Congress, DoD Balance Industrial Base Support, Acquisition Priorities

By HUNTER C. KEETER
Associate Editor

In 2005, Congress may launch a new study of the U.S. industrial base, just as the Department of Defense (DoD) is poised for its 2005 Quadrennial Defense Review — a major re-evaluation of defense requirements and capabilities. In the interim, officials in the DoD and the Navy are developing acquisition strategies that attempt to strike a balance between industrial base support and an emerging set of warfighting requirements.

Assistant Secretary of the Navy for Research, Development and Acquisition John J. Young Jr. warned that supporting the industrial base is an important policy matter only so long as the industrial base is aligned to produce capabilities the military requires.

“We are not going to build warfighting assets just to keep the industrial base around,” Young told Sea Power. “I don’t think an industrial base argument [alone] can carry the day.”

The Navy’s uniformed leadership stands behind Young’s approach to industrial base management. “You don’t want to be loading the shipyards to keep [workers] occupied on non-productive things,” Chief of Naval Operations Adm. Vern Clark told Sea Power following his July 8 confirmation hearing on Capitol Hill.

The Senate Armed Services Committee (SASC) has called for a new comprehensive review of the defense industrial base, comprising the contractors and suppliers needed to meet defense requirements including rapid industrial response in a national emergency. Critics say the downturn in defense procurement after the Cold War led to massive consolidation in the defense industry, eliminating many companies and diminishing competition for the Pentagon’s procurement dollars. Among the more vociferous complainants are the nation’s shipbuilders, who assert that today’s smaller fleets mean fewer jobs in their yards, making it difficult to maintain critical skills within the labor force.

In its report on the defense authorization bill for fiscal year 2005, the SASC recommended a provision to establish a new “commission on the future of the national technology and industrial base.”

Suzanne D. Patrick, deputy undersecretary of defense industrial policy, said the DoD already takes into consideration the industrial base as contracts are awarded and acquisition strategies developed.

“There is a widespread myth that we do not at all consider industrial base issues in our awards of contracts and in the way we think about strategies in procurement,” Patrick told Sea Power. “We have studied the industrial base systematically through a five-part series, mapping the functional capabilities identified by the Joint Staff against the defense industrial base in order to assess efficiency and the ability to provide capabilities the Joint Staff asserts they will need on into the 21st century.”

For the Navy, the industrial base issue is especially challenging in the development of a ship acquisition strategy.

In the shipbuilding sector, Navy leaders and senior industry executives work closely to develop complementary approaches for meeting requirements and supporting a narrowing industrial base.

“We have to understand that this is a partnership [between the Navy and its suppliers] that must succeed in order for the nation to have the Navy it needs,” Clark said. “There is no question about the fact that the judgments you make can impact that process. We are looking at yard loading questions all the time.”

Young has outlined a new acquisition program for a few new ship classes featuring capabilities that were in high demand during Operation Enduring Freedom and Operation Iraqi Freedom. For example, the aviation support capability promised by the new LHA (Replacement) is a direct solution to problems raised during Operation Iraqi Freedom. Then, current LHD- and LHA-class amphibious assault ships were used as so-called “Harrier carriers” to augment carrier-based fighter groups performing close air support and strike missions.

The Navy and Marine Corps in April completed an analysis of alternatives on the LHA (Replacement). Young wants construction of the first of these new ships to begin quickly to meet requirements and to head off a critical work shortage at a major supplier, Northrop Grumman Ship Systems’ Ingalls Shipyard at Pascagoula, Miss.

According to executives, Ingalls faces a workload shortage due to the Navy’s consolidation of remaining Arleigh Burke-class vessels at General Dynamics’ Bath Iron Works, Maine, and the potential reduction of the new LPD-17 class.

“We need to take the extra steps to manage the industrial base and make sure we have it there to produce those products we require,” Young said.

Turkey’s refusal to grant access in the build-up to Operation Iraqi Freedom has underscored a critical shortfall in sea basing capability. Clark wants a new class of ships, the Maritime Prepositioning Force (Future), to become the basis for a new approach to sea basing. Basic functions such as troop reception, staging, integration and forward movement now done on land would be moved to a sea base at least 25 miles offshore. Clark told senators an analysis of alternatives for MPF (Future) was under way.

MPF (Future) is a planned class of ships that would augment or replace current prepositioned force ships, carrying vehicles, helicopters, heavy equipment and supplies for Marine and Army combat units. The new hulls would be equipped with flight decks to host V-22s and other rotary-wing aircraft for vertical replenishment and transport. Additionally, Clark wants the MPF (Future) hulls to be capable of launching and recovering short take-off and vertical landing Joint Strike Fighter (JSF) jets.

The shipbuilding industry has aligned itself to support evolving requirements such as those represented by the new surface warship programs, the DD(X) and the Littoral Combat Ship. However, industry also has sent signals counter to what Young has outlined as the Navy’s acquisition strategy.

Recently, the shipbuilders have argued in favor of extending the Arleigh Burke-class (DDG 51) guided-missile destroyer program, which has been superceded, in the long term plan, by the acquisition of the DD(X) and a new class of cruiser called CG(X).

“The discussion on the potential to do another DDG 51-class vessel [proposed as a way to add work to the shipyards] is a bad discussion,” Young said. “That is where industry probably does need to line up better with the fact that we [the Navy] see the future, and it is not additional DDGs. … [Industry] can begin to see what the likely future is and tailor itself to those products and [lower] rates of production, and continue to work down cost.”

During the Cold War, a massive U.S. industrial base produced large numbers of systems and platforms. As the military began to contract, post-Cold War, DoD also encouraged contraction in the industrial base, according to former Undersecretary of Defense for Acquisition, Technology and Logistics Jacques Gansler. He now holds the University of Maryland’s Roger C. Lipitz chair in public policy and private enterprise.

As a surge of consolidation reduced 50 major defense firms to five during the 1990s, policy-makers became concerned over “having at least two or three firms left in any business area,” Gansler said. Additionally, industry was moving toward “vertical integration,” with prime contractors selecting their own divisions as suppliers under large programs, thus eliminating the benefit of competition.

To address mutual concerns about emerging monopolies, DoD and Congress stepped in to block some mergers that the government believed would have led to where the industrial base was moving toward monopolies in certain sections which would have diminished innovation and economy. Among these was the 1998 proposed merger of Lockheed Martin and Northrop Grumman.

“We need to maintain innovation and price through competition,” Gansler said. “So we have to make sure we have at least two firms in every critical sector. We have to consider that when we are down to only two suppliers in critical sectors. … We have to worry that if one of the two wins two competitions in a row, does the other go out of business?”

On major acquisition programs, such as the JSF, the government often maintains second sources for systems and components. General Electric and Pratt & Whitney are producing nearly identical engines for JSF. Additionally, firms that lose procurement competitions to become prime contractors may find sustenance through DoD’s research and development funding lines within similar business areas, as is the case with the multiple firms contributing to JSF’s avionics suite.

The downside of a defense acquisition policy that expressly supports the industrial base is that it complicates the task of acquisition reform. Legislation and policy reforms going back to the 1980s have added layers of bureaucracy that many observers, including Young and Patrick, said have been an impediment to reducing cost and fostering greater efficiency.

Jay Korman, a senior analyst with Washington, D.C.-based strategic analysis firm DFI International, added, “The proof of acquisition reform is whether programs are becoming cheaper; and do they come to fruition more quickly than they have in the past? It is hard to point to programs where that is clearly the case.”

For Young, acquisition reform means developing a business approach that consistently drives toward efficiency and lower cost. The reason is plain in shipbuilding, where prior-year completion bills — the price of finishing ships already under contract but inadequately funded — cost the Navy millions annually.

One of the ways Young proposed to increase the efficiency of his programs is through executive committees. These committees would provide a forum for Navy staff and fleet leaders, program executives and engineers, and industry executives to confer and develop acquisition strategies that manage cost, schedule and performance risk.

“Typical examples of these executive committee meetings over the past year include … DD(X), V-22 [and] LHA (Replacement) … among others,” Navy spokeswoman Lt. Pauline Pimentel told Sea Power.

Young wants executive committees applied more broadly, across the entire naval acquisition enterprise, as a tool for industrial base management — by keeping industry informed of evolutions in naval requirements — and as a forum for additional business process reform.

Pimentel noted that several programs are being considered as subjects for future executive committee meetings including the Advanced Hawkeye airborne warning and control plane and the proposed Navy-Marine Corps Integrated Logistics program.

Patrick outlined another change in the defense acquisition enterprise that may affect business process reforms and industrial base management issues.

“We are moving in the direction of planning for industrial base effects throughout the defense enterprise, as we get to a culture of program managers acting as enablers of capabilities, instead of delivering specific programs,” Patrick told Sea Power.

Changing to a culture of capabilities-based procurement is an evolution of the acquisition reform processes that have been under way since the 1980s. Industry is increasingly called upon to provide creative solutions to gaps in military capabilities, such as surveillance of land units, rather than to build products meeting particular military specifications, such as the detailed imaging resolution of sensors.

The Joint Staff has outlined a number of military capability categories, such as time-sensitive targeting and joint group maneuver, around which the DoD is now organizing its acquisition enterprise. Patrick’s office has developed a series of reports that study these capability areas and survey the industrial base’s suitability.

“[We are] making the enterprise more transparent to companies by translating their functional capabilities into warfighting capabilities, and into the technologies and commercial vernacular to help firms better understand how their [products] fit into the enterprise,” she said.