Who Says Numbers Never Lie?

By GEORGE J. CHURCH

At the Pentagon, cutting costs can mean adding 9.5%

Billion-dollar cost overruns? Massive problems in paying for weapons? When Pentagon Analyst Franklin Spinney (TIME, March 7) raised these possibilities in explosive congressional testimony, his superiors loftily replied that these were merely "historical" problems that Secretary of Defense Caspar Weinberger's cost cutters have brought under control. Moreover, they hinted that they would shortly have proof in the form of a new report on weapons costs. Spinney's boss, David Chu, promised the Senate Armed Services Committee "a pleasant surprise." The Pentagon unveiled the document last week, and the chief surprise turned out to be how clumsy it had been in practicing accounting sleight of hand.

The Selected Acquisition Report (S.A.R.) proudly trumpeted a drop of $18.4 billion, or 4%, in the expected costs of 40 major weapons systems between last Sept. 30 and Dec. 31, the first such decline in a decade. It resulted almost entirely from a lower estimate of future inflation and reduction of the numbers of weapons being bought under some programs. Still, even without these factors, expected costs rose only $7.5 billion, or 1.3%, the smallest increase since 1975. That would be an impressive achievement, if the figures could be believed.

But when reporters at a press briefing examined the data on individual programs, the figures turned slippery. The Air Force, for example, claimed a saving of $4.2 billion on the purchase of air-launched cruise missiles because of "quantity decrease." That "saving" will disappear rapidly when the service switches to a new and more expensive type of missile. But its costs are secret.

The S.A.R. does show an expected cost of $102.5 billion for 13 other new weapons systems. This is not included in the comparisons because a new program by definition cannot rise in cost during the quarter in which it begins. Fair enough if the systems are really new, but might some of them be old programs masquerading under new names?

The figures listed for the Trident missile-firing submarine raised suspicions. According to the S.A.R., the expected cost of the Trident program dropped a stunning $11.3 billion last quarter because only eight submarines, rather than 15, are now planned. Astonished journalists asked if the Navy had really slashed almost in half one of the nation's most important nuclear-deterrent programs. No, replied Deputy Assistant Secretary of Defense Joseph Kammerer: the seven missing submarines have been renamed Trident IIs and designated as a new program.

In what way are they new? Rear Admiral Frank Kelso, director of the Navy's Strategic Submarine Division, was summoned to explain. The Trident II will carry a more advanced missile, he said, but otherwise "it's the same submarine." The expected cost of building all 15 Tridents, far from declining sharply, has risen $2.7 billion, to $31.1 billion, an increase of 9.5% in only three months.

The new report obviously is not going to cool the fiery debate about whether the Pentagon is letting hardware costs run out of control. The Reagan Defense Department's main weapon in holding down these costs is the "Carlucci initiatives," a set of 32 guidelines drawn up by Frank Carlucci, then No. 2 to Weinberger, in 1981. They call for more realistic cost estimates, more competition among contractors, stabler and more efficient production rates, and changes in the way contracts are funded--principally heavier initial financing and the signing of contracts for several years rather than just one--in order to produce that stability and efficiency.

There has been some resistance to these reforms within the Pentagon. A vivid example is a memo written last year by Assistant Secretary of the Navy George Sawyer that TIME has obtained. Sawyer urged the Navy to put forth its "most optimistic estimate" when drawing up its shipbuilding budget for fiscal 1984. Among other things, he proposed that the Navy "assume no [cost] growth beyond target" and eliminate all calculations of how much changes in ship specifications might increase the cost of building vessels. Which of his recommendations, if any, the Navy might have accepted in preparing its request for $12.7 billion in shipbuilding funds for fiscal 1984 is unknown, but there are some clues that Navy figures on the costs of building vessels may be unrealistically low. The Navy assumes, for example, that its next three Los Angeles-class nuclear-powered submarines will take only 62 months to build, although the previous three required an average of 97 months.

The Defense Department seems genuinely committed to the Carlucci reforms, although it concedes that it has not yet implemented all of them. But some critics complain that the initiatives were inadequate to begin with. In a report written for the Council on Economic Priorities, a liberal research group in New York, Defense Specialist Gordon Adams contends that the initiatives fail to address some of the worst problems of weapons production, notably the Pentagon's reliance on cost estimates from contractors, estimates that it makes little effort to check.

Adams argues that some of the Carlucci reforms might make cost problems worse. The initiatives aim at reducing the number of reviews that top officers must conduct of the decisions made by lower-ranking contracting officials. The aim is to speed decisions and cut paperwork. But the effect, Adams says, might be to let contractors get away with overruns that a high-level review might spot.

Overall, the reforms, if fully implemented, ought to help. But the Pentagon has a long way to go in proving that it is really trying to cut costs rather than merely playing the kind of numbers games that it seemed to be playing last week. --By George J. Church. Reported by Bruce W. Nelan and Christopher Redman/ Washington

With reporting by Bruce W. Nelan, Christopher Redman/ Washington This file is automatically generated by a robot program, so viewer discretion is required.