Building Future Security: Strategies for

Restructuring the Defense Technology and

Industrial Base

June 1992

OTA-ISC-530

NTIS order #PB92-208156
Recommended Citation:

U.S. Congress, Office of Technology Assessment, Building Future zSecuri y, OTA-ISC-530

(Washington, DC: U.S. Government Printing Office, June 1992).

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Foreword

The collapse of the Soviet military threat holds out the prospect of a ‘‘peace dividend”

in the form of a smaller and less costly defense establishment. But despite the end of the cold

war, the United States still faces existing and emerging security threats, including the rise of

regional powers, the proliferation of advanced conventional military technologies and

weapons of mass destruction, and the possibility of a renewed global military threat in the

distant future. The Nation will therefore continue to need a robust defense technology and

industrial base (DTIB) that can develop, produce, and support appropriate military systems in

peacetime and respond to additional military requirements in crisis or war.

Building Future Security, the final report of OTA’s assessment of the U.S. defense

technology and industrial base (DTIB), discusses strategies for moving to a smaller and more

efficient DTIB over the next decade and maintaining that base in the future. It complements

OTA’s earlier report, Redesigning Defense, which developed a framework for analysis of

future defense needs, postulated some desirable characteristics of the future DTIB, and

outlined some broad strategic choices that will affect the future base. This framework provided

the starting point for the current report, which assesses some specific policy options for

restructuring the DTIB.

The principal finding of Building Future Security is that while powerful bureaucratic,

economic, and political interests favor a proportional downsizing of the DTIB in which a

maximum number of current firms or organizations would survive (albeit smaller and perhaps

weaker), this approach would not best serve the Nation’s defense needs. Instead, if these

needs are to be met, the anticipated cuts in defense spending will require a fundamental

restructuring of the DTIB to 1) reallocate resources from short-term military capabilities to

long-term military potential, and 2) exploit the synergies that can result from a closer

integration of the R&D, production, and maintenance elements of the base.

For example, the future DTIB might seek to integrate R&D and production through a

‘‘prototyping-plus’ strategy that involves the continuous development and limited production of selected prototypes during the periods between full production programs. Defense

manufacturing might be maintained through some combination of low-rate production, greater

integration of the civil and military industrial bases, and changes in procurement of spare parts

and maintenance services. It is clear that future managers of the DTIB will need a better

understanding of all elements of the base and should seek to enhance the strength of the entire

base rather than a single element.

In undertaking this assessment, OTA sought information and advice from a broad

spectrum of knowledgeable individuals and organizations whose contributions are gratefully

acknowledged. As with all OTA studies, the content of this report is the sole responsibility of

the Office of Technology Assessment and does not necessarily represent the views of our

advisers and reviewers.

 Directo r

. . .

Ill
Advisory Panel—Building Future Security:

Strategies for Restructuring the U.S. Defense Technology and Industrial Base

Walter B. Slocombe, Chair

Caplin & Drysdale Chartered

Richard Bohlen

Consultant

Robert Calaway

President

Resources Management International, Inc.

Gordon Corlew

Vice President, Engineering and Production

AIL Systems, Inc.

Jacques S. Gansler

Senior Vice President

TASC

Julius Harwood

Consultant

William W. Kaufmann

Senior Fellow

The Brookings Institution

General P.X. Kelley

USMC (Ret.)

James L. Koontz

President & CEO

Kingsbury Machine Tool Corp.

Thomas L. McNaugher

Senior Fellow

The Brooking Institution

William McNeill

Professor Emeritus

Department of History

University of Chicago

John Mearsheimer

chairman

Department of Political Science

University of Chicago

William J. Perry

Chairman & CEO

Technology, Strategies & Alliances

Donald W. Putnam

Corporate Director of Contracts

General Dynamics Corp.

Jack Ruina

Professor of Electrical Engineering

Center for International Studies

Massachusetts Institute of Technology

Howard D. Samuel

President

Industrial Union Department AFL-CIO

Wickham Skinner

Professor Emeritus

Business Administration

Harvard University

General William Y. Smith

USAF(Ret)

James Solberg

Professor

Engineering Research Center

Purdue University

Leonard Sullivan

Consultant

System Planning Corp.

Admiral Harry Train, USN, (Ret.)

Division Manager

Strategic Research and Management Services

Division

Science Applications International Corp.

General John W. Vessey, Jr.

USA (Ret.)

Albert Wheelon

Consultant

NOTE: C)TA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by the advisory pz neI members, The panel does

not, however, necessarily approve, disapprove, or endorse this report. OTA assumes full responsibility for the r:port and the accuracy of its

contents.

iv
OTA Project Staff—Building Future Security:

Strategies for Restructuring The U.S. Defense Technology and Industrial Base

Lionel S. Johns, Assistant Director, OTA

Energy, Materials, and International Security Division

Alan Shaw, International Security and Commerce Program Manager

Jack H. Nunn, Project Director

Ivan Oelrich

Jonathan B. Tucker

Christopher Waychoff

Administrative Staff

Jacqueline Robinson-Boykin, Office Administrator

Louise Staley, Administrative Secretary

Contractors

Madeline Gross

Ivars Gutmanis

John Jury

Deborah Shapley

Peter Tarpgaard
Contents

Page

Chapter 1. Summary and Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Chapter 2. Research and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Chapter 3. Prototyping-Plus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Chapter 4. Efficient, Responsive, Mobilizable Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

Chapter 5. The Maintenance Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119

Chapter 6. Good, Integrated Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139

Appendix A. Defense Technology and Industrial Base Policies of Allied Nation~ . . . . . . . . . . 157

Appendix B. Reviewers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159

w“
Chapter 1

Summary and Conclusions
Contents

Page

INTRODUCTION . . . . . . . . . . . . . . . . . . . .

Implications of Defense Budget Cuts

ORGANIZATION OF THIS REPORT .

GENERAL FINDINGS . . . . . . . . . . . . . . .

Cross-Cutting Issues . . . . . . . . . . . . . . . .

National Choices . . . . . . . . . . . . . . . . . . .

SPECIFIC FINDINGS . . . . . . . . . . . . . . . .

Research and Development . . . . . . . . . .

Prototyping-Plus . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 8

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Efficient, Responsive, Mobilizable Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,

A Robust Maintenance Capability . . . .

Good, Integrated Management . . . . . . .

THE FUTURE INTEGRATED BASE . .

National-Level Decisions . . . . . . . . . . . .

Industrial Sector Strategies . . . . . . . . . . .

Organizational Implications . . . . . . . . . .

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . .

POLICY ISSUES FOR CONGRESS . . . .

Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Organizational Changes . . . . . . . . . . . . . .

Management Options . . . . . . . . . . . . . . . .

SUMMAR.Y . . . . . . . . . . . . . . . . . . . . . . . . . . .

Box

I-A. OTA’s Redesigning Defense Report

l-B. National Strategy in 2010 . . . . . . . . . .

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Boxes

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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

l-C. Armored Vehicles and Helicopters in 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

l-D. Operations at Selected Defense Firms in 2010.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Figures

Figure

1-1. Strategic Choices for the Future DTIB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1-2. The Future Integrated DTIB . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . .

1-3. Policies Supporting Future DTIB Strategic Choices . . . . . . . . . . . . . . . . . . . . . . . . . .

Tables

Table

1-1. Desirable Characteristics of the Future Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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1-2, Department of Defense Budget Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

1-3. Policies to Assure Efficient Peacetime Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

1-4. Hypothetical Annual DTIB Funding Alternatives for 2001 -2010 . . . . . . . . . . . . . . . . . . . . . . . 22
Chapter 1

Summary and Conclusions

INTRODUCTION

The transformation of the global security environment is causing sweeping changes in the U.S.

defense technology and industrial base (DTIB). The

collapse of the Soviet military threat, which drove

U.S. defense planning and spending for 40 years,

combined with the urgency of domestic problems

and the spiraling budget deficit, have generated

pressures to reduce the defense budget by a third to

a half over the next decade. Yet the Persian Gulf War

illustrated the continuing need for an effective U.S.

military establishment, supported by a smaller but

still robust DTIB.

Cuts in funding for defense research, development, production, and maintenance could impair the

ability of the base to meet future national security

needs unless the cuts are accompanied by changes in

how the base is structured. As a result, the Nation

needs to develop a comprehensive strategy for

managing the downsizing of the DTIB while preserving the core capabilities essential for the development, production, and maintenance of major

weapons and defense equipment. The broad outline

of such a strategy was examined in an earlier OTA

report, Redesigning Defense (See box l-A.), and in

three background papers.l The previous report

described some desirable characteristics of the

future DTIB, which are listed in table 1-1. This

report elaborates on the findings of the earlier OTA

publications and examines in greater detail the

specific policy choices involved in restructuring the

DTIB over the next decade.

Implications of Defense Budget Cuts

Both the administration and Congress appear to

be preparing for major, long-term reductions in

defense spending. The administration’s fiscal year

1993 Department of Defense (DoD) budget request

is for $267.6 billion in budget authority and $272.8

billion in outlays—a 7-percent reduction after inflation from the fiscal year 1992 spending level. The

DoD projects that by 1997, budget authority will fall

below $240 billion in constant 1992 dollars. (See

table 1-2.)2 Many members of Congress have

proposed even deeper cuts. 3 By the end of the

decade, the defense budget could well be between

$180 and $220 billion in 1992 dollars. Even these

projected cuts may be conservative given the continuing decline of the immediate military threat, the

growing Federal budget deficit, and competing

social priorities.4

Reductions in defense spending are likely to

affect procurement accounts more than other budget

areas. The fiscal year 1993 budget request, for

example, put a cap on B-2 bomber production at 20,

terminated the SSN-21 Seawolf attack submarine

with the lead boat, shifted the focus of the Army

Comanche helicopter program from full production

to building prototypes and developing subsystems,

and terminated or reduced a host of other weapons.s

A recent Congressional Budget Office report concluded that future budget cuts would leave little

room for new weapon programs in the near term.G

Further, DoD funding for procurement is likely to be

constrained by competing demands. For example,

the House Armed Services Committee noted in its

fiscal year 1990 authorization report that compli1 U.S. Congress, Office of Technology Assessment, Adjusting to a New Security Environment.” The D@ense Technology and Indusm”al Base

Challenge, OTA-BP-ISC-79 (Washington DC: U.S. Government Printing Office, February 1991); Redesigning Defense: Planning ~he Transition to the

Future US, Defense industrial Base, OTA-ISC-500 (Washington, DC: U.S. Government Printing Office, July 1991); American Military Power: Future

Needs, Future Choices, OTA-BP-ISC-80 (Washington, DC: U.S. Government Printing Office, October 1991); Lessons in Restructuring Defense

Industry: The French Experience, OTA-BP-ISC-96 (W’ashingtou DC: U.S. Government Printing Office, June 1992).

z Secretary of Defense Dick Chcney, Report of the Secretary of Defense to the President and Congress (Washington, DC: [J.S. Government Printing

Office, February 1992), p. 21.

3 Eric Schmitt, “Move to Shift $15 Billion from Military Gaim Support in House, ” New York Times, p. A12, reports that Congressman hs Aspin

has proposed a $91 billion cut from the budget by 1997.

4 OTA’S assessment of opportunities for economic conversion has recently been published in a report that addresses many of the problems of

economic adjustment. U.S. Congress, Office of Technology Assessment, After The Cold War: Living wifh Luwer Defense Spending, OTA-ITE-524

(Washington, DC: U.S. Government Printing Office, February 1992).

5 Cheney, op. cit., footnote 2, p. 25. These proposals are all being hotly debated, particulmly the termination of the Seawolf.

6 Congressional Staff Memorandum, Implications of AddirionaZ Reductions in Defense Spending, Congressional Budget Office, October 1991.

-3-
4 ● Building Future Security

Box l-A— OTA’s Redesigning Defense Report

Redesigning Defense described the defense technology and industrial base (DTIB) and current pressures to

reduce it, and developed a framework for debating the size and structure of the future base. The report postulated

some desirable characteristics of a future base, described the broad strategic choices that the Nation faces regarding

the future base, and outlined tactical decisions that could be made to support the transition to the future base. The

report’s key findings are outlined below.

Definition of the DTIB-The defense technology and industrial base is defined as the combination of people,

institutions, technological know-how, and facilities used to design, develop, manufacture, and mnaintain the weapons

and supporting defense equipment needed to meet U.S. national security objectives.

The DTIB consists of three broad elements—research and development (R&D), production, and maintenance.

Each of these has a private and a public component. The DTIB can also be divided into tiers —prime contractors,

subcontractors, and parts and raw-material suppliers-and into different industrial sectors. While the DTIB is often

discussed as if it were an independent entity, it is really interwoven with the Nation’s civilian technology and

industrial base and, increasingly, with the global economy.

Current Base Conditions-The report noted that although the DTIB has produced some outstanding

weapons, as demonstrated in the Persian Gulf War, it has serious weaknesses that limit its ability to support future

national defense needs for peacetime production and crisis response. Other studies have documented the problems

of the high cost of weapon systems, growing dependence on foreign sources for critical components, and the

Shrinkln“ g number of defense subcontractors.

Desirable Characteristics of the Future Base-To avoid a weakened and potentially crippled DTIB, it is

important to set goals for the future base. OTA suggested a list of desirable characteristics for a future DTIB as a

guide for planning. These characteristics are outlined in table 1-1 of the text.

Broad Strategic Choices-The Nation needs a long-term strategy for identifying and maintaining critical

facilities, technological know-how, and people needed to develop, manufacture, and maintain future systems. The

Nation faces some broad strategic choices that will shape the future DTIB. Ad hoc decisions, made in lieu of a

strategy, will result in a weak DTIB that will undermine the Nation’s defense.

Autonomy v. Interdependence- The Nation must choose the degree of defense industrial autonomy that is

necessary and possible in an increasingly global technological environment. There are risks both in excessive

reliance on foreign sources and in attempting to be fully autonomous. In the former case, the: Nation risks losing

to offshore competitors critical capabilities and control over which technologies are pursued; in the latter case, it

risks higher procurement costs, protected industries that lack innovative drive, and loss of access to foreign

technological advances.

Arsenal System v. Civil Integration-A second choice relates the internal structure of the future base. On one

hand, the Nation can rely on “arsenals, “ i.e., government or privately-owned, sole-source producers of particular

military systems. On the other hand, the Nation can modify military requirements to allow much greater use of

technologies in the civilian sector. In the absence of deliberate choices, the DTIB is likely to evolve towards an

arsenal structure, since current procurement laws impede civil-military integration and shrinking production will

lower the number of private defense contractors, thereby reducing competition,

Current Capability v. Future Potential—A third choice concerns the allocation of resources between current

military capability and future military potential. Although some deployed capability is needed for future theater

conflicts, the greatly reduced threat of a major global conflict allows a shift of funding away from production toward

research and development.

Tactical Decisions-Besides the broad strategic choices mentioned above, the Nation needs to make tactical

decisions to ensure that the future DTIB has the characteristics, outlined above, that are needed for a strong defense.

These tactical decisions concern:

. Guiding and evaluating research and development

. Protecting core competencies

* Developing human resources

. Identifying critical manufacturing areas

● Setting manufacturing priorities

. Funding surge and mobilization planning

Redesigning Defense’s description of desirable characteristics and the Nation’s strategic a and tactical decisions

were the starting point for the current report. They were modified and extended as this second report developed.
Chapter I---Summary and Conclusions ● 5

Table l-l—Desirable Characteristics of

the Future Base

● Advanced research and development capability

. Ready access to civilian technology

. Continuous design and prototyping capability

. Limited, efficient peacetime engineering and production

capabilities in key defense sectors

. Responsive production of ammunition, spares, and

consumables for theater conflict

● Healthy, mobilizable civilian production capacity

. Robust maintenance and overhaul capability

. Good, integrated management

SOURCE: Of fics of Technology Assessment, 1991. Characteristics are not

necessarily listed in order of priority.

ance with environmental legislation will cost the

DoD $5 to $10 billion over the next 5 years.7

A recent DoD report on the defense industrial base

noted, in something of an understatement, that ‘‘the

consequences of DoD budget reductions will be one

of the most important issues facing defense contractors in the 1990s. ”8

Individual defense firms will

need to restructure, and some face challenges to their

survival. The government portion of the DTIB must

also restructure as government-operated arsenals,

depots, and laboratories are faced with the new

national security and fiscal realities.

The DoD has asserted that its budget request

reflects a new approach to defense acquisition,

featuring: 9

●

●

●

●

heavy emphasis on government-sponsored R&D

to maintain America’s technology base;

more reliance on prototyping, advancing to full

production only after thorough testing and

demonstration of a “critical’ requirement;

greater attention to the producibility of new

systems and to manufacturing processes; and

more reliance on upgrading and inserting new

capabilities into existing platforms.

The DoD proposals embody many of the desirable

DTIB characteristics discussed in Redesigning Defense. (See table 1-1 and box l-A.) But while these

policies represent the DoD’s first real response to the

challenges of the post cold war era, they are not

sufficient to ensure an effective future base. OTA’s

analysis indicates that a more detailed and

integrated plan of action will be necessary if DoD

Table 1-2—Department of Defense Budget Authority

(billions of dollars)

Real

Year Current $ Constant $ growth %.

1985 . . . . . . . . . . . . . . 286.8 375.6

1986 . . . . . . . . . . . . . . 281.4 359.1 -4.4

1987 . . . . . . . . . . . . . . 279.5 345.7 -3.8

1988 . . . . . . . . . . . . . . 283.8 338.5 -2.1

1989 . . . . . . . . . . . . . . 290.8 333.7 -1.4

1990a . . . . . . . . . . . . . . 291.0 324.1 -2.9

1991’ a . . . . . . . . . . . . . . 276.0 292.9 -9.6

1992a 

. . . . . . . . . . . . . . 277.5 b287.8 b–1 .8

1993 . . . . . . . . . . . . . . 267.6 267.6 -7.0

FY 1985-1993 real change: . . . . . . . . . . . . . . . -28.8

1994 . . . . . . . . . . . . . . 267.8 258.0 -3.6

1995 . . . . . . . . . . . . . . 269.9 250.4 -2.9

1996 . . . . . . . . . . . . . . 270.4 241.8 -3.4

1997 . . . . . . . . . . . . . . 274.6 237.5 -1.8

FY 1985-1997 real change: . . . . . . . . . . . . . . . -36.8

a ~cludes cost of Operation DESERT SHIELD/STORM. This is ~nsistent

with the 1990 Budget Enforcement Act, which exempted DESERT

SHIELD/STORM spending on an emergency basis from negotiated

budget ceilings set by the Executive Branch and Congress. According to

the DoD, the net U.S. cost for this operation should not exceed $5.9 billion

after all foreign contributions are received.

b Enact~ in w 1992 DoD Appropriations Act, The FY 1992 figure in this

year’s budget request ($270.9 billion) differs because it ref Iects proposed

environmental supplemental appropriations and proposed rescission of

already appropriated funds.

SOURCE: Repat of the Secretary of Defense to the President and

Congress, February 1992.

initiatives are to result in a strong and healthy

DTIB. What is missing from the current approach is

an announced strategy and an implementation plan

(including budget considerations) that links these

and other policies to ensure the ability of the DTIB

to meet the Nation’s future national security needs.

Such an integrated approach is suggested later in this

chapter.

ORGANIZATION OF THIS

REPORT

This report consists of six chapters and one

appendix. Using the desirable DTIB characteristics

described in Redesigning Defense as a starting point,

the chapters analyze detailed policies for achieving

those characteristics, This chapter summarizes key

findings and policy issues. Chapter 2 addresses

alternatives for maintaining an advanced research

and development (R&D) capability. Chapter 3

discusses OTA’s “prototyping-plus” strategy and

7 House Armed Services Committee, FY 1990 Au(horizution Report.

8 Under Secretq of Defense (Acquisition) Assistant Secretary of Defense (Production and Logistics), ReporI to Congress on ~he Defense lndustria/

Base, November 1991, p. 4-1.

9 Ibid.
6 ● Building Future Security

its implications. Chapter 4 describes how a future

production base might manufacture quality military

equipment at an affordable price in peacetime and

also meet the surge and mobilization requirements

of a future crisis or war. Chapter 5 discusses policy

alternatives for ensuring a robust maintenance capability. Chapter 6 considers the management of a

future restructured base. The appendix summarizes

plans of selected allied nations to deal with changes

in their defense industrial bases.

The findings of the assessment are divided into

general observations that apply to most or all of the

DTIB, and more specific findings relating to one or

a few parts of the base. The general findings also

include a discussion of three issues that cut across all

the elements of the base.

GENERAL FINDINGS

The capacity of the current U.S. DTIB to

provide defense goods and services exceeds foreseeable national security requirements. This overcapacity is largely a result of the reduced military

threat and the large inventory of military materiel on

hand. However, the current base has potential

production bottlenecks and shortfalls to quantity

production that will be exacerbated as some producers are forced out of the defense business by cuts in

funding. Reductions in capacity must therefore be

undertaken with care.

Powerful military, economic, and political interests support downsizing the DTIB in a manner

that allows the maximum number of current

firms and organizations to survive, albeit reduced in size. Such a “proportional downsizing”

would not best support the Nation’s future

defense needs. What is required is not just a

smaller DTIB, but a restructured base with a new

allocation of resources among its three main

elements—R&D, production, and maintenance.

The waning major military threat and large inventories of advanced weapons and equipment demand a

relative shift of resources toward R&D, as has begun

in recent defense budgets. The production and

maintenance bases, while still important, will bear

proportionally larger budget reductions.

The elements of the future DTIB must be better

integrated. There must also be an integrated

management approach that aims to achieve the

best use of resources for the DTIB as a whole. In

the past, DTIB managers have focused on achieving

Photo credit: DoD

The reduced security threat of tile near future can be

met largely with existing inventories of weapons.

individual goals within their own organizations,

with little attention given to the effects of these

policies on the entire base. For example, R&D costs

were made to appear artificially low by shifting

some of the true cost of R&D to production.

Government managers have also sought to control

production costs through “spare parts breakout”

(i.e., contracting production of’ spare parts to a firm

other than the original equipment manufacturer) and

the use of second sources. The se policies, however,

have reduced the funds available for full-service

contractors to maintain R&D teams and facilities.

If the DTIB is to provide high-quality weapons at

an affordable price in peacetime and to respond with

increased production in crisis or war, it must be

restructured to exploit the synergies arising from a

closer integration of R&D, production, and maintenance. For example, R&D can be directed more

toward improving production processes, and contractors can manufacture multiple products on a

single production line that also upgrades older

equipment. While rigid centralization is not an

appropriate way to manage the future DTIB, it will

be essential to develop an integrated management

approach that gives priority to the needs of the entire

base over those of its parts. Such an integrated

approach may require reorganizing DoD oversight at

the levels of the Office of the Secretary of Defense

(OSD) and the individual Services to ensure an

integrated approach to managing R&D, production,

and maintenance. Managers a: all levels may also

need incentives to take a broader view of the base.

R&D managers, for example, right be evaluated in
Chapter Summary and Conclusions ● 7

part on their ability to promote the development of

systems that can be manufactured more easily.

There may be a similar need to reorganize

Congress’ committee structure to improve communication among the various committees monitoring

defense R&D, production, and maintenance. The

structural changes in the DTIB described in this

report will require a concomitant shift in thinking about what constitutes national security and

the role of science and industry in maintaining it.

This new paradigm will rest on a willingness to

purchase knowledge rather than hardware in

many cases. While standing forces are the currency

of national power in a hot or cold war, military

potential in the form of economic and technological

strength is more important during periods of reduced

military threats. Just as the Nation commits resources in peacetime to maintain divisions, air

wings, and carrier battle groups against future

contingencies, it must commit resources to preserve

a strong DTIB.

The “pipeline” model of acquisition, which

shapes current procurement policy and focuses

on products rather than manufacturing processes, will be counterproductive in the future.

Instead, flexibility in development and manufacturing will be essential. The automatic link between development and production could be broken

so that the basic criterion for management success is

not to produce a new system against all odds, but to

develop new capabilities that only sometimes take

the form of new hardware.

The current debate over maintaining a warm

production base is incorrectly framed; the real

issue is how to maintain a “warm capability. ”

Such a capability can provide for the future development and production of new systems. Changing the

terms of the debate in this way would provide the

opportunity to identify the defense industrial sectors

in which R&D alone is sufficient, those in which

warm production lines must be preserved, and those

in which other alternatives may exist,

Legislative and regulatory barriers impede

civil-military integration. Current laws on defense

acquisition aim to give a maximum number of

companies access to public funds, while also ensuring maximum public accountability in the use of

those funds. A negative effect of this approach has

been to impose different regulatory and accounting

rules for civil and defense activities, forcing firms to

isolate their defense work from their civilian work.

As the DTIB shrinks, this approach might be

reexamined. Critics argue that greater integration

between civil and military production would actually improve access by increasing the number of

firms willing to do business with the DoD. This

increase would in turn provide greater opportunities

for competition and reduce the need for extraordinary government actions to ensure accountability.

Although several DoD programs have sought to

transfer more oversight responsibility to defense

firms, these programs have often failed because of a

lack of long-term support from the DoD acquisition

community.

Since the DoD is unlikely to beat the forefront

of all defense-relevant product and process technologies, it should establish priorities for which

technologies it wishes to pursue. Defense-relevant

technologies are increasingly developed in the civil

sector and by other countries. The DoD needs to

track these developments and to take advantage of

them.

Cross-Cutting Issues

Some issues confront policymakers with common

challenges across the DTIB. Three of these crosscutting issues—human resources, facilities, and technology---will be key to whether the United States

has a strong DTIB in the 21st century.

Human Resources

People are the single most important ingredient of the DTIB. They provide the knowledge to

conceive of and build new systems, devise and

improve manufacturing processes, and manage the

base. To retain a healthy DTIB, the Nation must

therefore retain high-quality technicaI and managerial personnel, encourage them to improve their

skills, and attract new people. Even more important

than individuals are teams with special know-how

that is passed down over decades, such as aircraft

design teams and missile production groups, The

continuity of such teams is critical to technical

advancement and the Nation’s future military capabilities. Yet private companies and government

organizations are slashing personnel and training

programs to remain competitive or simply to survive

economically.

The objectives of a future DTIB humanresources policy should not be to retain the
8 ● Building Future Security

maximum number of people currently employed

in the defense industry but to ensure that individuals and teams with essential skills are preserved,

and to help those who leave the DTIB to maintain

relevant skills in the civil sector. The strategy for

preserving skills (both individual and team) depends

on the industrial sector. Electronics skills, for

example, can be maintained in the civilian base with

little government intervention. In contrast, since

submarine production and munitions design are not

performed in the civilian base, specific actions will

be needed to preserve know-how in these areas.

Facilities

The cold war mobilized a significant portion of

private industry and expanded the government’s

military research, production, and maintenance facilities. The end of the cold war requires the

demobilization of many private and government

facilities. Facilities can be replaced more easily than

people, but some facilities are unique and not easily

replicated once closed, including large dry docks,

aerospace test facilities, special laboratories, and

maintenance hangars. Nevertheless, the limitations

on new production and maintenance work will make

it costly for the Nation to maintain duplicate

facilities. It will therefore be necessary to decide

when to consolidate to a single facility, when to

maintain more than one, when to rely on allied

capabilities, and when to close a unique facility and

adopt an entirely different approach to meeting a

national security need.

The objective of a facilities strategy should not

be to maintain current capacity, but to ensure the

proper mix and size of future DTIB facilities.

How this is done will vary by industrial sector

and technology. The government may have to

intervene to preserve militarily unique facilities for

tank assembly, nuclear submarines, and ammunition. Technologies and industrial sectors with more

civil applications (e.g., electronics, fasteners, and

clothing) can probably be maintained entirely in the

civil sector. Even so, this approach would require

changes in DoD acquisition policy such as eliminating overly rigid military specifications and designing military systems to allow use of commercial

components. Critical and unique facilities might be

preserved either by allowing them to be used

profitably in the private sector or by converting them

into government-owned, contractor-operated (GOCO)

facilities or government-owned, governmentPhoto cfedit: DoD

Production facilities built to meet the needs of the cold war

are in exoess of current requirements.

operated (GOGO) facilities. OTA’s analysis suggests that many critical facilities can be maintained

by encouraging greater civil-military integration or

by concentrating activities at a few select facilities.

Technology

Advanced technology remains critical to the

Nation’s military strength. But the narrow focus

on battlefield performance during the cold war

should give way to a broader approach that takes

account of defense manufacturing and maintenance issues and economic security. The cold war

spurred an outpouring of U.S. technological innovations aimed at outperforming a quantitatively superior enemy on the battlefield and building a strategic

nuclear deterrent. In the future, military innovation

might be sustained with relatively less funding and

reorganized to take advantage of scientific and

technological advances in the U.S. civil sector and

abroad. Policymakers will also need to identified

technologies with the potential to solve national

security problems (the aim of the congressionally

mandated Critical Technology Plans) and make a

long-term commitment to fur ding their development.

National Choices

In a general sense, the chief defense-management

challenge of the next decade will be to maintain the

U.S. advantage in defense-related technology and to

produce high-quality military hardware on a much

smaller defense budget. There are different ways of
Chapter I-Summary and Conclusions ● 9

.

Photo credit: bckheeo7Sarrders

A technician prepares gallium arsenide semiconductor

wafers for a final manufacturing step. Such technologies

will be crucial to future military capability.

organizing the future DTIB to achieve these goals.

The alternative policies involve strategic choices, as

described in the earlier OTA report Redesigning

Defense. (See box l-A.) Further analysis by OTA

has led to refinement of these strategic choices, as

indicated by the decision tree in figure 1-1. The

strategic choices at each fork in the tree are not

absolute but merely suggest general tendencies. For

example, the United States might emphasize R&D

and prototyping for most weapons systems, while

still keeping some items in production at any given

time to modernize selected portions of its forces.

The first choice for the Nation is between current

and future military capabilities. To the extent the

United States faces an immediate military threat, the

DoD will need to allocate funds for current capabilities. If the immediate threat is reduced, however, the

DoD has the option to shift funds to the development

of military potential. The administration’s fiscal

year 1993 budget proposal made a tentative move in

this direction by calling for a small real increase in

R&D funding, a 13-percent decrease in procurement, and the cancellation of several production

programs.

Subsequent

1. between

nologies

2. between

3. between

choices are:

dual-use and militarily unique tech-

(both product and process);

private and public ownership;

competitive procurement and single

sourcing; and

4. between reliance on domestic and international sources.

The decision tree outlines some of the reasons for

making each of these choices.

For much of the military materiel required by the

DoD, OTA’s analysis suggests that for reasons of

cost, total capacity, and potential for innovation,

the path defined by chosing dual-use technologies, private ownership, and competitive acquisition is preferable to alternate paths. Nevertheless,

in some cases other paths may be necessary because

of unique military performance requirements or

manufacturing processes (e.g., for production of

ammunition and nuclear submarines), or technology

security (e.g., for nuclear weapons).

Following the dual-use/private/competitive path

would require a number of changes in current U.S.

laws and regulations, including the adoption of

accounting and manufacturing practices that do not

isolate defense from civil production, a change in the

profit/risk ratio for private-sector defense work, and

an emphasis on flexible performance specifications

rather than rigid military specifications for products

and manufacturing processes.

Finally, there is a choice between national autonomy and international cooperation. OTA’s analysis

confined that this choice is important but is

subordinate in most cases to other choices. In the

new security environment, the government will need

to ensure that the benefits of international arms

collaboration, sales and purchases are weighed

against the potential drawbacks.

SPECIFIC FINDINGS

The discussion below focuses on the desirable

characteristics of the future DTIB (see table 1-1) and

the policies for achieving them. It is important to

keep in mind that these characteristics should be

viewed as an integrated set. Policies developed for

the R&D and maintenance elements, for example,
10 ● Building Future Security

Figure l-l—Strategic Choices for the Future DTIB

= DjrnjnjSh~ ~reat

. Desire for technological advances

■ Economic dimension of security A

■ lmme~iate threat

■ Obsolete systems

■ Maint dn skills and facilities

■ Critical performance ■

= Technology security ■

■ No a“vilian counterpart

\

Lower costs

Increased capacity

Economic dimension of security

■ Ensure addability and

maintain skills

 Greater bureaucratic Control

\ ~ 0

. 4 *

Q~ ■ Cost discipline

■ Promote technological

■ Limited requirements inovations

■ Planning stability ■ Increases capacity

‘ k

)

.-

8

= U.S. jobs and economic gain 

■ National technological development ■

■ Greater foreign policy flexibility ■

SOURCE: Office of Technology Assessment, 1992

Access to foreign markets

Access to foreign technology

Potential for reduced unit costs
Chapter Summary and Conclusions ● 1 1

will affect the health of the production base. A

discussion of the integrated future base follows a

description of the R&D, production, and maintenance elements.

Research and Development

Redesigning Defense stressed the importance to

future national security of an advanced R&D capability that can 1) maintain qualitative weapon

performance superiority against potential adversaries; 2) create opportunities for innovation and hedge

against technological breakthroughs by opponents;

and 3) support the Nation’s overall economic

strength, which is ultimately the source of its

military strength.

An advanced defense R&D capability includes

world-class personnel (individuals and teams); cuttingedge research that guards against technological

surprise; robust efforts in critical technologies; a

balance between the near-term technology needs of

each Service and long-term U.S. defense needs;

strong links to manufacturing, so that proposed

weapon systems are producible; and integration with

civilian R&D, even in the absence of a national

consensus on directed federal support for civil

technology programs.

Both the Administration and Congress have

expressed a desire to support defense R&D. The

DoD’s current budget request contains a shift in

relative emphasis toward R&D. Over the long term,

however, the military R&D base will almost certainly shrink. Funding is expected to drop in real

terms from around $40 billion today to $25 to $27

billion (in 1992 dollars) by 2001. Moreover, the

DoD will have to pay explicitly for defense R&D

rather than follow the past practice of funding it

partially through production,

Without offsetting actions, funding reductions

will result in disproportionate cuts in defense

R&D performed by private industry. Direct R&D

contracts to industry will decline, and lower procurement budgets will also reduce companies’ willingness to invest their own money in R&D. DoD

support for research in colleges and universities

could also decline as the defense budget shrinks. As

a result of these trends, the DoD will not have the

benefits of some leading-edge research by industry

and universities that it has enjoyed in the past. The

DoD will also have less of a chance to familiarize the

next generation of scientists and engineers with the

Nation’s defense needs. A national DTIB strategy

should compensate for this trend by providing

proportionately more direct support for privatesector R&D than in the past, and by maintaining

funding of university basic research.

Present Service plans to consolidate R&D

activities do not adequately meet the need for a

major restructuring of the defense R&D base. A

defense R&D base that is smaller and has a new

mission will also need a different organizational

structure. Current and proposed plans to consolidate

the Services’ ungainly complex of laboratories and

centers were developed before the demise of the

Soviet Union. Such plans are therefore unlikely to

create the integrated structure that the R&D element

of the future DTIB will require. If R&D funding is

not shifted to the private sector, the Service laboratories and the Federally Funded Research and Development Centers will have to shoulder much of the

responsibility for research and innovation now

performed by private companies. If, however, policymakers do shift R&D funding to the private sector,

far more Service consolidation will be required. In

any event, a smaller DTIB will necessitate greater

coordination and consolidation among the Services’

R&D efforts and between the Services and the

private sector.

The DoD must make greater efforts to exploit

civilian technology. Yet without regulatory changes,

current performers of military R&D will have no

incentive to improve their links to civil R&D.

Three areas deserve attention. First, current rules

governing independent research and development

(R&D) impose barriers between military and civil

R&D activities within companies. Second, current

rules allowing the government full rights to corporate technical data developed with government

funding discourage specialized subtier fins-a

primary source of innovation in defense systems—

from developing technologies for both civil and

military use. Third, reduced funding will preclude

the DoD from maintaining world leadership in all

defense-relevant technologies, increasing the need

for the United States to benefit from R&D efforts in

other countries. Yet current import and export

restrictions inhibit interchange between defense and

nondefense sectors and prevent the DoD from

drawing on technology developed abroad, even by

U.S.-based multinational firms.
12 ● Building Future Security

Current policy places too little emphasis on

improving manufacturing technologies. The DoD’s

effort to develop a Manufacturing Technology Plan

warrants support as a way to address the current

imbalance between process and product technologies. A remedy will require a new focus on

manufacturing technologies by the Service laboratories and the private sector.

Prototyping-Plus

Many people now advocate prototyping in some

form to maintain technology innovation during a

period when fewer new weapon systems are under

development.

10 A DoD acquisition Strategy tha t

combines greater use of prototyping and limited

production, along with changes in manufacturing

and maintenance, might help to preserve critical

design and manufacturing capabilities. As currently

practiced, however, defense prototyping is narrowly focused on performance and does not

usually incorporate manufacturing and maintenance considerations. As a result, it does not

enable defense contractors to move efficiently

into production when needed.

This report assesses a prototyping strategy that

combines prototyping with limited production.

Termed prototyping-plus, it would seek to promote

innovation and maintain America’s technological

edge and its ability to deploy new generations of the

most advanced military systems. Prototyping-plus

would involve the continuous development and

limited, intermittent production of technology

demonstrators and prototypes for operational

testing during the periods between full production programs. By always having some prototype

programs under way, the Nation would be in a better

position to move the most advanced available

systems into production. At the same time, it could

maintain a robust weapon design and development

capability that could respond flexibly to the uncertainties of the new security environment.

A prototyping-plus strategy is an important

part of an overall plan to restructure the DTIB

and should break the nearly automatic link

between development and production in the

current acquisition pipeline. The strategy should

be rooted in an understanding; of which defenserelated design and manufacturing capabilities must

be preserved in the absence of ongoing production.

Nevertheless, prototyping-plus is not a “researchonly’ strategy. It includes future force modernization with advanced weapons as needed, after the

development and testing of Alternative concepts.

Some prototyping efforts would aim to develop

improved subsystems for upgrading current platforms. Others would focus on developing new

platform configurations for potential deployment in

the event of a breakthrough in performance (e.g.,

stealth), the need to replace obsolescent equipment,

or the emergence of a large-scale military threat.

Industry has raised a number of objections to

pursuing a prototyping strategy. First, some firm

contend that while prototypic: could preserve design teams, it would involve too few production

workers to maintain manufacturing skills. Prototypingplus, however, calls for the limited production of

operational prototypes. Recent trends in manufacturing, such as greater use of co concurrent engineering

and flexible manufacturing systems, increase the

potential to produce limited numbers of prototypes

for field testing and to preserve key manufacturing

skills without quantity production. The challenge for

the future will be to use the construction of a small

number of prototypes to identify and correct manufacturing problems associated with quantity production.

A second criticism of a prototyping strategy is that

since profits for defense contractors today come

from production and not R&D, a prototyping strategy could not keep defense firms in business. This

is a valid point, and in the future, prototyping

activities will have to be filly funded by the

government. 11 Moreover, defense contractors will

not rely exclusively on prototype development for

their livelihood. Instead, they might derive their

income from several concurrent activities, including

the low-rate production of new weapon systems; the

retrofit, overhaul, and maintenance of deployed

military systems; R&D; and prototyping.

10 ~e ati5~tiou for example, has announced that it will make much more use of prototyping. Congressman k A5pb Chairman of tie House

Armed Services Committee, has proposed a prototyping strategy tbat he has termed “rollover-plus.” OTA proposec a prototyping strategy in

Redesigning Defense.

1 I F~s Would not, however, be precluded from paying for their ownprototyping if they believed they hadan idea that would ‘sell, ’ but the incentives

to do so might be low.
Chapter I---Summary and Conclusions ● 13

A third criticism of pursuing a prototyping

strategy is that it would have a negative effect on the

subcontractors and suppliers at the lower tiers of the

DTIB. This objection has some merit because the

volume of parts required for prototyping may be too

small to keep many subtier firms in business. But

new production will not cease entirely in all systems.

Subtier firms will build components for continuing

(but much reduced) new production, and supply

parts for upgrades and retrofits of fielded systems.

Many subtiers also have a diversified product line

that includes nondefense markets. As a result, the

number of subcontractors and suppliers at risk from

a prototyping-plus strategy may be small. In some

cases, key technologies may have to be acquired by

prime contractors or preserved in government facilities. In addition, subtier firms will likely be consolidated into a smaller number of diversified suppliers

more closely linked to primes. This restructuring

will require changes in acquisition laws and regulations that currently inhibit rather than promote such

long-term associations.

Implementing a prototyping-plus strategy would

require more integrated DoD management and

the reform of defense-procurement laws and

regulations. It would also demand a change in

mindset by both government and industry from

the current focus on producing hardware to a

new emphasis on acquiring new technology and

know-how as the basis for the Nation’s future

military potential. A prototyping-plus strategy can

help maintain the key design and manufacturing

personnel required to develop the next generation of

systems. But it should be a part of an overall DTIB

strategy that includes continued manufacturing and

a viable structure for maintaining and upgrading

fielded equipment.

Efficient, Responsive, Mobilizable Production

Redesigning Defense noted that a continued

strong production base is essential and suggested

three desirable characteristics for future defense

production:

1. it should produce weapons and military equipment efficiently in peacetime,

2. it should be responsive to a regional crisis or

war perhaps through increased production

(“surge”), and

3. it should be capable of greatly expanding

production (’‘mobilization”) in a timely fashion if a large global military threat emerges.

The policies needed to achieve these different

characteristics may be in conflict and require tradeoffs. For example, reducing excess manufacturing

capacity to promote efficient peacetime production

may limit the ability of the base to meet surge

requirements in wartime.

The current defense production base has considerable overcapacity when measured against anticipated military requirements. The overall procurement budget may drop by two-thirds (in real terms)

from its peak in the mid-1980s. Such shrinkage

requires a major restructuring of the production

base. Redesigning Defense concluded that if this

restructuring takes place haphazardly, it could create

gaps in critical defense industrial sectors. The

government could adopt policies to smooth the

transition to a smaller but sounder production base.

Alternatives for achieving the desirable characteristics of efficiency, responsiveness, and mobilizability

are examined in chapter 4 and briefly summarized

below,

Efficiency

Efficient production is defined as manufacturing

quality products at an affordable cost. However, for

the future DTIB, retaining a manufacturing skill

base is also a major stated goal. An efficient defense

production base must streamline individual businesses and consolidate industrial sectors. These

processes are currently under way. But unplanned

restructuring of the base in response to market

forces risks the loss of critical production capabilities, as manufacturers shed important base

capabilities such as R&D staffs and training

programs. Policymakers might act to facilitate the

consolidation of the production base into a few

strong, quality producers rather than retaining many

weak firms. To do this, they would need to identify

critical producers, modify contracting practices, and

change competition rules. (See table 1-3.) In the case

of militarily unique sectors, such as nuclear submarines and gun tubes, it may be necessary to support

a private or public arsenal to maintain a capability

that might otherwise disappear.

The government should ensure that an essential capability continues to exist in the DTIB, but

it might be indifferent as to whether a particular
14 ● Building Future Security

Table l-3—Policies to Assure Efficient Peacetime Production

Base Structure

 Identify critical producers at the supplier, subcontractor, and prime contractor levels.

. Intervene in the market if necessary to save and strengthen these critical producers through sole-source production, upgrade, spare part,

or repair contracts; by removing barriers to mergers and monopoly; or by creating a private or public arsenal.

. Allow consolidation of subtier producers to support innovative, dependable, quality producers.

. Move aggressively toward increased civil-military integration of the base.

Procurement Reforms

● Substitute “best value” or some similar formulation for “lowest bid” as the criterion for contract awards.

. Reexamine the rules on the protection of proprietary data rights.

● Continue the trend towards greater commercial product buys and greater reliance on commercial business practices.

● Reduce costly paperwork, data, and oversight requirements that have been created by law or by the procurement culture.

 Rationalize military specifications to emphasize final quality and performance overproduction process and I use only where necessary.

Aquisition Strategy

●

●

●

●

●

●

Mandate increased commonality and modularity in systems.

Increase joint procurement, possibly by moving to “purple suit” procurement, specialized Service procurement, or a civilian acquisition

corps.

Fund the stockpiling or production of items not produced domestically but considered too important to continue sourcing abroad.

Support low-rate production in critical industries through predictable, multiyear contracts.

Fund manufacturing skills directly through scholarships, manufacturing technology apprenticeships, the creation of training centers, or

indirectly through procurement and incentives.

Support manufacturing technology developments where appropriate.

international Activities

● Reduce barriers to foreign military sales.

. Support international development and production ventures as a source of technology transfer to the United States.

. Continue to purchase essential supplies and components abroad and determine whether increased reliance on allies is in the national

interest.

● Source critical foreign components from multiple countries to avoid cutoff.

● Adopt international specifications and standards where appropriate.

SOURCE: Office of Technology Assessment, 1992.

company continues to produce defense goods and

services. The survival of a particular firm or

organization need not drive DoD production policy

in the long run. Government policies are therefore

best targeted toward maintaining capabilities rather

than particular companies or government organizations.

Planned low rates of production (unlike the

unplanned production stretchouts that have characterized the cold war) can provide U.S. forces with

a steady flow of materiel while preserving manufacturing skills, facilities, and equipment that

might otherwise atrophy. A DTIB strategy that

includes low-rate production will need to establish

production rates at an appropriate level: one that

preserves the manufacturing complex (primes and

subs, private and public facilities) and provides

predictable funding so that producers can make

major organizational and capital-investment decisions with confidence.

Defense production during the cold war was

characterized by plans to equip U.S. forces rapidly

with new weapon systems by means of high

production rates. In practice, however, budget constraints often lowered actual production rates, resulting in higher unit costs. More realistic future

production planning will save money, although it

will also reduce surge capacity

The DoD could supplement low-rate production with prototyping of follow -on systems, spareparts production, and upgrade and maintenance

work. Industrial sectors could be further consolidated so that several related products are built in the

same factory (e.g., a variety of armored vehicles or

aircraft), a practice common in subtier companies

and in some prime contractors. The advent of

flexible manufacturing techniques and organization

will make this last option more practical over time.

Peacetime production efficiency will be enhanced by lowering barriers between defense and

civilian production. These barirers—including special accounting requirements for defense products

and stringent military specifications and standards—

were created to safeguard public funds and ensure

quality. But they also increase defense acquisition

costs, place extra burdens on defense companies

seeking to diversify into the civil sector, deter

leading-edge commercial firms from participating in

defense work, and obstruct the flow of technology

between the two sectors. A radica1 solution would be
Chapter Summary and Conclusions ● 1 5

to absorb the defense production base into the civil

base, leaving only a few militarily unique products

to be built in arsenals. At a minimum, the DoD could

continue its efforts to procure more products off-theshelf and to reduce excessive oversight and specifications through management reforms that shift more

responsibility to producers.

Foreign sales of American military hardware

can help maintain defense manufacturing and

advance U.S. foreign policy objectives. They also

carry significant risks. While foreign military sales

can maintain U.S. production lines and support

allies, sales to unstable or potentially aggressive

countries can create new security threats. Collaborative programs with allies help share R&D costs and

enable the United States to gain access to foreign

technologies. But arms sales often involve ‘‘offset’

arrangements that give the purchasing country a

share of the development and production work, or

transfer technologies that can accelerate the proliferation of advanced weapons and may eventually

undermine U.S. competitiveness. 12 purchasing systems, components, and supplies abroad is already a

fact of life in an increasingly global economy. But

the benefits of lower costs need to be weighed

against any risks to security of supply.

Finally, peacetime production efficiency can be

enhanced through manufacturing innovations,

including a reliance on common subsystems and

parts. Manufacturers, given the right incentives, can

increase efficiency by incorporating new ideas in

management, organization, technology application,

procedures, and training. Commonality in product

subsystems and procurement practices among the

Services, if pursued vigorously, would simplify

logistics and lower costs,

Responsiveness

A responsive production base is one that is able to

react to a crisis or war that is smaller and less

demanding than a “total’ war demanding national

mobilization. A response to regional threats might

be accomplished through some combination of

surge production of key items, stockpiles, or

reliance on allies. Each of these three alternatives

has strengths and weaknesses. Planning to surge

production of materiel when needed avoids the costs

of manufacturing and stockpiling. But it entails

Photo credit: DoD

Substantial U.S. military materiel has been prepositioned

abroad. Requirements for future conflicts must be met

with a combination of production surge capability

and stockpiling.

investment in excess production capacity and thus

lowers the efficiency of the peacetime production

base. Stockpiled military materiel has the advantage

of being available on demand, but it carries manufacturing and storage costs, and it may become

obsolete before it is needed. Foreign purchases may

cost less but may be susceptible to cutoff or

unacceptably long delivery times in crisis or war,

and may hinder U.S. development of defense technologies. Moreover, most U.S. allies have small

defense industrial bases and are consolidating them.

Thus, they may need their own entire output if they

are combatants alongside the United States in some

future conflict.

The United States might best focus its surge

planning primarily on consumables (e.g., munitions, food, fuel, and spare parts) for intervention

in regional conflicts. For the foreseeable future, the

U.S. military will probably not require a surge

capacity for major weapon platforms and should not

fund such a capability.

Mobilization

Responding to a major new military threat on the

order of the former Soviet Union would require a

mobilization of the Nation’s industrial base, as

occurred during World War II. Even though the

likelihood of a major attack on the United States and

its allies is extremely low, the large planned cuts in

U.S. active forces would increase the need to

12 U.S. Congfis, office of TectmoIo~ Assessment, Global Arms Trade: Commerce in Advanced Military Technology and Weapons, OTA-ISC-461

(Washington, DC: U.S. Government Printing Office, Jun 1991).
16 ● Building Future Security

mobilize if a large-scale military threat emerges in

the future. The dedicated defense base would serve

as the core of any mobilization effort, supplemented

by the domestic civilian production base, war

reserve stockpiles, and allied industry.

As a result, there might be greater emphasis on

mobilization preparedness planning and maintaining essential DTIB capabilities. This task will

require a good understanding of the broader national

industrial base and realistic estimates of available

warning time. Mobilization plans should be reassessed and exercised periodically. Low-rate production, prototyping-plus, and other strategies designed

to retain defense manufacturing skills are also

central to mobilization preparedness. Policies that

foster increased integration of the defense and

civilian production bases will aid any future mobilization.

A Robust Maintenance Capability

Depot maintenance, the overhaul of military

equipment in specialized facilities as opposed to

routine repairs in the field, is critical to the readiness

of future U.S. forces. The U.S. defense maintenance

base is large ($13 billion in fiscal year 1991). It

includes an organic, ‘‘in-Service’ component operated by the different Services that currently performs

between 60 to 70 percent of the depot maintenance

work. A private-sector component does the remainder of the work and also supplies billions of dollars’

worth of spare parts, which are included in the $13

billion. The Nation needs a plan to preserve the

maintenance base through the present turbulent

period of force reductions, and to restructure it to

support smaller numbers of more sophisticated and

reliable systems. The most important choices affecting the future maintenance base are:

1. the extent of consolidation,

2. ownership and control of the base (private v.

public),

3. emphasis on efficiency v. wartime responsiveness, and

4. the extent to which maintenance can be

integrated into the future manufacturing base.

In-Service maintenance facilities were modernized during the 1980s, and there is general

agreement that current capacity exceeds realistic

future requirements. New DoD initiatives implemented as a result of the 1989 Defense Management

Report are streamlining and consolidating the government maintenance base, but there is disagreement

about its future structure. The Services generally

seek to retain in-Service capabilities, while industry

seeks to promote a greater role for the private sector.

Future depot maintenance requirements will

differ from those of the past 40 years. Initially, the

United States will retire many of its older weapons

in response to the waning military threat, reducing

the average age of equipment in the field and

decreasing the near-term maintenance workload.

Over time, however, the lower rate of new weapons

production will increase the average age of deployed

equipment and make upgrading more important.

Future systems will be more sophisticated but also

more reliable, changing the nature of the maintenance task and reducing maintenance requirements.

The ongoing consolidation of in-Service depot

maintenance (including single sites for each

technology and significant reductions in

workforce) is a major achievement by past

standards, but is still insufficient to meet the

needs of the new security environment. Performance of maintenance tasks across Service lines

remains limited. Moreover, despite reductions in

manpower and consolidation of workload, the maintenance base contains almost the same number of

major facilities as existed to support a defense

establishment prepared for war with the former

Soviet Union. While the drive for peacetime eficiency must be tempered by the need for responsiveness in a major future crisis, the foreseeable demand

for wartime maintenance support has greatly diminished with the end of the cold war.

Private industry has the capability to do more

depot maintenance work and is eager to assume

this role. Proponents of transferring more maintenance work to private firms note that they already

possess an inherent maintenance> capability by virtue

of having manufactured the equipment. Further,

manufacturers typically provide depot maintenance

support until a system has been deployed in sufficient quantity to permit standardization of maintenance procedures by the military user. Since the

manufacturing firm has already developed test

equipment and trained personnel, there is an additional cost (depending on the particular system) in

developing a separate Service maintenance capability. Proponents also argue that private firms are more

efficient than government depots.
Chapter I-Summary and Conclusions ● 17

Photo credit: Lockheed Aeronautical Systems

A private company maintains ejection seats and other

components for the T-33 jet trainer built in the 1950s. As

production funding declines, private industry is

increasingly interested in maintenance work.

Those who favor retaining Service maintenance

capabilities contend that shifting maintenance to

private fms would reduce Service flexibility,

increase the risk of inadequate responsiveness in

wartime, and leave the DoD vulnerable to cost

escalation. Yet there is no clear evidence that private

firms cannot be responsive or that private-sector

costs cannot be controlled. Nor is there clear

evidence that private firms are inherently more

efficient than Service depots. Accordingly, there is

a need for more study of the proper private-public

mix in the future maintenance base.

During the downturn in production, maintenance might play an important role in supporting

manufacturing capabilities in industrial sectors

where there is an overlap in processes, equipment, and skills required for manufacturing and

maintenance. In many cases, maintenance and

upgrades could be carried out in the same factories

as new manufacturing. Some industries, however,

have little overlap between manufacturing and

maintenance. In such cases, combining maintenance

and manufacturing would require restructuring the

production process to take advantage of synergies

between manufacturing and maintenance on the

factory floor.

Congressional actions have made the rationalization of the depot maintenance base more

difficult. legislation limiting competition, directing

work to particular facilities, and mandating job

protection have all constrained the DoD’s ability to

operate the maintenance base efficiently. Properly

sizing the future maintenance base will require a

broader view of overall DTIB requirements and

decisions designed to support the integrated base

rather than its individual parts.

Good, Integrated Management

Good, integrated management is fundamental to

the successful operation of the future DTIB. Such

management must anticipate future needs and take

action to ensure that the base can meet them at an

affordable cost. Good management does not imply

any particular amount of direct government intervention in the DTIB, but it does allow for intervention if needed to ensure the survival of a critical

technology or industrial capability.

Future DTIB management could be integrated

with respect to the three functional elements of

the base (R&D, production, and maintenance),

the three Services, the Executive Branch and

Congress, and government and industry. Peacetime procurement could also be integrated with

crisis and war planning. Integration among the

R&D, production, and maintenance elements of the

base would ensure that managers understand how

these three elements interact and make decisions

optimized for the entire base rather than an individual element or subelement. Integration of DTIB

planning within the DoD and the Services can

eliminate redundancies in Service capabilities (e.g.,

laboratories and depots) and Service-specific contractors. Several DoD initiatives are addressing

these issues, but there is still much resistance to

closing and consolidating facilities. The difficulty of

consolidating the current base would be eased

through better coordination among the Executive

Branch, Congress, and private industry, since DTIB

management is ultimately a national, rather than a

DoD, responsibility.
18 ● Building Future Security

Photo credit: Defense Systems Management Co/lege

The Defense Systems Management College trains

government acquisition personnel responsible for

billions of dollars of purchases a year.

The immediate management challenge is to plan

rationally for the major shrinkage and restructuring

of the DTIB. Three strategies for approaching the

transition to a smaller base are discussed in chapter

6. The Nation could employ:

1, a free-market strategy that relies on market

forces to decide which defense contractors and

government facilities will survive,

2. an activist strategy in which the U.S. government attempts to manage the change by

identifying critical firms and facilities and

ensuring their survival, or

3. a mixed strategy that allows market mechanisms to operate when possible but uses government intervention to preserve critical defense industrial capabilities that might otherwise be lost.

Applying exclusively a free-market approach

to DTIB management is likely to result in a

weakened and inefficient base as firms shed

capabilities to remain competitive. Yet the DTIB

is too complex to allow detailed centralized

control. Thus, an optimal approach might combine centralized planning with decentralized

execution. For 40 years, the DTIB has been an

increasingly regulated market with a single government buyer, so that free-market forces are unlikely

to operate efficiently. Because the DTIB is part of

the larger national industrial base, however, it can

potentially take advantage of market forces within

the larger base. Modifyng acquisition laws to open

up the DTIB to a larger number” of companies would

enhance the effects of market forces. But if policymakers choose to retain the current acquisition

system, more government intervention may be

needed to ensure that crucial elements of the base are

preserved.

Laws, regulations, and bureaucratic behavior

inhibit DTIB managers from making greater use

of the civilian technology and industrial base.

Future base managers will need to be more creative

in using the entire range of potential technology and

industrial resources, including civil and foreign

fins, rather than concentrating on dedicated defense producers. Key to successful management of

the future base will be the purchase of commercial

products, the use of civilian production facilities,

and the adoption of commercial operating procedures. Achieving such civil ad military integration

will require less day-to-day DoD and Service control

over technology and industria1 assets and an increased ability to make use c f the wide array of

goods and services existing in the civilian sector.

THE FUTURE

INTEGRATED BASE

The previous sections described desirable characteristics of the future DTIB and suggested some

alternative strategies for achieving each. These

characteristics cannot be viewed in isolation, but

must work together for the future base to be

healthy and meet the Nation’s security needs.

OTA’s analysis suggests that, given the likely

reductions in defense budgets, minor changes in the

structure and operation of the DTIB will not suffice

to provide the Nation an effective future military

capability. One of the principal findings of this

assessment is that the base can be restructured to

exploit the inherent synergies that can result from
Chapter 1--Summary and Conclusions ● 19

Figure 1-2—The Future Integrated DTIB

R&D Production

■ Streamlining and consolidation

= Foreign sales and purchases

■ Lab consolidation ■ Global collaboration

■ Full government funding of R&D ■ Manufacturing innovation

■ Emphasize dual-use tech research ● Joint procurement

~ Global collaboration

■ Contract maintenance,

\

\

\ I

\

■ Depot consolidation

- Increased competition

■ Increased interservice

maintenance

/

Maintenance

SOURCE: Office of Technology Assessment, 1992

closer integration of the R&D, production, and

maintenance elements.

The interrelationships among the three functional

elements of the future DTIB-R&D, production,

and maintenance—are portrayed in figure 1-2.

Although these elements are largely managed separately in the current base, the figure suggests that the

three elements could be structured and managed in

an integrated reamer to yield greater efficiencies.

For example, R&D could be directed not just to

creating new products but to making the manufacture and maintenance of those products as simple as

possible. Similarly, carrying out production and

maintenance activities in the same factories would

facilitate low-rate production.

Integration could also be carried across Service

lines and between defense and civilian industry. The

DoD could enforce joint Service use of common

equipment (for example, air-defense systems) and

ultimately eliminate all barriers between the civilian

and military technology and industrial bases. It

could move to a centralized acquisition corps

separate from the Services, perhaps along the lines

of the French model. A fully integrated industry

might handle R&D, production, and maintenance,

with very little of the base remaining under government ownership. Such a radical restructuring of the

DTIB would require a substantial change in the

attitudes of both government and industry.

Chapters 2 to 6 consider ways to exploit the

synergies among activities, including prototypingplus, low-rate production of selected military equip-
20 ● Building Future Security

ment, restructuring of assembly lines to be more

diversified and flexible, increased civil-military

integration, and more competition in all three

elements of the base. Yet if each of these alternatives

were pursued in isolation, it would have only a

modest impact and might even be detrimental to the

base as a whole. For example, critics have argued

that prototyping alone cannot maintain an effective

manufacturing capability and would not be profitable enough to keep defense firms in business; that

low-rate production of new systems would fail to

provide an adequate economic return, result in high

unit costs, and lead to failures among subtier

producers; and that shifting more maintenance work

to the private sector would reduce the responsiveness of the base to military requirements.

None of these criticisms lacks validity. Although

the options suggested in this report all entail risks, so

do current DTIB policies if they are simply extended

into the new era of reduced budgets. The critical

question is not whether the DTIB will shrink, but

how best to restructure the base to assure the

Nation’s future security.

The following section describes the general characteristics and management activities of a future

integrated DTIB. Boxes 1-B to 1-D contain a

hypothetical scenario set in the year 2010 illustrating

synergies among the elements of the DTIB and the

implications of alternative policy choices.

National-Level Decisions

National decisions on overall defense funding and

tiding priorities are based on assessments of the

military threat, as well as economic and political

conditions. Once the total resources to be directed to

defense have been established, DTIB managers at

the national level allocate them to the various

national security goals and elements of the base.

These funding decisions involve the strategic choices

outlined earlier in figure 1-1 and require supporting

policies if they are to succeed. Examples of policies

associated with each of the choices are shown in

figure 1-3.

In the post-cold war era of diminished immediate

military threats and reduced budgets, a healthy

future DTIB requires shifting funds from current

production to R&D. The policies outlined in figure

1-3 indicates that a healthy base also requires a

commitment to purchase knowledge rather than

hardware. As noted earlier in the discussion of

figure 1-1, a shift of resources to future-oriented

investments will not be universal, since some

systems will need to be produced to replace obsolete

equipment or to respond to an emerging threat.

A decision to emphasize dual-use technologies or

civil-military integration WOUld require the DoD and

the Services to increase reliance on commercial

fins, provide incentives for using non-developmental items, and stress performance criteria over

rigid military specifications. These policies would

require greater initiative on the part of government

contracting officers than is currently allowed, and

therefore better trained government acquisition personnel.

A decision to retain strong private-sector involvement in the DTIB, instead of letting most activities

in the base devolve to the Services and the DoD,

would require rule changes that enable industry to

obtain profits commensurate with risks. Although

the overall strategy stresses the private sector, the

DoD may still have to maintain some critical

capabilities in GOCOs or GOGOs.

The choice of single-source or competitive procurement will be driven by demand and market

structure. Policies to support dual-use technologies

and civil-military integration would increase the

participation of commercial firms and thereby

strengthen competition, While militarily unique

items might also be acquired competitively, solesource procurement may be preferable to artficial

competition in those areas where civil-military

integration is not feasible.

Finally, the United States has the choice of

drawing on international sources of technology to

enhance its own military capabilities. The ability to

do so would be facilitated by negotiated international agreements that promote reciprocity in defense trade. Nevertheless, domestic sources for some

critical defense-related items should be preserved.

The policy questions are, ‘‘which items?’ and ‘how

to preserve them?’ Improved databases are essential

to answering these questions.

Despite significant reduction, the actual levels of

future defense funding are very uncertain. All

estimates indicate that as long as the United States

seeks to remain a major world power-let alone the

preeminent one-defense spending will remain at a

fairly high level. Table 1-4 shows some possible

DTIB funding allocations for the frost decade of the
Chapter l-Summary and Conclusions ● 21

■

●

m

■

Figure 1 -3—Policies Supporting Future DTIB Strategic Choices

= Shift funding from production to R&D

- Emphasize science and technology support

■ Pursue continuous prototyping 9 Fund production

= Be willing to buy knowledge . Favor weapon-specific

- Fund generic manufacturing advances manufacturing advances

● Emphasize mobilization planning and the . Emphasize weapon development

health of the broader national base

\

over generic research

Maintain strict military specifications

Emphasize performance specifications

Adopt commercial manufacturing practices

that promote quality and efficiency

■ Increase use of commercial competition

● Increase use of nondevelopment items

Fully fund development rests D Identify critical technologies

\

#

“Q

■ Emphasize performance specifications

~, ■ Adopt commercial manufacturing practices

and standards

■ Streamline oversight to provide incentives

to use commercial quality approach

= Improve training and quality of government

acquisition personnel

- Provide profits commensurate

m

■ Move criticzd military technology

to public faalities

D Government assumes greater

■ Buy American /

I ■ Support cooperative development and

■ Supporf critical industries production arrangements

and technologies = Support foreign purchases and sales

SOURCE: Office of Technology Assessment, 1992
22 ● Building Future Security

Table 1-4-Hypothetical Annual DTIB Funding Alternatives for 2001-2010a

(billions of fiscal year 1992 dollars)

Total DTIB

Total DoD budget funding R&D Prototypingb Production Main enance

220 . . . . . . . . . . . . . . . 88 24 9 47 8

180 . . . . . . . . . . . . . . . 72 20 10 35 7

150 . . . . . . . . . . . . . . . 61 17 11 27 6

a~timat~areb~edon ~]dwara~~ations with adjustments forchanges inthe natureof themilitar~ threat.

b Asoverallprodu~tion d~lin~, prototypingfunding isi~reasedtom~nt~n t~hno[ogical innovation, key( esign skills

and some manufacturing techniques.

SOURCE: Office of Technology Assessment, 1992.

21st century, assuming a reduced global military

threat and a shift from fill-scale production toward

greater use of prototyping. Assuming reasonable

U.S. economic growth rates, these budgets might

represent expenditures of 2 to 3 percent of the GNP.

The table suggests that even with major budget

cuts, DTIB spending might be adequate to support a

significant defense R&D, manufacturing, and maintenance effort. But DTIB restructuring would be

needed and within these funding constraints, force

modernization decisions would be made at the DoD,

rather than the individual Service level.

The hypothetical scenario in boxes 1-B to 1-D

reflects a policy emphasis on future over current

capability, dual-use over militarily unique technology, private over public-sector facilities, competitive over sole-source procurement, and international

over domestic sourcing, where international is

defined as choosing the best technology regardless

of source. (See box l-B.)

Industrial Sector Strategies

A national strategy to restructure the DTIB would

be implemented differently in the various defense

industrial sectors because the sectors differ in:

1. their degree of integration with the Nation’s

industrial base (e.g., electronics is more integrated than ammunition);

2. their economic health (e.g., the aircraft industry is healthier than shipbuilding); and

3. the amount of military goods and services the

military buys from the sector in peacetime.

To maintain at least one source of design,

development, production, and maintenance for each

system and component, the government may have to

compromise on weapon performance and make

significant changes in acquisition laws and regulations. Indeed, in some sectors the demand maybe so

limited that a single-source arsenal (public or

private) may be required to preserve the technology.

(See box l-C.)

DTIB managers will need to look for synergies to

reduce overall costs and improve efficiencies. For

example, research on common technologies may be

consolidated among the Services. It will also be

important to identify bottlenecks and gaps in the

DTIB so that remedial action can be taken. To

achieve a small but flexible defense base, managers

will need a better overview of industrial capabilities

and potential than has existed in the recent past.

Organizational Implications

Companies that decide to stay in the defense

business may have to make significant internal

changes. These include:

1.

2.

3.

4.

concentrating on a defense market niche or,

alternatively, becoming a full-service defense

firm with high-quality design, production, and

maintenance capabilities

streamlining;

expanding horizontally or vertically into new

military product lines on, alternatively, concentrating on current lines; and

better integrating military work with civilian

work and/or expanding into the civil sector.

Any move to low-rate production suggests that

firms will probably need to manufacture more than

one product and engage in some maintenance

activities. To give firms an incentive to move in this

direction, the DoD will need to change its contracting criteria and acquisition rides, and might also

fund innovations in manufacturing technology such

as multiproduct assembly lines As the DTIB moves

toward greater civil-military integration, the DoD

may also have to modify weapon design in order to

make better use of the civilian base and take

advantage of commonalities in systems. (See box

l-D.)
Chapter I-Summary and Conclusions . 23

Box l-B—National Strategy in 2010

Beginning in the 1990s, the United States undertook a major shift of resources from defense to other national

priorities as a result of the reduced global military threat, fiscal problems, and the need to strengthen the economic

foundation of national security, U.S. military forces have been involved in a few limited military operations over

the past decade, but no major new military threat has emerged. Defense spending for 2010is$180 billion in fiscal

year 1992 dollars. DTIB funding as a percentage of overall defense spending has increased in relative terms, but

has fallen in absolute terms. - -

Allocation of DTIB Funding in 1991 and 2010

Fiscal year 1991 DTIB Fiscal year 2010 DTIB

Production

Maintenance

R&D*

Production

Maintenance

Prototyping

R&D

“Prototyping is included in the fiscal year 1991 R&D funding.

SOURCE: Office of Technology Assessment.

The United States remains not only the strongest global military power, but also the one having the greatest

military potential. With limited funding, the U.S. DTIB strategy emphasizes three principaI thrusts. First, DTIB

spending generally emphasizes maintaining military potential rather than current capability. A prototyping strategy

is being pursued across the weapons spectrum. This strategy includes a shift in emphasis from preproduction

prototypes to the use of computer simulations, technology demonstrators, and low-cost prototypes to test new

concepts. The $10 billion prototyping budget maintains several design teams in critical defense areas such as

high-performance aircraft, ground combat vehicles, and new munitions, as well as for the myriad of subsystems and

components that go into these systems. R&D is receiving a relatively large share of DTIB funding compared to

1991, and more funding has been dedicated to manufacturing and maintenance technologies.

Second, even with the emphasis on military potential, production remains the largest single component of

DTIB spending at $35 billion-a drop of about 40 percent since 1991. Current production includes end-items (e.g.,

ships, aircraft, armored vehicles, and munitions), their embedded components (including upgrades), spare parts, and

prototypes. The DoD is following a systematic approach to force modernization and continuing to replace weapon

systems as they become obsolete. But, because of the limited production funding, decisions on major new weapon

programs require more joint-Service analysis and cooperation to achieve national, rather than individual Service,

objectives. A significant percentage of procurement funds go to upgrading older fielded weapon systems to improve

their overall capabilities.

Third, the defense acquisition process and the DTIB have been restructured to make extensive use of civilian

industry. For example, defense R&D administrators leverage their $20 billion budget by focusing in-house efforts

on militarily unique technologies and by assimilating or adapting new civilian scientific and technical developments

to meet defense needs. Weapon and component designs increasingly incorporate commercial products and

processes, and military and civilian products are often manufactured side-by-side. Private firms are heavily involved

in providing depot level maintenance and upgrades for deployed forces.
24 ● Building Future Security

Box l-C—Armored Vehicles and Helicopters in 2010

Armored vehicles and helicopters remain important components of the United States’ combat capability, but

they are evolving over time. There are about 13,000 armored vehicles and 2,000 helicopters in the active U.S.

inventory. Most are older, but some new systems have been introduced during the last 15 years.

Strategies to maintain the two sectors have both commodities and differences. Attempting to maintain a

reasonably modem force (vehicles and aircraft not more than 30 years old) at current force levels requires an average

production of several hundred new vehicles and more than one hundred new aircraft each year. Actual production

is limited by available funding. Armored vehicle production is receiving a little less than 3.5% of the fiscal year

2010 procurement budget (about $1.23 billion in fiscal year 1992 dollars), and helicopter production, with higher

priority, is receiving about 5.5% ($1.93 billion) of the procurement budget. These funds would be insufficient to

maintain the current force at the unit cost levels existing in the early 1990s.

The national DTIB strategy stressing civil-military integration of the base (i.e., reducing unnecessary military

specifications and purchasing components and using processes from the civil sector) has helped reduce unit costs,

but not enough to maintain the desired force structure at current funding levels. The DoD is exarnining additional

ways to lower unit costs, the possibility of increasing the relative share of production funding ‘or these two sectors,

or further reducing force levels.

System upgrading is a major component of each sector strategy. Upgrades include new electronic components

with improved reliability, improved night-vision systems, fire-control electronics, and antititank missiles in both

helicopters and armored vehicles. The consolidation of R&D in some critical defense technologies (e.g.,

optoelectronics and advanced materials) has enabled the DoD to maintain a world-class effort in these areas even

with reduced R&D funding.

Prototyping is a particularly important part of the armored vehicle sector strategy. Funding is divided among

computer simulations, technology demonstrators to explore new technical conceps, and the development and

testing of operational prototypes. The Army continues to develop prototypes of lighter weight armored vehicles.

Component prototyping efforts have been the backbone of all the weapon system upgrades that have occurred over

the last decade. DoD policy emphasizes using private firms with production facilities for the design andprototyping,

but some prototyping is occurring in specialized “design firms.” Contracts for operational prototypes require

production of these operational prototypes on standard flexible manufacturing tools, thereby favoring organizations

with manufacturing capabilities or engineering firms linked to manufacturing firms. Research and development on

some militarily unique technologies is being conducted in government laboratories and arsenals.

The DoD has a stated policy of maintaining more than one source for design, development, production, and

maintenance for each system and component wherever feasible. To date it has been able to maintain this policy in

both these sectors, but the DoD has sometimes been forced to comprornise on initial performancee criteria to increase

purchases from companies developing similar equipment commercially. New armored vehicle and helicopter

designs now have many more common components with other vehicles and helicopters than in the past.

New design concepts have been encouraged by DoD investments in flexible manufacturing through

government manufacturing technology programs and investment incentives, and through changes in procurement

rules that have cut back direct government oversight. The government has made it easier for firms to use defense

production lines and machines for non-DoD work as a result, the DoD can support more than one prime contractor

and several sources for many components (though some components are single sourced). Changes in acquisition

procedures, and the replacement of many military specifications by international standards, have increased the

number of potential producers of military equipment. Foreign sales remain an important but relatively small part

of overall production.

Although both sectors have fewer defense prime contractors in 2010 than in 1991, there are more subtier firms

with the potential to provide components to the defense sector. Further, the surviving defense firms remain strong

and capable of developing and producing future systems.
Chapter I--Summary and Conclusions ● 25

Box I-D-Operations at Selected Defense Firms in 2010

Both private defense contractors and government facilities have been restructured to support smaller U.S.

military forces. Surviving prime contractors have either consolidated their manufacturing of similar products into

single, privately-owned facilities (sized to meet expected peacetime production needs and lacking excess surge

capacity) or have become managers of government-owned facilities—also sized for peacetime rather than wartime

production. Subtier firms usually run integrated civilian and military production lines. Consolidated armored

vehicle and helicopter production facilities manufacture as many as 3 to 5 different types of armored vehicles and

2 to 3 types of helicopters. Income from low-rate production of several systems is supplemented with spare parts

production, repair and overhaul work, prototyping and the continuous upgrading of older equipment. Multiyear

contracts provide greater predictability of cash flow and enable the firms to make long-term investments and

establish links with subcontractors and suppliers.

Developments in manufacturing technology (such as flexible or “agile” manufacturing) have aided the

restructuring process, Firms are employing multidisciplinary engineering teams to develop prototypes that are built

in their regular production facilities. Prime contractors have relatively more design and engineering capability than

in the 1980s. Firms are less concerned with the yearly production of any single system than with maintaining

adequate levels of production of several different systems over several years.

Summary

A defense establishment funded at $180 billion

(fiscal year 1992 dollars) or even at $150 billion, as

shown in table 1-4, will require first-rate technology

and industrial support. The portion of the defense

budget allocated to the DTIB may fall to the $55 to

$70 billion range (fiscal year 1992 dollars). Though

considerably smaller than today’s DTIB spending,

this level of industrial activity would remain a

significant national investment. This investment can

only be used effectively, however, if the DTIB is

restructured successfully through the collaborative

efforts of the White House, Congress, the DoD, and

industry.

POLICY ISSUES

FOR CONGRESS

The DTIB described in both Redesigning Defense

and this report is complex. Although it is best

understood by breaking it down into its component

parts, the base can only be managed effectively if it

is viewed as an integrated whole and if decisionmakers take actions optimized for the entire base.

Policy issues concerning DTIB restructuring in

which Congress has particular interest fall into three

areas. The fist involves funding, both total DTIB

funding and the funding mix within the Federal

budget. The second involves organization, including restructuring the institutions in the current DTIB,

integrating them with the civilian base, and improving the ability of private firms to meet future defense

needs. The third involves management of the

transition and improving the DoD’s coordination of

the critical elements. A key issue is how qualified

DTIB managers can be recruited, trained, and

retained.

Funding

Congress has the constitutional responsibility to

provide for the Nation’s defense. The decline in the

Soviet military threat permits major reductions in

defense spending. The administration estimates that

defense spending will fall to $237.5 billion (fiscal

year 1992 dollars) by 1997. This level corresponds

to about 3.4 percent of the gross national product, the

lowest percentage in the past 50 years. Many

Members of Congress advocate even deeper cuts.

Whatever the level of overall defense spending,

Congress will also have to make a judgment on the

appropriate level of DTIB funding within that

budget.

Funding for the DTIB should reflect the fact

that it is a critical component of U.S. national

security. The DTIB is vital both to the ability of U.S.

forces to handle regional military threats and as a

hedge against a reconstituted global threat. During

the cold war, the combined R&D and procurement

budgets averaged about 36 percent of the DoD

budget. This share fell after the Korean and Vietnam

conflicts but rose by almost 10 percentage points

during the military buildup of the early 1980s. The

current DoD budget request envisions DTIB funding

in fiscal year 1993 slightly below the cold-war

average.
26 ● Building Future Security

In the post-cold war era, with a requirement for

fewer active forces and the potential for greater

leverage of military forces through technology,

Congress might consider giving the DTIB a relatively larger share of the defense budget than has

been the case in the past. Since such funding would

compete with force readiness, it would probably not

be attractive to military leaders. Nevertheless, maintaining relatively high funding would provide modern weapons and support to smaller U.S. forces,

assure them a technological advantage in the field,

and hedge against future threats. A smaller, betterarmed force is preferable to a larger, less-well-armed

force.

Congress will also have to consider whether to

continue funding defense R&D at a high level. An

alternative would be to limit defense R&D to a

relatively small number of militarily unique technologies, relying on civilian R&D, perhaps government

funded, to generate dual-use technologies with

defense applications. Congress should also consider

whether to fund manufacturing technology through

the DoD, with the possibility that side benefits will

falter into the broader industrial base, or to fund such

efforts in the civil base and let defense production

draw on that larger commercial technology pool. If

the Nation adopts a strategy for strengthening civil

technology, as several recent studies have proposed,

defense could also benefit.13

Within the overall DTIB funding level, the

appropriate allocation among the R&D, production,

and maintenance elements of the base is critically

important. A prototyping strategy, whether implemented as proposed by the DoD or along the lines of

chapter 3 of this report, would take funds away from

production. Prototyping should anticipate no automatic connection between the development of a

prototype and a decision to go into quantity production. Congressional debate is likely to revolve

around the wisdom of spending relatively large sums

of money on prototyping programs that may yield

little operationally useful hardware for extended

periods. Further, since companies are unlikely to

invest their own funds in developing prototypes that

have no immediate prospect of entering production,

the government’s share of the bill may appear

relatively large compared with the past. Frototyping

under these conditions often involves buying knowledge rather than hardware.

Despite the shift toward R&D, it will be essential

to maintain production capabilities in the future.

Cancellations or stretch-outs of ongoing and

planned procurement programs will shrink the

production base and may leave some manufacturing

facilities with no production contracts for several

years. As a result, Congress will have to consider

funding options that maintain key manufacturing skills and facilities during a period when few

new systems are produced. Greater civil-military

integration, if pursued, will require legislative changes.

Funding options for future defense production

include:

1.

2.

3.

4.

5.

6.

7.

low-rate production spread over multiyear

procurements,

intermittent production at higher production

rates followed by laying away production

lines,

funding international collaborative production

programs,

increased foreign sales,

innovations in manufacturing technology,

designing for more commonality in systems,

and

the use of single sources o gain economies of

scale.

These options can leverage limited funding, but

all have drawbacks. Low-rate production may increase unit costs (although the increases might be

limited if facilities are kept small and the product is

designed for low-rate production); intermittent production can result in the dispersal of workers during

periods when there is no production; collaborative

programs can involve the partial loss of technology

to foreign competitors; and foreign arms sales may

provide weapons to new military threats.

Government funding for production may use

some mix of these approaches, combined with

funding for prototyping and maintenance. Changes

in manufacturing funding that encourage firms to

produce multiple products may help make low-rate

production a more effective tool for maintaining the

production base. The DoD can encourage this shift

13 A Carnegie Comrnission Study, Technology and Economic Pe@orrnance, September 1991, recommended that the E efense Advanced Research

Projects Agency (DARPA) be refocused into a Nationat Advanced Research Project Agency (NARPA) to provide stronger II nks between military needs

and commercial industry. A subsequent report by the Hudson Institute recommended the establishment of a National Tecl nology Agency.
Chapter 1-Summury and Conclusions ● 27

by funding manufacturing advances to assist defense

firms that seek to produce multiple products.

Funding for maintenance will also decline, but

probably not as much as for production. Maintenance funds are currently spent mainly in the public

sector. Congress will want to consider the most

effective future mix of public and private maintenance depots. Increased competition is expected to

lower maintenance costs, but competition is currently concentrated on work traditionally available

to the private sector. Meanwhile, the government

sector retains a large core of work that is not open to

competition. Both the role of competition and the

future size of the in-Service maintenance core

should be examined in detail.

Congress will want to consider ways to retain

people who are critical to the strength of the

DTIB. Policy options include predictable defense

funding, which can provide the basis for longer term

personnel planning; support for technical education

and apprenticeships that benefit both the DTIB and

the broader national industrial base; support for

engineering education in relevant technologies; a

prototyping strategy that maintains design teams as

well as innovation; and some continued defense

production. The recent Defense Acquisition

Workforce Improvement Act was an important step

toward improving the contracting and programmanagement capabilities of the defense acquisition

process. Corresponding steps are required to ensure

the technical competence and overall management

of the DTIB.

Organizational Changes

Congress will face a number of organizational

changes in the DTIB. Some of these changes are

internal to the traditional base, while others are

external to it. The external structural changes appear

to be the more important. Redesigning Defense

concluded that the DoD faces the choice of greater

integration with the civilian industrial base or

maintaining a defense-unique base that will most

likely devolve to a set of sole-source providers

(“arsenals”) in the public and private sectors.

Several studies have found that increasing the

integration between military and civilian technology

and production will lower overall defense costs,

promote technology transfer, increase available

industrial capacity, and strengthen the economic

dimensions of national security .14 OTA’s discussions with industry and government personnel

support these conclusions. The expected deep reductions in defense spending make civil-military integration all the more important.

Moving toward greater civil-military integration

will, however, require Congress to make major

policy changes in a number of areas. First, it will be

necessary to amend the Federal procurement

laws that have tended to isolate the DTIB from

the broader base. Redesigning Defense outlined

some of these laws, and chapter 4 of this report lists

areas of additional concern. The DoD Advisory

Panel on Streamlining and Codifying Acquisition

Laws is expected to make significant recommendations in January 1993 for simplifying the acquisition

laws, and Congress will want to consider these

recommendations carefully.

Second, the DoD’s ability to increase purchases

of commercial and nondevelopmental products

depends on reform of acquisition laws and

modification of the military specifications that

control most defense manufacturing. One approach is to accept commercial and international

standards in place of military specifications. The

DoD could make a concerted effort to implement

standards that, in addition to serving defense needs,

help make U.S. firms more competitive internationally, The inability of the United States to accept the

metric system is one indication of the difficulty of

implementing new standards.

Third, the shift toward greater civil-military

integration may require substantial changes in

defense R&D. As noted above, Congress x-night

restrict funding for militarily unique R&D and shift

more funds to research on dual-use technologies of

both military and commercial interest, perhaps by

creating a new agency for promoting technological

innovation in the civil sector.

Fourth, in the absence of a shift toward greater

civil-military integration, Congress will have to

consider ways to assure the benefits of competition in a smaller DTIB that has fewer sources of

supply. This might entail allowing more competition with allies.

14 ~u~ ~~dl~~ ~clud~ ~. Defense Scienw Board Reports on tie Use of comme~i~ items for defense, a Defense Science Board study on the defense

indusrnal base, and a study by the Center for Strategic and International Studies on civil-military integration.

326-447 - 92 - 2 : QL 3
28 ● Building Future Security

The second broad organizational issue facing

Congress concerns the internal restructuring of the

DTIB. Congress will want to examine the consolidation now going on within and among the Services, in

industry, and between the private and public sectors.

The public-private split that is appropriate will be

influenced by the degree of civil-military integration. Congress might promote more rational consolidation by supporting multi-Service procurement and

increased inter-Service maintenance for equipment

and supplies, and by providing firms an incentive to

maintain R&D as well as production capabilities.

Changes will also be needed in multiyear procurement rules and the Competition in Contracting Act

to promote long-term association between prime

contractors, subcontractors, and suppliers.

Management Options

The immediate task facing Congress is to ease the

transition to a much smaller post-cold war DTIB.

Although the administration has generally advocated letting the free market shape the DTIB, it has

also expressed concern over the need to preserve

some components of the base. In recent testimony,

for example, Secretary of Defense Cheney specifically cited shipbuilding as a problem area.15 Congress will need to consider the degree of intervention

that is appropriate to downsize the base in a rational

manner. Chapter 6 observes that increased civilmilitary integration of the base, accompanied by

changes in acquisition practices, could increase

free-market competition.

The best approach to restructuring appears to be

a mixed strategy that fosters true competition

wherever possible (enhanced by greater use of the

civilian base) and limits government intervention to

those cases in which there is no alternative. But such

a strategy would require good information on current

DTIB capabilities and future requirements. To this

end, Congress might establish and fund a joint

legislative-executive commission that would report

to the President within 6 months concerning the

current capabilities of the base and future requirements and provide some overall guidelines for the

downsizing of the DTIB. There is also a need for a

more systematic approach to DTIB data collection

over the long term. As the future defense base

becomes more integrated with the broader civil base,

the DoD might not be the best agency to maintain

this information, and Congress might consider

alternatives such as the Department of Commerce.

Finally, Congress will wan: to consider how best

to balance efficiency and accountability in the future

DTIB. Although accountability y in the use of taxpayers’ money is essential, the issue is how to achieve

it most efficiently. Increased civil-military integration has the potential to impose market discipline on

more producers, but not necessarily on manufacturers of militarily unique products where accountability will probably still require administrative oversight. Although the DoD has had numerous programs to increase contractor responsibility, the

programs have largely failed because of inadequate

support or lack of incentives. Congress might

consider ways to improve the effectiveness of such

efforts.

Ultimately, good management will depend on

recruiting and retaining skilled and experienced

DTIB managers. Recent steps to improve education

and pay are helpful, but Congress should monitor

these activities to ensure an improvement in the

quality of management personnel.

SUMMARY

This report analyzes the desirable characteristics

of the future DTIB described in Redesigning Defense and considers alternative policies for achieving them. Restructuring the DTIB will require

managing the base as a whole: rather than allowing

managers in the individual elements (R&D, production, and maintenance) to pursue policies optimized

for their separate benefits. Achieving a strong and

healthy future base will require an overall strategy

that properly considers the trade-offs between investment in current capability versus military potential. Currently these trade-off~~ are being debated in

terms of continuing to invest in current products

versus moving funds to research and development.

If DTIB planners look beyond the next decade

they will see that even in a relatively peaceful world

the Nation will need an effective defense base. The

DoD and Congress can plan the transition to a

smaller but robust base by emphasizing military

potential over current capability. Such a strategy

must be applied with care and include limited

production of new products to permit force modernization and avoid the erosion of manufacturing

IS ‘ ~~eney Owm Mrfor steps to Preserve IIKIUSISM Base, ’ Aerospace Daily, Feb. 3, 1992, p. 174.
Chapter l-Summary and Conclusions ● 29

expertise. Overall, the changes in the military threat funds to nondefense priorities is a great opportunity.

facing the Nation provide many opportunities and Deciding how best to spend the remainin g defense

challenges for Congress. The ability to transfer dollars is a great challenge.
Chapter 2

Research and Development
Contents

Page

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

MAINTAINING A ROBUST R&D CAPABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

R&D National Security Goals in the New Environment .. .. .. . .. .. ... . +........ . . . . . . . . 34

Funding for R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35

Allocation of Funds Among R&D Performers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Setting R&D Technology Priorities in the New Security Environment . . . . . . . . . . . . . . . . . . . 40

Organization of Government Support of Defense R&D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Present Structure and Consolidation Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Issues for the Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

OTHER CRITICAL ISSUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45

Defense R&D Personnel: Maintaining the Know-How . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Independent Research and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Technical Data Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Import and Export Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48

Figures

Figure

2-l. Budget Authorization for Research, Development Test, and Evaluation as a

Percentage of Total Defense Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2-2. Nominal Decline in Future Spending for Research, Development Test,

Page

. . . . . . . . 35

and Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

2-3. Possible Distributions of Future Research Effort . . . . . . . . . . . . . . . ● . . . . . . . . . . . . . . . . . . . . . . 37

2-4. Defense R&D as a Percentage of Total Government R&D Spending and as a

Percentage of Total National R&D Spending .*,.... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Chapter 2

Research and Development

INTRODUCTION

The Nation and the Department of Defense (DoD)

have along-standing policy of support for a vigorous

research and development (R&D) program to meet

immediate and long-term defense needs. Two of the

desirable future DTIB characteristics described in

Redesigning Defense are an advanced R&D capability and greater exploitation of civilian R&D.1

The national R&D base has had many successes

in providing the military Services the technology

they need, although questions persist about the

efficiency, direction, structure, and size of defense

R&D. These questions include concerns about

whether the Nation is pursuing the correct technological paths (e.g., process or product technology)

and whether the defense R&D effort is properly

organized (e.g., among Service R&D efforts).

There is a broad national consensus today, reinforced by the Persian Gulf War experience, that the

United States should preserve qualitative superiority

in weapons performance. Unresolved issues that

Congress should consider are: how great this qualitative superiority should be, how should it be

maintained, and against what threats should it be

measured? The most cautious alternative is to

continue to compare U.S. weapons across the board

to the best capability of any potential adversary.

Given the waning military threat from the former

Soviet republics and the global arms trade, this may

mean U.S. weapons would be compared to the best

systems available on the international market.2

Even with the world’s best weapon performance

as a benchmark, the magnitude of the desired

performance edge remains a matter of debate. Some

analysts argue that the United States should maintain

a military advantage sufficient only to defend core

national interests and that the weapons already in the

pipeline have capabilities in excess of foreseeable

needs; therefore defense R&D could be reduced or

shifted largely to civil objectives. Other analysts

counter that there will be severe political constraints

on the casualties the United States will be willing to

accept in any future conflict for stakes less than

national survival and thus the required relative

performance advantage must remain very high.

This assessment assumes that the needed rate of

improvement in military systems will slow, but that

the Nation will seek to preserve an advantage in key

militarily unique technologies to at least match the

best of the rest of the world and provide the potential

for reduced U.S. casualties and collateral damage in

any future conflicts.

This assessment also considers the advanced

R&D capability needed to carry out the ‘prototypingplus” approach described in chapter 3. One of the

findings of this assessment is that R&D must not be

pursued, as in the past, according to the “pipeline”

model in which research leads to near-term production. Rather, as the present DTIB shrinks and fewer

systems are produced, R&D must be pursued with an

eye to maintaining superiority in critical technical

capabilities and as a hedge against technical breakthroughs by potential adversaries, even if the technologies are not incorporated immediately in new

weapons. New technology can be demonstrated in

laboratories and prototypes, and need not lead to

advanced development and production.

Another function of the “advanced” R&D capability needed for the future DTIB is to keep the

military community apprised of scientific and technical developments, both military and civilian,

throughout the world. Should a global threat arise,

the Nation’s military establishment would be poised

1 Throughout this report we use common definitions of ‘research” and ‘‘development. “ “Reseafch” is used to describe investigation intended to

advance science and technology without necessarily being directed to a specific end product. The work that follows research and leads to production

or specific application is called “development.” The Department of Defense (DoD) defines ‘‘reseruch’ very narrowly to mean onty what is generally

called ‘basic researck for example, what the National Science Foundation classifies as “applied research’ the DoD calls ‘exploratory development.

This report’s use of ‘research’ corresponds to the activities covered by DoD budget categories 6.1 through 6.3a. ‘ ‘Development” corresponds to budget

categories 6.3b and 6.4. Some DoD documents refer to the activities funded under categories 6.1 through 6.3a as ‘‘technology base” support but most

include only 6.1 and 6.2. The meaning of ‘technology base’ has become muddled so the DoD has created a new category, “science and technology”

that clearly includes 6.3a. Thus, figures for ‘‘research’ cited from DoD documents in this chapter are ‘‘technology bme’ (6.1 and 6.2) funds plus

Advanced Technology Development (6,3a) funds.

2 Weapons performance is just part of the story. As the Gulf War revealed, the quality, training, and organization of the people using the weapons

is also an important determinant of the Nation’s relative strength.

–33–
34 . Building Future Security

to exploit the best technology at hand to reconstitute

a force that can meet the new challenge. Since a

healthy civilian industrial base is an important

reservoir of scientific and technical potential, an

advanced military R&D capability should also be

structured to encourage transfer of technology from

the defense sector to the commercial sector.

To best meet future national security requirements, the variety of government laboratories and

R&D centers, universities and other nonprofit institutions, and private defense and civilian industrial

firms both in the United States and abroad, that carry

out today’s military R&D will have to change.

The Nation and Congress face fundamental choices

regarding the future of defense R&D. What level of

effort is appropriate? What should be its scientific

and technical focus? Who should perform the R&D

and how should it be organized and integrated?

What is the proper balance between a near-term and

long-term focus? The DoD’s ability to influence the

Nation’s overall R&D base is declining, but its

influence is still considerable. U.S. defense R&D,

for example, was about 31 percent of all U.S. R&D

in 1987 and almost 16 percent of the total R&D

spending in the European Community, United

States, and Japan.3

The following sections of this chapter examine

how to maintain an advanced R&D capability. The

first section reexamines the goals of an R&D effort.

The next section addresses the priority of military

R&D within the defense budget and the Federal

budget as a whole. This is followed by a discussion

of technical priorities for defense R&D and problems in the future organization of the defense R&D

effort. Finally, the chapter discusses how Congress

can affect defense R&D.

MAINTAINING A ROBUST R&D

CAPABILITY

A robust R&D capability requires an overall R&D

strategy, policies, organization, equipment and facilities, predictable funding, and skilled people to

execute the strategy. These requirements are closely

intertwined. For example, good people are attracted

to research only in part because of salaries. Interesting and meaningful work is at least as important according to many researchers. Front-line research

Photo credi: Naval Research Laboratory

A radar being tested in 1937 on the roof of the Naval

Research Laboratory. Some scien< ific and technological

advances result in revolutionary new

military capabllil ies.

also requires state-of-the-art equipment and facilities. Thus, retaining good people requires meaningful work, good facilities, proper policy, and good

management.

R&D National Security Goals in

the New Environment

In the new security environment the United States

faces two types of military threats with distinct and

characteristic warning times:

1.

2.

As a.

a currently hypothetical major military threat

that-were it to occur— would develop over

years, and

smaller threats that might flare up with little or

no warning.

result, defense R&D must have two goals that

are not completely complementary:

1. to maintain a scientific and technological

capability to guard against surprise and to

provide the basis for a buldup-perhaps over

several years-of the forces needed to oppose

an evolving military threat, and

3 National Science Foundatio% 1nrernutionu/ Science and TecAno/ogy Datu Updufe (NSF-91-309) (Washingto~ DC: 1{91), pp. 5, 9, and 13. These

are the most recent published figures for which consistent comparisons between nations are possible.
Chapter 2----Research and Development ● 35

2. to continually provide standing forces with

technology to meet smaller current threats at

reasonable cost.

At present the United States is pursuing both

paths, supporting R&D and moving to a smaller

active military force at a high state of readiness.4 The

reemergence of a major military threat like that of

the former Soviet Union (which the administration

terms a ‘‘reconstituted threat’ would require the

Nation to build up its forces at least as fast as any

potential enemy can. However, until the need for

such a buildup arises, the DoD emphasis will shift

away from providing current capability toward

maintaining potential capability. Current budgets

already reflect an understanding that R&D must be

maintained. The administration’s fiscal year 1993

defense budget request included a 1.5 percent real

increase in R&D but a 13 percent real decrease in

procurement. 5

Tradeoffs between current capability and future

potential will affect allocation of resources within

the defense R&D budget. If current capability is

emphasized, a large proportion of R&D would go to

development of specific weapon systems, as during

the cold war. Emphasis on future capability, however, would shift funding away from development of

specific weapons toward more generic research

aimed at the development and demonstration of

weapon technologies and perhaps to manufacturing

technology to produce systems later as the need

arises.

The fiscal year 1993 budget request sends mixed

signals on the tradeoffs desired by the Administration. The request would cancel or delay several

development programs, but development funds are

still large and research priorities would not change

dramatically. Defense research is proposed to rise

from $10.4 billion in fiscal year 1992 to $11.8 billion

in fiscal year 1993.6

Figure 2-l—Budget Authorization for Research,

Development, Test, and Evaluation as a Percentage

of Total Defense Authorization

35 ‘-

I

30

1

5 “

01 ! T Trllr T

n. .Tll ”T1 l

l

’” T’

T IT T

i

1965 1970 1975 1980 1985 1990

SOURCE: Historical Tables of the Budget of the United States Government.

Funding for R&D

Over most of the last 30 years, spending on R&D,

plus the test and evaluation that is a part of any

development program (i.e., RDT&E), has been

about 10 to 11 percent of the DoD budget.7 (See

figure 2-l.) If historical ratios continue, absolute

funding for defense R&D will shrink along with the

rest of the defense budget, unless there is a commitment to support R&D as a means of maintaining

military potential.g The threats the Nation faces have

not been reduced evenly across the board and there

remains the possibility that a major military threat

could emerge. Thus, even if a large reduction in

current capability is warranted, it does not necessarily follow that investment in military R&D should be

reduced proportionately.

Most independent projections are, however, that

the resources for R&D will decline in the future. For

example, the Electronic Industries Association (EIA)

annually makes 10-year projections of defense

spending that have been accurate in the past. The

d Military planners appear to give a high priority to the training and readiness of whatever active force the Nation keeps. This may be reflected in

press speculation about future shifts of resourees from procurement to training. See, Andy Paztor, “Pentagon Weighs Cut of $50 Billioz’ The Wall

.Street Yourna/, Dec. 20, 1991, p. A3.

5 Dick Cheney, Annual Report (O the President and the Congress (Washington DC: U.S. Government Printing Office, February 1992), p. 131.

b Department of Defense, RDT&E Programs (R-I), Jan. 29, 1992, p. III. These figures are the sum of the “Technology Base, ’ that is, budget

categories 6.1 and 6.2 and the ‘‘Advanced Technology Development, ’ that is, 6.3a.

7 Executive Office of the President, Budget of the United States Government, Fiscal Year 1992, Part 7, Table 3.2. Test and evaluation adds about

25 percent to the R&D budget.

8 Extensive prototyping, including limited production of weapons for operatioml testing, may be expensive compared to current development

programs. Thus, a prototyping effort could dominate future R&D budgets if budgeted under development rather than production.
36 ● Building Future Security

Figure 2-2—Nominal Decline in Future Spending for

Research, Development, Test, and Evaluation

Fiscal year 1992 $ billions

50 r - —

40

30

204

10

o ’‘ “ ’

, I

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

SOURCE: Electronic Industries Association

EIA forecast is based on an assumption that RDT&E’s

fraction of the budget will grow only very slightly,

to 12.9 percent in 2001. Thus, their predicted

defense budget of $208 billion in 2001 implies a

decline from $40 billion today in total RDT&E

spending to $27 billion in 2001 (all in fiscal year

1992 dollars). (See figure 2-2.)

The DoD’s own plans also anticipate reduction in

R&D over the next few years. Air Force RDT&E

budgets will fall most steeply, from $15 billion in

1992 to $8 billion in 1997.9 Current plans call for the

Army’s RDT&E budget to decline slowly from $6

billion in 1992 to $4 billion in 1997.10 These budget

projections should be viewed cautiously because

changes in development funding for just a very few

very expensive projects can skew the entire budget.

Maintaining an advanced R&D capability maybe

relatively more expensive for the DoD in the future,

since, with less production, firms will have little

incentive to share in paying for R&D costs. But

justifying a particular level of R&D spending is

difficult. For generic research, the problem is to

show a clear relationship between the effort and the

result.11 Each Service terms its research a ‘ ‘corporate investment,‘‘ i.e., a cost of maintaining expertise. Research support requests for fiscal year 1993

are $1.8 billion for the Air Force, $1.5 billion for the

Navy, $1.1 billion for the Army, and $7.2 billion for

DoD agencies.

12 Private Companies ties determine levels

of research spending on the basis of investment that

they believe is needed to maintain a competitive

edge over rivals. The Nation’s military establishment should similarly monitor technology developments of other countries to determine the research

needed to maintain the desired relative advantage in

weapon performance.

The criteria for deciding development funding

levels are changing. In the past, the Nation could

decide on the needed rate of introduction of new

weapons to maintain qualitative superiority over the

Soviet Union. But in the future, to respond to a more

ambiguous array of threats, the Nation will need to

maintain a range of industrial, technical, and manufacturing skills, possibly through a prototyping-plus

strategy, a big part of which would probably show up

in the development budget. (See ch. 3.)

Allocation of Funds Among R&D Performers

Reduced defense R&D spending will change the

distribution of R&D effort among industry, university, nonprofit, and in-house service laboratories.

The current distribution for reasearch is shown in

figure 2-3. Unless offsetting actions are taken,

reduction in defense research funding will cause a

relative increase in research activity by Service

laboratories and a decrease by private industry.

There will be less industry incentive to support

research, while government laboratory managers

may try to keep a relatively large slice of a shrinking

pie in-house.

The trends for distribution of development funding are less clear. Over two-thirds of development

now occurs in industry. Total developrnent funding

may stay high if the Nation pursues a prototypingplus strategy like that described in the next chapter.

This activity would most likely remain in industry.

Many companies argue, however, that current ap9 Congressional Budget Office, Staff MemorandW “The Costs of the AWstration’s Plan for the Air Force Througk the Year 2010,” December

1991, p. 18. Some analysts argue that Air Force R&D figures are suspect beeause they may include huge seeret production programs.

10 CoWes~io~ Budget Office, StfiMmormdw ‘‘T’hecosts of the A dmin.istration’s Pkmfor the Army mOWh tie ~ ~2010.’ ~em~r 1991>

p. 21.

11 See &nevieve J. ~ezO,DefenSeBaSiCReSearCh Priorities: Funding andPolicy Issues, Congressional Resea.mh Servi:e Report for Congress, Oct.

24, 1990, for a discussion of the problems of determining funding levels and setting research goals.

~Z Defense Daily, Special Supple~nt, Details of 1993 DoDBudget Request, JMI, 31, 1992, pp. S-1 to S-3. Note tittieres=chbudget for~ed~~

agencies is dominated by the Strategic Defense Initiative Organization.
Chapter 2---Research and Development ● 37

Figure 2-3-Possible Distributions of Future Research Effort

CURRENT ALLOCATIONS

University

nonprof

an

it

In-house

FUTURE OPTIONS

In-house

~dustry

u niversity a

n o n profit

In-house

ndu st ry

Option 1: With emphasis on preserving militarily Option 2: With emphasis on dual-use and

unique technology in government Iaborator ies commercial technology

SOURCE: National Sciene Foundation, Federal R&D Funding by Budget Function, and OTA.

preaches to prototyping are not commercially viable. Unless the DoD takes steps to make prototyping

profitable for industry, design and prototyping

activities might need to move into government

laboratories or arsenals.

OTA’s defense industry survey indicated that

most companies, foreseeing reductions in production contracts, are planning to cut their own spending

for R&D. “Independent research and developmerit, ’ or IR&D, is a company’s R&D that is funded

outside of explicit government R&D contracts.13

Over the long term, the IR&D that can be recovered

from production contracts as overhead will decline

as procurement declines. Action has already been

taken to counter some of these trends. Companies’

allowed IR&D recovery rate was increased under

legislation passed last year, for example. But direct

DoD funding to industry may need to increase in

critical R&D areas to maintain current levels of

effort.

Any decline in government-funded R&D will

exacerbate reductions in company -financed R&D.

Most studies indicate a positive correlation between

federally-funded R&D in a company and the company’s own R&D expenditures.14 This finding

indicates a leveraging of Federal funding: a dollar of

13 ~me is some confusion in tie Iitemture about the defii[ion of ‘Hi&D. ’ The formal government definition is any noncontract-funded R&D. ~us,

for example, all of the R&D of a company with no comection to the DoD at all is considered IR&D. (See Office of the Director of Defense Research

and Engineering, The Independent Research and Development Program, A Review of IR&D, June 1974.) Many writers commonly use the term to refer

to only that portion of a defense contractor’s R&D that is potentially recoverable as an allowable overhead expense on a government contract. This section

will refer to a company’s overall effort as IR&D and the recoverable portion as recoverable IR&D if there is an ambiguity.

14 For a Survey of results, see Frank R. Lichtenberg, “The Effect of Government Funding on Private Industrial Research and Development: A

Reassessment,” Journal of Industrial Economics, vol. 36, No. 1, September 1987, pp. 97-104.
38 ● Building Future Security

Photo cwdit: Pratt and Whitney

New technologies are first demonstrated and proven in this

core engine before the manufacturer applies thereto anew

or existing engine design. Most of the Nation’s defense

technical and expertise resides in companies.

Federal funding creates more than a dollar of total

R&D in both defense and nondefense sectors.

presumably therefore, as Federal defense R&D

support shrinks, overall R&D shrinks even more.

Service laboratories have built up important areas

of expertise and are well tuned to Service military

requirements. But critics of reliance on Service

laboratories for DoD R&D note that they work for a

single Service, and sometimes only one element

within that Service, therefore their view may be too

narrow and they may overlook technologies that do

not promote current Service missions. In the extreme, this is essentially a legal restriction; for

example, the Army cannot own, hence does not

support R&D in, fixed-wing combat aircraft. Furthermore, civil service regulations are said to stifle

research creativity in government laboratories. Critics of Service laboratories argue that private companies, universities, and other outside research organizations are likelier to think up a potential mission to

illustrate a need for some new technology that they

have just developed. Salesmanship usefully gets

new ideas into consideration,

Service R&D activities are coordinated through

the Office of the Secretary of Defense (OSD), but the

Service laboratories also have their own group, the

Joint Directors of Laboratories (JDL) under the

Ph( to credit: Wright Laboratories

Research on new materials is cmducted by the Air

Force at Wright Laboratories. The Service laboratories are

important centers of research aml pride themselves on

being closely tuned to the needs >f the military users.

auspices of the Service Secretaries. The JDL is made

up of the directors of research or laboratories of each

of the Services. In addition to meeting as a group, the

JDL sets up various subpanels c f Laboratory Technical Directors or Chief Scientists, to discuss and

coordinate work in particular areas.15

Under the auspices of JDL, the Services are

undertaking a major change in their approach to

allocating research effort among themselves, under

a directive from OSD to coordinate their technology

support. The result is a program called ‘‘Tri-Service

S&T Reliance” (previously called Reliance). The objective of this program is to minimize

redundancy among Service laboratories. At the very

least, similar efforts at different laboratories should

be coordinated. Where appropriate, efforts will be

physically consolidated at a single laboratory and

one Service will be designated a lead Service. For

example, the Navy recognizes the Army’s extensive

expertise in large-caliber guns, so all Services’

relevant gun technology development will take

place at the Army’s Picatinny Arsenal. Similarly,

fuel and lubricant research will take place at the Air

Force’s Wright Laboratory, while work on spacebased infrared sensors will beat the Naval Research

Laboratory.16

15 Fr~ck R. fiddefl et al., Report of the Task Force for Improved Coordination of the DoD Science and Technolog~ program (Alexandri% VA:

Institute for Defense Analyses, August 1988) vol. II, app. C.

lb Jo~t D~ctors of Laboratories, White Paper on Tri-Service Reliance in Science and Technology, Office of Naval Technology, JMNUUY 1992.
Chapter 2--Research and Development ● 39

Reliance is still in its early stages so it is too soon

to evaluate results.17 If current plans are carried

through, however, it could bring a fundamental

change in how the Services organize their technology research.

A robust civilian industial base is important to

the DTIB. If the defense R&D effort is given the

additional goal of helping civilian technology, R&D

funded through the DoD could expand substantially.

There is no consensus, however, on the degree to

which the Federal Government should support

civilian industrial R&D, nor on whether such

support should come from the DoD.

Some advocates of direct government support of

civilian industrial R&D argue that while such

support is essential, the regulatory barriers that

government has erected between military and civilian enterprise are so great that channeling the money

through the DoD is extremely inefficient, Other

advocates concede the inefficiency, but counter that

the government has no current mechanism with

adequate scope and experience other than DoD to

mount such a program. Alternative programs supported, say, through the Department of Commerce,

might take years to build up. Further, they argue that

the political realities are that cuts in DoD R&D are

not going to be transferred to some other research

agency, such as the National Science Foundation or

the Department of Commerce’s National Institute of

Standards and Technology (NIST). Thus, according

to this argument, the alternative to supporting civil

industry inefficiently through the DoD is not to do

it at all.18

In fact, the alternatives are not so stark. Other

government programs, while currently small, could

be expanded. For example, the Advanced Technology Program (ATP) under NIST is growing, with a

$50 million fiscal year 1992 budget and an administration request of $68 million for fiscal year 1993

and much support in Congress. OTA’s assessment of

industrial competitiveness, Making Things Better,

argues through analogy with the Defense Advanced

Research Projects Agency (DARPA) that the ATP

could use effectively over $1 billion per year.19

Photo credit: 3M Corp.

R&D in commercial laboratories is increasingly

sophisticated and will be important for future

military technology.

Proponents of greater civil-military integration

argue that reducing bureaucratic barriers between

military and civil industry would greatly increase the

number of sources of new technology. Using more

integrated commercial firms, however, will complicate the issue of foreign dependence since many of

the large and most innovative companies are multinationals. These companies also offer, of course,

ready access to valuable technology abroad. To

make best use of civilian technology, changes in

DoD procurement and contracting practice are

required, as discussed below.

The Nation’s universities have traditionally been

strong in long-term basic research. Although basic

research in universities is small in dollar terms when

compared to the DoD budget, it is the primary source

of fundamental scientific advances and, just as

importantly, to the training of future scientists and

engineers.

The Department of Energy operates the National

Laboratories that are responsible for the development and testing of nuclear weapons. With the end

of the cold war, further advances in nuclear weapons

are far less urgent but nuclear weapon design

know-how is something the Nation cannot afford to

lose.

17 Irnplernerlting letters were signed only in September tiu@ Novembm of 1991.

la There is little a~e~ent on the extent or net benefit of military R&Don the civilian eeonomy. A recent report containing a review of the impo~nt

existing literature is, David Gold, The Impact of Defense Spending on Investment, Produch”vify, and Growth (Washington, DC: The Defense Budget

Project, 1990).

19 See U.S. con~~s, office of Technology Assessment, Making Things Belter: Competing in Manufacnm”ng, OTA-ITE443 (Washington, DC: U.S.

Government Printing Office, February 1990), p. 76.
40 ● Building Future Security

Photo credit: MIT Lincoln Laboratories

This university laboratory developed thin films of

superconducting materials. The Nation depends on

universities for much of its long-term basic research.

To Summ arize, industry holds most of the defense

technology and almost all the knowledge about

manufacturing. Further, the increased importance of

dual-use technology could make industry a better

potential provider in the future. At present, however,

it seems likely that industry will lose much of its

incentive to maintain supporting defense technology. The DoD needs either to make the R&D

profitable in its own right or become a truly

innovative in-house technology developer. In the

latter case, government laboratories and arsenals

would have to take on more technology development, but they would need to be careful to maintain

communication with potential manufacturers to

ensure that designs are producible. The government

should carefully consider maintaining current DoD

support for university R&D and explore ways to

utilize the civilian sector.

Setting R&D Technology Priorities in the New

Security Environment

The new security environment is changing the

relative importance of many military missions.

Sometimes the technology implications of new

mission emphases are fairly clear. For example, any

Navy shift of emphasis from open ocean to shallow

water operations will require more attention to

countering mines. Similarly, if the Army is less

concerned with building heavy tanks for war in

central Europe and more with deploying armored

forces to unpredictable trouble spots, its R&D

emphasis should shift to making weapons lighter

and easier to maintain under diverse field conditions.

There is a requirement to allocate R&D funds

across technology areas. Congress is, of course,

concerned about whether the allocation is correct but

is not well-suited for setting detailed R&D goals

with the current approach. Congress and the DoD set

overall military missions and review needed technology developments but without complete coordination between these two processes.20

In the absence of any published DoD technology

plan, Congress requested that the Office of the

Secretary of Defense (OSD) prepare a “critical

technology plan. ”21 The resulting report continues

to be criticized as providing merely a list of

technologies rather than an investment plan that

explains how to apply these technologies to military

missions. Some critics argue that the list is of limited

value in allocating resources because the technology

areas are so broadly defined that very little is not

considered ‘critical. ’ They argue, furthermore, that

this generality is a consequence of fears that the list

will be used in a simple-minded way for funding

decisions: if work is not labeled “critical” it will get

cut. Others argue that the critical technology plan

concentrates only on weapon technology and overlooks training or logistics, which are just as critical.

to military strength.

The individual Services co have technology

investment strategies that are coordinated through

OSD. The Army’s Technology Base Master Plan,22

for example, lays out an investment strategy for

implementing technology goals, an explanation of

how to get from hereto there, and how much it will

cost. The OSD has recently developed several

Technology Thrust Areas that should make clearer

m See us. CoWess, Offlce of Technolo~ Assessment Background Paper, Evaluating Defense Department ReSeuT :k June lg~.

21 p.L. 101-189103 Stat. 1512 p~~aph 2508(a) ‘Annual Plan. — ( 1) The Secretary of Defense shall submit to the Co nrnittees on Armed Semices

of the Senate and House of Representatives an amual plan for developing the technologies considered by the Secretary f lf Defense and the Seeretary

of Energy to be the technologies most critical to ensuring the long-term qualitative superiority of United States weapons ysterns. The number of such

technologies identifkd in any plan may not exceed 20. Each such plan shall be developed in consultation with the Secre ary of Energy.’

22 ~pu~ Assis@t Secrew for Research and Technology, Army Technology Base Master Pian, VOIS. I-III wa.Shim@4 ~: Depart=nt of the

Army, November 1990).
Chapter 2--Research and Development . 41

-* h A

Photo credit: DoD

This tank is only lightly armored. It is more vulnerable than

a heavy tank but easy to transport by air. As the military

threats facing the Nation change, the technical goals of

defense R&D must be adjusted.

the route from the DoD’s overall technology investment to its military missions. Currently, there are

seven thrust areas-surveillance, precision strike,

air superiority, antisubmarine warfare, land combat

vehicles, readiness and training, and affordability23—

but the areas could change in the future in response

to new security or technical developments.

With slower deployment of new major weapon

platforms, relatively more attention will be given to

subsystems and upgrades of the platforms and the

munitions that they carry. The development budget

may include prototypes to demonstrate new technology or designs for which there is no immediate plan

for actual development for quantity production.

With falling budgets, some Service R&D planners

see greater research emphasis on reliability, durability, and efficiency as away to reduce operating costs.

The increasing complexity and decreasing number

of weapon systems have led the DoD to emphasize

designing for producibility and manufacturing process.

The changes in military requirements will have

less effect on priorities at the research end of the

R&D spectrum. For example, no matter what the

threat, there is a strong consensus that R&D will

continue or even increase its current emphasis on

‘‘information technology, ’ including sensors, data

analysis, and displays, along with communications,

computers, software, and storage and manipulation

of data for manufacturing. However, even with a

large shift in emphasis toward, for example, electronics, the basic goals of electronics research will

remain much the same: reduced size, lower power

requirements, higher speed, lower cost, and greater

reliability, whether the end-result eventually appears

in a ballistic missile or a shoulder-fired rocket.

Similar arguments will apply for a range of technologies, from biotechnology to materials.

The general trend since the end of World War II

has been for Congress and the Executive Branch to

require ever clearer justifications of military R&D,

usually in terms of final military application. This

goal is most clearly stated in the Mansfield Amendment, P.L. 91-441 Title II Section 204:

None of the funds authorized to be appropriated

to the Department of Defense by this or any other Act

may be used to finance any research projector study

unless such project or study has, in the opinion of the

Secretary of Defense, a potential relationship to a

military function or operation.24

Although this requirement, if broadly defined,

should be easy to meet, many R&D managers argue

that it has had the effect of biasing project selection

toward those whose military connection is not just

‘‘probable’ but most obvious, with the effect of

narrowing the defense R&D base.

As the Nation broadens its definition of ‘national

security’ to include international economic competitiveness, the past emphasis on the narrow military

justifications for defense R&D will be challenged.

Many observers are concerned about the Nation’s

industrial performance and view inadequate investment in civilian R&D as part of the problem, Since

military R&D is almost one-third of the Nation’s

total public and private R&D expenditure-a higher

fraction than that of other western industrial countries ~25one approach is to tap into military R&D to

help civilian enterprise. (See figure 2-4.) This

~ Brief~ from the office of the Deputy Director, Research and Engineering (Plans and Resoumes), Feb. 9, 1992.

~ ~ls wording mperseded the even s~nger wording enacted the previous year that projects should have a ‘‘ . . . direct and apparent relatiomhip

to a speeiflc military function. . . “ (P.L. 91-121). The wording was altered again slightly in P.L. 100-370 to allow the DoD to spend R&D funds, “for

puqmses related to research and development for which expenditures are specifically authorized in other appropriations of the Department of Defense. ’

This recent change indicates a reversal in the trend toward narrow military justification toward a concern with a broader national security.

~ Natio~ Science FoMdation, [nternationd Science and Technology Data Update: 1991, NSF 91-309 (was.tington, DC: 1991), pp. l~ls.
42 ● Building Future Security

Figure 2-4-Defense R&D as a Percentage of Total Government R&D Spending and as a Percentage

of Total National R&D Spending

Percent of total government R&D spending

100 ~

80 1

40

20

0

France West Japan United United

Germany Kingdom States

100

80

60

40

20

0

Percent of total national R&D spending (1988)

.

France West Japan United United

Germany Kingdom States

approach may include adding civilian industrial

competitiveness to the criteria by which military

R&D proposals are judged. Congress frequently has

the dual objectives of military and commercial

benefit in mind when it supports ostensibly military

projects directed at improving manufacturing, such

as the MANTECH and SEMATECH programs

described in Redesigning Defense .26

The DoD and the administration resist this approach because of the difficulty of balancing civil

and military objectives. Defense managers, while

aware of the importance of industrial competitiveness, are hesitant to use it as a criterion for funding

military R&D. Their general concern is that resources devoted to important military needs are

already limited, if not inadequate, and that additional

nonmilitary objectives would make fulfilling those

needs even more difficult. Changes in the bureaucratic incentives for integration of civil and military

R&D will have to be made at higher levels, i.e.,

Congress or the President, before managers adopt

such criteria.

Another approach would be to keep current

military R&D priorities and improve the transfer of

military technology to the private sector. Whether

government support for certain industrial technical

development projects is warranted has been a

subject of much debate. Until that debate is resolved,

however, the question remains whether industrial

SOURCE: National Science Foundation, International Science and Technology Data Update: 1991.

development funds should be funneled through the

DoD. As described below, the substantial barriers

between defense and commercial business sectors

resulting from the special legislative and regulatory

environments created by the federal Government

hamper the transfer of technology.

A third approach would be to maintain current

defense R&D priorities but reduce the overall level

of R&D funding funneled through the DoD. Released funds could support commercial R&D directly through some civilian government organization, or the funds could go to indirect support, for

example, tax incentives for R&D. This approach

would compel the DoD to obtain more of its

technology from the civil sector and adapt its

doctrine to suit available technology. R&D might

also focus on strategic economic vulnerabilities that

pose a threat to national security. For example, if an

extensive R&D program had produced energy independence for the West, Iraq’s invasion of Kuwait

would have had a fraction of it; actual importance.

Organization of Governnment Support of

Defense R&D

The organization of R&D must balance the needs

of the operational military community, the R&D

community, and the Nation’s defense effort as a

whole .27 How to maintain this balance will be

important in the years ahead as the DTIB shrinks.

~ MANTECH is a program to support h4ANufacturing Technology and SEMATEC!Hagovernment-industry consortiw I to develop SErniconductor

Manufacturing Technology. See Redesigning Defense, pp. 52-54.

27 See U.S. CoWess, mfice of Technology Assessment, Holding rhe Edge: Maintaining die Defense Technology Base, ~ YIA-ISC-420 (WWhgtw

DC: U.S. Government Printing Offkx, April 1989) for a fuller discussion of DoD R&D management and organization.
Chapter 2-Research and Development ● 43

This issue is of direct concern to Congress, since

Congress has historically been involved in the

organization of DoD R&D.

If the primary objective is relevance of R&D to

the users’ perceived immediate needs, then R&D

should be closely tied to the acquisition function,

which in turn should be under the control of the

Services. The danger with this arrangement is that it

might focus on short-term problems. If the objective

is to emphasize long-term technological support, the

earlier science and technology work could be given

more visibility, perhaps by having the person in

charge of R&D report to the secretary level in OSD

or the Services, rather than through the person in

charge of acquisition. Another issue of concern to

Congress is that, in a declining budget environment,

existing R&D groups may resist consolidation or

redirection.

Present Structure and Consolidation Plan

Until 1986, the Director of Defense Research and

Engineering reported directly to the Secretary of

Defense. In response to the widespread perception

that the acquisition process was not adequately

managed, the Goldwater-Nichols reorganization of

that year created an Under Secretary for Acquisition,

to whom the DDR&E reported. This reorganization

may have increased the communication between the

acquisition and the R&D communities, but it also

reduced the visibility of the R&D issues to the

Secretary.

Assistant Service Secretaries in charge of R&D

report through their Service chains of command, but

also coordinate through OSD. Some critics contend

that coordination is insufficient and more centralized control is needed. Advocates of increased

centralized control argue that redundancy and inefficiency are inevitable if each Service handles its

R&D separately. While R&D redundancy was

desirable in an era of growing or level budgets,

declining budgets should force greater coordination.

In contrast, Service R&D managers argue that

independence from OSD is vital because the Services best understand the needs of the ultimate users

of the technology. Moreover, rivalry among the

Services produces alternatives that might not have

surfaced if the research agenda were centrally

controlled. A good example is the development of

the Navy’s Polaris submarine at a time when the

strategic nuclear role was dominated by the Air

Force. If there had been a central strategic nuclear

R&D directorate at the time of Polaris’ proposal, it

probably would have been dominated by advocates

of ICBMs and bombers and the submarine-launched

ballistic missile, which has become the cornerstone

of the U.S. nuclear deterrent, might never have been

pursued.28

Each of the Services is reorganizing or planning

to consolidate its laboratories. Service laboratories

and research centers perform in-house R&D and

administer projects contracted to private industry.

There are 66 Service laboratories (76 if the laboratories making up the Air Force ‘‘superlabs’ are

counted individually). In 1990, the laboratories

employed 60,000 people of whom 26,000 were scientists and engineers. Total funding was $6.5

billion, over half of which went to externally

performed contract R&D with part of the remainder

going to management of these outside contracts.29

The number of employees has shrunk somewhat

since.

The Army has the most extensive reorganization

plan, resulting from its ‘‘Lab 21 study. It plans to

consolidate most administrative control and many

activities in a single Combat Materiel Research

Laboratory in Maryland. Currently, similar technologies often are explored in different Army centers if

they have different end uses. Some of these centers

would be consolidated under the plan. For example,

combat vehicle propulsion research is based in

Warren, MI, the home of the Tank and Automotive

Command, while aviation propulsion research is

based in Cleveland, OH, on the site of NASA’s

Lewis Research Center. The Army believes that, at

the research level, these two applications are similar

enough to warrant future consolidation of the

laboratories at Cleveland.30

2S Jme~ R. Schlcsingcr, D@en~e P/annlng ~~ B~g~fing: The Issue of Cenma/ized Conrro/ (Washington, DC: Industrial College Of the Armed

Forces, 1968), p. 18.

29 F~d~ml Advl~ov Comission on cOm~Oli&tiOn ~~d c~nv~~sion of Defeme Research and Development Laboratories, Report tO the ~ecretq Of

Dtfense, September 1991, p. 1.

30 see GWrge Slngley, te~tlmony before the Sutiomlttee on Defe~~e ~dustry and Technology, Committee on Armed Services, U.S. Senate, May

21.1991.
44 ● Building Future Security

The Navy is consolidating its R&D activities into

four existing Research, Development, Test and

Evaluation Engineering and Fleet Support Centers,

and one Service-wide research laboratory. Unlike

the Army’s technology-center approach, the Navy’s

centers are organized around war-fighting missions.

For example, Navy R&D relating to air warfare will

be headquartered at the Naval Air Systems Command, with a weapons division at Point Mugu and an

aircraft division at Patuxent River. The other centers

are the Naval Surface Warfare Center (which will

include surface-based antisubmarine warfare), the

Naval Undersea Systems Center, and the Naval

Command, Control, and Ocean Surveillance Systems Center (which covers surveillance and communications). The Naval Research Laboratory, which

explores abroad range of research areas, will remain

as a Navy-wide laboratory under the Office of Naval

Research,

The Air Force reorganization plan includes the

consolidation of 14 laboratories into 4 ‘‘superlabs. ’ ’31 However, no laboratories are planned to

close or move immediately, although management

and administrative functions will be concentrated in

the four central laboratories.

The Federal Advisory Commission on Laboratory

Consolidation endorsed the Service consolidation

plans almost without exception. According to the

Commission report:

The laboratories provide to the acquisition agents

(i.e., the Services’ program managers), an in-house,

technologically qualified agent to oversee or evaluate the performance of the industrial developer as

required to ensure that the design is technically

sound, will satisfy performance requirements, and is

producible and affordable.32

The possibility of laboratory mission changes and

their implications for organization and size are not

developed in the Commission’s report,

Medical laboratories are examples of crossService consolidation. There is no reason in principle that other technologies in addition to medicine

could not be similarly coalesced, as the Federal

Advisory Commission suggests considering for

microelectronics.

A number of alternatives for further consolidation

exist. OSD could, for example consolidate research

activities while leaving development to the Services,

or OSD could, in the extreme, assume control of all

Service R&D activities following the French R&D

and acquisition model. The Services argue against

consolidation on the grounds that R&D will become

disconnected from their direct needs. And they argue

that as long as the Services are responsible for

acquisition, they should be responsible for the

supporting R&D. But in a future circumstance of

declining budgets and continuing need for technological advance, consolidation across Services may

be as necessary as consolidation within each Service.

There are also certain joint tasks that OSD might

best oversee among the Services, such as communication, data fusion and dissemination, and attack

coordination.

The OSD does not operate any laboratories,

although it has two Federally funded Research and

Development Centers (FFRDCs): the Institute for

Defense Analyses (with $96 million in fiscal year

1990) and the Logistics Management Institute (with

$21 million in fiscal year 199033). OSD also

supports defense agencies like the Defense Nuclear

Agency, the Defense Advanced Research Projects

Agency, and the Strategic Defense Initiative Organization. While none of these are laboratories, they

have resources to support R&D at Service laboratories or elsewhere. Total R&D funding of the

organizations funded through OSD was $6.9 billion

in fiscal year 1991.34

Issues for the Future

Congress might consider changing the balance

between Service autonomy and OSD coordination of

R&D. To reduce redundancy, it could funnel all

R&D funds up to some level (perhaps 6.3a) through

OSD, perhaps by extending the model of interService medical laboratories to other areas. Alternatively, Congress could encourage the Services to

continue the approach begun with Reliance, that is,

to assign responsibility for each important technol31 Report t. the secretary of Defense, op. cit., foo~ote 29$ P. 18.

32 Report t. the Secretay of Defense, op. cit., footnote 2% P. C-1.

33 ~UU fiWrm from ~c~el Davey, D#e~e Laboratories: Proposals for Closure and Consolidation, Congressional Research Service, 91-135

SPR, Jan. 24, 1991, p. 9.

~ @p~rnent of Defense, RDT&E Programs (R-l), February 1991, p. D-H.
Chapter 2--Research and Development . 45

ogy area to a single Service, which would support

the other Services in that area.

As the DTIB gets smaller, Congress will want to

have military R&D activities organized such that no

important R&D mission is overlooked. For this,

Congress will need abetter idea of how technologies

relate to military missions and how the entire

defense R&D effort is coordinated. Ideally, the

system should be designed to foster new ideas and

avoid parochialism, so coordination does not become stifling overmanagement. Achieving this state

should be a key goal of R&D reorganization.

OTHER CRITICAL ISSUES

Congress will need to address a number of

specific critical issues relating to the organization

and function of the defense R&D base.

Defense R&D Personnel:

Maintaining the Know-How

A critical objective of defense R&D policy in the

new era is to maintain the core skills and knowledge

that are key to the whole defense enterprise.

Personnel reductions in defense R&D must be

carried out carefully to retain key skills, and those

that exist only in the defense base must be maintained there. Some knowledge and capability exists

in groups of people rather than individuals. These

groups may require special treatment if their skills

are not to be lost. For example, a prototyping-plus

strategy, discussed in the next chapter, can help’

maintain critical pools of design and development

talent.

Many of the concerns about government laboratory personnel long preceded the ongoing reduction

in the size of the DTIB. Some problems may be

exacerbated by future shrinkage, while others may

be made more manageable. For example, the question of salary seems to be permanent.35 Government

pay for scientists and engineers lags behind that of

comparable positions in industry. Measuring the lure

of intangibles such as job security is, however, hard

and thus predicting the exact effect of their loss is

also difficult.

Some argue that salaries for scientists and engineers in private-sector defense firms are inflated by

up to 15 percent relative to comparable nondefense

sectors and, moreover, that this difference has

drained the Nation’s broader civilian industrial base

of its best technical talent.3b As international commercial competitiveness increases in importance

relative to defense, the Nation may have less interest

in maintaining whatever defense salary bonus might

exist, and want to encourage good people to work in

the civil sector.

If the mission of the Service laboratories changes—

for example, shifting emphasis from oversight of

contract R&D toward more direct involvement in

R&D work—then the personnel requirements also

change. If the Service laboratories increase their role

as developers of technology, then the quality of their

personnel may also need to improve. This may

require further changes in pay scale. Just as important are changes in ‘‘revolving door’ policies that

inhibit movement of personnel between government

and industry. If the primary function of a government scientist is to be an adviser to a government

buyer, then there is a need to forestall conflict of

interest by maintaining a clean separation between

the scientist and industry. If the role of government

scientists is to develop new technology and promote

technology transfer, then scientists should be positively encouraged to move back and forth between

government laboratories and leaders in industrial

technology.

The DoD is an important source of support of

research in universities.37 In electrical engineering,

for example, the DoD provides the majority of

university research support. In some other fields

(e.g., aeronautical and mechanical engineering), the

DoD is the largest single source of funds. Funds

from the DoD support much research critical to the

Nation’s military capabilities, but another important

function of DoD research funding for universities is

the training of students who then enter the Nation’s

pool of scientific and engineering talent. A reduction

in DoD funds for university research is possible as

overall defense budgets shrink. Congress or the OSD

may want to maintain funding of university research

35 Bureau of tie Budge~ Report tO the President on Government Contracting for Research and Development, May 1%2, ~ex 5, PP. 47-49.

36 JWI Yudken and Ann Markusen, Rutgers University, “?’he Labor Economics of Conversion: Prospects for Military-Dependent Engineers and

Scientists,” p. 15, a paper presented at the conference, “Engineers and Economic Conversions, ’ University of Arizom, ‘lYcso~ July 15-17, 1991.

37 fie~o, op, cit., footnote 14, p. 24.
46 ● Building Future Security

to continue to have access to this important source

of technological strength.

As the DTIB shrinks, the need for scientists,

engineers, and technicians will also decline. Meeting the lesser personnel demand should, in the long

term at least, be an easier task than attracting

adequate numbers was in the past. During the

transition to a smaller base, however, the major

danger is that past investment that has resulted in a

huge reservoir of experience and knowledge, both in

individuals and in groups, will be lost. Moreover, the

smaller year-to-year demands of the DTIB for

technical talent will not reflect the Nation’s requirements if a major new military threat arises. Thus, the

Nation should be mindful of where the DTIB

technical talent goes as it leaves the base. There is a

difference, both to national security and national

prosperity, between moving scientific and technical

talent between defense and civil work and not being

able to use it in the economy at all. Industry will

continue to supply the great majority of R&D

personnel important to defense, which can increasingly include R&D talent outside of the traditional

defense companies if civil-military barriers are

reduced.

Independent Research and Development

Companies that have contracts with the U.S.

Government negotiated on the basis of their costs,

rather than market or bid prices, are allowed to

charge as an overhead expense the ‘‘normal’ costs

of doing business. Since before the Second World

War, the government has considered limited R&D

and other engineering efforts as allowable overhead

costs.

In the past, the IR&D recovery scheme exacerbated the separation of military and civilian technology. If military and commercial business, including

R&D, is mixed in one company division, then that

portion of R&D judged to have a potential interest

to the DoD must be prorated between the government and commercial business. If the optimal R&D

investment in the government and commercial parts

is not the same, then anomalies result. For example,

if the military products warrant a higher rate of R&D

investment than the commercial products, and IR&D

recovery rules require prorating R&D costs, then the

company’s commercial products will be more expensive than those of a competitor that does no

military R&D. Thus a company that does both

commercial and military production and R&D has

yet another incentive to separate its two customer

lines, creating yet another barrier between commercial and military technology transfer.

Today the trend is toward encouraging civil

application of recoverable IF.&D. To qualify for

recovery as an overhead cost on a defense contract,

R&D must now be shown to be of “potential

interest” to the DoD.38 The law states that IR&D

regulations should encourage contractors to pursue

R&D activities that

1. strengthen the DTIB,

2. enhance industrial competitiveness,

3. promote critical military technologies,

4. develop dual-use technology, and

5. develop technology to benefit the

environment.

A broadening definition of what is of interest to

the DoD combined with higher - recovery rates does

not give companies a blank check to charge R&D to

government contracts. Contract officers must still

agree that the charges are reasonable.

Substantial additional changes in IR&D recovery

rules may be needed to change the way companies

support R&D. Recovery of IR&D as an overhead

expense on procurement links R&D to production.

This linkage will not be desirab e in the emerging era

of production cuts. For example, production of many

types of weapons may fall sharply during the

transition to a smaller military, while the need for

R&D will remain high. In these instances, contract

R&D could make up for reduced overhead recovery

of IR&D expenses. In additicn, if the DoD buys

commercial technology incorporated into militaryspecific products, then companies will want some

simple mechanism for folding past R&D costs into

the price of the products.

Technical Data Rights

When the DoD acquires a product, it typically

acquires some license right to the ‘‘technical data”

related to that product.39 Technical data could be just

“form, fit, and function’ information, that is, a

38 ~depend~tRese~h ~d DeVelOprn~t: CFR, Tide 48, Chap 2, sec. 231,205-18 ~d P.L. 101-510, SW. 824. P.L. 101-510 put “interest” inpkce

of the earlier requirement for a ‘‘relationship’ and signitkantly broadened what is of ‘interest’ to the DoD to include intemationat competitiveness.

39 c- Tiue 48, ch. 1, WC. 52.227-14.
Chapter 2---Research and Development ● 47

description of what a device does and where the

holes for bolting it in need to be drilled. At the other

extreme, the government sometimes demands the

right to manufacturing data detailed enough that

another firm can produce the item. The government

argues that it has vital national security responsibilities that transcend normal market requirements and

just@ extensive data requirements. But many firms

are concerned that technical data rights rules cause

them to lose commercially useful technology.

Current policies toward technical license rights

inhibit mixing of military and commercial R&D. If

the government wants to assure a second source for

some critical item, it may request only governmentpurpose license rights. This is technical data that

allows the government or another of its contractors

to build the item, but any contractor that does so

must not use the data for any commercial purpose.

No one can guarantee that such separation will be

effective in all cases. Thus, companies that have

technology of commercial interest are reluctant to

sell products to the government along with license

rights as they fear that the government will be a

conduit to a competitor’s drawing board.

Current data license right regulations, and the

resultant loss of exclusive control of data, also

discourage the commercialization of military technology, A successful R&D program is only the first

step in getting a product to market. Successful

marketing and sales can be even more difficult.w A

company has little incentive to take the risk and

make the investment needed to establish, or even

explore, a market niche if, when successful, a rival

already has the same technology via the DoD and is

ready to compete.

Small subtier firms argue that they are harmed

more by data-rights regulations than are large prime

contractors. Small companies often survive on one

or a few products. Sometimes their only commercial

advantage is a unique expertise in one particular

technology, which, if compromised, could mean the

end of the firm. The large primes have additional

special “products” that they can sell: systems

integration and the ability to deal with the government. Neither kind of information is as easy to steal

as is a manufacturing process. Thus, the primes have

relatively less worry about license rights. Moreover,

large primes often require that data license rights

clauses of their contracts are passed down to

subcontractors; thus small subcontractors often view

big prime contractors as part of the problem, not

fellow sufferers. Small firms charge that the government is worse than cavalier about protecting data

rights, that indeed the government sees any exclusive control of technology as a challenge to be met.

Unless there are changes in requirements, many

small firms will continue to be reluctant to make

their technology available to the government.

Data license-rights questions do not lend themselves easily to compromise. Government and industry agree on what the issues are, but see a clear

conflict between their respective interests. The

government will always want to negotiate for as

much access as it can get, and industry will always

want to give up as little as possible. The optimal

solution will require a broader perspective including

the long-term effects on industry’s incentives to

provide the DoD with the products of its best

technology and the DoD’s long-term need to maintain some technologies regardless of short-term

fluctuations in need or rate of production. (See ch. 4

for further discussion of technical data rights.)

Import and Export Restrictions

Import and export restrictions inhibit the entry of

some companies into defense R&D in many indirect

ways. Interviews show that some commercial firms

are hesitant to take defense R&D contracts if the

resulting technology is not readily exportable. The

United States, unlike most other countries, often

exports military technology to allies with the provision that further export to third countries will be

controlled. This reduces incentives for international

R&D collaboration among multinational and foreign firms.

Import restrictions affect U. S,-based firms that are

truly multinational (as opposed to domestic firms

with strong exports). Thus, a multinational corporation will balk at a government-sponsored development project-or require higher prices-if the resulting product must be manufactured in North

America. A company like IBM makes products all

over the world for a variety of economic reasons, and

import restrictions (that is, Buy American rules)

40 For many ~dus~es, get~g a tec~mlly successful product accepted by the market is harder than the technical resewch ana development i~e~.

SeeEdwin Mansfield, “How Economists See R& D,” Hunwrd Business Review, vol. 59, November-December 1981, pp. 100-106.
48 ● Building Future Security

would require a complete overhaul in the way it does

business.

If the United States wishes to increase civil and

military technical integration, then it must reexamine its approach to the buying and selling abroad of

technology for military applications. This is different from an arms export policy. Rather, the technical

marketplace is becoming increasingly international;

thus greater use of commercial technology inevitably leads to greater international interdependence.

Indeed, as market barriers are reduced, tracking the

origin of particular parts and technologies becomes

increasingly difficult.

SUMMARY

Without offsetting action by the Federal Government or Congress, the DoD R&D budget will shrink

in the fiture as the overall DoD budget declines. The

DoD RDT&E is expected to drop in real terms from

$40 billion today to $27 billion by 2001.

Yet the new international security environment

still requires that the Nation have what Redesigning

Defense termed an “advanced” military R&D

capability that can respond to warnings of even

sophisticated threats by supporting weapons systems that can meet the threat and be manufactured

and deployed in time.

OTA defines an ‘‘advanced” DoD R&D capability as having

●

●

●

●

●

●

a world-class manpower base (both individuals

and teams);

cutting-edge R&D able to guard against technological surprise, not only by sophisticated

former adversaries, but by powers having

access to the best weapons available on the

international arms market;

robust efforts in critical technologies;

a balance between the near-term technology

needs of each Service and the effort expended

to meet the long-term R&D needs of U.S.

defense overall;

strong links to manufacturing, so the weapons

systems proposed are producible and affordable; and

strong links to civilian R&D, even in the

absence of a national consensus about higher

levels of Federal support for civilian technology programs.

Without offsetting actions, the likely shrinkage of

DoD R&D will produce disproportionate cuts in

private industry activities. Direct military-sponsored

R&D in private companies will decline, as well as

the investment private defense contractors make

with their own funds.

Correspondingly, the fraction of military R&D

effort done by Service in-house laboratories and

FFRDCs would increase. While these institutions

have a record of assisting the services’ direct needs

they would have to change to address either research

needs or the technology development role currently

well performed by private companies.

Current and proposed plans to consolidate the

Service’s structure of laboratories and centers, while

important, will not create the integrated management structure which the R&D component of the

future DTIB will require.

The DoD may have to make a special effort to

filly fund development work performed by private

contractors to assure that technology development

goes forward in private industry on profitable terms,

even when there is unlikely to be a future production

contract that would allow such companies to recover

R&D costs. This would include support for prototyping, as discussed in chapter 3.

Without offsetting actions, performers of military

R&D will not improve their links to civilian R&D.

Present IR&D rules create barriers within companies

between their military and civilian R&D efforts.

Current technical data license rights rules discourage specialized subtier fins--which are a critical

source of the Nation’s invectiveness in defense

technology-from pursuing new technologies for

both civilian and military usc, Import and export

restrictions inhibit interchange between defense and

nondefense sectors and prevent the DoD from

drawing on technology developed abroad, even by

U.S.-based multinational firms.

Without offsetting actions, DoD support for

research in colleges and universities could decline as

the overall defense budget shrinks. Thus, the DoD

will miss some of the benefit of basic university

research it has enjoyed for many years. The DoD

would also have less chance to train the next

generation of scientists and en enineers and familiarize them with the Nation’s defense needs.
o0
INTRODUCITON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

THE PROTOTYPING SPECTRUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Conceptual Prototypes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Technology Demonstrators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Advanced-Development Prototypes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ASPECTS OF A PROTOTYPING-PLUS STRATEGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Systems v. Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Profitability of prototyping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . .

IMPLEMENTING THE STRATEGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Preserving Design Teams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Maintaining Manufacturing Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Preserving -the Vendor Base . . . . . . .

Time and Cost of Prototyping . . . . .

Rethinking the Acquisition Process

POLICY IMPLICATIONS . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Boxes

Box

51

51

52

54

60

61

63

64

64

65

67

70

71

73

74

3-A. Traditional Functions of prototyping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3-B. Computer Simulation as an Analytical Tool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3-C. Submarine Prototypes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3-D. Rapid Prototyping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3-E. Remotely Piloted Research Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3-F. Quick-Reaction Prototyping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Figures

52

55

60

66

72

74

Figure Page

3-1.The Prototyping Spectrum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

3-2. Prototyping-Plus Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

3-3. Centralized Database Concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Tables

Table Page

3-1. The X-Aircraft and Missiles, 1946-1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

3-2. Technological Spinoffs of X-Aircraft Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Chapter 3

Prototyping-P1us

INTRODUCTION

A challenge facing the Nation in the aftermath of

the cold war is to reduce the size of the U.S. defense

technology and industrial base (DTIB) while preserving key defense-related design and manufacturing teams, maintaining technological innovation,

and giving the armed forces options from which to

make future weapon-system and force-structure

decisions. One approach to this problem, called

“prototyping-plus,’ ) would involve the continuous development of prototypes and, in selected

cases, limited production for operational and

field testing. In the event of a need to replace

obsolete systems or the emergence of a new military

requirement, some of the prototype systems could

be further developed for quantity production.

Prototyping refers to the development and testing

of working models—from computer simulations

through operational hardware-to explore concepts

and demonstrate specific design and operational

objectives, thereby reducing technological uncertainties and risks. (See box 3-A.) The current

weapons-acquisition process is based on the assumption that prototype development will lead in

most cases to a design produced in quantity for the

operational inventory. This assumption severely

constrains the number of technological options that

can be explored. A prototyping strategy, in contrast,

would involve the exploration of a variety of system,

subsystem, and component options without the

assumption of proceeding to quantity production,

Greater reliance on prototyping at the expense of

quantity production, as recommended by the Department of Defense (DoD), would have both benefits

and costs. It would advance systems technology

(e.g., systems design, not laboratory R&D), keep

design teams intact, and support deployment of the

most advanced equipment—assuming planners can

see far enough into the future to begin production in

a timely way. But it would sacrifice active forces and

hot production lines, including large manufacturing

teams. It is therefore necessary to define a new

strategy that overcomes these drawbacks.

Defenders of the status quo often overlook the fact

that the current acquisition system neglects the

development of new manufacturing technologies,

and that without a fundamental restructuring of the

process, reduced procurement will further erode the

DTIB. The prototyping-plus approach would

avoid simply putting new technologies “on the

shelf and allowing the manufacturing base to

atrophy. 1 Instead, design teams would hone their

skills and know-how by developing and testing a

series of prototypes, some of which could then be

manufactured in limited quantities for field testing.

By working out the major bugs in the manufacturing

process, limited production would make it easier to

negotiate the transition to quantity production—if

and when such a decision is made. This approach

could mitigate the effects of reduced procurement by

replacing the boom-and-bust development cycle of

the cold-war era with a more deliberate process,

structured to preserve the full range of critical

design, manufacturing, and support skills.

This chapter examines the feasibility of a prototyping-plus strategy and suggests how it might be

implemented. The discussion addresses some frequent criticisms of this approach, such as the

difficulty of moving from prototyping to quantity

production; the unprofitability of prototyping; the

problem of maintaining an adequate vendor base in

the absence of significant production; the cost of

prototyping; and the ability of a prototyping-plus

strategy to preserve critical elements of the DTIB

and its effects on jobs, skills, and training. The

chapter also describes the larger restructuring of the

DTIB that would be necessary for a prototyping-plus

strategy to serve the Nation’s future defense needs

and to be profitable to all tiers of defense contractors.

THE PROTOTYPING SPECTRUM

Prototypes are useful in different ways depending

on their role in the weapons-development process.z

Figure 3-1 shows the different categories of proto1 David Silverberg, “Acquisition Rule Irks Industry, ” Defense News, vol. 7, No. 6, Feb. 10, 1992, p. 10.

2 I.C. Oelric~ Donald D. Weidhuner, and Frederick R. Ridden, Small ?Iwbine Technology Review, IDA Paper P-1843 (Alexandria, VA: Institute

for Defense Analyses, July 1985), p. 13.

-51–
52 ● Building Future Security

Box 3-A—Traditional Functions of Prototyping

Prototyping has long served a number of functions in the weapons-acquisition process.

Hardware prototypes can fine and reduce technological uncertainty in the development of a new system.~

If the technological risks of a design are large and cannot be reduced by alternative techniques such as computer

modeling or scale-model testing, construction of a working prototype is necessary. For example, vertical-takeoffand-landing (VTOL) aircraft have complex aerodynami“c and propulsion characteristics that are difficult to predict

with analysis alone, so a prototype is needed to test performance predictions.

Prototypes can identify design flaws before a system enters full-scale development, also known as engineering

and manufacturing development (EMD). A prototype nearly always reveals fictional flaws in a design so that

corrective action can be taken early. It is therefore possible to avoid the high costs and delays caused by engineering

changes late in the development process or after production has begun.2 During testing of the YA-10 prototype in

1974, for example, Fairchild discovered that during maneuvers at high angles of attack the flow of air through the

engine inlets was disturbed by turbulence from the fuselage-wing root area causing the engines to flame out. The

contractor used the prototype to develop and test a correction. In the absence of a prototype, this defect might not

have been detected until the first production aircraft flew, when it could have caused a major crisis.3

Prototyping tests systems integration and exposes problems with electromagnetic interference and

compatibility (EMI/EMC) and software. General Dynamics first bench-tested the M1A2 tank’s digital mapping

system and other electronic subsystems individuality. They were then integrated in a laboratory, tested in a

technology demonstrator, and finally put in a prototype tank Even so, it took months of testing to correct operational

discrepancies and to debug the software.4 It is not enough to test various subsystems in the laboratory; in many cases,

they must be integrated in a prototype and tested under realistic conditions.

Prototyping can help define how to accomplish a given military mission before a production decision is made.

Prototypes can test out different approaches to performing a given mission (e.g., ballistic-lnissile defense). The

experience gained in prototyping can then lead to faster and lower cost completion of development and production.

Competitive prototyping can help to select a prime contractor, Competitive prototyping led the Army to select

a different contractor for the AH-64 attack helicopter than it would have chosen based on the original paper

proposals. During the paper competition, many program personnel believed that Bell Helicopter had abetter design.

But in the prototyping phase the Hughes Aviation prototype outperformed Bell’s, and conceptual differences

between the two designs were resolved in Hughes’ favor. As a result, the Army awarded Hughes the contact.5

Prototyping tests the soldier/system interface for the first time. The man in the loop remains the most essential

ingredient of successful hardware/software development. In some cases, problems in the soldier/system interface

cannot be identified and corrected early without prototyping.

1 B.H. ~e@ ‘K.G- Jr., and GM. Shube@ The Role ofl%ototypes in Development, RM-M67/l-PR (S anta MOniUL CA:~

Corp., April 1971), p. 10.

2 Ro~fi PW, A ~~oto~pe Strategy for Az’rcr@ Development, RM-5597-1-PR (S~~ h’fod@ CA: mCOT., JUIY 1972), P. 9.

3 G.K. smith et al., The use ofproto~pes in Weapon System Development, R-2345-M (S- Mh, CA: RAND project Air Force, March 1981), P. 58.

4 ~~m ~~w- F. CMY, COPme director of bad systems, General Dynamics, Washington office, NOV. 13, 191.

s smith et al, op. cit., footnote 3, P. 166.

types, positioned along a spectrum from the concept- the computer’s memory. (See box 3-B.) Simulators

definition phase to the engineering and manufacturing development (EMD) phase. Each kind of prototype is discussed in detail in the following sections.

Conceptual Prototypes

Conceptual prototypes are computer simulations

of hypothetical systems. During exploratory development, simulation can emulate the capabilities and

properties of an aircraft or a tank that exists only in

generate dynamic visual environments that are

impressively realistic, enabling military users to

practice aerial dogfights or tank engagements, complete with simulated terrain, smoke, and enemy

vehicles. The Defense Advanced Research Projects

Agency (DARPA) has developed a Simulation

Network (SIMNET) consisting of 120 computercontrolled and networked simulators of MIA1

tanks, Bradley infantry vehicles, helicopters, and

fighter-bombers located at military bases throughout
Conceptual Technology

Prototype

(computer demonstrator;

breadboard

simulation)

Figure 3-l—The Prototyping Spectrum

Basic Exploratory Advanced technology Advanced Engineering and

research (6. 1 ) development (6.2) development (6.3A) development (6.3B) manufacturing develop- Proction

ment (EMD) (6.4)

l — 11 1 ./

Concept definition phase Demonstration and validation

(Den/Val) phase

SOURCE: Office of Technology Assessment, 1992,
54 ● Building Future Security

Photo credit: Rockwell International

Computational fluid dynamics (CFD) simulates the

aerodynamics of reentry of a proposed single-stage-toorbit rocket.

the United States and Europe. These interlinked

simulators can be used to fight imaginary war

games.

Interactive computer simulations can also inform

and focus the definition of new military systems in

advance of hardware development by evaluating the

effects on military performance of proposed design

changes. Such models can help planners sort through

various threat scenarios and assess which new

technologies and capabilities would provide the

greatest payoff on the battlefield. For example,

DARPA has sponsored the development of an

interactive simulation called Project Odin, which

reconstructs a pivotal tank battle during the Gulf

War between the U.S. Army and the Iraqi Republican Guard. The simulation is highly detailed,

including the characteristics of the weapon systems

on both sides, as well as sight lines, damage, and

casualties. 3 Parameters of friendly and enemy weapon

systems can be altered interactively to assess the

impact on the outcome of the battle if, say, the Iraqi

tanks had been equipped with thermal sights, or U.S.

tank guns had had 20 percent more range. (The latter

simulation might reveal, for example, that increasing the firing range of U.S. tank guns would offer no

Photo wedit: DoD

A iackheed technician modeis vari >US aircraft concepts on

a computer-graphics generator.

operational benefit unless they had improved thermal sights that could acquire targets at greater

distances.)

Conceptual prototyping his limitations. Some

types of aerodynamic behavior are so complex that

a physical prototype must be tested before a design

concept can be validated. Other tasks exceed the

capabilities of computer simulation, such as integrating multiple subsystems in:0 a platform or using

new materials with unknown aging and fatigue

characteristics. There are also unknown unknowns’

—phenomena whose existence: is unsuspected until

they emerge in testing. Further, interactive simulation often does not account for training, morale, or

unexpected enemy tactics.4

Technology Demonstrators

A technology demonstrator is a functional vehicle

(or test rig) that is built and tested to answer a few

important technical questions as cheaply as possible.

It can provide the proof-of-principle of an enabling

technology or design configuration, or explore in a

preliminary way the characters tics of a new systems

3 F. Clifton Berry, Jr., “Re-creating History: The Battle of 73 Ea.sting,” National Defense, vol. 76, No. 472, pp. 6-9.

4 After World War Il, Admiral Nimitz commented on war pi tig: ‘‘We had war-gamed every single possibility of how and wkat the Japanese would

do in the Pacific, and we were ready for it . . . . All except one: we never expected them to use the kamikaz e tactic. ’
Chapter 3--Prototyping-Plus ● 55

Box 3-B-Computer Simulation as an Analytical Tool

In earlier years, computers were used to speed analytical calculations during system design and to process data

derived from empirical studies. Today, however, computers also have begun to replace drawing boards and wind

tunnels for purposes of design and analysis. Most aerospace engineers use computer-aided design (CAD) for

drafting, and an increasing number rely on computer-aided engineering (CAE) for structural and physical analysis.

CAE uses computational models to simulate the behavior of hypothetical systems. For example, finite element

analysis models the stresses in a complex structure, like an aircraft wing, by representing the object as a collection

of discrete elements with specified properties. Computational fluid dynamics (CFD) simulates the flow of air or

water over a body (e.g., a plane or submarine). It can greatly reduce the time devoted to costly wind-tunnel testing.

Finally, computer simulations can integrate ‘human-factors engineering’ into the design, manufacture, operation,

and maintenance of weapon systems to improve compatibility between people and machines.l

In a growing number of cases, computer simulation can dispense with the need for a complex test article to

emulate real-world conditions. For example, CFD is more accurate than wind-tunnel testing for the simulation of

unsteady flow conditions within a jet engine or for a jet fighter flying at high angles of attack. Computers can also

simulate velocities and environments of hypersonic flight vehicles that cannot be duplicated by traditional

wind-tunnel studies,z Yet computer-based simulation tools are far from perfect. While supercomputers can simulate

the aerodynamic behavior of a hypothetical aircraft, the simulations are only as good as the computational model

on which they are based. Further, computational complexity tends to increase costs as software models become more

elaborate.

The limitations of computer simulation often make hardware prototyping necessary. Such prototypes have

advantages in testing an overall system and identifying manufacturing problems. They can also allow engineers to

verify computational models like CFD by correlating them with red-world physical phenomena. Moreover, before

engineers simulate an entirely new phenomenon such as stealth, a prototype can help build a database on how radar

and detection technologies are affected by different shapes, textures, aspect angles, and electromagnetic properties.

One strategy for reducing total development costs in the future smaller DTIB would be to combine computer

simulation with limited hardware prototyping. Cost constraints already require the use of computer simulation

during tactical-missile development. A software program first simulates the engagement between the missile and

target, and tests the performance of the missile’s seeker and guidance computer. Then a limited number of hardware

prototypes are fired against a set of targets selected to verify the computer model.3 Once verified, the model can

be used with confidence to explore system performance throughout the engagement envelope. This approach could

be applied to other systems in development, quite apart from any decision on production.

1 wflfi~ B. Scott, “COrnpUter simulations Place Models of Humans in Realistic !$CetiOS,” Aviation Week & Space Technology, vol.

134, No. 25, June 24, 1991, pp. 64-65.

2 Dean R. Chap~ “A Perspective on AtXOSpa@ ~,’ Aerospace America, vol. 30, No. 1, January 1992, pp. 19,58.

3 Te]qhone ~tmiew ~~ Dotid mm corporate director of Contracts and Technical AMlySiS, GeneA D@cs, Jan. 2211992.

concepts Technology demonstrators are also built table 3-1.) An X-plane is often little more than an

for subsystems, such as the thrust-vectoring engine airframe, engines, and flight controls, without the

nozzle developed by Pratt & Whitney. A technology specialized electronics and integrated armaments

demonstrator of an electronic subsystem, built and required for an operational weapon system. The

tested in a laboratory, is known as a breadboard. X-3 1 demonstrator, for example, was developed to

explore new technologies to enhance fighter maneuThe best-know technology demonstrators are the verability and does not include many subsystems

series of experimental ‘‘X’ vehicles, built intermit- required for a combat-capable aircraft. Technology

tently by U.S. aerospace companies since the late demonstrators incorporate a few custom-built ele1940s for the Air Force, NASA, or DARPA. (See ments essential to the concept or technology being

5 According to the DoD, advanced technology transition demonstrators (AITDs) are intended to test “integrated technologies in as realistic an

operational environment as possible to assess the performance payoff or cost-reduction potential of advanced technology before program-specific

prototyping begins. ’ Under Secretary of Defense for Acquisition Deparrmenf of Defense Directive No. 5000.1, Feb. 23, 1991, p. 5-C-2.
56 ● Building Future Security

Table 3-l—The X-Aircraft and Missiles, 1946-1991

X-plane Company Ist flight Mission

x-1 . . . . . . . . . . . . . . . . . . . . .

X-1A . . . . . . . . . . . . . . . . . . .

X-lE . . . . . . . . . . . . . . . . . . .

x-2 . . . . . . . . . . . . . . . . . . . . .

X-3 Stiletto . . . . . . . . . . . . . .

X-4 Bantam. . . . . . . . . . . . .

x-5 . . . . . . . . . . . . . . . . . . . . .

X-6 . . . . . . . . . . . . . . . . . . . . .

X-7A, B ... . . . . .

X-8 Aerobee . . . . . . . . . . . .

X-9 Strike . . . . . . . . . . . . . . .

x-lo . . . . . . . . . . . . . . . . . . . .

X-n . . . . . . . . . . . . . . . . . . . .

X-12 . . . . . . . . . . . . . . . . . . . .

X-13 Vertijet . . . . . . . . . . . .

X-14/A, B . . . . . . . . . . . . . . .

X-15/X-15A-2 . . . . . . . . . . .

X-16 . . . . . . . . . . . . . . . . . . . .

X-17 . . . . . . . . . . . . . . . . . . . .

X-18 . . . . . . . . . . . . . . . . . . . .

X-19 . . . . . . . . . . . . . . . . . . . .

X-20 Dyna-Soar . . . . . . . . .

X-21A . . . . . . . . . . . . . . . . . .

X-22A . . . . . . . . . . . . . . . . . .

X-23A Prime . . . . . . . . . . . .

Bell

Bell

Bell

Bell

Douglas

Northrop

Bell

Convair

Lockheed

Aerojet

Bell

North American

Convah

Convair

Ryan

Bell

North American

Bell

Lockheed

Hiller

Curtiss-Wright

Boeing

Northrop

01/25/46

02/14/53

12/12/55

06/27/52

10/20/52

08/18/50

06/20/51

canceled

1953

04/26/51

11/24147

04/28/49

10/14/53

06/11/57

07/09/58

12/10/55

02/17/57

06/08/59

canceled

1955

04/17/56

11/24/59

11/20/63

canceled

12/10/63

04/18/63

Bell Aerospace Textron 03/17/66

Martin Marietta 12/21/66

Identify dynamic fllght chalacteristics of supersonic

aircraft.

Investigate aerodynamic phenomena at speeds

greater than Mach 2 and altitudes above 90,000

feet.

Explore potential performance improvements to Mach

2.5.

Build swept-wing version o: X-l to achieve higher

speeds and altitudes, investigate aerodynamic

heating.

Explore high-speed flight with takeoff and landing under

own power, and low-aspect-ratio wings.

Test aircraft deslgn wlthout horizontaltall attrans-sonic

speeds.

Investigate aerodynamics of variable-sweep-wing

aircraft.

Investigate operational feasibility of nuclear propulsion

systems prior to commitment to prototype military

nuclear-powered aircraft.

Build testbed for supersonic: and hypersonic ram jet

engine.

Develop inexpensive upper-a atmospheric research vehicle/

sounding rocket with parachute recovery system.

Build simplified testbed for air-to-surface missile to

obtain data on aerodynamics, stability, propulsion,

and servo and guidance systems.

Build aerodynamic and systems testbed for the Navaho

cruise-missile program.

Develop single-stage ballistic rocket to obtain design

data for the planned Atlas intercontinental ballistic

missile.

Build high-performance one -and-a-half stage ballistic

missile to prove systems and hardware

configuration for production version of the At/as

missile.

Explore feasibility of building a pure jet vertical-takeoffand-landing (VTOL) fighter.

Study experience of a pilot I lying a VTOL aircraft from

a normal crew station using standard aircraft flight

references.i

Investigate problems of atmospheric and space flight at

very high speeds and altitudes (Mach 6.6 and

250,000 feet).

Build high-altitude, long-range reconnaissance aircraft

carrying various sensors. (Replaced by Lockheed

u-2.)

Build multistage rocket to transport various reentryvehicle configurations to very high altitudes for

testing.

Assess feasibility and practicality of large, tilt-wing

VTOL aircraft.

Demonstrate tilt-propellor VTOL configuration for

transition from hover to f orward flight.

Provide a manned, maneuverabfe vehicle to collect

data on controlled reentr y from orbital flight.

Explore feasibility of full-scale boundary-layer control

on large, subsonic aircraft.

Evaluate dual-tandem ducted propellor configuration

for V/STOL aircraft.

Test configurations, control systems, and ablative

materials for hypersonic lifting-body type reentry

vehicles.

(wntinued on next pagq)
Chapter 3-Prototyping-Plus ● 57

Table 3-l—The X-Aircraft and Missilesj 1946-1991--Continued

X-plane Company 1st flight Mission

X-241A-C . . . . . . . . . . . . . . . . Martin Marietta 04/1 7/69 Explore low-speed flight characteristics of

maneuverable lifting-body design.

X-25/A,B . . . . . . . . . . . . . . . . Bensen 01/23/68 Build small, ultralight aircraft to provide emergency

egress capabilities beyond those of a conventional

parachute.

X-26B . . . . . . . . . . . . . . . . . . Lockheed 07/67 Develop quiet plane to carry dedicated sensors over

enemy territory to obtain real-time intelligence

during the Vietnam War.

X-27 Lancer . . . . . . . . . . . . . Lockheed canceled Build prototype of advanced, lightweight fighter to

1971 replace F-1 04, with potential for both U.S. and

foreign sales.

X-28A Osprey . . . . . . . . . . . Pereira 08/1 2170 Explore potential usefulness of a small, single-seat

seaplane for civil police patrol duty in Southeast

Asia.

X-29A . . . . . . . . . . . . . . . . . . Grumman 12/14/84 Assess benefits and costs of forward-swept wing,

relaxed static stability, and related technologies.

X-30A NASP . . . . . . . . . . . . Rockwell 1999 (est.) Build hardware testbed for National Aerospace Plane

(NASP) with single-stage-to-orbit capability.

X-31A . . . . . . . . . . . . . . . . . . Rockwell/MABB 1 0/11 /90 Break the so-called “stall barrier” to permit close-in

aerial combat beyond normal stall angles-of-attack.

SOURCE: Jay Miller, The X-Planes: X-1 to X-31 (Arlington, TX: Aerofax, 1988),

demonstrated, but make extensive use of off-theshelf hardware. Thus, more than 50 percent of the

X-31 consists of government-furnished equipment

from other aircraft.G

The other Services have also built technology

demonstrators. The Army’s Advanced Composite

Airframe Program demonstrated that primary aircraft structures could be made of composite materials and led to the use of composites in the V-22

Osprey aircraft. In the mid- 1980s, General Dynamics Land Systems Division developed the Tank Test

Bed, an experimental armored vehicle that featured

an unmanned gun turret operated by remote control.

Currently, General Dynamics is developing the

Composite Armored Vehicle, which will explore

radically new armors and manufacturing methods.7

Navy technology demonstrators have included a

quiet torpedo-launching system and a stealthy warship design to reduce vulnerability to enemy radars

and guided missiles.8

There are two other kinds of technology demonstrators. A technology integration demonstrator

assembles available, off-the-shelf subsystems to

perform a unique mission. For example, the Advanced Fighter Technology Integration (AFTl) program in 1983-84 modified an F-16 to demonstrate

technologies that could improve fighter maneuverability. A production retrofit demonstrator is an

upgrade of an existing platform that incorporates

some new capability. For example, earlier models of

the F-15 were used to test new subsystems that were

incorporated into the F-l SE.

The history of the X-aircraft shows that technology demonstrators can provide a leg up on nextgeneration systems, often in a serendipitous manner.

Table 3-2 indicates technologies from six X-aircraft

programs that found their way into weapon systems,

although many of the design concepts were so

revolutionary that they were not applied for decades.

Similarly, Northrop developed a number of “flying

wing” technology demonstrators in the late 1940s.9

Although the flying-wing program was later

cancelled, flight-testing of the prototypes gave

Northrop an extensive database on the aerodynamic

coefficients, stability, and range/payload characteristics of these exotic designs. When Northrop

6 Off-the-shelf subsystems in the X-31 include the General Electric F404 engine, the canopy and windscreen from the F-18, the landing gear from

the F-16, the wheels and brakes from the Cessna Citation III, and derivatives of existing Honeywell computers. Brian Wanstall and J.R. Wilsom “Air

Combat Beyond the Stall, ” Interaviu Aerospace Review, No. 5, June 1990, p. 406,

T Telep~ne intemlew ~th o~o Renius, chief scientist, General Dynamics Land Systems Divisio% Sterling Heights, Michigw ~c. 10, 1991.

8 Robert Holzer and Neil Munro, “Navy Invests Over $1 Billion in Stealth Ship, ” Defense News, vol. 7, No. 4, Jan. 27, 1992, p. 1.

g A pmwllor_~ven version ~~tie XB-35 W&. first fIown in June 1946, and a jet-powered version called tie YB-49 was first flown in October

1947. Christopher Chan~ Aircrafi Prototypes (Seacaucus, NJ: ChartWell Books, 1990), p. 8.
58 ● Building Future Security

&

‘9 s

Photo credit: Pratt & Whitney

Technological evolution of a thrust-vectoring jet engine

nozzle. A “boiler-plate” nozzle (left) provided basic

mechanical and thermal data, which were incorporated into

a durability demonstrator (top center). Initial flight testing

was performed with a techrtology demonstrator (right).

Finally, lessons learned in manufacturing and flight testing

were applied in an advanced-development prototype

(bottom center).

Ph( to credit: Linwln Laboratories

“Breadboard” version of a modulal Iaser-commnications

systems was built for lab testing It can be developed

further into an advanced-deveklprnent prototype, or

“brassboard,” for operational testing.

Table 3-2—Technological Spinoffs of X-Aircraft Programs

Beneficiary

X-aircraft 1st flight Program goal program/date

x-l . . . . . . . . . . . . . . . . . . . . , 01/25/46 Supersonic flight F-1OO (1953)

x-4 . . . . . . . . . . . . . . . . . . . . . 08/1 8/50 Tailless aircraft F-102 (1953)

F-106 (1956)

x-5 . . . . . . . . . . . . . . . . . . . . . 06/20/51 Variable-sweep wings F-1 11 (1964)

F-14 (1970)

B-1 (1974)

X-15 . . . . . . . . . . . . . . . . . . . . 06/08/59 Hypersonic flight and spaceflight SR-71 (C. 1964)

Space Shuttfe(1981 )

X-23124 . . . . . . . . . . . . . . . . . 12/21/66 Hypersonic lifting-body concept and materials Space Shuttfe(1981 )

X-29 . . . . . . . . . . . . . . . . . . . . 12114184 Relaxed stability, mmposite wings, forward-swept win{is ATF (mid-1990s)

SOURCE: Rockwell International, “X-Planes: Aeronautical Research Tools Have Paid Big Dividends in U.S. Aviation Leader: hip: A Perspective.”

decided in 1979 to use a flying-wing configuration Intelligence Agency. A more recent example is the

for the B-2 strategic bomber because of its superior Lockheed HAVE BLUE stealth-technology demonstealth characteristics, the company turned to the strator, sponsored by DARPA. This $43 million

technical database collected some 30 years earlier.10 program demonstrated the use of a faceted airframe

design to minimize radar reflections, (The design

A technology demonstrator sometimes achieves a was faceted rather than curved because of limits on

major breakthrough in performance that spurs a computing power at the time. ) The HAVE BLUE

procurement decision that would not otherwise have program built two small, nonmissionized technolbeen made. Historical cases include the U-2 and the ogy demonstrators that weighed only 12,000 pounds

SR-71 reconnaissance aircraft, developed secretly fully loaded and used many components from

by the Lockheed Skunk Works for the Central existing aircraft. The first of the two prototype

10 Te@hone ~teniew wl~ George J. Fri@~ vice president for Engineering ~d Imng-Range p~~g, NO*P COrP., DCX. 16S IW1.
Chapter 3--Prototyping-Plus ● 59

/.

Photo credit: Northrop Corp.

“Flying wing” technology demonstrator, the YB-49 (/etI), was first flown by Northrop in 1947. Three decades later, the

company applied flight-test data from the YB-49 to develop another flying wing, the B-2 bomber (right).

aircraft flew in early 1978, after 20 months of

development; both were flight-tested for 18

months Lockheed demonstrated that the faceted

configuration could fly and that the aircraft’s radar

signature was as low as predicted, although both

HAVE BLUE aircraft crashed during flight testing12 In December 1978, the Air Force moved the .

program directly into the engineering and manufacturing development (EMD) phase. Lockheed then

implemented the stealth technologies developed for

HAVE BLUE in an operational fighter-attack aircraft, the F-1 17.

Although the initial 28 aircraft in the X-series had

their first flights between 1946 and 1970, there was

a hiatus of 14 years, from 1970 to 1984, between the

X-28 and the X-29. (The HAVE BLUE was not

officially an X-aircraft, although it met the same

criteria.) In 1986, the President’s Blue Ribbon

Commission on Defense Management (the Packard

Commission) expressed concern about the drop in

the number of demonstrator programs. The Commission recommended “a high priority on building and

testing prototype systems to demonstrate that new

technology can substantially improve military capability, and to provide a basis for realistic cost

estimates prior to a full-scale development decision. 13

Since the early 1980s, there has been a modest

resurgence of interest in experimental aircraft. The

Grumman X-29 demonstrator, which first flew in

December 1984, sought to enhance fighter maneuverability by integrating forward-swept wings, canards, composite structures, and flight-control software for inherently unstable aircraft. The RockwellMBB X-31, which first flew in October 1990, also

tried to improve fighter maneuverability through the

use of integrated control systems and a thrustvectoring engine.

Since technology demonstrators are designed

primarily to provide information, they are of most

value if they give clear positive or negative answers

11 Bill Sweetman, “Lifting the Curtain: Stealth Techniques Detailed, ” lrrfernational Defense Review, vol. 25, No. 2, February 1992, p. 159.

12 while ~elther ~mh was tie ~~ult of the ]Ow- Obscmablc technology, ah~~dous designflaw WaS detwted and removed. Jack S. Gordon Imckheed

Advanced Development Co., personal communication.

13 me ~esident>s B]ue Ribbon comml~sion on Defense ~nag~ent, A Ques(for E.~cel/ence: Fi~/ Report fO the President, June 1986. RWfitd

in U.S. Congress, House Committee on Armed Serviees, Defense Acquisition.” Major U.S. Cornrnission Reports (1949-1988), Volume I (Washington

DC: U.S. Government Printing Office, Nov. 1, 1988), p. 937.

326-447 - 92 - 3 : QL 3
60 ● Building Future Security

Photo credit: DoD

X-29 technology dernonstrator explored the use of forwardswept wings, canards, and an inherentfy unstable

configuration to enhance fighter rnaneuverability.

to functional, operational, or manufacturing questions. Nevertheless, many useful defense technologies were not developed for specific applications or

were applied in ways that the original inventors did

not imagine. A good example is laser-based guidance, which was initially developed by the U.S.

Army Missile Command for antitank missiles. The

Army became disenchanted with the technology and

transferred it to the Air Force, which applied it to the

development of the laser-guided bomb in the 1960s.14

Future demonstrator programs might therefore seek

a balance between “technology push,” or the

pursuit of technological innovation for its own sake,

and “technology pull, ’ or more focused development efforts disciplined by a clear mission application and schedule requirement.

Advanced-Development Prototypes

During the demonstration and validation (dem/

val) phase, advanced-development prototypes are

often built to determine whether the chosen configuration can meet program objectives in terms of

performance, cost, or operational suitability. Even

negative answers are useful, since they can help to

avoid technological dead-ends.15 Advanced-development prototypes of electronic subsystems, called

brassboards, are designed to be tested in an operational environment. Large weapon systems have

sometimes been prototype as single units, which

Box 3-C—Submarine Prototypes

The 1950s saw rapid inovation in submarine

design and construction. Submarines changed from

being primarily surface boats that submerged occasionally to being capable of nearly unlimited

endurance under water. Prototyping played a major

role in this evolution. The USS Albacore (commissioned in 1953) was a technology demonstrator that

tested a streamlined hull shape and novel steering

devices. The first two nuclear-powered submarines

were advanced development prototypes built for

operational deployment. The Nautilus (commissioned in 1954) had a reactor cooled with water,

whereas the original Seawolf (commissioned in

1957) had a reactor cooled with liquid sodium. The

watercooled reactor was eventually judged superior; all U.S. naval reactors since then have been

water-cooled

Technological innovations were integrated into 7

different submarine prototypes built between 1956

and 1%0, all of which entered the operational fleet.

Most U.S. submarines, however, were produced in

multiple copies, including 4 Skate class, 6 Skipjack

class, 14 ThresherlPermit class, 37 Sturgeon class,

and 55 Los Angeles class. Since the new SSN 21

Seawolf will be canceled after production of only

one, or possibly two or three units, this submarine

will effectively be a prototype. It will join the

operational fleet and serve as an R&D test bed The

Navy’s proposed Centurion a candidate nextgeneration attack submarine, is envisioned as a

low-cost, modular system.l

1 B-sw, ~~~ne s~wolf t~~ join USN fl=~” June’s

Defence Weekly, Feb. 29, 1992, p. 33).

were later deployed as operational combatants.

During the 1950s, for example, the U.S. Navy

developed several one-of-a-kind prototypes of submarines (box 3-C), as well as nuclear-powered

cruisers and aircraft carriers.

Whereas a technology demonstrator seeks to

answer a basic technical question, an advanceddevelopment prototype is the first physical representation of a potential operational system. There are

two reasons for building an advanced-development

prototype: to demonstrate through testing that the

product has the required capabilities, and to estimate

the time and cost of producing the system, along

14 peter de~o~ The hser-Guided Bo~: Case Histo~ ofa Development, R-1312 -1-PR (Santa MOII@ CA:~)COW., June 1974), pp. 6-10.

IS men W. ~50Q et al., .4CqUiring ikfajor system: Cost and Schedule Trends and Acquisition Initiative Eflel tiveness, IDA Paper p-2201

(Alexandria, VA: Institute for Defense Analyses, Ma.mh 1989), p. VIII-l.
Chapter 3-Prototyping-Plus ● 61

with its manufacturability and maintainability.lc

The validation of manufacturing processes and cost

may require extrapolating from the prototyping

experience into the actual production environment,

using factory personnel and equipment. A novel

approach to this problem is to develop computer

simulations of manufacturing.

In sum, the information generated by a software or

hardware prototype depends on its role in the

development process. A computer simulation or

technology demonstrator usually evaluates some

limited design parameters, whereas an advanceddevelopment prototype offers greater fidelity to the

final production system but costs much more. The

closer a prototype corresponds to the production

model, the more it is locked into assumptions about

the nature of military threats-assumptions that may

be called into question in the future. Thus, the choice

of which class of prototype to build is determined by

such factors as the maturity of product and manufacturing-process technologies, the degree of uncertainty in the security environment, and the need to

preserve technical competence and to maintain

production capacity.

ASPECTS OF A PROTOTYPINGPLUS STRATEGY

A prototyping-plus strategy would involve the

following elements, as illustrated in figure 3-2.

Increased development of prototypes. Prototyping

would maintain the U.S. edge in defense technology

for major systems (ships, aircraft, tanks, etc.) despite

cuts in production and new program starts, Analyses

of emerging military threats and computer simulations would identify new capabilities that might

provide a clear performance advantage at an acceptable cost. A technology-demonstrator program could

then be launched without a formal military requirement or the assumption of an eventual procurement.

Building a technology demonstrator might involve only one design team, or might involve

competition between two or more industrial teams.

In competitive prototyping, at least two technologically distinct systems would be built for testing, and

one would then be chosen for further development or

Photo credit: DoD

Two advanced-development prototypes of the F-22

Advanced Tactical Fighter during flight testing.

production. Competition in selected areas might

make each firm or industrial team more productive

and hence improve quality and contain costs;

competitive prototyping that considers dissimilar

designs might also hedge against new technologies

and threats. Nevertheless, funding constraints may

restrict the use of competition to relatively inexpensive demonstrators rather than advanced-development prototypes.

Production of operational prototypes. Firms might

manufacture a limited number of operational prototypes of one design to validate performance, manufacturing processes and controls, and projected

costs. These systems would be designed for producibility and would include enough armaments, firecontrol, and other subsystems to give them some

operational capability. Military users would then put

the prototypes through trials, since a new military

capability cannot be realized until servicemen test it

out under realistic field conditions.

Enough operational prototypes would be produced to enable military customers to

1.

2.

3.

develop tactics and doctrines;

perform reliability, maintenance, and live-fire

testing; and

provide feedback to the development team on improvements needed to free-tune the system and

compensate for operational shortcomings.17

lb Defe~e system Mamgement College, Department of Defense Manufactun”ng Management Handbook for Program Ma~gers, 2~ ~. (Fofl

Belvoir, VA: Defense Systems Management College, July 1984), p. 3-5.

[T Gordon R. England, ‘‘Statement Before the House Armed Services Committee Structure of U.S. Defense Industrial Base Panel’ Oklahoma City

Field Hearin g, NOV. 1, 1991, pp. 7-8.
62 ● Building Future Security

Figure 3-2—Prototyping-Plus Strategy

I

y —

yes, only new

I I

I ~

Technology demonstrators

I L–

I

~ > Advanced development

prototypes

. . 1—

n o

- A

- J +

1 4

yes

I

.— - I – — 1

I

v

I

6

yes

? ‘

--— ‘0 

---- -

Is

system costeffective?

➤ ✎✍✎ 4 yes

L————— — +4 Engineering and

, manufacturing development

[

...—*- -- ,

—

L —– –— ——–r— —. I

I 1

y3s

no

retroft m ;teffective ?

,-

-1 Concurrent engineering

I

SOURCE: Office of Technology Assessment, 1992.
Chapter 3-Prototyping-Plus ● 63

For these purposes, it might be sufficient to build a

platoon of tanks or a squadron of aircraft.18

Limited production of prototypes would also

provide some preliminary manufacturing data, increasing industry’s ability to produce the system

when needed, in sufficient quality, and at a target

cost. Since long production runs would not be

available to improve poor designs, a prototypingplus strategy would emphasize designing for producibility, moving forward production issues that

currently are not addressed until much later in the

development process, Thus, a prototyping-plus

strategy would achieve a marriage of R&D and

manufacturing, with the goal of supporting both.

Limited production of prototypes raises the issue

of how a small number of unique systems would be

supported logistically in the field. In the past, the

Services have provided logistical support for small

numbers of complex systems, including the U-2 and

SR-71 aircraft and various “testbed’ vehicles

fielded by the Army’s Ninth Infantry Division.

Logistical support could be contracted to the same

firm that produced the prototype, rather than breaking out spare-parts production for competitive bid.

This approach would minimize the impact of limited

production on the DoD’s logistical system. But it

would require modifying the current procurement

regulations mandating ‘ ‘free and open competition, ’ as discussed in chapter 4.

Selective replacement of major systems. Prototypes would preserve the potential to move into

quantity production when needed, although only a

fraction of all prototypes would enter the engineering and manufacturing development (EMD) phase.

Quantity production could be ordered when

1. a radically new technology is developed (e.g.,

stealth) that cannot be retrofitted into a current

platform;

2. a new or emerging threat warrants a new

deployment; or

3. the current system has aged to the point where

replacement is more cost-effective than an

upgrade. 19

Togo to full production, the Services would need to

demonstrate a real requirement. The production

contract could either be awarded to the same firm

that designed the prototype, or opened up for

competitive bid.

Systems v. Components

A prototyping-plus strategy could consist of two

parallel but interlined tracks, one focused on

components and subsystems and the other aimed at

new platforms. Although the discussion of prototyping has concentrated largely on platforms, it would

be more cost-effective to emphasize the development of improved subsystems (such as cockpit

displays, mission computers, night-vision sights,

and airborne radars), which could be retrofitted at

regular intervals into fielded platforms to achieve

improvements in performance. Component or subsystem development could be accompanied by

development and validation of the manufacturing

processes needed to produce them.20

In considering a prototyping-plus strategy, the

DoD should strive for an optimal balance between upgrading fielded weapons and developing

new systems for the next century. There is a need

to change the mentality in the R&D community to

make product improvement the first priority. At the

same time, the new platform prototypes could make

maximum use of the improved components and

subsystems being developed on a second track. For

example, several new components and subsystems

could be integrated into a new system prototype,

setting the stage for force modernization if and when

a requirement for the new item emerges. To this end,

the Services might jointly develop modular subsystems to be inserted into different weapon systems.

An example of this approach is the Joint Integrated

Avionics Working Group (JIAWG), a tri-Service

office created to develop common avionics modules

for the Air Force’s Advanced Tactical Fighter, the

IS A U.S. Army platoon has 5 tanks. A U.S. Air Force wing typically consists of 3 squadrons, each containing between 18 and 24 ficraft (depnding

on type).

1P For e~ple, in the case of the F-15 fighter, one could argue that neither the age of the aircraft nor the theat warrants near-term replacement with

a more modern fighter. Stealth technology might justify a wholesale replacement, but only if it were a critical factor in the execution of F- 15 missions.

Thus, the cunent absence of a significant threat and the reduced wear on the F-15 force in the post-cold-war era may provide a sufficient basis nor to

produce a follow-on weapon system for several years.

m John D. Morrocco, ‘ ‘Dangers Cited in Implementing New Pentagon Acquisition Strategy, “ Aviation Week& Space Technology, vol. 136, No. 10,

March 9, 1992, p. 21.
64 ● Building Future Security

Navy’s A-12 strike aircraft, and the Army’s Comanche helicopter.21

A prototyping-plus strategy would be compatible with either an evolutionary or revolutionary

approach to weapons development. The lack of a

large-scale military threat to U.S. security gives the

Nation the freedom to emphasize either the acquisition of knowledge and technology for future advances in military performance, reliability, and

maintainability, or the evolutionary upgrading of

fielded systems. Thus, a frost-generation prototype

aircraft might focus on demonstrating incremental

improvements in maneuverability or target acquisition, while the next-generation system could aim at

entirely new capabilities such as stealth. When

prototypes do not go into full production, the

technology they embody could be recycled into

other systems.

Profitability of Prototyping

A prototyping-plus strategy would require a

significant change in attitude from both government

and industry. When procurement budgets were

large, companies were generally willing to break

even or even lose money on R&D in the expectation

of making profits on a follow-on production contract. As a result, the DoD could get private firms to

provide a large share of the development funding.

The result was to understate the true cost of design

and development.

At present, defense firms are unable or unwill

ing to invest their own money and engineering

resources in prototypes that may not enter

quantity production for years, if ever. The case of

the Army’s proposed Mobile Protected Weapon

System, a light tank to be deployed by parachute

from a transport aircraft, indicates why. In 1980, the

Army announced it would buy 300 of these tanks

and invited industry to propose systems that met its

specifications. Three U.S. producers of armored

combat vehicles—FMC Corp., Teledyne’s Continental Motors Division, and Cadillac Gage—

responded by each building prototypes at their own

expense, at a cost of $20 to 25 million per prototype.

Subsequently, the Army cancelled the program.22

Although Cadillac Gage sold a modified version of

its prototype to Thailand, the ether two firms had to

write off their investments.23

Since private-sector firms lack economic incentives to finance prototypes on their own, the

government will have to bear most if not all the

costs of prototyping. Prototyping-plus would be

compatible with a U.S. defense: industry made up of

fewer companies. These firms would have to downsize significantly while maintaining their core R&D

and manufacturing capabilities, including design

teams. Nevertheless, prototyping-plus would not be

sufficient to preserve the defense production base.

Since prototyping involves relatively little manufacturing, other measures would have to be taken to

preserve manufacturing know-how. Moreover, manufacturing firms cannot be expected to survive

entirely on prototyping contracts done. A prototypingplus strategy would only be viable in conjunction

with an integrated restructuring of the DTIB,

including low-rate production, retrofits, and greater

integration with the civil sector.

IMPLEMENTING THE STRATEGY

A

1.

2.

3.

4.

prototyping-plus strategy should

keep design teams intact and technologically

competitive by continually updating their

skills;

help preserve essential manufacturing knowhow;

facilitate the transition from prototyping to

quantity production when a procurement decision is made, given sufficient lead-time and

adequate funding;

help preserve the subtier subcontractors and

suppliers that are an essential element of the

DTIB; and

5. keep costs under control.

Each of these issues is examined below.

ZI Mickel I. KeUer, COnSUItanL personat communication, MM. 16. 1992.

22 Telephone ~temiew with Geno fifip L. Bolte ~.s$ &IIIy, ret.), former program rn~ger, Bradley Fighting vehicle Systm, NOV. 19, 1991.

u The requirement for this type of vehicle remained, however, and over a decade later the Army changed the name of the I jrogram and again requested

bids for an Armored Gun System. The three companies invested additional funds and offered their prototypes in response tc a new Request for Proposal

@FP). One company and its suppliers maybe selected to produce this vehicle and recoup part of the prototype costs. If none of the three are selected,

however, all will have lost not only their original prototype investment but the additional costs of upgrading and bidding again on the Army’s RFP.
Chapter 3-Prototyping-Plus ● 65

Preserving Design Teams

Design teams are important because the development of major weapon systems is as much an art as

a science. Data alone cannot create a manufacturing

capability; the other essential ingredients are people,

infrastructure, knowledgeable management, and shop

practices. As production budgets shrink, it will be

essential to preserve the right design and manufacturing people to retain diverse approaches to defense

systems work. Moreover, in order for design teams

to be effective, they must work on real systems that

may be actually built and tested.24

Preserving design teams means keeping them

supplied with interesting and challenging work,

Given the new financial constraints, however, the

number and size of design teams involved in

prototyping will have to be reduced from the

current level. Over the past few decades, the

increasing complexity of defense systems has led to

the rapid expansion of design teams. At General

Dynamics Convair Division, for example, the Tomahawk cruise-missile program started out with 8 to 10

people working on a small conceptual study and

peaked at 300 to 400 engineers and other professionals at the start of EMD. At the Lockheed Skunk

Works, the F-117 stealth fighter program involved a

core team of about 300 throughout the development

effort, but doubled in size to about 600 during the

demonstration and validation phase. The EMD

phase for a combat aircraft typically involves a staff

of 3,000 to 7,000 people. On average, a fighter

design team numbers about 1,000 people and costs

about $100 million a year to maintain.

The current array of design teams will have to

be consolidated into fewer, high-quality teams

through streamlining, mergers, or strategic alliances. One approach is the ‘‘agile manufacturing’

concept developed by the Iacocca Institute, which

focuses on teaming arrangements. Companies form

temporary consortia to bring together a critical mass

of skills or resources for responding to a particular

market opportunity, and then disband to restructure

for the next demand.

25 There is no reason why

Service laboratories could not participate in such

teaming arrangements. National laboratories such as

Lawrence Livermore and Los Alamos might also

play an engineering support and training role.

In addition to cutting back the number of design

teams, the size of the teams will need to be reduced.

Two current trends should facilitate this process.

First, modern management systems, supported

by advances in computer-aided design (CAD)

and computer-aided manufacturing (CAM) technologies, can reduce the size of design teams by

increasing the efficiency of the development

process. One example has been the development of

new techniques for converting CAD models directly

into three-dimensional hardware mockups (box

3-D). Another important advance has been the use of

a single, integrated computer database to store all of

the information needed to design, build, and support

a weapon system. It might contain, for example, a

geometric model of the more than 100,000 engineered parts that go into a combat aircraft, including

cable runs, wiring harnesses, and hydraulic systems,

Such models reduce the need to build expensive

full-scale physical mockups to obtain insights into a

system’s appearance and internal layout.2G

A centralized computer-integrated manufacturing (CIM) database can link together the functional

departments of a company and its subcontractors and

suppliers (figure 3-3). Since these different groups

can work from the samne information, it is possible

to carry out a complex project with a smaller, more

dispersed staff. Another advantage of an integrated

database is that engineers can update the digital

blueprints continually so that the latest version

of the design is available to all users of the

system. Moreover, design changes made at an

engineer’s desk can be communicated to a host of

subcontractors in a matter of hours, rather than the

days or weeks formerly required to print and mail

them.

Although many integrated databases are still

experimental, they have been used successfully for

the development of the B-2 bomber, the YF-22

fighter, and the Boeing 777 commercial airliner.27 It

~ Paul H. Richanbach et al., The Future cfMilitaq R&D: To~’ards a Flexible Acqliisition Strategy, IDA Paper P-2444 (Alexandria, VA: Institute

for Defense Analyses, July 1990), p. 16.

25 Roger Nagcl and Rick Dove, 21s[ Centuq Munufacturirrg Enterprise Strategy (Bethlehem, PA: Iacocca Institute, Lehigh University, 1991).

26 In some cases, however, mockups still provide an economic way to determine hydraulic line runs, engine fit to fuselage, and maintenance

requirements.

‘7 “Computer Sys[cm Design Reflects B-2’s Complexity, “ A\’iatzon Week & Space Techno[og), Nov. 28, 1988, pp. 26-27.
66 ● Building Future Security

Box 3-D—Rapid Prototyping

Computer-driven tools are increasing the ability to move rapidly from designs to prototypes and thence to

production. For example, a new technique known as stereolithography uses computer-aided design (CAD) data to

produce three-dimensional solid models from a vat of photosensitive chemicals, which Polymerize and solidify into

plastic as they are irradiated with a laser beam. As a result, a design engineer can complete a design and produce

an accurate physical model of a complex component in a single day, for technical and presentat on mockups as well

as prototypes. Quickly produced models of components can check fit against adjacent parts before expensive

machining.

Stereolithography cuts the time needed to produce a mockup of a part by more than 90 Percent.l For example,

the Air Force Manufacturing Technology (MANTECH) Program used the technique to redesign the brake pedal on

the B-52 bomber. A CAD representation of the redesigned pedal was converted by stereolithography into a plastic

model, which was test-fitted into a B-52 cockpit. The pedal’s dimensions were found to be incorrect, so the CAD

design was modified and used to generate a second prototype, which fitted correctly. Turnaround time between

discovery of the original design flaw to creation of the second prototype was about 7 days, a time savings of 6 to

8 weeks over conventional machining methods. According to the Air Force, the fact that the problem was identified

and corrected early, before manufacturing began, yielded a substantial cost savings.2

The National Science Foundation and a group of private companies are currently supporting research to make

rapid prototypes from CAD models using a full range of materials, from steel to ceramics. One approach involves

using a printer nozzle to squirt a binder chemical onto a bed of powdered ceramic or metal, after which the part is

solidified by firing in a furnace. This method can be used to produce solid parts, dies, or ceramic molds for metal

casting. While technical obstacles remain to be overcome, this approach may eventually enable manufacturers

to produce small lots of customized metal or ceramic parts directly from CAD models, without casting or

machining. 3

1 ~ S. BmM “l@id Prototyping: parts Without TwIs,” Aerospace America, vol. 29, No. 8, August 1991, PP. 18-23.

2 “Rapid Prototyping Program Supports B-52 Brake Pedal Redesi-” USAF Manujactun”ng Technology %ogratn Status Report

(Wright-Patterson Ah Force Base, OH: Wright Laboratory MAN1’EcH Progrw D@xmber 1990), p. 5.

3 ~s~IC~~op ~u,$s Scienfz&American, vol. 266, No. 4, April 1992, Pp. 141-2.

might be possible in the future to use computerized Specialists are brought together at the beginning of

databases to develop a new design, upgrade it at

regular intervals as new technologies become available, and build it when the need arises. Preliminary

designs and manufacturing plans for such “mobilization prototypes” could be developed for rare

contingencies such as Arctic warfare, specialoperations needs, or future mobilization requirements. 28

A second trend should also make it easier to

rationalize the prototyping process. Design teams

are increasingly being restructured into multidisciplinary development teams that develop products and manufacturing processes simultaneously, an approach known as “concurrent engineering” or “integrated product development.”29

the design process to exchange and define the

information needed to manufacture and support the

desired product. During development, this multidisciplinary team flows through multiple program

assignments and is backed up with needed specialist

support. 30 In the automobile industry, multidisciplinary development teams generally break up at the

end of each development program. A prototypingplus strategy, however, would seek to keep teams

together between projects—an objective requiring a

continuous flow of new prototyping projects. One

approach would be to stagger prototyping efforts in

time, so that some systems are in the conceptual

design phase while others are in technology demonstration or limited production.

X Uoud S~liV~ System Planning Corp., personal commti~tio~ JZUI. 22, 1992.

29 Al~ou@ conc~ent en@@* is the more common terq it is a misnomer because the process involves more tbaxl engineering.

w RokI-I I. Winner et al., The Role of Concurrent Engineering in Weapons System Acquisition, IDA Report R-338 (i.rlingtom VA: Institute for

Defense Analyses, December 1988), pp. 91-92.
Chapter 3-Prototyping-Plus ● 67

Figure 3-3—Centralized Database Concept

,————

Program + Submanagement [ ‘- Manufacturing contractors, ~

I proces s -

k e

’ -

s u

t!! !

e r s

“ J

[- planning I

SOURCE: Office of Technology Assessment, 1992.

Maintaining Manufacturing Technology

Prototyping is a manufacturing activity—albeit

one that differs from quantity production .31 Technology demonstrators or advanced-development prototypes are usually built in special facilities, with little

emphasis on durability, reproducibility, maintainability,

or the suitability of the design for quantity production. Prototype construction is small-scale, flexible,

and usually involves a small number of engineers or

technicians working in stationary assembly booths

or short, slow assembly lines. In contrast, an

operational weapon system should be designed for

efficient production on an assembly line and a long

lifetime in the field. Quantity production is highly

organized, requires a larger and more specialized

workforce, and may entail the participation of

several firms.

Given the different characteristics of prototype

construction and quantity production, the transi -

tion from an advanced-development prototype to

the final production item has traditionally been

difficult and costly. In particular, it has been

necessary to work out major bugs in the manufacturing process before production begins to run smoothly.

For example, it took Martin Marietta 14 months to

eliminate problems in the fabrication of its LANTIRN night-vision and targeting system. In the cases

of the AMRAAM missile and the B-2 bomber, the

transition from development to production has taken

years. Industry officials argue that if they merely

hand build a prototype or perform a limited production run, they will encounter serious problems in the

transition to quantity production.

A possible solution to these problems lies with

concurrent engineering, in which the design of a

product and its manufacturing process are developed in parallel. By integrating manufacturing

issues into the design process, concurrent engineering lowers the number of costly engineering changes

needed after a system has entered production,

significantly lowering total acquisition costs .32 Boeing, for example, expects that concurrent engineering will reduce the development costs of its 777

passenger aircraft by as much as 20 percent.33 For

concurrent engineering to work, however, design

and manufacturing engineers must share the same

information. Organizational barriers must be broken

down to permit the early release of preliminary

design information to production staff and the

feedback of manufacturing information to designers.

Concurrent engineering is said to be ‘‘a people and

communications issue, not an engineering technology one. ’ ’34

The defense industry can learn from advanced

civilian manufacturing in this area. Toyota and

Honda, for example, make extensive use of prototypes to identify and solve design and manufacturing

problems at an early stage of product development .35

Some U.S. automobile companies have also implemented concurrent engineering on specifilc projects.

SI ~e t-‘ ‘quantit y production ‘‘ is relative. Most defense products are built in small volumes compared with most mass-produced products.

3Z ~c ~adltlonal ~~uential approach t. development results in the need to make many costly design changes before a sYstem ‘n be ‘anufactumd

efficiently. During the full-scale development of the Bradley fighting vehicle, for example, FMC Corp. made a total of 60,000 engineering change orders

costing an average of $2,000 each. Sec John A. Alic, ‘‘Computer-Assisted Everything? Techniques and Tools for Design and Production, ’ manuscript,

p. 20.

33 Dori Jones Yang, ‘‘Boeing Knocks Down the Wall Between the Dreamers and the Doers, ’ Business Week, Oct. 28, 1991, p. 120.

~ Joseph T. Vcsey, ‘‘Speed-to-Market Distinguishes the Ncw Competitors, ’ Research-Techno/ogy Management, vol. 34, No, 6, Novcmber-December 1991, p. 36.

35 Klm B. clw~ and T&~lro FuJ1moto, product DeJ,e[~pment pe@rnlanC-e, stra~e~-y, or~ani~atic]n, and Management in the World Auto Industry

(Boston, MA: Harvard Business School Press, 1991), pp. 179-180.
68 ● Building Future Security

Chrysler developed its new $55,000 Viper sportscar

with an 85-person multidisciplinary development

team, about a tenth the size of most U.S. automotive

design teams. The team included 6 technicians who

built all of the Viper prototypes. To transfer the

manufacturing lessons learned from prototyping to

production, the same 6 technicians were put in

charge of assembly teams at the manufacturing

plant, where 120 skilled production workers build

the cars.3G Since the Viper is a low-volume, highvalue product that is largely hand assembled, it has

much in common with defense systems like fighter

aircraft.

Some defense contractors are beginnin g to address manufacturing and producibility issues during

the demonstration and validation phase. In developing the X-3 1 demonstrator, for example, Rockwell

International fielded a core multidisciplinary team

of 50 to 60 design, manufacturing, and quality

engineers who were retained throughout the various

phases of the program. This approach resulted in

better continuity of knowledge and institutional

memory. Similarly, in developing the M1A2 tank

prototype, the management of General Dynamics’

Land Systems Division decided to have the prototype hardware built by workers in a production

facility rather than by engineers in a specialized

project shop. Although this approach initially

sparked resistance, it promoted greater manufacturability by forcing designers and manufacturing engineers to work together.

The higher up-front costs associated with concurrent engineering are generally recouped during the

production phase through a greatly reduced number

of design changes and lower life-cycle costs, Nevertheless, the DoD has been reluctant to invest in

manufacturing process development without a high

probability of quantity production, even though

some level of investment is warranted simply to

maintain skills and improve manufacturing technologies. The dilemma is that whether a prototyping

program will culminate in production is not usually

known at the outset, because the decision depends on

the outcome of the prototyping process itself. DoD

and Service leaders must therefore weigh the early

costs of concurrent engineering against its benefits

in easing the potential transition to quantity production. Nevertheless, even if only a small fraction of

Photo credit: U.S. Army

Operational prototype of a Ml A2 At rams main battle tank

undergoes field trials. An upgrade o: the Ml Al tank, it has

abetter cannon, armor, electronics, and communications.

prototypes lead to a design that is produced in

quantity, the savings achieved through concurrent engineering—and the concomitant benefits

to the manufacturing technology base—may be

great enough to warrant using this approach for

most prototyping programs.

Alternatively, OSD and Service leaders could

examine a prototype at multiple decision points

during the development process and assess the

probability that it will lead to a design that is

produced in quantity. In this way, the extent of

investment in manufacturing process development and preproduction planning during prototype development could be calibrated to the

probability that the system will enter quantity

production. Other factors that may influence the

extent of investment in concurrent engineering

during a prototyping effort include program goals,

changes in the military threat, foreign technological

advances, available funding, performance requirements, and acceptable levels of technological and

financial uncertainty.

Some critics contend that a prototyping strategy

would be incompatible with concurrent engineering.

Ongoing advances in manufacturing, they argue,

would render a finished but shelved design either

obsolete or incompatible with new manufacturing

processes by the time it entered production years

later. 37 One way of addressing this problem would

~ David Woodruff, “The Racy Viper is Already a Winner for Chrysler, ” Business Week, Nov. 4, 1991, p. 36.

37 Dodd Christianse~ “Desi~ Don’t Build?” ZEEE Spectrum, vol. 29, No. 3, March 1992, p. 23.
Chapter 3-Prototyping-Plus . 69

be for multidisciplinary design teams to update a

prototype design periodically to keep up with

significant improvements in product and process

technologies. Limited production of selected prototypes would also make it possible to work out the

major bugs in the manufacturing process.

Tooling is another important element of prototype

construction. Fabrication and assembly tooling can

be either “hard” or “soft,” depending on its

durability and the extent to which it is amenable to

change. Hard tooling refers to metal dies and jigs

that are sufficiently specialized, resistant, precise,

and efficient to permit quantity production.38 Soft

tooling, in contrast, is designed for low-rate manufacturing and includes standard tools, improvised

rigging and clamping, dies made of malleable

materials such as zinc alloys, manual forming and

welding processes, and the use of machined parts

rather than precision forgings. In the automobile

industry, for example, prototype body panels are

formed slowly on soft dies, whereas production

panels are stamped on high-speed, high-power press

machines fitted with hard-metal dies.39 Soft tooling

is easier, faster, and cheaper to manufacture, but it is

suitable only for short or low-rate production runs

and results in greater variability in production.

With smaller U.S. forces and a reduced requirement for new weapons, it should be possible to rely

more on soft tooling, which would be sufficient for

low-volume production. For example, although

Northrop and McDonnell Douglas built only two

prototypes of the YF-23 fighter with soft tooling,

they claim that they could have used the same

tooling to manufacture 50 of these aircraft, or more

than enough for field testing.

Soft tooling also provides the flexibility to modify

a design from time to time, In future weapon

systems, subsystems will be upgraded at regular

intervals and structures may be modified; for example, the F-1 17 airframe was refined repeatedly to

reduce its radar signature. As a result, more flexible

tooling and frequent design changes may become

the rule, not the exception. Given the expected

declines in production over the next decade, industry

could use prototype construction on soft tooling to

solve manufacturing problems at an early stage, and

to produce operational prototypes in limited quantities for field testing. The challenge will be to build

prototypes with soft tooling because of its flexibility and low cost, while simultaneously maintaining the capability to make a successful transition

to hard tooling for quantity production.

In the event of crisis or war, prototype production

could continue on soft tooling while manufacturing

engineers prepared the hard tooling required for

quantity production. This approach is not new:

between the World Wars, the United States developed 37 prototype tanks but produced none in

quantity. After the outbreak of World War II, it took

industry about 2 years to begin turning out large

volumes of tanks. Although the more sophisticated

weapon systems in today’s arsenals would require a

longer lead-time to reach high rates of production,

the length of time required for a major new threat

to emerge would still provide enough warning to

gear up production of major weapon platforms

such as tanks and bombers. Deputy Defense

Secretary Donald Atwood has said, “We talk now of

a warning time of a major land war in Europe of

something like 1 to 3 years. That’s plenty of time to

reconstitute an entire new [industrial] plant, an entire

new supplier base. ’40 While short-warning regional

conflicts would require a surge production capacity

for munitions and other battlefield consumables,

such wars would be fought mainly with forces-inbeing. (See ch. 4.)

In the future, the definition of soft tooling may

change as manufacturing systems become more

versatile. Indeed, the long-term goal may be to

increase the flexibility of manufacturing systems

to the point where hard tooling becomes obsolete.

It is already possible to download some types of

CAD data to computer numerically controlled machine tools, so that a part can be designed and

manufactured electronically without creating a paper

drawing. Using this technique, it is possible to

machine complex parts in 5 days, compared with the

40 days previously required. As computer-aided

manufacturing technology matures, it should become possible to fabricate prototype components

with the same machine took as quantity production,

to build prototypes on assembly lines designed for

multiple products, and to achieve a rapid transition

38 ~ tie elec~ofics indus~, however, hard tooling refers primarily to specialized test equipment.

39 Clink and Fujimoto, Product Development Performance, op. cit., fOO~Ote 35, p. 180.

@ Atwood, quoted in ‘New DoD Weapon-Buying Approach Has Industry Cwing ‘Uncle ‘,’’ Armed Forces Journal International, March 1992, p. 12.
70 Building Future Security

from prototyping to quantity production. To date,

however, neither military nor civil manufacturers

have absorbed the most advanced production technology.

Limited production of prototypes would mean

foregoing many of the cost-efficiencies that result

from moving down a production learning curve.

Nevertheless, some analysts argue that the largest

gains in efficiency result from production of the

early units, when the major bugs are worked out of

the manufacturing process.

41 If this assumption is

true, then even the limited production of prototypes designed for manufacturability would significantly reduce the risks involved in the transition

to quantity production. In sum, greater use of

concurrent engineering in prototyping and limited,

intermittent production of prototypes for operational

testing would help preserve key manufacturing

skills while facilitating the transition to quantity

production when necessary.

Preserving the Vendor Base

Even if prime contractors agree to prototype new

systems, where will the necessary parts and components come from? Without full production lines, the

number of subcontractors and component suppliers

at the lower tiers of the DTIB may continue to erode,

and skilled machinists and other manufacturing

tradesmen may be lost. Thus, for a prototyping-plus

strategy to work, the survival of the vendor base

must be assured.

Given some ongoing production, there is no

reason to expect that lower-tier suppliers will be

reluctant to supply prime contractors developing

system prototypes. Indeed, vendors often seek out

such programs because it helps them to pursue

their own advanced-technology development efforts. The United States will continue to have some

production programs under way in most defense

areas for the forseeable future, including low-rate

production of current systems, overhauls, and retrofits. Throughout the 1990s, for example, production

lines for three major combat aircraft may be active

at any given time. While some industrial sectors

such as tanks might be without production for a time,

they are the exception rather than the rule.

To attract vendor participation, however, it

will be necessary to reform the acquisition process. First, the government may have to provide

substantial amounts of R&D funding and probably

some guarantee of future military orders. Morever,

vendors may refuse to accept R&D contracts because of the government’s insistance on ownership

of all technical data developed with public funding.

(See ch. 2.) It will therefore be necessary to resolve

the data-rights issue. Further, since many of the

larger vendors sell primarily to commercial markets,

convincing them to stay in the (defense business may

require modification of procurement regulations and

military specifications.

In addition to these general approaches, there are

some other options:

1.

2.

3.

The DoD could fund programs to retrofit

and upgrade current platforms, ordering

the improved componens in sufficient quantities to make their development and manufacture profitable for subtier suppliers. The

government might also support, on a cost-plus

basis, development of the tooling needed to

manufacture essential components. Further,

the DoD might pay prime contractors to

integrate several new subsystems and components into technology demonstrators or advanceddevelopment prototypes.

The subtier base will need to be consolidated. Prime contractor! could protect their

own workforce from layoffs by moving the

production of key subsystems and components

in-house. Alternatively, subtier Firms might be

consolidated into a smaller number of diversified companies, which would be linked to

prime contractors through strategic alliances.

Indeed, Total Quality management (TQM)

precepts call for the use of fewer, but highquality and efficient, suppliers. Although market forces will result in consolidation, Federal

Acquisition Regulations mandating “free and

open competition’ may need to be changed to

permit long-term supply relationships between

primes and subtiers.

Subcontractors and suppliers might play a

more active role in cooperating with prime

contractors on prototype development and

engineering. For example, representatives of

key suppliers and subcontractors might participate in concurrent engineering teams. This

approach would broaden the training base and

41 Linda Argote and Demis Epple, ‘‘Learning Curves in Manufacturing, ’ Science, vol. 247, No. 4945, Feb. 23, 1990 pp. 920-924.
Chapter 3-Prototyping-Plus ● 71

4.

improve timely response to emerging military

requirements.

The role of foreign suppliers should be

considered. Foreign sources often have a lock

on subcomponent technologies (such as materials, semiconductors, and optics) that will

be critical to any future systems. To ensure

access to these technologies, the DoD may

have to make defense contracts available to

foreign vendors on more or less the same terms

it offers domestic producers. Alternatively, the

DoD could invest more money to develop or

expand an onshore (North American) production capability, using Title III of the

Defense Production Act.

Time and Cost of Prototyping

On average, an advanced-development aircraft

prototype can be built for 25 to 30 percent of the total

development cost of the system. But the actual cost

of a prototyping-plus strategy would depend on

several factors:

1.

2.

3.

4.

. . 5

6.

the type of system, desired military performance; 

- and extent to which it is a radical

departure from current systems;

the number of contractors (and development

teams) building prototypes;

the number and category of prototypes to be

built (e.g., breadboard, brassboard, or fieldable

operational prototype);

the amount of time a contractor is allowed for

early development models;

the extent to which prototype design and

manufacturing data must be documented for

storage or recycling; and

the producibility of the design and its fidelity

to the final production model, including t h e

extent of systems integration.

Because of these numerous factors, the cost and

time involved in prototyping can vary enormously.

Whereas the 10 prototypes of the M1A2 tank (an

upgrade of the current Ml A 1 ) are said to have cost

about $15 million apiece, a radically new tank

design (based on novel composite materials) could

cost as much as $200 million. Similarly, while an

austere technology demonstrator like the X-3 1 was

developed under a cost-plus contract totaling about

Photo credit: DoD

X-31 technology demonstrator was unveiled in March

1990. Two of the aircraft were developed and built jointly by

Rockwell and the German firm MBB.

$200 million (of which the U.S. share was $135

million),

42 four advanced development Prototypes

of the Advanced Tactical Fighter (ATF) cost a total

of about $5 billion to develop.

The cost of developing a prototype was not a

major issue when it was just one step in a process

culminating in quantity production. For tactical

aircraft programs, for example, prototyping represented only a small percentage of total acquisition

costs: the YF- 16 prototype cost about $100 million

out of a $30 billion program; the A-10 prototype cost

about $100 million in a $5 billion program; and the

AV-8B prototype cost $150 million out of a $10

billion program.43 But the economics are very

different when prototyping is no longer an integral

step in a sequence leading to quantity production.

Without production to spread R&D and overhead costs over time, all equipment and associated costs must be borne during the development

phase. The result will be an apparent rise in

defense R&D) costs.

There are, however, some options for reducing

prototyping costs. For technology demonstrators,

one approach is to build unmanned, remotely

operated systems that are easily reconfigurable.

Whereas the safety requirements for human operators drive up costs, unmanned vehicles can provide

42 Michael A. Dornheim, “X-31 Flight Tests to Explore Combat Agility to 70 Deg. AOA, ” A\iation Week & Space Technology, vol. 134, No. 10,

Mar. 11, 1991, p. 38 The $200 million figure includes the design and construction of two prototypes and initial flight testing.

Al Karen W. Tyson et al., kquiring Major Sys/erns, Op. Cit., fOOtnOte 15, p. VIH-2.
72 ● Building Future Security

useful information at no risk to human life. (See box

3-E.) In the case of advanced-development prototypes, costs can be reduced by building subscale

models when the effects of scale are understood.

During the development of the Avro Vulcan strategic bomber, for example, the British saved money by

building two full-scale prototypes to evaluate flight

characteristics, and four subscale prototypes to test

other aspects of the aircraft such as power-control

systems and electronics.~ Another approach is to

prototype only the critical components of a weapon

system. In prototyping an aircraft carrier, it might be

sufficient to build a control tower on a barge to test

the command-and-control, threat-assessment, and

other systems.

Finally, the United States might consider engaging in more collaborative prototyping programs with

the NATO allies, the industrialized countries of the

Pacific Rim, and possibly Russia. The advantage of

international collaboration is that it permits sharing

of development costs and enables U.S. firms to gain

access to foreign technologies. Collaboration is

likely to become a more attractive option a s

defense budgets are reduced and U.S. forces

engage in multinational military operations, such

as the Gulf War, reinforcing the need for interoperability. A drawback is that collaboration can

increase U.S. dependence on offshore sources; it

also inevitably entails compromises on program

objectives, specifications, schedules, and worksharing. Further, transfers of U.S. technology might

enable some foreign firms to become more formidable competitors in the future. Collaborative programs must therefore provide for a two-way flow

of important technologies, so that the U.S. industry gains at least as much as it gives.

Although West European firms have engaged in

joint development programs since the mid-1950s,

this approach is relatively new for the United States.

A recent example is the X-31 technology demonstrator, jointly developed by Rockwell International

and the German firm Messerschmitt-Bolkow-Blohm

(MBB). Launched in 1986, this program was funded

under the 1985 Num-Quayle Amendment. According to a Memorandum of Understanding between the

U.S. and German governments, the X-31 program is

managed jointly by DARPA as overall program

manager and the German Ministry of Defense as

deputy program manager. The development and

Box 3-E—Remotely Piloted

Research Vehicles

To explore the limits of fighter maneuverability

achievable with current structural and propulsion

technologies, NASA and the Air Force contracted

Rockwell International to develop a remotely piloted research vehicle called Highly Maneuverable

Aircraft Technology (HiMAT’). The HiMAT contained a TV control system, telemetry~, and a suite

of research instruments. Because of its modular

design and construction, the basic components of

the aircraft could be altered to evaluate design

changes, such as new relationships among control

surfaces, modified airfoils, and various types of

thrust-vectoring engine nozzles.l Other advantages

of the HiMAT vehicle were its reduced size, which

made it inexpensive to build and operate, and the

fact that it could withstand accelerations that would

kill human pilots. The chief dr wback of the system

was the need to develop a parallel command-andcontrol structure on the groumd to operate it.

DARPA has developed a related concept known

as Advanced Configuration Remotely Operated

Basic Agility Technologies (ACROBAT), a family

of subscale demonstrator aircraft that would be

flown remotely from a computer terminal on the

ground whose configuration could be easily

.

.

1 ~top~ -g A~rcrafi IVcto~Pes (Seacaucus, NJ:

Chartwell Books, 1990), p. 118.

2 ~~ew wi~ LL CO1. Michtu 1 S. -is,AdvtUKd

Systems Technology Off@ DARF!& Sept. 1991.

production work has been divided between the two

firms in proportion to each country’s financial

contribution to the program (about 72 percent

American and 28 percent German), and a joint

working group resolves all interface problems.

The collaboration has worked well because Rockwell and MBB have complementary technological

strengths. Whereas MBB developed the basic enhancedmaneuverability concept, Rockwell offered its systemintegration skills. Both firms benefitted from sharing

resources, people, and ideas. Based on their positive

experience with the X-31, MBB and Rockwell plan

to collaborate on other projects In addition, the U.S.

and German governments are (considering a 5-year

joint research program aimed at making fighter

44 c~q AirCr@ Prototypes, op. cit., footnote 9, P. 32.
Chapter 3-Prototyping-Plus ● 73

Photo credit: DoD

Remotely operated experimental aircraft called Hi MAT was

designed to test new technologies for future

fighters. Less expensive than a manned aircraft,

it can do high-G maneuvers without risking

pilots’ lives.

aircraft more maneuverable, building on the results

of the X-31 demonstrator.45

Rethinking the Acquisition Process

Throughout the cold war, the defense industry

was oriented toward the need to counter a large and

immediate Soviet threat. But the waning of that

threat has given the United States the opportunity to

shift its emphasis from short-term military capabilities to long-term military potential. In the new

security environment, developing multiple prototypes makes more sense than committing scarce

resources to the production of current-generation

weapons, of which there is already an abundance. A

prototyping-plus strategy would provide an opportunity to continue technological innovation, maintain

the defense technology base, and prepare for the

future. It would also keep design teams together and,

through the judicious use of concurrent engineering

and limited production, help to maintain manufacturing skills.

To hedge against uncertainties in both technology and the security environment, the number of

prototyping programs should be large relative to

the number of systems that enter quantity production. Even though most prototyping programs

would not lead to a design that is produced in

quantity, they would still yield useful information

and technologies that could be recycled into the next

generation of systems or transferred to other programs. Since prototyping is a form of experimentation, it would not be redundant to build multiple

prototypes with dissimilar designs in response to a

given military requirement.

Shifting to a prototyping-plus strategy would

entail a fundamental “cultural” change in both

the defense industry and the government weaponsacquisition community. First, it would require a

restructuring of the weapons-acquisition process

away from the linear pipeline process culminating in

production. The current model would be replaced

with a new paradigm in which prototypes are

developed to acquire new technical knowledge and

to enhance the Nation’s long-term readiness against

a spectrum of possible threats. Selected prototypes

would be manufactured in limited numbers on soft

tooling for operational testing; when a military

requirement arose, prototypes could be moved into

quantity production.

Although greater use of concurrent engineering would reduce development time and total

procurement costs, the DoD must give defense

contractors incentives to develop more manufacturable systems. One approach would be for the

DoD to award prototyping contracts based on the

performance, manufacturability, and maintainability

of proposed designs. The winning firm might also

receive the added bonus of a contract for limited

production of the prototype, without second-source

competition, At the same time, it will be necessary

to discipline the development process with cost and

schedule targets; otherwise, designers will never

stop tinkering, and no one at the user or procurement

level will abandon the quest for the ideal solution. A

streamlined approach to development, known as

quick-reaction prototyping, was used successfully

during the Gulf War. (See box 3-F.)

A prototyping-plus strategy would also require

restructuring the defense industry to reduce

capacity and create more flexible manufacturing

practices, such as multiproduct assembly lines.

To this end, the DoD would need to support the

development of innovative manufacturing processes

and novel materials, such as the radar-absorbing

composites used in stealth aircraft. This investment

would be critical because the very nature of most

defense production—uncertainty over orders, the

45 Barbara Opall, “U. S., Germans Plan Research on Fighter Jets, ’ Defense News, vol. 7, No. 4, Jan. 27, 1992, p, 4.
74 ● Building Future Security

Box 3-F-Quick-Reaction Prototyping

During the Persian Gulf War, personnel from Texas Instruments, Lockheed Missiles and Space, and Eglin Air

Force Base took only 37 days to develop the GBU-28 penetrator bomb, which was then used to destroy an Iraqi

command bunker that had survived direct hits from 2,000-pound bombs. Development of the new weapon required

great speed and secrecy, use of existing industrial capacity and parts, and cooperation among private firms, Army

arsenals, and an Air Force base.

Development of the GBU-28 began on January 21, 1991, in the midst of the air campaign against Iraq. The

Air Force gave industry and its own designated project staff a free hand to get the job done as quickly as possible,

with a minimum of red tape. As a first step, Eglin personnel requested the use of old 8-inch howitzer barrels stored

at Letterkenny Arsenal in Pennsylvania. The gun barrels were shipped to Watervliet Arsenal in New York where

they were machined into the bodies of the new bombs. Lockheed then developed the warhead, while Texas

Instruments developed the guidance units. Designers at Texas Instruments took only 4 days to craft a quarter-scale

aluminum model of the bomb for wind-tunnel testing of the body and tail-fin configuration.

Meanwhile, otherTI engineers used computer simulation to develop guidance software for - delivering the bomb

with pinpoint accuracy. The TI team compressed the software development and testing-normally an 18-month to

2-year process-into less than 2 weeks. After field-testing at ranges in Nevada and New Mexico, two

GBU-28 s-each more than 18 feet long and weighing 4,700 pounds-were flown to Saudi Arabia. They were then

fitted to the undercarriages of a pair of F-ills and used successfully on February 27, 1991 to destroy the Iraqi

command bunker at Al Taji Air Base north of Baghdad.1

1 Gregg Jones, “Genesis of a Bomb: ‘f’I’s Role Critical in Quick Development of Weapom ” Dallas Morning News, June 30, 1991.

small size of production runs, excess capacity and

the consequent difficulty in recovering the investment in tooling-makes defense firms reluctant to

invest their own money to develop new manufacturing technologies.

Finally, a prototyping-plus strategy would

require new approaches to program management. Specific changes might include new systems

for monitoring costs, schedule, and performance;

improved liaison with system users; new arrangements for managing subcontracts; and enhanced

logistics planning to maintain the currency of

prototypes. Other options for managing prototyping

programs follow:

1. Use performance criteria rather than specifications. Giving prototype designers greater

flexibility would enable them to trade off

performance against cost. Cost discipline could

be maintained through competition between

prototype designs, government auditing, and

positive fee or profit incentives for completing

prototype development on time and under

budget. In this way, contractors would have the

freedom to be creative without having to give

ur) proprietary information to ‘‘level the playing field. ’

2. Reconsider the role of (competition. It would

not make sense for every new prototype to

undergo the 2-4 year source-selection process

now used for most full-cycle procurement

programs. Thus, competition may have to be

achieved in more flexible ways.

POLICY IMPLICATIONS

Congress must decide whether it wishes to invest

in maintaining innovatation, preserving the defense

technology base, and hedging against future technological breakthroughs by potential adversaries. If so,

then a prototyping-plus strategy should be part of the

answer. Since private industry’ will be unable and

unwilling to invest its own money in prototype

development without the immediate prospect of a

lucrative production contract, the DoD will have to

bear the full cost of prototyping. Thus, for a

prototyping-plus strategy to be viable, it would

require a long-term funding commitment from

Congress. Even so, the total cost would be

considerably less than the alternative of maintaining a warm production base for most military

items, which is simply not feasible in the current

budgetary or strategic environment.

There are several options for carrying out

prototyping programs, including competition among

private fins; sole-source development in public or
Chapter 3-Prototyping-Plus ● 75

private ‘ ‘arsenals; and the use of specialized

engineering firms (’ ‘design houses’ ‘). industry officials contend that prototyping in public arsenals

would not be effective because the government does

not have a good track record as a systems integrator

and would not face the same cost discipline as firms

competing in the marketplace. The aerospace and

armored vehicle industries also oppose the use of

specialized design houses, although the Navy makes

extensive use of them. Since design houses are less

capable of concurrent engineering, they would result

in higher downstream production and life-cycle

costs. Moreover, without manufacturing experience,

the transition from prototyping to production would

be very difficult.

Alternatively, the DoD could award prototyping

contrasts to full-service firms that do both R&D and

manufacturing. Such firms might build prototypes

on flexible production lines. (See ch. 4.) Another

option would be to consolidate development and

manufacturing in several Skunk Works-like organizations, which would build competing prototypes

during the concept-definition phase. Advocates of

this approach argue that it would promote fresh

technological approaches and force efficiencies

through competition.

Other questions about a prototyping-plus strategy

tracts be made sufficiently interesting and profitable

to motivate companies, scientists, and engineers to

focus on state-of-the-art developments unique to

military systems? With reduced defense budgets,

how many prototyping-plus programs could be

financed at any one time? How much would

companies learn about manufacturing by using soft

tooling? And should government laboratories assume the role of developing enabling technologies in

those areas where the specialized nature of the

application limits private-sector incentives? These

unanswered questions suggest that while prototypingplus is a promising approach, it will need more

refinement before it is ready for implementation.

Finally, while a prototyping-plus strategy would

preserve essential design and manufacturing

capabilities and foster technological innovation,

it could not by itself maintain the defense manufacturing base over time. Firms might rely on

prototyping to preserve their core competencies, but

they could only survive financially by: eliminating

excess capacity; drawing on other businesses, such

as supporting and upgrading fielded weapon systems; and diversifying into civilian markets. prototyping-plus must therefore be seen in the context of

remain to be answered. How can prototyping con- a broad restructuring of the DTIB,
Chapter 4

Efficient, Responsive,

Mobilizable Production
Contents

Page

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

THE CURRENT PRODUCTION BASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Tiers of the Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Public and Private Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

Representative Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

When Preserving the Current Base Is Not Critical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

EFFICIENT PRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Streamline and Consolidate Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Reduce Production Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Shift Business Focus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Reduce Barriers to Civil-Military Integration ....., . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

Cooperate With Foreign Nations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

Promote Manufacturing Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

Increase Commonality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

RESPONSIVE PRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

PREPARATION FOR MOBILIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112

CONGRESS AND THE PRODUCTION BASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

Funding Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

Base Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

Business Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

Acquisition Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

International Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

Boxes

Box Page

4-A. Competing Goals of Defense Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

4-B. Teaming Arrangements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92

4-C. Low-Rate Production is Not Always the Best Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

4-D. Restructuring for the Future: BMY-Combat Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

4-E. Worker Skills in the Defense Production Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

Figures

Figure Page

4-1. Production Tiers for the Navy’s Arleigh Burke Guided Missile Destroyer . . . . . . . . . . . . . . 81

4-2. Projected Defense Electronics Procurement Budget through 2001 . . . . . . . . . . . . . . . . . . . . . . 84

4-3. Impact of Comanche Procurement on Military Helicopter Funding and production. . . . . . 95

4-4. Navy and Commercial Ships Under Construction, 1980-90 . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

4-5. Hypothetical Shift in a Defense Manufacturer’s Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99

4-6. Decisions Concerning Productivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108

4-7. Theoretical Comparisons of Concurrent v. Traditional Development

and Production Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

4-8. Tradeoffs Between Production Efficiency and Surge and Mobilization Preparation . . . . . 110

Tables

Table Page

4-1. Sample Products of the Armored Vehicle Production Tiers . . . . . . . . . . . . . . . . . . . . . . . . . . 86

4-2. Endangered Navy Shipbuilding Support Industries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

4-3. Impact of Low-Rate production on the Abrams Tank’s Subcontractor Base . . . . . . . . . . . . 97

4-4. Examples of Surge and Mobilization Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

4-5. Comparison of Production Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Chapter 4

Efficient, Responsive, Mobilizable Production

INTRODUCTION

By dollar expenditure, production is the single

largest component of the defense technology and

industrial base (DTIB). Production will probably

suffer the largest defense budget cut in absolute and

relative terms. Historically, this component has had

three principal functions:

1. manufacturing high-quality military equipment in peacetime,

2. responding quickly but selectively to increased

military requirements in crisis or war, and

3. mobilizing the national economy for largescale hostilities. 1

Redesigning Defense suggested that these functions remain desirable characteristics for the future

smaller production base. This chapter discusses

options the Administration and Congress might

employ to arrive at a future production base that is

efficient, responsive, and mobilizable under the

conditions of significantly reduced procurement.

BACKGROUND

Defense procurement is projected to fall over 50

percent in real terms between fiscal years 1985 and

1997, Between 1990 and 1993, budget authority for

aviation is projected to decline by 40 percent,

shipbuilding by 59 percent, and Army tracked

vehicles and weapons (excluding missiles) by 77

percent. z While production of some munitions and

other consumables may increase temporarily to

replenish stocks consumed during the Persian Gulf

War, procurement of major weapon platforms will

decline sharply over the next decade.

Procurement reductions of this magnitude will

radically change the way defense manufacturing is

conducted. These reductions might severely weaken

the defense production base if they are handled

without sufficient foresight. The Nation may be hard

pressed to maintain future shipbuilding, aircraft

manufacturing, and armored vehicle production

capabilities, for example. Small companies that

produce critical components for major defense

systems may become economically unviable and

leave the defense business or cease operations

entirely. And basic material and subcomponent

suppliers may decide that the defense market has

grown too small and unpredictable to be worth the

trouble of dealing with procurement laws and

regulations, (See ch. 6.) In order to survive the

cutbacks and remain competitive, businesses may

jettison important capabilities (e.g., R&D facilities

and staffs) and put off new productivity investments.

The end result might be the unnecessary loss of

skilled workers and an inadequate DTIB.

As procurement authorizations declined in the

wake of the Carter-Reagan military build-up, the

production base was left with significant overcapacity in most industrial sectors. Reduced production,

large overhead, and sunk costs caused weapon

systems to grow more expensive even as the

contractor and supplier base shrank. The decreasing

global competitiveness of the U.S. economy made

the military more dependent on foreign suppliers in

such market segments as advanced materials, electronics, and display technologies. The projected

future decline in defense procurement is expected to

aggravate all of these trends.

In Redesigning Defense, OTA outlined three

desirable characteristics for the future defense

production base:

1.

2.

3.

limited, efficient peacetime production capabilities for high-quality materiel;

responsive production of ammunition, spares,

and consumables for theater conflict; and

healthy, mobilizable civilian production capacity.

Managing the transition to such a production base

while avoiding the pitfalls of recent trends will

require leadership from both the Administration and

Congress. If any meaningful resolution of the

dilemma in defense production is to be found, it will

1 U.S. Congress, Office of Technology Assessment, Redesi<qning Defense, Pl~nning the Transition IO the Future U.S. Defense Industri~l Base,

OTA-ISC-50() (Washington, DC: U.S. Government Printing Office, July 1991), p, 3, Much of the introductory comments for this chapter arc taken from

this report,

2 Steven Kosi,ak and Paul Taibl, Anal~sis of the Fiscal Year 1993 Defense Budge( Re;ucst (Washington, DC: Defense Budget Project, Mar. 11,

1992), tables 8 and 9,

–79–
80 ● Building Future Security

be necessary to focus on the end goal-a restructured defense industry.

THE CURRENT

PRODUCTION BASE

The production base is not a monolithic structure

amenable to generic remedies. It is a complex

conglomeration of separate ventures on multiple

tiers in many industrial sectors, with varying degrees

of private and public ownership, operating in an

environment of increasing global economic interdependence. The defense downturn will affect individual businesses differently, and effective solutions to

the problems of the future production base will

depend on understanding these differences. The

current production base was described in some detail

in Redesigning Defense and is only s ummarized

here.

Tiers of the Base

The DTIB can be divided into a series of levels or

tiers. Occupying the top tier of the defense industrial

base are the prime contractors,3 often large corporations (e.g., General Dynamics) whose main task is to

bring together all the necessary components for a

system and integrate them into a whole (e.g., an

aircraft).

The vast majority of production base companies,

however, are in the subtiers.4 The subcontractor tier

of the defense production base is the most diverse in

terms of size and product, and includes both

industrial giants and small machine shops. A subcontractor manufactures specialized parts, components, or subsystems that are integrated into a larger

subsystem or final system. In a major weapon

system, several layers of subcontractors might

produce hundreds or thousands of individual items.

The supplier tier provides the prime contractor and

subcontractors with basic pars, hardware, subcomponents, capital equipment, and materials. This tier

is generally more integrated into the civilian market

than the prime or subcontractor tiers, although cases

of suppliers totally dedicated to defense work are not

uncommon. Figure 4-1 illustrates this multilayered

arrangement for the DDG-51 Arleigh Burke destroyer.

Each tier of the base is already being adversely

affected by the downsizing of the defense production

base. Prime contractors are heavily dependent on

large weapon system contracts, which are increasingly scarce. Many still have sufficient working

capital from production contracts that began in the

1980s, since money appropriated is only now being

spent. 5 This capital will allow w some of them to

reorient their business horizontally, to other markets

(e.g., through acquisitions of defense and nondefense firms),G or vertically, by taking over the

business of their subcontractors and suppliers. As

current production contracts are completed, however, money will become increasingly scarce. Many

prime contractors hope to expand sales of systems,

repairs, spare parts, or upgrades abroad.

Larger, more diversified subcontractors should

not be devastated by the termination of any single

program. Most have substantial commercial dealings to help them weather defenese cutbacks or allow

them to leave defense work for the civil sector while

their less diversified defense competition fails. For

example, Allied Signal manufactures a wide variety

of aerospace power systems, guidance systems,

torpedo propulsion systems, sonars, and other electronics for the Department of Defense (DoD). It also

does extensive work in commercial aerospace, as

well as in the automotive and material sectors.7 Like

some of the primes, larger subcontractors are often

3 The breakdown of the base into tiers (primes, subcontractors, and suppliers) is an filcial construct used widely to shnplify discussion of the base.

The actual base is more complex. For example, a major corporation may serve as prime contractor on one contract while acting as subcontractor on

another, or a small company that functions as a prime contractor on a small item (e.g., shoes) may have character jtics more in common with

subcontractors thana major prime contractor. These distinctions will be addressed in the text where important. For a fiu-ther d iscussionon the tier structure

see Redesigning Defense, op. cit., footnote 1, pp. 4044.

4 Over 70 percent according to the DoD, Defense Systems Management College, Dqfense Manufacturing Mana~ ‘ement: Guide for Program

Managers, 3d ed. (Washington, DC: U.S. Government Printing Office, April 1989), ch. 2, p. 5.

s Major systems take years to build. In some cases, multiple buys, authorized and contracted for in one year, will be st uted over a period of several

years.

6 These companies prefer to acquire businesses that have large back orders or good commercial prospects. (’ ‘Casualtits of Peace, ’ Business Week,

Jan. 13, 1992, p. 64.) For example, Hughes Aircraft plans to increase its proportion of commercial sales ffom 25 percent in 1988 to 50 percent by the

late 1990s through investments in areas such as satellites, head-up displays, and electric drives for cars. (Caleb R&r, “F Ughes Braves skeptics wi~

Commercial Market Drive, ” Defense News, vol. 6, No. 46, Nov. 25, 1991, p. 24.)

T ‘{Top 20 Gove~ent Contractors, ’ Government Executive, vol. 23, No. 8, August 1991, p. 119; and Dialog Infom[ation Services, Inc.
Chapter 4-Efficient, Responsive, Mobilizable Production ● 81

. “ .

(u

(%
$2 ● Building Future Security —

able to acquire the necessary resources to expand

vertically or horizontally into other markets.

Smaller subcontractors involved in only a few

programs are more immediately at risk from reduced

defense procurement. The elimination, delay, or

stretch-out of programs could force them out of the

defense business and into either the commercial

world or bankruptcy. Many of these companies have

made their living through the ability to meet unique

military specifications and operate according to

military auditing practices. The transition to commercial markets, standards, and practices will be

difficult. Some subcontractors (e.g., electronic equipment manufacturers), both small and large, see a

continuing need for their products, whether they are

used as components in new systems or as upgrades

in older military equipment, and thus are somewhat

optimistic about their future.

The future health of many defense suppliers

depends on their strength in the civil sector rather

than on the future course of defense procurement,

because their defense market is relatively small

compared to their civil market. For example, the

military’s share of the domestic market for DRAM

(dynamic random access memory) chips, which are

used in a wide array of electronic devices, is only a

few percent.g As defense cutbacks make this portion

of the market even smaller, suppliers may find the

stringent specification, handling, and accounting

rules of government procurement increasingly burdensome. The result may be to force the DoD toward

higher unit costs, commercial standards, or the

creation of dedicated government suppliers. Suppliers that are more dependent on defense spending and

regulations will face a fate similar to that of the less

diversified subcontractors.

Outside the domestic defense production base, but

intertwined with it, is the global DTIB. The DoD

and its contractors routinely purchase materials,

parts, components, and finished goods from foreign

manufacturers, just as other nations do from the

United States. Foreign militaries are a significant

market for U.S. defense products. Through foreign

sales, the United States is able to reduce unit costs on

weapons and equipment and keep production lines

warm when domestic requirements wane. There is,

however, public concern over such sales.

Foreign defense production also supplements the

U.S. defense base by sharing technology and processes through cooperative ventures, thereby reducing duplication of R&D, production, and maintenance. Foreign firms also sell components and

materials that are either not available on the U.S.

market or are less expensive. Such trade carries

risks: shared technology could undermine domestic

industry and foreign supplies could be cut off. But

without this cooperation, the United States might

not have access to some state-of-the-art militarily

unique and dual-use technologies and would have to

pay the cost of pursuing them independently or not

having access to them at all.

Public and Private Sectors

The current production base is divided between

the private and public sectors. The United States

relies primarily on private industry to provide

defense materiel. Most defense work is done at

privately owned facilities. However, when the initial

capital investment costs of a defense program are

prohibitively high or when tile government wants

the option of shifting contract:; among firms without

having to reinvest in new infrastructure, the government may establish a government-owned, contractoroperated (GOCO) facility. The DoD owns a number

of GOCOs, including aircraft assembly facilities,

propellant and explosive plant;, and tank production

lines, which are run by private fins. The government also retains a few government-owned, governmentoperated (GOGO) facilities for assured access or to

meet a requirement that the private sector is not

fulfilling at a reasonable cost (e.g., large-bore gun

tube production at the Watervliet U.S. Army Arsenal). Government ownership and operation provides

the most direct government control over facilities

and resources. Critics of GOC0s argue that private

management is more efficient and innovative. Recent government policy has been to divest government holdings.

As defense procurement shrinks, it is likely that

some unique subcontractors or suppliers of items

critical to a weapon system will face business

failure, threatening a shutdown in system production. The DoD will then have the choice of assisting

the failing firm through higher prices, subsidies, or

the purchase of facilities (making them GOCOs);

s Interview with Marlin Libicki, National Defense University; ~nd Benjamin Zycher, Kemeth A. Solomow and L oren Yager, ‘‘An ‘Adequate

Insurance’ Approach to Critical Dependencies of the Department of Defense, ’ R-388@ DARPA, The Rand Corp., 1991, p. 23.
Chapter 4-Efficient, Responsive, Mobilizable Production ● 83

stimulating other sources (foreign or domestic) of

production; redesigning the relevant weapon to

bypass the missing component; or establishing a

public production capability (i.e., a GOGO).

Representative Industries

The current defense production base is a heterogeneous collection of industrial sectors, which will be

affected by procurement reductions in different

ways. The following are examples of important

industrial sectors.

Defense Electronics

Defense electronics appears to be the industry

segment best positioned for the restructuring of the

defense industrial base that lies ahead. Defense

electronics firms are generally subcontractors on

major system projects, although in some areas, such

as command, control, and communications, the

electronics firms assume the role of prime contractor. The larger firms tend to have several defense

contracts under way at any onetime. Although many

electronics suppliers participate in the larger commercial electronics sector, strict military specifications and accounting procedures compel most firms

to segregate civil from military production. The

rapidly growing commercial electronics industry

may provide companies fertile ground for horizontal

expansion. 9 However, prospective commercial partners might shy away from long-term relationships

with defense electronics firms for fear of being

abandoned at the first upturn in defense procurement.

Defense electronic fins, while bracing themselves for cutbacks, see future opportunities as well.

Even without the acquisition of major weapon

systems—the bread and butter for the large prime

contractors---electronic firms see upgrades of their

products as inevitable because of the fast-paced

development cycles in the world electronics market.

Moreover, they foresee a continuing opportunity to

supply electronic upgrades to foreign countries that

have purchased American weapon systems in the

past. In fact, new weapon system production will

continue, albeit at a greatly reduced rate. When

combined with upgrade and other programs, this

production will eventually halt the downward trend

and may even provide for moderate growth of

—-

Photo credit: Lockheed Electronics Co.

kckheed technician tests microelectronic components

to ensure they meet military quality standards.

defense spending in this sector. (See figure 4-2.)

Spares and repairs are seen as less viable options for

future business because of increased product reliability.

Satellites

The satellite industry is closely related to, and

often intertwined with, defense electronics, especially at subtier levels. There are only a few major

prime contractors. Like defense electronics fins,

these firms tend to work on several projects at once,

making them less dependent on a particular project.

The main difference between the sectors is that

satellites are generally built in small, high-value lots

of one or a few at a time. This might make the prime

contractors vulnerable should funding for satellites

diminish. The satellite sector is hoping for increased

commercial business and NASA construction as

well as continued work on Strategic Defense Initiative projects such as the “Brilliant Pebbles’ anti9 For example, while the DoD demand for semiconductors is likely to grow at 2 to 3 percent annually, the commercial market is expected to expand

at a rate of 13 to 15 pereent. (Debra Polsky, ‘‘Chip Producers ‘Ibrn Attention From Military to Boost Revenues, ’ Defense News, June 10, 1991, p. 55.)
84 . Building Future Security

Figure 4-2—Projected Defense Electronics

Procurement Budget Through 2001

1992 dollars in billions

801

60 I

40“

30

20-

SOURCE: Electronic Industries Association, 1991.

missile system or on the development of less capable

but more numerous military satellites dubbed ‘‘light

sats’ or ‘cheap sats. ’ But there is growing concern

over foreign competition.

Fixed-Wing Aircraft

The military aircraft industry anticipates program

cancellations, delays, and stretch-outs. Too many

companies are chasing too few contracts. Industry

analysts believe that the military cannot support the

current number of aircraft prime contractors and that

consolidation will be unavoidable. A Rand Corp.

official, for example, predicted that the number of

military aircraft divisions of major U.S. airframe

manufacturers will shrink from 10 to 5 or fewer in

the next 3 to 5 years through mergers, changes in

organizational status, or leaving the business.10

Companies are laying off or not replacing employees, closing or selling off excess facilities, and

entering into teaming arrangements with their competitors to share both the risks and rewards of new

contracts. Global competition in the military and

commercial aviation business is intensifying with

many foreign competitors buoyed by government

subsidies, and foreign sales are increasingly subject

to offset agreements that transfer technology to

future competitors. The Air Force’s F-22 Superstar

interceptor and the Navy’s AX attack plane appear

—. —

. .

.

Photo credit: The DoD

Trmps prepare to board a UH 60 Blackhawk during

Operation Deserl Shield.

on track for development and production. Continued

production of some current models is also scheduled.

Helicopters

The U.S. military helicopter industry includes

four major prime contractors all of them divisions

of major corporations. Military sales dominate U.S.

production (more than 85 percent between fiscal

years 1987 and 1990), but sales in the commercial

sector are significant. In addition to extensive

defense procurement cutbacks, the U.S. helicopter

industry faces the possibility that the Army will

transfer 3,000 aging helicopters into the commercial

sector during the next decade.11 Such surplus

helicopters may further depress the demand for new

commercial helicopters.

12 On the other hand, they

may increase the demand for spare parts, upgrades,

and overhauls.

In the 1960s, U.S. Firms dominated world helicopter sales, only to be challanged in the 1980s by

the emergence of aggressive foreign competitors,

most of which are partially government owned or

subsidized. Government support may give foreign

companies an advantage over U.S. firms weakened

by the reduction of military contracts, which have

traditionally driven U.S. helicopter innovation. The

10 J3~ce D. Smi@ “~e Building Capability Loss Looms for Full-Semice Defense Contractors, ’ Aviation Wec k and Space Technology, vol.

136, No. 11, Mar. 16, 1992, p. 41.

11 ~owd M. Hor~er, tes~ony before tie Hou~ bed Semices Committee panel on tie s~cture of tie U.S. Dt fense Industrial Base, NOV. 1,

1991.

Z ~ey my ~so ~del-mine foreign military StdeS if r.hey me Pas~ o

n ‘0 ‘fies.
Chapter 4-Efficient, Responsive, Mobilizable Production ● 85

Figure 4-3-impact of Comanche Procurement on

Military Helicopter Funding and Production

Fiscal year

 Budget with Comanche Budget without Comanche

Number of helicopters Number of helicopters

with Comanche without Comanche

NOTE: Figure does not include V-22 Osprey.

SOURCE: DoD FY 1992-97 Program Objective Memorandum.

future commercial helicopter market will likely be

dominated by a competition to capture market share

in other countries.

Projections of military helicopter production vary

substantially depending on the systems built. For

example, figure 4-3 illustrates the effect a decision

to purchase the RAH-66 Comanche helicopter

would have on procurement levels.13 Because of the

general wear and tear on helicopters, the need for

repairs, upgrades, and spare parts should keep a core

of subtier firms in business.

Armored Combat Vehicles

The Army is currently reviewing its plans for

manufacturing armored combat vehicles. The diminished threat of large-scale conventional hostilities in Europe, the signing of the Conventional

Armed Forces in Europe Treaty, the impressive

performance of current armored vehicles in the

Persian Gulf War, and projected budget reductions

have left the Army with a large supply of advanced

armored vehicles and an overcapacity for production. The Army had planned to phase out production

of current combat vehicles and begin the development of a new family of six armored vehicles under

the Armored Systems Modernization program. It

now appears, however, that this family will be

restructured around three vehicles, with the other

three deferred indefinitely.

Reductions in Army procurement will have a

substantial but varying impact on companies involved in producing armored vehicles. The two main

armored vehicle systems, the Abrams tank and the

Bradley fighting vehicle, have respectively over

1,000 and 200 subcontractors and suppliers, with

relatively little overlap between the programs at the

higher tiers. (See table 4-1.) The prime contractors

for these systems-General Dynamics Land Systems for the Abram and FMC for the Bradley—

argue that unit costs may become unaffordable

unless specific levels of production are maintained.14 The DoD has stated that procurement of

these systems will cease, leaving export sales, spare

parts, and R&D on follow-on systems as the main

tasks for the armored vehicle sector in the 1990s.

Mothballing some facilities is seen as more cost

effective than continued production.15 While the

current primes have considerable expertise in devel13 me Resident’s fisc~ yew 1993 budget r~uest for the DoD emphasizes continued Comanche development and prototypfig Over Prtiuction.

Upgraded Apache and other helicopters and unmanned aerial vehicles are intended to fulfill the Comanche’s role in the near term. See U.S. Congress,

House Armed Services Committee, “Statement of the Secretary of Defense Dick Cheney in Comection with the FY 1993 Budget for the Department

of Defense,” Feb. 6, 1992.

14 me ml~u ecomrnic production rate for a particular plant is dete rmined by a number of physical and orga.ni=tional factors, as well by the

measures taken at the plant to reduce overcapacity. Both General Dynamics Land Systems Division and FMC have taken significant steps in recent years

to reduce their overcapacity and establish lower economical production rates. Government actions, discussed later, can further lower these rates.

15 Department of Defense, Report to Congress on the Defense [ndus(ria/ Base, November 1991, p. ES-5.
86 ● Building Future Security

Table 4-l-Sample Products of the Armored Vehicle Production Tiers

Subcontractors

Prime Contractors Subsystems Components Suppliers

Abrams tank Electro-optical systems Optical lens and mirrors Hardware

Bradley fighting vehicle Gas turbine engine Gun mounts Aluminum

Transmission Cannon Steel date

Radio Roadwheels Machine tools

Navigation unit Aluminum castings Deple ed uranium

Turret ring casting

Thermal imager & laser

range finder

Displays

a There are over 100 suppliers for the thermal imager and laser range finder in the Abrams tank alone.

SOURCE: Office of Technology Assessment, 1992.

oping and constructing armored vehicles, they could

be replaced should the need arise, although at

potentially high startup costs.

Similarly, reduced production will affect some

subcontractors and suppliers more adversely than

others. For example, the electronics and optics

manufacturers for the Abrams tank and Bradley

fighting vehicle support a number of other weapon

systems and should be able to maintain at least some

of their capabilities if these other programs are not

cut excessively. But other subcontractors and suppliers might be forced out of business should the

production of the Abrams and the Bradley be

reduced too far. The failure of these firms would

have serious consequences for the production of

weapon systems. Like the prime contractors, however, many of these subcontractors and suppliers

could be replaced by others in related lines of work,

especially if the government is willing to buy from

foreign manufacturers. 16 In the case of truly unique

manufacturers, the government will need to take

some action, such as subsidies, stockpiling, transfer

of technology and government-owned equipment, or

redesign 17 As the production base Shrinks, policy -

makers will face this issue again and again, in sector

after sector.

Shipbuilding

The national shipbuilding industry is currently in

a severe-some say terminal-slump. The bottom

fell out of the commercial shipbuilding market in the

1980s. At the beginning of the decade, 69 commercial ships were either on order or under construction.

By 1988 this number had fallen to zero. The order

book remained blank until a single new ship was

ordered in 1990.18 If it were not for the U.S. Navy’s

pursuit of a 600-ship Navy, the U.S. shipbuilding

industry might have completely collapsed from the

lack of commercial work. (See figure 4-4.) Now,

some analysts are projecting a reduction in naval

forces to 400 ships or fewer, which will result in a

further consolidation of the industry.

In shipbuilding, as in many other areas of defense

contracting, there are significant differences in the

structure and focus of an organization responding to

the defense market as opposed to the commercial

marketplace. Not only are the ‘e obvious differences

in naval and commercial hips related to the

installation of complex modern weapons, but the

hull structure and machinery of warships are built to

much more demanding specifications to provide

resilience against blast damage, flooding, fire, and

other hazards of combat. These differences demand

a larger and more technologically advanced

workforce at yards doing naval work.

lb For example, the ~urninum roadwheels on the Abrams tanks are ftished by Urdan Industries in Israel.

17 me ~sident is authol-ized by p.L. 85-804 to grant extraordinary contractual relief to failing fm judged ‘Wf31Niii to the MtiOIEd defense. ’ mS

law was recently applied in the case of the Action Manufacturing Co. The slowing defense economy of the late 1980s :nd increased competition due

to new laws requiring increased competition (CICA, to be discussed below) eventually forced this company to cease o]lerations in 1989. This loss to

the production base threatened to shut down or interrupt manufacturing at five Army ammunition plants and arsenals, m d two contractors. Action was

awarded relief on the grounds that the company was essential to the national defense because of its impact on mobilization { ther producers, and readiness.

(U.S. Congress, General Accounting OffIce, ‘‘Army Contract Adjustment Board: Decision to Grant Contract Relief to Actif m Manufacturing Company,’

GAO/NSIAD-91-230, July 1991, pp. 1-2 and 8-11.)

IS U.S. Navy, Naval Sea Systems comma nd, Corporate Operations Directorate, “U.S. Shipbuilding Industrial Base, 19!30-1990,” briefing book, July

1990.
Chapter Efficient, Responsible, Mobilizable Production . 8 7

Figure 4-4-Navy and Commercial Ships Under Construction, 1980-90

Number of ships

200-

150

1 0 0

50

0

1980 81

—153—

138

82 83 84

_ Carriers and ~. ~

85 86 87 88

Calendar year

Surface ~] Auxiliary and =

combatant amphibious

Coast Commercia l

Guard

———— 117

I I

8 9 9 0

SurveiIlance

SOURCE: Naval Sea Systems Command, July 1990

Table 4-2—Endangered Navy Shipbuilding Support Industries

Domestic manufacturers

Products 1980 1985 1990 2000

Boilers. . . . . . . . . . . . . . . . . . . . . . . . . 3

Air circuit breakers . . . . . . . . . . . . . . 1

Condensers . . . . . . . . . . . . . . . . . . . . 8

Large diesel engines . . . . . . . . . . . . . 3

Periscopes . . . . . . . . . . . . . . . . . . . . . 2

Propellers . . . . . . . . . . . . . . . . . . . . . . 9

Reduction gears . . . . . . . . . . . . . . . . 9

Large shafting . . . . . . . . . . . . . . . . . . 6

Steam turbines. . . . . . . . . . . . . . . . . . 3

Power distribution switchboards . . . 11

3

1

8

2

2

9

9

5

3

10

2

1

6

1

2

7

9

4

3

9

1

1

4

0

2

5

2

3

2

6

Shipyard

SOURCE: Naval Sea Systems Command, July 1990.

subcontractors and suppliers, which can involved in nuclear ship propulsion. The Bush

number in the thousands for a complex naval vessel,

also face a difficult future. The number of primary

subcontractors is expected to fall by the year 2000 to

less than 75 percent of 1990 levels.19 Moreover,

many critical subtier vendors are dependent on a

single class of vessel for their continued existence.

Table 4-2 lists some of the more threatened capabilities, most of which are older technologies. Analysts

are also concerned about the future of companies

Administration’s revised 5-year shipbuilding plan

for fiscal years 1993 to 1997 includes only one

nuclear-powered ship, an aircraft carrier, and no

nuclear-powered submarines. The supporting nuclear propulsion companies have no civilian market

to fall back on in a period of decreased shipbuilding.

Nuclear-qualified shipyards may find some work in

overhauls and decommissioning nuclear-powered

vessels being taken out of the active fleet.

19 Ibid
88 ● Building Future Security

,

Photo credit: The DoD

The Aegis guided-missile cruiser Antietam (left) prepares

to be launched from the Ingalls shipyard, while work

continues on the L@e Gu/f (right).

As with the other sectors discussed, the government can adopt measures to maintain domestic

capabilities or, in some cases, fill gaps in production

through foreign sourcing. For example, the U.S.

Navy already depends on foreign purchases of large

diesel power plants, periscope lens glass, and large

seamless pipe. 20 Subcontractors and suppliers in

advanced technology will, however, have substantial markets abroad.

Some analysts project a resurgence of the international shipbuilding market in the second half of the

1990s because of the growing obsolescence of the

world merchant fleet. For the United States to take

advantage of this trend, commercial yards will have

to survive until the upturn begins and then build

ships that are cost-competitive both in unit price and

financing arrangements. Competition will be tough,

particularly in the construction of technologically

unsophisticated ships (e.g., single-hull tankers).

U.S. shipbuilders might be advised to concentrate on

those ship types that require more expertise (e.g.,

double-hull tankers, refrigerator ships, liquidchemical container ships, and self-unloaders). They

could also profit from increased foreign sales or

subcontract work on naval wessels. If any of this is

to occur, however, industry armlysts argue that some

governmental action will be required to break down

foreign shipbuilding subside!:, primarily in Western

Europe, and to promote foreign military sales.21

Conventional Munitions

The conventiontil munitions sector differs from

the other industrial sectors cited above in that it

produces in large quantities, often in the millions per

year. In 1985 the U.S. ammunition budget was about

$5 billion; in 1991 it had fallen to $2.3 billion with

further reduction expected.22 As in other sectors,

there is considerable overcapacity in munitions

production, including some mothballed plants. The

military requirement for munitions is the sum of

peacetime replacement needs (from training and

testing) and war reserve requirements. This requirement has generally not been fully funded in the past

and, with ever tighter procurement budgets, is

unlikely to be fully funded in the future.23 Moreover,

surge efforts in preparation for the Persian Gulf War

filled inventories with ammunition that went largely

unused. Angelo Catani, President of Olin Ordnance,

described this situation as ‘‘ac{;eleratirtg our way out

of the business. ”24 The Persian Gulf War also

validated ‘‘smart munitions’ at the expense of

traditional “dumb munitions. ‘ These smart munitions are produced in smaller quantities and have

higher unit costs, with most of the cost going for

guidance systems and not explosives.

Olin Ordnance, as one of the three domestic

manufacturers of medium- and large-caliber ammunition, plans to survive the changes in defense

production by restructuring and downsizing, and

exploring new markets, such as ordnance disposal

and environmental cleanup.25 However, the opporm Ibid.

z] shipbuilders co~cil of Arneric~ ‘‘Update on World Shipbuilding Subsidies,’ S~Cial ~POfi, March 1991.

22 ‘ ‘From the Boardroom: Angelo A. Catani, President, Olin Ordnance, ’ Armed Forces Journal International, Octo xx 1991, p. 73.

n Kemeth Girardini, “The Army’s Conventional Munitions Acquisition Process,” Rand Note N-2864-P&L, The Rimd Corp., July 1989, p. v.

U “One on One, ” an interview of Angelo Catani, Defense News, July 1, 1991, p. 23.

X “From@ cBOar&oom,’ op. ck, fOOtnOte22, p. 74. As thisreportwent topublicatio~ Alfiant Techsystems, another domestic ammfitionl)roducti,

had tentatively agreed to purchase the defense operations of Olin Corp.
Chapter 4-Efficient, Responsive, Mobilizable Production ● 89

Photo credit: DoD

The three man crew of the Multiple Launch Rocket System

can fire 12 rockets over 30 km. in less than a minute.

tunities for saving the production facilities themselves are severely limited by the specialized nature

of the manufacturing equipment and the lack of

commercial markets for large ammunition.

When Preserving the Current Base

Is Not Critical

Maintaining all parts of the current production base for a given weapon system might not

always be necessary, particularly if the Administration and Congress adopt a long-term, missionoriented approach to defense procurement. In

many areas, reduced U.S. forces can be equipped

from the current stockpile of weaponry for years.

The technological edge of these systems could be

assured through periodic upgrades, as described in

chapters 3 and 5.

Meanwhile, design, development, manufacturing,

and maintenance engineers could build and test

experimental weapon prototypes that emphasize

affordability, producibility, usability, and maintainability, in addition to performance (see ch. 3 for a

discussion of prototyping). These prototypes maybe

direct descendants of current systems (e.g., a prototype follow-on to the Abrams tank) or they may

achieve the mission of the current system in a new

Photo credit: TRH, London

The soldier of the future will live in an world vastly different

from our own.

way (e.g., the Multiple Launch Rocket System v.

traditional artillery).

When a prototype has been sufficiently tested and

a requirement appears, the new weapon system

could enter production and replace aging equipment.

Since the new system could be truly revolutionary in design, its production base might be

substantially different from the current base.26

(For example, the ability to cast large steel turret

rings would not be needed to manufacture a ceramic,

turretless tank.) New systems could be designed

with common components, thereby simplifying and

concentrating the production base and making lower

production rates economical. Many firms working

on current systems will recognize these shifts in

~ In the Pwt, few new weawn systems have been so revolutionary that the old production base was bypassed entirely. fioducti hve tended to be

more evolutionary as producers of old components have moved on to new components. This will probably be true in the future as well, although a series

of prototypes may advance to the point where their basic hardware differs from the last produced model. Moreover, the new system may have little in

common physically with systems preeeding it (e.g., atomic weapoms and guided missiles),
90 ● Building Future Security

Box 4-A Competing Goals of Defense Production

Efficiency is not the only grounds on which to judge the defense production base. Other public interest goals

have been important factors in the structure of the current production base. These goals include:

. Maintaining employment levels and geographic distribution.

. Providing workers with education and skills.

. Fiscal accountability and safeguarding the taxpayers’ money.

● Supporting small and disadvantaged businesses.

. Stimulating the national economy.

. Competition to ensure fairness and access.

. Buying American products to protect American jobs.

In a period of much reduced defense spending, policymakers might choose to adopt efficiency as the prime

goal for the future defense production base to ensure that limited defense funding provides the maximum defense

capability. Political realities, however, make it unlikely that the influence of public interest goals on defense

procurement will disappear completely. As defense resources become increasingly stretched, policymakers may

choose to elevate the relative importance of efficiency in restructuring the base. At a minimum, it might be necessary

to make efficiency paramount in critical sectors where the future production base is especially threatenexi. Congress

might review DoD efforts to identify vulnerable portions of the base where alternative sources are not readily

available or are politically unacceptable (e.g., sole foreign suppliers) and request further studies if these efforts are

found deficient. Then, Congress might exempt critical firms or the defense industry as a whole from public interest

laws and regulations.

This report leaves the judgment of the appropriateness of various public interest goals to policymakers and

focuses solely on options for producing “the most bang for the buck. ”

SOURCE: OffIce of Technology Assessmen4 1992.

production opportunities and redirect themselves of sometimes in conflict with other interests that have

their own accord.

EFFICIENT PRODUCTION

An efficient peacetime production base is defined

as one that manufactures materiel that is affordable,

manufacturable, usable, maintainable, and of good

quality. (Two other desirable characteristics of the

future production base——responsiveness and mobilizability in crisis or war-are addressed in subsequent sections). Congress, the Administration, and

private industry can adopt several measures—

separately or in combination-to create an efficient

production base for the 21st century. The measures

include: streamlining production and consolidating

industries; operating at lower production rates;

shifting away from the manufacture of end items

toward prototypes, upgrades, spare parts, and maintenance; reducing barriers to civil-military integration; cooperating with allies; stimulating innovation; and increasing procurement and equipment

commonality. The goal of efficient production is

shaped the production base in important ways in the

past. This conflict is discussed in box 4-A.

Streamline and Consolidate Industry

Streamlining g and consolidating the current base

are essential for efficient production. Defense manufacturers across the board are streamlining their

operations. They are trying to sell off excess

facilities, laying off or retiring workers, and diversifying into other businesses. Some companies have

abandoned defense work; resulting in a consolidation of their industrial sector.27

Attrition will eventually reduce the size of the

production base to a level (consistent with decreased defense spending, but a lack of long-term

planning will leave the base weaker and potentially crippled in key sectors f important manufacturers fail. The DoD did not regard this as a

major concern until recently. In a report to Congress

last November, the DoD wrote: “In a broad context,

~ The ~dus~, Technolo~, and Empbyment Program at OTA is engaged in a companion study on how to smooth the transition of businesses and

personnel into the private sector. Their first report is U.S. Congress, OffIce of Technology Assessment Ajler the Cold War b“ving With Lower D#ense

Spending, OTA- ITE-524 (Washington DC: U.S. Government Printing OffIce, February 1992).

~ 1‘Repofi to Congress on the Defense Industrial Base, ’ op. cit., fOOtnOte 15, p. ES-7
Chapter Efficient, Responsive, Mobilizable Production ● 91

free market forces will guide the industrial base of

tomorrow. ’28 The DoD argued that active government intervention in the defense market would only

be required in areas where technological or manufacturing capabilities critical for national security

were threatened. The guiding principle at the DoD

had been that the government is not ‘‘wise enough’

to pick winners and losers and that, for the most part,

market forces should make these determinations.29

In recent months, however, DoD officials have

begun to discuss more active options for preserving

portions of the DTIB, including a prototyping

strategy of sorts. 30 However, outside analysts rogue

that the coming budget reductions will be larger than

the Bush administration is planning for and that

unless decisive action is taken to protect the future

base, it will be severely undermined.

Internal Streamlining

The government can influence the internal streamlining of individual firms in several ways. It can

stabilize the business environment by making more

reliable force projections and by predictable multiyear program funding. It can reduce administrative

barriers that block the integration of commercial and

military production. And it can support the transfer

of relevant manufacturing technology. (Each of

these actions is discussed below.) Most internal

streamlining, however, must be company-initiated

to enable firms to compete for fewer and smaller

defense contracts.

Consolidation of Industrial Sectors

The government can have a more direct impact on

the degree of consolidation of defense industrial

sectors. In industries where future procurement will

be much smaller than present production levels, the

government might decide to pursue policies that

ensure only that the best manufacturers survive,

even if this means that others do not. For example,

the fighter aircraft industry now consists of seven

prime contractors. 31 Reductions in the number of

U.S. Air Force and Navy fighter wings in the future

will probably force one or more of these companies

to leave this business.

Defense firms are unlikely to leave the defense

business readily (as box 4-B suggests). Government

action might either prop up these companies (e.g., by

distributing contracts to maintain their survival or by

waiving competition requirements)-perhaps weakening all of them-or help encourage consolidation

among the firms to a number more commensurate

with demand.32 Facilitating mergers among sector

participants would foster consolidation and avoid

the loss of unique capabilities and talents.33

Changing Competition Rules

Government rules and regulations could also be

changed to emphasize maintaining the health of

innovative manufacturers in critical sectors.34 (Less

critical sectors might also benefit from these changes,

but the need for them might be outweighed by social

considerations, as was discussed in box 4-A).

Redesigning Defense reported that industrialists

pointed to the Competition in Contracting Act

(CICA) of 1984 (Public Law 98-369) as a major

source of problems in the DTIB.35 In their view, the

focus of CICA on full and open competition based

on low-price bidding instead of quality or past

performance has allowed some unqualfiled and

inexperienced companies to get into the defense

business at the expense of established and reputable

producers. Without the discipline of past performance evaluation, new competitors may submit bids

29 1‘Atwo~: Pure]y ‘Industrial Base’ Contracts on the Horizow’ Aerospace Daily, June 3, 1991, p. 370.

~ ( ‘Statement of tie Semew of Defense Dick Cheney, ’ op. cit., footnote 13.

31 Boeing, Gene~ t@~cs, Grummam Lockheed, McDomell Douglas, Noi_thIup, and Rockwell.

32 me Amy Mmitiom ~d Chemlal Command is using existing regu]a(ions and s~tutes, including tie 1861 Arsenal Act, tO COnSOh&ite ltS

ammunition mobilization base.

33 -rhe geoWaphiM] dis~bution of he ~maining manufacturers is an important factm in consolitition PI arming. Concentrating them in one area

allows workers to flow from one company to another according to production schedules,

34 A DOD AdvisoV panel on s~eml~g and codifying Acquisition Laws, composed of senior government and indusv representatives, hm been

established by Congress to review all acquisition laws and offer recommendations for change where appropriate. This panel is subdivided into 6 working

groups covering socioeconomic, contract formation, contract administration intellectual property, standards of conduct, and other acquisition statutes.

Fiml recommendations are expected in January 1993. (56 FederuZRegisrer 215, pp. 56635 -56637.) This panel will not address how the DoD implements

legislation. For example, single-source contracts are legal under specified conditions, however, procurement officers avoid such exemptions from usual

practice because they raise the possibility of legal challenges by other producers.

35 For a more de~l~ discussion of ~f’A see ‘tBox 4- >~ob]ems wi~ tie competition in Corlwacting Ac~ Redesigning Defense, Op. Cit.,

footnote 1, p. 70.

326–447 – 92 - 4 : Q[, 3
92 ● Building Future Security

Box 4-B—Teaming Arrangements

A few of the larger defense prime contractors have sought to avoid betting their future on all-or-nothing

contracts by joining forces in teaming arrangements where several companies share the risk and rewards of

competing for large contracts. A prominent example of industrial teaming occurred in the Advanced Tactical Fighter

(ATF) competition, where virtually the entire fighter aircraft industry signed up to support one or the other (or both)

ATF prototypes. The two teams together are estimated to have invested between $1.2 and $2 billion in the

competition, with the winning team getting the chance to build perhaps the only new fighter this century. In late

1991, the Navy ran a similar competition for the AX attack plane and awarded concept exploration and definition

contracts to the following teams of prime contractors (shaded) and major subcontractors: -

Major partners of AX Team Proposals

Team A ‘ Grumman ~ Boeing] [ Lockheed

Team B Boeing I Lockheed

Team C

Team D

Team E Lockheed

General Dynamics I

I

General Dynamics ]

Rock wel I ~

McDonneii Douglas Northr;p ]

‘

cDOnn e

” D@’:[L+v =“ 1

+ As t his re por t went to p reas, the ownership of LT V C or p o rat 10 n‘s Aerospace Di v Is io n

waa being deter mined by bankruptcy proceed lnga.

SOURCE: Washhgton Post, 1991; Defense News, 1992; U.S. Navy, 1992.

Teaming arrangements can be good for industry and the DoD if companies with complimentary skills work

together to produce a system that no single company could build alone. Indeed, almost all major weapons are built

by teams. In the AX competition, for example, Grumman, McDonnell Douglas, and LTV have past experience with

the special demands of naval aviation; Lockheed and LTV have expertise in stealth technology; and Boeing is strong

in avionics.l But teams may also be founded less on unique qualifications than on a desire to carve out a piece of

a diminishing market and to share financial risks.2 In such a case, the combined resources of the partners are less

of an advantage and more of a burden: the extended collection of prime and subcontractors seines as a source of

increased bureaucratic overhead, conflict between corporate cultures, and miscommunication (see figure below).

This is particularly true in competitions like the AX where a single firm may compete on more than one team,

requiring internal barriers to the transfer of information. Moreover, there is a possibility that partners competitive

in other programs may withhold their best ideas and personnel from the team. In the end, however, no amount of

tearning to win a piece of what will be a smaller contract pie will support the current-sized base. Government

policymakers, understanding this, should be wary of awarding contracts to teams that do not have complementary

technological strengths.

Interlining Teams

r 

Prime A ~ { Prime B I

SOURCE: office of T~no@y Asseasrnent, 1992.

1 s~ven PW~te@ “smWe B~e~O~~~c to Chase A-X Bid,” The Washington Post, July 21, 1991, P. 111 ~dH12; d Anthony

L. Velocci Jr., “AX COm@don ~ticd to ?vby Team hk!mbtXS,’ ‘ Aviation Week and Space Technology, July 22, 1991, pp. 18-19.

2 ~ tie A~comWti~m each major player had a 5050 c~nceof winning a share of the contract instead of a 1-in-7 chance if the aircraft

primes had gone it alone.

SOURCE: CXllce of Technology Assessment 1992.
Chapter 4---Efficient, Responsive, Mobilizable Production . 93

that they cannot fulfill without more funds later or

transferring the contract to another manufacturer-all at added cost to the DoD.

Low-price bidding often favors companies that

“build-to-print’ (i.e., they produce off someone

else’s drawings), because these companies do not

carry the high overhead cost of maintaining an R&D

capability. 36 Build-to_print companies are an important segment of the current defense production base,

often producing products of highest quality. However, as industrial sectors consolidate, policy makers

will need to decide whether it is better to support

firms that develop new systems rather than

build-to-print companies.

One option for placing defense bidding on

firmer ground lies in further efforts to change the

criterion for contract award from lowest bid to ‘‘best

value , based on the past record of a company in

meeting price, schedule, and quality goals, the

capability to do the job, and, in a few sectors, the

importance of an individual company to the maintenance of the base.37 New competitors could still be

invited to submit bids, but they would need to be

particularly innovative to overcome the handicap of

no past performance record. Another option is the

preelection of qualified bidders. The U.S. Navy

applies a combination of best value and preelection

in certain procurements. Rather than bidding for

each contract as it comes due, firms are interviewed

once and put on a list in order of their assessed ability

to complete a job successfully. If the first company

on the list refuses the contract, the next company is

called in for negotiations. The list is then reused for

similar procurements.

The U.S. Army is currently experimenting with

alternative approaches to contract awards. One

initiative has separated the risky development phase

of procurement from the more predictable production phase. The uncertainties of development, combined with the pressure to submit the lowest bids, led

to repeated cost overruns in the development phase

in all Services during the 1980s. Cost overruns often

hurt both the Services and the contractors, especially

if the latter were working under a fixed-price

arrangement with cost overruns charged against

firms. The Army covered all development costs on

its new light helicopter, the RAH-66 Comanche, and

then looked for production bids that were realistic

and demonstrated an understanding of the program.

According to the Army, fully funding development

reduces the likelihood of costly surprises and delays

in production.38 Although a team comprised of

Boeing and Sikorsky was awarded the contract,

recent budget cutbacks have left the future of the

Comanche in doubt.

Public and Private Arsenals

In some cases, procurement might be so low

that, even after extensive restructuring, there is

only enough work for one manufacturer. The

result would be what is known as a “natural

monopoly. ’39 For easily produced items, a natural

monopoly would still allow competition, since other

companies could bid to take over the contract when

it expired. But for items requiring special machinery

and skills, competition would have to be induced

artifcially and the government would have to absorb

the costs of helping a new contractor develop the

capability to produce these items whenever the

contract changed hands. Moreover, the changeover

might leave gaps in production capability. As the

dominant buyer of defense equipment, the government would retain significant leverage for modifying the behavior and prices of a monopolist vendor.

In Redesigning Defense, OTA suggested that

private or public arsenals might be established in

sectors where natural monopolies exist. Private

arsenals could be either GOCOs or companies that

receive noncompeted contracts. Examples of important defense industrial sectors that might be forced

into arsenal production are armored vehicles and

36 lf ~~ ~llcw~cr~ took a radical app~ach t.rcs~cttingthe DTIB and located all development responsibildies in R&D centers, hen tie

distinction between build-to-print houses and other manufacturers would disappear (see ch. 3). Quality of production, however, would remain as a

legitimate standard for consolidating the production base.

37 me Comerclal s~engrh of a 

company might ~50 & an a~vantagc in abest value Competition. A diversified company might be better able to weather

lulls in defense production than a less diversiticd company and maintain its defense capabilities without DoD support. In any case, best value criteria

would need to be made explicit to limit subjcctivit y and deter legal challenges.

38 Caleb Baker, ‘ ‘Army Calls for Changes in COnba~t ~OCCSs, Defense Newt, vol. 6, No, 11, Mar. 18, 1991, pp. 4,44.

JP A natural monopoly ‘‘is a monopoly that occurs bccausc it is economically impractical to have competition, as when the position of consumers

would not bc improved by having 30 water companies offering their services to every household in a certain city. The extra cost of installing 30 sets

of pipe would more than offset any possible pncc reduction brought about by competition, so in the U.S. most natural monopolies are reguhrred

monopolies. ” In Donald W. Moffat, Economics Dictionary (New York, NY: American Elsevier Publishing Co., 1976), p. 198.
94 ● Building Future Security

ships. Designating one source for armored vehicles

(e.g., tanks, personnel carriers, and self-propelled

artillery) and funding it specifically to maintain its

capabilities might be necessary to preserve manufacturing skills and guarantee a mobilization capability.

In shipbuilding, rather than let the shipyards go out

of business one by one, it might be in the national

interest to select the most modern and efficient

yards, or those with unique capabilities, as shipbuilding arsenals. These arsenals would likely be

privately operated, possibly GOCOS.

Q The Navy is

reportedly planning to streamline shipyards on both

coasts and create administrative hubs that will

reduce overhead at individual shipyards.

Closing or Mothballing Facilities

In instances where the current supply of a

weapon system is sufficient for the foreseeable

future, the government might shut down all

current production facilities—perhaps mothballing them—and accept the substantial costs and

delays of reestablishing production if the need

ever arose

41 The existence of an experienced

workforce to revive a facility would depend on

related work being conducted elsewhere.

Second-Source Contracts

The past emphasis on second-source contracts

must also be reextied in light of a perceived need

to strengthen quality manufacturers. Second sourcing was intended to protect the military from the

unanticipated loss of a manufacturing capability and

to reduce unit costs by injecting competition into the

procurement process. But unless carefully handled,

second sourcing may be unfair to the original

producer, may lower incentives for firms to invest in

R&D, and may not result in lower real costs.42

The original developer of an item carries overhead

costs (e.g., R&D and design teams) that a secondsource producer, particularly a build-to-print firm,

may not have. Moreover, just when the original

producer is lowering its cost through greater manufacturing experience and higher volurnes,43 the

second source must build or maintain facilities, train

personnel, and often repeat the mistakes already

made by the primary source, perhaps resulting

initially in lower quality. If the policy makers) goal

is to forge a stronger future production base, the

government could support fully those companies

that develop new systems, rather than weaken

them by giving second-source work to inexperienced firms or those without R&D capability on

the grounds of furthering competition. If second

sourcing is still deemed important, then the secondsource field could be limited to those producers that

have a development capability. Another option for

the DoD is to fully fund development, making it

profitable in its own right, or tO separate production

from R&D through the establishment of independent design houses. (See ch. 3.)

Technical Data Rights

DoD procurement officers often demand all

technical data as part of a production contract in

order to establish second sources. (See ch. 2.)

Companies report they have to release technical data

rights to win a contract even when providing it is not

legally required. Prime contractors are largely

unaffected by the technica1 data rights issue,

since their major task is systems integration,

which is a difficult capability to transfer. In

contrast, subcontractors see their proprietary

information in products and processes, many of

which have commercial applications, as the primary feature that distinguishes them from their

competition. Build-to-print defense firms can use

this data to undercut R&D-intensive companies in

defense contract competitions based strictly on

40 AI&ou@ tie U.S. Navy in the past constructed its own ships in naval shipyards, it has not done so since the 1960s. hently, tie WWal shipy~ds

specialize in overhaul and repair, while all new construction is done in private yards. Because it would be difficult and exl ensive for the naval shipyards

to relemn how to build ships, any shipyard arsenals would most likely be established at private shipyards currently eng,lged in shipbuilding.

41 For ex~ple, Gener~ Dynamics estimates that if its tank facilities were completely shut dow~ it would take a m inimm of 4 1/4 ye~ after a

reopening decision to produce the fust tank and 5 years to achieve a rate of 60 tanks/month. The components that determ ne this delay, however, could

be identified (i.e., gas turbine engines and depleted uranium armor) and stockpiled to cut down the time to fust-unit production.

42 me extent of direct cost savings gained through second sourcing is very difficult to measure. A Rand Corp. study )f second sourcing noted, “in

some cases (especially in the procurement of major systems) it may be actually less costly for the government to forgo competition and rely on a single

supplier. ’ This is primarily due to the need to facilitize the second source and transfer manufacturing procedures. In orde r to achieve true cost savings,

the planned production quantity must be sufficient to allow both firms to achieve maximat productivity and offset the ,tdditionat costs of the second

source. (See J.L. Birkler, E. Dews, and J,P. Large, ‘‘Issues Associated With Second-Source procurement Decisions, ” IL-3996-RC, ‘1’he -dcoq.,

December 1990, pp. v, ix, and 26.)

43 me cost ofpr~uctionformost items dmreasm over time as experience is acquired and past mistakes are avoided. The se MVingS are found in shorter

production cycle times, fewer manufacturing defects and design changes, and less waste. This decrease in cost can occur I egardless of second sourcing.
Chapter 4--Efficient, Responsive, Mobilizable Production ● 95

lowest price and to gain advantages in commercial

markets.

In the future, innovative firms will have a greater

stake in holding on to technical data rights to help

their commercial work. They may therefore refuse to

bid for defense work if the DoD enforces technical

data rights rules as it does today. Useful alternatives

would be for the DoD to:

1.

2.

3.

4.

5.

put the burden of proof on the government to

demonstrate an explicit need for access to

proprietary data;

limit the requirement for proprietary data to

certain vital components;

keep collected data confidential until needed,

perhaps in escrow, with government access

contingent on specific conditions;

let businesses withhold this information for a

period of time (similar to a patent) that will

allow them to develop more advanced capabilities (a relatively short period in the electronics

field) 44 o r

compensate firms financially or with advantages in procurement for the full value of their

proprietary data,

Strategic Partnerships

In the future, fostering a quality, integrated

subcontractor and supplier base will be at least as

important as supporting the best prime contractors.

Yet consolidation among subtier firms is inhibited

by many constraints. Although the primes are not

always legally bound to compete their subcontracts,

many do compete subcontractor awards in the belief

that otherwise they will lose the contract. The primes

argue that competing subcontracts is often expensive and sometimes results in poor quality work by

the low bidders, causing the primes to be blamed for

schedule delays and cost overruns.

Spokesman for the primes argue that the subcontractor and supplier tiers should be rationalized

through strategic partnerships. This is currently

occurring in the civil sector, where commercial

enterprises are shedding their past practice of

competing for lowest-priced components in favor of

long-term relationships with subcontractors and

suppliers of proven quality and dependability. Spokesmen for commercial industry argue that these

partnerships result in lowest real cost (e.g., they

avoid costly mistakes, redesigns, and the cost of

reworking defective incoming parts). The Federal

Government could ensure fair pricing through competitive bidding at the prime level and periodic

audits .45

Reduce Production Rates

Policy makers should plan for future defense

production that will be much lower than present

levels. Funding cuts and equipment surpluses generated by force reductions will continue to lower

production. This is not to suggest that all production

will cease. Even with the largest cuts now forecast, the military will continue to purchase tens of

billions of dollars worth of equipment annually.

Future forces will still need to be outfitted; aging

stocks will need to be replaced periodically.

One way of maintaining manufacturing capability

in the future DTIB would be to set low production

rates in lieu of traditional rapid rates.46 The decline

of a major Soviet-size conventional threat has made

it less important to produce systems rapidly .47

Low-rate production would allow the DoD, with a

lower procurement budget, to maintain core manufacturing personnel, equipment, and facilities. These

would serve as the base for fulfilling surge, mobilization, or increased peacetime requirements. (See

box 4-C.)

Whether or not low-rate production increases unit

costs depends to some degree on when and how the

production decision is made. If a decision is made

during the design phase of a product, then the design

can be optimized for existing low-rate manufacturing equipment and processes. Manufacturing facili44 In fac[, businesses often delay handing over technical data until they have developed a more advanced capability.

M Commercial business~~ that are now organized in strategic partnerships feel they can avoid price g~ugkg by their restricted su~on~actor and

supplier base without the extensive oversight common in defense procurement by negotiating a long-term relationship in exchange for a reasonable price.

46 ~W,-rate Production in his repo~ differs from fie concept of‘‘low.mte initial production’ ‘ (LRP). LRF is often intended as a trial period during

which the manufacturing processes and equipment are validated and tlnal design changes are made before shifting to a higher rate. In this report, low-rate

production remains constant and does not assume higher future rates, Thus, the best manufacturing processes, facilities, and equipment for LRIP may

differ significantly from what is needed for low- rate production, Sec Dqfense Manufacturing Management, op. cit., footnote 4, ch. 11, pp. 12-13.

47 In the Commercia] sector, tie sp~d with which new products can be brought to market is becoming increasingly impofl~t. ~w-mte pr~uction,

designed to maintain a critical production capability over an extended period of time, necessarily contradicts this trend. Joseph T, Vesey,

‘ ‘Speed-tmMarket Distinguishes the New Competitors, ’ Reseurch-Technology Management, vol. 34, No. 6, November- December 1991,
96 ● Building Future Security

Box 4-C—Low-Rate Production is Not Always the Best Option

During the transition to a smaller, more efficient future production base, not all manufacturing skills,

equipment, and facilities will need to be actively protected by the DoD. Many capabilities may t e relatively common

in the defense or broader commercial base. As long as workers and equipment can be assemble din a timely manner

when production is needed, the DoD need not take extraordinary action to preserve a continuous capability in the

defense production base. (Policies addressed in this chapter for fostering efficiency and preserving capabilities,

however, may still be beneficial in these noncritical areas as a means of lowering procurement costs and raising

quality.)

Stretching out production is particularly problematic for the wide variety of defense items that are procured

in small quantities of less than 100 (e.g., special aircraft, ships, and satellites). In such caseS, the indiscriminate

adoption of low-rate production could result in unrealistic work schedules and therefore needlessly expensive costs.

Instead, these products should be procured in economic batches as long as their associated manufacturing

capabilities can survive between orders through related work or because the manufacturing processes involved are

relatively simple. The use of economic production rates applies to subtier firms as well as to prime contractors. For

example, even if it was decided to manufacture attack helicopters at a slow, steady rate to maintain worker

familiarity with the process, many basic subcomponents and hardware could be procured up front to lower costs.

(Of course, savings for bulk purchases would have to be balanced against storage costs and the requirement for

earlier spending.)

SOURCE: Offkx of Technology Assessmen4 1992.

ties and staffs can be sized appropriately, thus The key to the success of low-rate production is to

minimizing unit costs.48 But transformin g an active

high-rate production facility to a lower rate will in

general be difficult, less efficient, and expensive,

and will require an arduous transition period when

excess capacity and workers are reduced.

Predictable funding through multiyear procurements would enhance low-rate production, Such

funding would facilitate long-range planning and

lessen firms’ fears of failure; thus it would permit

more aggressive restructuring. This should in turn

result in lower unit costs than would occur otherwise.49 The disadvantage of multiyear procurement

is that it reduces government budget flexibility,

front-loads costs, carries significant penalties to the

government for contract cancellation, and may make

it more difficult to institute late design changes.50

Adoption of multiyear procurement would require a

consistency of defense planning and funding that is

not evident today.

establish an acceptable minimum production rate.

This rate will allow the prime contractor to remain

profitable and obtain all necessary subcomponents

and supplies. The rate will depend on the size of

operations, the flexibility of the factory, and the

nature of other products produced. Rates will also be

affected by the adoption of measures discussed later

in this chapter.

Detailed information will not only be needed

about the lowest sustainable production rate of the

prime, but that of suppliers and subcontractors as

well. In some cases, the lowest rate may be

determined by the need to keep production lines

open for a critical subassembly. Alternatively, rather

than produce more of the final integrated system, the

government might find it cheaper to subsidize the

manufacturer of this subassembly, find another

company willing to produce it or a redesigned

replacement at lower rates, move production into a

4S The cwi~ ~va~ent in facfities and equipxnerlt for a new product can be a substantial proportion of the total program cost. A company that afyeed

to low-rate production for a new product might limit itself to one production line, because that is all it needs to manufac ure the item. Moreover, the

company might choose to rely on flexible and existing equipment, rather than investing in specialized equ.ipmen~ to ‘ower costs and leave open

opportunities for altering production processes over the duration of the extended production run. Under traditional procureme n4 the same company would

more likely run several production lines using specialized equipment in order to receive the quickest return on its investme ~t. Cutbacks in procurement

to this company after it had made this investment would result in higher unit costs,

@ ConvmWIy unpr~lc~ble fund~ and production rates will raise unit costs, kuse Of an kefflCient uSe Of ~nt.d ~ct~ r~OmeS.

,

m K~en W. Tyson et al., ‘ ‘Acquiring Major Systems: Costs and Schedule Trends and Acquisition Initiative Effective ness, ’ IDA Paper P- 2201,

Institute for Defense Analyses, March 1989, ch. 6, pp. 1-11.
Chapter 4--Efficient, Responsive, Mobilizable Production ● 97

Table 4-3 lmpact of Low-Rate Production on t he Abrams Tank’s Subcontractor Base

Number of tanks produced per month

Component subcontractor 10 30

Electronics/Optics

Sterling Heights, GDLS

Cadillac Gage, Ml

Cadillac Gage, OH

Texas Instruments

Smith Industries

Kollmorgan

Precision Sensors

GE

J-Tech Associates

Hughes Aircraft

Computing Devices

Kearrfott

Some problems

Some problems

Significant risk

Some problems

Some problems

Some problems

Some problems

NA

Some problems

Some problems

NA

NA

Acceptable risk

Acceptable risk

Some problems

Acceptable risk

Acceptable risk

Acceptable risk

Acceptable risk

NA

Acceptable risk

Acceptable risk

NA

NA

Complex machining

Scranton, PA, GDLS Significant risk Some problems

Detroit, Ml, GDLS a a

Lima, OH, GDLS Some problems Some problems

Basic materials

Atchison Casting Some problems Some problems

Lukens Steel Some problems Some problems

Idaho, U.S. DOE b b

Weapons

RIA Some problems Acceptable risk

Watervliet Arsenal Some problems Acceptable risk

Propulsion

Textron Lycoming Some problems Some problems

Allison Some problems Some problems

Stanley NA NA

Urdan NA NA

FMC NA NA

KEY: Companies that are least affected by lower production rates are listed as having “some problems.” Companies

listed as being at “significant risk” will be most negatively affected, with a potential for facillt y shutdown. NA means

not available.

a Ml assembly line closed in 1991.

b .schedu[ed to begin closing in December 1992.

SOURCE: General Dynamics Land Systems (GDLS) Division, 1991.

government-owned arsenal, or stockpile all that will

ever be needed in a one-time ‘‘life-of-type’ buy.

A company might implement its low-rate production in different ways: spread even] y throughout the year, in odd-sized batches as orders come

in, or all at once in a short period to allow a shift

to other products for the remainder of the year.

The sole mandatory requirement would be that

critical capabilities and skills are maintained

from one year to the next. OTA asked General

Dynamics Land Systems to estimate the impact of

low-rate production on the Abrams tank contractor

base. The results are shown in table 4-3.

Firms that emphasize flexibility in manufacturing

organization, processes, and equipment will be well

positioned for a transition to low-rate production, as

well as to the production of new products. (See box

4-D.) Flexible manufacturing systems enable

businesses to build several different products

simultaneously on the same line (or at the same

stall) and to shift from one project to another with

a minimum of expense and effort. In the extreme,

each item on a flexible line might be unique. While

flexible manufacturing can be capital intensive,

requiring new flexible machines, this is not true for

all products. For example, the most flexible and

cost-effective manufacturing method for one-of-akind satellites might be to build them by hand.51

51 Sandwich shops ,Uc often USC(I as an CX.mpIC of a complc(cly flexible assembly line with no automation at d+ustomers have a wide YiUiety of

sandwiches and ingredients to choose from.
98 ● Building Future Security

Box 4-D—Restructuring for the Future: BMY-Combat Systems

One company that has already successfully navigated the transition to low-rate production is BMY-Combat

Systems. In an interview in Armed Forces Journal International, the president of BMY revealed that the company

reduced the production rate of the M-88 tank recovery vehicle from 20 per month to 3 to 4 per month and remained

profitable. This rate reduction was one aspect of a company-wide strategic restructuring.l The success of this effort

depended on a total restructuring of the production process so that six fairly similar products that use many common

parts and processes could be produced on the same line. It also required the infusion of $80 million for plant

modernization from BMY’s parent corporation, Harsco; the replacement of most government tooling with the

company’s own, more flexible tooling;2 a consolidation and rationalization of facilities; a 50 percent reduction in

workforce; and a relative increase in foreign sales of its products from about 40 percent in 1986 to about 65 percent

in 1991. The company can take small orders (5 to 6 vehicles) and integrate them with orders for other vehicles to

maintain the production line. With the restructuring almost complete and a couple of years’ orders on its books,

BMY-Combat Systems’ employment is now rising again. The firm’s main concern about future production is how

to ensure continued supply of key parts from subcontractors and suppliers. Commonality of products has allowed

BMY to award multiyear contracts to its subtiervendors, but some of them are on the verge of going out of business.

I Joti G. RMs, “FrOrn the BO~droorn: Barret W. Taussig, President BMY-Combat systems,” ArmedForcesJo Arnulhternationui, My

1991, p. 27; and an OTA interview with BMY-Combat Systems offlciala on Nov. 14, 1991.

2 ~~tit is pWC- as part of a government contract remains government property and cm not be used for other

Work-govemm entalorcommercial-without compensation. Companies will often purchase their own tooling and forgo government equipment

to avoid the inflexibility of having tools that can only be used for one purpose without more paperwork and negotiations, This tooling is added

to overhead charges

SOURCE: Gfflce of Technology Assessmen~ 1992.

Shift Business Focus contracts that would have been competed in the past

might be directed to a particular manufacturer, or

A company can lower its minimum viable competition might be limited to quality producers to

production rate for a specific product by expand- help alleviate losses in production. Spare parts and

ing its range of activity to include prototyping, upgrades can be a significant fraction of an indusupgrades, spare parts, and maintenance, and by

manufacturing multiple products. Chapter 3 discussed the implementation of a prototyping-plus

strategy that would provide certain manufacturers

with the opportunity to build technology demonstrators or even an entire operational unit of prototypes

prior to force modernization as a means of both

fostering innovation and supplementing or temporarily replacing limited production.

In addition, a reexamination is in order of the

DoD’s practice of awarding spare-part production

contracts to firms other than the original manufacturer. Although intended to increase the number of

sources of supply and lower costs, this practice also

has the effect of supporting build-to-print shops with

little or no design capabilities, at the expense of the

original manufacturer. In the commercial world,

spare-part sales are often an important source of

income to the original producer. Similarly, upgrade

try's business. For example, the commercial market

for spare parts for large aircraft engines is about half

as large as the market for engines.52

Another important shift in business focus is for

the DoD to transfer some depot-level maintenance

work from the public sector to the private, as

discussed in chapter 5. One reason to do this is to

augment the dwindling world bad of the original

equipment manufacturer. As systems become more

sophisticated, and perhaps modular, they could be

returned to their originating factory for maintenance

rather than duplicating this capability at government

depots and shipyards.

Companies might also adtapt to procurement

shortfalls by diversifying their product lines. In

some industrial sectors, market attrition or government policy might result in a consolidation of

manufacturers such that products previously spread

52 ~att & ~~ey predic~ hat & re~tive size of this market will grow well into the 21st century. projections of the mill~ market for large engine

spare parts are clouded by procurement decisions, but they range from about 35-100 percent of the military engine market “or the same period. Pratt &

Whitney briefii, West Palm Beack FL, Sept. 10, 1991.
Chapter 4- Efficient, Responsive, Mobilizable Production . 99

Figure 4-5--Hypothetical Shift in a Defense Manufacturer’s Activities

I . . - . . . . - -— . — —. ,’ —> . . I l v

I I

Future

I < ~

NOTE: Proportion of activities varies by individual sector and individual firm.

SOURCE: Office of Technology Assessment, 1992.

over several companies (e. g., ships and ammunition)

become the domain of a few companies. A company

might also seek to expand into other government or

commercial activities (described below). Companies that are flexible in their manufacturing processes and that utilize similar equipment and skills

will avoid many of the costs associated with starting

new production.

Figure 4-5 depicts how a company might shift its

business focus. Caution must be used, however, in

any attempt to substitute other activities for production. For some industrial sectors (e.g., defense

electronics) and types of companies (e. g., subcontractors) such activities are reported to be a viable

way to survive lulls in production. Yet, for companies that produce complex integrated systems or

products that require little maintenance, this option

may not be a feasible way of preserving their full

range of critical manufacturing skills (see box 4-E),

facilities, and equipment. Companies whose manufacturing capabilities are critical to the base must be

examined on a case-by-case basis to determine the

viability of this strategy.

Reduce Barriers to Civil-Military Integration

The efficiency of the future defense production

base may also be enhanced by changes in the

relationship between industry and government. Redesigning Defense reported a broad consensus that

government/industry relations have become increasingly adversarial.53 This stems from laws and

regulations adopted in response to public fears of

waste, fraud, and abuse. legislation, regulations,

and the resulting procurement culture have 1ed to

Voluminous contracts, layers of restrictive product

specifications and auditing procedures, and barriers

to communication among industrialists and with

government program officers, and it has impeded

off-the-shelf purchasing .54

Companies expend enormous energy and time on

the paperwork associated with DoD contract bidding

and auditing. These costs are included in overhead

and ultimately added to the price of procured items.

While large firms can ‘‘afford” specialized staffs to

cope with this paperwork, smaller firms face a

disproportionate burden. Paperwork requirements

53 ne pemian @lf war ew~ relations temporarily. Procurements that usuaily take months or years were sped bough in weeks. Sptie pm and

upgrades were rushed to the front in record time. Food, fuel, water, and other commodities were bought in local markets in Saudi Arabia and the United

States until logistics officers could catch up with the rapid buildup. And commercial items were used to bridge gaps in Semice procurement. For example,

the Navy’s Safety and Survivability Non-Development Item Office bought a number of products commercially, such as fire-fighting and detection

equipment, air hammers, and body armor, and delivered them to the fleet within 45 days. (U.S. Department of Defense, Conduct ofrhe Persian Gulf

Conjlict: An Interim Report to Congress, July 1991, ch. 8, pp. 1-4.)

~ ~ese issues will be discussed in more detail in ch, 6, but are presented here m they relate to production specifically.
100 . Building Future Security

Box 4-E—Worker Skills in the Defense Production Base

The streamlining of the defense production base has forced many companies to focus on short-term survival

over long-term health. In addition to eliminating excess capital equipment and facilities, these companies feel

compelled to reduce personnel costs. Reductions have focused largely on the early retirement of older, more

experienced workers and layoffs of young new talent. There has also been a retrenchment in spending on worker

training programs and apprenticeships. Many who have benefited from these services in the past are now moving

into the commercial sector. Moreover, nondefense workers and students, seeing the downward slide of defense

procurement, are looking for careers elsewhere.

In the short term, this situation is tolerable to the DoD, if difficult for some of the workers Involved. The future

production base will not need the number of people currently engaged in defense manufacturing. However,

employee reductions that do not take into account future needs may undermine the long-term health of the base.

Manufacturers need to retain their most qualified personnel, while production base planners need to ensure a

continued supply of manufacturing talent. If the base becomes more commercialized, free mark:et competition may

be sufficient to generate the necessary talent. Government support may be needed to preserve select critical

skills-from shop floor machinists to naval architects. This help could take the form of scholarships or trade school

subsidies to employees or grants or tax breaks to businesses having trouble finding workers trained in needed skills.

Alternatively, textual, audiovisual, and computer methods for storing manufacturing experience could be funded.

Colleges and universities could strengthen the Nation’s future production base by emphasizing manufacturing in

engineering and business school curricula. A better educated workforce will make the future base more flexible.

SOURCE: Office of Technology Assessment 1992.

have also deterred some commercial companies Policy makers need to reasess the tradeoff

from bidding on defense contracts. 55 - between the costs of fraud and abuse and the cost

Further inefficiencies result from the DoD’s

requirement that manufacturers produce items according to military specifications that dictate every

facet of a product, including acceptable manufacturing processes. Many studies argue that these specifi--

cations are out-dated and overly rigid.

Many companies have segregated their defense

and commercial work because of DoD requirements for specialized military manufacturing

processes and the need to avoid burdening their

commercial work with military accounting requirements. This segregation might entail separate

production lines on the same shop floor, separate

production facilities, or even totally distinct operating divisions within a company. Segregation can

of oversight to prevent them. While preventing

abuse is an important task of government, the

cost of current efforts to do both, both direct and

indirect, are large and may outweigh the monetary and moral gains of catching the abusers.

Program officers, auditors, and inspectors engaged

in often uncoordinated and overlapping jobs pervade the defense industry. Congress might commission an in-depth study of the diret and indirect costs

and benefits of military contract oversight. Accountability must be maintained, but policy might be

redirected towards punishing transgressors more

severely and rewarding responsible businesses,

perhaps by making past behavior an important factor

in awarding best-value contracts.

create redundancies in equipment, personnel,

facilities, and management, and create barriers Government action to facilitate a more efficient

to communication between military and civilian integration of civil and defense industry can range

operations. In the extreme, manufacturers in a from mild corrective measures to a radical restrucdefense division may have no direct contact with turing of defense production. some sectors of the

their counterparts in a commercial division. Such defense production base are more amenable to

segregation raises costs and hinders the transfer of integration than others (e.g., defense electronics v.

technology between the commercial and defense shipbuilding), making sweeping decisions more

sectors. difficult.

55 FOr e=ple, ~~s cowo~tion Spnt over $2 million trying to comply with DoD accounting system s~dards before @~g up. Hewlett Packard

only deals with the DoD on a commercial basis. See Jacques S, Gansler, ‘‘Restructuring the Defense Industrial Base,’ Issues in Science and Technology,

Spring 1992, p. 51.
Chapter 4---Efficient, Responsive, Mobilizable Production . 101

Photo credit: The DoD

Soldier stacks provisions in a food tent in Saudi Arabia.

The DoD has not ignored the complaints of

industry and has made repeated efforts to smooth

relations. In recent years, it has adopted a few

programs designed to lessen the intrusiveness of

government oversight. The Qualified Manufacturing Line program for the semiconductor industry,

which began in 1987, is one example. Under this

program, a company can demonstrate that its production lines meet military standards and thus avoid

having to test each chip, as has been traditional. The

electronics industry has created the National Electronic Component Quality Assurance System as a

self-policing measure. Among other activities, this

system conducts an audit of the supplier base that

used to be done by each company individually .56

Neither of these programs is widespread at this time.

Industry has also joined with the defense acquisition, inspectorate, and auditing communities in the

voluntary Contractor Risk Assessment Guide (CRAG)

program to reduce oversight burdens on businesses.

The CRAG outlines five critical auditing areas:

indirect cost submissions, labor charging, material

management accounting systems, estimating systems, and purchasing.

57 If a company demonstrates

effective internal accounting controls in one or more

areas, the Defense Contract Audit Agency (DCAA)

reduces its oversight of that area. While the CRAG

program has been implemented successfully in a few

tens of companies, the incentives for businesses to

participate are mixed. On the positive side, the

CRAG program potentially reduces the DCAA

presence at a company; on the negative side,

companies may find themselves paying for internal

auditing services that the DCAA would otherwise do

for free, while the presence of oversight officials

from other government agencies is not reduced.

The defense production base could also take

greater advantage of products already on the commercial market. Efforts to increase the percentage of

DoD products bought from the private sector have

been under way for almost 20 years.58 DoD Directive 5000.1 requires that the “maximum practicable

use shall be made of commercial and other nondevelopmental items. ’ For example, the Navy is

installing commercial computer systems on combat

ships for many functions that were formally performed by unique, Navy-designed computers.59

Off-the-shelf procurements can be facilitated in a

number of ways, including: 1) elimination of unreasonable specifications that block commercial purchases (e.g., requiring nuclear effects hardening on

56 ,’jee Debra Polsky, ‘ ‘DoD Chip Oversight Plan Gains Favor, ’ D@ense Ne~)s, July 1, 1991, p. 9.

57 Defense con~act Audit Agency, <‘A Report on Activities, ‘‘ DCAAP 7641.81, March 1990, p. 3, and Department of Defense, ‘‘The Contractor Risk

Assessment Guide, ” October 1988.

58 US. congress, U.s. General Accounting Office, ‘‘Defense Acquisition Reform: Implcmcnting Defense Management Review Initiatives, ’

GAO/NSIAD-91-269 (Gaithcrsburg, MD: U.S. General Accounting Office, August 1991), p. 11.

5P Neil Munro, “Navy Wants More Commercial Computers Aboard Ships, ” Defenxe News, Jan. 27, 1992, p, 30.
102 ● Building Future Security

products that are a part of an unhardened system),a

and 2) redesign of systems to use off-the-shelf

components (e.g., instead of making a monitor

rugged, enclose a commercial TV in a shockresistant shell). Buying many copies of a commercial product instead of one militarily unique product

might save money and provide sufficient redundancy to overcome a lack of ruggedness or capability61 Of Course many 

items will still have to be

procured according to military specifications to

ensure that they will perform reliably under demanding field conditions.

The efficiency of the peacetime defense production base may be greater if the relationship

between government and defense manufacturers

moves to a more commercial basis. Manufacturers

would be evaluated on their ability to produce items

on time, at an agreed price, and of agreed quality.

Military specifications would focus more on the

essential characteristics of form, fit, and function,

and less on laying out explicit manufacturing

procedures. For many products, commercial seals of

approval or certification might be sufficient (e.g.,

Underwriters Laboratory or the International Organization for Standardarization). It might be important

for the DoD to continue outlining some critical

procedures (e.g., specialized welding), but these

specifications could be arrived at through negotiations with the manufacturer, who might know of

superior processes. Military specifications should

only be passed on from one project to another if they

are demonstrably relevant.62

Several studies argue that increased reliance on

commercial business practices will give industry

more flexibility in carrying out contractual obligations, will allow integration of commercial and

defense facilities, equipment, and supplies (now

largely segregated), and will reduce overhead spent

on paperwork. These practices will lower unit prices

and decrease the competitive penalties associated

with working for the DoD. The adoption of commercial practices could open competition to a wider

circle of companies, because nondefense firms that

presently avoid defense work would take advantage

of the new environment.

For defense companies with little or no experience with commercial operations, lowering the

barriers to civil-military integration will create

unique challenges. In the defense market, the

government defines the product, determines appropriate pricing and profit margins, and specifies

manufacturing procedures. The challenge to the

company is to convince the government that it can

develop the product more efficiently than its rivals.

In the commercial market, on the other hand, a

producer must rely on its own resources and insight

to define products and must carry the fill cost of

developing them until they can be sold. Moreover, it

must convince customers to purchase the new

product and possibly provide warranties and product

support as a consumer relations strategy more than

a contractual obligation.63

At the extreme, policy makers could undertake

a radical restructuring of the DTIB based on the

wholesale elimination of administrative and legal

barriers to civil integration, combined with the

redesigning of military systems and the acceptance of form, fit, and function specifications.

These policies would effectively merge the DTIB

into the national industrial base. Many defense

items could be close variants If commercial products (e.g., the KC-10 tanker is based on the

DC-lO). 64 Products that are truly militarily unique

would still be built, but could take advantage of

III Some ~omerci~ pr~ucts, notably in tie aero5pa& Sector, are manufactured at or above mili~ spectilcation Stid ~ds. me DoD might be able

to safely buy these items off-the-shelf at a lower cost. Periodic testing or performance reviews would ensure quality contr )1. In other areas, a lowering

of military requirements might make the product sufficiently inexpensive to procure enough copies of an item to { ompensate for the lowered

specifications. Representatives of the shipbuilding industry have suggested that specifkations on sedift vessels be lowered n this way so that more such

vessels can be procured. These vessels would be protected by combatant ships built to military specifications.

61 Dfing the pemian G~ War, tie DoD bought 10,000 commercial light-weigh$ global positioning System reCeiVerS [0 help trOOpS, pardcdasly in

helicopters and tanks, locate themselves in the featureless open desert. See Conduct of the Persian Gu~Conflict, op. cit. footnote 53, ch. 8, p. 3.

62 tie pmw~ being diSCUSS~ in the Pentagon calls for a ‘‘ZCXO basing’ of military specification.s. This proposat would reverse the incentive

structuie of the current acquisition system by forcing program officers to defend the application of any military specitlcation [ o a product. See Lucy Reilly,

“Milspecs Go Under the Gun: Pentagon Considers ‘Zero-Basing’ Approach,” Washington Technology, vol. 7, No. 2, Al r. 23, 1992, pp. 1, 13.

63 Defense man~ac~ms are increas~gly being ask~ to provide warranti~ fortheirproducts. If these w~anties arepai~ I fOr ha production cOntraCt,

they may be one way to shift maintenance work back to the original manufacturer.

~ McDoMe~ Douglas is developing a new helicopter, the MD-900 Explorer (formerly the MDX), justi.tied on comme rCld grounds alone, but Ad

to be sturdy enough for utility, armed scout, medical evacuation, and other military missions. See Frank Coluui, ‘‘hmx in u~orm,” D@ence

Helicopter, vol. 11, No, 1, March-April 1992, pp. 24-27.
Chapter 4-Efficient, Responsive, Mobilizable Production . 103

Photo credit: U.S. Air Force

McDonnell Douglas KC-10 Extender refuels F-15A

Eagle fighter.

many of the same production facilities, equipment,

and workers as commercial products. 65 Unique

military specifications on products or processes

would be an exception. Any activities that require

secrecy could still be segregated, but only when

absolutely necessary. Future flexible factories and

other innovations described below would increase

the likelihood that this radical strategy would

succeed.

Cooperate With Foreign Nations

The U.S. defense production base can be

bolstered through making greater use of the

international base. First, sales of military equipment to foreign countries can be used to keep

production lines open that might close otherwise.fi

Second, U.S. fms might increase cooperative

activities with foreign countries, perhaps establishing joint ventures. Third, the DoD might purchase

items overseas that either are not produced domestically or are cheaper abroad. Fourth, foreign business

might purchase U.S. defense enterprises that are

failing and make them productive again. All of these

activities are currently under way and raise opportunities and concerns. Policy makers will need to

evaluate how changes in these activities might

affect the production base and what their foreign

policy and national security implications might

be.

As domestic procurement declines, foreign sales

may be one way to keep production lines running. A

few defense firms already produce a majority of their

equipment for export. As one industry trade group

official stated, ‘‘Exports are no longer just the icing

on the cake. They are the cake. ’ ’67 For many

companies, exports have become relatively more

important as domestic sales have declined. For

example, General Dynamics projects overseas sales

to increase from 17 percent in the mid-1980s to

about 50 percent in the mid- 1990s, while Martin

Marietta plans to move from 8 percent in foreign

sales in 1991 to about 20 percent in 1994.68 Firms

were particularly optimistic about future sales after

the success of U.S. armaments in the Persian Gulf

War. Arms sales to foreign nations may also provide

the United States some political leverage over

recipients through the sale of upgrades and spare

parts.

There are, however, two major problems with an

expansion of foreign sales. First, as a result of the

end of the cold war, many countries, particularly

NATO and former Warsaw Pact nations, have less

need for weapons.

69 The shrinking world market for

weapons is increasing global competition. Second,

the spread of advanced weapons technology around

the globe has raised concerns over weapon proliferation and the threat modern U.S. weapons may pose

to U.S. forces engaged in future conflicts .70 Without

the global Soviet threat, calls for regional bans on

65 In tie few imtmcc5 where a commercial rcmedy could not be found, the government might establish a public or private amend (e.g., nuclti~r

submarines).

66 For exmple, Alr Force Swretw Rice testified before a SeMte Appropriations su~ommittee that the General Dynamics F- 16 fighter production

facility in Fort Worth, TX will stay warm based solely on foreign sales and aircraft upgrades when the Air Force cancels F-16 orders after next year.

The Air Force may need the plant again for a new F-16 variant sometime in the future. A General Dynamics official and some members of Congress

were skeptical of this approach. See Ron Hutcheson, “Plan Threatens GD Plant, Official Says, ” Fort W[>rth Star-Telegram, Mar. 18, 1992, p. 1.

CT Joel L. Johnson, international vice president of the Aerospace Industries Association, cited in Steven pcadstein, ‘‘Stmggling to K~P WUPom

Programs Alive, ” The Washington fosf, Mar. 9, 1991, p. C2,

6S Ibid

69 Developing coU~e5, Which have been 1C55 aff~ted by tie political c~nges in Europe, a~ounled for over 75 percent of arms import sales in 1988.

U.S. Bureau of the Census, Statistical Absfruct of the United Sfufes 1991, 11 Ith ed. (Washington, DC: U.S. Government Printing Office, 1991),

p. 339.

70 For more information on tie nega(ivc aspects of arms transfers, see US. Congress, Office of Technology Assessment, G/o~l Arms Trade,

OTA-ISC-460 (Washington, DC: U.S. Government Printing Office, June 1991).
104 . Building Future Security

weapon sales may inhibit the traditional desire to

fortify friendly nations against their adversaries and

block sales to regions that still demand new weapons.

71 Congress will have to weigh the importance of

controls on international weapon exports against the

risk that such controls will be circumvented and the

need of the defense production base and U.S. allies

for arms sales.

Moreover, the decline of the world arms market is

consolidating defense industries on a global scale. In

Europe, defense companies are increasingly engaging in translational mergers and joint ventures.72

Collaborative weapon development or production

with foreign companies can spread development

costs and risks, while pooling technical knowledge

among allies. Collaboration with foreign firms has

the drawback of transferring American defense

technology to companies overseas and reducing

opportunities for domestic production. The benefits

and costs of cooperative efforts will need to be

weighed in terms of their long-term effect on the

production base and the national economy.

When systems either are not available or are more

expensive on the domestic market, the United States

can also place greater reliance on foreign sources of

military supplies and components. This choice

between materiel autonomy and increased interdependence raises many questions. In the extreme, the

DoD could compete procurement contracts worldwide and take the best bid whatever its origin.

Currently, foreign sourcing is restricted primarily to

the lower tiers of the production base, although

important subcomponents (e.g., flat-panel displays)

and systems (e.g., the AV-8A Harrier jump jet, the

Ml 19 105mm howitzer, and the Berretta 9mm

sidearm) have been purchased or produced under

license. The full extent of foreign content is not well

understood by the DoD because of the difficulty of

tracking all the parts in a system.73 Moreover, many

large corporations generally ragarded as American

(e.g., IBM) are in fact international in scope and

perspective.

The risks of foreign sourcing will have to be

weighed against the cost of sourcing components

and systems domestically .74 the risk is a political

cutoff of items that affect U.S. capabilities in a crisis

or war

75 Cutoffs could also result from a milit~

blockade.7b Stockpiling items that will not quickly

become obsolete and multiple sourcing of foreign

components can decrease vulnerability to a cutoff.

Another risk is the potential for U.S. technological

dependence on other countries. This dependence

would not only affect current systems, but the

capability to produce future systems as well. Creating protected industries to preserve an uneconomical

capability against a product cutoff will cost the

government more, reduce incentives to innovate,

and constrain access to foreign technological advances. Since purchases overseas will deprive the

U.S. industrial base of the dollars transferred abroad,

Congress might consider loosely tying foreign

military purchases to foreign military or commercial

sales.77

71 Udess bans are ~ivers~]y enforced, they will not prevent countries from obtaining weapons and may serve primaril y to Cut signatov nations out

of the export sales market. If all the industrialized democracies participate in a ban+ however, the level of wmpon sophi! tication sold into unfriendly

hands may decline.

72 One jou~ls( re~rteda &end in Europe towards a protected defense market. Trade barriers, offset agreements, an( i tiUiffs have been comb~ed

to create a Buy European atmosphere. Great Britain and the Netherlands are attempting to deregulate a community that in much of Europe is

government-controlled or-owned. (Patrick Oster, ‘ ‘Europeans Shelving Rivalries Over Big Weapons Contracts: Possible 1 rend Concerns U.S. Defense

Firms, ” The Washington Post, Sept. 11, 1991, pp. Cl and C3.)

73 U.S. Congress, General Accounting Office, ‘‘Industrial Base: Adequacy of Information cm the U.S. Defense Industrial Base, ’ GAO/NSIAD-9@48

(Gaithersburg, MD: U.S. General Accounting Office, November 1989).

74 Te5@@ before tie House ~~ Semlces Co-ttee’s panel on tie s~c~e of U.S. Defense hdustial Base, Nov. 1, 1991, E. Gene Keiffer

proposed that instead of investing money to reproduce domestically what can be bought more inexpensively abroad, it would be wiser to invest in

leapfrogging the foreign competition and produce a next generation of the item.

75 For exmple, nom~ sandbags intended for use in the Persian Gulf War were too porous for the fiie sands Of the Saudi d eserl, allow~g the~ cont~ts

to filter out overnight. The only bags on the intemationat market made for this type sand were being distributed by a Dut, :h firm whose main supplier

was Iraq. The Generat Services Administration instead turned to U.S. manufacturers, which in the end produced 71 minim bags. (’‘The Finer Points

of Sandbagging, ” Parade Magazine, Jan. 12, 1992, p, 14.)

76 ~ely domestic Souces me not imm~e to production cutoff. A variety of factors (e.g., accidents, severe weather, sm kes, or moral OU~ge) @@t

result in a shutdown in production. One example is the loss of tritium production as a result of environmental and safety c oncems. For a discussion of

the risks of both domestic and internationrd dependencies, see “An ‘Adequate Insurance’ Approach to Critical Depend mcies of the Department of

Defense, ’ op. cit., footnote 8.

m At present, the Ufitd States sells far more military equipment overseas tin it buys.
Chapter L--Efficient, Responsive, Mobilizable Production ● 105

Global interdependence may also result in an

increasing number of foreign acquisitions of U.S.

defense companies. This situation may not be

critical if the acquired companies continue to work

for the DoD and obey export laws. During the

Persian Gulf War, for example, Conventional Munition Systems of Tampa, a wholly owned subsidiary

of the German firm Messerschmitt-Bolkow-Blohm,

rushed U.S. Army orders for Patriot missile warheads and parts, in addition to manufacturing

Maverick missile warheads.7g If a foreign-owned

firm opted not to assist the DoD in a crisis, it could

be compelled legally to live up to existing contracts,

or, in extreme cases, be nationalized. Moreover,

such firms workforces and infrastructures remain

resident in the United States, although patents might

be held abroad. If such a company decided to leave

the defense business, it would be no different than

any number of American-owned firms now doing so.

The Committee on Foreign Investment in the United

States reviews foreign acquisitions and warns the

President of potential threats to national security, 79

The DoD can also restrict foreign investment in

firms that do classified defense work.

Promote Manufacturing Innovation

The introduction of manufacturing innovations is another method to stretch limited defense

procurement dollars. Capital investment, design,

and production can be altered to reduce the

life-cycle costs of a product.

If procurement funding were to be made more

predictable in the future (e.g., through multiyear

allocations), contractors’ capital investments could

be optimized for long-term production efficiency,

particularly when initial production has not yet

begun. Facilities, personnel, and manufacturing

equipment could be sized appropriately for the job

without the higher costs associated with overcapacity or the delays caused by undercapacity. And

organizational structures could be adapted to fit new

production realities. Many ideas have been proposed

to modernize American manufacturing-largely as

a response to foreign competition—that have relevance for defense manufacturers. These range from

well-understood techniques and technologies that

can be implemented immediately to futuristic visions that give manufacturers a sense of direction,

but cannot soon be irnplemented.80

In the near term, manufacturers can increase their

current reliance on computer technologies to manage resource allocations more efficiently (e.g.,

just-in-time supply or staffing) and communications

with suppliers and customers (e.g., computer-aided

acquisition and logistics) .81 Computer-controlled

machine tools that can flexibly switch from manufacturing one item to another with a change of

programing are already a common component in

many factories and may become more prevalent as

defense procurement moves away from high-rate

production toward low-rate production .82 Typically,

these machines are limited to a few related tasks and

do not manufacture a complete system. Organizational innovations, such as quality programs (e.g.,

Total Quality Management or Zero Defects Management) and working in group cells, can also be

adopted.

Martin Marietta has adopted several of these

innovative technologies and techniques in its Orlando,

Florida, LANTIRN navigation pod production facility, where it has established what it terms a

‘‘paperless factory.’ The factory uses a centralized

computer system to keep track of all elements of the

production process from inventories to product

testing. The computer system even displays step-bystep manufacturing process information through

78 Stuart Auerbach, “U.S. Firms Angered by Kuwaiti Contmct Award, ” The Washington Post, Oct. 29, 1991, p. D1. This article focuses on a

conuoversy over awarding CMS a contract set aside for American businesses to carry out demolition work in Kuwait.

79 Report t. Congress on the Dqfense Industrial Base, op. cit., foo~ote 15, ch. 4* P. 5.

~ The Iac~ca Insti~te at Uhigh University is championing one such visio~ which it calls ‘‘Agile Manufacturing. ’ ThiS manufacturing StMe~

for the next century, sponsored in part by the DoD Manufacturing Technologies (MANTECH) program, describes a wholesale renovation of traditional

American manufacturing that emphasizes brainpower and flexibility. The goal is the creation of a world-class business organimtion and infrastructure

that can rapidly design and produce srrdl lots of high-quality and long-lasting custom products more economically than mass produced goods. See Roger

N. Nagel and Rick Dove, 21s( Century Manufacturing Enterprise Strafegy, vols. 1 and 2 (Bethlehem, PA: Iacoeca Institute, Lehigh University, 1991).

g] According t. DOD documents, cost savings of up to 20 percent of a program’s budget are possible through Computer-tided A~uisition and

Logistics Support (CALS) systems alone. (Neil Munro, < ‘Pentagon Urges Industry to Streamline With CALS,’ Defense New’s, vol. 6, No. 36, Sept. 9,

1991, p. 39.)

82 1n 1988 tie U,S B~eau of the Cemus repofled that numerically controlled machines were used in 32-56 percent Of me heavy indus~ businesses . .

sampled. Elaborate information systems, such as CALS, were employed in significantly fewer companies. See SfarisficaZ Abstract of fhe Unired Stu~es,.

1991, op. cit., footnote 69, p. 760.
106 . Building Future Security

video and animation at each employee workstation.

Construction, however, remains primarily a handson process, with little reliance on robotics. According to Martin Marietta, the $40 million dollar

investment reaped $100 million in cost savings in

the first 4 years.83

Further in the future, already extant computeraided design (CAD) capabilities will become increasingly integrated with computer-tided manufacturing (CAM). At first, this will mean making data

packages from CAD systems readily convertible to

CAM systems;w eventually, this process will be

automated and directly linked. Then engineers will

be able to draft their designs on the same computer

system that will later direct man and machine

through the manufacturing process. Late design

changes and error corrections made by engineers

will be transferred immediately throughout the

factory, ensuring configuration and inventory control.

Initially, CAD/CAM systems will be used to

make discrete components of a system, but not the

system itself. A plant of the future, where artificially

intelligent computers create the actual design of a

product (as opposed to simply graphically representing a human design) and then task robots to

manufacture it with limited human intervention, is

well beyond current capabilities in most industrial

sectors, but it is the target many innovators are

working toward.85

Another means of improving defense production

efficiency is concurrent engineering.86 In concurrent engineering, the traditional sequential process

of design, development, production, and maintenance is abandoned in favor of a more unified

approach. Experts in manufacturing and maintenance are brought early into the design process to

lend their expertise. This multidisciplinary team

eases the normally rough transition from development prototype to production by emphasizing producibility at every step. (See figure 4-6.)

Figure 4-7 compares program spending over time

for procurement contracts based on concurrent and

traditional engineering. The curve corresponding to

concurrent engineering rises earlier, reflecting the

cost of including manufacturing engineers and

maintenance personnel in the design process. In

order for this “front-loaded” curve to pay off, the

total cost of the program spread over the full

production run (and over the entire product life

cycle) must be less for concurrent engineering than

would be paid traditionally. This reduction in overall

cost comes from a smooth transition from development to production, which wolds many of the

mistakes, waste, and delays common in traditional

production runs, making manufacturing and maintenance easier. Development time can also be shortened through concurrent engineering, although in an

era of tight budgets and reduced threats short cycle

time may not be a high priority. Special attention

needs to be applied to how concurrent engineering

will fit into an acquisition strategy that emphasizes

prototyping over production. (See ch. 3.)

Companies with a large proportion of commercial

work are more likely to innovate in the manner

described above. Defense contractors now dependent on the DoD, however, may need special incentives to innovate their manufacturing.

In all cases, the benefits of reproved manufacturing technologies and ~ recesses must be

weighed against the costs of continuing defense

production in the current fashion. For many

industries, particularly those that produce specialized products in small lots, automation may not be

83 OTA site visit on Sept. 11, 1991; and Steven Peadstein, ‘‘Contractors’ New Watchword: Efficiency, ’ The Washin, ~ton Post, Dec. 11, 1991, p.

Al and A18.

84 A 19g5 DOD rew~stat~ hat “a~ommonda~basebetween design~d m~~ac~gf~ctio~ has inherent techni~ problems but has the high~t

potential payoff in product quality and productivity. ’ DepartmeM of Defense, Assistant Secretary of Defense for Acquisit on and Logistics, Transition

from Development to Production, Solving the Risk Equation, DoD 4245.7-M (Washingto~ DC: Department of Defensa, September 1985), ch. 5, p.

24.

as U.S. Confless, OffIce of TechrIoIogy Assessment Computerized Manufacturing Automation: Employment, EdL cation, and the workplace,

OTA-CIT-235 (Washington, DC: U.S. Government Printing Office, April 1984), p. 6.

86 1n a s~dy of ~nc~nt en~mfig for tie Office of tie Assiswt Secretary of Defense for l%duction ad ~@stiC 1, ~ys~ at tie ~sti~te for

Defense Analyses came up with this defiition of the term:

Concurrent engineering is a systematic approach totheintegrate~ concurre nt &sign ofpmducts and their related processes, includiq manufacture and support.

This approach is intended to cause the &velopers, from the outset, to consi&r all elements of the product life cycle hum conception d uwugh disposal, including

quality, cost, schedule, and user requirements.

Se-e Robert I. Winner et al., ‘‘The Role of Concurrent Engineering in Weapons System Acquisition, ’ IDA Report R-388 ( Mexandria VA: Institute for

Defense Analyses, December 1988), p. 2.
Chapter 4--Efficient, Responsive, Mobilizable Production ● 107

i

s

--- -

--’--% -. . % .

Photo credit: Martin Marietta

(Above) Engineers in a centralized control room oversee

production in Martin Marietta’s “paperless factory.”

(Below) A technician checks his work against a diagram on

his computer terminal.

a cost-effective alternative to hand crafting and

assembly, Moreover, it makes little sense to spend

resources reducing direct labor in the construction of

an item where labor costs are negligible compared to

component costs (e. g., satellite assembly) or where

industry is currently overcapitalized, unless such

investment produces other

reliability).

Currently, defense firms

adoption of manufacturing

gains (e.g., increased

are constrained in the

innovations by many

factors, including the disincentive of annual contract

renegotiations that eliminate profits achieved

through increases in productivity. Until now, almost

all the manufacturing innovation that has occurred

has been evolutionary, stemming largely from contractor initiative, contract requirements (e.g., new

composite material fabrication techniques on the

B-2), independent research and development (lR&D),

and through manufacturing technology programs

sponsored by the DoD, such as the Manufacturing

Technology Program (MANTECH) and the Industrial Modernization Incentives Program (IMIP).

MANTECH programs fund manufacturing process,

material, and equipment R&D. IMIP progams

incorporate incentive clauses into contracts to motivate contractors to adopt proven manufacturing

innovations that the contractors would not be able or

willing to sponsor themselves. increases in productivity, quality, and reliability are designed to benefit

both the company and the government. MANTECH

and IMIP funds have largely gone to prime contractors and not to subcontractors and suppliers.87

As the United States moves into an era of reduced

defense procurement, many of the traditional sources

of funding for manufacturing innovations are beginning to dry up. Many surviving defense firms will

not be compelled by commercial market pressures to

innovate and will have fewer procurement dollars to

invest than -in the past. Natural monopolies will have

less incentive to update their manufacturing technology than companies forced to stay competitive. In

these circumstances, Congress could fund MANTECH and IMIP programs as one approach to

bringing innovation to these segments of the future

base.

88

Although manufacturing technology programs

have been in existence since the 1950s, they have

become much more prominent in recent years,

~T John A, Alic ct al., Bcvo~ Spinoff: Mili[arv and Commercial Technologies in a Chunging World (BOS1OW MA: Hmwd Business School ~css,

. .

1992), p, 344.

88 U,S, Depaflment of Defense, Defense Systems Management College, Dqfense Manufuctun”ng .Murragemem Guidefor program Munagers, 3d ti.

(Washington, DC: U.S. Government Printing Office, April 1989), ch. 4, p. 5 and ch. 8, p. 5.
L

Figure 4-6-Decisions Concerning Producibility

L

t

I 1

- - - f 1

I I

1

1

I

SOURCE: Defense Systems Management College, 1989,
Chapter 4----Efficient, Responsive, Mobilizable Production ● 109

Figure 4-7—Theoretical Comparison of Concurrent

v. Traditional Development and Production Programs

1 Earner manufacture nq release

‘ ~ Identlflcation of crltical

I parts anc processes

1 Steeper Iearning curve and /

/ Iower production costs

/

// Cost Impact /’ {

/

~engineerin g

~ ,/”

/’ /

of

DevIopnen t ProductIon

Leqend

Co ‘lc u rre n t e n q I nce rl r7 (j [) roq rCinl

— Trad I t lonal prog ram

SOURCE: Office of Technology Assessment, 1992.

largely through congressional intervention.89 Each

of the Services runs a separate MANTECH program,

in addition to a program run by the Defense

Logistics Agency. These programs, while focusing

on different segments of industry, strive to bring

government, industry, and academia together (often

in regional technology centers) to produce generic

manufacturing technology innovations that can be

transferred to the defense production base. MANTECH ventures have been successful in processing

gallium-arsenide wafers for advanced microelectronics, in nondestructive imaging of products, and

in robotic ship welding. 90 In addition, since 1985,

the Navy’s Best Manufacturing Practices program

has sent survey teams to manufacturers to discover

what they are doing right and transfer this knowledge to the rest of the Navy’s production base.91 The

DoD has also used the Asset Capitalization Program,

authorized by Congress in fiscal year 1983, to fund

the modernization and acquisition of equipment for

such operations as depots and shipyards. (See ch.

5 .)

92

A final method for increasing production base

efficiency through manufacturing innovation would

be to construct systems to incorporate modular

subsystems so that when a subsystem is broken or

needs to be upgraded, it can be readily replaced with

a new, self-contained unit. The removed unit would

then either be sent back to a depot or to the original

equipment manufacturer (OEM) as part of a strategy

to maintain the manufacturing capability of the

OEM. Modular subsystems could be made common

across several platforms (e.g., a plane, helicopter,

and tank could all use the same radio) to generate

economies of scale in production, and they would

allow generic weapon platforms to be specially

outfitted for different missions.

The primary drawback of switching to modular

systems is that they may require built-in slots or

boxes to hold them that would increase the overall

cost and weight of the system, resulting perhaps in

lower performance. For example, it has been suggested that many naval ships could be built according to one basic hull design that would accept a

variety of weapon and equipment modules according to its mission (e. g., antisubmarine warfare, air

defense, cargo, or amphibious assault) .93 While

containers for these modules might add as much as

5 percent to the cost of a single ship, the economies

of producing identical ship hulls might result in

lower total cost.94 Other modular systems might

include the next-generation tank or multirole fighter.

The potential added cost and reduced optimization

of modular systems will have to be weighed against

s~ congress ks rc~atcdly authol-ized more funds for MANTECH than the DoD has requested. ‘IINs is duc in part to a dlff el Cncc In pcr$pectlvc. Thc

DoD, along with the .%rviccs, sees MANTECH as a tool for increasing productivity for specific weapon systems. Congress, on the other hand. sccs

MANTECH as a stimulus to the production base as a whole, including the nondcfense community.

~ Torel]i et ~ tcstlmony before wcU.s.Congress, HOUSC Armed Services Panel on Future USCS of Manufacturing and Tdmology Resources, OCI.

.,

24, 1991; and Computerized Manufarturinx Automation, op. cit., footnote 85, pp. 314-316,

91 Torclii ibici; ~lnd Dcp~ment of tie Navy, flesr practices. How’ fo A}oid Surprises in the World’s MO.U Complicated Techmcul Pn)cess, The

Trunsi(ionfi-;]m De}’elopment to Production, NAVSO P-6071 (Washington, DC: L1.S. Government Printing Office, March 1986)

~ u.S. Congress, General Accounting Office, <

‘Industrial Funds: The Department of Defen.sc’s Management of ACP Funds, GAO/NSIAD-90202FS

(Gaithcrsburg, MD: U.S. General Accounting Office, June 1990); and U.S. Congress, General Accounting Office, ‘ ‘Plant Moderl.iz~ti{m: DoD’s

Management of the Asset Capitalization Program Needs Improvement, ’ GAO/NSIAD-89- 147 (Gaithersburg, MD: U.S. General Acct~unting Office,

August 1989).

93 me Gcman shlpbul]der B]ohm and Voss Constmc[s two Classes of modul~ Ships: tic MekO and the IleUtSChlan~ (Type 123) frigates,

W About 70 percent “f the cost of ~ m~ern Wmship is for systems, such A$ weapons and clec~onics, othertkln the hull, See G:LI-) Hmt and William

S. Lind, Amerlcu Can W[n. The Case for ~iirta~ Reform (BethcsdA MD: Adler and Adler, 1986), pp. 98-107,
110 ● Building Future Security

Figure 4-8—Tradeoffs Between Production Efficiency and Surge and

Mobilization Preparation

Optimal

peacetime

e f f ici e ncy

Max imum

surge and

mob i I i zat ion

ca pab i I i t y

I

‘–- T

, -

1 — d

I

; * -

O *

Surge and mobilization preparations

SOURCE: Office of Technology Assessment, 1992.

lower production and maintenance costs and higher

operational readiness. (Ch. 5 discusses maintenance

issues in greater detail.)

Increase Commonality

Increased commonality in Service procurement and among defense products could make

the base more efficient. One notion is the creation

of a more common procurement process among the

armed services. The aim would be to reduce

redundant procurement programs and to make larger

purchases to achieve economies of scale. (Ch. 6

discusses options for rationalizing the procurement

structure in more detail.)

The Services could also try harder than they

currently do to build new systems with a greater

emphasis on common components and standardized

parts. The Army is attempting greater standardization of parts and systems through such programs as

the Armored Systems Modernization program which

is designing the next generation of armored vehicles.95 This program is being redefined, stretched out,

and scaled down in the face of budget reductions.

Current plans call for the development and production of the Advanced Field Artilery System and the

Future Armored Resupply Vehicle-Ammunition on

a heavy-level protection chassis and the Line-ofSight Antitank system on a medium-level protection

chassis. Three other vehicles intended for the

heavy-level protection chassis have been deferred

indefinitely: the Block III tank, the Combat Mobility

Vehicle, and the Future Infantry Fighting Vehicle. In

addition to the common chassis, these armored

vehicles will have significant commonality in components, including armor, engines, tracks and suspension, electronics, instruments, hardware, and

software. Although the parts for the vehicles will not

be completely interchangeable,9b they will be as

compatible as their differing missions will allow.97

More universal parts would help those subcontractors that might go out of business if them product

supported only one weapon system.

In addition to the above steps, the DoD should

examine how much standardization of parts, munitions, and systems there should be internationally,

especially with our NATO allies One of the DoD’s

95 A Gener~ Motors Corp. study of an earlier armored vehicle modernization phm developed Severtd manufacturing] OptiOnS tit emp~~ed

commonality in construction, vendors, and parts. See General Motors Corp., Military Vehicle Operations, “Manufacturing Plan Appendix, ” Armored

Family of Vehicles (AFV) Phase I Study, 1986.

% Job G. RCMX “$5$). BiUion Armor Mod Plan Has Only One Tread on the Ground, ’ Armed Forces Journal Internmonal, October 1991, p, 60.

~ ~exmple of tie ~~eased efficiencies of COrmnOnality is found in the Mazda Miata, This petite and sassy sports car -- the automotive sensation

of 1989 — appeared completely different from other Mazdas, but was built with 80 pereent standard parts. This strategy allc wed Mazda to bring a new

product to market quickty and make a profit despite low volume sates. (Peter F. Drucker, “The Big Three Miss Japan’s Cruci{J Lesso~’ The Wall Street

Journal, June 18, 1991, p. A18.)
Chapter 4-Efficient, Responsive, Mobilizable Production ● 111

long-standing objectives has been to promote the

adoption of standardized or interoperable equipment

among allies and friendly nations. This issue should

be examined from the perspective of cost savings,

base support, foreign dependence, and the changed

international environment.

RESPONSIVE PRODUCTION

A future crisis might require the production base

to react through either a responsive surge of the

defense base or a longer term mobilization of the

broader national industrial base. 98 The next two

sections discuss the balance between peacetime

production efficiency and crisis requirements. Figure 4-8 illustrates some tradeoffs between efficient

peacetime production and surge and mobilization

preparations.

Policy makers can make the future base responsive to crises short of a national emergency

in three ways: by surging production as required

by commanders, by stockpiling products in advante, or by relying on allies. Each of these options

has advantages and disadvantages.

If production is sufficiently responsive, then the

government does not need to pay for surge items

unless there is a crisis, nor does it have to pay for

storage. Relying on surge carries the risk that items

cannot be produced quickly enough to meet the field

commanders needs. Moreover, surge facilities may

entail higher overhead costs by maintaining more

production capacity than is needed for peacetime

requirements .99

If items are stockpiled, they are available on

demand if ever needed, but at a high up-front cost,

and they may not be replaceable if production

facilities close and requirements surpass stocks.

Some items, like electronic components, become

obsolete so quickly they are not conducive to

Table 4-4-Examples of Surge and Mobilization Items

Surge items Mobilization items

Ammunition Surge items (from list at left)

Food New weapon systems

Fuel Mothballed weapons

Uniforms Commercial transport

Spare parts Commercial engineering vehicles

Medical supplies National Defense Stockpile materials

Merchant marine

Prepositioned equipment

SOURCE: Office of Technology Assessment, 1992.

long-term storage.

100 A rolling production inventory-an early buy of components to be used in final

production items—might reduce some of these

costs,

Foreign acquisitions have the possible advantage

of lower cost, but run the risk of political cutoff and

are less likely to be able to meet the quantity

requirements of the U.S. military. Foreign items may

also suffer from excessive transportation lag times.

Planners should use contingency plans for future

crises to designate which items should be procured

in advance, which should be surged, and which

should be obtained from allies. The resulting system

will need to be properly funded and exercised

periodically to ensure it will work when needed.

It is unlikely that production of major weapon

systems will have to be surged for a conflict that falls

short of a national emergency. Moreover, if the

United States pursues low-rate production, the surge

of such systems will be virtually impossible. It is

more likely that field commanders will need increased production of consumable or personal items,

such as munitions, spare parts, fuel, food, and

clothing. (See table 4-4.)

The DoD interim report to Congress on the

conduct of the Persian Gulf War provides some

98 U.S. congress, Offlce of Technolo~ Assessment, Adju$fi”ng (0 u New Secun”p E~>*irOnment, The Defense Technology and ]ndustn.a/ Base

Challenge, OTA-BP-ISC-79 (Washington DC: U.S. Government Printing Office, Februq 1991), p. 4. This report maintains the detlnition used in

Adjusting to a New Secun”ty Environment. Surge is the term used within the DOD to refer to the expansion of military production in peacetime without

the declaration of a national emergency. MobiZizution refers to the rapid expansion of military production to meet material needs in a war and involves

the declaration of a national emeigency. Several types of mobilization are considered. Fulf mobilization refers to mobilimtion to fiIJ the existing or

‘‘program force’ structure. Toral mobilization describes a mobilization effort that expands beyond the existing force structure. Mobilization is often

referred to m ‘ ‘reconstitution’ by the current Administration.

99 plants designed for cfficicnt pc.acetimc production can expand their work hours, at least temporarily, if they are IIOt already operating at maximum

capacity. Ixmger term reliance on extended or additional work shifts will require the hiring of skilled or trainable personnel,

[m The market lifespan of an electronic component has decreased from 10-12 years to 4-5 years, while weapon system 1Ongevity is 20 yews or more.

U.S. Congress, General Accounting Office, “Defemc Inventory: DoD Could Better Manage Parts with Limited Manufacturing Sources,”

GAO/NSIAD-9(L126 (Washington, DC: U.S. Government Printing Office, August 1990), p. 8.
112 . Building Future Security

useful examples.101 Generally, the Services had the

major equipment and supplies they needed before

the crisis, but shortages of some items soon emerged.

T-rations, designed to feed 8-10 people, had not been

included in the war reserves and, for a time, industry

could not meet the increased demand. Troops were

temporarily forced to eat the less palatable Meals,

Ready-to-Eat (MREs), which had been stockpiled.

Many troops also were initially stationed in Saudi

Arabia dressed in uniforms camouflaged for European woodlands, while the clothing industry manufactured clothing and boots patterned for the Kuwaiti

desert. While both of these shortfalls caused problems, they did not significantly impede operational

preparations. Shortages in the U.S. inventory of

heavy equipment transporters and offroad vehicles

were compensated for by leasing, buying, or requesting donation of trucks from U.S. trucking companies, and from Saudi Arabia, Germany, Egypt, Italy,

and Czechoslovakia.

According to the report:

Literally thousands of items were accelerated to

meet the increased requirements of U.S. Central

Command (CENTCOM). From weapons systems to

individual items of supply, a tremendous demand

was placed on the nation’s industrial base. Items

such as chemical protective clothing were surged

from 33,000 per month to 70,000 per month, desert

combat boots went from zero to 124,000 per month,

and desert camouflage uniforms went from zero to

376,000 per month over a six month period. In some

cases, the increase in the production rate was the

direct result of an individual contractor’s performance, in other cases, additional contracts were

required. Preliminary investigation indicates that

despite some shortcomings, the industrial base was

reasonably responsive to the needs of the force,

These and similar instances reinforce the continuing

requirement to balance our war reserve programs and

depot production capabilities with a realistic assessment of industrial base capability. 102

Extensive preparation time, control over the

timing of operations, a short war, relatively light

combat damage, support from Saudi Arabia and the

other coalition partners, and a lack of a major threat

elsewhere made the Persian Gulf surge effort easier

than it might have been otherwise.

Photo credit,

Meals, Ready-to-Eat (MREs) ire nutritious and

energetic foods packaged to wrvive the rigors

of a combat envirol~ment.

The DoD

Flexible manufacturing systems, besides being

useful for an efficient peacetime base, can affect

future responsiveness. On the positive side, they will

make it easier for companies engaged in peacetime

defense work to shift from a lower to a higher

priority product mix (e.g., from dress to camouflage

uniforms) to meet specific surge demands.1°3 Companies that produce both commercial and defense

products would be able to temporarily halt commercial work and expand defense production. However,

a production line set up for flexible manufacturing—where excess capacity has been cut to the

bone—may make any expansion of production more

difficult if the majority of a company’s products are

required for surge.

PREPARATION FOR

MOBILIZATION

If a future crisis is severe enough to warrant a

declaration of a national emergency, the surge

capability described above may not be adequate to

meet the challenge. Full or total mobilization

(currently dubbed “reconstitute on”) of the broader

national industrial base, in addition to the defense

production base, may be necessary. With the disappearance of the Warsaw Pact threat to NATO in

Europe, a war on this scale seems unlikely for the

lol Coductof the persian Gu~ConfZict, op. cit., footnote 53, ch. 7, pp. 1-7. This report carries the caveat that its informati m is prehminaryand subject

to change.

’02 Ibid., ch. 7, p. 2.

10J me tie it t~es to shift from one product to another will depend on the degree of tool flexibility and product sfi ihwity.
Chapter G-Efficient, Responsive, Mobilizable Production . 113

foreseeable future, so it appears prudent to give more

priority to peacetime and surge planning. Nevertheless, realistic planning for mobilization against a

major threat remains essential to the security of

the Nation and its allies, especially considering

the long lead times involved.

The most critical factor in mobilization plaming

is the amount of warning time the industrial base will

have. This warning time depends on the speed of an

adversary’s mobilization, the timeliness and reliability of intelligence, the length of time ready forces

can hold their own before being reinforced with

mobilized reserves and supplies, and the time

required for a political decision to mobilize. The

national industrial base would have about 2 years

warning of a major war in Europe, according to

current projections.104

Overestimating warning time in the planning

phase can lead to serious shortages in the early

stages of a war. Underestimating warning time can

lead to an overinvestment in stockpiled supplies and

too little investment in manufacturing resources,

leading to a full inventory at the beginning of the

conflict, but a declining capability as it proceeds.

Improved planning tools based on detailed production data and models can help prepare for large-scale

mobilization, but only if the subjective inputs of

crisis scenarios are accurate. ’05

Once planners have made their best estimate of

mobilization warning times, they can decide the best

way to meet mobilization requirements. Equipment

that cannot be produced within the warning time

must be stockpiled in the national War Reserve or

obtained from U.S. allies. Other items might also be

stockpiled, but as mentioned above, stockpiling

involves a large up-front investment in equipment

and supplies that may never be used. Moreover, the

military may have difficulty replacing stocks if

demand has been underestimated or after the crisis

iii’ “ –— 1

, - .—

Photo credit: BMY-Combat Systems

The fIexibility of a computer-controlled machining center

permits BMY to move in minutes from working on aluminum

armored vehicle hulls to steel hulls, such as the M88

Medium Recovery Vehicle pictured here.

is over, Products that can be manufactured within the

warning period but exceed the surge capacity of the

defense production base will need to be procured

through an expansion of the defense sector or from

the commercial sector.

The dedicated defense production base provides a

core around which the civilian base can be mobilized. The existence of a solid core of personnel,

equipment, and facilities will depend on what

measures policy makers take now during peacetime

procurement cutbacks (e.g., none, creation of an

arsenal, low-rate production, or civil-military integration). The implementation of rapid acquisition

rules and simplified procurement procedures after

the declaration of a national emergency will allow

existing facilities to be expanded and new ones to be

built. Facilities that would require long lead-times to

build and outfit may have to be mothballed in

peacetime (e.g., shipyards).

106Companies that have

been participants in mobilization planning and those

104 Re~e~igning Dqfense, Op. Cit., fOO~Ote 1, P 24.

105 For ~xmpl~, ~~ ~yis funding a protot~e ~duction Expansio~~celeration Capabiliw Enhancement (PEACE) computer model developed

by Salvador Culosi at the Logistics Management Institute, which optimiz~s funding for a particular product and its subcomponents to meet peacetime

and mobilization requirements based on such inputs as likely crisis scemrios, plant capacity, industrial planning measures, process flow times, and

product and erit]cal subcomponent lead times,

106 Mo~balling fac11itie5 my not & a good Option for maln~inlng a Production capabili~ if similar work is not being performed elsewhere. For

example, a company that currently produces ammunition or armored vehicles might be able, with significant difficulty, to bring on-line another

mothballed munitions plant or tank facility, but it would face greater, if not insurmountable (in the time provided), difficulties in restarting production

if it had not manufactured the product for several years. The Canadian Navy recently encountered this dilemma when they tried to construct a frigate

without having built one in a decade. The result was a substantial expansion of costs and schedule and the need to rely heavily on foreign expertise. If

it is necessary to mothball an entire capability for financial reasons, then every effort should be made to document production procedures and worker

experience {perhaps by creating computer expert systcms) before they are lost.
114 ● Building Future Security

Table 4-5—Comparison of Production Issues

Desirable Policy options

characteristics of Enhance

the future Streamline and government and Reduce productim

production base consolidate industry cooperation Foreign moderation rates Promote innovation

— . . . . —. . .

Etflcient Reduces

overcapadt y,

preserves vital

production

capabilities

Responsive

Mobilizable

Maintains

production

capabilities,

but decreases

capacity

Maintains

production

capabilities,

but decreases

capacity

Lowers product cost,

allows defense base

to draw on national

base, makes

defense work more

appealing, but risks

abuse

Cooperative

atmosphere eases

planning for future

Cooperative

atmosphere eases

planning for future

Expands sates

market, source of

technology and

mmponents, but

undermines

domestic base

Expands domestic

base, but risks cutoff

Essential for largeScale conflict but risks

cutoff

Short-term effici(mcy

loss, but maintains

production

capabilities efficiently

after streamlinirqj

Maintains production

capabilities, but

reduces capacity

Maintains production

capabilities, but

reduces capacity

Raises efficiency, but

may demand capital

investment

Flexibility aliowssurge

of select items, may

reduce capacity

Future flexibility may

ailow easier transfer

of production to

nationai base

. .

SOURCE: Office of Technology Assessment, 1992.

that are flexibly organized (e.g., with working group

cells) will be better prepared to make the transition

to mobilization.

The health of the national economy is vital to a

successful mobilization. In a national emergency,

the DTIB will need to draw extensively on the

skills, facilities, and management of nondefense

manufacturers. The commercial sector can be relied

on for a large number of off-the-shelf items or items

that are easy to adapt to military standards. This will

be particularly true if steps are taken now to integrate

the DTIB with the broader civil production base.

Mobilization of militarily unique systems, such as

armored vehicles and airplanes, will require preplanning by mobilization planners with the cooperation

of defense manufacturers and the retention of critical

manufacturing skills and equipment.

In the future, the spread and standardization of

flexible computerized manufacturing tools throughout industry might make it easier to switch in a

national emergency from commercial to defense

production.

107 This might be especially t.rile in

factories that produce both military and civilian

items on the same equipment. During mobilization,

designated companies W O U1d cease commercial

production and use that freed capacity to manufacture military items. The DoD can foster such a future

by lowering the barriers to civil-rnilitary integration

(as described earlier) and though manufacturing

technology programs that emphasize equipment and

data-format standardization. For example, a government-funded model factory or laboratory might be

established to design machine-tool data packages

and software for manufacturing, weapon components

that could be transferred easily to flexible comrnercia1 plants in the event of a mobilization. Currently,

manufacturers in both the commercial and defense

industries lack this degree of flexibility, but the

necessary technologies are emerging and might be

fostered with the right incentives.

The industrial bases of U.S. allies will also be an

integral part of any future mobilization effort. The

magnitude of such a crisis would demand some

division of labor among allies, regardless of the risk

of material cutoff. Promoting mutual defense cooperation with allies and friendly nations, protecting

—

lo7 Flexible mmufac~g wi~ ~SO tie it easier for pure defense producers to switch from lower to higher priOr@ end items. For e-pie, the

Armored Systems Modernization program mentioned earlier, which planned six armored vehicles based on two common c hassis, is being designed for

more flexible manufacturing. The two chassis wilt be manufactured on the same assembly line using numerically contrc lled machine tools. Mission

packages in more or less modular form will permit relatively rapid shifts from producing one type of vehicle to some olher vehicle that is in higher

demand. Unlike a shift from commercial to defense production however, flexibility in strictly defense fkms alone will not expand their total military

output, only priority items (e.g., a tank rather than an artillery vehicle). See Roos, op. cit., footnote 96, p. 60.
Chapter 4-Efficient, Responsive, Mobilizable Production ● 115

Table 4-5--Comparison of Production Issues (continued)

Policy options (continued)

Support Increase

manufacturing common system Increase component Maintain surge

skills procurement commonality y capability Stockpile Lay-away facilities

Fills critical gaps Reduces product life- Lowers costs and Raises overhead Allows short-term cost without

cycle rests, but concentrates rests production, but product product

products are less manufacturing may never be needed

mission oriented

Provides labor Eases logistics Eases logistics Allows increased

pool for base production on short

expansion warning

Provides labor Eases logistics Eases logistics Allows expanded

pool for base defense base

expansion production while

national base gears

up

Products avalabie when

needed, reduces

foreign dependency, may

be irreplacable once used

Products available when

needed, reduces

foreign dependency, may

be irrepkmableonceused

Eases expansion of

production,

particularly for

facilities that are

difficult to rebuild

Eases expansion of

production,

particularly for

facilities that are

difficult to rebuild

global sea lines of communication, and, perhaps,

maintaining a forward presence, would help ensure

the viability of such overseas collaboration.

CONGRESS AND THE

PRODUCTION BASE

Deciding on the necessary steps to restructure the

defense production base will challenge many past

notions about how the base ought to be run.

Congress, in cooperation with the Executive Branch,

will need to reevaluate many controversial issues,

such as the relative importance of competitive

procurement, contractor accountability, and buying

American. Efficient peacetime production will have

to be balanced against potential surge and mobilization requirements.

The measures Congress adopts during the

transition to the future production base will

depend on how damaging it believes procurement reductions of 50 percent or more will be to

the Nation’s defense industry. If Congress believes that production base problems will be

limited to select industries with the rest able to

adapt successfully to the new environment, it will

opt for small adjustments to existing laws and

practices. If it views the problem as more severe

and fundamental, it may opt for a general

restructuring of the production base and defense

procurement. In either case, policies will need to be

sensitive to the complexities of the base, particularly

the different industrial sectors and tiers. Table 4-5

summarizes the measures discussed in this chapter,

Below, these measures are discussed in groupings of

particular interest to Congress.

Funding Decisions

Congressional control over DoD procurement

funds and the rate at which these funds are reduced

will have the most direct impact on the production

base. Thoughtful reductions can ensure that future

military requirements will be met. Greater consistency in procurement projections, perhaps with

multiyear contracts, will allow the production base

to reorganize more efficiently and manufacture

defense equipment effectively at lower rates. Congress might further the efficiency of the future base

by providing additional funds for the study of the

base (e.g., composition and effect of laws and

regulations), the adoption of manufacturing innovations, and the maintenance of critical manufacturing

skills. Funding will be necessary for long-range

planning, stockpiling, and the maintenance of excess

peacetime production capacity in select areas to

meet potential surge and mobilization requirements.
116 . Building Future Security

Base Structure

Congress has a range of options for restructuring

the future production base. At a minimum, Congress

should insist that the DoD identify critical producers

at the supplier, subcontractor, and prime contractor

levels that are at risk due to procurement reductions,

and use existing laws and regulation to save their

core capabilities, Public or private arsenals could be

established for those industrial sectors that can no

longer maintain themselves through DoD contracts.

Next, Congress could support government intervention in the market, if necessary, to save and

strengthen critical producers through a combination

of sole-source production, prototyping, upgrade,

spare part, and maintenance contracts. For the good

of the production base, the government might pick

‘‘winners and losers’ or substitute ‘‘best value’ for

the lowest bid as the basis for awarding contracts.

Congress could act to lower legal and regulatory

barriers to mergers, strategic partnerships, and the

creation of monopolies (e.g., antitrust laws and

CICA) that undermine the consolidation of the base

around select quality producers.

At the extreme, Congress might remove the

legislative barriers to a fill integration of the civil

and military production bases, thus drawing on the

size, efficiency, and innovation of the larger national

base. After a time, only the most unique military

items would remain in a separate DTIB, perhaps in

arsenals (e.g., nuclear submarines).

Business Environment

Short of complete integration, Congress can act to

relieve industry of many stifling characteristics of

current defense work. These characteristics include

costly paperwork requirements from bidding to final

accounting, pervasive government oversight, outdated and obsolete specifications on many aspects of

production, and a potential loss of a fro’s competitive edge through the transfer of proprietary data

rights to the government. The present business

environment makes the production base inefficient

and uninviting to innovative companies interested in

doing defense work. Next January, a congressionally

mandated DoD advisory panel will present its

findings on how to streamline current acquisition

laws. 108 Congress can act on the findings of this

panel and of this report to foster a less adversarial

relationship with industry. It can also encourage

ongoing DoD efforts to procure more commercial

products.

Acquisition Strategy

Congress could also promote the simplification

and consolidation of the prodtuction base by supporting the consolidation of acquisition programs and

organizations. It might also support commonality

and modularity in weapon systems and subsystems

and the use of multi-Service procurement to provide

a more economic workload for a smaller number of

core manufacturers. The government might also

consolidate procurement efforts.

International (Change

Finally, Congress needs to consider the role that

the international defense production community will

play in the future domestic base. The internationalization of the domestic base is already a reality,

particularly at the lower tiers Congress can act to

increase this interaction by promoting military sales,

purchases, and cooperative ventures; or it can opt to

sever some or all of these ties, relying more on

American industry.

SUMMARY

This chapter has discussed alternative policies to

ease the transition to a future production base that

has the desirable characteristics of efficiency, responsiveness, and the ability to mobilize. A thoughtful, orderly restructuring of the defense production

base, in the face of a reduced international threat and

pressing domestic financial concerns, is one of the

biggest challenges facing defense policymakers. If

the Administration and Congress do not take measures in the next few years, market forces combined

with reduced defense spending will perform this

restructuring haphazardly, resulting in a smaller,

weakend, and potentially Crippled DTIB. Some

firms would weather these changes and continue to

manufacture defense products. Others would be

forced into other business areas or close. More than

likely, should the need ever arise to surge capacity

or mobilize, the United States would find itself

lacking in critical capabilities.

108 We footnote 34.
Chapter 5

The Maintenance Base
Contents

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

THE CURRENT DEFENSE DEPOT MAINTENANCE SYSTEM . . . . . . . . . . . . . . . . . . . . . . . .

Army Depot Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Navy Maintenance and Overhaul . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Marine Corps Depot Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Air Force Depot Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

REQUIREMENTS FOR A ROBUST FUTURE MAINTENANCE BASE . . . . . . . . . . . . . . . .

ALTERNATIVES FOR THE FUTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Reduction and Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changing the Private/Public Mix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Competition and Efficiency in Military Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

New Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Supporting Military Equipment Abroad . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Figures

Page

119

121

122

124

126

126

127

128

128

129

133

134

135

135

Figure Page

5-1. Army Depot Maintenance Realignment: Work Consolidation . . . . . . . . . . . . . . . . . . . . . . . 124

Tables

Table Page

5-1. Depot Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

5-2. Average Age in Years for Selected Military Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120

5-3. Defense Depot Maintenance Council Commodity Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

5-4. Army Organic Depot Maintenance Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123

5-5. Navy and Marine Corps Depot Maintenance Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125

5-6. Air Force Organic Depot Maintenance Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
Chapter 5

The Maintenance Base

INTRODUCTION

The maintenance base is the third principal

element of the defense technology and industrial

base (DTIB). It is the portion of the base that

supports deployed military systems, ensures force

readiness, and sustains forces during military operations. Redesigning Defense discussed why a robust

defense maintenance base will be vital in the

national security environment the Nation faces in the

future.

Defense maintenance is currently divided into at

least three levels. The first is organizational level

maintenance, where members of the operational unit

make functional checks and adjustments, and faulty

parts are serviced or replaced. The second is

intermediate level maintenance, where field personnel perform more extensive repairs. The third is

depot level maintenance, where highly trained

personnel rebuild, make complex repairs on, and

overhaul equipment in specialized facilities.1 This

chapter concentrates on depot level maintenance and

uses the term ‘‘maintenance’ to refer to it.

The U.S. military spent approximately $13 billion

on depot level maintenance in fiscal year 1991,

supporting a huge fleet of aircraft, armored vehicles,

and other weapon systems and support equipment.

(See table 5-1.)2 Depot maintenance is currently the

responsibility of the individual Services.

The depot maintenance system consists of two

components. The organic (i.e., Service-owned and

operated) component is composed of Army Depots, Air Force Air Logistics Centers, Naval Aviation Depots, Naval Shipyards, and Marine Corps

Logistics Bases. This in-Service maintenance

component employs about 150,000 people. It is

supported by the private sector through the work of

thousands of firms, including both repair houses and

original equipment manufacturers. These firms supply parts and provide direct maintenance support in

their own facilities or in government-owned and

contractor-operated (GOCO) facilities.

Maintenance differs from production in that

equipment arriving at the depot or factory for repair

or overhaul must first be inspected and faults

diagnosed. Once major items, such as ships, are

disassembled to begin an overhaul, unanticipated

repair requirements may be found, resulting in

additional costs. Nevertheless, some maintenance

and production activities are similar and many of the

same skills are involved in manufacturing new parts

or repairing old ones.

Future maintenance requirements will differ from

those of the past 40 years. For example, the United

States is likely to retire many weapons in response

to the waning threat from the former Soviet Union

and to arms control agreements. Since the oldest

weapons are likely to be retired first, not only will

the number of systems in the forces decline, but

deployed weapons will initially tend to be newer and

hence will require less maintenance. While some

facilities such as shipyards are likely to have

increased activities during the transition to a smaller

force (e.g., decommissioning work), overall maintenance requirements will drop substantially.

Current trends, however, indicate a major reduction in new weapons procurement in the future,

Thus, once present forces are reduced, the Nation

will probably retain weapons and equipment in

inventory longer than in the recent past, preferring to

upgrade deployed systems when possible instead of

producing new ones.

3 (See table 5-2.) This aging

equipment may require more maintenance to retain

high readiness levels. Also, military systems are

becoming more sophisticated; in particular, the

embedded electronic components are becoming

more important and more complex. These trends

will change the types of facilities needed for repairs

1 The Army and the Marine Corps have five levels of maintenance: user, organizational, divisional, intermediate, and depot.

z The FY 1992 U.S. global milltary force, for example, includes over 45,000 armored vehicles, 490 combat ships, 4,100 major fixed-wing aircrtift,

and 260,000 Army tactical wheeled vehicles.

1 The Congressional Budget Office nofed that (he cxpectcd changes in age of equipment arc mixed, depending on the type of weapon. Between 1991

and 1995 ships WIII be relatively newer as will Air Force tactical aircraft, The average age of Al my equipment and the agc of Navy aircraft will increase.

Statement of Robert F. Hale, Assislant Director, National Security Division, Congressional Budget Office before the U.S. House of Reprcscntativcs,

Commiuec on Armed Services, Mar. 19, 1991. After 1995, all clmscs of fielded equipment are likely to be older. Upgrading and retrofitting existing

equipment ]s more similar to manufacturing than is repair, but such activities often take place in the maintenmcc, rather than in the prod~ction base.

-119-
120 ● Building Future Security

Table 5-l—Depot Maintenance (fiscal year 1991 milllons of dollars)

Army Navy Air Forca Marine Corps Total

Aircraft . . . . . . . . . . . . . . . . . . . . . . . . 294 1,830 4,001 a 6,125

Ships & boats . . . . . . . . . . . . . . . . . . 7 3,936 NA NA 3,943

Combat vehicles . . . . . . . . . . . . . . . . 628 NA NA 34 662

Missiles . . . . . . . . . . . . . . . . . . . . . . . . 190 60 278 12 540

Communications & electronics. . . . . 244 12 70 10 336

Ordnance, weapons, munitions . . . . 53 150 19 3 225

Automotive . . . . . . . . . . . . . . . . . . . . . 142 32 11 185 370

Other. . . . . . . . . . . . . . . . . . . . . . . . . . 48 675 300 36 1,059

Totals . . . . . . . . . . . . . . . . . . . . . . . . . 1,606 6,695 4,679 280 13,260

Contract to private industry. . . . . . . . 340/0 1$)O

/o 270/. 2% 247.

a Maintenanm performed by Nav.

KEY: NA - not applicable.

SOURCE: Office of the Secretary of Defense.

and the skills of the people that perform maintenance

work. 4 Some future upgrades and retrofits will aim

at increasing the reliability of deployed systems,

thus potentially reducing future maintenance workloads. For example, Rockwell International’s current upgrade of F-1 11 avionics aims at improving

reliability and maintainability.s

Force reductions and increased equipment reliability have already caused reduced workloads and

overcapacity in the Service’s present depot maintenance system. Future defense maintenance base

objectives include:

1.

2.

3.

preserving appropriate maintenance capability

while forces are being reduced;G

providing maintenance support in peace, crisis, or war to a force that is likely to consist of

older platforms that have been upgraded; and

supporting fewer but more sophisticated systems over the longer term.

Integrating more maintenance activities into the

production element of the DTIB has been suggested

as a way to sustain the defense production base and

manufacturing skills in a period when less new

equipment is produced. If this objective is accepted,

it will have a significant effect on the size of the

in-Service component of the maintenance base.

This chapter describes the current defense maintenance base, defines what is needed to have a robust

maintenance base in the future, discusses some of

Table 5-2—Average Age in Years for Selected

Military Equipment

Equipment 1990 1993 1995

Air Force tactical aircraft . . . . . . . 10 8 10

Navy combat aircraft. . . . . . . . . . 12 13 15

Naval surface combatant ships . 15 13 14

Attack submarines . . . . . . . . . . . . 14 14 14

Ballistic missile submarines . . . . 18 15 11

Ml tank . . . . . . . . . . . . . . . . . . . . nA 6 8

Bradley fighting vehicles . . . . . . . NA 6 8

M-109 howitzer . . . . . . . . . . . . . . NA 23 25

AH-64 attack helicopter. . . . . . . . NA 6 8

NA - not available.

SOURCE: OTA, based on information fron] the Congressional Budget

Office, the Department of Defensa, and the Department of the

Army.

the alternative ways of achieving a robust base and

their policy implications. The options available for

the maintenance base are similar to those in the

production base. These options include:

1.

2.

3.

4.

5.

consolidating and restructuring the base while

retaining its current character,

increasing use of the private sector,

increasing competition among Service organizations (depots and air logistics centers) and

between Service organizations and private

fins ,

exploiting new technology, and

providing maintenance upgrades to U.S. equipment abroad, as well as foreign manufactured

equipment.

4 Alfred H. Bcyer and Connelly D. Stevenson, Depot Maintenance in fhe 1990’s (BethesdA MD: Logistics Managemer t Institute), July 1986, p. 4.

5 William B. ScotC “Manufacturers Embrace Upgrades to Suwive in ‘90s, ” Aviation Week & Space Technology, July 22, 1991, pp. 4-5.

b Defense Depot Maintenance Council, Corporate Business Plan FY 91-95, Deeember 1991. The Council, for exax pie, states that the ‘‘depot

maintenance community finds itseLf faced with the challenge of having to downsize while simultaneously increasing efficien :y and productivity in order

to sustain forces in the field’ in operations such as Desert Storm.
Chapter 5--The Maintenance Base ● 121

Photo credit: Rockwe// /nterrrationa/

U.S. and Australian F-1 11 fighter-bombers are upgraded

side by side in this industrial facility. Maintenance

of foreign-owned equipment could help support

the U.S. maintenance base.

These options are not mutually exclusive but

might be used in combination as a part of an overall

maintenance strategy.

THE CURRENT DEFENSE DEPOT

MAINTENANCE SYSTEM

In the past, each military Service has maintained

its own equipment with the exception of a few select

items (e.g., some aircraft engines), for which a single

Service has assumed overall maintenance responsibility. The Services have traditionally sought ownership and control of maintenance for their own

systems to ensure that they have the technical

competence and resources to respond to emergency

requirements. 7 The Services have also been concerned that failure to develop in-Service maintenance capabilities might leave them hostage to

escalating cost demands by sole-source private

contractors, or without the necessary support if the

private sector determines that maintenance work is

no longer profitable and leaves the business. However, these in-Service maintenance capabilities are

expensive. For example, the acquisition by the

Services of standard test program sets, which allow

the military to test and repair complex electronics,

can add up to 20 percent to the total development

cost of a single electronics package. This cost would

not be incurred if maintenance remained the manufacturer’s responsibility. The increased use of the

private sector is discussed later in this chapter.

Before fiscal year 1983, Service depots competed

for equipment funds from the same pool that was

used to acquire ships, aircraft, and other weapons

systems; in many cases they were unsuccessful in

obtaining funds to modernize their facilities.8 During the expansion of the 1980s, however, the Service

depots underwent substantial modernization funded

by the DoD Asset Capitalization Program. The

Services spent hundreds of millions of dollars on

new equipment and in some cases replicated capabilities that already existed in another Service or in

private industry.9 By the end of the decade, however,

the waning Soviet threat produced almost universal

agreement that the existing capacity in the depot

maintenance base exceeded future needs.

The Defense Management Report (DMR) released by Secretary of Defense Richard Cheney at

the beginning of the Bush Administratim idcntified

ways to improve the management of thc DTIB,

including maintenance. Deputy Secretary of Defense Donald Atwood subsequently directed the

Service Secretaries to prepare plans to reduce the

cost of depot maintenance operations between fiscal

year 1991 and fiscal year 1995 by a total of $1.7

billion ‘‘through internal streamlining and reducing

the size of their maintenance depot infrastructure. 1 0 Among the specific actions directed were:

transfer of workloads, establishment of one naval

aviation depot maintenance hub on the east and one

on the west coast of the United States, single-siting

maintenance, improvement of labor productivity,

and consideration of the withdrawal of Air Force

maintenance activity from one of that Service’s five

main Air Logistics Centers. Another $2.2 billion

was to be saved through long-range efficiencies that

—

T Kelvin K K iebler, Larry S. Klapper, and Domld T. Frank Army Depot Maintenance” More Effecti}e ZIse of Orga rr[c <J rr,i Contra L rur Resotir< e,s,

report no. AR803R I (Bethesda, MD: Logistics Managemen[ Institute, June 1990). p. 1-1.

8 The rmlltary Services primarily usc amual appropriation.. to reimburse the depots for actual work perfommt. Organic cicpo(s do not receive direct

appropriations for this purpose; instead, (hey arc funded Indirectly using working capitat in the Dcfeme Business Operations Fund an(i orders from their

customers to tlnance the cost of goods and services.

~ Beyer and S[c}cnson, op. Cit , f~tnote 4, pp. 7-9. The Logistics Management Institute study reported, for example ~at tie AmIY developed

Glpabllities in microelecuonics, automatic test equipment, and software that already existed elsewhere in the DoD.

10 Deputy Sccretagr of Defense Donald Atwood, Memorandum for Secretaries of lhe Mllltary Depar(n~ent~ Subject Strengthening Depot

Mu/ntenance Ac(/}[nes, June 30, 1990,
122 ● Building Future Security

included inter-Service competition for maintenance,

competition between Service organizations and

private fins, and increased use of depot capacity .11

The Atwood directive established a Defense

Depot Maintenance Council (DDMC) composed of

representatives from the Services and relevant agencies to advise the Assistant Secretary of Defense

(Production and Logistics) on maintenance and to

coordinate activities. To develop cost-saving strategies, the DDMC commissioned studies on capacity

utilization, performance measurement, information

systems, cost comparability, and a number of

specific weapon systems and technologies. (See

table 5-3.)

The current planned changes assume that a major

in-Service maintenance base will continue long into

the future. The position of DDMC is that

the highly developed capability of organic

maintenance depots, supplemented by that of commercial industry, makes it possible to maintain a

high state of readiness during peacetime and sustain

the continuing maintenance requirements essential

during wartime. ”12

This position is supported by Public Law 100-370

(July 1988), which directs the DoD to maintain a

core logistics capability for performing depot maintenance. The definition and uses of a core capability

are discussed later in this chapter.

As a result of the Defense Management Report

Decision (DMRD-908) dated November 17, 1990,

the Services developed a Corporate Business Plan in

December 1991 that describes how the Services will

reach the savings goals established earlier by Mr.

Atwood. The savings target of $3.9 billion is to be

achieved by fiscal year 1995 through increased

efficiencies in depot maintenance operations.13 An

initial aim of the Corporate Business Plan appears to

be to promote more cost-effective operations while

maintaining a depot infrastructure for each Service The plan is to achieve savings through

‘‘inter-Servicing” (developing single DoD sites to

Table 5-3—Defense Depot Maintenance Council

Commodity S1 udies

Army Ieac

Rotary wing aircraft

Combat, artillery, and tactical wheek d vehicles

Gas turbine engineshompressors

Conventional munitions

Rail equipment

General purpose equipment

Navy lead

Carrier based aircrafta

Tactical missiles

F-4 and OV-1 O aircrafta

Flexible computer integrated manufaf turing

Remotely piloted vehicleshnmanned aerial vehicles

J79~56 enginesb

Air Force let ‘id

Land based aircrafP

Type 1 metrology laboratories

Landing gear

TF30/Fl 10/LM2500 enginesb

Engine blades/vanes

Bearings

Marine Corps l~ad

Small arms

Ground mmmunications-electronics equipment

DLA lead

Industrial plant equipment

a combined into one fixed wing aircraft stUC y.

b combined into one engine study.

SOURCE: Defense Depot Maintenance Couwil, Corporate Business Plan

FY 91-95, December 1991.

maintain similar technologies or systems for all

Services), increased capacity utilization (consolidating facilities for a given technology and weapon

system within each Service), and greater reliance on

competition. Current Service depot maintenance

structure and restructuring plans are outlined below.

Army Depot Maintenance

The Army’s depot level maintenance is managed

by the Army Materiel Command through its Depot

System Command (DESCOM~, which administers

maintenance funds and assigns work to depots.15

The Army currently runs 8 major depot maintenance

facilities, has a budget of about $1.6 billion, and

11 Ibid.

12 Defe~e Depot Maintenance Council, op. cit. fOOtnOte 6, p. 5.

13 Ibid., p. 1.

14 Depot Ma~tenance Ex~utive @oup, Depot Maintenance Business Vision and Strategies for 1995 and Beyond: F’ndings for the Joint POllCy

Coordinating Group, Aug. 21, 1991.

15 Dept ~~tenmce rqfiements me determined by me -y Materiel Command’s Sk major subordinate commands ~ent, Munitions and

Chemical Command (AMCCOM); the Aviation Systems Command (AVSCOM); the Communications-Electronics Commmd (CECOM); the Missile

Command (MICOM); the Tank-Automotive Comma nd (TACOM); and the Troop Support Command (TROSCOM).
Chapter 5—The Maintenance Base ● 123

Table 5-4-Army Organic Depot Maintenance

Facilities

Facility Location

Anniston Army Depot . . . . . . . . . . . . . . . . . . . Anniston, Alabama

Corpus Christi Army Depot . . . . . . . . . . . . Corpus Christi, Texas

Letterkenny Army Depot . . . . . . . Chambersburg, Pennsylvania

Mainz Army Depota . . . . . . . . . . . . . . . . . Mainz, West Germany

Red River Army Depot . . . . . . . . . . . . . . . . . . Texarkana, Texas

Sacramento Army Depo!$’ . . . . . . . . . . . . Sacramento, California

Tobyhanna Army Depot . . . . . . . . . . . . Scranton, Pennsylvania

Tooele Army Depot . . . . . . . . . . . . . . . . . . . . . . . . . Tooele, Utah

a Closlng,

b DeS[gnat~ for closure by “Defense Base Closure and Realignment

Commission Report,” July 1, 1991.

SOURCE: Defense Depot Maintenance Council, Corporate Business Plan

FY 91-95, December 1991.

employs about 18,000 people in its in-Service

facilities. 16 (See table 5-4,) In fiscal year 1990 the

program repaired over 300,000 secondary items

(e.g., radios) and almost 100,000 major end items

(e.g., tanks, trucks, engines) .17

Over the past decade, the Army has contracted out

to private firms between 30 and 40 percent of its total

depot work. The percentage contracted out varies by

type of equipment. For example, in fiscal year 1989,

about 50 percent of Army aviation depot maintenance went to private firms, and another 10 to 15

percent was sent to the other Services. In contrast,

only about 35 percent of vehicle maintenance was

done outside of the organic base, and over 90 percent

of that was performed in a government-owned,

contractor-operated (GOCO) facility .18 The amount

of maintenance contracting has been controversial.

Current legislation requires that not less than 60

percent of funds available for fiscal years 1992 and

1993 Army depot level maintenance shall be used

for maintenance performed by employees of the

Department of Defense.

19 (Congress’ role in legislating different private and public-sector mixes of

military maintenance is discussed below.)

As a result of DDMC actions, the Army is

engaged in a significant restructuring and consolidation by technology and type of equipment at single

Photo credit: U.S. Army

Anniston Army Depot performs depot level maintenance

on the Army’s tanks.

sites. (See figure 5-1.) Heavy combat vehicle maintenance will be consolidated at Anniston Army

Depot, light combat vehicles and artillery at Red

River, missiles at Letterkenny, and tactical vehicles

(e.g., trucks) at Tooele. Further steps for achieving

savings involve the increased use of inter-Service

maintenance, and the closing of both the Sacramento

Army Depot and the Mainz Army Depot in Germany.

While these steps promise increased peacetime

utilization of the remaining facilities, they also carry

the risk that depots may be less responsive in crisis

or war. Army maintenance planners express concern

that excessive consolidations could impair their

ability to react to contingencies like Operation

Desert Storm. While they acknowledge the important support of private contractors during the Persian

Gulf War, they argue that the Army’s in-Service

capability is essential to support future theater

contingencies. Indeed, the Army’s maintenance base

strategy anticipates that the percentage of future

maintenance carried out in government facilities

will increase,

20 T he Army’s flexibility in reducing

the percentage of maintenance in government facili16 us, Amy Depot system command b+ fing, Nov. 13, 1991, DESCOM employs more tin 30,000” pe~onne). The remainder of these personnel

are involved in meeting the command’s other responsibilities: amrn unition storage, maintenance of portions of the Nation’s strategic materials stockpile,

and the distribution of commodities assigned by (he Army Malenal Command, the Defense Logistics Agency, the General Services Administratio~ and

other suppliers.

IT U.S. .hnY Depot System Comma nd Director for Maintenance briefing, Sept. 30, 1990.

Is Kleb]er c[ al., op. cit., fOOUIOte 7.

1’J Natio~l Defense Authorization Act for Fiscal Years 1992 and 1993, S-X. 314.

~ Defense Depot Maintenance Council, op. cit., fOOtnOte 6, pp. 12-13.

326-447 - 92 - 5 : Q[, 3
124 . Building Future Security

Figure 5-l—Army Depot Maintenance Realignment: Work Consolidation

Mainz Acrny Depot*

Heavy Light Tactical

combat combat vehicles

vehicles vehicles

● Closing

NOTE: This figure does not include inter-Service transfers.

SOURCE: DESCOM command briefing.

ties (should it decide such reductions are best) is

limited by legislation.

DESCOM will soon be consolidated with a

portion of the Army Armament, Munitions, and

Chemical Command into a single Army Industrial

Operations Command. This new command is expected to consolidate the depots into smaller, robust

manufacturing and maintenance centers that will

focus on maintaining those military systems used in

the short-warning regional conflicts that Army

planners believe are the most likely contingencies in

the foreseeable future.

Navy Maintenance and Overhaul

Navy depot maintenance and overhaul is managed

by two organizations. The Naval Air Systems

Command (NAVAIR) controls the six Naval Aviation Depots. The Naval Sea Systems Command

(NAVSEA) manages the public shipyards (table

5-5) and controls the repair and overhaul work

conducted at private shipyards. NAVSEA also

manages ordnance facilities and weapons stations

that perform depot level maintenance. Total Navy

maintenance was over $6.5 billion in fiscal year

1991.

Navy ship repair and overhaul is conducted at 44

private shipyards and 8 Navy shipyards. The

workforce engaged in Navy repairs and overhaul

work consists of about 20,000 in the private sector

(out of a total private shipyard workforce of just over

100,000) and 60,000 public-sector workers (which

the Navy plans to reduce to about 40,000). Additionally, U.S. Navy ships whose home ports are outside

the United States are overhauled overseas. For

example, Navy overhaul and repair activities at

Subic Bay, Philippines; Guam; and Yokosuka,

Japan have, in recent years, totaled more than $100

million per year.

In the mid- 1960s, the Navy adopted a policy of

assigning all new ship construction to private

shipyards and having its own shipyards concentrate

on overhaul and repair. Since that time, 60 to 70

percent of the Navy’s ship repair and overhaul work

has been done by Navy shipyards, while the

remaining work, along with all new construction,

has been performed by private-sector yards.21 Congress required competition between the private and

21 Chton H. ~itehmst, Jr., The U.S. shipbuilding Indusrry (Annapolis, MD: Naval Institute Press), p. 90, notes that 1 Etween 1974-1983 about 30

percent of Navy ship repair went to private shipyards.
Chapter 5—The Maintenance Base ● 125

Table 5-5---Navy and Marine Corps Depot Maintenance

Facilities

Fad lit y Location

Naval Aviation Depots

NADEP Alameda . . . . . . . . . . . . . . . . . . . . . . Alameda, California

NADEP Cherry Point . . . . . . . . . . . Cherry Point, North Carolina

NADEP Jacksonville . . . . . . . . . . . . . . . . . . . Jacksonville, Florida

NADEP Norfolk . . . . . . . . . . . . . . . . . . . . . . . . . . .Norfolk, Virginia

NADEP North Island . . . . . . . . . . . . . . . . . San Diego, California

NADEP Pensacola . . . . . . . . . . . . . . . . . . . . . Pensacola, florida

Naval Shipyards

Naval Shipyard Charleston. . . . . . . . Charleston, South Carolina

Naval Shipyard Long Beach . . . . . . . . . . Long Beach, California

Naval Shipyard Mare Island . . . . . . . . San Francisco, California

Naval Shipyard Norfolk . . . . . . . . . . . . . . . . Portsmouth, Virginia

Naval Shipyard Pearl Harbor . . . . . . . . . . . . Pearl Habor, Hawaii

Naval Shipyard Philadelphiaa

. . . . . . Philadelphia, Pennsylvania

Naval Shipyard Portsmouth . . . . . . Portsmouth, New Hampshire

Naval Shipyard Puget Sound . . . . . . . . . Bremerton, Washington

Ship Repair Facilities

SRF Guam . . . . . . . . . . . . . . . . . . . . . . . Guam, Mariana Islands

SRF Yokosuka . . . . . . . . . . . . . . . . . . . . . . . . . . Yokosuka, Japan

Marine Corps Logistics Bases

MCLB Albany . . . . . . . . . . . . . . . . . . . . . . . . . . . . Albany, Georgia

MCLB Barstow . . . . . . . . . . . . . . . . . . . . . . . . Barstow, California

a ~hedu[ed to be closed.

SOURCE: Defense Depot Maintenance Council, Corporate Business Plan

H91-95, December 1991.

public sectors for Navy ship overhaul and repair

beginning in 1985. By 1990, largely because of

declines in shipbuilding work, repair constituted

almost 20 percent of the work in private yards doing

business with the Navy.22

The Navy Sea Systems Command’s plan for

achieving its DMRD-908 savings goals includes

consolidations and reductions in workforce that

began in fiscal year 1991. The Navy reports that its

ship depot level maintenance resides in both private

and public yards, although the near total lack of new

construction threatens the survival of private U.S.

shipyards. The Philadelphia Naval Shipyard is

scheduled to close once it completes work on the

aircraft carrier Kennedy, The Navy has recently

proposed consolidation of its ship overhaul capabilities by creating a central-hub shipyard on both the

east and west coasts that would provide ‘‘support

P .

*

-, 4[ ? -’ ‘-

Y , ,.,

.,

Photo meclit: Bath Iron I$6rks

The U.S.S. Samuel B. Roberts at the Bath Iron Works

undergoing extensive repa’r for mine damage. Many t ypes

of maintenance and repair work require the same skills and

facilities as manufacture.

functions such as planning, design, procurement and

accounting and maintenance. ’23 This consolidation

of overhead functions would support a series of

satellite yards that retain unique facilities (e.g.,

nuclear submarine overhaul and repair, and aircraft

carrier overhaul) and trained personnel. Despite the

consolidations and closures to date, and those that

are planned, there is still considerable overcapacity

in U.S. shipbuilding and repair. Nevertheless, the

Navy’s ability to consolidate further may be constrained by the huge capital investments in dry docks

and support equipment required in its specialized

maintenance facilities.

Naval aviation depot maintenance, employing

more than 20,000 people, is carried out in 6 Naval

Aviation Depots, which also benefited from the

modernization of the 1980s. In response to DMRD908, the Navy plans by fiscal year 1992 to consolidate maintenance activities for each type of aircraft

at single sites. 24 plans call for the 6 depots to be

~ Naval Sea Systems Command, United S/ate~ Shipbuilding Industry, briefing paper, July 1990. Navy shipbuilding covered tie bulk of ~1 o~er

work. The latest Navy report to Congress on shipbuilding, Report on the Effects of the FY 1991-97 Navy Shipbuilding and Repair Programs on U.S.

Private Shipyards and the Supporting Industrial Base, April 1991, noted that “In recent years, Navy funding has accounted for 90 percent of the

employment at those private yards performing Navy work. Further, 90 percent of Navy shipbuilding funds has been concentrated in only five private

yards. ’ ‘

23 Robcfl Holzer and Neil Munro, “Navy Weighs Overhaul of Shipyards, ” Defense New’s, Dec. 23, 1991, p. 17.

~ Defense Depot M~ntcMn~ Counci], op. cit., footnote 6, p. 15. The A-6 will not be single-sited until the completion of CuITent rewing work.
226 ● Building Future Security

Table 5-6—Air Force Organic Depot Maintenance Facilities

Facility Location

Air Logistics Centers

Ogden Air Logistics Center. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hill Air Force Base, Utah

Oklahoma City Air Logistics Center . . . . . . . . . . . . . . . . . . . . . . . . . . . Tinker Air Force Base, Oklahoma

Sacramento Air Logistics Center. . . . . . . . . . . . . . . . . . . . . . . . . . McClellan Air Force Base, California

San Antonio Air Logistics Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Kelly Air Force Bas e, Texas

Warner Robins Air Logistics Center . . . . . . . . . . . . . . . . . . . . . . . . . . . Robins Air Force Base, Georgia

Other Air Force depot maintenance activities

Aerospace Guidance and Metrology Center. . . . . . . . . . . . . . . . . . . . . Newark Air Force Stat on, Ohio

Support Group Europea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RAF Kemble, United Kingdom

Detachment 35 ....., ., . . . . . . , ... , ., . . . . . . . . . . . . . . . . . . . . . . . . Kadina Air Force Base, Japan

Aerospace Maintenance and Regeneration Center. . . . . . . . . Davis-Monthan Air Force Base Arizona

a ~h~uled to close.

SOURCE: Defense Depot Maintenance Council, Corporate Business Plan FY91-95, Deeember 1991.

linked through two Business Operating Centers

co-located with the depots at Norfolk, Virginia and

North Island, California. According to the Navy,

savings will be achieved by reducing the number of

personnel who now work on a single aircraft type at

more than one site, and through equipment reductions. 25 Engine and aircraft component work is being

consolidated, and Navy plans also call for increased

inter-Service maintenance. The aviation depots, like

the naval shipyards, have engaged in limited competition with commercial firms since 1987. The Navy

projects savings from competition in aircraft maintenance to add up to more than $550 million between

fiscal year 1992 and fiscal year 1995.

Marine Corps Depot Maintenance

The Marine Corps has two logistics bases. (See

table 5-5.) The Service has done little outside

contracting and has used Navy facilities to support

Marine aviation. Pursuant to DMRD-908, the Marine Corps plans ‘‘cost avoidance’ of about $27

million by not developing its own Abrams tank

maintenance facilities, It also anticipates additional

savings from increased inter-Service maintenance

combined with increased competition. Indeed, most

proposed Marine Corps savings are expected to

come from increased efficiency resulting from

greater competition, both among the Services and

between the public and private sectors.

Air Force Depot Maintenance

The depot level maintenance activities of the Air

Force are currently managed by the Air Force

Logistics Command and include the repair, modification, and support of aircraft and equipment.2G The

Air Force has five major A r Logistics Centers

(ALCs), some smaller support centers, and a limited

depot maintenance capability overseas. (See table

5-6.) Air Force maintenance currently employs

about 36,000 people (scheduled to fall to about

31,000 by 1995). Fiscal year 1991 work totaled

most $4.7 billion. The Air Force performs about

60-70 percent of its depot maintenance in its

ALCS.

27 Another 6 percent of Air Force depot work

is performed by the other Services, 28 and the

remainder is performed by private firms under

contract. In fiscal year 1988, the Air Force Logistics

Command repaired or modified 1,307 aircraft, 7,727

engines, and 817,000 exchangeable parts. Approximately 90 Air Force systems are currently supported

throughout their life by the private sector.

The Air Force modernized its depot maintenance

system during the 1980s. It has long consolidated its

depot maintenance around Technology Repair Centers. For example, the repair of aircraft engines is

concentrated at the Oklahoma City and the San

Antonio ALCs and landing gear - at Ogden ALC. The

Air Force is now downsizing and further consolidat-

~ Ibid., p. 14.

X On July 1, 1992 tie Air Force LQ@iCS Command and Air Force Systems Command will merge into the Air Forct Wteriel Comma.n d.

27 MG Joseph K. Spiers, comm~der, Oklmoma City Air Logistics Center, testimony before the House Committee on 1.rrned Services, panel on the

Structure of the U.S. Defense Industrial Base, Nov. 1, 1991.

2$ ~ Force I@stics Center, J988 Production Base Analysis, october 1989, p. ~.
Chapter 5-The Maintenance Base . 127

ing its base to reduce total costs by about $1.1 billion

between fiscal year 1991 and fiscal year 1995.

Current Air Force mobilization planning requirements are based on a scenario that envisions two

simultaneous regional conflicts in different parts of

the world.29 Air Force studies of the infrastructure

needed to support these requirements caused the

Service to begin downsizing the workforce beginning in fiscal year 1991. The Air Force plans to

retain, but scale down, each of the current ALCs.

The Air Force plan calls for rapid personnel

reductions, installation closures, and process improvements. In the longer term, savings will be

accomplished by increased inter-Service maintenance competition and increased utilization of

facilities, Most long-range savings are expected to

come from greater efficiency spurred by competition. 30

The Air Force considers the retention of skilled

personnel an immediate and important problem and

is concerned about their loss as budgets and forces

decline. The commander of the Oklahoma City

ALC, for example, testified that he was losing both

current expertise and future capability because his

older, experienced workers were leaving through

‘‘early-out retirements and his younger workers

were leaving because of reductions-in-force.31 A

second Air Force concern is its ability to continue

sufficient investment in depot facilities over the long

term.

REQUIREMENTS FOR A ROBUST

FUTURE MAINTENANCE BASE

Congress and the DoD need to plan the size and

nature of the future maintenance base. As discussed

at the beginning of this chapter, the future base will

be smaller because the Nation will have fewer

deployed weapons, will face smaller military

threats, and systems in the field may be more

reliable. Even so, the retention of older weapon

systems will make maintenance, as well as upgrading and retrofitting, important. Much of this upgrading is expected to occur in avionics, electronics,

software, and advanced materials. Thus, a future

robust maintenance base will not be just a collection

Photo cwdit: DoD

In modern combat, field maintenance must be able to

return equipment rapidly to operation.

of metal-working shops but must be capable of

supporting an increasingly complex inventory of

weapon systems.

The future maintenance base must be efficient in

peacetime; this is an objective of many current

Service initiatives. The Services’ plans for future

efficiency rest on the increased use of competition

and better use of physical plant. But competition and

high facility utilization can be incompatible. True

competitive bidding implies multiple sources, and

hence some overcapacity. The anticipated savings

through competition hoped for by each Service may

be based on the belief that it, and not another

Service, will win such competitions. A major bonus

of increased competition is that it is a politically

acceptable way of elimin ating facilities (public as

well as private) that are unable to modernize

adequately. Another way to improve efficiency is

through new maintenance techniques and technologies, including modular repair centers, robotics, and

advanced diagnostic equipment. Built-in diagnostics may reduce field maintenance costs in the future.

The future base must retain a capacity to respond

rapidly to crisis or war. However, peacetime efficiency resulting from the high utilization of the

maintenance base in peace may also be incompatible

with responsiveness in crisis and war. Such responsiveness will continue to be critical in the shortwarning regional conflicts that many planners envi29 Defc~.e Depot M~ntenance Council, Op. Cit., foo~ote 6, PP. 3’l_35.

~ Ibid.

3 I Spiers, op. cit., footnote 27.
128 . Building Future Security

sion in the future. During the recent Gulf War, the

depot system appeared to respond well. The Services

modified equipment both in the United States and in

the Gulf. The Army DESCOM, for example, shipped

500,000 tons of materiel, rapidly upgraded 743

MIA1 Abrams tanks, deployed 2,000 civilian employees to the theater, and established a forward

maintenance facility in Saudi Arabia. Contractors

also deployed hundreds of maintenance personnel to

the theater of operations and made important modifications to equipment once they were there. Although

the future maintenance base will need to respond,

there will be a lesser magnitude of wartime demand

associated with the smaller contingencies likely in

the foreseeable future.

ALTERNATIVES FOR THE

FUTURE

The principal alternatives for ensuring a robust

depot level maintenance base in the future are

evident in the Service’s responses to DMRD-908,

and were noted earlier in the chapter. They are

discussed below and include:

1.

2.

3.

4.

5.

reduction and consolidation of current inService and private-sector capabilities;

increased use of the private sector both to gain

expected efficiencies, and also to provide

support for the private production base;

increased use of competition;

development of new technology for maintenance; and

maintenance and upgrading of U.S.-produced

equipment abroad as well as foreign-produced

equipment.

These alternatives, as noted earlier, are not

mutually exclusive; rather in combination they

could fashion a future robust maintenance base.

Reduction and Consolidation

Reduction and consolidation of the base is ongoing, as described above. Current plans are significant

in the context of past DoD attempts at consolidation.

But viewed in the context of the end of the cold war,

these plans are less impressive. Even after present

plans are carried out, the DoD will have almost the

same number of major in-Service maintenance

facilities as existed during the cold war.

Photo credit: U.S. Nayy

A nuclear submarine leaves the dry dock at Bangor,

Washington. Some specialized maintenance work, such

as repair and overhaul of nuclear- mwered submarines,

can only be accomplished c t special sites.

Further consolidation can be carried out across

Service lines. Consolidating maintenance of similar

systems or technologies at single facilities—

regardless of Service affiliation--reduces overhead

and makes better use of specialized capabilities.

Projected DMRD-908 savings from inter-Service

maintenance are $120 million for the fiscal year

1991 to 1995 period. The Services report that over

60 percent of depot work could be accomplished by

more than one Service. This figure excludes work

that requires such specialized facilities as large

drydocks, large hangers, naval nuclear-reactor refueling facilities, and the skilled people to run them.

Nevertheless, in fiscal year 1989 only 6 percent of

the maintenance that could be performed on an

inter-Service basis was sent a moss Service lines,

indicating considerable redundancy in the base. That

percentage is projected to rise to only about 9

percent by fiscal year 1995.32

Individual Service planners express a number of

concerns about inter-Service maintenance consolidation. One of the principal worries is that another

Service will not meet the special requirements of

particular equipment, such as he Navy’s need to

protect its aircraft engines from he corrosive effects

of the marine environment. O her risks cited are

possible lack of responsiveness by another Service.

The ongoing reductions and consolidations are

politically unpopular because they carry up-front

costs that may seem large compared to the promise

32 Defe~e D~t Mainkmn@ Council, op. cit., fOOt.IIOte 6, pp. 37-~.
Chapter 5—The Maintenance Base . 129

of future, long-term savings. In particular, Service

depot maintenance facilities are important sources

of jobs. Public opposition to impending closings has

led Congress to mandate work assignments to

particular facilities to keep them open. But congressionally mandated workloads make it difficult for

the DoD to improve the efficiency of the maintenance base. A Logistics Management Institute

(LMI) study found, for example, that special legislation enacted in 1986 exempting the Army electronics repair depots from personnel reductions resulted

in significant inefficiencies in managing depot

workload.

33 Thus, even when Services decide to

consolidate facilities, they may be barred from doing

so because of congressional pressure to preserve

jobs.

The expected large reductions in maintenance

requirements, combined with falling defense budgets, make it imperative to rationalize the depot

maintenance base. One way of dealing with this

problem is legislation such as the Defense Base

Closure and Realignment Act of 1990, which

requires that all installations be considered equally

for possible realignment or closure. The Act established new procedures for closing military installations in the United States and formed an independent

commission to recommend which bases should be

eliminated. 34 Such legislation can help assert the

national interest in rationalizing the maintenance

base over the local interest in preserving jobs.

Changing the Private/Public Mix

The current debate over increasing the percentage

of private-sector involvement in future depot maintenance work is principally motivated by two

factors: (1) the anticipated reduction in new weapons

production that will leave large defense manufacturing firms with little new production for the foreseeable future; and (2) the reduction in spending in the

depot base that is driving the consolidations and

reductions discussed above. Advocates of more

private-sector involvement argue that the private

sector can provide depot maintenance at lower cost

than can the public sector, and that a shift toward the

private sector would help keep the production base

healthy during a period of much reduced new

weapon procurement.

There are, however, concerns about the long-term

implications of increasing the private-sector share of

depot maintenance and skepticism about the utility

of using depot maintenance to support manufacturing skills. The concerns center on questions about

how well the private sector can respond to shortnotice crisis and conflict requirements, and whether

private contractors can indeed provide depot maintenance at a lower cost. The skepticism centers on the

amount of overlap between maintenance and manufacturing skills and whether performing maintenance can indeed support relevant manufacturing

skills. It is worth noting, however, that most allies in

Europe and the Far East rely on their private sectors

for almost all their military depot maintenance.

The Current Mix

A significant portion of depot maintenance funding is currently spent in the private sector. For

example, between 20 and 30 percent of the depot

level maintenance is now performed by private

fins. Almost all new weapon systems begin their

service lives under interim contractor support (ICS)

provided by the manufacturer of a system. This

support usually lasts until the system is deployed in

sufficient numbers to warrant transferring maintenance responsibility to the Services. During this

initial period, test equipment is developed for use in

the Service support base, and Service depot personnel receive maintenance training. While the majority

of systems move on to Service depot maintenance,

some continue to be maintained by the private sector

in what is termed contractor logistics support (CLS).

In addition to the direct revenue from maintenance, repair, and overhaul, the private-sector production base also derives considerable income from

the sale of spare parts and other goods and services.

The commander of the Air Force Oklahoma City

ALC, for example, reported that in fiscal year 1991,

his command had contracted for ‘$2 billion of work

with over 6,500 private sector organizations in 46

states and 9 foreign countries. ’ ’35

s~ Kiebler et d., Op. Cit., fOOhIOte 7, p. ‘2-23.

~ General Accounting Office, Mi[itaq Bases: Observation on the Analyses Supporting Proposed Closures and Realignments, GAO~SLAD-9 1-224,

May 1991, p. 15.

35 Splers, op. cit., footnote 27. Note, however, that much of this is accounted for by the purchase of spare parts to support work actuallY done at tic

ALC.
130 ● Building Future Security

Photo uedit: General Dynamics

General Dynamics performs periodic depot n@ntenance

on Navy fleet missiles.

The combination of private-sector maintenance

and direct sales accounts for more than 50 percent of

current depot maintenance spending. This share

demonstrates a private-sector commitment to depot

level maintenance and an acceptance by the Services

of private-sector involvement. It also suggests the

limits of any additional private-sector shift.

The Logistics Core

Current Service and DoD policy of maintaining a

‘‘core in-Service logistics capability will affect

any shift to the private sector. The core depot

maintenance capability is basically that minimal

combination of people and facilities each Service

believes it needs to support its forces in likely future

operations. According to the Defense Depot Maintenance Council, the logistics core is ‘‘an integral part

of a depot maintenance skill and resource base which

shall be maintained within depot activities to meet

contingency requirements. ’ ’36 It is to consist of only

a ‘‘minimum level of mission essential capability.

How this concept of a core capability is determined differs among the Services. The Army, for

example, defines its core requirements as workloads

that are essential to the mission or critical to the

capability of each unit. Navy aviation core requirements are based on a regional war scenario. The

Navy’s core maintenance requirements for its sea

forces are defined as ‘‘a responsive, geographically

dispersed, strike-free industrial capacity . . . . whose

priorities are controlled by the Navy. Interestingly,

the Navy’s logistics core for sea systems includes

private as well as Service facilities and people. The

Air Force definition of core requirements is based on

an analysis of the skills and weapons needed to

support specific regional-conflict scenarios.37

Commercial firms will have a difficult time

competing with in-Service depots for future maintenance work if the Services reserve a large core for

themselves. While the Services’ protected logistics

core can reduce their own workload fluctuation and

maintain internal skills, it has the drawback of

increasing the fluctuation in any workloads performed in the private sector. From the Services’

perspective, however, the concept of a core capability is critical to maintaining essential expertise. They

believe that opportunities for changing the private/

public mix of maintenance work will be limited

because, as one Air Force commander testified,

“government workloads that would be the most

attractive to the commercial repair and maintenance

sector would be the high-volume, state-of-the-art

technology, stable workloads . . . [that are] the very

workloads that are imperative for [the Air Force] to

keep . . . to maintain a mobilization skills base, ”38

The Debate over the Mix

The past division of labor demonstrates industry’s

interest in depot maintenance. Much of the increased

interest is in upgrading current] y deployed systems.

As part of an integrated DTIB strategy, shifting this

work to private firms could provide employment for

production staffs during low points in procurement

cycles and could also generate another source of

income for firms attempting to maintain research

and design, as well as production, capabilities.

Proposals for upgrading armored vehicles, for example, envision work-sharing arrangements with Service depots to combine depot overhaul with major

upgrades and thus keep production lines warm.

Upgrading could bring older tanks and infantry

fighting vehicles up to date with new communica-

~ Defe~e Depot Mtitemnm Council, op. Cit., fOOtf30te 6, p. 33.

37 Ibid., pp. 33-35.

38 Spiers, op. cit., footnote 27.
Chapter 5--The Maintenance Base . 131

tion and sensor technologies.39 Upgrades would also

support the production base through the manufacture

of subcomponents and parts. In fact, upgrades will

have a positive impact on subtier firms regardless of

whether the overall system work is performed by a

prime contractor or an in-Service facility. The

Electronic Industries Association (EIA), for example, anticipates that upgrades will provide considerable business for the electronics sector in the next

decade, although recently, EIA’s estimates of the

size of the future market have been going down.a

In general, manufacturing firms argue that they

have an inherent capability to maintain the equipment they have produced and that developing

in-Service support capabilities often ‘‘duplicates an

existing commercial defense capability that was

developed to design and initially manufacture the

military equipment. As such, it is entirely feasible in

many cases for the U.S. [private] industrial base to

replace the in-Service capability for the U.S. military. ‘ ’41 Contractors say they are more efficient

because the pressures of competitive bidding force

them to control costs and that they have different

personnel policies than does the DoD. Further, many

private contractors say that they are as responsive as

the Service maintenance base and point out that

current Service response capabilities already depend

on spare parts and services from private industry.

The private sector’s ability to respond quickly has

been demonstrated during the Vietnam and Persian

Gulf conflicts.

Government proponents of an in-Service capability make a number of counterarguments. They

believe that in-Service maintenance facilities are

more responsive in crisis and war than private

industry, and are also more flexible because they can

take on new work without changes in contracts. The

Air Force, for example, has testified that the Air

Logistics Centers have “the flexibility to deal with

a highly dynamic war environment and that no

contractor or group of contractors could replace the

cohesive, highly flexible capabilities of the inService facilities. ’ ’42 Along similar lines, the Army

argues that assigning surge maintenance tasks “to

the private sector, without the insurance of the

contractor’s ability to rapidly expand, could jeopardize the Army’s ability to get equipment to the soldier

in time of national emergency. ’ ’43 The Navy has

expressed less concern about increasing privatesector involvement in maintenance than the other

Services. In part this is because shipyards are large

and easy to monitor and also expensive to duplicate.

The Navy plans for private shipyards to be the sole

provider of some of its ship maintenance and

considers private-sector yards to be part of its core

sea systems capability.

The Services have noted that many systems

maintained in contractor logistics support in the past

have ultimately devolved to in-Service maintenance

as they aged and became more difficult to repair. As

a result, Service officials are concerned that they will

be stuck with maintaining all the old systems rather

than those essential to war-fighting. Other risks

associated with relying on the private sector are said

to be strikes and bankruptcies. A Logistics Management Institute study concluded, however, that these

problems are likely to occur only in peacetime and

can be dealt with by the DoD through existing legal

mechanisms.”

The evidence supporting arguments on either side

is scarce and largely anecdotal. Some General

Accounting Office (GAO) studies have questioned

the economics of developing in-Service depot support capabilities for equipment that may be widely

used commercially. A recent GAO study, for example, found that the Air Force had spent millions of

dollars establishing a maintenance capability for the

new engine of the KC-135 tanker but was using only

about 15 percent of that capacity. GAO argued that

the Service might better have relied on existing

39 c~~b &&~r, ‘ ‘Army Seeks Stable Bradley productio~” Defense News, Oct. 14, 1991, p. 8.

~ Brwk W. Henderso~ ‘ ‘Stagnant Military Electronics Spending Likely Under Tight 1990s Budgets, ’ Aviation Week and Space Technology, Mar.

16, 1992.

41 ~. Gordon R, England, Executive Vp.AU~aft programs, Gener~ Mamger-Fort Wofi Divisio~ Gener~ Dynamics, Statement before the ~OUSt?

Armed Services Committee, Structure of the U.S. Defense Industrial Base Panel, Oklahoma City Field Hearing, NOV. 1, 1991.

42 Spiers, op. cit., fOO~Ote 27.

.t3 ~y 1~omtion papr, Army’s Maintenance ad ~gistics System, May 14, 1991, provid~ in response to OTA questions.

44 Kiebler, et a]., op. cit., footnote 7, pp. 2-24 tO 2-26.
132 ● Building Future Security

commercial facilities.45 While a GAO study on the

effects of competition found that using private/

public competition has resulted in savings in naval

aviation overhaul, an earlier study of ship repair

could not confirm the savings the Navy had projected from greater use of the private sector.46

Discussions with government personnel indicate a

belief that private firms are less responsive in

peacetime (because of general business practices),

but OTA has been unable to find any hard evidence

to show that the Service maintenance base is indeed

more responsive than private contractors in a crisis.

Despite arguments that private contractors avoid

maintaining older equipment, the Army has contracted out maintenance of older electronics equipment that its own depots do not want to handle. Any

migration of older systems into the in-Service base

may stop as the Services are forced to pay the true

costs of maintenance whether it is performed in the

in-Service component of the base or in the commercial component.

Increased maintenance, especially overhaul and

upgrades, may help support the production base in

some sectors, Upgrades of several armored vehicles

might maintain active production lines. Further,

some sectors (such as electronics) claim there is

considerable overlap in skills between maintenance

and manufacturing. Nevertheless, many government

planners remain skeptical of the overall benefits of

such change. They believe that industry is more

interested in production than maintenance and is

therefore unreliable, that maintenance skills are

different from manufacturing skills, and that DoD

efforts to support production will reduce Service

maintenance capacity while propping up uneconomical production. Further, the use of private firms

could erode surge capability over time. The basis for

many of these government concerns is best summarized in an observation by Air Force logistics

planners:

Transferring maintenance tasks to the private

sector will provide short term capital to defense

Photo credit: Bath Iron Wxks

lltis plasma arc burning machine cuts metal pieces for

both new instruction and tt e rnahtenance and

overhaul of olde ” ships.

firms. Over time, however, it is likely that private

sector firms will evolve to ‘ ‘peacetime efficient”

operations with little of the ‘‘excess capacity”

needed for the essential support of any significant

surge. We will have canceled the insurance policy

(i.e., organic capability) in anticipation of only

“good times. ” If the “good times” end quickly we

will be at a significant logistics disadvantage.47

Sorting through the arguments on both sides demands systematic study.

Congress

Congress has exhibited a mixed response to

increasing private-sector involvement in depot maintenance. For example, Congress and the Navy have

sought to ensure that the private-sector share of ship

repair not fall below 30 percent.48 At the same time,

Congress has limited private-sector involvement in

Army and Air Force depot maintenance to not more

45 U.S. @M~ hmm~ mm, Commercia[practices: OppomnitiesEm”st to ReduceAircraftEngine Support Costs, GAO/NSIAD-91-240, J1991, p. 5. l%c Air Force spent $40 million on a repair facility at the Oklahoma City ALC and also opened three intermediate maintenance facilities

for the engine. GAO pointed out that General Electric and Aviall repair similar engines.

~ GAO~SIAD-92-43, forthcoming, title not available; and U.S. General Accounting Offlce, Navy Maintenance.” Status of Public and Pn”vate

Competition, GAO/NSIAD-90-161, September 1990.

47 ComMPndmW with Headquarters, Air Force Logistics COmman d, Mar. 16, 1992.

M ~tehwst, op. cit. footnote 21, p. 67.
Chapter S-The Maintenance Base . 133

than 40 percent of the funded work.49 Current law

supports some public-sector capability. It states that:

It is essential for the national defense that

Department of Defense activities maintain a logistics

capability (including personnel, equipment, and

facilities) to ensure a ready controlled source of

technical competence and resources necessary to

ensure effective and timely response to mobilization,

national defense contingency situations, and other

emergency requirements.w

The law gives the Secretary of Defense the

authority to identify those in-Service maintenance

capabilities necessary to maintain responsiveness.

As a result, the Secretary has discretion over when

to use the private sector.

Congress may wish to support significant change

in the current private/public mix. Should more

private-sector involvement appear desirable, there

are a number of ways to move in that direction. One

is through increased contracting and competition

with the private sector, as discussed in the following

section. Another way would be to privatize existing

in-Service facilities. Depots might be converted to

GOCOs. Such facilities have the advantage of

combining long-term government control of the

facilities with more flexible private-sector operation

on a day-to-day basis. If depots become GOCOs,

large capital cost items (e.g., dry docks) could be

paid for by the DoD while management and workers

could be paid through the private sector. As for

responsiveness, many ammunition facilities are

GOCOs and are designed to respond to crisis.

Depots could also be closed and equipment mothballed. While this approach would not address the

need for responsiveness, it would provide some

capability for longer term mobilization.

Finally, depots could be sold to the private sector.

Selling depots to industry maybe more difficult than

converting them to GOCOs. Privatization could

allow the use of the large government investment for

commercial as welI as military use. However,

industry has shown little interest in buying the

defense industrial base facilities that have been for

sale over the past decade. Industry would probably

prefer to move maintenance activities to existing

private-sector facilities.

As Service maintenance organizations become

more streamlined, the greater efficiency of contractors may become a less compelling argument for

moving to the private sector. For example, the Air

Force has reduced its workforce by 6,000 since fiscal

year 1991 and plans to support many programs with

personnel hired on temporary appointments. Conversely, if the United States chooses to move toward

more civil-military integration in weapons design

and manufacture, increased use of the private sector

for maintenance might make even greater sense.

Cornpetition

Competition in

and Efficiency in Military

Maintenance

the maintenance base, like that in

the production base, is intended to promote efficiency and fairness. In the past, individual DoD

program managers had the authority to decide on the

basis of cost whether to rely on in-Service or private

maintenance, although the Services planned to

maintain some core capabilities. But past policies

also stressed the importance of multiple sources for

wartime expansion. Thus, these policies often aimed

at increasing capacity rather than promoting efficiency.

Competition was also used to help private companies gain access to maintenance contracts. Congressional concern about the health of the U.S. shipbuilding industry resulted in opening Navy ship

repair work to private shipyards. The frost such

competition occurred in fiscal year 1985. By the end

of fiscal year 1989, maintenance work on 43 surface

ships and 25 submarines had been competed .51

Competition involving the Naval Aviation Depots

began in 1987. The National Defense Authorization

Act, passed in fiscal year 1991, expanded the

maintenance competition programs on a limited

basis to all the Services. This program is designed to

promote competition among the Services as well as

between the Services and private industry.

DMRD-908 proposes to achieve one-third of the

projected $3.9 billion maintenance base savings by

49 Boti tie 198t3 and 1%9 Defense AuthorizationActs contained a requirement that the byswnd a minimum of 60 percent of the depot maintenance

budget on programs performed by the organic DoD workforce. Current law mandates that 60 percent (by cost) of Army and Air Force depot work be

performed by government employees.

m 10 U.S. Code Section 2464.

51 GAO~S~.9@161, op. cit., footnote 46.
134 ● Building Future Security

efficiency improvements resulting from competition. Competition is expected to increase efficiency,

control and reduce costs, and foster innovative

approaches to maintenance. Four areas are to be

opened to competition:

1.

2.

3.

4.

items currently under commercial contract

whose renewal is imminent,

major refurbishment and modification programs,

manufacturing and fabrication, and

in-Service workloads deemed in excess of the

logistics core.

How effective competition really is in controlling

maintenance costs is debatable. As noted above, a

1990 General Accounting Office report on shipyard

competition concluded that the Navy’s projected

cost savings for private yard ship repair could not be

substantiated. 52 GAO noted, however, that competition had encouraged the Navy’s own shipyards to

adopt ‘‘a more businesslike approach to ship repair

work . In addition, a more recent GAO study of

naval aircraft maintenance found that competition in

F-14 aircraft maintenance had resulted in a 25

percent decline in overhaul costs.53

Partly because of congressional restrictions, competition is just beginning in the other Services. U.S.

Code, Title 10, Section 2466, for example, prohibited the Army and the Air Force from competing

against each other or with the private sector.

Competition will take some time to develop properly

as organizations that have never had to compete

learn to price their services and put together bid

proposals. But the advent of business offices at

depots, and new awareness of overall costs, support

the Navy’s contention that competition reduces

overall maintenance costs.

Structuring competition and developing a “level

playing field” agreed to by both the private sector

and the public sector will probably remain contentious. A key issue has been how to compare costs

among different Service depots and between the

private and public sectors. The Services jointly

developed and published a Cost Comparability

Handbook to help make these comparisons and

eliminate differences in accounting procedures used

by various public and private competitors.

Photo credit: U.S. Air Fome

An Air Force repair facility for jet e lgine casings. This and

other repair technologies have =en developed with

special Repair Technology, or 3EPTECH, funding.

While recent changes promote competition in the

maintenance base, there are still major limitations.

Current law limits the Army and Air Force competition program to not “more than 10 percent of all

depot-level maintenance of materiel that is not

required to be performed by employees of the

Department of Defense. ’ This limitation effectively

excludes 96 percent of Army and Air Force maintenance work from the pilot program.

Competition, if it develops, may prove to be a

good means of selecting those organizations, private

or public, that should be retained in the future

maintenance base. It will be much more difficult to

preserve a government facility or private firm that

has systematically failed to attract work on a

competitive basis.

New Technology

The future depot maintenance base should seek to

benefit as much as possible from new technology.

An obvious area for improvement is the design and

development of weapon systems and equipment

with higher overall reliability, thereby reducing

maintenance requirements. Modular components

(e.g., circuit boards) and built -in diagnostic checks

are changing maintenance tasks. They are, for

example, making it easier to repair and replace

equipment in the field.

52 Ibid., p. 1.

53 GAo~sIAD-gzqs, op.cit., fm~ote %.
Chapter 5-The Maintenance Base ● 135

Flexible manufacturing systems, robotics, and

computer-integrated manufacturing are all increasingly used in weapon system maintenance and hold

the promise of reducing labor requirements. The Air

Force has an active Repair Technology program

(REPTECH) as a part of its Manufacturing Technology program. The Service’s REPTECH initiatives

include a flexible center to repair aircraft engine

casings at the Oklahoma City ALC, composite

engine repair centers at Oklahoma City and San

Antonio, and nondestructive means of inspecting

solder joints in printed wiring assemblies. The Navy

has developed a Rapid Acquisition of Manufactured

Parts (RAMP) project at the Charleston naval

shipyard to shorten the time needed to produce spare

parts, which can take weeks to obtain from the

private sector. The Defense Logistics Agency and

the Federal Emergency Management Agency are

funding a transfer of a prototype of the RAMP

technology to a small manufacturer.

Supporting Military Equipment Abroad

Upgrades of U.S. weapon systems abroad, or

foreign systems, are another way to support the U.S.

defense maintenance base. The potential market is

significant. The upgrade of F-5 fighters, for example, is estimated to be a $3 to $5 billion business in

Taiwan and Singapore.54 Upgrading the F-16A/B,

which is in foreign nations’ air forces, could be

worth another $2 billion.55

Upgrades or repairs are not the only options for

international activities. In the past, U.S. firms have

contracted to establish and run military maintenance

organizations and facilities for selected countries

(e.g., Iran under the Shah). Maintenance support of

allied forces is a possible source of future income.

The U.S. government is involved in several

international cooperative maintenance programs

through the NATO Maintenance and Supply Agency

(NAMSA), the primary logistics support agency for

NAT0.

5G Since 1985, the United States has increased cooperation with its NATO allies for spare-

‘8. -

Photo credit: DoD

Belgium’s is only one of several foreign air forces that

fly the U.S. F-16 fighter aircraft.

parts support and depot level maintenance. The

United States is involved in collaborative maintenance on the Multiple Launch Rocket System, the

PATRIOT Missile System, and the C-130 Hercules

aircraft. 57 There are 11 other NATO maintenance

partnership programs in which the United States

does not participate.

Opportunities for supplying foreign markets with

upgrades, or for providing other services, will

depend on U.S. technology-transfer policy—as do

initial sales of weapons. The tasks for which U.S.

firms might be most competitive (e.g., avionics and

electronics) might also present the greatest risk for

giving away technological and military advantage.58

There is also likely to be more international competition as foreign firms vie with U.S. firms for the

global maintenance market.

SUMMARY

Maintenance is critical to peacetime operations

and to sustaining forces in crisis or war. The

requirements for depot maintenance have significantly changed as a result of the waning direct

military threat to Western Europe. While current

DoD efforts to streamline and consolidate the base

W willl~ B. SCOtt, op. Cit., fOOtIIOte ~.

55 ~c~el Mec~, ‘‘Europ~n PMWNXS Pair Upgrades with New Aircraft Development’ Aviation Week & Space Technology, July 12, 1991, p.

54.

% It should be not~ that Iogistics has been a national responsibility in NATO.

57 Dep~ment of DefeB, Co&ined Annul Report t. congress on sta~ardization of Eq~”pment With IVATO hletiers Of cooperative Research

and Development Projects with Allied Countries, July 1991.

58 At tie same time, however, supplying maintenance and upgrades may provide leverage on a client. If the maintenance support is cutoff, the weapon

system will degrade.
136 ● Building Future Security

represent significant change by the standards of the

past 40 years, they are insufficient in the new

security environment. A smaller national DTIB

demands that the Nation consider significant changes

in the maintenance base.

Consolidation of in-Service maintenance facilities will be constrained by the fact that such facilities

are important sources of jobs, and sometimes the

largest employer in a region. As a result, there is

often considerable political pressure to maintain

these facilities.

Responsiveness of the maintenance base in crisis

and war will remain important. However, potential

regional threats do not demand the magnitude of

surge maintenance required in the past. Future

maintenance capabilities might therefore stress peacetime efficiency, which could be enhanced by investments in process technology. The Air Force is using

its REPTECH Program for such improvements, but

the other Services have made more limited efforts in

this area. Congress might wish to consider how best

to apply new technology to maintenance.

The arguments for transferring more maintenance

responsibilities into the private sector include lower

costs, less redundancy, and better support of an

integrated DTIB. Congress should examine the

arguments for increased use of’ the private sector for

maintenance and consider how best to modify the

public/private split, for example by transferring

maintenance work to private firms or by converting

public facilities to GOCOs. Increased competition

among in-Service facilities, and between the private

and public sectors, may be the best way to accomplish this transition. Such competition could select

the facilities best qualified to support future forces

over the longer term. Finally, Congress should

reevaluate the concept of a core logistics capability

now used to define which activities should be

retained in the in-Service maintenance base.

Maintenance contracts directed towards critical

manufacturers in the private sector may help support

the firms in a period of declining defense procurement. But the degree of support will probably vary

by industrial sector. Combined with a prototypingplus strategy that provides for some manufacturing,

as well as continued technological innovation,

private-sector maintenance might add significantly

to the health of the future U.S DTIB.
Chapter 6

Good, Integrated Management
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

GOOD, INTEGRATED MANAGEMENT . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

People . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. OF . . . . . . . . . . . . . . .

Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Coordination and Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Clear Laws and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ALTERNATIVES FOR MANAGING CHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A Free-Market Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

An Activist Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

A Mixed Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

FUTURE MANAGEMENT TOOLS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Improved Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Organizational Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

Talented and Experienced People . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Box

6-A. DTIB

Figure

P1anning

. . . . . . . . . . . . . . . . . . . . . . . . .

139

140

140

140

142

143

144

145

145

146

147

147

147

148

152

153

B o x

Structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

. . . . . . . . . . . . . . . ...! . . . . . . . 143

6-1. Acquisition Management Structure . . . . . . . . . . . . . . . . . . . . . . .

6-2. Congressional Line Item Changes to DoD Budget Requests

. . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . .. . . . . . .

6-3. DoD Reporting Requirements in Annual Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ?

6-4. Cost v. Regulatory Intensity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6-5. Integration of the STIB Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6-6. U.S~Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Table

6-1. Characteristics

139

141

142

145

148

151

Page

Acquisition Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
Chapter 6

Good, Integrated Management

INTRODUCTION

Previous chapters examined the three principal

elements (R&D, production, and maintenance) of

the defense technology and industrial base (DTIB),

the desirable characteristics of the future base, and

ways to achieve those characteristics. Redesigning

Defense noted that good, integrated management

is a desirable characteristic of the future DTIB,

indeed, it is fundamental to its health and

strength. The report defined integrated management

as linking the DTIB goals of crisis and wartime

response with the peacetime goals of development

and production of high-quality and affordable military materiel. Good management will also closely

integrate the R&D, production, and maintenance

activities of the DTIB. Thus, there is a need for

coordination and cooperation throughout the DTIB.

DTIB management has been the focus of a

number of recent studies. One of the most influential

was the President’s Blue Ribbon Commission on

Defense Management (known as the Packard Commission), which recommended a number of reforms.

Many of these have been adopted, including the

establishment of an Office of the Under Secretary of

Defense for Acquisition (USD(A)) responsible for

Department of Defense (DoD) acquisition policy,

administration, oversight, and supervision; the vesting of similar acquisition authority and responsibility in a single Service Acquisition Executive (SAE)

within each Service; and a general simplifying of the

DoD management structure.1 (See figure 6-l.)

The most recent annual report of the Secretary of

Defense details additional actions taken by the DoD

to improve DTIB management and some successes

to date.2 Despite this attention, there is widespread

agreement that management of the future DTIB

requires additional changes to meet the challenges of

the new world security environment.3

Figure 6-l—Acquisition Management Structure

/

Program managers

\

SOURCE: Defense Systems Management College, 1989; Office of Technology Assessment, 1992.

This chapter does not assess all recent management initiatives, but focuses on the management

implications of alternatives for restructuring the

DTIB discussed in earlier chapters. The chief DTLB

management challenge is how to preserve an advantage in defense technology and retain the ability to

manufacture and maintain military systems—all on

a much smaller defense budget.

Additional management changes are needed to

promote integration with the Nation’s civilian industrial base and to implement a prototyping strategy as

the administration and others, including OTA, have

suggested. While the Packard Commission recommended the use of prototyping to test new ideas and

to lower costs, its recommendations were advanced

in the context of large production runs. As outlined

in Chapters 3 and 4, the management of prototyping

1 The President Blue Ribbon Commission on Defense hlanagemen~ A Formula for Action:A Report to the President on Defense Acquisition, April

1986.

z Secretary of Defense Dick Cheney, AnnuaZReporr to the President cmdthe Congress (Washington DC: U.S. Government Printing Office, Febrwy

1992), pp. 28-39 and 49-53.

3 Secretary of Defense Dick Cheney, Defense Management Report to the President, July 1989, p. 8. This report noted that “Efforts to date have not

produced the tangible results envisioned by the Commission. This is indicative of the dimension of the problems the Commission identitled, the

far-reaching solutiom it offered, and the persistence required if DoD’s management of major acquisition programs is to emulate the characteristics of

the most successful commercial and government projects.

–139–
140 ● Building Future Security

Table 6-l-Characteristics of Successful

Acquisition Programse

● Clear command channels

. Program stability

● Limited reporting requirements

● Small, high-quality staffs

● Good communications with users

● Prototyping and testing

a The Pres&nrs Hue Ribbon Commission on Defense Management, April

1966.

will be affected by a transformed security environment that will feature production of fewer new

weapons and longer intervals between new system

starts. This new environment requires the elimination of the near-automatic link between program

start and quantity production.

The changes in the security environment are

likely to require significant shifts in management

structure and approach. Successfully managing a

smaller future DTIB will require a much more

integrated approach by the DoD, the administration, Congress, and the private sector. For example, a DTIB that is much more integrated with the

Nation’s broader industrial base will require managers capable of monitoring civilian technology worldwide.

This chapter examines what good, integrated

management of the future DTIB will entail, and

considers ways to achieve it in the new national

security environment.

GOOD, INTEGRATED

MANAGEMENT

Ultimately, the criteria for judging the success of

DTIB management will be how well the defense

base can 1) provide and support high-quality military equipment at an affordable cost in peacetime;

and 2) meet increased military requirements for

goods and services in crisis or war.

4 Discussing

problems of defense acquisition in the 1980s (many

of which still exist), the Packard Commission

identified what it felt were certain characteristics

common to successful commercial and government

projects (table 6-l). The Commission recommended

that the executive branch and Congress change DoD

acquisition to develop these characteristics. The

Commission suggestions still ap ply and will strengthen

the future base, but alone do not address the changes

in DTIB requirements brought on by the ending of

the cold war.

People

Trained and experienced people will be critical

not just at the top but at every level of future DTIB

management. If the future DTIB has greater civilmilitary integration and less stringent military specifications, the need for individual expertise and

judgment will increase at each level. The Packard

Commission noted, however, that “recruiting the

most capable executives for jobs of such importance

to the Nation is extremely difficult. . . in the face of

current disincentives to entering public service.

These disincentives include relatively low pay for

senior government managers; but according to many

observers, legislation that severely limits postgovernment employment is all even greater disincentive.

Organizatim

The overall balance of management activity

should change as managers become more concerned

about maintaining the base instead of procuring

particular systems. The future: DTIB will require

shifts away from the present focus on weapon

systems production to a focus 011 R&D and prototyping that might provide more opportunities for testing

new ideas and alternative ways of performing a

mission. DTIB management night use technologies

or mission requirements as an organizing management principle in addition to, or instead of, production. An important management principle remains:

the organization must stay small enough to avoid

stifling, bureaucratic intrusion and retain flexibility, but large enough to manage the DTIB.

Indeed, some observers of the DTIB say that the

impediments of government are less a function of the

number of regulations than of the number of

regulators.

4 The Department of Defense has recently outlined similar criteria for DTIB management. In its Repon to Congress on he Defense Industm”al Base,

November 1991, p. ES-7, the Department noted that:

Inordertoensure that industry remains capable ofproducingthe weapon systems the DepartIxEntof Defense requires, the Departnnm of Defense must manage

a range of industrial base activities: the peacetirm business of equipping and supporting military forces; ensuring industrial preparedI ess to &al with potentird

regional contingencies and conflicts; and phmnin g for the reconstitution or expansion of military forces in response to a potential fu ure, global threat.

5 The President’s Blue Ribbon Commission on Defense Management, op. cit., footnote 1, p. 27.
Chapter 6-Good, Integrated Management . 141

Streamlining and reducing the DTIB management

outside the DoD is important too. Secretary Cheney

in his Defense Management Report (DMR) noted

that limiting any reorganization to the DoD would

not be sufficient to truly improve DTIB management. He argued that the base also suffers from the

way Congress carries out its legislative and oversight responsibilities relating to the DTIB, an

argument also advanced earlier by the Packard

Commission. b The Secretary wrote that “profound

management problems and waste’ result from the

‘‘redundant phases of budgeting, authorizing, and

appropriating defense resources year by year’ and

that DoD managers are often unable to take needed

actions while waiting for uncertain budget authority.

He also noted that the large number of congressional

committees, subcommittees, and panels with jurisdiction over DoD activities produces “policy gridlock. ’ ‘ He wrote that the complexity and lack of

coordination in the congressional defense process

increases program costs by more than half a billion

dollars and causes instability in planning. g (Se e

figures 6-2 and 6-3.)

Similar concerns have been echoed by many

thoughtful observers. The problem is not only

inefficiency but loss of responsibility. A recent

book, for example, reported that the average ‘‘defense R&D program is voted on by Congress alone

an average of 18 times a year in its 8-year life—a

total of 144 opportunities to change something. ’

One result of this process is that:

. . . there is no one individual who feels accountable

for results—and when things go wrong there is no

one to stand and accept responsibility; there are

always lots of persons who can be pointed at as

having had their fingers in the pie. The problem is a

management structure that permits no single individual to be truly responsible for anything, even at the

highest organizational levels-up to and including

the President of the United States. 10

Figure 6-2-Congressional Line Item Changes

to DoD Budget Requests

Adjustments

2100 { / , 1

/ \

/ I

/ \

/ \

/

1500

\

/

/

\

“ n

/ \

1200 ..- ———/ \ /

. - \ /

9 0 0 ~=~ ” v

- “

600 “

0 1,..., =.. -,----,=— ~ –T.–T... ~ ~ ~—~ -–~– , –7—r— ~.. T

J

70717273747576777879 8081828384858687888990

Fiscal year

– – Appropriation — Authorization

SOURCE: Secretary of Defense, “White Paper on the Department of

Defense and the Congress,” January 1990.

Such lack of accountability, coupled with the

costs of the budget process, have prompted many

members of Congress to argue for change. For

example, Senator Sam Nunn, Chairman of the

Senate Armed Services Committee, has observed

that ‘‘We are spending most of our time looking at

grains of sand on the beach, and we are not looking

at the ocean or looking at the horizon. ’ 11

Congress spends time looking at the “grains of

sand’ because these represent smaller, potentially

solvable problems in which members have an

immediate interest; whereas the ocean presents

problems that often seem too big and diffuse for

Congress to deal with. In addition, Congress steps in

wherever it perceives that the DoD has not performed responsibly. The ideal might be for the

President to describe an overall strategy, Congress to

decide on an overall level of effort, and the DoD to

work out details and execute the policy. The reality

is that strategies have been difficult to articulate,

Congress has had a hard time reaching consensus on

the proper level of effort, and the DoD is not just the

6 The Packard Commission reported:

where nzwional defense is concerned, today’s congressional authorization and appropriation processes have become mired in jurisdictional disputes, leading

to cnwrlappurg review of thousands of he items within the defeme budget. A growing rivalry between the &d Services Committees and the Defense

Appropriations Subcomrni!tees over I& line-item markup of the defense budget has played a major role in rrmving congressional review of the defense budget

toward narrowly fmused financial achon on individual items and away from oversight based on operational concepts and military effectiveness.

7 Chency, op. cit., footnote 3, p. 26.

8 Report to the President by the Secretary of Defense, White Paper on the Department of Defense and Congress. January 1990, p. 1.

~ Kenneth L. Adeknan and Norman R. Augustine, The Dtfense Ret’olution: Strategy for the Brave New World (San Francisco, CA: Institute for

Contemporary Studies, 1990), p. 171.

lo Ibid.

] ] Steven V. Roberts, “Billions for Defense, The Spending Debate, ” The New York Times, May 17, 1988.
142 . Building Future Security

750

600

450

300

150

0

Figure 6-3-DoD Reporting Requirements in

Annual Legislation

Reports

I I I I I I I I 1 1 I I 1 I 1 I I I I I 1

70717273747576777879 80818283848586878889 90

Fiscal year

SOURCE: Secretary of Defense, “White Paper on the Department of

Defense and the Congress,” January 1990.

manager of defense acquisition, but is also, with

allies in Congress, the advocate of individual

programs. The program-oriented approach has made

it difllcult to see or organize the big picture.

Once Congress assumes detailed management

and control, the DoD loses its incentive to make

internal tradeoffs between one weapon and another

to accomplish a given mission, since money saved

by canceling one program is unlikely to be moved to

the other.

To promote efficiency, Congress might give up

some of its detailed regulatory role by expanding the

DoD’s incentives to regulate itself. For example,

Congress could reduce the proportion of funds

directed at specific programs and expand the proportion allocated to particular missions. When money is

allocated to ‘‘air defense’ rather than to a particular

weapon system, then the DoD has a greater incentive

to stop work on a troubled system in order to have

more resources for a more promising approach to the

air-defense mission. The higher the level at which

funds are aggregated, the greater are the number of

options for achieving a military mission, but Congress’ control declines. For example, if the Army is

allocated money for air defense, it might choose

between guns and missiles, but it is unlikely to

consider fighter aircraft. If the allocation is made at

the DoD level, the tradeoffs ketween ground-based

and airborne systems can occur. However, by

funding at this level, Congrest has less influence on

which approach is taken.

The danger in making rrore general funding

allocations is that DoD management may produce

solutions that a majority in Congress believe are

wrong-headed. Congress must choose between giving the DoD responsibility for making choices in the

interests of greater efficiency overall and accepting

those choices in all but the rarest cases, or maintaining a closer watch over DoD management to avoid

the occasional fiasco, while reducing the DoD’s

incentives to set priorities itself.

Planning

Good, integrated management also requires a

defense industry strategic-planning capability that

anticipates future national security requirements and

considers DTIB alternatives for meeting them. (See

box 6-A.)

Planning was addressed in broad terms in the

Packard Commission report and more recently in the

1988 DoD report, bolstering Defense Industrial

Competitiveness. The DoD report outlined some

specific steps, including establishment of a task

force to develop a policy 01 defense industrial

planning in support of military operational plans.12

That task force was never established. But as a part

of the DMR, Secretary Cheney directed the establishment of a Defense Planning and Resources

Board (DPRB), under the direction of the Deputy

Secretary of Defense, to replace the then operating

Defense Resources Board. The mission of the DPRB

is to ‘‘help to develop stronger links between our

national policies and the resources allocated to

specific programs and forces. ’ 13

In the absence of DoD actions, Congress has

shown considerable recent interest in DTIB planning. It has, for example, mandated an annual plan

for developing the technologies considered most

critical to ensuring the long-term qualitative superi12 Report t. be Secmwof Defense by the Undm Secretary of Defense (Acquisition), Bolstering Defense Indusm”af Co? zpetitiveness, July 1988. The

report recommended, for example, that the DoD “develop industrial strategic plans explicitly linked to military operational plans . . . [and] . . . provide

for a continuing assessment of both short- and long-term defense industrial base capabilities, ” pp. 42-43.

13 Defense Ma~ge~nt Report to the President, Op. Cit., fOO~Ote 3, p. 5.
Chapter 6--Good, Integrated Management ● 143

Box 6-A—DTIB Planning Structure

The National Security Act of 1947 addressed the

planning requirement squarely. The Act created

three boards with planning responsibility for the use

of science and industry to support the national

security establishment: 1) a National Security

Resources Board (NSRB) reporting directly to the

President and responsible for formulating policy

and plans for industrial and civilian mobilization; 2)

a Munitions Board, located in the DoD and

composed of Assistant Secretaries of the Army,

Navy, and Air Force responsible for planning and

coordinating industrial mobilization, production

and procurement for the military Services; and 3) a

Research and Development Board, also located in

the DoD and tasked with developing an integrated

R&D program and advising on scientific trends

with national-security implications.1 These organizations never achieved their purpose. The Munitions and Research and Development Boards were

abolished in 1953 and their functions transferred

directly to the Office of the Secretary of Defense.

DoD resource-allocation and major-program planning were later subsumed in the Planning, Programming and Budgeting System (PPBS) established by

Secretary of Defense Robert McNamara. The NSRB

underwent a series of mergers and reorganizations

and ultimately became the current Federal Emergency Management Agency.

1 s= Stam R~deq History of the Wce of the Secr@rY

of Defense: The Formatz”ve Years, 1947-1950, Historicxd OffIce,

OSD (%%dl@tO~ DC: The Government Print@ CM&e), pp.

24-27.

ority of U.S. weapon systems (the DoD Critical

Technologies Plan),14 an annual report on actions

taken to improve the ability of the U.S. DTIB to meet

national security requirements and the effects on the

defense industrial base of defense budgets and

plans, 15 and a National Defense Manufactig

Technology Plan.

16 Congress has also strongly

urged the establishment of a defense industrial base

office within the DoD for the development of

policies and plans for the DTIB.17

Although such steps appear even more important

in the face of a changing international security

environment, strategic planning for the DTIB remains controversial. While almost all observers

acknowledge the need to ensure that future U.S.

military forces have the best scientific and industrial

support, some see in DTIB planning the potential for

a national industrial policy, which they argue is

incompatible with the U.S. free-enterprise system.

Others argue that planning is not only essential to

match military operations with available resources,

but also because the defense industrial base does not

operate in a free-market environment. According to

this view, the single-buyer relationship between the

DoD and defense firms puts a special responsibility

on the DoD to plan activities to assure the future

health and strength of the DTIB.18

Future DTIB planning requires a consensus on

what U.S. defense policy will be, what size and types

of forces the Nation needs, and what missions they

should perform. This consensus has not yet emerged.

Coordination and Cooperation

Integrated management requires coordination and

cooperation between the government and the private

sector and between the DoD and Congress. The 1988

DoD report Bolstering Defense Industrial Competitiveness noted that there are now “deeply ingrained

adversarial relationships between Government and

industry’ and argued that these adversarial relationships ‘‘undermine industrial efficiency, responsiveness, and technological innovation. 19 The DMR

also noted that the relationship must change, but

interviews conducted by OTA with business executives and government officials indicate that a great

deal of friction remains. The contracting process is

by nature somewhat adversarial and will remain so.

Further, the government has a responsibility to

ensure accountability of public funds. The tension

has been fueled by continued DoD and congressional concerns over unethical behavior by a few

defense contractors, combined with intrusive laws

M 10 U.S. Code Section 2508.

1510 U.S. Code Section 2509.

lb 10 U.S. Code, Section 2513.

17 10 U.S. Code S=tion 2503. The ofllce that currently fulfdls this function is the OffIce of Deputy ASSiStant Secretary Of Defense (~oduction

Resources), which includes offices overseeing industrial engineering and quality, manufacturing modernization commercial acquisition and production

base assessment.

18 Adelman and Au~tine, op. cit., footnote 9, pp. 128-130.

19 Bolstering Defense Industrial competitiveness, Op. Cit., fOOblOte 12.
144 . Building Future Security

and regulations that often apply criminal sanctions

to what might be honest mistakes. Requirements for

industry executives to certify, under threat of criminal action, that their firms have properly accomplished numerous activities (many involving paperwork rather than actual production) also costs money

and slows the weapons-acquisition process.20

The adversarial relationship is not just between

the government and industry. The 1990 DoD White

Paper on the Department of Defense and Congress

noted, for example, that “a final, critical factor

affecting congressional defense oversight is a profound lack of trust’ flowing from Congress’ doubts

concerning the competence of DoD managers and

the Department’s willingness to comply with congressional guidance.21 Improved intra-government

relations will be as important for the future DTIB as

will improved relations between government and

industry.

Clear Laws and Regulations

Finally, good, integrated management of the

DTIB will require clear laws and regulations to

guide DTIB activities. Both Congress and the DoD

have recognized the need for simplifying the laws

and regulations governing resource management

and defense acquisition. The DoD Advisory Panel

on Streamlining and Codifying Acquisition Laws,

mandated by Congress, is a step toward achieving

this objective. Simpliiication is essential to any

movement toward increased civil-military integration. Ideally, DoD regulations would be no more

onerous than those of the many other government

agencies, such as the Departments of Transportation,

State, Labor, Commerce, and Justice; the Environmental Protection Agency; the Occupational Safety

and Health Administration; and the Equal Employment Opportunity Commission.

There are also many congressional committees

other than the Armed Services Committees involved

in defense procurement, including Appropriations;

Banking; Education and Labor; Energy and Commerce; Foreign Affairs; Government Operations;

Intelligence; Science, Space an Technology; Small

Business; and Ways and Mean.

All of these agencies arid committees have

different interests, and efficient defense ction

may not be their number one pririty. According to

one industry executive, one of the consequences of

this current fragmentation of oversight authority is

that

There is no central clearing house for policy,

regulations, and oversight nor an integration function in either Congress or the Executive Branch. Yet

such an organizational respons bility appears necessary for coordination of any policy recommendations. Without an identified change agent’ in the

U.S. government, it is very difficult for industry to

influence the multitude of issue,; that impact or could

impact the industrial base.22

In the absence of action to change the situation,

problems with “fragmentation of oversight authority’ are likely to be compounded in the future, and

the laws and regulations that govern defense business are unlikely to be simplified.

The elements of good, integrated management

outlined in this section are no: particularly controversial in theory but they are extremely hard to

implement. For example, mamy of the Packard

Commission recommendation have been accepted

only slowly, and even when written into law (e.g.,

the establishment of a USD(A) , have taken years to

have any effect.

There is a fundamental problem of balance

between efficiency and accountability in the base.

DTIB management should aim to be efficient while

accounting for the use of public funds. The need for

accountability increases the size of staffs and the

numbers of reports. It results in laws and regulations

that are more intrusive than they would be if they

aimed only at efficient production. Such regulation

carries costs that must be weighed against the

potential benefits of reducing losses due to fraud,

waste, and abuse. A 1989 OTA report illustrated the

trade-off graphically (See figure( 6-4.) and stated that

“Analyses of defense procurement consistently

20 One fiirepofied, for emple, that it had no~ied the DoD it would stop supplying a product that previously ~d ~ en Considmed a commerci~

item and supplied at a fixed commercial price. The product’s commercial status bad changed because it had become obsol ;te in the commercial world

but was still used in the military. Selling the product to the government required adapting to numerous cost accounting requirements and corporate

certification of activities with the potenti for miminal sanctions.

21 White Paper on the Depafiment of Defense and the Congress, op. cit., footnote B, p. 20.

Z2 M Gordon R E@and, ex~utive vice pr~ident-~craft Programs, general manager-Fort Worth Division General 1 -CS, Sfutement b~ore

the House Armed Services Com”ttee Structure of U.S. Defense Industn”al Base Panel, Oklahoma City, Nov. 1, 1991.
Chapter 6-Good, Integrated Management ● 145

Figure 6-4-Cost v. Regulatory Intensity

cost

[ /

Acquisition

System

I

L–— — >

Degree of regulation

SOURCE: Of fi@ of Technology Assessment, 1989.

indicate that the [current] system lies somewhere on

the side of excessive regulation, at least in terms of

strictly economic consideration. ’ ’23 That judgment

still appears correct. But the OTA report added that

it is possible that ‘‘the American taxpayer prefers to

pay the high costs of overregulation rather than

permit even lesser amounts of public money to go

unearned into someone’s pocket. ’ ’24 Congress will

want to consider whether the current amount of

regulation is optimal for the new defense era.

ALTERNATIVES FOR

MANAGING CHANGE

The immediate challenge facing DTIB management is that the defense budget will shrink markedly

in the decade ahead. Earlier chapters argued that a

proportional reduction in all sectors of the DTIB

would not produce a strong and healthy base. Thus,

the United States will face some difficult choices in

the coming years.

Redesigning Defense suggested some criteria for

making these choices by listing the desirable characteristics of the future base. (See table 1-1.) These

criteria ultimately affect specific policy choices, as

outlined in chapters 2 through 5. The Nation may, for

example, choose to invest relatively more in defense

R&D at the expense of production, and close some

production facilities and radically restructure those

that remain. The Nation may also decide to move

more of its R&D capability to the private sector. If

so, then some Service research facilities may have to

be closed, an action which will require both political

and management skills. Similarly, the pursuit of a

prototyping-plus strategy, like that outlined in chapter 3, might be accompanied by the reduced production of new weapon platforms, again requiring the

closure of some facilities. Three strategies for the

transition to a smaller DTIB are discussed below.

A Free-Market Strategy

One alternative advocated for managing the

reductions in the DTIB is ‘‘allowing the market to

decide” which defense contractors will survive in

the future. Most of the larger firms that responded to

OTA’S defense-industry survey favored this approach.

25 These firms argued that the future survivors in the U.S. defense industry should be decided

on the basis of which firms win individual contracts.

The DoD, in its recent industrial base report to

Congress, stated that ‘‘in broad context, free market

forces will guide the industrial base of tomorrow. ’26

A pure free-market approach would make awards

based on the ability to meet each individual contract

without consideration of the long-term health of the

DTIB. Such an approach would have to end the

current practice of using one activity to subsidize

another. For example, many observers note that the

government often tries to mask the true costs of

R&D by having companies support R&D in the

expectation of recouping their investment from later

production profits.

In the extreme, a free-market approach would

allow companies to invest in new products, which

they would hope to sell to the DoD at a price that

covered R&D costs and adequate compensation for

the capital put at risk. This approach could work for

a variety of so-called “nondevelopmental items, ”

especially those using the larger pool of commercial

technology and production processes. With attention

~ U.S. ConWes5, Office of Technolo~ Assessment, Holding the Edge: Maintaining the Dgfense Technology Base, OTA-IsC420 (w~hingkw Dc:

U.S. Government Printing Office, April 1989), p. 152.

U Ibid.

z See us. CoWess, Office of T~hnoloW Assessment, Redesigning Defense. Planning the Transition to the Future U.S. Defense Industn”al Base*

OTA-ISC-500 (TVa.shingto& DC: U.S. Government Printing OffIce, July 1991), p. 43.

E Report t. congress on the Dgfense Industrial Base, Op. cit., foornote 4, P ES-7.
146 ● Building Future Security

/%oto credit: U.S. Navy, 1983

Submarine manufacturing technology may be too

specialized to be supported by commercial industry alone.

focused on the comparison of the price and value of

a product, there would be no need for internal

accounting to establish production costs, since the

price to the government, not the cost to the company,

is the only financial concern of the government in

the role of free-market customer.

Industry self-financing would work less well for

specialized military products or entire weapon

platforms. In these cases, defense R&D would

almost certainly have to be funded by the government. Whichever firm was judged best qualifled to

carry out the development would win the development contract. Afterwards, production contracts

could be let using the same criterion. In those sectors

where specialized production houses (so-called ‘buildto-pMt‘‘ shops) consistently won the production

contracts, the free market would evolve toward a

division of labor between design houses and production houses. One criterion for awarding a development contract could be that the product be producible in the largest possible number of commercial

facilities. In many sectors, however, some advantage

would accrue from having the R&D function and

production under the same roof. In these sectors,

build-to-print shops would not be able to compete,

and more integrated firms would evolve.

Multiple sources would survive only when such a

market structure was more efficient than one composed of single sources; a pure free-market approach

would not admit to giving contracts to second-place

finishers just to maintain alternative sources of

supply.

Many observers, as noted elsewhere in this report,

argue that pure free-market mechanisms are impossible to apply because the defense industry simply

does not operate in a free market, but is instead a

regulated monopsony. But a number of these observers argue that eliminating many of the current

legislative and regulatory restrictions on defense

acquisition will open the defense market to increased competition. This increased civil-military

integration of the base may promote the use of a

free-market approach in many sectors of the future

DTIB.

An Activist Strategy

A second management alternative is a more

activist approach, stressing government participation in implementing the chanles in the DTIB. The

activist approach includes a range of proposals.

Some advocates want to select surviving defense

firms and support the development of defense

technologies having civilian application. The argument for such support is that the broader national

technology and industrial base is essential to future

U.S. military strength.27 Advocates of an activist

approach see little potential for free-market operation in most of the defense sectors, given the DoD’s

role as single buyer. As a result, while they support

changing the regulatory environment to permit the

use of commercial practices, they also favor more

government intervention to enhance specific technologies and industrial sectors.

An activist approach is used in France, for

example, where government planners allocate defense work to ensure the competitiveness and

financial health of the French defense industry. To

preserve a key design team, for example, the French

procurement agency, the General Delegation for

Armaments (DGA) may award a development

contract on a competitive basis but give the loser a

share of the subsequent production work to keep

both firms in business, even f total procurement

costs are thereby increased. Similarly, the DGA may

procure a system from a French firm even when it

could be acquired faster and more cheaply from a

foreign source; and it may keep an assembly line

~ me ~D repfi Bo/sfen”ng D#eme Ir@strial Cornpefi”tiveness, for example, exfied the negative trends in such f Ud-USe industismtOm M

machine tools and electronics and sought to develop policies to help change these trends.
Chapter 6-Good, Integrated Management . 147

open between procurement cycles by stretching out

the rate of production until the next contract comes

along.

m This approach has sometimes involved

making a choice between buying weapons that the

French armed services desired or buying weapons to

support elements of the French defense base.

A Mixed Strategy

The successful management of the future, smaller

DTIB will probably involve elements of both the

free-market and activist strategies. Where sufficient

real competition exists, the free-market approach of

providing funds to the successful bidder will be

satisfactory. But this competitive environment is

limited to particular technologies, mostly subtier

industries making components common both to

military systems and civilian products. In other

areas, where a defense technology or industrial

sector has little or no civilian counterpart, source

selection on a nonmarket basis is more appropriate.

The DoD appears, in practice, to support this

mixed strategy approach. While the DoD has been

criticized for placing too much reliance on market

forces in defense procurement, the Department

acknowledges that the free market alone might not

provide the necessary industrial capability in selected areas. For example, because the U.S. shipbuilding industry is dependent on Navy business, the

DoD has stated that it ‘‘will require continuous

monitoring by the DoD to ensure a capable prime

contractor and supplier base is available for military

needs. ’29 Secretary Cheney has also said that his

decision to build another nuclear-powered aircraft

carrier was based, in part, on the need to preserve the

Navy’s shipbuilding industry .30 The DoD industrial

base report suggests the possibility for intervention

in the armored-vehicle sector, although the Department has not yet taken any action to preserve

production capabilities in this area.

How much government intervention is necessary

will depend on how the Nation structures the future

DTIB. Those advocating greater civil-military integration argue that integration will strengthen the free

market and ultimately reduce the need for government intervention. But civil-military integration

will occur only at the price of modifying some of

the regulatory mechanisms currently built into

the procurement system to ensure public accountability of funds.

Any strategy to restructure the DTIB requires the

government to have a clear vision of the fiture

defense establishment and the DTIB needed to

support it. That vision must be communicated to

industry. In the words of one defense contractor:

It is our view that the White House, OSD, and

Congress must articulate and agree on a national

defense policy to avoid the chaos of a teardown

rather than an orderly builddown. If a teardown

occurs, the quality of defense products is likely to

suffer badly .31

FUTURE MANAGEMENT TOOLS

Beyond the immediate problems associated with

down-sizing, there are longer range concerns over

how to manage the future base to get the most return

from a smaller and much changed DTIB. Steps that

might be taken to improve the management of the

future base are outlined below.

Improved Planning

Future DTIB planning must be better coordinated.

Today, DTIB planning remains relatively decentralized within the DoD. The individual Services

develop plans that are further subdivided into R&D

plans, production plans, and depot maintenance

plans. Decentralized planning has the benefit of

staying close to Service requirements. Yet if it

results in costly redundancies and bottlenecks in

industrial responsiveness, it will fail to meet either

the immediate military needs of the cornmanders-inchief of the unified and specified military commands

or the longer term needs of the DTIB. Better

coordination among the three elements of the base

(R&D, production, and maintenance) will help

reduce the past tendency of DTIB managers to make

decisions that seem best for their organization, but

actually have negative implications for the base as a

whole.

2S U.S. Conpess, OffIce of Technology Assessment, f.essons in Restructuring Dtfen.se Industry: The French Experience, OTA-Bp-ISC-%

(Washington, DC: U.S. Government Printing Oflice), June 1992.

29 Repo~ t. Congress on the D@ense Industrial Base, op. cit., f~~ole 4* P ES-5.

~ ‘‘Indus~ Base, Fee Sticture Entered Carrier Decision--Cheney, ’ Dtfense Daily, Feb. 6, 1992, p. 200.

31 Respnse to OTA industrial bi%w 5LI~ey.
148 . Building Future Security

The growing importance of the broader national

and global technology and industrial bases in

meeting defense requirements increases the need to

bring other government agencies into DTIB planning. The Federal Emergency Management Agency

(FEMA) is responsible for emergency and mobilization planning involving the civilian agencies. The

Department of Commerce might share more peacetime DTIB planning responsibilities with the DoD.

Industry must also be more directly involved in the

planning process. FEMA has taken a number of

initiatives to increase the understanding of the roles

that the civil agencies must play in supporting the

DTIB.

One of the chief criticisms of current planning is

the lack of good information on the DTIB. Operating

in a more integrated base with fewer resources will

require a better understanding of not only the DTIB,

but also the larger national base. The Critical

Technologies Plan and the Industrial Base Report

appear to have been partly motivated by a desire to

have the DoD collect better data and thus develop a

better understanding of the base. The DoD has

supported several industrial base data-gathering

efforts, but has never placed high priority on them.

Redesigning Defense examined a number of

current government and industrial databases and

concluded that all ‘‘are short of data because data

collection efforts are generally underfunded and are

not standardized. ’ ’32 For example, the Defense

Industrial Network (DINET) sought to link a number

of commercial and DoD industrial databases in order

to provide insight into the condition of the DTIB.

But according to many observers, this effort was

underfunded. In other cases, support for setting up a

database has not been followed up with adequate

funding for data collection to make that base useful.

Systematic data gathering is expensive.

The DoD should set priorities on what data to

gather and how much data are needed to manage the

base. But, there are other agencies (e.g., such as

Department of Commerce and FEMA) that should

play a more active role. Congress can act to ensure

that industrial-base data priorities are established by the Executive Branch and that adequate

funding is available.

Figure 6-5--Integration of t~ e DTIB Elements

/

Production

\

Maintenanca J

\ / /

SOURCE: Office of Technology Asessment, 1992.

Organizational Changes

The future DTIB must have more integration of

the R&D, production, and maintenance elements.

(See figure 6-5.) The Air Force appears to have

begun this process by combining its Air Force

Systems Command and Air Force Logistics Command into a single Air Force Materiel Command

(effective July 1, 1992). The other Services are also

combining elements of their commands.

But more important than the major command

reorganizations will be changes involving programs

and technologies. The Air Force’s new concept of

integrated weapon system management (IWSM) is

currently being tested on 21 weapons programs.33

The IWSM establishes a program director in charge

of all aspects of the life cycle c f a weapon system

from R&D through production and maintenance.

The program office is located in a product division

during program development, but moves to a logistics center once the system has been produced and is

operational.”

While a concept such as the IWSM integrates the

management of the three principal elements of the

DTIB, it may not be adequate in the future environ32 Re&~igning D#e~e, op. cit., fOOtnOte 25, P. 116.

33 John Terino, “Doing Business, “ National Defense, January 1992, pp. 18-19.

M Ufitd StatahForm Fact Sheet, Integrated Weapons System Management: Cornerstone of Air Force Materiel Command, NOV. 1, 1991.
Chapter 6-Good, Integrated Management . 149

ment because it is focused on managing weapon

systems. It does not break the present near-automatic

link between development and production. In the

future, research, development, and prototyping

will be pursued without the expectation that

production of a final system will necessarily

follow. Therefore, DTIB management cannot be

centered around individual weapons programs.

A useful additional concept is that of integrated

mission area management. This approach would

examine alternative ways of achieving a mission as

well as the tradeoffs among R&D, prototyping,

production, and maintenance in sustaining an overall

DTIB capability to support identified national security requirements. This is now done by the Services

in their mission area analyses and in their management of technologies (e.g., the Tank Automatize

Command looks across the armored vehicle sector).

But current efforts are largely limited to programs

within a single Service. The Joint Staff might

assume the job of analyzing missions among the

Services.

Degree of Centralization

The degree of centralization of future DTIB

management is an important issue. Secretaries of

Defense have generally pushed for increased control

of resources and acquisition (Secretaries Laird and

Weinberger were exceptions), while the Services

have sought more autonomy. Proponents of more

centralized acquisition argue that current interService coordination will be insufficient to manage

the future DTIB so that it will be suitably strong and

flexible. Proponents of decentralization counter that

centralization will separate equipment acquisition

from the military users.

Several forms of centralization have been proposed. Three possibilities are:

1.

2.

3.

A

a “purple suit” (i.e., joint-Service) procurement agency that would buy all military

hardware and supplies;

a division of procurement tasks so that each

Service is responsible for supplying the others

with a set of procurement items; or

an independent acquisition corps separate

from the Services, staffed by civilians.

joint-Service agency might resemble an expanded Defense Logistics Agency, which is currently responsible for providing common items,

such as fasteners, food, and uniforms.35 This new

agency would take advantage of the long-term

experience of career civilian procurement officers

and the military expertise of Service officers.3G Its

facilities would need to be geographically close to

Service technical centers.

Alternatively, tasks could be distributed according to Service expertise or priority. Thus, the Air

Force might be responsible for all cargo planes, the

Army for all trucks, the Navy for all boats and ships,

and the Marines for landing craft. The DoD has run

joint procurement programs; some successful (e.g.,

trucks and 20mm ammunition), and others less

successful (e.g., F-1 11).37

A separate civilian acquisition corps could break

direct Service advocacy for developed systems to

enter production. But a drawback of this approach is

that an independent organization can easily lose

sight of Service requirements. The French acquisition agency, for example, has been criticized for not

being responsive enough to battlefield requirements. 38

The goals of any reforms should be to reduce

redundancy, to make larger, more economical purchases, and to have an experienced cadre of acquisition personnel who do not have a direct Service stake

M me DefenX ~~~tlc~ Agency ~~o ~rWWe~ ~placemen~ for mimocficui~ tit have gone OUt of commflci~ production but ~ still re@ed for

maintaining a weapon system. Many microcircuits have a product cycle of about 7 years, while the systems they are a part of may have an operational

lifespan of 20 years or more. See Donald O’Brien, testimony before the U.S. Congress, House Armed Services Panel on Future Uses of Manufacturing

and Technology Resources, Oct. 24, 1991.

36 me French ~ve a ~en~allzcd pr~uement agency, which has resulted in muhi-Servict procurements and better coordimtion of R&D ~ves~ent.

Nevertheless, critics allege that the agency has overemphasized industrial base considerations at the expense of military requirements and force readiness.

See U.S. Congress, Office of Technology Assessment, op. cit., foomote 28.

37 The F.111, ongl~ly desipt~ tie~(~ctic~ fighter, expe~enta~), beg~ as a b~e~ice program IUII by the Air Force to meet Navy fl@

air defense and Air Force deep strike requirements. The differences between the two variants of the plane were to be minimal and the use of common

parts was to be emphasized. Secretary of Defense McNamara believed that joint procurement and commonality would save the Nation about $1 billion.

In 1968, 7 years after the program bega~ Congress canceled the naval variant of the F-1 11, ostensibly because the effort to achieve commonality

undermined the planes’ ability to carry out their different missions and was not cost effective. See U.S. Senate, Government Operations Committee,

Permanent Subcommittee on Investigations, Hearings cm the TFX Contract Investigation (Second Series), Part 1, Serial No. 43-096, Mar. 24, 1970.

38 ~ssons in Restricting Defense Industry , op. cit., foomote 2*.
150 ● Building Future Security

Photo adit: U.S. Department of Defense

Congress canceled the Navy’s F-1 11 variant after an

experiment in joint procurement and commonality y

with the Air Force failed.

in getting a particular weapons program into production.

Congress may also wish to reconsider its committee structure for overseeing the DTIB. Oversight of

R&D, acquisition, and maintenance could be consolidated. Congress may wish to consider reducing

the number of committees, subcommittees, and

panels responsible for DTIB issues just as it calls on

the DoD to be less top-heavy in its management of

the base.

Degree of Civil-Military Integration

The Federal Government’s role as single buyer in

the military market gives it enormous power to

shape that market. In the past, the DoD has been such

a large customer that it could establish unique and

sometimes onerous requirements-in accounting,

manufacturing, and management-and still be confident that sellers would step forward to seek its

business. This heavy regulation has isolated the

DTIB from the broader national base.

The burden of regulation was not financially

crippling as long as the DoD market remained large

enough on its own to support entire companies. But,

excessive regulation will become a major obstacle to

maintaining a healthy DTIB as the defense market

shrinks and becomes less attractive to private fins.

Integrating

larger industr

ducing the amount

firms’ defense

the defense base back into the

al base will require changes. Reof government oversight of

work is possible--but only in response to assurances that there is proper corporate

accountability. Two general courses might be followed. One involves change: within the current

defense acquisition system. Examples include such

programs as the Corporate Risk Assessment Guide

(CRAG) developed by the Defense Contracts Auditing Agency to reduce the number of on-site inspectors in key financial areas; the Exemplary Facility

(EF) program, which has been tested in a number of

manufacturing facilities in the past 2 years; and the

Army’s Continuous Process Improvement Program.

While such programs have the objective of reducing

oversight and therefore reducing costs, they all

suffer from inadequate government support—

especially a lack of support by relevant DoD

oversight agencies—and a subseqent lack of industry incentive to participate. For example, the EF

program was recently discontinued by OSD with

little discussion with the companies involved. Future efforts to reform the acquisition system will

require broad-based support within the DoD if they

are to succeed.

The second course is to make much wider use of

“commercial standards” in auditing and production, i.e., a broad, direct effort at increased civilmilitary integration of the base, This course offers

greater potential benefits than limited change within

the DoD system. For example, acceptance of commercial standards in place of miltary standards (e.g.,

replacing Mil-Q-9858A with ISO 9000) has been

proposed by many in industry, but has not been acted

on favorably by the DoD.39 (See figure 6-6.) Even if

this change were made, the DoD need for accountability would be different from that of the civil

sector. Advocates of civil-military integration argue

that, nonetheless, the regulatory barriers to doing

DoD work should be lowered and more firms

brought into the defense business, at which point

accountability can be better assured through red

competition.

Much of the burden of government accounting,

auditing, and management regulations derives from

39 IS() 9000 is ~o~nd for International Standards Organization (ISO) 9(IW 9004, a series of documents on qtity issuance pubhkxl btie

Geneva- based 1S0. The 5 documents outline standards for developing Total Quality Management and a Quality Improverr ent Process. 9000 consists

of guidelines for the selection and use of the quality systems contained in 9001-03.9001 outlines a model for quality assuran-x in design, developmen~

production installatio~ and servicing. 9002 outlines a model for quality assuran ce in production and installation. 9003 olltlines a model for quality

assurance for final inspection and testing. 9004 is not a standard but contains guidelines for quality management and quali y system elements.
Chapter 4--Good, Integrated Management ● 151

Figure 6-6-U.S. Standards

Total

94,000

* — -

Federal Gov~rnm Pnt

52,500

+

5,000 adopted

prwate sector

1

‘1

PrwatP sector

41,500

- . 1 T —1

~ Caution must be men to e~e tit “advisory’ specifications do not become de~acto 5peCiflCatiOm.
152 ● Building Future Security

which are now largely segregated, and reducing

overhead spent on paperwork. The DoD has begun

to test the effectiveness of commercial practices in

lowering costs while guarding against abuse. It

could widen such practices in the future.

The current Advisory Panel on Streamlining and

Codifying Acquisition Laws is scheduled to report

in January 1993. It is expected to provide insight into

how Congress might best reform the vast body of

acquisition law that was built up during the cold war.

Improving Cooperation and Coordination

Combined government and industry action will be

critical in managing the transition to a production

base with the desired characteristics discussed in

chapter 4. Unfortunately, as noted earlier, governmentindustry relations are often adversarial. Improved

cooperation and coordination is needed not only

between industry and the DoD, but also between the

DoD and Congress and between Congress and

industry.

This improved cooperation could begin in the

planning phase. Industry needs to understand future

defense requirements so it can prepare to meet them.

To achieve such coordination, attitudes on all sides

will have to change. Deputy Defense Secretary

Donald Atwood has acknowledged the need for

more cooperation and more industry participation in

defense planning, noting that in the past it was

considered “a crime if you [business] knew what

we’re going to do. ’ ’41 Since long-term DoD planning goals were classified, industry had difficulty

preparing for the future. A more open approach is

needed so all sides can make coordinated plans in a

way that reduces any incentive to cheat.

Talented and Experienced People

While program managers and contracting officers

are certainly key players, management of the DTIB

involves more than running acquisition programs.

Future DTIB managers will have to make tradeoffs among the three principal elements of the

base (R&D, production, and maintenance), while

ensuring that the desired future DTIB capability

will be available. Dealing with these broad and

basic questions demands experienced personnel.

I%oto credit: Defense S, /stems Management College

A lecturer conducts a managerwnt course at the

Defense Systems Managelnent College.

‘‘Revolving-door’ laws make it difficult to attract talented and experienced people as senior

civilian DTIB managers. These laws limit the

post-government activities of appointees and require

that they divest themselves of current stocks or

commitments that might be a conflict of interest

while they serve the government Such disincentives

to government service could be some even greater if

a strategy of increased civil-m Mary integration is

pursued, since senior managers of non-defense firms

might also be dissuaded from DoD service. Thus,

while conflict-of-interest laws are essential, they

might be reformed with an eye to attracting experienced private-sector managers to DoD jobs.

The quality of the Services’ acquisition workforce

has also been criticized. The principal problems

appear to be rapid turnover among uniformed

program managers, inexperience, and inadequate

educational backgrounds. The defense Acquisition

Workforce Improvement Act (DAlVIA) sought to

address some of these problems. The military has set

up a Service Acquisition Corps and acquisition

career paths. However, since over 90 percent of the

personnel in the acquisition workforce are civilians,42 programs to enhance military personnel are

not enough to improve DTIB m magement. Greater

efforts have to be made toward civilian managers.

41 DCPUW Seaew of Defense Don~d J. Atwm, speech to a Technical Marketing Socie& of herica S~inW in Arlington VA, ~Port~ in

Aerospace Daily, June 3, 1991, p. 370.

42 U.S. House of Represen~tives Committee on Armed Services, Report of the Subcommittee on Investigations, The Q,udify and Professionafim

of the Acquisition Workforce, May 8, 1990, p. 14.
Chapter 6-Good, Integrated Management ● 153

One problem is that civilian salaries lag behind

military pay.43

DAWIA also provides for better training of

acquisition personnel. The acquisition university,

mandated by the Act is now being established.

About 75 students per year will receive specialized

acquisition courses at the Industrial College of the

Armed Forces. Senior DTIB managers need training

in how to maintain a ‘‘warm capability’ involving

tradeoffs among all three elements of the base, and

how to manage a base that is more integrated with

the civilian sector.

One approach to maintaining a cadre of technical

managers, as well as a labor force, has been

suggested by William L. Clark of the Defense

Systems Management College. Training personnel

at all levels could be accomplished by establishing

a Civilian Technical Reserve Corps-a volunteer

group of skilled defense engineering and production

personnel who would take periodic ‘ ‘updating’ and

retraining in their particular specialties. Some of this

person-to-person training might be aimed at younger

people to preserve generational continuity.

In case of a national emergency, a cadre of such

trained individuals would greatly facilitate DTIB

mobilization and, in particular, the transition of

prototype systems to quantity production. A precedent for this kind of continuing education already

exists in the medical profession and, to a lesser

degree, in the legal profession. Volunteer reserve

forces also exist in the military and the Peace Corps.

All of these have successfully harnessed personal

pride and patriotism to serve well-defined national

goals. A Civilian Technical Reserve Corps would

require participation by industry management, organized labor, and human resource experts.

SUMMARY

For the Nation’s DTIB to remain strong and

healthy in the future, it will have to be managed in

new ways. There must be greater centralization in

planning, more flexibility in operation, and increased integration with the larger civilian technology and industrial base. A coherent management

strategy for the entire base (R&D, production,

and maintenance) will be critical to halt the

weakening of the present base and ensure that a

“build down” rather than a “tear down” occurs.

Centralized strategy will need to be combined with

decentralized operation, giving individual managers

more responsibility and authority. Managers will

have to make tradeoffs with respect to the entire base

and not just a single element. DoD managers should

have more flexibility in dealing with industry, and

DoD contractors should have more authority to

deliver products and services in a way that is most

efficient for them and the base as a whole, These

shifts will require experienced and talented management personnel-who will only be available if

changes are made in training, career paths, and pay.

Sweeping reform of the acquisition laws and

regulations will be essential to achieve the flexibility

needed for restructuring. Congress might support

programs that reduce direct government oversight,

or change the oversight process radically and move

to a more commercial environment. Such reforms

should differ somewhat according to the industrial

sector. Those defense sectors with more civilian

overlap might best be managed according to civilian

standards, while militarily-unique technologies will

need more specialized management.

Finally, successful DTIB management will require better coordination and cooperation between

government and industry and between the executive

branch and Congress, Consensus on the role that the

DTIE3 plays in national security is needed. If past

inefficiencies are allowed to persist, the much

smaller future base will be unable to provide the

required support.

43 Ibid,, pp. 48@187.
Appendixes
Appendix A

Defense Technology and Industrial

Base Policies of Allied Nations

U.S. strategies for restructuring the defense technology

and industrial base (DTIB) will be influenced by the

DTIB strategies of our principal allies as well as any

potential adversaries. For example, allied emphasis on

collaborative procurement may affect the tendency of the

United States to engage in such efforts. Also, international

arms sales will affect both U.S. sales and possible levels

of U.S. R&D. This appendix provides a tabular overview

of foreign DTIB structures and policies for Canada,

France, Germany, Japan, and the United Kingdom. The

defense bases of these nations are all facing pressures

similar to those on the U.S. DTIB.

Table A-1 describes the structure of the DTIBs of the

five countries. Indicators are the size of the industry

(measured by personnel), percent owned by the state, and

export sales.

Table A-2 indicates current spending and trends in

defense spending (where available), including invest ment

in military R&D and procurement.

Table A-3 lists the countries’ goals for restructuring

their defense bases, such as what design and manufacturing capabilities each country wishes to preserve, priorities

for defense R&D and procurement, and plans for surge

production or industrial mobilization in crisis and war.

Finally, table A-4 describes government strategies for

achieving the desired goals.

Table A-l—Structure of the Allies’ DTIBs

Country Industry size 1990 Export sales

(direct employees) Percent state-owned (billions of U.S. dollars)

Canada . . . . . . . . . . . . . . . . . . 80,000 o% $0.88b

France . . . . . . . . . . . . . . . . . . . 260,000 80%

Germany . . . . . . . . . . . . . . . . . 265,000 almost 0% N

~

C

Japan . . . . . . . . . . . . . . . . . . . NA 0“/ 0

United Kingdom . . . . . . . . . . . 300,000’ almost O?!O w

0

.4

NOTE: Conversion rates: $1 = 0.56f; $1 = 5,5FF; $1 = 1.19 Cdn.

NA - not available.

a Financial year I g8g/90, Includes 150,000 jobs sustained by defense eXPorts.

b Most exprts are to the United States.

c A relatively Small amount.

SOURCE: Office of Technology Assessment, 19!32.

Table A-2—Fiscal Year 1992 Allied Defense Spending

(billions of U.S. dollars)

Country Total defense budget Defense R&D budget Procurement budget Percent GNP

Canada. . . . . . . . . . . . . . . . . . . . . . . . . . . $10.6 $0.12 $5.1 1.8%

France . . . . . . . . . . . . . . . . . . . . . . . . . . . $35.5 $5.5 $18.7 3.3 ”/0

Germany . . . . . . . . . . . . . . . . . . . . . . . . . $40.2 $1.8 $4. 8 2.50/.

Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . $34.2 $0.93 $6. 5 0.9 ”/0

United Kingdom . . . . . . . . . . . . . . . . . . . . $43.1 $4.7 $16.1 4.0%

NOTE: Defense budgets converted to U.S. dollars using the following exchange rates

$1 = 1.19 Cdn

$1 = 135 ~

$1 = 1.64 DM

$1 = 5,5 FF

$1 = 0,56 f

SOURCE: Off Ice of Technology Assessment, 1992.

-157-
158 ● Building Future Security

Table A-3-Priorities for Restructured DTIBs

Country Core capabilities R&D Procurement Surge/mobilization

Canada . . . . . . . . . . . Complex subsystems,

shipbuilding, light armored

vehicles, trucks, small arms,

helicopters.

France . . . . . . . . . . . . Full range of major tactical

weapon platforms, nuclear

weapons.

Germany . . . . . . . . . . Issue iscurrentfy understudy.

Japan. . . . . . . . . . . . . Develop wartime

maintenance and supply

capabilities, relies on

avilian R&D, supports

aircraft electronics.

United Kingdom . . . . . Determined by market

forces.

Focus at subsystems level;

government facilities

specialize in militarily

unique technologies.

New emphasis on space

systems, command and

control, and guided standoff

missiles.

Stresses joint development

programs, aerospace.

Increased emphasis on

defense R&D, aircraft, missiles,

logistics and support, but relies

on civilian technical

developments in key high

technology areas.

Aviation, stealth, and

electronics.

- ,, , , . . ,. . . . . . . . ,. , , , ~anaalan pawol lngale, ilgm

armored vehicles, tactical

cnmmand and control systems,

helicopters.

Rafa/e fighter,

Leclerc tank,

Arn6fhyste submarine,

Charles de Gau//e

carrier, Hdlios and

Syracuse satellites.

Major cuts over next decade in

heavy armor. Continued

commitment to the European

Fighter Aircraft in question.

Present program stresses

improvement and

modernization of existing

equipment.

Challerrgertank, European

Fighter Aircraft, attack

helicopter, nuclear deterrent.

SOURCE: Office of Technology Assessment, 1992.

Table A-4-Allies’ DTIB Strategies

i nsnwuonallzao aelense

i Mustry planning, stresses

{operation with the United

1 ;tates.

I.ittle emphasis on planning by

! ;ervices.

tlo detailed defense industrial

r mobilization planning.

Flo detailed defense industrial

n~obilization planning.

Currently relies on limited, ad

hx planning, but may move to

nlore structured planning.

Countrv National Plan International collaboration Civil-m ilitarv intmration Consolidation

Canada . . . . . . . . . . . Focus is on cmntinued close

cooperation with U. S.,

limited government

intervention, and increased

governmenVindustry

consultation.

France . . . . . . . . . . . . Central government

strategy is to maintain areas

of excellence in French

defense industry, stress

international sales.

Germany . . . . . . . . . . Free-market orientation,

with cfose exchange of

information between

government and industry.

Japan. , . . . . . . . . . . . Limited defense pfanning,

stress on U.S. relationship,

use of dual-use technology.

United Kingdom. . . . . Reliance on the private

sector, greater civil-military

integration, exports, limited

government intervention.

Participates in NATO’s

Conventional Armaments

Planning System, but this is not

a major policy thrust. Efforts are

encouraged at the firm level.

Systematic approach to

European collaboration and

strategic alliances, but go-slow

approach to free arms market

within the EC.

Strong and growing emphasis

on collaboration.

Strictly limited by law,

cooperation with U.S. is viewed

as important.

Supports collaboration with

allies, expects it to increase as

budgets are reduced and

forces become more

international.

Recognition of increased

importance of dual-use

technologies, closer ties

between defense and civil R&D

organizations.

Government encourages

diversification of firms, no

barriers to civil-military

integration.

Stressing avilian producfswhere

militarily acceptable.

Considerable integration; most

defense firms produce civilian

products, but a few firms

produce most Japanese

defense items.

Key component-relaxed

requirements to permit use of

dvil technology, most defense

firms diversified into avil sector.

R 91ying on market forces,

fcreign demand.

G >vernment promoting some

a rrsolidation, cross-border

m wgers.

In justry is down-sizing,

g( vernment currently sees no

m ed for major additional

restructuring of base.

Ostensibly left as a caporate

d(cision, but most Japanese

irnjustriai-sector decisions

irv~olve government

ac ministrative guidance.

Rfdying on market forces,

government provides

inf xmation to industry about

ful ure defense plans and

intentions.

SOURCE: Office of Technology Assessment, 1992,
Appendix B

Reviewers

This report has benefited from the advice of many individuals from the government and the private sector. OTA

especially would like to thank the following individuals for reviewing various drafts of the report. The views expressed

in this report, however, are the sole responsibility of the Office of Technology Assessment.

LTC Diane Beardsley

Headquarters

Air Force Logistics Command

Wright-Patterson AFB, Ohio

Don Carson

TASC

Arlington, VA

William Clark

Defense Systems Management College

Ft. Belvoir, VA

Richard E. Clemens

BMY-Combat Systems

York, PA

James M. Compton

Office of the Secretary of Defense

Department of Defense

Washington, DC

Jim DeZutter

Digital Equipment Corp.

Marlboro, MA

Gordon R. England

General Dynamics Corp.

Fort Worth, TX

S. Bruce Ensley

Department of the Navy

Washington, DC

Don Ferguson

Bell Helicopter Textron, Inc.

Fort Worth, TX

Donald Fowler

F&F Associates, Inc.

Arlington, VA

Gary W. Fredricks

General Dynamics Corp.

San Diego, CA

George L. Friedman

Northrop Corp.

Lms Angeles, CA

Steven R. Goldberg

ITT Defense Avionics

Clifton, NJ

Joe P. Golden

Office of the Secretary of Defense

Department of Defense

Washington, DC

Jack S. Gordon

bckheed Advanced Development Co.

Sun Valley, CA

Jay W. Gould III

Defense Systems Management College

Ft. Belvoir, VA

Col. Robert Hayes

United States Air Force

Washington, DC

Del Jacobs

Northrop Corp.

Hawthorne. CA

Major General Harry G. Karegeannes

U.S. Army Depot System Command

Chambersburg, PA

Chuck Kimzey

Office of the Secretay of Defense

Department of Defense

Washington, DC

Leslie M. Lackman

Rockwell International Corp.

LQS Angeles, CA

Arnold Levine

RAND Corp.

Santa Monica, CA

Henry J. Lopez

Allied-Signal Aerospace Co.

Torrance, CA

Robert Mason

Office of the Secretary of Defense

Department of Defense

Washington, DC

Lucy W. Fyfe

Pratt & Whitney

West Palm Beach, FL

–159-
160 ● Building Future Security

Bettie McCarthy

Proprietary Industries Association

Washington, DC

William W. Mogan

Talley Defense Systems

Mesa, AZ

Joseph Moreland

Federal Emergency Management Agency

Washington, DC

Jimmy C. Morgan

Munitions and Chemical Command

Rock Island, IL

Robert Morgan

AIResearch, Los Angeles Division

Torrance, CA

William Motley

Defense Systems Management College

Ft. Belvoir, VA

Joseph Muckerman

Office of the Secretary of Defense

Department of Defense

Washington, DC

Daniel J. O’Neil

The University of Oklahoma

Norman, OK

George A. Paulikas

The Aerospace Corp.

El Segundo, CA

Robert Pendley LQS Alamos National Laboratory

Los Alamos, NM

George E. Pickett, Jr.

Northrop Corp.

Arlington, VA

Arati Prabhakar

DARPA/MTO

Arlington, VA

Winn Price

Bath Iron Works

Bath, ME

Thomas W. Rabaut

FMc Corp.

Santa Clara, CA

Frederick Ridden

Institute for Defense Analyses

Alexandria, VA

Howard Roberts

General Dynamics Land Systems

Sterling Heights, MI

Mike Robinson

Rockwell International Corp.

In Angeles, CA

Fred E. Saalfeld

Office of Naval Research

Arlington, VA

Philip A. Selwyn

Office of Naval Technology

Arlington, VA

Giles Smith

RAND Corp.

Santa Monica, CA

H.C. Smyth, Jr.

Bell Helicopter Textron Inc.

Arlington, TX

William M. Tones

Naval Research Laboratory

Washington, DC

Nicholas M. Torelli, Jr.

Office of the Secretary of Defens>

Department of Defense

Washington, DC

Tom Welch

Office of the Secretary of Defens(:

Department of Defense

Washington, DC

William R. Widmer

General Dynamics Corp.

Tallahassee, FL

Dennis J. Wrightman

Logistics Management Institute

Bethesda, MD

T.G. Yuguchi

General Dynamics Corp.

San Diego, CA

Otto Renius

General Dynamics Land Systems

Sterling Heights, MI