Pentagon Action Against Lockheed Part of Larger Crackdown on Contractors

Over the last few days, word got out that defense industry giant Lockheed Martin has lost government approval for its cost and schedule tracking systems on the Joint Strike Fighter (JSF) and F-16 programs.  The Pentagon has said problems with Lockheed’s system are part of the reason there have been 80 percent cost overruns in the estimated $382 billion Joint Strike Fighter program. 

But the stakes are even larger.  A spigot of defense spending opened up after 9/11, yet for years, there has been dismal oversight of contractors handling hundreds of billions of dollars in contracts for weapons and other goods and services.  In the last few years, Defense Secretary Robert Gates has embarked upon numerous initiatives to control the often spiraling growth in the cost of weapons programs. Increased pressure on defense contractors is part of the effort to turn “fat into muscle,” as Pentagon industrial policy chief Brett Lambert put it in July, according to InsideDefense.com.  The action against Lockheed for its deficient tracking system has to be viewed in context of this overall effort.

The tracking system is known in the industry as the Earned Value Management System, or EVMS.  EVMS is supposed to help companies manage large, complicated projects and measure performance against a baseline.  Lockheed’s EVMS was deemed deficient in 19 of 32 areas in a November 2007 report by the Defense Contract Management Agency (DCMA), which was made public by POGO in 2008.  The report concluded that Lockheed does “not provide the requisite definition and discipline to properly plan and control complex, multibillion dollar weapon systems acquisition programs.”

But Lockheed isn’t the only contractor with problems. “There’s a crackdown on contractors” for having non-compliant EVM systems, a Defense Department employee told POGO. 

The crackdown has been a long time coming.  For a while, there was a decline in Pentagon and contractor emphasis on EVMS that was due to “an unintended consequence of 1990s acquisition reform,” Dr. James I. Finley, the then-Deputy Under Secretary of Defense for Acquisition and Technology, told POGO back in 2008.  “EVMS is getting more attention throughout industry now that the DoD [Department of Defense] is stressing compliance,” Finley said.

One company, at least, appears to be benefitting. Humphreys and Associates, Inc., an EVMS consulting firm based in Orange, Calif., was hired by Lockheed to help it fix its EVMS problems, the Defense Department employee told POGO.  And Lockheed isn’t Humphrey’s only client.  According to Humphrey’s website, “9 of the 10 largest US defense contractors are among our current or recent clients.” 

Although Lockheed has made progress since 2007, the Pentagon apparently decided Lockheed wasn’t acting fast enough.  It’s still not totally clear what’s going to happen to Lockheed—at a minimum it will have to disclose its EVMS is not approved when it bids for government contracts.

The decertification this week was “really a slap in the face to Lockheed,” one knowledgeable Defense Department employee told POGO.

Lockheed appears to have been caught off guard.  “We were surprised by this action,” Joe Stout, a Lockheed spokesman, told Aviation Week.  Stout added that Lockheed is working to get into compliance.

The Pentagon noted Lockheed’s deficient EVMS system this June when it issued a report on the staggering cost overruns in the Joint Strike Fighter program, which the report estimates will cost $382 billion—an 80 percent increase in the program’s initial projected cost. The Pentagon report called Lockheed’s non-compliance “disappointing and unacceptable” and a “systematic corporate level problem.”

An email obtained by POGO shows that the EVMS problems exist at Lockheed beyond its Fort Worth, Texas, facility, where the Joint Strike Fighter and F-16 programs are based, and extend to its Marietta, Ga., location where the C-130J cargo plane is built.

-- Nick Schwellenbach

Comments

[Dfens]

Scott Horowitz was ATK's main tool in swinging the Constellation rocket designs toward their ends. Like all the rest on that "design committee", Horowitz has no experience designing rockets, but he's ridden on one before so just like anyone who has used a toilet is a plumber, he's a rocket designer. The sad thing is, now that NASA is a bureacracy of asstronauts for asstronauts, that sort of thing is quite acceptable within their walls.

[Dfens]

IR&D, which stands for Independent Researcha and Development don't seem to me to be the problem as the source of money for this work is typically the company itself. I have often been amazed at how little bang for the buck my own company gets out of their IR&D funding, but I see this as the company stockholder's problem, not a taxpayer issue.

The issues for the US taxpayer revolve around CR&D (Contracted Research and Development) and the biggest suck hole of all is the DT&E (Development, Test, and Evaluation) portion of the standard weapons procurement contract.

ATK (formerly Morton Thiokol of Challenger disaster fame) has managed to worm it's way into NASA's heart. They were able to position people so as to have a big influence on NASA's Constellation Rocket designs. All of them feature ATK solid rocket boosters. ATK was able to convince NASA to go with boosters that added a 5th segment to the existing 4 segment shuttle boosters. This seems like a trivial change to those uninformed about how solid rocket motors work, but to those who know, adding that 5th segment basically means that the new boosters have little to nothing in common with the existing shuttle boosters.

Why is this change important to ATK? It is important because it means a big part of their NASA contract involves DT&E of these all new 5 segment boosters. As long as ATK can make a profit on this development work, they don't care if they ever sell another solid rocket motor. Solid rocket motors are tricky and prone to blow up. Designing solid rocket boosters is safe and easy, and has no risk at all. All you really need is an office building full of cubicles and a government contract and you too can make a profit at incompetently trying to design a 5 segment solid rocket booster. The worse job you do at designing it, the longer the contract drags out and the more money you make. NASA doesn't dare shut you down, or they risk losing all their funding from Congress, so they put a happy spin on everything you do, no matter how incompetently you do it.

[Nick Schwellenbach]

Dfens, I'll take a look at the links you sent. One question for now: Do you have any thoughts on IR&D specifically? Someone recently suggested I take a look at the ATK Thiokol case.

[Dfens]

Professor Cohen, cited in the Forbes article earlier, has a website where you can find links to some of his papers on performance based logistics. It's almost funny, really, to have a professor study what was just common sense only a few years ago, but now is cutting edge business theory today. My hat's off to the good doctor, but I'm also wondering when someone will reinvent the wheel.

[Dfens]

More directly to your question, little has been written about the kind of reform I'd like to see in military procurement. There is this article regarding the need for a focus on results within the US military across the board. Also the Space Frontier Foundation has long been a champion of NASA changing the way they do business from paying for development to paying for results. Plus there has been a push within the DoD for performance based contracting" for some time now, but it gets very, very little press.

[Dfens]

It is common knowledge that the "Cost Plus Award Fee" contract is the standard contract for every weapons procurement program today. It is also not difficult to determine the inherit conflict of interst that exists in this type of contract. Essentially the purchaser is paying the contractor for all costs plus paying a profit on those costs incurred during the development of a weapon. The inherit conflict is that there is no way to ensure the contractor is not milking the purchaser by inventing bogus "problems" that cause costs and schedules to soar in this type of contract.

It's brain work. Traditionally we have divided our working class up into professional and hourly classes of individuals. The "professionals" do brain work and are paid a flat salary for their services precisely because it is too easy to pretend to be doing brain work when you're not. In fact, a professional person may very well be thinking of precisely how best to prevent progress from occurring in the development of a weapon and you would not see any difference in what they are doing. Plus, even if you did have thought police who could discern the difference between a professional who is trying to inhibit progress, such actions are indistinguishable from stupidity, and contractors know that too. In fact, that kind of cover is sought by these contractors purposely hiring incapable people for management positions.

Hourly work in our society has typically been physical labor of some sort where work procedes at a visible and observable pace without regard to whether the person who is doing that work is mentally engaged or not engaged in the activity. We are so "advanced" now that we pay those who do professional work just like we pay those who do hourly work and we wonder why we get screwed? How could they possibly have conned us? Uh, yeah, duh, how could they possibly have done that? Ironically, we started out by paying lawyers that way. Look at how well it has worked in our legal system. There's a shining example for you.

Then you hire a bunch of lawyers to run your country and, guess what, they decide we should hire contractors to build our weapons the same way! What could possibly go wrong? Well, let's see, our aircraft, like our V-22 and F-22 could take 25 years to develop when previous generations of fighters developed under either contractor funding or under reimbursement contracts that did not pay profit on development only took 5 years or less. In fact, one of the problems with the cost reimbursement contracts was the fact that contractors were often taking short-cuts in the development process because they weren't making any profit until they started production of a weapon. In those days (the late '60s through the '80s) the big problem was that the first weapons off the assembly line were crap and it was not until you got to the "B" model that the weapon even started to work as it should. Today, the "A" model works great, it's just that it's obsolete and we're out of money by the time the first one finally rolls off the assembly line. Brilliant!

[Nick Schwellenbach]

Hey Dfens,

You raise some great points. Are there any journal articles, studies or anything you could point us to?

Nick
POGO

[Dfens]

What a crock of crap! It's Lockheed's "Earned Value Management Program" at fault my ass. Things started going to hell in the defense industry when contractors started getting reimbursed for development costs, and went completely to hell when we started getting paid a profit on development. If you're getting paid profit on development, why ever stop? It's pure profit with none of the risks associated with actually building an airplane that's expected to fly. As usual, POGO acts as the industry shill.