Fat on the Sacred Cow

By WALTER ISAACSON

The uncontrolled costs of new weapons swell defense figures

To budget-conscious Congressmen alarmed by the prospect of $100 billion deficits, the burgeoning Pentagon budget seems to be the obvious place to attack. In such a $258 billion behemoth, how could there fail to be fat by the ton? The fiscal 1983 Defense Department requests are up 13.2%, after inflation, from the current year, and the five-year forecast calls for spending a total of $1.6 trillion, an amount that Ronald Reagan might try to make comprehensible by describing a stack of dollar bills 107,000 miles high. Reflecting on these towering sums, New York Democratic Senator Daniel Patrick Moynihan flatly predicts: "The proposed defense increases aren't going to take place."

Congress will search line by line through the Pentagon proposals in the hunt for waste and excess. The legislators will find, however, that the defense budget resists quick cuts that result in very large immediate savings. Salaries and retirement pay account for almost one-fourth of the budget and are hard to reduce because of the need for a steady stream of recruits and re-enlistments in lieu of a draft. The controversial strategic superweapons of the future, such as the B-1 bomber program and the MX missile, will be debated to determine whether the U.S. should commit itself to such huge funding in the years ahead, but even entirely eliminating these two programs this year would reduce actual 1983 outlays by "only" about $5 billion. Operating costs, maintenance, training and ammunition have always been favorite congressional targets because the money buys few jobs in legislators' home districts and outlays drop immediately. But these are exactly the areas that should not be cut; they have been eroding for years and must be shored up to strengthen the armed services.

As Congress looks for ways to curb military spending, it will have to focus on the uncontrolled cost of weapons. Not only are weapons far more expensive than they should be, they cost far more than was ever remotely anticipated. The expense of 50 major weapons currently being developed has leaped an average of 118% over earlier projections. Unanticipated inflation is responsible for about 70% of the cost overruns, a problem aggravated by chronic delays in production times. The rest is essentially due to the fact that the Pentagon and its contractors design and redesign weapons with little regard for time or money. Reagan wants to spend 36% more for weapons next year, increasing procurement from $66 billion to $90 billion. The shopping list: 42% more for Army aircraft, 48% more for Air Force missiles, 121% more for Navy shipbuilding. Because the new hardware is so much costlier the added money will purchase fewer items overall.

The saga of the Army's M2 and M3 Infantry Fighting Vehicle (IFV) systems illustrates how costs can escalate out of control. "It is a horror story of the worst kind," says Major General Herbert McChrystal Jr., retired, who was an Army director of planning. The original plans, drawn up in 1972, envisioned an armored personnel carrier costing $400,000. As soon as development began, the Army review committee, a constantly changing board of top Pentagon staffers, began reconsidering exactly what jobs the vehicle should do. Should troops fight from the vehicle or get out? Should there be gun ports in the sides? Should a new weapon or a regular M-16 be used in the ports? The project became so complex that in 1975 McChrystal urged that it simply be scrapped and a comparable German version be bought at $400,000 each. But the Army decided to push ahead.

At one point it was decided to add a guided antitank missile (TOW) to the vehicle, with accompanying computer and an expanded two-man turret. Did that mean the 25-mm "Bushmaster" gun should be taken off? Explains McChrystal: "At one meeting people would say, 'Take the Bushmaster off and put the TOW on,' then at the next they'd say, 'No, we ought to have both.' Then a new officer would be rotated onto the review board and say, 'What's the matter with you guys? That thing can't carry both. Change it.' " The vehicles ended up indeed carrying both, and costing $1.4 million apiece. Another problem: the Army decided that it wanted more armor for the IFV. But the extra plating made the vehicle too wide to fit into the C-141 cargo plane, which is supposed to haul it. So the vehicle must be partly dismantled to be carried by the C-141, and would have to be reassembled on the scene. The first 100 IFVs were purchased in 1980, and the Pentagon has budgeted $840 million next year for 600 more.

McChrystal and a number of weapons experts, both in and out of uniform, feel that the U.S. ought to take a tip from the Soviets, who allow only a tightly limited number of design changes as they push ahead with a project. Any idea that subsequently conies along is held for the next model. The Soviets generally need about half the time the U.S. needs to get a new tank into service. "The good old U.S. Army," says McChrystal, "is going to put out that IFV with every bit of innovation they can, and it'll be a monster." General Volney Warner, who retired last summer from the Army's readiness command, admits this is a problem: "There is always something coming along tomorrow that we ought to hang on a weapon. So we lose control over the development."

This practice, known as "gold-plating," not only is expensive but can result in a muscle-bound product too overburdened to accomplish what it was designed to do. The Navy's F-18 "Hornet" fighter-bomber, for example, was proposed as a small, low-cost aircraft to complement the $36 million F14. Congress bought the notion in 1975, after being told that each plane would eventually cost about $16 million. They are now priced at $32 million each. Much of the added cost and delay is due to improvements made in the Star Wars radar and guided missile control system designed to allow the plane to attack the enemy in darkness and bad weather. Critics question the value of such sophisticated radar, leaving aside its cost, because its use can alert the enemy and spoil any element of surprise. In addition, the Hornet is now overweight by about 1,500 lbs. and has problems accelerating and maneuvering.

At one point in 1978 the Navy privately told the Defense Department it no longer wanted the costly plane. But partly because of strong congressional support from Massachusetts (the engines are built in Lynn), the program was retained. The first 25 were delivered in 1980. Says the plane's leading congressional critic, Democrat Bruce Vento of Minnesota: "The issue is whether questionable programs with runaway costs should be allowed to waste funds that would otherwise be available for weapons that work." Congress, say many critics of the program, should simply scrap the entire weapon, thereby saving up to $2.9 billion in 1983 and underscoring its determination not to put up with wasteful projects.

Nathan Higginbotham, manager of corporate planning for Government programs at McDonnell Douglas, prime contractor for the F18, agrees that part of the reason costs climb is "the inability of both the military and the manufacturers to fix a design and then stay with it." Richard Wollensack of Itek Corp., a high-tech optics company, argues that advanced capability is what gives the U.S. its military muscle. Says he: "If you know that the other guy's tank sights are good up to six miles, you certainly are going to try to design yours so that they're good up to seven." Indeed, the Pentagon has long argued that the U.S. must counter the Soviets' numerical advantage with more advanced weaponry, especially when the Soviets are improving their own weapon capabilities.

The Army's new M-l Abrams tank illustrates both the problems and the potential of overcoming Soviet numbers with advanced technology. At its best, the 60-ton monster is a marvel, roughriding over terrain at 35 m.p.h. while firing its 120-mm cannon with remarkable accuracy. Its revolutionary armor provides protection several hundred times as great as that of the M60, which the new tank replaces. Yet the M-l has been plagued with problems during development, and costs have now reached $2.43 million apiece (compared with $1.2 million for the M-60). The main problem was that the 1,500-h.p. turbine engine was prone to break down. Philip W. Lett, the tank's chief engineer at Chrysler Defense, Inc., concedes: "We still have to prove the engine's durability." But Chrysler now feels confident the tank will perform as planned.

Destroying tanks is expensive too. Six years ago the Army decided to commission its own shoulder-held antitank weapon, called the Viper, to replace a Norwegian model costing $135. The U.S. version would be cheaper, a mere $78, and have a longer range. But the first models proved too noisy, so the firing tube was lengthened. When these were tested, part of the barrel blew off. Subjected to the prescribed two-hour water-immersion test, the weapon failed after five minutes underwater. The Norwegian model now costs $250. The Viper, if Congress does not shoot it down, is expected to cost $1,000 each. Says an Administration defense expert: "It is painfully apparent that the Viper is not working. But once a service gets strongly committed to a program, it is a tough job to rub it out."

This damn-the-cost loyalty to developing weapons is one of the main reasons that they are so hard to scuttle. In the age of technology, one path to acquiring shoulder stars is nurturing a system to fruition. Upward-bound officers often find themselves allied with contractors in an effort to convince the Pentagon and others that their project should be built. The temptation is to underestimate costs at the beginning. Admits Army Under Secretary James Ambrose: "It almost seems an institutional phenomenon that projects start with gross underestimates by both Government and the contractor."

Occasionally the Pentagon challenges a company on cost overruns. The Army is now locked in a dispute with Hughes Helicopters, Inc., concerning the AH-64 Apache helicopter. Hughes says the attack helicopter's price, projected at $7.4 million apiece in 1978, has more than doubled, to $18.26 million, because of Army-ordered changes during nine years of development. Among them: substituting a laser-guided antitank missile for the original weapon, guided by wire, and adding a computerized sighting system for night use. Although there is $876.8 million for 48 Apaches in the 1983 requests, the Army is delaying production until the price issue is resolved.

For every feud, however, there is many a friendship between Pentagon and producer, and most disputes end up amicably--with the Government agreeing to pay most of the cost increases. General Dynamics' Electric Boat Division, which built the most recent $1.2 billion Trident submarine (50% over budget) and 18 nuclear attack submarines, was the subject of a criminal investigation by the Justice Department for overrun claims. Navy Secretary John Lehman last August called the costs a "rip-off." But early this year charges were dropped, and Lehman said the Navy has contracted with Electric Boat to build six more Tridents because the company had improved its controls on workmanship and materials.

"We have permitted considerable abuse," says Admiral Hyman Rickover, 82, who was forced into retirement last month by the Reagan Administration. The crusty father of the nuclear Navy, who during his 63-year career engaged in many heated disputes with contractors, charges that "the Justice Department has demonstrated a total inability to deal effectively with false claims prepared by sophisticated lawyers." In typically irascible testimony before Congress's Joint Economic Committee, Rickover attacked the Defense Department: "They will always protect private industry because that's where they came from and that's where they're going back to." In addition, he criticized Reagan's proposed military buildup: "I think we are spending too much. We should be more selective."

Contractors charge that Washington is to blame for most of the problems. General Dynamics Executive Frederick Wood says that in addition to pursuing endlessly the "latest bell and whistle," the Government too often slows production, hoping to keep immediate costs down but causing problems in the long run. John W. Day, president of Chrysler Defense Corp., contends that multiyear contracts would save large sums of money because they simply allow for more orderly production. Speaking in Pentagonese, he says, "It would allow you to go out and facilitize in such a way as to maximize profitability." In other words, it would allow companies to buy materials and make investments in a more efficient way. Other complaints: the Pentagon makes frequent changes in project managers, so there is no continuity; inflation estimates built into program costs are always optimistic, and needless require ments and specifications are imposed.

Deputy Defense Secretary Frank Carlucci, who has been working to reform some of these procedures, claims that the Pentagon's five-year plan will save $51 billion. Although this is due mainly to a federal cap on civil service pay and pensions, some of the economies are notable. The Pentagon dumped 60 marginal weapons systems--a new antiship missile, for example. In order to cut down on technological tinkering and design changes during development, the Pentagon now maintains that it will follow the Soviet example and rely more on gradually improving existing weapons than on ordering up entirely new models. An extra $2.1 billion has been included in the 1983 budget to reflect more accurately the probable effects of inflation on weapons procurement. Contracts will be proposed on a multiyear basis, and big-ticket items are to be budgeted fully in the first year of the program.

But such efficiencies, which have often been promised in the past, will scarcely satisfy those concerned by the hugeness of the proposed military escalation. Reagan's budget still has a wish-list quality, including a Christmas tree of weapons. In his "posture statement" outlining strategy, Defense Secretary Caspar Weinberger seemed to say that the U.S., because of the Soviet threat, must rush to be all places at once. There are no priorities established, no evidence of making tough choices, and despite threats by Congress that cuts would be made one way or another, Carlucci last week adamantly refused to say which weapons were more vital than others.

By starting and continuing so many expensive weapons programs, the Administration is committing the U.S. to enormous outlays in future years that, if experience is any indication, will swell even beyond the huge costs already forecast. Says Colorado Democrat Gary Hart, a leader of the "military reformers" who support increased spending but tend to oppose systems that threaten to grow out of hand: "The Administration is like a python devouring a pig. It's just got the snout now, but when the whole pig is devoured, there will be a huge bulge."

To many Congressmen, cutting big-ticket items now may seem more trouble than it is worth, because the bulk of the outlays will not come for years. But even in 1983, the spending for the major new weapons will be significant, paling only when compared with the looming deficit. It will be far more difficult, and far more expensive, to choose among the major projects after billions have been spent on each of them. Here are the three big-ticket items that will be the center of the congressional defense debate, and how each affects the budget:

The MX. This system, estimated to cost more than $30 billion for the multiple-warhead nuclear missile alone, has been in trouble on the Hill because the weapons will be vulnerable to Soviet attack unless the Administration can figure out how to base them safely. Last week Ronald Reagan reversed course again and said that it was not economically or strategically feasible to "superharden" the concrete of old Minuteman silos, which are to be the temporary base of the first 40 missiles. If Congress decides not to buy any MXs until it knows where to put them, $1.4 billion can be cut from the 1983 budget, and the $2.7 billion for research and development could be reduced.

The Bl. Concrete foundations 40 feet into the earth were being poured last week in Columbus to secure the sensitive machinery that will produce central portions of this strategic bomber. The B-l will be an integral part of America's strategic deterrent only from 1986 to the mid-1990s, when the advanced-technology Stealth bomber is scheduled to replace it. The B-l is also likely to be virtually obsolete by the end of the decade because of improved Soviet air defenses. If Congress decided to scrap the $29 billion program, it could cut $4.7 billion from next year's budget.

Two Nimitz-class nuclear carriers. Asked during his farewell testimony how long one of these $3.6 billion ships would survive during an all-out war, Rickover said "about two days." Many critics argue that building heavy carriers (twelve are now in service) is poor strategy for the 1980s. Forgoing one would reduce 1983 spending by only $74 million, but the savings over six years of scrapping a carrier and its escorting ships would total about $9 billion.

Congressional critics hope $10 billion in savings can be found in the defense budget for the upcoming year alone. It will not be easy. But by taking a sharp look at weapons systems being developed, and those being proposed, the legislators could make selective cuts that would not only save some money immediately but prevent even more uncontrolled weapons expenditures in the future. The reductions could best be done in partnership with an Administration and military that realize the setting of weapons priorities is a prime responsibility when the nation faces a $100 billion deficit. In lieu of that, the paring and slicing will still occur, but the savings are more likely to be illusory, as they so often have been in the past. --By Walter Isaacson. Reported by Bruce W. Nelan/Washington, with other U.S. bureaus

With reporting by Bruce W. Nelan/Washington

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