James Hasik

The Armies After FCS

This month, at the request of Canadian-American Security Review (CASR), we prepared an analysis of what might follow the demise of the US Army’s Future Combat System (FCS) program, and what relevance that might have for the Canadian Army.

In our estimation, the final end of the FCS has certainly opened opportunities for far more practical plans for armored vehicle modernization, as the US Army has replaced its formerly all-encompassing and over-reaching approach with a vector of perhaps ten separate efforts to update, extend, and recapitalize its fleet. For Canadian purposes, the large sums being invested in even these more modest efforts may be particularly useful beyond just American needs. In particular, upgrades to the Stryker, and development of so many designs for the MRAP All Terrain Vehicle (M-ATV) and Joint Light Tactical Vehicle (JLTV) programs, may be very valuable to two specific Canadian Army vehicle initiatives: LAV-III modernization and the Tactical Armored Patrol Vehicle (TAPV).

In the last several pages, we comment on the implications for the industry, and offer advice to the Canadian Department of National Defence on how to manage its limited equipment acquisition budget and staff. Our findings are available for free download at our firm’s website (link).

Just how did Hägglunds best Singapore Technologies in France?

Just this week, the French Direction Générale de l’Armement (DGA) selected BAE Systems’ BvS10 Viking to meet its requirement for a new Véhicule de Haute Mobilité (VHM), ultimately destined for the French Army’s Groupement Tactique Inter-Armés (GTIA) in Afghanistan. As the GTIA is significant force—composed of three infantry companies, a reconnaissance squadron, an engineering company, and a heavy mortar battery—the press release from the supplier noted that the deal could reach 129 vehicles for €220 million over five years.

The VHM award is a significant victory for BAE and its subsidiary Hägglunds in Örnsköldsvik, Sweden, particularly after losing the British Army and the Royal Marines as customers for the Viking about a year ago. After reportedly suffering ten fatalities in Vikings in Afghanistan to Taliban land mines, the Ministry of Defense turned to Singapore Technologies for its rather similar Bronco vehicle (termed the Warthog in British service) to replace the entire fleet. Britain was the single largest recent national customer in this market segment—what might be termed robust-but-affordable amphibious and adverse-terrain armored vehicles—so it’s worth asking how Hägglunds turned the business around so quickly.

To start, it isn’t obvious that BAE significantly underbid ST. The announcements suggest a price of €1.71 MM per vehicle, but don't indicate a great deal of extra electronic or weapons content on these Vikings. They also don’t indicate how much of this is attributable to parts and service estimates, but as these will be quite variable (see below), the aforementioned number could be substantially just the price for delivery. If so, it’s not exactly well below the going rate in the category. Rather, I suspect that four other factors may have combined to convince the DGA that Hägglunds was offering good value-for-the-money:

• Improved protection. From displays and announcements at DSEi and AUSA this past autumn, it is clear that Hägglunds has been working hard to improve the survivability of the Viking. As Jane’s put it, this Mark II version includes “greater payload, a higher level of protection due to a redesigned hull floor and a new armour package,” as well as “a more powerful Cummins engine and an upgraded electrical system” to handle the greater weight and increased power demand of more onboard systems. This is not to say that ST hasn’t been working hard as well; it’s just that Hägglunds understood that it needed to bring its best game for a customer as big and significant as France.
• A strong offsets package. While we don’t have the details of ST’s offer, Hägglunds has made a point of how it teamed up with Panhard and EADS in its bid. Indeed, Hägglunds is quite accomplished at offsets packages: in all its export sales of CV90 armored vehicles (to Norway, Finland, Denmark, the Netherlands, Switzerland, and Thailand), the company has arranged for a local partner to integrate the turret, which is a significant chunk of the total contract value. Individual armies can be pretty particular about whether they want a 30 mm, 35 mm, or 40 mm cannon; a 7.62 mm or 12.7 mm machinegun; and the details of vision blocks and cupolas. By keeping the more repeatable chassis assembly, engine installation, and electronics installation in Sweden, Hägglunds has been able to offer a blend of cost-efficient manufacturing and local industrial participation.
• Rapid fielding. through-life responsiveness. Though deliveries will not end until 2014, they will begin next year. When troops are having trouble negotiating difficult terrain and surviving land mine blasts, getting even a few vehicles into the field matters a great deal. Hägglunds has previously impressed customers in the CV90 program with its ability to get the first article out the door very quickly, and may have credibly promised the French Army something similar here.
• Through-life responsiveness. As the DGA’s announcement put it, “an innovative method of support was included in the contract, empowering the industrial prime contractor to deliver the ‘right spare parts at the right time and right place,’ with payments based on the attainment of reliability targets and adjusted to the number of miles actually traveled by vehicles in service.” I remember joking with a client ten years ago about how his boss thought that through-life support and service level agreements were innovative—they weren’t news then, and they’re no newer today. Rather, the DGA’s self-congratulations aside, this sort of contract represents a decisive and well-known trend in military supply. BAE in general has been emphasizing this sort of work, and may have offered the French Army a particularly compelling arrangement.

Taken together, these four factors say a good deal about marketing to the military in the coming decade. The main arena today is Afghanistan, and will likely remain so for several years to come, regardless of Canadian and American announcements of intent to wind down involvement. What war comes after that is anyone’s guess, but one will come, and it will very possibly involve chasing people with funny hats in difficult terrain while dodging Kalashnikov bullets, rocket grenades, and all manner of land mines. Since that war likely won’t be fought in Scotland or Jutland or North Dakota, staying expeditionary and responsive will be critical. Moreover, since every customer has a slightly different view of exactly how to best do all that, and a sovereign desire to be part of the industrial equation, knowing how to work with local companies will be part and parcel of the marketing process.

The Helicopters of Britain's Quick Defence Review: Rules of Reason for Wars of Duration

This past June, British Defence Procurement Minister Quentin Davis told Parliament that the government was considering dropping plans for extending the service lives of old helicopters, and instead moving up a plan to procure new medium lift rotorcraft. In keeping with the immediate needs of the troops on campaign in Afghanistan, but recognizing that such missions would probably continue to occupy British troops for years to come, he described the material acquisition strategy as “not an urgent operational requirement, but not the rather laborious full-scale classic international tender.”

We now have a much clearer idea of what he meant—and make that heavy lift, thank you. The centerpiece of last week’s announcement about the Ministry of Defence’s reprioritization of its equipment list was the intent to order 24 more Chinook helicopters for the Royal Air Force from Boeing, bringing the inventory up to fully 70 such aircraft. That’s a lot of lift for the Army and the Royal Marines, and as I note below, this says a great deal about Britain’s future military strategy, as well as its emerging military-industry strategy.

There were many changes other announced, but to keep things simple, we might focus on aviation. Also listed were plans to provide the RAF another five Reaper reconnaissance-attack drones (to add to the five in service) and a seventh C-17 Globemaster III. The costs would be offset by the retirement of a full nine-plane squadron of RAF GR9 Harriers, another squadron of either Harriers or Tornados (which would be replaced eventually by Lightning IIs and Typhoons, anyway), and the early retirement of the Nimrod MR2—about two years before the introduction of the forthcoming Nimrod MR4. Defense Minister Bob Ainsworth’s assertion that the gap in maritime patrol coverage would taken up by Hercules transports and the Royal Navy’s Merlin helicopters didn’t quite ring right—the capabilities of those aircraft are just really different.

Number one British supplier BAE Systems took the high road with its number one customer, stating (in part) how the company “acknowledges the Government's decision to reduce Tornado and Harrier numbers and will work with it to ensure that the capability of both aircraft is sustained until the end of their service life (sic).” Otherwise, the old guard of the industry mostly came out whingeing about the offsetting reductions. The UK’s Aerospace, Defense, and Security (ADS) trade association complained that the “announcement is like painting over the damp patches in your house, giving a superficial fix to a far deeper problem that will only re-emerge later and in a far worse condition.” The National Defence Association called the cuts “hasty and ill-conceived,” and then concluded its pronouncement with something about whether the government might “repeat the mistakes of the 1930s, when Britain neglected its defence, and risk similar appalling consequences”.

In truth, this sort of prattling—summoning the specter of Nazism—is a sign of intellectual bankruptcy within the military-industrial establishment. Cuts? What cuts? The long-run net change is an increase of at least three aircraft—just not the aircraft that silk-scarf enthusiasts prefer. Indeed, there was just nothing surprising about the government’s shift in priorities. It’s not just the war in Afghanistan that needs more rotary- and fixed-wing transport, more persistent overwatch from drones, and only as many carrier-capable aircraft as the carriers can carry. Those needs are likely those of the next war as well, wherever that might be. Further, there is not likely to be more money. As Max Hastings wrote in the Financial Times this past July, parsimony is part and parcel of British military history. As he noted, “while defence spending has fallen as a proportion of gross domestic product from 2.8 per cent in 1998 to 2.5 per cent today, this is still greater than the UK peacetime average over the past 150 years.”

What these financial constraints mean is the subject of considerable analysis of varying quality. In October, the Royal United Service Institution released a paper in October arguing that “the future mission of Britain’s armed forces may lie in assisting and reforming multilateral institutions such as the United Nations and NATO,” a concept it called a “radical new model.” Taking Suez and the Falklands as exceptions, there has been nothing radical or new about this since 1949. A bit more helpfully, RUSI argued in October that

        If defence spending remains at current levels, the hard choice for the UK’s military capability will be between two expeditionary options: the ‘global guardian’ option, which builds on the present demands for counter-insurgency in Afghanistan; or a maritime ‘strategic raiding’ option which looks to longer-term security challenges. If defence spending is reduced considerably, the UK will need to choose a ‘contributory’ option whereby the UK contributes bits and pieces of capabilities to multinational forces with no significant autonomous or leading role. If the government does not make the hard choice between the first two options, then the third option will become the default outcome, regardless of levels of defence spending, with big penalties for global influence and status.

Still, if this really were the choice, then how would those 70 Chinooks fit in? Will they be hauling the infantry regiments of the global guardian force from dirt fields in the wilds of failed states, or the paratroopers and marines of the strategic raiding force off HMS Ocean? Or, perhaps they will be hauling the Canadian or Danish infantry of the multinational contributory force—as they are arguably doing now. They are certainly critical now in high-and-hot Afghanistan, and everyone from Ankara to Abu Dhabi is ordering them.

Observe, then, how the Tories’ official reaction to the government’s announcement about the helicopters was both measured and well-aimed. Shadow Defence Minister Dr. Liam Fox “welcomed the announcement of new Chinook helicopters, but noted that they would not have been necessary if the Prime Minister had not, against all advice, cut £1.4bn from the helicopter programme in 2004.” That was indeed a strange decision, and it was one in a line of botched opportunities that led Gary Schmidt of the American Enterprise Institute, shortly after Hasting’s editorial in the FT, to write in the same paper that reductions in British military forces might “reduce Britain’s value as an ally” and lessen the significance of the Special Relationship. That’s conceivable, but it needn’t be the case if the Tories take the opportunity, as they will likely have from next spring, to set things on a different course.

As noted above, that course will not involve a great deal more money, and it will also not tack back towards nostalgia. Rather, it will depend on the application of what what an esteemed colleague of mine has called rules of reason for wars of duration. To start, I will nominate the following as the first one to heed:

The real Ten Year Rule holds that you will fight another messy, small war of attrition within ten years.

Realistically, it won’t take that long. Since the end of the Cold War, the United Kingdom has been involved in meaningful military campaigns every few years. Commitments to Bosnia (1992-95), Kosovo (1999), Sierra Leone (2000), Iraq (2003–07) and Afghanistan (2001–) collectively show how the Tories, Labour, and even the Liberal Democrats agree that something must be done for the cause of collective security. Because they put such long-term strain on the troops, those smaller, longer-duration wars are the more challenging ones for which to plan. But plan one must. As US Deputy Assistant Secretary of Defense for Plans Janine Davidson put it to a conference a few years ago, when one flies enough unplanned cargo sorties into odd corners of the globe (as she did as a pilot for the USAF), one really should start asking why they’re unplanned.

Planning for wars as these starts, then, with aircraft like the Chinook. Why? Because the Chinook is an aircraft for all climes and seasons. As the threat of mines makes road travel in Afghanistan dangerous, flying over them seems appealing. The Daily Mail noted in late October how Lieutenant Colonel Rupert Thorneloe, commander of the 1st Welsh Guards, complained in a despatch to London about how a lack of airlift was exposing his troops to more bombs than he cared—just a few months before one blew him up (along with his driver, Trooper Joshua Hammond). He thus became Britain’s highest-ranking fatality in Afghanistan to date. But one of the biggest near-disasters of the Falklands War—a near-peer, high-intensity conflict, as they call them—came when the container ship Atlantic Conveyor burned after an Argentine missile attack with three of her four Chinooks. The Marines and Paras had to yomp and tab from San Carlos to Stanley (though Marines and Paras being Paras and Marines, they did so splendidly). While helicopter movement is not always and everywhere preferred—General Jim Mattis chose in 2003 to drive his infantry towards Baghdad in trucks because he judged the anti-aircraft threat more serious—it is an essential tool of all forms of modern warfare.

What’s really notable for Britain is how this order represents a break with the carefully-crafted plans of the Defence Industrial Strategy of December 2005. Procurement of the Chinooks naturally involves no aforementioned “laborious full-scale classic international tender.” Only Sikorksy and Boeing make airplanes this large, and the RAF sensibly wasn’t about to introduce a second heavy-lift type into its inventory. After the painful experience of the Chinook Mark 3 program, these will also be relatively standard aircraft. As they will have relatively few specifically British requirements (rather unlike the Apache Mk 1s), there is thus no justification for a co-production deal for AgustaWestland—the ballyhooed recipient of a Strategic Partnering Agreement. These aircraft, rather, will come from Philadelphia.

The Tories now have the opportunity to make a virtue of this necessity. With wars to fight and a Treasury to rescue from Labour’s profligacy, there remains little room for fantasies of autarky. The next review of military priorities and military-industrial strategy must really put, in Malcom Rifkind’s line, the “front line first.” There are, to be sure, uniquely British requirements requiring British industrial capabilities, but they are fewer and more heterogeneous than the government has so far imagined. Much of the industry, then, may be in for a bit of shock.

The FMTV re-competition saga. Part Six: What comes next, and a few important victories for public policy

Every week I think that I finally may have cause to stop commenting on the FMTV contract dispute amongst the Army and its bidders: BAE Systems, Navistar, and Oshkosh. However, now that the GAO’s redacted decision is available, there are important aspects that bear further analysis. (Incidentally, those redactions were not difficult—the office mainly needed to excise Navistar’s bid, which has still never been released, and Oshkosh’s anticipated profit margin and overhead rate.)

The GAO upheld the protests on basically only two grounds:

1. Key Tooling and Equipment. Since Oshkosh didn’t already have all the tooling and equipment that it needed for the contract, the Army should not have rated that one aspect of the riskiness of its proposal as very low—the same, that is, as it rated BAE Systems. As I note below, this is probably a sound finding. As a result, the Army may also need to reexamine schedule risk under the Time-Phased Critical Path heading of the RFP.
2. Past Performance. It turns out that someone on the Army’s administrative staff inadvertently shredded the customer surveys that it used to evaluate Navistar’s past performance. As a result, the Army could not explain how it had evaluated Navistar’s performance in the MRAP program as merely adequate. (No extra points here for jokes about the MaxxPro.) It is reasonable to argue that there was a screw-up, and that Navistar deserves at least an explanation.

What will happen next? Two things, and probably only two things:

1. The Army will likely revise its evaluation of Oshkosh downward in this one area from excellent/very low risk to excellent/low risk. That is, it may still like the proposal just as much as BAE Systems’; it just should recognize that a running production line is almost always a less risky proposition than one that’s just getting tooled up. It may also rethink Oshkosh’s timeline to full-rate production, but not necessarily: there’s a lot of time between now and October 2010, and Oshkosh can reasonably assert that the stop-work order gives it some flexibility there.
2. The Army will likely call up the people who submitted the last customer surveys, and just ask them to fill them out again. Hopefully, someone will unplug, tag-out, and hide the shredders this time.

The whole contract award will then boil down to two questions:

1. Is a probable change from very low risk to low risk in key tooling and equipment, and a possible change in the evaluation of the time-phased critical path, enough to overcome a roughly $440 million difference in price over a five-year contract? Note that these factors account for but two of seven that make up just 26 percent of the overall evaluation scheme.
2. Is a possible change in Navistar’s past customer approval ratings—if there is any positive change at all—enough to make up for a still unknown difference in price?

In short, the protestors still have a steep wall to climb.

—————

What is really notable, and not just for this contract dispute, but for the interests of sound public policy, is what the GAO said was not relevant. One issue concerned BAE Systems’ complaint that Oshkosh was prototyping too much:

        While BAE argues that the agency should have been concerned that Oshkosh needed to build a second prototype to resolve difficulties experienced with its first, the agency viewed the approach of building a prototype as a strength because it allowed Oshkosh to identify risks prior to performance. On this record, we think the agency was within its discretion to view Oshkosh’s work on its prototype as a strength, rather than a risk.

Taking that complaint seriously could have chilled interest around the industry in prototyping—even at one’s own expense—and that would have made for a perverse incentive, even for military procurement.

Critically, the GAO also pretty much face-shot the complaint that Oshkosh would supposedly certainly lose money on the contract:

        Agencies are only required to perform a cost realism analysis when the solicitation anticipates the award of a cost-reimbursement contract... As a general matter, it is unobjectionable for an offeror to submit a below-cost proposal for a fixed-price contract, since fixed-price contracts generally are not subject to adjustment during performance and the contractor, not the agency, bears the financial risk of cost overruns. Crown Title Corp., B-298426, Sept. 21, 2006, 2006 CPD ¶ 145 at 5-6.

Now, I’m not a lawyer, but I think that BAE Systems and Navistar’s lawyers (Wiley Rein and Latham & Watkins, respectively) should have read the decision in “Crown Title Corp., B-298426,” before whining about bidding below perceived cost.

Moreover, the GAO didn’t merely state that Oshkosh’s price could be accepted at face value; it also noted that the Defense Contract Management Agency (DCMA) had, at the Army’s request, investigated Oshkosh’s financial health, and found it at least adequate for undertaking this work. As I have written before, that would have provided the only reasonable cause for rejecting a binding, fixed-price bid: that the offeror would quite possibly default. We don’t know who at the DCMA wrote the report, or on what methodology he relied, and even the Army’s contracting officer admitted to the GAO that he didn’t fully understand it all. Still, the Army took the report at face value, and the GAO called that reasonable. Not everyone in government understands everything. There’s such a thing as expert advice.

The FMTV re-competition saga. Part Five: the GAO upholds. Mostly.

The US Governmental Accountability Office (GAO) today upheld BAE Systems and Navistar’s protest of the award of the Family of Medium Tactical Vehicles (FMTV) contract to Oshkosh. In the short run, Oshkosh’s share price (NYSE:OSK) has dropped by about $7—roughly equivalent to the $7 gain it scored immediately after Oshkosh was awarded the contract in August. Broadly, that suggests that the average investor in the market is taking this rather harshly for Oshkosh, almost presuming that the contract will now be handed to someone else.

However, as I commented over this past weekend, it’s important to actually read the little that has been released from the GAO about its findings. Summarized, the GAO concluded

• that the Army didn’t properly evaluate Oshkosh’s capability (40 percent of the decision), and
• that the Army didn’t properly evaluate Navistar’s past performance (14 percent of the decision), but
• that the Army did properly evaluate Oshkosh’s price (40 percent of the decision).

The GAO rejected several other complaints by BAE and Navistar, but wasn’t specific about what those were. What comes next is notable. The GAO recommends that the Army not solicit new proposals (that would be expensive and time-consuming), but simply

• reevaluate the offerors’ [existing] proposals under the capability evaluation factor, in a manner consistent with the terms of the solicitation; and
• conduct a new evaluation of Navistar’s past performance that adequately documents the Army’s judgments.

The text of the whole decision is being withheld while competition-sensitive information is redacted, so it’s hard to say exactly what the GAO didn’t like. If the language can be taken literally, however, the GAO is saying that all the proposals need to be reevaluated for capability—not just Oshkosh’s—but that the Army only need review Navistar’s past performance, and this time just providing some justification for its findings.

So, it’s hard to say what will come of this new drill. After all, as noted in its boilerplate language at the bottom of the press release, the “decision should not be read to reflect a view as to the merits of the firms' respective approaches to produce the FMTV.” That’s not the GAO’s job, and as I hoped, it appears that the organization hewed relatively narrowly and reasonably to its commission. Indeed, the issue of price is particularly important for federal public policy in the United States. The FMTV re-competition was, after all, a fixed-price, mostly build-to-print deal. If the Army couldn’t take a fixed-price bid as a fixed-price bid—after accounting for the risk of financial distress on the part of the potential supplier—then it’s hard to imagine why the Defense Department would again bother trying to save money by switching contractors.

[Incidentally, in the interests of full disclosure, I’m going to state that none of the parties to the dispute are clients of mine, and that I’m not making recommendations about any company’s shares. I also don’t invest in firms which are significant suppliers to military forces—my mutual funds might, but I pay efficient disinterest to their holdings. Rather, I do advisory work in the industry: I refrain from investing so that I can keep a conflict-free perspective on matters.]

Thus, Oshkosh’s presumed eight-percent lead, ceteris paribus, remains intact. In a few weeks or months, we’ll know if the Army’s round turn on the capstan (to borrow a Navy phrase) will evaluate Navistar or BAE Systems as at least eight percent more capable. If not, the business will likely stay where it has gone.

Is Oshkosh's FMTV bid really a risky move for the US Army? Part Four: Waiting for the GAO

This Monday, the US Government Accountability Office (GAO) is due to issue an opinion on BAE Systems and Navistar’s protests of the award of the Family of Medium Tactical Vehicle (FMTV) contract to Oshkosh. It’s not clear whether the GAO will rule on both of the supplemental protests as well as the initial ones, but it may very well do so, just to provide some closure to the matter. There’s little need for armchair quarterbacking (generalship? bean-counting? procurement lawyering?) at this point, as the decision has probably already been taken, and is just getting socialized around the office. There is, though, some cause for comment on how that decision could be written—or maybe even yet edited tomorrow (!).

For some background, it’s worth noting that BAE Systems has recently brought a stronger game to its public relations efforts, making some staffing changes, and reaching out to some media outlets to make its case. (I must acknowledge that even I got a call.) In comments published in Defense Industry Daily on 19 November 2009, at industry conferences, and on the telephone with individual analysts, BAE Systems made some useful points that may not have gotten past the redactions in those protest documents. Navistar and Oshkosh have taken a different approach, generally refraining from comment, and largely allowing the process to play out within the government. (We’ll not count letters to the Defense Secretary from Wisconsin’s congressional delegation. Those are expected.)

For all these reasons, we’ll focus here on BAE Systems case. That case has not been very strong throughout the post-contract award complaining, but this new information brings up some useful questions about the Army’s acquisition strategy and its evaluation of the bids. Three of these questions are particularly noteworthy:

1.        Will the Army maintain access to BAE Systems’ intellectual property for the specialty variants? As DID first reported, the weapons system variants of the FMTV (those that carry the HIMARS rocket launchers, the SLAMRAAM air defense systems, and the MEADS air defense systems), and the Low-Velocity Airdrop version of the FMTV used by the paratroopers, were removed from the re-competition in February 2009. The program managers for those weapons systems (as well as presumably some guy with responsibility for air-droppable trucks) will manage those procurements separately. BAE has some unique design rights in each modification, and if BAE chooses to shut down its plant in Sealy after finally, definitely losing the general FMTV contract, the company says that it’s not clear where those trucks will come from. The individual program managers could buy them from another BAE Systems factory—at presumably higher cost—or it could ask an Oskhosh to reengineer them.

All that said, it’s a bit difficult to see BAE Systems refusing to license its designs to Oshkosh or Navistar or anyone else whom the Army asked to build FMTVs. Such a decision would be both a cranky, money-losing proposition and a sure way to infuriate the Pentagon, BAE Systems’ number one customer. So, this is a fair question, but it should be foreclose discussion of moving the contract. Whether the Army should have baked consideration of this into the re-competition is a matter of contracting strategy. For better or worse, the Army made its choice.

2.        Will the Army maintain access to BAE Systems’ intellectual property for the LTAS cab? A stronger point, however, could be made regarding the design of the Long-Term Armoring Strategy (LTAS) truck cab, which BAE Systems’ substantially designed at its own expense. BAE could more plausibly assert to the Army that the design was at least partially applicable to military trucks throughout the world. Granted, BAE would not want to irritate the Army unduly, because the Army has the first review on export authority for the LTAS cab, which sits on the State Department’s Munitions List. That said, the company has a prima facie case for guarding its intellectual property—it’s hard to see where this would stop if contractor could routinely expect that sort of shakedown from the government.

        Of course, Oshkosh has already designed its own LTAS cab, but likely hasn’t taken it through blast- and bullet-resistance testing yet, which BAE says makes it a risky proposition. That’s not alone a reason for sticking with a contractor who bid higher, but it does expose an embarrassing assertion in the Army’s review of the contract: that Oshkosh’s proposal was no riskier than BAE Systems’. Almost anytime one switches suppliers, there’s some increase in risk—that’s something that they teach in every credible introductory supply chain management class. (Presumably they teach that as well at the Defense Acquisition University.) The question is whether that increase in risk, and increases anywhere else in the proposal, were not worth 8 percent of the cost.

3.        Even if Oshkosh has an aggressive approach to cost reduction, doesn’t its success with the M-ATV lay to rest concerns about its capabilities? BAE Systems has questioned how Oshkosh can make money on the contract when 55 percent of the value of each FMTV comes through suppliers that have already been nominated by the government. Specifically, while the design of the M-ATV is Oshkosh’s, that of the FMTV is the Army’s. That’s why this was a fixed-price, (mostly) build-to-print competition. It’s harder to get changes approved on the Army’s prints than it is on your own. Take a look at the front bumper of every truck that rolls off the assembly line in Sealy; they’re still stamped “Stewart & Stevenson”, and that was two companies ago. If they can’t get the bumper changed, BAE would seem to be arguing, when there’s a good marketing reason to do so, can you imagine how strict the Army will be about swapping out any given supplier?

        Maybe. But as I argued in November, that’s quite possibly Oshkosh’s strategy: to manage its relationship with both its suppliers and its customer aggressively, leaning forward in its quest for cost reductions and operational improvements. That’s not to say that BAE Systems wasn’t doing so—it’s just that Oshkosh makes a lot of trucks every year, too, has had some time to observe BAE’s operations and customer management, and thinks that it can do better. It’s possible that Oshkosh has been too optimistic, but figuring out when a potential contractor has bid too aggressively is an inexact science.

All of these issues are worth debating, but they’re largely matters of substance, rather than process. The former might seem more important, but the latter is largely the limit of the GAO’s commission. The auditors have been asking themselves not whether the Army’s decision was the right one, but whether it followed its advertised process. This gets to the point about how the pending ruling will be written. The pronouncement won’t be binding, but the Defense Department almost always follows the GAO’s writ, and given the heat of the dispute this time, will probably do so again.

What the GAO writes will influence future procurements. Naturally, if the GAO rules for the Army, and thus ultimately for Oshkosh, it will allow the Army to signal that it’s serious about driving down costs, and thus encourage more Oshkoshes, Navistars, and others to jump into the competitive fray. As we saw during the MRAP experience, that’s really important for material military-industrial progress. Still, if the GAO rules against the Army, it could helpfully choose to write that opinion strictly, on the basis of some flaws that it found in the process, and not what it perceives as the merits of the individual competitors’ proposals. In that case, it may yet avoid discouraging potential entrants—and of course, this wouldn’t be over, as the Army would almost certainly rerun at least part of the competition. It certainly couldn’t just hand it back to BAE.

But we’ll have to wait for Monday. At some point next week, I’ll be back with some commentary on the long-term strategic effects of the decision.

Will the QDR be analytically lame? And will it matter?

On Wednesday, DoD Buzz claimed in its headline that the “QDR Likely Kills Two Carriers, EFV”:

        Word on Capitol Hill is that the Quadrennial Defense Review should result in the demise of two Navy carrier groups and the Marines' Expeditionary Fighting Vehicle. On top of that, the Joint Strike Fighter program is likely to lose a so-far uncertain number of planes and the Air Force looks to lose two air wings. Folks on the Hill are watching the carrier cuts particularly closely. They were willing to accept the temporary loss of one carrier but two groups may just be too much for lawmakers to swallow, though it would conveniently answer the hot debate about whether the Navy faces a fighter gap.

And regarding that supposed fighter gap, Inside Defense reported Wednesday (“DoD Issues Draft Directive Calling For Major Changes to F-35 Program”) that

        The Office of the Secretary of Defense has issued a draft directive that would require the services to fund the F-35 fighter program in accordance with the recommendations of recent independent reviews, a move that would extend development by at least a year, reduce production by approximately 100 aircraft and require the addition of billions of dollars to the effort through 2015, according to defense officials.

All that fits well a comment from a colleague that the Defense Secretary had gotten the recommendation last year to focus the QDR on force structure sizing. Perhaps that was the case, and that was the advice he took, but if so, it would make for a remarkably unenterprising approach. Just force sizing? What about the balance as to how those forces are composed? What about the new technologies to emphasize, or the security challenges to which to respond, that might alter the appropriate balance of forces? Lame, lame, LAME.

As for the EFV in particular, a distinguished engineer and consultant to the industry was insisting to me the other day that the problems with that developmental vehicle have mostly been solved. I don't know about that, but I do think that the reputation of that program is so bad that convincing folks otherwise may be very difficult. It also seems a bit crazy to spend that much money—still to come on the margin—on a section-carrying vehicle that doesn't actually fly. Besides, marines have other ways of getting ashore. Neither helicopters nor hovercraft require gradual beaches for landings, and as the Navy always taught us in amphibious operations classes, those cover only about six percent of coastlines worldwide. It would be nice to have another option, but what’s not possible is not desirable. So, I will not at all be surprised if the program is ended—and a new, much more modest effort started.

Retiring two supercarriers without replacement could really make some sense, particularly if they're due for refueling soon. The Enterprise, Abraham Lincoln and George Washington seem to be all nearing the end of their reactor lives, and as such, would be due to head to Newport News in the next few years. Enterprise is older than I am, so she may really be due for paying off. If the US government is finally figuring on economizing, this could make even more sense if the net loss of ships comes from Norfolk. Is there a good reason for all that carrier airpower in the Atlantic, when what's on the other side of the pond is the other half of NATO? Remember, back in the day of Mahanian concentration, the United States Fleet was based in California, and Virginia only hosted the North Atlantic Squadron.

Of course, winning that fight means going through Crazy Jim Webb, who stormed out office as Navy Secretary after Frank Carlucci told him to retire all the steam-driven frigates left over from the 1960s. (As Ronald Reagan wrote in his memoirs, none of us in the Navy were sorry to see him go. Those old ships were dangerous, and the guy has got a creepy misogynistic streak anyway.) Webb pretty much went nuts when the Navy proposed moving just one of the ten flattops in the Atlantic Fleet—Enterprise, Eisenhower, Roosevelt, Truman, Bush, Nassau, Wasp, Kearsarge, Bataan, Iwo Jima, take your pick—out of Hampton Roads. Message to Jim: ever heard of Pearl Harbor? Günther Prien in the U-47 sinking the Royal Oak at Scapa Flow in ‘39? Anyone? Anyone? Whatever the case, this will be fun to watch.

Now, if someone had wanted to do some hard, creative work, the Defense Department could have addressed, as I suggested above, the question of balance in airpower. Cutting two Air Force wings and two Navy wings? Yet more lame. Which are more likely to be useful in future military endeavors? Make some decisions, already. Or, if you’re not willing to make decisions, then at least get creative about it. As I’ve written before (“Why amphibs are like smart phones,” 11 June 2009), the Navy’s forced distinction between “carriers” and “general purpose amphibious ships” is unhelpful. They’ll all be carrying Lightning IIs as their fighter-bomber complement someday, whether F-35Cs or F-35Bs. At one point, the USAF’s leadership was talking aloud about buying four wings of those jump-jet F-35Bs. Would there be something profoundly difficult about training some of those guys as carrier-qualified naval aviators? That’s what the RAF does in the UK’s Joint Harrier Force—and the component squadrons of that formation have had some pretty outstanding accomplishments. Would that not close the fighter gap?

After all, it’s not as though the US has brought more than a fraction of its airpower to bear in any of its recent wars, but it’s certainly spending a lot to keep it going. Today, Inside Defense is leaking the Air National Guard’s modernization plan, and specifically its interest (“Guard Requirements Book Lists F-15 EA, SEAD Capability As ‘Essential’”) in adding electronic attack capability, air defense suppression capability, and conformal fuel tanks to its F-15C/Ds aircraft, which are currently useful pretty much just for downing other aircraft. Whether updating that particular old airplane (which occasionally come apart in mid-flight) is a good idea is another question—that it’s under consideration, though, says something.

That is, despite the Pentagon’s analytical lameness, there’s still a lesson here for industry—or two. Multifunction means even more now than it did a few years ago. Multifunction and inexpensive is even better. That’s the reason that those otherwise highly adaptable carriers aren’t fairing better in the budget reviews: they take thousands of crew to operate, and people are very expensive. Find a way to economize and extend capabilities, and even conservative military customers will take note.

All the same, one needs to exercise some care, and do some serious strategic thinking before committing too seriously to any line of investment. We know a fellow who at one point was very keen on investing in the supply chain for F-16s, figuring that those were capable, inexpensive fighters that were flown in more countries, and in greater numbers, than any other type. Besides, they cost less to operate (single engines only) and they didn't suffer from those aforementioned structural problems of the F-15s. So, they'd be around for a while, and as they aged, they’d need parts, right? Then, last May, Bob Gates famously and unfavorably compared F-16s to MQ-9s, noting how the drones flew three times as far, stayed on station five times as long, and cost one-fifth as much to buy. Now, the USAF is planning to replace at least 200 of the oldest (and thus most parts-hungry) Falcons with Reapers. I'm sure that didn't kill his business, but it may have put a hole in its valuation.

That’s part two of the lesson: multifunction and inexpensive are better—so long as there’s not some disruptive technology coming along that could really break through the performance curve. Predators and Reapers are useless in air-to-air combat (when one crew in 2003 got their plane too close to a MiG-25, the results were predictable), but they offer a phenomenal improvement on the other capabilities of certain manned aircraft. Those aircraft became operationally interesting after advanced in navigation and communications technology enabled pilots in Nevada to fly them over Iraq. Hereon, as money flows out of areas of overmatch, and into areas of continued high demand, like continual overwatch, the retirement of large chunks of those overmatching platforms will, in part, free up some money for breakthrough applications. If the rumors are right, the QDR may not say much about that, but the opportunities will unfold all the same.

Where's the tipping point of post-Cold War procurement?

I fielded yesterday from a colleague—who avowedly is not a sailor—this question (slightly rephrased) about the US Navy’s submarine fleet:

        why has the US Navy avoided buying any non-nuclear-powered submarines? I would think that diesel-electric or air-independent propulsion (AIP) attack subs would be a good idea. I don’t know much about subs, but good things seem to have been said about AIP.

The longstanding assumption, I told him, holds that the Navy is afraid to order a non-nuclear boat simply because it would be so less expensive than a nuclear one with a similar suite of sensors and weapons. Yes, I wrote that. Think about it a moment. The concept has important implications for how military procurement may change in the future, but first, I should explain a bit more about what I mean.

No such diesel-electric or AIP submarine would have the legs of a nuke, but it certainly would cost a whole lot less. An S9G reactor alone costs about $550 million, which is a lot more than one would pay for diesels, batteries, and sterling engines. An diesel-electric-AIP boat would also be a lot smaller: on a Los Angeles-class submarine, for example, the whole back half of the boat is propulsion, and all the guys who work back there need racks up forward. This is why American submarines carry crews of about 100, but Swedish and German ones carry crews of about 30. Less internal volume means a smaller pressure hull, which in turn means lower costs. For some comparison, the coproduction of the Type 214s in Turkey was signed with HDW for about $550 million per boat (as I note, that’s about the cost of just the S9G on a Virginia-class boat). From news reports, HDW seems to have been offering similar boats built in Germany or Sweden (where there’s considerably more history in how to do it) for something closer to $400 million, and sometimes less.

Now, if the American admiralty tried to present a bill to the federal congress for a co-produced Type 214 (say, $550 million) alongside that for a Virginia (something north of $2.1 billion), some politically enterprising congressman might ask why they couldn’t just buy the former, and wind down production of the latter. If, on the other hand, the admirals continue to insist that only nuclear submarines are useful for the US Navy, given the distances at which the fleet must operate, then they can maintain the case for spending so much money on what is, ultimately, just one ship.

To be fair, the British and French defense ministries have come to a similar conclusion: that they only want nuclear-powered submarines. Indeed, the end of the Cold War prompted the Royal Navy to pull its four, just-completed Upholder-class diesel-electric submarines from service, and to store them until the Canadian government offered to buy them for a knocked-down price years later. The upgrade program has admittedly been a mess (one officer even died in a shipboard fire during the transit across the Atlantic), but that’s another story. What’s really odd is not why the Brits wouldn’t want diesel-powered submarines (the RN really does go a long way from the UK), but why the Canadian government would want any submarines at all. Canada doesn’t face the same geopolitical issues that Australia does (with its six Collins-class AIP boats), and the federal government is scrambling for money to fund the frigate fleet. One could argue that a single landing ship would be far more more politically useful to Ottawa.

Part of the explanation is that submarines have an aspect of machismo to them, and on the margin, may be more symbolic than practical for many countries’ foreign policies today. The Danes came to that conclusion a few years ago: they dumped their four submarines, and built two Absalon-class command-and-support ships. The latter represent a clever idea: 5,000 tons, frigate in front (Evolved Sea Sparrows and a 127 mm gun), small landing platform dock in back (carrying about 200 troops plus vehicles). Their huge payload makes them useful for anything from sea control to remote mine-hunting to small-scale amphibious operations. Still, a few folks in Denmark lamented the passing of the submarine fleet, which had been around for 95 years, even if it hadn’t really engaged in combat since a few neutrality violations in 1914. It certainly wasn’t going to give much assistance to Danish troops fighting admirably in Afghanistan.

After sending all these thoughts, I got this reply (slightly condensed):

        Given what appears to be some fantastic performance by the sterling cycle boats, I don't get why the US wouldn't want that capability also for at least a portion of their sub fleet. Yes, the introducing lower cost competitors into the inventory isn't a winning idea in the acquisition system in some cases—those arguments are peripheral to the actual combat capability argument, which is part of why I've concluded that DoD's center of gravity is aft, in the business administration-tail end of defense.

Well, as Newt says in Aliens, “mostly.” But consider how the US Army’s plan for replacing its RC-12N Guardrail signals intelligence aircraft with high-flying jets faltered, died—and then got totally subsumed by the USAF’s quick work in buying MC-12W Liberty signals intelligence aircraft. It could be Beechcraft King Air week at the Pentagon, as the MC-12Ws flew their thousandth combat mission recently, but it’s so much more than that. The Liberty project may foreshadow a Grodzinsian or Gladwellian tipping point in military procurement—the moment at which a shift to more numerous, more distributed, more economical, or more flexible platforms and systems become preferred to the asset legacies of the Cold War. Why? It’s simple. As a Liberty pilot in Iraq put it in that linked USAF press release, “I project we'll go over to (Afghanistan) too and do the same stuff over there. We would continue helping to gather intelligence and protecting the troops.” But for China, what else would be the point of most of the United States’ military spending? And even with the potential threat of Chinese adventurism along the western rim of the Pacific, just how much force is needed to stand on guard?

To be sure, not every system refined in the latter half of the 20th century is inflexible or unaffordable—as with the Abasalons, there’s an amazing range of things that one can do with an aircraft carrier—including helping to crush a communist invasion of Taiwan. Today, though, money is short, as the current and immediately preceding occupants of the Oval Office (with the congressional accomplices) have been spending money like sailors on shore leave. At some point, that will come crashing to a halt. As I have been counseling clients for some time, I expect that to happen more quickly than many forecast. Not only is Washington really, really out of money this time, but the Cold War is also really, really over. In 1993, when spending last started turning down sharply, people were still talking about what to do if the Russians moved against Poland. The Russians reluctantly moved against Georgia, and that's about it. Today, those old threat slides look really, really tired. It’s hard to image how the US Army's structure of 45 line brigades makes sense if no one wants to do another Iraq or Afghan campaign.

Of course, if the 2010 elections turn out like the 1994 elections, spending may slide slower as the parties try to outdo one another in looking tough. All the same, if Bob Gates stays in his job, the GOP will have a harder time painting this administration as soft on defense. Thus, the relevant questions are how fast that will happen, and which areas of military spending the US will benefit at the expense of which others. That is, as budget constraints shift inward, there is both an income effect and a substitution effect. Military forces have less money to spend on all kit (the income effect), but they may shift from kit they institutionally prefer (normal goods) to those they do rather less (inferior goods). The tools of counterinsurgency, even of full-spectrum operations, may be inferior goods for a lot of American flag officers, but they'll get comfortable with buying Liberties and MRAPs if that's the best they can do. And as the past few years have indicated, it’s already happening. It hasn’t hit the submarine fleet yet, but even that is not inconceivable.