defense dollars is frequently cited as a remedy for reducing military
spending. Such proposals ignore the fact that eliminating fraud, waste,
and abuse has historically proven to be a relatively modest source of
savings compared to the overall defense budget. In addition,
substantial programs already exist to root out unnecessary spending.
While government should, of course, take every responsible measure to
ensure it is a good steward of our tax dollars and provide the best
support for our men and women in uniform, procedures to guard against
waste should not be so restrictive that they undermine efforts to
innovate and adapt to national security challenges.
are no simple solutions to meeting the pressing fiscal demands for
defense. Even if it were possible to identify and eliminate all
unnecessary spending, total savings would not come close to closing
the gap for what is required for maintaining a trained and ready force,
funding current operations, and preparing for the future. The next
Administration should focus its efforts on ensuring adequate budgets to
field a robust military.
to this effort should be a campaign to secure greater savings in
defense spending by initiating prudent acquisition reform and reducing
manpower costs and entitlement programs--the real obstacles to getting
the "biggest bang for the buck"-- stretching defense dollars to get the
most at the least cost. Even with these savings, however, the U.S.
military must avoid another "peace dividend" and maintain a military
adequate to meet its national security needs by spending at least 4
percent of its annual gross domestic product (GDP) for the next decade.
The Past Is Prologue
of fraud, waste, and abuse have always plagued defense contracting.
Indeed, it has been observed that cost and schedule instability have
remained problems in the acquisition process dating back to the
American Revolution. Among the most notable were:
the North, during the Civil War, Congress was so enraged over reports
of fraud by companies supplying the military that it established a
special committee to investigate corruption.
- During World
War I, the Senate launched a number of investigations into a $640
million aviation appropriation (not adjusted) that promised to fill the
skies over Europe's trenches with American planes, and which produced
- In the years between the World Wars, the House
Military Affairs Committee believed the Army to be rife with
corruption. One complaint resulted in the investigation of an officer
in charge of parachute development who tried to steer business to a
firm in which he had a financial stake.
Special Committee of the Senate to Investigate the National Defense
Program (the Truman Committee) investigated fraud, waste, and abuse
during World War II.
- During the Vietnam War, the construction
firm Brown & Root had the preponderance of construction projects
in the country--and a public relations problem as well. Antiwar
demonstrators called the company "burn and loot." A report by the
General Accounting Office (GAO, now the Government Accountability
Office) charged Brown & Root with unaccountability of funds.
Congressional critics cited the company for fraud and corruption.
results of investigations in every case proved to be a mixture of
poorly defined requirements, mismanagement, and malicious activity,
but also problems resulting from the "fog of war," a plethora of
challenges that complicated rushing goods and services into the field.
The purchase of combat aircraft during World War I offers a case in
point. Had the war not ended abruptly in 1918 (before U.S. industry
geared up to produce planes) government contracts might not have
appeared so wasteful. On the other hand, even if the entire program
had been written off as fraud, waste, and abuse, it would have
represented only a fraction of the 5.1 percent of GDP the United States
spent annually on the war.
fraud, waste, and abuse is not only a wartime endeavor. Wars, during
which there is always pressure to spend money fast, offer perhaps the
greatest opportunity for malicious exploitation of government spending.
In peacetime, when the normal rules of procurement and oversight can be
implemented in a more deliberate manner, there are fewer opportunities
for exploitation. Ironically, it is often when the nation is not
pressed by conflict that promises are most often made to gain huge
savings by driving unnecessary spending out of the defense budget. Such
efforts to trim spending, however, offer an equally ambiguous legacy.
Been There--Tried That
fraud, waste, and abuse is an obligation of government, and rightfully
so. Washington should do everything possible to spend Americans' tax
dollars efficiently and effectively. Many tools already exist to root
out such practices, and the new Administration and Congress should
start by making aggressive use of the means already at their
disposal. Such efforts, however, are not a panacea. They have been
made on a recurring basis since the Eisenhower era. Even where they
produce real reform and results, historically, going after fraud and
waste have garnered at best a modicum of savings when compared to the
overall defense budget.
the Vietnam War, Congress became increasingly concerned with and
attentive to instances of fraud, waste, and abuse in the defense sector.
Since that time, 128 studies have been conducted to address perceived
problems with the defense acquisition system and to tackle fraud,
waste, and abuse. Many of the same problems that exist today are
problems that have been the target of reform for the past four decades.
Indeed, a 1999 study on cost growth in defense programs analyzing three
decades of reform concluded that "despite the implementation of more
than two dozen regulatory and administration initiatives, there has
been no substantial improvement in the cost performance of defense
programs for more than 30 years."
his election as President in 1968, Richard Nixon convened the Fitzhugh
Commission to study the problems plaguing the military's acquisition
process. The commission rejected the "total package procurement" model
used by Secretary of Defense Robert McNamara and helped to initiate
efforts to slow development projects, introduce more testing, and
minimize production concurrency. Deputy Secretary of Defense David
Packard used the Fitzhugh Commission's findings along with his own
experiences to form the Packard Initiative in 1969. One major result
of this process was the creation of the Defense Systems Acquisition
Review Committee (DSARC).
problems in the acquisition process, including public reports about the
Department of Defense paying for $600 toilet seats and $400 hammers,
prompted President Ronald Reagan to establish the Packard Commission
in 1985 to help reduce inefficiencies in the defense procurement
system. Thomas McNaugher, at the time working for the Brookings
Institution, reflected on the irony of the situation: "Indeed, the
public has a right to some frustration when the same David Packard who
fathered the last significant reforms of the acquisition process, upon
being called back to Washington to head his own commission on
acquisition reform, starts his first press conference by noting that
things are no better now than they were when he first entered the
Defense Department nearly two decades ago."
The commission concluded that the primary problems with the acquisition
process were the same ones identified in previous decades: cost growth,
schedule delays, and performance shortfalls. Many of its
recommendations were included in the Goldwater-Nichols Reorganization
Act of 1986.
1990s brought much of the same story, including the Performance Review,
the Federal Acquisition Streamlining Act, the Federal Acquisition
Improvement Act, and the Defense Review Initiative. The information
revolution of that period also kicked off efforts by the federal
government and the Defense Department to adopt innovative business
models to help streamline the acquisition process. The 1996 Quadrennial
Defense Review promised cost-savings, concluding that "by implementing
modern...business practices"the Defense Department could "be leaner,
more efficient, and more cost effective in order to serve the
warfighter faster, better, and cheaper."
the new millennium and the commencement of global operations to fight
Islamist radicals following the attacks of 9/11, the same narrative on
acquisition reform continued to persist. In June 2005, Deputy Secretary
of Defense Gordon England authorized the Defense Acquisition
Performance Assessment Project. Unsurprisingly, the report concluded
in 2006 that it saw "many of the same issues as problems today that the
Packard Commission saw 20 years ago." Many of its recommendations were included in the 2006 Quadrennial Defense Review.
for eliminating fraud, waste, and abuse are nothing new, nor an
innovation in defense planning. Historically, where they are done well
and pursued vigorously, they have improved defense management and
incurred some savings. They have not, however, allowed the Pentagon to
substantially reduce its defense costs.
Rules of the Road
result of the efforts of the past four decades to improve the
acquisition process is that government contracting is now highly
regulated. Regulating begins with the Federal Acquisition Regulation
(FAR). The impetus for standardizing and simplifying government
acquisition came from President Reagan, who followed through on an
election-year pledge to eliminate 2 percent of the federal budget by
cutting fraud, waste, and abuse in federal spending. What he wanted
was a process that was simpler and that saved taxpayers money.
FAR was one of the first steps the President took. By implementing FAR
and by encouraging Congress to enact further legislation, Reagan did
far more to institute policies to keep the private sector in its place
than has any other modern President. Many of the tools available today
trace their lineage to the Reagan era.
in 1984 to make government contracting policies uniform, FAR involves
virtually every acquisition by every federal agency, governing every
step of the process. Every department has added its own supplementary
implementing guidelines. The Pentagon, for example, issues the
Department of Defense Federal Acquisition Regulation Supplement
(DFARS). All government departments must include dozens of "standard
terms and conditions" dictated by the regulation--many of them
non-negotiable. Mandatory federal conditions also include imposing
standards of ethical conduct on contractors. Contractors are barred
from making false claims or statements to the government (such as
over-billing or charging for services not provided), are required to
establish procedures preventing conflicts of interest in dealings with
federal employers, are prohibited from offering or accepting
"kickbacks," and are prevented from using appropriated government money
federal contracting officers have the authority to enter into,
administer, or terminate federal contracts. The specific scope of a
federal contracting officer is described in a written permission to
perform contracting duties, called a "warrant." Unlike in some
commercial practices, in Washington, there can be no debate over who
has authority to manage or amend a contract.
and the Competition in Contracting Act of 1984 (another Reagan-era
initiative to ensure that taxpayers received good value for their
dollars) require "full and open competition" for government contracts.
There are, however, certain allowable exceptions to this rule. FAR
indicates seven circumstances in which the Defense Department may, to
certain degrees, waive the requirement for full and open competition.
If the Secretary of Defense finds that a process of open solicitations
and bids might compromise national security, or if a national emergency
exists, other alternatives can be employed.
some cases, the government can simply agree to sole-source contracts,
which are not subject to competition at all. Sole-source and
limited-competition contracting represented a legitimate effort to
speed support to the field--not an end-run around regulations. FAR
specifically allows agreements to limit competition under certain
circumstances. These contracting methods have been readily used by
Democratic and Republican Administrations and funded by Democrat- and
Republican-controlled Congresses since FAR was established. Indeed,
these kinds of contracts were specifically intended for use in
unforeseen contingencies such as in Iraq and Afghanistan.
federal government also audits federal contracts. By law, Washington
has the authority to audit the costs incurred by contractors as well as
their profits, progress, and performance during the period covered by
the agreement and for up to three years after the conclusion of the
contract. The government has many tools with which to take to task
contractors that go wild. In Iraq, audits and investigations can be
conducted by a contracting agency's Inspector General, by the Special
Inspector General for Iraq Reconstruction (SIGIR), by the Army Audit
Agency, by the Defense Contract Audit Agency, and by the GAO. Senate
and House committees have also launched their own investigations and
held uncounted hearings on government contracting during the war. All
of these institutions have in fact been very busy. In the first four
years after the U.S. invasion of Iraq, the GAO alone issued 68 reports
government can also avail itself of a wide range of criminal
investigation tools. Virtually all federal agencies have an internal
law enforcement component; the defense services, for example, have
criminal investigation divisions. The Department of Justice can also
support efforts to uncover criminal activity on the part of contractors
and government employees. Contractors failing to abide by ethical
standards or other requirements in their contracts can face civil
litigation or criminal prosecution, as can civilian employees of the
U.S. government. Military personnel are subject to the Uniform Code of
Military Justice and can in some cases also be tried in civilian courts.
many agencies have undertaken enforcement activities, SIGIR has the
largest criminal fraud investigation in Iraq. On any given day, the
Inspector General has 30 investigators, auditors, and inspectors on the
ground in Iraq. By March 2008, SIGIR had issued 108 audit reports that
were responsible for $58 million in savings and $40 million that has
been put to better use; issued project assessment reports that covered
reconstruction projects worth $1.265 billion; produced 14 indictments,
14 arrests, 5 convictions, 9 individuals pending trial, and over $17
million in fines, forfeitures, and restitution; and was currently
conducting 50 ongoing investigations into fraud, waste, and abuse
involving contracts in Iraq.
Accusations involved fraud, money laundering, and bribery, and
individuals convicted included both civilians and U.S. military
personnel. The Army barred 14 contractors and companies from operating
in Iraq, and by 2007, SIGIR had referred another 12 for debarment.
a result of the volume of alleged criminal activity in the Iraqi
theater, various government agencies worked together to formalize the
International Contracts Corruption Task Force (ICCTF) to investigate
and prosecute cases of contract fraud and public corruption. The
participating agencies in the task force include the Defense Criminal
Investigation Service, Office of the Inspector General, Department of
State, FBI, Special Inspector General for Iraq Reconstruction, Office
of the Inspector General, and the Agency for International
Development. As a result of the investigations initiated by the Task
Force, nine Americans and one non-American have been convicted and a
total of $9.84 million has been paid to the U.S. in restitution.
individual citizens can tackle fraud. The False Claims Act, a law
passed in 1863 to help fight corruption during the Civil War, is
intended to punish anyone who makes a "false claim" against the
government in the act of fulfilling a government contract. In 1986, the
act was amended to make it easier to bring an action to court as part
of President Reagan's effort to fight wasteful government spending.
Under the law, individual citizens are permitted to sue on behalf of
the government alleging fraud on the part of contractors. If the
lawsuit is successful, the private parties bringing the suit are
awarded a portion of the proceeds of the action or settlement.The
defendant can be liable for up to three times the damages sustained by
the government, as well as $5,500 to $11,000 in fines for each false
claim made. From 1987 to 2005, the Justice Department received almost
8,869 cases, most involving either defense-contract or health-care
fraud. Since 1986, the government has recovered over $17 billion under the law.
Flexibility and Innovation: When Fraud, Waste, and Abuse Are Fake
are no universally accepted means of determining levels of fraud,
waste, and abuse, making efforts to quantify claims difficult.
Promises of savings by cutting programs are usually based on broad
assumptions and generalizations. As a result, the process of
identifying and targeting misspending is often overlaid with political
judgments and conflicting expert opinion.
is not uncommon for cases of fraud, waste, and abuse to be improperly
identified. For example, cost overruns, shifting requirements, and a
volatile security environment often combine to force decision makers
to reassess ongoing programs.
What is often considered waste is in many instances the result not of
inefficiencies in a system that can be overcome by proper oversight,
but the by-product of an atmosphere that constantly forces planners to
remain adaptive. Programs that are scaled back or terminated, while
technically considered waste, are more appropriately recognized as
unavoidable costs resulting from the need to remain flexible.
of the best examples of the challenges of defense acquisition was
illustrated in a 1999 case by the National Defense University (NDU)
that compared the procurements of the civil aviation Boeing 777 and
the military C-17. While the two aircraft represented similar technical
and developmental challenges, their acquisition histories differed
markedly. It took 15 years to field the initial operating capability
for the Pentagon's C-17. It took five years to develop the commercial
Boeing 777. According to the NDU study, the most significant
differences between the two programs resulted from the complex
challenges of defense acquisition. The government had much more
difficulty determining and meeting requirements. Political squabbling
and shifting defense priorities delayed approval. As the study's author
A. Lee Battershell concluded, "[p]olitical influence, the annual
funding process, and out-of-date design tools all limited DOD
As a result, the Defense Department, lacking the commitment and focus
of the private-sector project, took three times as long to field a
comparable aircraft. This project characterizes the nature of defense
acquisition process is riddled with these types of examples, According
to Thomas McNaugher, "[t]he uncertainties of technology development
give rise to an odd notion of 'efficiency' in development. Waste in
development is almost unavoidable somewhere along the path of
developing a new system, wrong turns will be taken, to be exposed only
by testing and further development."
"Efficiency in development means 'wasting' money early, when the cost
of resolving uncertainties is low, and when financial and production
commitments have not crowded out the chances for flexibility."
Attempts to identify this "productive waste" as waste that can in fact
be prevented will help foster a risk-averse culture that impedes the
research and development process and may only drive up costs further.
cost overruns to ongoing programs, while difficult to determine, are
likely to occur in volatile security environments. Not only might
contractors have to be paid more than originally envisioned, but
delivery of materials and completion of the project may also be
affected by unpredictable violence. The fog of war is often the
greatest "cost-driver" of them all. A program to manage the Iraq Basrah
Children's Hospital in 2004 offers one example. While originally
projected to cost $50 million, costs reached between $149.5 and $169.5
million. Even though a number of factors were determined to have caused
the overruns, the issue of security in a city known for its instability
cannot be underappreciated for the impact it may or may not have had
on the waste accrued by the program. Such cases are more typical than not.
a modicum of fraud, waste, and abuse have always plagued defense
spending, every effort should be made to identify and eliminate
wasteful spending. A proper oversight of contracting begins with
funding an acquisition workforce that is properly sized and trained to
manage the number and complexity of contracts that exist today. Further
savings can be achieved by initiating reform in both the defense
acquisition process and manpower compensation system.
first line of defense in ensuring that government contracting serves
the government well is formed by contracting officers, part of the
federal acquisition workforce. While the number, size, and complexity
of government contracts has exploded, the workforce to manage them has
remained at inadequate levels, reduced in the 1990s by Congress to
realize greater savings. Like other components of the military, the
defense acquisition workforce was downsized at the end of the Cold War.
From 1994 to 2005, the Defense Department acquisition workforce was
reduced by 50 percent. Further adding to this problem, by 2010 half of
the acquisition workforce will be eligible to retire.
reduction in the Defense Department's acquisition workforce, coupled
with the increase in private-sector service contracts (72 percent
increase from 1996 to 2005), has ensured that adequate oversight is
unavailable to guarantee taxpayer dollars are being used appropriately.
Adding to this problem is the fact that only 38 percent of total Army
acquisition or contracting personnel in-theater are certified for the
positions they hold.
This problem was foreseen more than a year before the war in Iraq
began, when the Secretary of the Army, Thomas E. White, wrote to the
Undersecretary of Defense in charge of acquisition to point out that a
third of the service's budget went to pay contractors. With a much
smaller military workforce, White asserted, "Army planners and
programmers lack visibility at the Departmental level into the labor
and costs associated with the contract workforce and of the
organizations and missions supported by them."
This, it seems, was clearly evident before the Pentagon went on its
contracting binge. A GAO official confirmed this view in testimony
before Congress, reporting that the Army could have benefited from
greater savings in the Army's Logistics Civilian Augmentation Program
(LOGCAP) contracts in Iraq had adequate staffing been available.
Because of staffing shortages, acquisition officials were unable to
visit all contracting sites in Iraq to ensure requirements were being
improve acquisition oversight, the Commission on Army Acquisition and
Program Management in Expeditionary Operations recommended that the
Army increase the stature, quantity, and career development of its
contracting personnel. As part of this effort, the Committee suggested,
among other things, expanding the number of civilian and military
personnel in the contracting workforce by 1,000 and 400, respectively,
and ensuring that Army contracting personnel start their careers much
earlier than is normally the case.
According to Dr. Jacques Gansler, the committee chairman, the
acquisition workforce "has not been properly sized, trained,
structured, or empowered to meet the needs of our warfighters, in major
expeditionary operations." For its part, the Army accepted the Gansler
To ensure proper oversight in contracting, the Army and Congress should
work together to implement these recommendations in a timely manner,
and commit to maintaining the size and quality of acquisition personnel
in the future.
Reasonable Acquisition Reform
Defense Department must be allowed to break free from the risk-averse
behavior patterns that undermine innovation, slow the acquisition
process, and result in inefficiency and inevitable cost-overruns.
Congress, with its propensity to second-guess the Department of
Defense on procurement management and intervene in the acquisition
process with funding restrictions and earmarks, is a major contributor
to this problem.
Congress must also resist the temptation to conduct show-hearings
unless a hearing can reveal shortcomings in the acquisition process
that will help initiate legislative change.
is another problem that has created entry barrier to the defense
market. An effort to deregulate would make it easier to enter the
market, increasing competition and improving overall efficiency and
restoring a balance between R&D and procurement, with procurement
accounting for no less than 60 percent of the modernization budget,
would provide incentives for contractors to push programs out of
development and into the hands of the military.
Rethinking Manpower Compensation
current trajectory of the military's compensation system is both
unsustainable and unaffordable. This out-of-date system is wholly
unresponsive to the recruiting and retention needs of the military. For
instance, unlike in the private sector, the military places an emphasis
on in-kind and deferred benefits, as opposed to cash benefits. As
research has clearly shown, military personnel value cash compensation
more than its alternatives, and are likely to undervalue their true
earnings because of thePentagon'sskewed emphasis on non-cash
compensation. Moving toward a system that values cash is the first step
toward building a compensation system that is able to meet the needs
of today's highly mobile workforce.
important, the military should seek to build a "continuum of service"
that would eliminate barriers to transition between active and reserve
status while retaining flexible health care and retirement packages. A
new health care system could offer a defined-contribution plan in place
of the current, rigid, defined-benefits plan. This system would
improve the freedom of soldiers to make choices concerning their health
care, while introducing greater responsibility into the system and
creating greater cost savings overall. Similarly, a new retirement
system should be constructed as a portable system that absorbs
contributions from the military, private sector, and portions of a
soldier's Social Security taxes.
More Than a "Bumper Sticker"
modern era of defense acquisition reform and other efforts to tackle
fraud, waste, and abuse is riddled with numerous commissions, studies,
and "blue ribbon" reports that offer models for reform and promise
large cost-savings. However, both historical and recent examples of
fraud, waste, and abuse during wartime remain limited in scope and
relatively small compared to total spending. The fact remains that
various governing mechanisms and regulations are in place to limit
fraud, waste, and abuse. While the Administration should make every
reasonable effort to reduce unnecessary defense spending, these efforts
alone will not free up sufficient resources to adequately fund defense.
a much larger potential for savings that could stretch defense dollars
will more likely be found in responsible reforms that:
- Rebuild the government contract workforce-- the people and technologies needed to make government a better customer;
realistic acquisition reforms that address the imbalance between
research and procurement and do not hamstring government's ability to
be adaptive and innovative; and
- Undertake the challenge of
restructuring manpower compensation to preserve the affordability and
the utility of the all-volunteer force.
short, the new Administration and Congress should take further steps to
address this problem by improving acquisition contracting services,
initiating a defense acquisition process that aims to break free from
risk-averse behavior patterns and restores a proper balance between
procurement and R&D, and adopting a manpower compensation reform
package that brings greater freedom to the warfighter while
simultaneously improving recruiting and retention.