While researching the topic of reducing defense-related expenditures, I took a lot of time to read over numerous Internet-based articles, and their discussion boards[1][2][3] related to the subject. As a former Marine, and now a defense contractor, I accept the fact that I am quite likely to be out of touch with contemporary views of American society on the subject. I noticed an overwhelming majority of Americans calling for closing of American bases abroad, bringing our troops back home, downsizing the number of generals, and generally minimizing our global military presence and scaling down our foreign policy.
Given the United States’ diminishing role in the world market, it’s important not to underestimate the value of maintaining a world-class military. It’s becoming increasingly difficult to compete with other countries on manufacturing[4] costs, raw materials[5], and with the rising level of global education, services. In the end, our strongest asset will very likely have to be our military strength[6].
This may sound like a recipe for disaster, but this sort of relationship has been maintained rather successfully between US and Saudi Arabia for over seventy years. The US-Saudi relationship was originally based on the exchange of oil for protection, and that has not changed. I can see this type of relationship becoming more common as the current state of affairs progresses.
Recent public statements from the Pentagon call for a ten percent annual reduction in military spending on outsourcing. This appears to be a logical move considering the post-9/11 influx in defense contractors. According to New York Times[7], contractors make up 57% of defense personnel in Afghanistan, and about half of the personnel in Iraq. The increase in contracts was due to simultaneous engagement in two expensive wars, and the infeasibility of quickly doubling the number of active duty military personnel to fill the necessary jobs.
Unfortunately, very little public data exists on the cost-effectiveness of outsourcing defense jobs compared to in-sourcing. To be fair, gathering measurable statistics on the matter is very difficult since no tangible goods are being produced, and there are simply too many independent variables in the way of accurately measuring the success of a contemporary foreign conflict. How does one go about quantifying winning a heart and mind of a single foreign national?
Equally complex is the challenge of calculating the cost-effectiveness of a contractor versus an active duty military member. Once again, there are no widgets being produced and the only measurable metric is the salary being paid to a contractor compared to an active duty operator. But even then, salaries don’t account for training costs, not even mentioning the costs, or value, of maintaining a traditional military culture. Secondly, public opinion needs to be considered. American military men and women are near and dear to the hearts of majority of Americans, and releasing a public study stating that civilian contractors are more effective and efficient at their jobs could cause a public backlash.
On the note of public opinion, majority of Americans don’t understand what a defense contractor is. Majority of Americans envision a team of over-paid former special operations operatives unjustifiably engaging local nationals that do not scurry quickly enough out of the way of their convoy of American SUVs. In practice, majority of defense contractors are in logistics, administrative, and non-security positions. More importantly, majority of contractors abroad are local nationals.
From my experience, the majority of problems with contracting arise from two primary issues – poorly written requirements, and the government’s inability to realize when it’s more cost effective to re-compete a contract.
Majority of contracts, especially service contracts, are written very poorly. When the requirements are poor, it’s ludicrous to expect quality results. However, it’s easy to blame the defense contractors when the end-result is unsatisfactory. By nature defense corporations are just like all other corporations, they are driven predominantly by profit. It’s unrealistic to expect a profit driven entity to routinely commit resources to performing outside the scope of a project’s requirements.
Secondly, I’ve noticed a major flaw in the government’s ability to adequately monitor contracts, more importantly, to drop them when they are under-performing. In most situations, the government can re-compete a contract at any given time, without any notice, or cause. For instance, I’ve personally sat in on a meeting regarding a significantly under-performing defense contractor. The contractor was using an Excel spreadsheet to keep track of millions of dollars of military equipment. This may have been forgivable if the contractor ultimately knew where the equipment was, and their ridiculous system somehow worked, but it did not. What’s more revealing, is that the government office did not know about this practice until it was too late, reinforcing my point of its inability to properly monitor ongoing contracts. I cannot imagine Wal-Mart, or even K-Mart for that matter, letting one of their suppliers get away with a failure of such magnitude. However, there was no re-compete, nobody has been fired, and no new standards have been established.
Although somewhat outside the scope of this topic, an effective cost-saving technique would be to withdraw our troops from Afghanistan, and any other conflict which will not yield a considerable return on our investment. As stated previously, our role in the world should be to protect our investments, and I find it difficult to see a justifiable return from a long-term presence in the Afghanistan region. Ideally, the United States should operate more as a large corporation, focusing on ventures that will yield a return. A war on terror is simply not cost-effective.
The following chart is a short, and rather oversimplified, cost-effectiveness study calculating the return on investment of the Iraq war based purely on the lifetime savings of having access to Iraqi oil at $35 per barrel, versus $65 per barrel.
A return of $2,610,470,200,000.00 is justifiable. The Afghanistan war is much more difficult to justify since the estimated one trillion[11] dollars’ worth of minerals were found by accident, with the original intent being of fighting terror.
To reiterate, the United States needs to realize the necessity of a strong military, disregarding this fact would require one to discard the role United States plays in the world today, and even more importantly, the role it will play in twenty years. Furthermore, cutting the defense budget is not a viable option because a mixture of two things will happen – defense companies will begin hiring less qualified people, or they will have to hire less people, leaving numerous positions unfilled. The only solution I see will appear counter-intuitive, but I believe the government needs to strongly consider spending more money on training government contracting officials on writing better requirements, and holding the contractors’ feet to the fire. The ten percent reduction is a classic example of where short-term savings will result in greater long-term losses. The solution requires a change in outsourcing mentality and culture, and changing a culture is always expensive, but in this particular situation, necessary.
Pentagon’s 2010 Defense Budget Cut and the United States’ Role in Global Affairs
Source: http://www.csmonitor.com/USA/Military/2010/0201/In-Gates-s-Pentagon-budget-humble-pie-for-Lockheed-Martin
While researching the topic of reducing defense-related expenditures, I took a lot of time to read over numerous Internet-based articles, and their discussion boards[1][2][3] related to the subject. As a former Marine, and now a defense contractor, I accept the fact that I am quite likely to be out of touch with contemporary views of American society on the subject. I noticed an overwhelming majority of Americans calling for closing of American bases abroad, bringing our troops back home, downsizing the number of generals, and generally minimizing our global military presence and scaling down our foreign policy.
Given the United States’ diminishing role in the world market, it’s important not to underestimate the value of maintaining a world-class military. It’s becoming increasingly difficult to compete with other countries on manufacturing[4] costs, raw materials[5], and with the rising level of global education, services. In the end, our strongest asset will very likely have to be our military strength[6].
This may sound like a recipe for disaster, but this sort of relationship has been maintained rather successfully between US and Saudi Arabia for over seventy years. The US-Saudi relationship was originally based on the exchange of oil for protection, and that has not changed. I can see this type of relationship becoming more common as the current state of affairs progresses.
Recent public statements from the Pentagon call for a ten percent annual reduction in military spending on outsourcing. This appears to be a logical move considering the post-9/11 influx in defense contractors. According to New York Times[7], contractors make up 57% of defense personnel in Afghanistan, and about half of the personnel in Iraq. The increase in contracts was due to simultaneous engagement in two expensive wars, and the infeasibility of quickly doubling the number of active duty military personnel to fill the necessary jobs.
Unfortunately, very little public data exists on the cost-effectiveness of outsourcing defense jobs compared to in-sourcing. To be fair, gathering measurable statistics on the matter is very difficult since no tangible goods are being produced, and there are simply too many independent variables in the way of accurately measuring the success of a contemporary foreign conflict. How does one go about quantifying winning a heart and mind of a single foreign national?
Source: http://en.wikipedia.org/wiki/United_States_federal_budget
Equally complex is the challenge of calculating the cost-effectiveness of a contractor versus an active duty military member. Once again, there are no widgets being produced and the only measurable metric is the salary being paid to a contractor compared to an active duty operator. But even then, salaries don’t account for training costs, not even mentioning the costs, or value, of maintaining a traditional military culture. Secondly, public opinion needs to be considered. American military men and women are near and dear to the hearts of majority of Americans, and releasing a public study stating that civilian contractors are more effective and efficient at their jobs could cause a public backlash.
On the note of public opinion, majority of Americans don’t understand what a defense contractor is. Majority of Americans envision a team of over-paid former special operations operatives unjustifiably engaging local nationals that do not scurry quickly enough out of the way of their convoy of American SUVs. In practice, majority of defense contractors are in logistics, administrative, and non-security positions. More importantly, majority of contractors abroad are local nationals.
From my experience, the majority of problems with contracting arise from two primary issues – poorly written requirements, and the government’s inability to realize when it’s more cost effective to re-compete a contract.
Majority of contracts, especially service contracts, are written very poorly. When the requirements are poor, it’s ludicrous to expect quality results. However, it’s easy to blame the defense contractors when the end-result is unsatisfactory. By nature defense corporations are just like all other corporations, they are driven predominantly by profit. It’s unrealistic to expect a profit driven entity to routinely commit resources to performing outside the scope of a project’s requirements.
Secondly, I’ve noticed a major flaw in the government’s ability to adequately monitor contracts, more importantly, to drop them when they are under-performing. In most situations, the government can re-compete a contract at any given time, without any notice, or cause. For instance, I’ve personally sat in on a meeting regarding a significantly under-performing defense contractor. The contractor was using an Excel spreadsheet to keep track of millions of dollars of military equipment. This may have been forgivable if the contractor ultimately knew where the equipment was, and their ridiculous system somehow worked, but it did not. What’s more revealing, is that the government office did not know about this practice until it was too late, reinforcing my point of its inability to properly monitor ongoing contracts. I cannot imagine Wal-Mart, or even K-Mart for that matter, letting one of their suppliers get away with a failure of such magnitude. However, there was no re-compete, nobody has been fired, and no new standards have been established.
Although somewhat outside the scope of this topic, an effective cost-saving technique would be to withdraw our troops from Afghanistan, and any other conflict which will not yield a considerable return on our investment. As stated previously, our role in the world should be to protect our investments, and I find it difficult to see a justifiable return from a long-term presence in the Afghanistan region. Ideally, the United States should operate more as a large corporation, focusing on ventures that will yield a return. A war on terror is simply not cost-effective.
The following chart is a short, and rather oversimplified, cost-effectiveness study calculating the return on investment of the Iraq war based purely on the lifetime savings of having access to Iraqi oil at $35 per barrel, versus $65 per barrel.
A return of $2,610,470,200,000.00 is justifiable. The Afghanistan war is much more difficult to justify since the estimated one trillion[11] dollars’ worth of minerals were found by accident, with the original intent being of fighting terror.
To reiterate, the United States needs to realize the necessity of a strong military, disregarding this fact would require one to discard the role United States plays in the world today, and even more importantly, the role it will play in twenty years. Furthermore, cutting the defense budget is not a viable option because a mixture of two things will happen – defense companies will begin hiring less qualified people, or they will have to hire less people, leaving numerous positions unfilled. The only solution I see will appear counter-intuitive, but I believe the government needs to strongly consider spending more money on training government contracting officials on writing better requirements, and holding the contractors’ feet to the fire. The ten percent reduction is a classic example of where short-term savings will result in greater long-term losses. The solution requires a change in outsourcing mentality and culture, and changing a culture is always expensive, but in this particular situation, necessary.
[1] http://hotair.com/archives/2009/01/31/a-10-cut-at-the-pentagon/
[2] http://www.govexec.com/dailyfed/0810/081010rb1.htm
[3] http://community.nytimes.com/comments/www.nytimes.com/2010/08/10/us/10gates.html
[4] http://www.allbusiness.com/manufacturing/4004559-1.html
[5] http://www.infoplease.com/ipa/A0872964.html
[6] http://articles.cnn.com/1999-05-28/world/9905_28_china.military_1_china-analyst-nuclear-arsenal-prime-minister-li-peng?_s=PM:WORLD
[7] http://www.nytimes.com/2009/09/02/world/asia/02contractors.html
[8] http://www.cfr.org/publication/14701/brookings.html
[9] http://www.costofwar.com/
[10] Oil prices are set arbitrarily based loosely on historical averages.
http://www.inflationdata.com/inflation/inflation_rate/historical_oil_prices_table.asp
[11] http://www.nytimes.com/2010/06/14/world/asia/14minerals.html