Mission: Just About Impossible

By Bruce van Voorst/Washington

At an age when most executives are thinking of retirement, Robert Costello, 61, has just accepted the challenge of a lifetime. He is the new Under Secretary of Defense for Acquisition, the chief buyer for what amounts to the largest business enterprise in the world. Every day the 170,000 Pentagon employees who report to him sign some 56,000 contracts with private firms ranging from industrial giants like General Dynamics, Boeing and General Electric to tiny subcontractors. As the Pentagon's procurement czar, Costello will buy goods and services worth $170 billion this year. He must also oversee the costs of 2,600 weapons systems, as well as a bewildering variety of research and development projects. "Make no mistake," says Costello's boss, Defense Secretary Frank Carlucci, "Bob is undertaking one of the most demanding assignments in the department."

The sheer size of the job is enough, but Costello, a former General Motors executive, also faces the task of restoring efficiency and respectability to an operation riddled with waste, tarred by scandal and engulfed by criticism from Congress and the press. The stakes are enormous: unless Costello spends the Pentagon's money wisely, the Soviet Union will overtake the U.S. in the military technology race. Admiral Kinnaird McKee, director of Naval Nuclear Propulsion, has warned that Soviet submarine technology "is rapidly catching up with that in the West."

While Costello's task is to keep the U.S. ahead, he must do so at a time of serious concern about the federal deficit and severe budget constraints. Carlucci, who last November succeeded Caspar Weinberger, the freest-spending Defense Secretary in U.S. history ($2.4 trillion in just under eight years), has ordered that planned Pentagon outlays in the fiscal 1989 budget now being prepared must be cut by $33 billion, or 10%.

Congress created Costello's post in 1986 following disclosures of huge cost overruns by defense contractors and allegations that companies had, among many other offenses, billed the Pentagon for their executives' country-club fees and charged as much as $7,500 for a coffeepot used in aircraft. The principal remedy, lawmakers thought, would be to centralize all procurement authority in the hands of a single individual. Until then, such power had been spread among a myriad of departments. Said Congresswoman Patricia Schroeder, a Colorado Democrat: "We envisioned a czar who would kick trash cans and have rats jump out."

The first appointed rat kicker was Richard Godwin, a former senior executive at Bechtel, the San Francisco-based construction and engineering company where both Weinberger and Secretary of State George Shultz held top- level jobs. But Godwin found himself frustrated at every turn, and he was unable to stop or even slow the defense-cost spiral. The latest quarterly report on military acquisitions put the total projected costs of 94 important weapons systems at $823 billion, an increase of $412 million in only three months. The F-15 fighter jets that the Air Force now flies cost $39 million each (initially, the price was projected to be $26 million), and the proposed SSN-21 attack submarine will hit the water at $1.8 billion per boat (initially projected at $1 billion). A fair amount of the money the Pentagon spends is totally wasted. The Army spent five years developing the LHX helicopter only to scrap the project after going through $800 million of Government money and $500 million from industrial contractors.

Godwin resigned last September in exasperation, complaining that "the institution was not prepared to change the status quo." He was constantly battling the Pentagon bureaucracy, but did not receive the necessary backing from Weinberger. One of his most controversial moves was to set up a Pentagon- wide computer system to look over the bureaucrats' shoulders and follow the progress of the major weapons systems being developed by each service. That only stirred more resentment and intransigence. Admitted Deputy Defense Secretary William Howard Taft IV: "There aren't any czars in Washington, and it was probably misleading to tell Godwin he would be one."

The fate of his predecessor does not perturb Costello, who has won a pledge of full support from Carlucci. The affable Costello believes more in consensus than in confrontation. One of his first actions was to scale back the scope of Godwin's Big Brother-style computer system. "This is a policy job," he says. "I'm not supposed to deal with the nitty-gritty."

Costello will focus on nudging defense contractors to become more efficient. To that effort, he brings impressive experience. As GM's procurement chief for six years, he bought $60 billion worth of goods and services annually. He also played an important role, together with Toyota executives, in developing the GM-Toyota joint venture in Fremont, Calif., which manufactures compact cars. The project has transformed a failing factory into one of the most productive operations in the auto industry.

Can similar transformations take place in the defense industry? Costello notes that 30% of the cost of a typical weapons system stems from corporate overhead expenses like public relations. Such costs, he feels, can be sharply reduced. To speed the process, Costello will demand more competitive bidding on contracts. At present, 40% of the awards go to a single bidder. But Costello is just as concerned with quality as he is with costs. The key to quality control, he says, is for the companies to learn to build things right the first time rather than rely on inspections to catch defects.

The Pentagon procurement chief sees a positive side to the deep cuts in store for defense. Says he: "Big defense budgets nurtured a lot of bad habits around this place. Leaner budgets will force some long-needed reforms." But Costello has far to go if he is to prove that his easygoing style can be better than Godwin's abrasive approach in reforming the world's most unmanageable operation.