Some Real Arms Limitation

Pentagon planners grudgingly accept the fact that each January congressional liberals routinely lop $3.5 billion or so off their requested budget, and the liberals regularly grumble that the military goes on buying weapons as rapidly as it had planned anyway. This year, however, the Defense Department has run up against a far more merciless budget slicer that is really forcing cutbacks in weapons procurement: the savage bite of inflation.

In the second quarter of 1974 alone, inflation added $16.9 billion to the cost of 42 major weapons systems, a rise of 13% over their prices when last projected. The programmed cost of the B-1 bomber jumped from $12.2 billion to $18.6 billion; projected outlays for Trident nuclear submarines, each of which can carry 24 missiles, rose from $11.4 billion to $15.5 billion. Third-quarter figures are not yet available, but they hardly seem likely to be any better since the annual rate of U.S. inflation has continued in double digits.

Unable to pay all the staggering price hikes, the Air Force is considering reducing its total weapons procurement, possibly signing contracts for 69 new F-15 fighters in the next two years instead of the 72 it had planned. The Navy may be forced to purchase 21 rather than 30 new destroyers next year. The Army is reluctantly setting aside its plans to buy heavy-lift helicopters that can haul 22.5 tons.

Huge Costs. The Pentagon, of course, may have brought some of the problem on itself by its past willingness to accept price increases that contractors claimed were forced by huge cost overruns and bail out firms that could not deliver weapons at the previously established price. J. Ronald Fox, former Assistant Secretary of the Army, points out that "there are always pressures for increasing costs in an industry where there is little price competition."

Moreover, many contractors are now turning down military contracts in favor of sales to private companies; they find that commercial orders yield less paper work and better profits. Says Admiral Isaac Kidd, Chief of the Naval Materiel Command: "It is no longer a buyers' market where we could dictate through contracts."

In fact, Kidd and other Pentagon planners are finding that some of the contracts they do sign are all but worthless. Because inflation has wiped out their profits on fixed-price deals, some contractors are backing out of their commitments, even though they risk being sued for default. Says Admiral Kidd: "Subcontractors tell us that it is simply cheaper for them to renege on the or der with the prime contractor. Litigation for default will cost them $3 million to $5 million, but at least they will keep the company" -- which might go bust if it sold at the originally agreed price.

Other contractors, increasingly wise to the toll of inflation, tell the Pentagon that they will sign only pacts that let them set the final price when the weapons are actually delivered.

Yet another severe problem is the drastic delay in deliveries that is being caused by inflation-breeding shortages of aluminum, steel and electronic print ed circuits. As a result, orders have backed up dramatically, leaving the Army short 1,857 tanks. To make mat ters worse, Secretary of State Kissinger has sold more than 1,000 tanks from U.S. inventories to Israel to build up that nation's inventories. The Army is planning to subsidize some capital expenditures of the Birdsboro Corp. of Birdsboro, Pa., because it is one of two remaining plants capable of casting turrets and hulls for the M-60A1 heavy tank.

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