Defense: Better Bang, Fewer Bucks


As the Jim Beam whiskey ad puts it, you always came back to the basics. The Pentagon seems to be doing this nowadays as it pursues its newest fighters, submarines, and tanks. Rather than attempting to build them by throwing together piles of money, the armed services are beginning to show a good measure of old-fashioned common sense. They are rediscovering such approaches as competition, flexibility in design, and making use of existing equipment.

The Air Force is leading the way with its newest top-of-the-line fighter project, the ATF. It follows a procedure one would think of as obvious: Have two companies build competing test versions from different designs, then try them in flight to see which is better. But this "fly before you buy" arrangement has been rare. Far more often, the Air Force or Navy picks a design after reading only paper studies.

The last time the military tried flying before buying, around 1975, it got one of the nation's outstanding military planes: the F-16 fighter, of which more than 4,000 have been built. The new ATF program has revived this procedure, pitting Lockheed's F-22 against the F-23 built by Northrop. The ATF program manager, General Joseph Fain, hasn't had to listen to bidders who might promise the moon. Instead he has had his people kick the tires and check performance in the air.

Last April, after the test runs, the Air Force picked Lockheed's F-22, although Northrop's F-23 was in some ways a better plane. The Northrop F-23 had higher speed and greater stealth, or invisibility, to radar and infrared detection. But Northrop has repeatedly blown the big ones in recent years, failing to deliver on major missile and guidance-system contracts while incurring huge delays and overruns on its B-2 stealth bomber.

Lockheed, by contrast, has shown its stuff by bringing in its F-117A stealth fighter, a star of the Gulf War, on time and within budget. John Pike, an analyst with the Federation of American Scientists who follows such matters closely, observes that "the Air Force wanted the F-23-but they didn't want to buy it from Northrop."

Rep. John Conyers (D–Mich.), chairman of a committee that held hearings on Northrop in 1990, said last spring that he "could only assume that there was some long overdue consideration of Northrop's dismal track record of test fraud, contract suspension, and fines." Picking Lockheed was just common sense. But common sense can be quite uncommon in Washington. Only a few years ago the Air Force would probably have picked the F-23, then tried to wash away Northrop's resulting problems with floods of taxpayers' money.

The terms of the contract itself show the Pentagon's newfound good sense. The arrangement calls for a "cost plus incentive fee" structure, whereby Lockheed stands to make a big profit if it does a particularly good job. The Pentagon guarantees the firm a profit of 4 percent of its total expense, but if the company delivers a really good airplane while keeping costs well controlled, this profit could rise as high as 13 percent. Lockheed thus has a very large incentive to do the job right.

Such a contract contrasts sharply with the type that used to be popular, "cost plus fixed fee." This traditional "cost-plus" contract specified the profit as a fixed percentage of expenses. Such arrangements led to some famous overruns, because plane builders could boost their profits by running up additional charges.

Still, the ATF is at an early stage in its development, with by far the largest costs to come later in this decade. It is far too soon to tell how the F-22 will fare, since it will have to overcome a basic fact: The Pentagon's culture is one of irresponsibility, with hugely overstaffed project-management offices, proliferating departments that slice responsibility micro-thin, and massive quantities of paperwork.

"It's so easy to say no," says Ben Rich, longtime head of Lockheed's advanced projects group, the Skunk Works. "They form committees so they can spread the blame."

The overstaffing is easy to see. In 1943, when America's first jet fighter was under development, its Air Force project office consisted of a single official. For the F-22 this number has grown to 600. As for the proliferating departments, Rich's Skunk Works had 14 such internal organizations in 1965. Today it has more than 220, even though its employment level is about the same and the number of active projects has actually diminished.

The result is a system within which large numbers of people nurture and pursue their tiny slivers of a project, with decisions made by consensus. There is a constant temptation to let these too-many cooks take another turn at the pot. "Military programs demand that you keep a number of constituencies on board," says Wolfgang Demisch, a leading Wall Street aerospace-industry analyst. "In essence, the Air Force and Navy are like a bunch of single-issue lobbying groups and you've got to keep them all happy."

That makes it difficult for these services even to know what they want in a new airplane. This has led to disaster in the most recent effort to bring reform to the process of procuring such weapons.

This effort was led by then-Navy Secretary John Lehman, who tried to fight cost overruns by tightening the terms of contracts. During the mid-1980s, he emphasized the "fixed price" type, under which Uncle Sam would not bail out the cost of an overrun but would force contractors to cover such charges out of their own pockets. Lehman proceeded to implement such terms in two major programs, an antisubmarine patrol plane and a new attack aircraft.

In 1988, Lockheed won the antisub contract by proposing to build a highly modified version of its existing patrol aircraft, the P-3C. But during 1989, Navy managers began adding an increasingly long wish list of new requirements, calling particularly for a very long service life. To meet this mandate, Lockheed could not use a modified P-3C; it would have to design an entirely new plane. Each plane would carry a sticker price of $60 million. But under the contract, the Navy would pay only $38 million. Lockheed called for more money. The admirals refused to budge and in 1990, the project bit the dust.

For the attack aircraft, the A-12, it was even worse. In April 1990, Defense Secretary Richard Cheney announced that the program was on schedule and in good shape. Over the next few months it accumulated a $5-billion overrun and fell 18 months behind schedule. And worse yet, the A-12 design proved to be five tons over its planned weight and unable to land on carriers. By year's end a defense undersecretary and two admirals had been fired or formally censured. Early in 1991, Cheney canceled the program.

If the F-22 program is to succeed, the Air Force must learn from the lessons of the F-117A stealth fighter, one of the outstanding successes of the past decade. That program didn't try to be all things to all people. Rather, the Pentagon launched it with one overriding concern: to build a fighter that would use new materials and design techniques to be radar-invisible. All other concerns—range, bomb load, speed—were subordinated to this principal demand.

The Air Force wasn't free to create long wish lists, helping Pentagon managers control costs and keep the program on schedule. The F-117A went on to show its worth in Desert Storm, knocking out the main air-defense center in Baghdad along with other key targets. The Iraqis didn't shoot down a single F-117A.

The F-117A program was something of a sideline to the Air Force nonetheless. Because its chief goal was to demonstrate new and unproven stealth technologies, it amounted to an experimental-aircraft project. What is more, it went forward under a veil of secrecy rivaling that of the Manhattan Project. By contrast, the F-22 effort seeks nothing less than to build the Air Force's first-line fighter for the early 21st century, and the program is very much in the open. Both these features increase the number of generals and other people who seek to get involved and to stir the pot.

Nevertheless, the Air Force seems to have its act together. Assistant Defense Secretary Donald Atwood recently said that the Pentagon will award no more Lehman-style fixed-price contracts. And the ATF program has so far avoided the long-standing practice of deluging contractors with minutely detailed made-in-Washington requirements.

James Blackwell, Lockheed's F-22 manager, says the Air Force laid down general performance criteria and defined the missions for the ATF. It let Lockheed and Northrop try to meet these criteria as each firm thought best, with designers at the two companies free to make their own choices in balancing the various features of an aircraft design. Thus Northrop's F-23 has more stealth, but the F-22 is more maneuverable.

Still another cost-saving move is to look for ways to get along with equipment that is already available, rather than ordering an entirely new development program. This cuts to the heart of the Pentagon's clients and bureaucrats, who love to invent new requirements as a justification for arguing that no existing weapon will do.

But both the Air Force and Army are buying new systems simply by inviting bidders to show what they already have. The bidders, in turn, are showing weapons that they are already selling overseas. The Army is following this procedure in procuring an air-transportable tank, while the Air Force is doing much the same in seeking a new trainer for jet pilots.

It is still too soon to see if these new approaches will succeed. And the stakes are high; the entire F-22 program is to cost $110 billion.

"We're emerging from the horror stories of the '80s," says Pike. "There hasn't been enough time for the horror stories of the '90s." Disasters emerge late in a design's full-scale development, and even the F-22, which has prototypes flying, isn't far enough along for the warts to emerge. But initial indications are that the Pentagon is learning from recent mistakes.

Contributing Editor T.A. Heppenheimer is an associate fellow of the American Institute of Aeronautics and Astronautics.