerns on Thursday. Among Democratic leaders, only Sen. Richard Durbin of Illinois is defending the new Obama plan, which will take three months longer than he promised and still leave a significant force structure on the ground.

“I’m happy to listen to the secretary of defense and the president, but when they talk about 50,000, that’s a little higher number than I had anticipated,” Senate Majority Leader Harry M. Reid (D-Nev.) said.

“It has to be done responsibly, we all agree, but 50,000 is more than I would have thought, and we await the justification,” said Sen. Charles Schumer (D-N.Y.).

“I do think we have to look carefully at the numbers that are there and do it as quickly as we can,” said Sen. Patty Murray (D-Wash.).

Sen. Russ Feingold (D-Wisc.) issued a statement saying he was “concerned” about the level of troops that would remain in Iraq.

It’s not just a “little higher number” than most Americans want.  It is a lot higher.  President Barack Obama should bring home all of America’s troops from Iraq.  If he doesn’t, Democratic officials and peace activists need to make their views known to him just as vigorously as they did to President George W. Bush when he was launching and escalating the war.  Congressional Democrats certainly shouldn’t be bought off by a little sweet talk in the Oval Office.

New Podcast: ‘Paul Krugman’s Nostalgianomics’

Expanding on his February 9th White Paper, “Paul Krugman’s Nostalgianomics: Economic Policies, Social Norms, and Income Inequality”, Cato Vice President for Research Brink Lindsey discusses the problems with the 2008 Nobel laureate’s analysis of income inequality in today’s Cato Daily Podcast.

[Krugman] has a clear ideological incentive to portray the ‘50’s and ‘60’s as this enlightened period of governance. Liberals were in charge, it was a time of very activist government, lots of intervening in markets, and yet the economic numbers were stellar. Growth was fantastic, income growth in particular was great, and these egalitarian values of income compression were being fulfilled as well. To him, it looks like a wonderful model for liberals of today. ‘Look back at what liberals did in the 50s and 60s and we can do that again.’ But to reach that kind of ideologically satisfying, for him, conclusion I think he has to be very selective about what was actually going on back in the 50s and 60s. He has to cherry-pick policies he likes.

Trying Al-Marri

The Washington Post is reporting that the Obama administration is planning to charge Ali Saleh Kahlah al-Marri with providing material support to Al Qaeda.  Al-Marri is an alleged sleeper agent for Al Qaeda, and the FBI intercepted him while he was an exchange student in Illinois.  Prior to his trial, the Bush administration moved him into military custody and dropped the charges with prejudice, meaning that they could not be re-filed.  Apparently, there is enough evidence to file a fresh indictment.  The ACLU statement is available here.  My prior posts on the topic are available here and here.

This is probably an attempt to remove the case from the Supreme Court’s docket and avoid the constitutional controversy of keeping someone out of the criminal justice system.

The Supreme Court should not be deterred from hearing the case.  Cato filed an amicus brief with the Constitution Project and the Rutherford Institute in al-Marri’s case.  We were not alone, as virtually every civil liberties organization weighed in.  A group of retired military officers filed an amicus brief arguing that the Posse Comitatus Act and associated statutes specifically prohibit the “direct participation by a member of the [Armed Forces] in a search, seizure, arrest, or other similar activity unless participation in such activity by such member is otherwise authorized by law.”

It is time to drive a stake through the heart of domestic military detention.  The Bush administration moved detainees into military custody and to different jurisdictions to avoid judicial review.  In 2006 the Supreme Court denied certiorari to convicted Al Qaeda operative Jose Padilla’s habeas petition.  He had just been moved to civilian custody and indicted in Florida, so he was no longer detained by the military.  The prospect of returning to military custody was taken seriously enough by three justices that they voted to grant certiorari - one shy of the requirement for the Court to hear the case.

Kennedy was sufficiently unnerved by domestic military detention that, although he voted not to grant certiorari, he wrote separately.  “In light of the previous changes in his custody status and the fact that nearly four years have passed since he was first detained, Padilla, it must be acknowledged, has a continuing concern that his status might be altered again.”  Chief Justice Roberts and Justice Stevens joined him.

As I have said before, the line between the civilian criminal justice system and the military is in many ways the line of liberty.  The Court should take up this case and put that line back in place.