FPI Bulletin: A Reform Agenda for the Pentagon

April 25, 2016

The readiness of the nation’s armed forces continues to suffer because of the harsh and unjustified cuts imposed via the Budget Control Act (BCA) of 2011 and the attendant process of sequestration. In addition to repealing these harmful cuts, Congress should also work with the Pentagon in order to enact meaningful, and continuous reforms to get the most value out of each defense dollar. In a new paper, Mackenzie Eaglen of the American Enterprise Institute writes that the most important opportunity for reforming the Defense Department is lies in its vast civilian workforce.

More Civilians but Fewer Troops

In practice, the Pentagon has two separate civilian workforces. The first consists of roughly 750,000 full-time civil servants. The second consists of an army of contractors that numbers somewhere between 650,000 and 750,000. Together, these two components of the civilian workforce now outnumber the 1.3 million men and women in uniform who serve on active duty.

Eaglen’s paper focuses on a dysfunctional trend in DOD employment, namely that the number of men and women in uniform has fallen sharply while the number of civil servants has grown. The Pentagon’s statistical digest, known as the Green Book, shows that civil service employment rose by 20,000 from 2001-2008, and then another 60,000 since that time. Meanwhile, from 2001-2008, the Pentagon added 15,000 military personnel on active duty, before losing slightly more than 100,000 since then.

It would be useful to know whether the number of contractors has risen or diminished during this same period, yet that it is impossible, Eaglen says, “because the data provided to Congress by the Pentagon are so poorly captured and classified, so ethereal in their standards, that deriving insights and conclusions from the dataset is nigh impossible.” Eaglen suggests it is no accident that “the Pentagon has changed its accounting and classification standards so frequently” since that is one of the bureaucrat’s classic methods for obscuring bad news.

While the divergent trends in civilian and military employment point toward flawed management, it may sometimes be prudent to replace military personnel who perform noncombat functions with similarly capable civilians. For example, the Congressional Budget Office (CBO) found that from 2004-2010, the Pentagon replaced 48,000 military personnel with 32,000 civilians in order to free up additional uniformed personnel to deploy to Afghanistan and Iraq. DOD was able to replace every three military personnel with only two civilian hires because of diminished requirements for on-the-job training as well as a simultaneous effort to streamline business processes.

Although Congress is now working to mandate across-the-board cuts in civilian employment, this is a poor substitute for giving DOD the authority to eliminate both unnecessary jobs and underperforming employees. Although the Pentagon leaders has perennially sought the authority “to terminate employees based on performance,” Congress has only taken incremental steps in that direction and the most ambitious effort to do so was scrapped in 2010.

Moving forward, Congress should provide DOD greater authority over its own personnel in exchange for the data needed to better perform its oversight duties. As noted above, the quality of data provided about contractors is abysmal. The data provided about civil service positions is also problematic, since DOD has a habit of reclassifying positions to create the impression of cuts to some organizations, while those individuals simply reappear elsewhere.

Efficient Contracting for Services

DOD now spends more on services than it does on weapons and hardware. In 2015, the Pentagon spent $130 billion on weapons but $144 billion on services. Eaglen describes DOD spending on services as the “budgetary equivalent of a black hole” because so little is known about the process. In comparison, runaway costs in the production of new ships or planes are sure to generate both headlines and congressional hearings. When it comes to services, it is even difficult to say what problems need to be solved because the entire enterprise is so opaque.

The opacity of services procurement relates directly to DOD’s workforce dilemma, because the Department’s spending on services is its vehicle for the employment of roughly 700,000 civilian contractors. While the phrase “military contractor” may conjure up images of hired guns in Afghanistan or Iraq, the areas in which DOD actually spends the most on contractors are information technology, research, maintenance, communications, health care, and construction. To address the difficulties associated with reliance on contractors, the Pentagon must address the broader challenge of purchasing services more efficiently.

The process of reform must begin with better data. First of all, the Pentagon must standardize the process of data collection and commit to a fixed classification of services, so that it cannot rely on perennial reclassifications to prevent Congress and others from recognizing inefficiencies. Next, the Pentagon must apply best practices developed by the private sector to the DOD process for contracting. Last year, notes Eaglen, the Pentagon’s Defense Business Board reported that DOD could save upwards of $10 billion per year via better contracting practices, such as more rigorous negotiation and exploiting economies of scale.

Reform Alone is not Enough

Taxpayers have every right to be frustrated about the inefficient ways in which the Pentagon spends their hard-earned dollars. However, it would be a serious mistake to conclude that if the Pentagon were more streamlined, then its current budget would be sufficient. Last year, eighty-five defense experts sent an open letter to Congress calling for an increase in annual defense spending of $80-$90 billion. No agenda for reform can generate enough savings to cover the military’s unmet needs. Thus reform should proceed alongside the repeal of the BCA and the end of sequestration.

Mission Statement

The Foreign Policy Initiative seeks to promote an active U.S. foreign policy committed to robust support for democratic allies, human rights, a strong American military equipped to meet the challenges of the 21st century, and strengthening America’s global economic competitiveness.
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