05/08/2009 05:12 am ET Updated May 25, 2011

Will Gates Buy the Right Weapons the Right Way? Here Is a Chance for Some Permanent Reform

Secretary Gates has now officially rattled Washington with his surprisingly wide set of cuts to congressionally favored weapon systems and a shifting of priorities on the type of war to fight. Will the Congress and the entrenched Cold Warriors in the Pentagon let him get away with doing the right thing?

The media is full of stories this morning on the battle to come with Congress and the defense lobbyists. In this chaos, Secretary Gates and President Obama have an even bigger opportunity to not only buy the right weapons, but buy them the right way. Few people outside a small coterie of procurement geeks understand a fundamental flaw in our weapons buying that dooms us to pay exponentially more for each new generation of weapons without gaining as much capability. The culprit is that the Pentagon uses historic costs to base how much a new weapon will cost. I will explain this complicated problem in a greatly simplified way.

When you plan to buy a new fighter, you look at how much it costs to buy the previous generation of fighters and then add more on for the "advanced" capability and equipment. The problem with this is that all the overruns, waste, fat and even fraud from the last generation of fighters is passed on to the baseline of the new fighter, in other words, the historic costs are used to justify the costs of the new plane and more.

Since the Pentagon hasn't successfully scrubbed the numbers for their weapons for years and has even admitted that it is un-auditable in several levels of measurement, generations of fat and waste have been rolling over in historic costs. This fat and waste is in the DNA of each new weapon system. This is why our weapon systems have had breathtaking growth each generation and the DOD has been forced to buy less and less weapons for more and more money. More bucks, less bang.

Is there a solution to this? In the past, pre-1970s, there have been attempts to use industrial engineering measurements to find out what a weapon "should cost," i.e. how much money needs to be spent based on the labor, materials, etc, on its own merit. This method eliminates the sins of the past and more realistically finds out how much to set the price on a fixed price contract. In the 1980s, then Congresswoman Barbara Boxer and Senator Chuck Grassley teamed up to legislatively force the DOD into pricing their weapons by should cost and not historical or will costs. The battle was hard but amazingly, they passed the bill.

As with many of the hard fought procurement reforms of the 1980s, the DOD ignored and eventually killed off the should cost requirement in the 1990s under Clinton and then Bush. Historic costs now rule and if it isn't changed, all the cuts and promises of reform will be weak as the DOD and its contractors keep running up the costs with historic waste and fraud.
Maybe Senators Grassley and Boxer would like to dust off the old bill and team with their new counterparts, Senator Webb, Senator McCaskill and Senator McCain to reintroduce should cost measurements of weapons' costs to bring long lasting reform to the DOD.

Soon I will post another blog on how President Obama has a unique opportunity for a teachable moment on Pentagon procurement.