The Insider

Missile Defense Agency Director Lt. Gen. Patrick O'Reilly today outlined some of the things his agency is doing to get contractors to improve their quality control on missile defense contracts. Specifically, according to his prepared testimony at a House Armed Services strategic forces committee hearing:

Until we complete planned competitions, including the greater use of firm fixed price contracts, we will have to motivate greater attention by senior industry management through intensive government inspections, low award fees, the issuance of cure notices, stopping the funding of new contract scope, and documenting inadequate quality control performance to influence future contract awards by DOD.

O'Reilly took contractors to task last month at an MDA conference, Inside Missile Defense reported, saying: "I have gone to a point where I am withholding funding for current contracts because I don't see the level of scrutiny and a level of culture necessary for the precision work that's required -- not in engineers' design capability, but actually in manufacturing."

O'Reilly went further during today's question-and-answer portion of the hearing, responding to a query from subcommittee Chairman James Langevin (D-RI) regarding target failures. O'Reilly cited the case of a failed Terminal High Altitude Area Defense intercept test last December where the air-launched target failed to ignite after separating from a C-130 aircraft. A Failure Review Board found "systemic problems" with the aircraft's launch system, he added.

As a result of the target failure, O'Reilly halted any future use of air-launched targets and said that one option is to expand "the number of contractors which we use so we can induce competition, which I believe is part of the solution to quality control issues."

He continues:

It's not that these are poorly built systems -- the precision required of missile defense systems is very high, and it is achievable, but it requires a specific disciplined experience base and investment in testing . . . that's required. And so to motivate that, I have delayed any new scope to that particular company so that until they satisfy that they have made corrective actions in management structure and in approaches to targets and so forth. And also at the same time I have taken the planned work that I was going to use with that company in 2012 and put that scope on another contract that I have with another company and asked that second company to develop an air-launched capability so that we have true competition to emphasize the fact that it is an absolute requirement in the missile defense business that you have the highest repeatable quality. It is a condition on which our contracts should be set.

Richard Genaille will be the next deputy director of the Defense Security Cooperation Agency, according to an April 9 DSCA statement.

Genaille, who is currently the director of policy in the office of the under secretary of the Air Force for international affairs, was tabbed by Under Secretary of Defense for Policy Michéle Flournoy. His first day in his new position has not been set.

Genaille is a retired Air Force pilot with 22 years of active duty service. In his current job, he develops and implements national, Defense Department and Air Force policy governing security assistance, foreign disclosure and technology transfer. Genaille was appointed to the Senior Executive Service in 2005.

The Pentagon's public affairs shop attempted last week to steer Defense Department reporters away from the math laid out in DOD's own F-35 Selected Acquisition Report -- which definitively says the total cost for Joint Strike Fighter program will increase to as much as $388 billion this June. (See pages 36 and 37 of the report.)

However, at least one key lawmaker has questions about the numbers laid out in the document -- the sole basis for the math cited in our story (derided by a Pentagon spokesman as "fuzzy," though no one -- including DOD-- has yet to explain how that could be given that the numbers are in the SAR).

Sen. John Thune (R-SD), ranking member of the Senate Armed Services airland subcommittee, this morning referred to the F-35 SAR at a hearing on tactical aircraft programs. He suggested that an upwardly revised JSF independent cost estimate will raise questions about the affordability of the Pentagon's plans to buy 2,443 of the fighters, just as we reported. Here's what he said:

The Defense Department is warning Congress that the overall cost for buying the JSF will increase yet again as a result of the independent cost estimate, when it comes out this summer. The magnitude of that revised cost estimate could raise basic questions about the department's plans for and the commitment of the program's international partners to the program as it is currently envisioned.

Thune asked the service representatives at the hearing how they were prepared to handle such increases. We'll have the answer for you later today.

But let's review that math: The SAR states that the $133.5 million program acquisition unit cost (PAUC) “will increase” by as much as 18.4 percent, which would raise the PAUC to $158.1 million.

From there, the arithmetic is simple: $158.1 million x 2,443 JSF aircraft = $388 billion. Nothing “fuzzy” about it. This is the way the Pentagon has calculated program costs for more than 40 years.

That's the subheadline for Credit Suisse analysts Robert Spingarn and Julie Yates in their just-published quarterly outlook for the defense industry.

A taste:

We expect a relatively quiet quarter from defense contractors, especially given previous delays in FY-10 budget approval. We suspect that government services revenues and margins could come in a little light given recent trends. DoD is in the process of overhauling its cash management and payment protocols, which could eventually drive higher working capital requirements for contractors, but it is probably to soon to see much impact on cash flow in the quarter. There were several large int’l orders in the quarter such as Boeing's order from UAE for 6 C-17s, (Lockheed Martin's) order from Egypt for 20 F-16s and the UK's selection of (General Dynamics) for up to 580 (Austrian Spanish Cooperation Development) vehicles. Separately, in a competitive bid (Raytheon) beat out (Northrop Grumman) for an $886M contract for next-gen GPS. We foresee small guidance increases from (L-3 Communications) and (Raytheon).

President Obama and Russian President Dmitry Medvedev signed the "New START" pact in Prague today, laying the groundwork for the extension of a nuclear disarmament agreement that has been key to relations between the two countries for decades. To enter into force, both countries' parliaments must ratify the treaty.

"While the New START treaty is an important first step forward, it is just one step on a longer journey," Obama said in a statement posted on the White House Web site today. "As I said last year in Prague, this treaty will set the stage for further cuts. And going forward, we hope to pursue discussions with Russia on reducing both our strategic and tactical weapons, including non-deployed weapons," the statement reads.

The nuclear arsenals of Russia and the United States make up more than 90 percent of the world's atomic weapons.

The treaty text enables Washington and Moscow to continue their work on ballistic missile defense shields, an ongoing point of contention regarding a planned U.S. system for Europe. "A missile of a type developed and tested solely to intercept and counter objects not located on the surface of the Earth shall not be considered to be a ballistic missile to which the provisions of this Treaty apply," the treaty states.

"President Medvedev and I have also agreed to expand our discussions on missile defense," Obama's statement reads. "This will include regular exchanges of information about our threat assessments, as well as the completion of a joint assessment of emerging ballistic missiles. And as these assessments are completed, I look forward to launching a serious dialogue about Russian-American cooperation on missile defense," the statement adds.

Director of National Intelligence Dennis Blair yesterday addressed the Bipartisan Policy Center's conference on the "State of Intelligence Reform," hosted by former New Jersey Gov. Tom Keane (R) and former Rep. Lee Hamilton (D-IA), the two commissioners of the 9/11 panel.

Conference attendees heard from two panels featuring intelligence community veterans like Rep. Jane Harman (D-CA), the former ranking member on the House Permanent Select Committee on Intelligence; former CIA Director Gen. Michael Hayden; and former DNI retired Adm. Mike McConnell.

Then Blair stepped up and gave his recipe for making things better in the intelligence field:

Here are three practical recommendations. They’re in progress, but they need to be driven to build that kind of agency leadership: First, as mandated by the IRTPA, every officer must serve in a joint job before he or she can be promoted to the Senior Intelligence Service. Now, this program, as Director McConnell -- former Director McConnell mentioned -- is under way.

But we need to toughen this requirement so the jobs that earn joint duty credit are those that provide real experience in the capabilities and the culture of other agencies. I can tell you that once you’ve served a significant period of time outside your home agency in the atmosphere of another agency, you go back to your former duties a changed person. You have real understanding of what can be done. So that’s number one.

Second, we need more thorough succession planning within the agencies, conducted basically by the agency leadership itself, but overseen by the DNI. Succession planning will ensure that officers promoted to leadership roles in the individual agencies truly have the right qualifications and the joint ethic. Succession planning is also necessary for other goals that we’re pursuing for the leadership of the Intelligence Community -- diversity and breadth -- as well as parent agency skills.

And third, we need to continue to improve joint education. We’ve started new joint training courses for entry-, mid-level and senior intelligence officers this year. And we’ll look to continually improve them. The curricula of these courses must be continually updated and refreshed. We’re learning the best examples; best practices are coming all the time. And as I mentioned, primarily
from the field in. And we have to plow those back into the education so that those who are in the courses can take full advantage of them.

White House officials plan to roll out the much anticipated Nuclear Posture Review tomorrow. The document will be heavily scrutinized for any indications of how President Obama plans to implement his vision of a nuclear weapons-free world -- or at least diminish the role of nuclear weapons in the U.S. national security policy toolbox.

The Union of Concerned Scientists, on its Web site, editorialized about the potential outcomes of the review today. According to the UCS blog entry, a lot will hinge on subtleties in the final text, for example when it comes to the stated purpose of nuclear weapons. Options here, UCS folks write, range from characterizing atomic weapons strictly as a deterrent force to reserving the right to use them on a pre-emptive basis in certain circumstances.

Other points warranting attention will be sections on the U.S. arsenal size, stockpile maintenance plans, tactical weapons in Europe and the alert status of the U.S. arsenal, according to UCS.