Pentagon launches drive to "do more without more"
WASHINGTON (Reuters) - The Pentagon on Tuesday unveiled 23 rules to end years of massive cost overruns on weapons programs, an overhaul largely backed by industry that could prevent another major battle with Congress.
"This effort is not about reducing the defense top line, but about getting more bang for the buck by shifting resources from overhead to the military capabilities needed today and in the future," Defense Secretary Robert Gates told reporters at a Pentagon briefing.
He said the changes would affect about $400 billion of the Pentagon's total $700 billion budget. The goal, he said, was to make programs more affordable from their inception and avoid messy cancellations.
The changes will help meet Gates' goal to cut $100 billion from the Pentagon's overhead over the next five years to save money for new weapons programs and troops, the Pentagon's top weapons buyer, Ashton Carter, said.
There is strong support for acquisition reform in Congress.
Defense industry executives are anxious about the future given mounting concerns about the yawning U.S. fiscal deficit, but Gates and Carter said the overall defense budget would continue to grow, albeit far more slowly than in recent years.
Instead of the collapse in defense spending seen in the 1990s, the Defense Department expects $200 billion in future programs, including a presidential helicopter, Army combat vehicle, and new long-range strike systems.
Grateful that Gates is fighting for continued real growth in defense spending, defense companies are scrambling to align themselves with his initiative, cutting jobs and selling units to ensure continued profits in a more difficult market.
"We get it," Roger Krone, who heads Boeing Co's space and networks division, told Reuters, noting that Boeing was looking for any cost-saving measures it could find.
Targeting overhead costs could bring some relief to lawmakers, who have rejected some of Gates' bigger program cuts because they do not want to lose high-paying aerospace jobs.
Gates and Carter said the changes were aimed at increasing the focus on real competition, cutting Defense Department bureaucracy, accelerating timelines for new programs and providing incentives for innovation and productivity.
"This program will reward those contractors that have demonstrated superior performance in delivering quality products and services affordably and on time," Gates said.
He said the new rules were already being used to cut the cost of a Navy ballistic missile submarine to $5 billion from $7 billion, and would pay dividends on the Lockheed Martin Corp F-35 fighter, now projected to cost $382 billion.
Carter said the rules would focus heavily on the Pentagon's use of service contractors, which accounts for as much as it spends on weapons.
"Our people who buy ships, buy ships for a living. They're really good at it. Everybody buys services in the department ... they're amateurs," he said.
Carter said defense officials had worked closely with industry in framing the new rules and that the alternative to making changes now was more canceled programs.
Gates has won the grudging admiration of many watchdog groups because of his ability to halt work on Lockheed's F-22 fighter last year, and his efforts to hold contractors more accountable for delays and budget overruns.
But lawmakers have rejected efforts to kill a second engine being developed for the Lockheed F-35 fighter by General Electric Co and Britain's Rolls Royce Group Plc.
Gates scored a victory on Tuesday when the Senate defense appropriations subcommittee included no money in its 2011 budget proposal for the alternate engine, but the House could still push for the funding during conference negotiations.
The House of Representatives also voted to amend its defense spending bill and add a four-year deal for new Boeing Co F/A-18 fighter jets, which Gates called "a win-win for government and industry that will save $600 million."
U.S. defense stocks ended lower across the board as investors mulled the impact of the measures. Lockheed shares ended down 1.4 percent at $68.48; Boeing closed down 2.2 percent at $62.76, and Northrop Grumman Corp closed down 0.79 percent at $58.34.
The Standard & Poor's Aerospace & Defense index fell 0.8 percent. The index is up about 1 percent this year but off about 29 percent from an all-time high in October 2007.
(Additional reporting by Phil Stewart and Karen Jacobs; editing by Bernard Orr, Dave Zimmerman and Andre Grenon)
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