Industry proposals for new weapon projects are "almost unaffordable," a senior Defense Department acquisition official said today, sounding a clarion call for the private sector to better account for increased costs attributed to economic uncertainty, including rising inflation, supply chain interruptions and labor shortages.
Maj. Gen. (P) Robert Rasch, Army program executive officer for missiles and space, admonished an industry audience at the Space and Missile Defense Symposium in Huntsville, AL, to provide a higher-fidelity explanation for increased cost on proposals for new weapon system projects.
“Inflation is here, we know it's here,” said Rasch. “It's high in some areas, it's probably not as high in other areas. We need better communication with industry as we're seeing proposals come in and [we need to better] understand where that inflation is. Inflation isn't across an entire system. There's thousands of parts that make up missiles and radars,” he said, noting the government is prepared to pay for higher costs where there is a “reasonable” justification.
“Like, you just can't wrap it up in a big bundle and throw it over the fence,” the soon-to-be three-star general said of inflation costs in new weapon system submissions. "Proposals are coming in almost unaffordable.”
Rasch did not identify any specific weapons projects during his remarks.
In addition to inflation, defense companies are citing supply chain uncertainty and labor shortages as part of their increased cost proposals.
“It's the economic uncertainty of being able to get a sub[contractor] to agree to a price option three years from now, given all the other things that are occurring right now in the economy,” he said, offering an example of managing uncertainty. “So, I ask you to work with us as a government to figure out how to share and mitigate that risk down the path.”
In addition to saying proposals were “almost unaffordable,” Rasch also framed the problem more imperatively: “We have programs that are unaffordable, unaffordable programs.”
This warning comes as the Pentagon is spending a near-record amount on programs in the Army’s missiles and space portfolio, with more than $9 billion in fiscal year 2022, including about $3 billion in supplemental spending for Ukraine, according to a chart Rasch presented at the symposium.
Rasch predicted the challenges he is encountering with cost growth in new proposals are not unique to Army missiles and space acquisition.
“I imagine every PEO who's at a symposium anywhere in the Army right now is probably having the same conversation,” Rasch said. “We have got to think differently, and we've got to do it quickly.”