The Insider

The managers of some of the Pentagon's largest weapon programs -- including the Joint Strike Fighter, Stryker, CVN-68, C-5 RERP, and P-8A -- did not avail themselves of acquisition rules established by Congress to ensure prime contractors are not thwarting competition when determining whether to may a part in house or subcontract to another firm, according to federal auditors.

The Government Accountability Office, in a new report, concludes that additional Pentagon guidance is required to "improve visibility into the structure and management of major weapon system contracts" in according with the 2009 Weapon System Acquisition Reform Act (WSARA). The GAO report, prepared at the direction of the FY-10 National Defense Authorization Act, concludes:

[P]rogram officials seemed reluctant to use available acquisition provisions, such as the make-or-buy plan, that enable the government to gain visibility into the prime contractor's subcontracting effort, largely because of fears regarding government liability. Further, government officials often questioned the overall purpose of these provisions. Nevertheless, Congress directed DOD in WSARA to ensure that prime contractors’ make-or-buy decisions are fair and reasonable. Provisions such as the make-or-buy plan represent important tools that the government can use to gain insight into the prime contractor’s methods for awarding subcontracts.

Shay Assad, director of defense procurement and acquisition policy, said in an Oct. 22 memo accompanying the GAO finding that the Pentagon will update acquisition guidance for contracting officers by June 30, 2011.

The 2009 Weapon Systems Acquisition Reform Act directed DOD "to improve competition throughout the life cycle of major defense programs, to ensure that contractors' make-or-buy decisions are fair and objective," GAO notes. "Specifically, the Secretary of Defense was directed to require prime contractors to give full and fair consideration to qualified sources other than the prime contractor for the development or construction of major subsystems and components of major weapon systems."

The Pentagon's acquisition executive has set Nov. 22 as a day of reckoning for the Joint Strike Fighter program, according to a Defense Department official. On that day the Defense Acquisition Board will meet and hear from F-35 Program Executive Officer Vice Adm. David Venlet who will present the results of a wide number of initiatives directed by DOD acquisition executive Ashton Carter in June.

At this milestone review, Carter is expected to consider results of a technical baseline review, affordability initiatives -- for a program that in June the Pentagon estimated will cost $382 billion -- as well as an independent manufacturing review, reorganization and manning of the F-35 Joint Program Office, a revised risk management process, intelligence community support to the F-35 program, status of F-35 funding in DOD's FY-12 to FY-16 investment plan, and status of the flight test plan.

Questions surrounding the viability of the Medium Extended Air Defense System don't really worry Raytheon CEO William Swanson.

"That's something for the government to sort out," Swanson told Wall Street analysts during a conference call this morning on the company's third-quarter earnings.

Inside the Army reported earlier this month that with the Army's air and missile defense portfolio review in full swing, service acquisition chief Malcolm O'Neill and Missile Defense Agency Director Lt. Gen. Patrick O'Reilly had met recently to discuss how they might work together on MEADS:

The gathering comes ahead of a meeting of defense acquisition chiefs later this month on the sidelines of a NATO Conference of National Armaments Directors. "I think there will be a frank discussion between us, the Germans and the Italians," O'Neill told sister publication Inside the Army, calling the Oct. 28 meeting on MEADS, set for NATO headquarters in Brussels, an "important milestone."

Topics of discussion, according to O'Neill, include the program's progress, cost, and "options to continue as a team" or otherwise. As for the meeting with O'Reilly, no decisions regarding MEADS have been made, O'Neill stressed.

The Army, which pays for the U.S. contribution to MEADS, has long viewed the program with trepidation and has made several attempts to bow out of it. But MEADS has traditionally enjoyed support from the Office of the Secretary of Defense, raising the question of how much power the Army has to influence its fate.

Swanson said the company's Patriot missile business would likely not be hurt by MEADS, regardless of what decision is made on the latter program, adding that Patriot has 12 customers around the world, compared to three for MEADS. "We expect Patriot to be around for a long time," he said.

Raytheon this morning announced third-quarter 2010 adjusted earnings per share of $1.36 per diluted share, up 9 percent compared to $1.25 per diluted share in the third quarter of last year, according to a company statement.

"The increase was primarily driven by operational improvements," the statement reads.

"Strong program performance and cost reduction activities drove operating margins and earnings for the quarter," Swanson said in the statement. "Our consistent focus on providing our customers with innovative and affordable solutions positions us well to address the future challenges and opportunities in our industry."

Raytheon's net third-quarter sales were $6.3 billion compared to $6.2 billion in the same quarter last year. The company's operating cash flow from continuing operations was $413 million during the quarter, down from $749 million in the same quarter last year, according to the statement. "Operating cash flow from continuing operations in the third quarter 2009 was favorably impacted by the timing of collections on several production programs."

As for the company's individual business segments:

Integrated Defense Systems (IDS) had third quarter 2010 net sales of $1,319 million compared to $1,387 million in the third quarter 2009. The change in net sales was primarily due to lower volume on various U.S. Navy programs and on two joint battlefield sensor programs, partially offset by higher volume on international Patriot programs. IDS recorded $208 million of operating income compared to $217 million in the third quarter 2009.

During the quarter, IDS booked $190 million for a U.S. Army/Navy Transportable Radar Surveillance (AN/TPY-2) radar for the Missile Defense Agency (MDA). IDS also booked $104 million on the Zumwalt-class destroyer program and $103 million on the Aegis weapon system for the U.S. Navy.

. . . Intelligence and Information Systems (IIS) had third quarter 2010 net sales of $735 million compared to $805 million in the third quarter 2009. The change in net sales was primarily due to lower volume on various classified programs, on a U.S. Air Force program and on the UK Border Agency program. IIS recorded $60 million of operating income in the third quarter 2010 compared to $68 million in the third quarter 2009.

During the quarter, IIS booked $447 million on a number of classified contracts.

. . . Missile Systems (MS) had third quarter 2010 net sales of $1,391 million compared to $1,396 million in the third quarter 2009. MS recorded $162 million of operating income compared to $145 million in the third quarter 2009. The increase in operating income was primarily due to operational improvements.

During the quarter, MS booked $2,179 million, including $545 million for the production of Advanced Medium-Range Air-to-Air Missiles (AMRAAM) for the U.S. Air Force and international customers, $451 million for engineering and manufacturing development on the competitively awarded Small Diameter Bomb II (SDB II) contract for the U.S. Air Force and U.S. Navy, $237 million for Standard Missile-3 (SM-3) for the Missile Defense Agency (MDA) and an international customer, $204 million for the production of Rolling Airframe Missiles (RAM) for the U.S. Navy and an international customer, $119 million for the Javelin program for the U.S. Army and international customers, $112 million for the production of AIM-9X Sidewinder short range air-to-air missiles for the U.S. Navy and international customers, and $106 million for development work on the Exoatmospheric Kill Vehicle (EKV) for the MDA.

. . . Network Centric Systems (NCS) had third quarter 2010 net sales of $1,227 million compared to $1,212 million in the third quarter 2009. NCS recorded $172 million of operating income in both the third quarter 2010 and the third quarter 2009.

During the quarter, NCS booked $84 million for airborne tactical communications systems for multiple customers.

. . . Space and Airborne Systems (SAS) had third quarter 2010 net sales of $1,238 million compared to $1,134 million in the third quarter 2009, primarily due to growth on classified business and on an international tactical radar program. SAS recorded $191 million of operating income compared to $159 million in the third quarter 2009. The increase in operating income was primarily due to operational improvements.

During the quarter, SAS booked $87 million for the production of Active Electronically Scanned Array (AESA) radars for the U.S. Air Force and Air National Guard. SAS also booked $265 million on a number of classified contracts.

. . . Technical Services (TS) had third quarter 2010 net sales of $873 million compared to $797 million in the third quarter 2009, primarily due to continued growth in domestic and foreign training programs supporting the U.S. Army’s Warfighter Field Operations Customer Support (FOCUS) activities. TS recorded operating income of $77 million compared to $60 million in the third quarter 2009. The increase in operating income was primarily due to operational improvements.

During the quarter, TS booked $306 million on domestic training programs and $121 million on foreign training programs in support of the Warfighter FOCUS activities.

How many soldiers does it take to screw in a light bulb?

No one knows that yet, but when the service does find out, the bulb itself will be an energy-efficient one.

According to a Pentagon statement issued this morning, Katherine Hammack, the service's assistant secretary for installations, energy and the environment, has issued a new policy memo mandating that all light bulbs acquired for use in facilities and structures owned, leased or controlled by the Army must meet higher energy efficiency standards. "The goal is a complete replacement of all incandescent lighting on Army installations within five years. New efficient lighting will use three to five times less electricity than an incandescent bulb over the same period," the statement reads. Further:

Hammack issued today a 'Memorandum on the Utilization of Efficient Lighting' to reduce energy consumption and reduce adverse impacts to the environment. The memo establishes policy and guidance to use only efficient light bulbs that meet standards outlined in the Energy Independence and Security Act (EISA) of 2007. EISA requires the manufacture of energy efficient light bulbs, with efficiency standards phasing in between 2012 and 2014. It also requires the use of energy efficient lighting fixtures and bulbs in buildings constructed by the General Services Administration.

"Lighting efficiency improvements present a clear opportunity to decrease energy consumption, which is a priority for the U.S. Army, the Department of Defense and for the entire federal government," said Hammack. "It’s been over 130 years since Thomas Edison gave birth to the world’s first practical incandescent light bulb, and we’re undeniably overdue for a jump forward."

In order for the Army to capture energy efficiency savings consistent with these provisions, the new policy requires the use of the light bulbs as soon as possible. When installed bulbs fail and existing inventory is depleted, only efficient light bulbs may be purchased. Compact Fluorescent Lights (CFLs) require significantly less energy to produce the same amount of light, and need replacement 6 times less often.  This means a profound reduction in electricity, maintenance and labor costs.

Separately, the Army issued a second memo aimed at improving the service's "high-performance green buildings standards," according to the service statement.

"Energy security, sustainability and efficiency are national security imperatives," Hammack said. "This policy supports the Army's global missions in a cost-effective, safe and sustainable manner that will benefit Army soldiers, families and the entire nation." Further:

The memo, "Memorandum for Sustainable Design and Development Policy Update (Environmental and Energy Performance) (Revision)", changes the way the Army will approach efficient design of Army facilities.  Requirements throughout the planning, programming, budgeting, design and building stages will strengthen the Army's sustainability, energy security, and energy independence through more responsible consumption and planning.

Incorporation of sustainable design and development principles, following guidance as detailed in American Society of Heating, Refrigeration, and Air-Conditioning Engineers (ASHRAE) Standard 189.1, will reduce water and energy consumption, optimize energy efficiencies and performance, and reduce negative impacts on the natural environment.  Through strategies such as siting, cool roofs, solar water heating, storm water management and water efficiency, the Army will reduce its impact on the environment.  Options will be investigated and documented for each project to evaluate the Army’s ability to utilize renewable and alternative power sources on its installations in a fashion that is compatible with training missions.

Commissioning, measurement and third-party verification are also required to track progress and identify opportunities for further improvement.  Lifecycle-cost analyses will be mandatory to promote best business practices.

The Army's commitment to sustainable design and development extends beyond construction or renovation savings, Hammack said, "High-performance buildings are critical to cost effective life cycle management of our infrastructure and national energy security. Maintaining access to vital resources, including energy, water and the environment is vital for accomplishing the Army’s global missions."

While the overall benefits gained through efficiencies and reduced consumption will vary based on location, buildings in compliance with the new policy are expected to yield significant energy savings for the Army over current construction standards.  Preliminary analysis by the U.S. Army Corps of Engineers indicates energy savings over current design of 45 percent or greater.

In related news, Army Vice Chief of Staff Gen. Peter Chiarelli has recently expressed frustration with the Defense Department's slow acquisition process, which he said was preventing the service from rapidly adopting technology that could make it more energy-efficient, Inside the Army reported earlier this month:

"If there's something that concerns me greatly . . . it's our inability to take advantage of rapid technological change," he said at an Oct. 13 energy forum at the Pentagon. "I worry that our acquisition system is too slow."

If the Army planned to replace an old vehicle engine with one that was more efficient, he said, the process as it is would take several years and result in a technological solution that was outdated by the time it was fielded.

Chiarelli also said Army leadership was waging a constant battle with Pentagon programmers who have the tendency to resist projects that do not show immediate benefits. For example, he said the Army wanted to construct new energy-efficient buildings that would not begin to show energy cost savings for 14 years.

"Programmers have this vision of the world that ends every year, every five-year period, and nothing happens after that," he said. "It takes leadership to argue against the programmers who say: 'Why should I build something in this five-year period that won't show savings until a period that I can't even envision yet?' It's not on their radar screen."

Remember Teri Takai? She is the former chief information officer for the state of California who was nominated by President Obama in March to be assistant secretary of defense for networks and information integration. Her nomination got caught up in Defense Secretary Robert Gates' hunt for operating efficiencies, an endeavor that saw that assistant secretary position eliminated. This morning the Defense Department announced that Takai was being appointed the department's new chief information officer.

The position Takai was originally nominated for required Senate confirmation. The Senate Armed Services Committee planned to consider Takai's nomination on Aug. 3. But the committee dropped Takai from its list of nominees for that August hearing because of Gates' decision to do away with the office Takai would have led.

During an August 9 press briefing Gates said:

We will stand up a refashioned and strengthened chief information officer, or CIO, and under its umbrella responsibility for daily operations will be assigned to the Defense Information Systems Agency.

According to this morning's DOD announcement, Takai will:

... help lead the effort to disestablish NII and define the successor CIO organization. Accordingly, Takai will also temporarily serve as the Acting NII during this transition period.

A new Congressional Research Service report has taken a deep look into the workings of the National Security Council. The report evaluates each council and its role under every president from the Truman administration in 1947 through the present.

As for its evaluation of the Obama administration, the report, highlighted this morning in the Federation of American Scientists' Secrecy News blog, notes that in May 2009, the administration announced the integration of the staffs of the National Security Council and the Homeland Security Council into a single National Security Staff (NSS).

"The position of assistant to the president for homeland security, currently filled by John Brennan, will be retained 'with direct and immediate access' to the president, but the incumbent would organizationally report to the national security adviser," according to CRS. Further:

In the initial months of the Obama Administration, several steps have been taken to modify and enhance the role of the National Security Council. The integration of NSC and Homeland Security Council staffs may work to overcome the intelligence and law enforcement divide that many observers believe existed prior to 9/11. It may also facilitate closer cooperation of Federal agencies and state, local, and tribal entities in dealing with homeland security issues. These relationships are, however, complex and derive from separate statutory missions; observers suggest that establishing new organizational entities can affect, but not determine, the ability of different agencies to share information and cooperate on operational planning and programs. The relationships among the relevant senior officials and the role of the President will remain crucial. The Obama Administration has not had to contend with major public disputes between the NSC and the State and Defense Departments, but there have been some complaints that Mr. Brennan has exercised an influence on intelligence activities that more properly belongs to the Director of National Intelligence.

As the old saying goes: Better late than never. Boeing and the Air Force finally hammed out the termination details of the E-10 multimission intelligence, surveillance and reconnaissance aircraft, which has resulted in the defense giant crediting the service $30 million.

While the official cancellation of the E-10 program came three years ago today, the two parties finalized it last week. “The Air Force is finalizing a termination for convenience of the government with The Boeing Co., Seattle, Wash., for -$64,652,791,” an Oct. 22 contract announcement states. “The modification will result in a credit to the government of $30,052,79.”

The E-10 was supposed to be a Boeing 767-based aircraft that would replace the E-3 Sentry, the E-8 Joint Surveillance Target Attack Radar System and the RC-135 Rivet Joint. In 2003, the Air Force awarded Northrop Grumman, Boeing and Raytheon a $215 million pre-system development and demonstration contract for E-10 aircraft and related integration work. As part of that contract, the service ordered a “green” 767 airliner.

But the service scaled the program back and eventually canceled the entire effort in 2007. As Inside the Air Force reported in August 2006:

Air Force officials are mulling plans to terminate the E-10A program as the service continues work on its fiscal year 2008 budget request, according to sources with knowledge of the thinking of service brass. The possibility of placing the embattled command and control aircraft program on the chopping block comes as service and Pentagon officials are looking to trim expenses. The Air Force, in its FY-07 budget blueprint, eliminated procurement funds for the E-10A program but left in place research and development dollars. Those R&D dollars were slated to be used for work on at least one E-10A plane, a plan that now appears in jeopardy, sources say.

After canceling the E-10 program, the 767 sat at a Boeing facility in Washington State for several years. In 2009, Flight Global reported that the government of Bahrain would acquire the aircraft for VIP transport.