Gates’ budget-cutting ideas include using top contractors

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After acknowledging insourcing wasn’t working, Defense Secretary Robert Gates this week came up with roughly 20 initiatives to cut $100 billion from the Pentagon’s budget.

The moves are aimed at reining in the ballooning cost of weapons systems, as well as the cost of replacing military ships and planes.

The Pentagon will set goals for what weapons should cost and give contractors greater financial incentives to complete projects on budget. Gates said the plans will also cut waste from defense contracts.

Other initiatives include preferential treatment to suppliers with the best cost-control records and more competitive bidding for service contracts.

The money saved will be used to help design a new nuclear missile submarine and long-range aerial strike systems, advanced combat vehicles and a new presidential helicopter. All could cost more than $200 billion during the next decade.

The plan also includes closing a major military command, the Joint Services Command in Virginia, which would reduce the number of generals and admirals.

Gates also plans to use fixed-price contracts, instead of cost-plus contracts. The hope is that government and the contractor would share equally in cost overruns, leading to more efficiency.

The Pentagon spends about $400 billion of its $700 billion budget on equipment and services.

Industry experts said they were “encouraged” by Gates’ plan.

“We are particularly encouraged by … express attention to the partnership between government and industry and managing them together in a new era,” said Marion Blakey, president and CEO of the Aerospace Industries Association in a statement after Gates’ presentation. “The ongoing meetings between top-level defense officials and company CEOs are a crucial tool in this process.”

Blakey said she had questions about some of the programs, but was “confident that the cooperation … will produce results that will benefit all stakeholders.”

The AIA has been working with the Pentagon to develop cost-cutting measures. That work will continue, Blakey said.

“These include rationalizing government and contractor infrastructure, increasing use of performance- and outcome-based product support strategies and eliminating low-priority and redundant government services,” she said.

NASA gives Boeing contract extension

NASA has awarded a five-year, $1.24 billion contract extension to The Boeing Co. to continue engineering support of the International Space Station through Sept. 30, 2015.

The additional contract will include work to maintain the station and its research laboratory.

Earlier this year, NASA officially accepted the space station from Boeing after a review board verified the delivery, assembly and activation of all hardware and software from the past contract. The move marked the transition from assembly of the space station to actual use, NASA officials said.

The new contract brings the total contract value through 2015 to $16.2 billion.

Boeing will be responsible for maintaining station hardware and software, as well as supporting U.S. programs provided to international partners. Boeing will also provide management for the majority of the station’s systems, materials and processes, as well as electrical, electronic and electromechanical parts.

NASA is in the final stages of analyzing its ability to sustain the ISS through 2020. The contract extension also requires Boeing to assess the feasibility of extending the life of the space station through 2028.

The work will be performed at NASA’s Johnson Space Center in Houston, Kennedy Space Center in Florida, Marshall Space Flight Center in Huntsville, Ala., and at other domestic and international locations.

United States loses global competitiveness

The United States dropped to fourth place in the World Economic Forum’s global competitiveness report.

Last year, the U.S. ranked second; two years ago it was first.

“This disturbing news makes it clear that the administration and Congress must take immediate action,” said Marion Blakey, president and CEO of the Aerospace Industries Associaiton. “We cannot risk falling further behind.”

Switzerland ranked first, followed by Sweden and Singapore. Germany and Japan fell behind the United States.

The reasons behind the precipitous drop included tax rates, inefficient government bureaucracy and lack of access to credit, according to the report.

The AIA says the issues can be addressed by making research and development tax credits permanent and by reducing corporate tax rates.

Amy Gillentine can be reached at 719-329-5205 or at amy.gillentine@csbj.com. Friend her on Facebook and follow her on the CSBJ’s Twitter feed.