Managing The Military More Efficiently

MANAGING the
MILITARY
more EFFICIENTLY
Potential Savings Separate from Strategy
Matthew Leatherman | Barry Blechman | Russell Rumbaugh
MANAGING the
MILITARY
more EFFICIENTLY
Potential Savings Separate from Strategy
Matthew Leatherman | Barry Blechman | Russell Rumbaugh
MAY 2013
EXECUTIVE SUMMARY
This report is a compilation of recommendations made in recent years by many boards, commissions
and study groups that have proposed efficiencies in how the U.S. Department of Defense spends money.
If implemented fully, the recommendations would save nearly $1 trillion over a decade, though it is
virtually impossible they will all be adopted. The proposals face varying degrees of political opposition
some intense and some recommendations are contradictory.
We are not endorsing any of the specific options but, by compiling the proposals, we have created a re-
source that frames the many calls for efficiencies, providing context that the broader debate on defense
spending is currently missing.
The recommendations are organized into three critical areas: personnel compensation, manpower uti-
lization and procurement practices.
Personnel Compensation
Members of the armed forces make great sacrifices and willingly risk their lives to defend the United
States. The nation has a sacred obligation to keep faith with what they were promised. Yet any given pay
or benefit is just a policy not something inherently sacred.
Many studies have found that the Pentagon could better provide service members with the care and
compensation they deserve by adopting better management practices. Options for better-managed
compensation include:
Adjusting the formulas for cash compensation growth.

Pegging pay to specialization in high-demand areas.
Transferring non-cash compensation into cash compensation.
Curtailing the pool of health care beneficiaries.
Increasing health care fees and cost-sharing.
Modernizing military retirement.
Manpower Utilization
The volunteers who step forward to serve in the U.S. Army, Navy, Air Force and Marines are the mili-
tarys most important assets. They should be used as effectively as possible.
Examples of better manpower utilization taken from the recommendations compiled in this study include:
Streamlining duplication and redundancy.

Reducing the number of personnel providing overhead support.
Using members of the military to perform inherently military functions.
Trimming civilian manpower and contractor support.
Better balancing between the active and reserve components.
EXECU TIVE S U M M A RY | 3
Procurement Practices
The Pentagon has spent more than $360 billion on contracts in each of the last three years, but has
drawn criticism for not always spending these funds wisely.
The Government Accountability Offices high risk list has included defense weapon systems acquisi-
tion since 1990, defense contract management since 1992 and defense financial management since
1995.
Recommendations to improve Defense Department procurement include changing the ways that:
Contracts are constructed.

The acquisition workforce is managed.
Best practices are chosen.
Requirements are generated.
In a time of tight budgets across the federal government, the key defense budget issue facing policymak-
ers today is not whether to cut, but where to cut.
Before cuts are made to military readiness, force structure, or needed weapons, some of the changes like
those in this report should be implemented. If the United States is to have the best defense possible, it
must spend its defense dollars in the most effective and efficient ways possible.
4 | M A N A GING T HE MILITARY MORE EF F ICIENTLY

EXECU TIVE S U M M A RY | 5
ACKNOWLEDGEMENTS
The authors would like to thank Ellen Laipson and Stimson management for their leadership and also
the Stimson Communications Department designing and producing the report.
Any errors are solely the responsibility of the authors.
This report was made possible by the generous support of the Peter G. Peterson Foundation.
ACKNO WL ED G E M E N TS | 7
TABLE OF CONTENTS
Executive Summary
3
Acknowledgements
7
Introduction
11
Reforming Personnel Compensation

13
More Efficient Utilization of Manpower

25
Better Acquisition Practices

33
Conclusion
45
Endnotes
47
MANAGING THE MILITARY MORE EFFICIENTLY:
POTENTIAL SAVINGS SEPARATE FROM STRATEGY
Regardless of the amount that the U.S. spends on its defense, funds should be spent as efficiently as
possible. Everyone can agree with such a statement, but its easier said than done. Nowhere is the axiom
about one persons trash being anothers treasure truer than in the defense budget. Each line is there
because someone defends it. If that champion disappears, another advocate will immediately step up to
shift the money left behind.
Nevertheless, efficiencies are possible. A July 2011 Defense Business Board (DBB) report determined
that substantial budget cuts (5 to 15 percent) can be achieved without affecting future mission readi-
ness if there is an intense focus on reducing overhead and infrastructure spending.1 Countless author-
itative boards, commissions and study groups have suggested ways to save money in defense without
compromising military capabilities.
This report offers a top-level overview of that work. All of the options presented here have ap-
peared elsewhere. They did not originate with Stimson nor does Stimson specifically endorse any
of them. No one is likely to embrace them all indeed, some issues are so complex that experts have
made contradictory suggestions but most will find some choices and savings that they can accept.
Importantly, this report identifies efficiencies that might be possible irrespective of what kind of strat-
egy the United States pursues. The efficiencies are organized into three parts: personnel compensation,
manpower utilization, and procurement practices.
PO TENTIAL SAVINGS SEPARATE FRO M ST R ATE G Y | 11

REFORMING PERSONNEL COMPENSATION
U.S. military personnel make great sacrifices for our country, and the United States has a sacred obliga-
tion to those in uniform who serve their country. Their compensation must align with what they were
promised.
Particular pays and benefits are just a policy and not something inherently sacred by themselves, how-
ever. There may be more efficient ways to provide service members with the care and compensation
they deserve. The Tenth Quadrennial Review of Military Compensation (QRMC), published in Febru-
ary 2008, found that:2
In general, this system works effectively to attract and retain the high-quality personnel need-
ed in the uniformed services of the 21st century. That said, there is room for improvement
to increase the systems flexibility and better enable force managers to respond to changing
requirements in support of national security missions. Improvements can also increase mem-
ber choice, serving to enhance recruiting and retention efforts in the uniformed services.3
Options in this section represent ways military compensation might offer better care for service mem-
bers yet also achieve savings; e.g., adjusting the formulas for cash compensation growth; pegging pay
to specialization in a high demand area; transferring non-cash compensation into cash compensation;
revising the working-age retiree health care cost-sharing ratio, fee structure, and beneficiary pool; and
modernizing the retirement plan.
Adjusting the Formulas for Cash Compensation Growth

There are two commonly used measures of military compensation. Basic Military Compensation (BMC)
represents just the salary that a service member earns, while Regular Military Compensation (RMC)
also incorporates housing and food allowances, as well as income tax advantages.4 Even the broader
RMC formula excludes significant elements of a service members compensation package. The Tenth
QRMC proposed expanding the definition of military pay to better account for how service members
are compensated.
This assessment [of compensation adequacy] has been based on a comparison of cash com-
pensation between the [military and civilian] sectors But this approach leaves out several
very important components Benefits to service members are substantially more valuable
than those typically offered in the civilian sector, and members can also receive tax advantages
not available in the private sector. Taking these additional components into account shows that
service member compensation is much more generous relative to civilian compensation than
the traditional comparison of cash pay would suggest.5
It was on these grounds that the Tenth QRMC recommended that the military health care benefit,
retirement benefit and tax advantages from state jurisdictions and Social Security be included when
comparing military and civilian compensation.
REFO RMING PERSO NNEL CO MPE N S ATI O N | 13

Military Compensation
WhetherFigure 2-2military
compares annual and civilian
earnings compensation
of enlisted service members and can appropriately be compared is a sensitive question,
given the dramatically different demands
comparable civilians over a 20-year career. Average annual RMC for enlisted
personnel rises steadily over the 20-year period, growing from about $37,000 in of military service. Although approaching the issue with
a different charge
from aboutand$18,000perspective
for high school graduatesthan
the first year of service to approximately $75,000 by the 20 year. Civilian wages
the Tenth QRMC, the Eleventh QRMC still found that [av-
th
increase as well, rising first entering

the workforce, to about $50,000 for those with two-year degrees and 18 years of
erage enlisted] RMC is higher than the
work experience. Military compensation exceeds civilian earnings at every point wages of 90 percent of comparable civilians.6 Meanwhile,
along the 20-year career period, with the greatest wage differences occurring
average
between militaryofficer
personnel andearnings correspond
civilians with high school diplomas. Among to allabout the 83rd percentile wages for the combined civilian
three civilian groups, the gap with military compensation increases after the 15-year
comparison
mark, as the growth in groups. 7 begins to slow and military compensation
civilian earnings
continues to rise.
80 140
70
120
60
100
Thousands of Dollars
Thousands of Dollars
50
80
40
60
30
20 Enlisted 40
Civilians with AA degree Officers
10 Civilians with some college Civilians with MA degree or higher
20
Civilians with high school diploma
Civilians with BA degree
0
0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Years of Service
Years of Service
Figure 2-2. Enlisted Regular Military Compensation versus Civilian Earnings,
Figure 2-4. Officer Regular Military Compensation versus Civilian
2009 Earnings, 2009
Figure As
2-2. Enlisted
discussed Regular
earlier, Military
the experience andCompensation versus
training that service Civilian
members receiveEarn- Figure 2-4.
Trends Officer Regular
in Military andMilitary
CivilianCompensation
Compensationversus Civilian Earn-
while
ings, in theReport
2009, militaryofsuggests that seniorQuadrennial
The Eleventh enlisted personnel shouldofbeMilitary
Review comparedCom- ings, 2009, Reportwage
of The Eleventh Quadrennial Review
The favorable comparisons detailed above resulted fromofa Military Com-
decade-long
to more highly
pensation, Juneeducated
2012, p. civilians
27 than junior enlisted membersthat is, college pensation, Junevarious
2012, p. 29 of RMC, and make military compensation more
effort to raise components
graduates rather than high school graduates. Figure 2-3 compares compensation
competitive with civilian pay. In fact, growth in RMC has outpaced civilian wages
of senior enlisted personnel (E-8s and E-9s) with civilians who have associates
and salary growth since 2002 (Figure 2-5).
This differential may support the Pentagons FY2014 budget
and bachelors degrees. During the 15th through 30th years of service, military request to slow the growth of military
Two primary factors influenced the growth in military pay. The first was a steady
compensation, in this case to 1 percent rather than the 1.8 percent increase in increase
basic seen
pay. After a period by private
of recruiting and retentionindustry
difficulties in theem-
late 1970s, Congress enacted an 11.7 percent military pay increase in 1981, and in
ployees.8 If extended
The Eleventh Quadrennial over
Review of Military time, this perhaps could generate1982,
Compensation savings
a military payeven if the
increase ranging
27 fromPentagon alsoonadopted
10 to 17 percent depending pay grade.
These increases restored comparability between civilian and military pay to the levels
a
companion recommendation from the Tenth QRMC to pegestablished regular military
at the beginning compensation
of the all-volunteer force. However, duringto the
the 1980s and80th
1990s military pay again eroded relative to civilian earnings, with basic pay increasing
percentile of civilian compensation.9 13 percent less than the Employment Cost Index (the benchmark for civilian pay
growth) between 1982 and 1998. As was the case in the late 1970s, the drop in
relative military pay created recruiting and retention problems for the services.
In its 2002 report, the 9th QRMC concluded that military compensation was
Congressional Budget Office (CBO) research found the same imbalance
not competitive favoring
with the earnings of similarly military compensa-
educated civilians, and recom-
mended a series of increases to basic pay to bring military compensation more
tion. It determined in January 2011 that the typical enlisted person receives more cash compensation
[salary, allowances, and subsidies] than three-quarters of comparable federal civilians. Additionally,
The Eleventh Quadrennial Review of Military Compensation
the disparity for officers exceeds the disparity for enlisted personnel, and it grows with increasing
29
years of experience.10 Rather than recalculating the military formula, as the Tenth QRMC proposed,
CBO examined a budget option that would limit military pay increases over 4-5 years to half a point
below the accepted measure of inflation, with Selective Reenlistment Bonuses available to personnel in
occupations with shortages.11
A pay freeze has also been considered as an option, albeit an aggressive one. Civil servants pay table, in-
cluding for those at the Pentagon, has been frozen since January 2011 and is slated to remain so at least
through March of this year.12 The Simpson-Bowles Fiscal Commissions illustrative option determined
that holding military pay constant would save more than $9 billion by 2015.13 Dr. Stuart Rakoff and
Dr. Neil Singer, a former Director in the Pentagons Office of Manpower Planning and Analysis and a
former Deputy Assistant Director of CBOs National Security Division, respectively, similarly found in
an unpublished white paper that, a two-year freeze on basic pay and housing allowances would gener-
ate estimated savings of $4.3 billion.
14 | M A N AGING T HE MILITARY MORE EF F ICIEN TLY

Pegging Pay to Specialization in High-Demand Areas
Concentrating compensation on high-demand personnel may make savings possible. According to
Rakoff and Singer:
Total pay does not vary much by specialty. As a result, basic pay needs to be high enough to
meet manning targets in hard-to-fill specialties. Pay at that level, however, typically is more than
sufficient to fill the requirements in other military occupations.
An alternative approach to setting pay levels is to rely more heavily on targeted pays and
bonuses to meet manning objectives in most occupations. Under this approach, across-the-
board pay would be set at the minimum level needed to meet targets in the least hard-to-fill
specialty, and bonuses and special pays would be used more extensively than at present for
all other occupations.
Targeting pay to higher-demand specialties rather than overcompensating lesser-demand special-

ties could be implemented by freezing the pay table for several years and phasing in the targeted pay
changes in parallel. Despite foregoing a cost-saving recommendation on this count, the Tenth QRMC
acknowledged this concept with a recommendation to increase the portion of compensation above
inflation that goes to special pays and incentives.14
Transferring Non-cash Compensation into Cash Compensation

Salaries and bonuses are just two parts of a complex military compensation formula. Service mem-
bers also receive a substantial part of their compensation through in-kind payments. As the Eleventh
QRMC found:
For active duty personnel, cash payments comprise approximately 51 percent of average military
compensation; in-kind benefits 21 percent; and deferred compensation for retirees, veterans, and
survivors another 28 percent. The percentage of military compensation made up of in-kind and de-
ferred benefits is considerably higher than the noncash portion of civilian compensation.15
$15.9
Cash
Basic pay
$19
Housing allowance
$56 Subsistence allowance
Other allowances
Incentive pays
28% Tax advantage
Other cash
$17.7
51%
In-kind
Health care
Family housing/
21% barracks
Education
$20.2 Other in-kind
$20.2
Deferred
$0.7 $4.6
Retired pay accrual
$3.3
Retiree health care
$1.5 $15.9 $5.6
Veterans benefits
$5.2
$1.1
Source: U.S. Government Accountability Office. Total = $186.9 billion
Figure 2-1. Major Components of Military Compensation for Active Duty

Personnel, Fiscal Year 2010
Figure 2-1. Major Components of Military Compensation for Active Duty Personnel, Fiscal Year
Cash
2010, Report Compensation
of The Eleventh Quadrennial Review of Military Compensation, June 2012, p. 17
Cash compensation comprises just over 50 percent of military compensation, the
major elements of which are basic pay and allowances for housing and subsistence.
In combination with the tax advantage resulting from the allowances not being
subject to federal income tax, these elements are referred to as RMC. Other cash
pays available to some members include special and incentive (S&I)REFO pays and otherPERSO NNEL CO MPEN S ATI O N | 15
RMING
allowances. Each of these elements is described in further detail below.
v Basic Pay. Paid to all service members, basic pay accounts for 65 percent
of RMC. Pay rates are based on grade and years of service, with pay
rising as personnel are promoted to higher grades and continue to serve.
Monthly pay amounts for each grade and year of service are outlined in
the basic pay table.15 Pay grades for enlisted service members range from
E-1 for entry-level positions, such as a private, to E-9 for the most senior
The Tenth QRMC pointed out the unique challenges of optimizing non-cash compensation, par-
ticularly that its value is less easily understood.16 This reflected a much more general economic
principle, that individuals get more utility from compensation that maximizes their choice (i.e.,
cash) than from compensation that limits their choice (i.e., non-tradable in-kind compensation).17
One example is CBOs option to consolidate the retail outlets on military posts and eliminate the
subsidy for commissaries in favor of a cash allowance for eligible active-duty personnel. CBO
estimated that this could save $9.1 billion from 2012-21 if the annual family subsidy were $400.18
CBO similarly examined an option in 2009 that would close the Domestic Dependent Elementary
and Secondary Schools system and replace it with an $8,600 per-student allowance, trimming $279
million over 10 years from the Pentagon budget.19 The Tenth QRMC examined this issue as well and
identified larger savings by reducing an overlapping Department of Education program alongside
streamlining the Defense school system.20
Revising the Health Care Beneficiary Pool

Military health care coverage is another major part of compensation. This service is provided free for
active-duty members, and there are no recommendations to change that. But this form of compensa-
tion continues long after a member has left the active-duty rolls, either by retiring or returning to inac-
tivated Reserve Component status.
Figure 1: Distribution of Beneficiaries as of May 2012
Reporting to the Under Secretary of Defense (Personnel and Readiness),

Figure 1: Distribution of Beneficiaries as of May 2012, Additional Analysis of Costs and Benefits of Potential Governance
the Assistant Secretary of Defense (Health Affairs) is the principal advisor
Structure Is Needed, Government Accountability Office, September 2012, p. 6
for all DOD health policies, programs, and force health protection
The cost of a health care The
activities. program depends
Assistant foremost
Secretary on how(Health
of Defense many people
Affairs) receive
issues the benefit. That pool
policies, procedures,
of non-active beneficiaries expanded andforstandards that govern
the militarys TRICARE management
programofonDODseveral occasions during
medical programs and has the authority to issue DOD instructions,
the last decade. TRICARE for Life, enacted as part of the fiscal year 2001 National Defense Authoriza-
publications, and directive-type memorandums that implement policy
tion Act, introduced Medicare wrap-around coverage for seniors at no fee. TRICARE Reserve Select
approved by the Secretary of Defense or the Under Secretary of Defense
passed as part of the fiscal and
(Personnel yearReadiness).
2005 authorization and expanded
As the Director coverage to inactivated Reserve Com-
of the TRICARE
Management Activity, the Assistant Secretary of Defense (Health Affairs)
is also responsible for awarding, administering, and overseeing
approximately $24.4 billion in fiscal year 2012 funding for DODs
purchased care network of private sector civilian primary and specialty
care providers. Additionally, the Assistant Secretary of Defense (Health
Affairs) integrates the military departments budget submissions into a
unified medical budget that provides resources for MHS operations;
however, the military services have direct command and control of the
military hospitals and their medical personnel. See figure 2 for the current
organizational structure of the MHS.
ponent members at premiums ranging from 2885 percent of costs.21 And TRICARE Young Adult
was added in the fiscal year 2011 authorization to extend dependent eligibility through age 26 under
some circumstances.
These expansions are one reason precipitous health care inflation being another that military health
system costs grew from $19 billion in 2001 to an estimated $53 billion in 2013.22 The relationship between
health care benefits and military readiness also has been subject to question. The Center for Strategic
and International Studies (CSIS) used TRICARE Reserve Select as an example. The Reserve Component
population knows they will get full coverage for free if they are called to active duty, a benefit that can,
unfortunately, serve as a disincentive to enroll in TRICARE Reserve Select. Another unanswered ques-
tion is whether [TRICARE Reserve Select] is a more cost-effective retention incentive for DOD than other
options, such as increased direct compensation.23 That same issue may determine how effective benefits
like Medicare wrap-around coverage are for recruiting and retaining young service members. The biggest
and most direct health care savings might come from rolling back the extension of these benefits.
Adjusting the Cost-sharing Ratio and Fee Structure

Within a set beneficiary pool, health care costs depend heavily on the respective share paid by the
Pentagon and the inactive or retired beneficiary. Enrollment fees for working age (i.e., pre-Medicare-
eligible) retirees on the TRICARE Prime rolls remained fixed at their 1996 values until fiscal year 2012.
Those fees previously stood at $230 per year for single beneficiaries and $460 per year for those with
families; they now cost $270 and $540 per year, respectively.24 Meanwhile, CBO estimated that the fee
would have had to more-than-double to keep pace with health care inflation.
THE EFFECTS OF PROPOSALS TO INCREASE COST SHARING IN TRICARE 21
Table 9. The Defense Advisory Commission on Military Compensation

The Effects of Cost Sharing on the
Estimated Growth in TRICARE Primes proposed
Demand asking
for Health working-age retirees participating in the most
Care
The magnitude of the reductions in health spending that
Family Enrollment Fee Using Selected generous TRICARE plan to contribute at levels commensurate
could be attained by increasing cost sharing for military
Measures, 1995 to 2008 with premiums and cost sharing in civilian employer plans. Af-
beneficiaries depends on how strongly they would
(Dollars) respond to the new fees, copayments, and deductibles.
Estimated ter that reset, it would peg future increases to the annual military
On the one hand, if military retirees and their dependents
Prime did not respond by leaving TRICARE or by consuming
Fee
a retirement cost-of-living adjustment.25 The Tenth QRMC in-
fewer health care services, DoDs estimated spending
reductions would not be realized. If, on the other hand,
Consumer Price Index (Medical) 760 stead considered using Medicare Part B premiums as its bench-
beneficiaries responded more strongly than DoD had
Premiums for the Federal Employees Health
Benefits Program 1,080 mark for resetting the cost-sharing ratio and determining the
assumed, annual reductions in its spending for health
care could exceed its estimates.
Gross Domestic Product Price Index 610
National Health Expenditures per Capita 960 annual increase. Under its plan, single working-age retirees
In general, people can be expected to consume less of a
Memorandum:
Current TRICARE Prime Fee 460
would
good or servicehave paid
as it becomes more40expensive
percent of the Part B premium and those
to obtain.
But the degree of their response may vary widely, depend-
with dependents would have paid
ing on many factors, including the availability of substi- 80 percent.26
Source: Congressional Budget Office based on the following: the
tutes and the fraction of a households budget that is
medical portion of the consumer price index, from the
involved. People would be expected to respond more
Bureau of Labor Statistics; data on premiums (specifically,
the average employee share) for the Federal Employees Three years after the Tenth QRMC, in 2011, CBO reiterated the
strongly to changes in the price of luxury vacations, for
example, than to changes in the price of gasoline, because
Health Benefits program, from the Office of Personnel
Management; the gross domestic product price index,
facts on this issue:
gasoline is viewed as more of a necessity, with few substi-
tutes available. Economists measure the degree of respon-
from the Bureau of Economic Analysis; and per capita data
siveness with an elasticity and would therefore describe
theDoD has estimated
vacations that,
as morein 2009, a typical military retiree and
on national health expenditures, from the Centers for
Medicare and Medicaid Services.
demand for luxury elastic than the
demand for gasoline.
a. The estimated amount of the fee in 2008 if its growth had mir- his or her family who enrolled in the [most generous] Prime
rored that in the measures noted. The original nominal value
used for the calculations was $460, the amount of the TRICARE
planelasticity
A price incurred
measures about $860
the change in thein annual
quantity of a out-of-pocket costs (that
good or service demanded in response to a change in its
Prime enrollment fee in 1995. is, TRICARE co-payments and the enrollment fee). By contrast,
price. If the response is relatively mild, as in the case of
Comparing the enrollment fee proposed for the gasoline, demand is said to be inelastic, and the measured
Table 9. Estimated Growth in TRICARE Primes price elasticity
Family Enrollment Fee Using is between
Selected0 Measures,
and -1. For 1995
a goodtothat has aThe Effects of Proposals to Increase Cost Sharing in
2008,
TRICARE Standard and Extra plans with the average
TRICARE, Congressional Budget Office, June 2009, p. 21 price elasticity in that range, an increase of 10 percent
fee-for-service premium paid by private-sector employees
in its price will reduce the quantity demanded by less
shows an even greater difference. Under DoDs proposal, than 10 percent. If the quantity demanded is highly
the new enrollment fee for the Standard and Extra plans responsive to changes in price, demand is said to be elas-
would have been about $150 in 2011 for family coverage. tic, meaning that a 10 percent increase in price will
By comparison, the average premium that civilians paid reduce the quantity demanded by more than 10 percent,
for fee-for-service coverage was $3,730 in 2008.27 (How- and the measured elasticity will be more negative than
REFO-1. RMING PERSO NNEL CO MPEN S ATI O N | 17
ever, relatively few civilian employers still offer fee-for- The inverse relationship between the price and the quan-
tity demanded means that price elasticities will almost
service plans.)
always be negative.
27. Ibid. The share of their health insurance costs that employees In some ways, the demand for health care may not seem
(military or civilian) must pay is part of their overall compensa-
tion package. A more comprehensive look at the issue of military
to mirror the consumption of other goods. Many people
compensation relative to civilian compensation can be found in seek and purchase such services not solely on their own
Congressional Budget Office, Evaluating Military Compensation initiative but because they have been referred for addi-
again according to DoDs estimates, a similar retiree with family coverage who enrolled in an
HMO through a civilian employment-based plan typically paid $5,200 in premiums (not including
the share paid by his or her employer) and copayments. TRICARE Prime beneficiaries also use
the system more than do comparable civilian beneficiaries: DoD estimates that Prime enrollees
use services at rates that are higher by 77 percent for inpatient services and 55 percent for
outpatient services than the rates for civilian HMO enrollees.27
One CBO option in response to this situation projected the effects of raising the single working-age
retiree fee from $230 per year to $550, and from $460 per year to $1,100 for beneficiaries with depen-
dents. (Note these fees began growing with the retiree cost-of-living index in fiscal year 2012 and now
stand at $270 and $540, respectively.) This would have approximately restored the cost sharing from
when TRICARE was implemented in 1995, and future growth would have been indexed to health care
inflation. CBO estimated that it could save $29.7 billion from 2012-21.28 The Rivlin-Domenici Task
Force considered an option based on these terms, as well as introducing a small enrollment fee for
Medicare-eligible retirees.29
Another CBO option considered excluding working-age retirees from TRICARE Prime, giving these
beneficiaries a narrower choice of less generous plans. Some may find this appropriate because:
About three quarters of all retired military beneficiaries not yet eligible for Medicare have ac-
cess to employer-sponsored insurance through civilian employment In 1999, 55 percent of
military retirees and their dependents had signed up for other health insurance, but by 2009
that figure had dropped to 29 percent.30
This option would have set the enrollment fee at 28 percent of costs for the less generous plans and
raised the maximum out-of-pocket expense from $3,000 to $7,500. CBO estimated that this would save
$111 billion between 2012-21.31
The DBB in its 2005 study sought to place more of the cost burden on employers by recommending
that TRICARE become a secondary provider to fill the gap for retirees for access to corporate health
care. TRICARE already is used as wrap-around coverage to their employer-provided insurance for
Medicare-eligible retirees; this plan would have done the same for working-age retirees. Erosion in the
cost-sharing ratio would have been managed by indexing fees to industry deductibles, co-payments,
and premiums.32
Cost sharing applies to co-payments for prescribed drugs as well. The Tenth QRMC reported that the
pharmacy benefit has been the fastest growing component of military health care since 2000 and con-
sequently proposed setting prescription co-payments at roughly two-thirds of that paid by civilians.
Importantly, the Tenth QRMC emphasized that, prescriptions filled at military treatment facilities
should continue to be dispensed at no cost. 33 CBO likewise considered an option that would extend
co-payments to military treatment facilities for beneficiaries not on active duty, finding $13 billion in
possible savings from 2012-21.34

Congress did allow annual enrollment fees to increase in fiscal year 2012 as well as to rise each year,
but at a rate no quicker than the retirement cost-of-living index.35 It took similar steps with respect to
the pharmacy co-payment beginning in fiscal year 2013.36 Still, the retirement cost-of-living index grows
significantly slower than health care costs, meaning that the Departments health care costs will con-
tinue to increase. Now as part of its fiscal year 2014 request, the Obama administration has submitted,
and Congress is considering, several more significant reforms of this type. The proposal would require
greater cost sharing from all working-age military retirees. After a four-year phased increase, fees for
the most generous plan would be bounded by a newly-created floor and ceiling within which they
would be pegged to 4 percent of retirement pension income. These increases are substantial and would
bring the cost-sharing ratio closer to its balance when TRICARE was created in 1995. Meanwhile, the
Pentagons request also would introduce enrollment fees and deductibles for its less generous plans.37
In addition to changes for working-age retirees, the Pentagon included similar proposals for Medicare-
eligible retirees in its 2014 budget proposal. Specifically, it asked to introduce enrollment fees for the
Medicare wrap-around plan and for those fees to be pegged to 2 percent of retirement pension income,
also subject to a ceiling. Pharmacy co-payments to fully incentivize the use of mail order and generic
drugs are considered for increases as well. Lastly, the $3,000 catastrophic cap also would be indexed to
retirement income. 38
Modernizing the Retirement Plan

The most unique part of military compensation is the retirement package. Vesting for the retirement plan
operates on a cliff schedule. Personnel that separate prior to 20 years of service are not eligible for any
benefits, and those retiring at or after 20 years of service receive a full and defined benefit. There is no gradu-
al vesting; it is all-or-nothing, motivating personnel nearing eligibility to hang on until achieving it and then
to separate immediately thereafter. Reciprocally, it provides no benefit to those who get out before then.
Survival of Entrants to Given YOS
Enlisted Personnel
Officers
1.00 1.00
0.80 0.80
Army
Army
Survival Rate
Survival Rate
0.60 0.60 Navy

Navy
0.40 0.40 MC
MC
AF
0.20 0.20
AF
0.00 0.00
0 2 4 6 8 10121416182022242628 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28
Years of Service
Years of Service
Survival of Entrants to Given YOS, Military Retirement Committee Report, Defense Advisory Committee on Military
Compensation, July 20, 2005, p. 7 5
REFO RMING PERSO NNEL CO MPEN S ATI O N | 19

According to a 2011 DBB study, constructing the benefit in this way has several adverse implications:
First, the current military retirement system is unfair. For example, 83 percent of those serving in
the military will receive no retirement benefit This cohort includes the majority of troops who have
engaged and will engage in combat The distribution varies between officer and enlisted personnel;
43 percent of officers and 13 percent of enlisted personnel have historically received a pension.
Second, the current military retirement system is inflexible and has disadvantages with regard to
force shaping
Third, in light of the budget challenges DoD is currently facing, the military retirement system ap-
pears increasingly unaffordable. In FY11, the retirement plan will accrue 33 cents for each dollar of
current pay, for a total of $24 billion.39
Like the cash compensation system and the health care benefit, a number of components factor into the
military retirement formula, and each can be revised in order to affect costs. Unlike cash compensation
and health care, however, retirement components are especially interdependent. Savings options tend
to come as package deals rather than as a menu from which decision-makers can choose. Often these
pension packages will collectively consider age eligibility, vesting schedule, calculation of benefit, role
of retention bonuses and gate pays, need for a defined contribution corollary / substitute, and grand-
fathering provisions.
Previous groups have recommended overhaul
Defense Manpower Commission (1976):

vest personnel in an old-age annuity after YOS 10
pay immediate annuity to Combat Arms personnel after YOS 20 &
all others after YOS 30
Presidents Commission on Military Compensation (1978):
provide a cash transition fund financed by annual DOD
contributions into a TSP-like account
Presidents Private Sector Commission on Government Cost
Control (1985):
eliminate the second-career annuity
Three recent DOD study groups recommended systems similar
to Federal Employee Retirement System (FERS)
FERS vests early
provides combination of old-age annuity & TSP contributions
7
Previous Groups Have Recommended Overhaul, Military Retirement Committee Report, Defense Advisory
Committee on Military Compensation, July 20, 2005, p. 5
The Defense Advisory Commission on Military Compensation suggested a gradual phase-in of its
recommendations. All currently serving military personnel would have been grandfathered to re-
main in the current system but also could have chosen to accept voluntary buy-outs after 10 years
in selected occupations or to opt into DACMCs new system. Savings would have accumulated more
slowly than if some members were not grandfathered, but more quickly than if some service mem-
bers didnt have the buy-out or opt-in choices.

New members entering the service would have been enrolled automatically in a new retirement
system that distributed the benefit between working-age and full retirement. It would have intro-
duced a defined contribution equaling approximately 5 percent of base pay into a thrift savings or
401(k)-styled plan. Members would have begun saving immediately and the government contribu-
tions would have vested between five and 10 years of service. Standard rules would have allowed
members to benefit from these types of plans while still of a working age. For full retirement, the
Pentagon would have continued offering a defined benefit annuity. Cliff vesting would have been
replaced by a graduated schedule from 10 to 40 years of service, with those reaching 40 years receiv-
ing 100 percent of their average pay from their highest earning three years. Payout would have been
postponed to age 60, though retirees would have remained eligible for health benefits after 20 years
of service. Gate pays at major career benchmarks would have helped retain personnel with high-
demand skills while transition pay would have helped ease a members return to civilian life if the
demand for their skills lessens.40
The Tenth QRMCs retirement plan shared many of the same reforms as DACMCs but handled
them somewhat differently. It also would have introduced a defined contribution plan alongside
the defined benefit, but would have pushed payout eligibility later for both of them. The defined
contribution element would have offered up to 5 percent of base pay, depending on years of service,
and would have vested at 10 years, but it would not have begun paying out until age 60. Meanwhile,
the defined benefit plan would have kept its calculation formula (i.e., High-3 pay x 0.025 x YOS)
and also would have vested at 10 years. Payout would have been delayed, however, to age 57 for
those that serve 20 or more years, and to age 60 for those that serve between 10 and 20 years. Like
DACMC, the Tenth QRMC also incorporated gate and transition pays to help manage retention
more precisely.
The pace of any savings generated by the Tenth QRMC plan was unspecified. Rather than consider-
ing a specific implementation plan, the Tenth QRMC suggested a gradual transition beginning with
a multi-year demonstration project. Final terms of the plan, including the schedule and the savings
estimate, would have been determined after that test. 41
The Rivlin-Domenici Task Force considered a third package based largely on updates to RANDs
1998 study, Reforming the Military Retirement System. Writing eight years before the DACMC
and 10 years before the Tenth QRMC, RAND tackled the same retirement concerns. The military
retirement system has been subject to numerous criticisms, including that it is unfair to pre-20 years
of service separatees, excessively costly, inefficient, and inhibits force management flexibility. The
alternative developed in that study had three parts:
The first is a retirement plan that is very similar to FERS, the retirement plan for civil service
employees, which we call the Military Federal Employees Retirement System, or MFERS. The
second part is a 7 percent across-the-board pay increase to compensate members for man-
datory contributions to the retirement plan, and the third part is a set of retention bonuses
targeted to specific groups (such as occupations) to address any retention problems. MFERS
would also consist of three parts: Social Security benefits, a defined benefit plan (called the

basic plan) that vests employees at five years of service in an old-age annuity, and a defined
contribution plan (called the thrift savings plan) that vests employees at three years of service
and that matches employee contribution up to five percent of basic pay.42
This plan might have saved $3 billion from 2012-20, according to the Rivlin-Domenici Task Forces updates
to RANDs calculations. That projection assumed that personnel with more than 15 years of service would
have been grandfathered to remain in the current system and that benefits would have paid out at age 57.43
The DBBs October 2011 assessment is the most current and aggressive retirement reform package.
Several findings were especially emphasized in the DBBs study and may have motivated this appetite
for reform. The military retirement system has not materially changed for over 100 years, the Board
noted. Today, retirement funds accrued for personnel serving less than 20 years are effectively applied
to the benefits of those serving more than 20 years. For those serving more than 20 years, the retirement
contribution is 10 times greater than the private sector.44
The DBB responded to this analysis by proposing a wholesale replacement of todays defined benefit sys-
tem with a new defined contribution plan based on the Uniformed Military Thrift Savings Plan currently
in place. Government contributions would have varied based on force management needs to include
increasing the benefit for combat service, but generally would have been comparable to the highest end
of a private sector pension plan. 45 Vesting could begin as early as after the first recruitment period, and
payout would have started between the ages of 60 and 65. Some partial withdrawals prior to age 60 would
have been permitted, including to facilitate transition to a second career or to cover costs associated with
education, health care, and emergencies. All current retirees would have been grandfathered to remain in
the current system. The pace of potential savings would have depended on how far into the current force
that grandfathering provision was extended. The DBB considered options at either end of that spectrum,
either no grandfathering for the current force or full grandfathering for the current force.
Bloomberg Government (BGov) estimated the savings should the DBB plan be implemented. It as-
sumed that the entire current force gets grandfathered to remain in the current system, and that
recruits in 2013 the first service members to enter into the new system would have arrived in the
same numbers as 2009. Savings came from the difference in the percentage of average salary that the
Pentagon has to accrue to cover retirement obligations. Thirty-three percent of military pay presently
is required, but BGov projected that only 16.5 percent would be needed under the DBB plan. On
the basis of those accrual rates and BGovs assumptions, savings would have been $37 billion between
2013-21. 46
Parameters for Possible Savings

Our service members are the militarys most important asset, and their compensation is only part of
what the country owes them. But the specific policies are not sacred in and of themselves. There may
be ways to achieve savings even while better caring for our service members. Nevertheless, these are
politically-fraught questions and their answers cannot be assumed. The table below displays possible
savings for the options presented above.

APPROXIMATE POSSIBLE SAVINGS IN BILLIONS OF DOLLARS OVER 10 YEARS
Adjusting the formulas for cash compensation growth $20-$30

Pegging pay to specialization in high-demand areas $10
Transfer non-cash compensation into cash compensation $10
Curtail pool of health care beneficiaries $90-$100
Increase health care fees and cost sharing $40-$110
Modernize military retirement $5-$40
Total Possible Savings $155-$300

MORE EFFICIENT UTILIZATION OF MANPOWER
The United States depends on a professional force of volunteers to provide the best military in the
world. Volunteers that step forward to serve our country are the U.S. militarys most important asset,
and the U.S. must be committed to using them as deliberately and efficiently as possible. That could in-
clude: streamlining duplication and redundancy, reducing infrastructure billets, concentrating service
members on inherently military functions, trimming civilian manpower and contractor support, and
better balancing between the active and reserve components.
Streamlining Duplication and Redundancy

Streamlining duplication is a common way to cut overhead. Duplication in the military can be most vis-
ible between the three separately-organized military departments Army, Navy, and Air Force. Then-
General Colin Powells 1993 Roles, Missions, and Functions study, prepared in his capacity as Chair-
man of the Joint Chiefs of Staff, is seminal in this regard. Acknowledging that not all redundancy is bad,
Powell focused on locating unnecessary duplication, selecting for review those areas in which two or
more Services perform similar tasks, where restructuring might generate significant cost savings, and
where changes in our strategy and force structure made a comprehensive review appropriate. 47 That
principle is one that might be applied to the following examples:
SATELLITES: Responsibilities for acquiring space systems are diffused across various DOD organi-
zationsincluding the military services and the Missile Defense Agencyas well as the intelligence
community and [NASA] Each military service or agency that acquires space systems has its own
lines of acquisition authority A single authority responsible for ensuring coordination and setting
priorities would be in a better position than any one department or agency to determine the best
use of limited funds and resources by more effectively prioritizing the most highly-needed space
programs, and would have the authority to reduce duplication across programs.48
DEPOTS: The organic depot maintenance enterprise is large, incorporating 17 major facilities,
77,000 civilian employees, and annual operating expenses in excess of $16 billion There is a
persistent question as to whether the overall organizational management structure of these activities
is sufficiently flexible, responsive, and cost effective By law and mission, the military services have
the responsibility for planning and executing maintenance programs to meet their operational needs,
and to provide the resources to satisfy those requirements The current structure further hinders
performance by the total depot enterprise, effective resource allocation for the full depot workload,
and timely accomplishment of major innovations across organizational and functional lines. A full
and comprehensive reassessment of the current depot management organizational structure is over-
due.49
INFORMATION SYSTEMS: DOD reports that its business systems environment [e.g., civilian person-
nel, finance, health, logistics, military personnel, procurement, and transportation] includes about
2,300 investments DODs business systems environment has been characterized by (1) little stan-
dardization, (2) multiple systems performing the same tasks, (3) the same data stored in multiple
systems, and (4) manual data entry into multiple systems Because DOD spends over $10 billion
each year on its business systems and related information technology infrastructure, the potential
MO RE EFFICIENT U TIL IZ ATIO N O F MA N P O W E R | 25

identifying and avoiding the costs associated with duplicative functionality across its business system
investments is significant.50
FACILITIES MANAGEMENT: The services have not reduced spending in concert with the decrease
in square footage resulting from the completion of base closures in the past 10 years. While square
footage fell by 21 percent, spending increased by 18 percent in real terms. Spending for facilities
maintenance is now at close to 100 percent of requirements, and the services have also benefited
from additional funding provided in base closure funds for consolidations. [The Simpson-Bowles Fis-
cal Commission] option would reduce facilities maintenance spending on buildings by $1.4 billion or 18
percent below the $7.7 billion estimated for 2015.51
HEALTH SERVICES: Under the current structure of DODs Military Health System, the responsibilities
and authorities for its management are distributed among several organizationsincluding the As-
sistant Secretary of Defense for Health Affairs and the military services. Health Affairs is responsible
for creating and submitting a unified medical budget and allocating funds to the military services for their
respective medical systems; however, Health Affairs lacks direct command and control of the services
military treatment facilities. Additionally, the three departments each have Surgeons General to oversee
their deployable medical forces and operate their own health care systems, including training for medical
personnel [Per GAOs 2011 Duplication Report,] realigning DODs military medical command struc-
tures and common functions could increase efficiency and result in projected savings ranging from $281
million to $460 million annually.52
Unnecessary duplication may not be limited to just these cases. Others could include chaplains, judge
advocate generals, meteorologists, linguists / translators and possibly more.
Figure 3: Timeline of Military Health System Governance Studies
Although many
Figure 3: Timeline of Military Health System Governance of these
Studies, studies
Additional favored
Analysis a unified
of Costs systemoforPotential
and Benefits a stronger
Governance
central
Structure Is Needed, Government Accountability authority
Office, to improve
September 2012, p.coordination
9 among the services, major
organizational change has historically been resisted by the military
services in favor of the retention of their respective independent health
care systems. In 1995, we reported that interservice rivalries and
conflicting responsibilities, hindered improvement efforts, 14 and noted that
the services resistance to changing the way military medicine is
organized is based primarily on the grounds that each service has unique
medical activities and requirements.
14
GAO, Defense Health Care: Issues and Challenges Confronting Military Medicine,
GAO/HEHS-95-104 (Washington, D.C.: Mar. 22, 1995).
Page 9 GAO-12-911 Defense Health Care

Reducing Infrastructure Billets
The relationship of our militarys combat tooth to the overhead tail that supports it is another well-
established measure of personnel efficiency. In 2010, the McKinsey Corporation compared 30 indus-
trialized states, including many NATO Allies and potential rivals like China and Russia, and found that
only Switzerland has a ratio of combat-to-noncombat forces smaller than the U.S.53
Maximizing productivity in the tail could potentially save money by reducing the size of the force. The
Defense Manpower Requirements Report noted in 2011 that 35 percent of the active-duty force is in an in-
frastructure billet. Three-quarters of those infrastructure positions belong either to central training, defense
health, central personnel administration, or departmental management.54 The Rivlin-Domenici Debt Re-
duction Task Force, convened by the Bipartisan Policy Center, argued that military end-strength could be
lowered by 100,000 to control infrastructure positions.55
Concentrating Service Members on Inherently Military Functions

Defining activities that are inherently governmental, and further, those that are inherently military, is
essential to managing which duties are performed by service members, which by civil servants, and
which by contractors. The DBB determined in 2010 that 340,000 service members are performing com-
mercial duties that do not need to be performed by service members. Its recommendation was direct:
Eliminate 10 percent of the militarys commercial activity positions. It projected saving $5.4 billion an-
nually as a result, based on a $160,000 troop per year estimate.56
The Simpson-Bowles Fiscal Commissions staff-built illustrative savings also reiterated the DBBs con-
clusion and matched its savings, but by converting contractors to civil servants:
This option eliminates 88,000 military personnel who are performing clearly commercial types
of activities and replaces them with 62,000 civilians, at considerable per-employee savings.
One-third of the military positions can be eliminated during the conversion because civilians are
not required to carry out military-specific duties on top of their commercial duties this option
standardizes the share of military performing these commercial types of work, adopting the
lowest rate of military participation among the services, and converting the number of posi-
tions above that level to cheaper civilian slots.57
Converting military billets to civil service positions, as the Fiscal Commission considered, would have
generated savings in part because health care cost sharing, retirement benefits, allowances, and in-kind
compensation cost the federal government substantially less for civilians.
Reduce Civil Service and Contract Personnel

It may be possible to simply reduce the number of civilian personnel as well; 791,000 civil servants
work for the Pentagon, in addition to the 1,478,000 uniformed personnel.58 The DBB highlighted
growth among civil servants just in the Office of the Secretary of Defense (OSD). Using those figures,
OSD has grown by 37 percent since the September 11th attacks. The DBB suggested cutting civil
servant employment across the Pentagon back to its fiscal year 2003 level of 650,000 personnel, or by
15 percent, whichever is greater. 59

Trends in OSD Staff Size
Projection a/o June 2010
FY11 in-sourcing
growth not yet
Included in projected
2900 FY11 total
All in
estimate is In-sourcing
WSARA
5,100
2700 OUSD(C) 2708
2636
2500 Defense
Reform
Projection:
In-sourcing,
Initiative WSARA,
reductions DOEPP, CLO,
functional
2300 2258 transfers etc.
Reagan
2174 2170 2106
Administration
2100 build-up
$5.5B spent
9-11 by OSD in
1974 impact
1900 FY98 NDAA
begins
FY10
baseline for
25% MHA
reductions
1700 1765
We think the
1627 number of
1500 contractors
FY80 FY85 FY90 FY95 FY00 FY05 FY10 adds + 2,000
Full-time Authorize d Ma npow e r people
Note: Chart does not include active duty reservists, detailees, contractor manpower, or temporary overstrengths
Source: Carol Walker at ODAM June 2010
20
Trends in OSD Staff Size Projection a/o June 2010, Reducing Overhead and Improving Business Operations: Initial Operations,
Defense Business Board, July 22, 2010, p. 20
The Defense Department also relies heavily on contractors to perform many duties. Pentagon Comptrol-
ler Robert Hale estimated the contractor workforce at 300,000 full-time equivalents in February 2012
testimony before the Senate Budget Committee. 60 As with its recommendation on civil servants, the DBB
recommended returning contractor spending across the Pentagon to fiscal year 2003 levels. 61
Congress turned to these issues in the fiscal year 2013 National Defense Authorization Act. That leg-
islation requires the Pentagon to reduce civilian personnel and service contractor costs in proportion
to the savings in funding for basic military personnel pay achieved from reductions in military end
strengths. 62
Past debates focused on whether outsourcing work to contractors was cheaper than relying on civil
servants, but the most recent decade has been characterized more simply by growth. While these ap-
proaches to finding efficiencies were blunt, they addressed those recent increases rather than the previ-
ous, finer debates about whether civil servants or contractors are cheaper.
Balance between Active and Reserve Components

Many tasks are inherently military and cannot be considered for shifting to either civil or contracted
personnel. But not all service members carry the same cost burden, and some believe that savings

can be reaped by re-examining how different types of military manpower are used. Reservists and
National Guardsmen are a much more scalable labor force, for instance, able to surge specifically
when needed and require less cost when not needed. The Reserve Forces Policy Board determined in
a January 2013 report that Reserve Component personnel have a fully-burdened cost to the Pentagon
that is less than a third that of Active Component personnel $34,272 relative to $108,307. These fig-
ures include health care, dependent education, family housing and commissary benefits, in addition
to salaries. 63
The Reserve Component is and will continue to be a way to maintain the capability to conduct less
probable missions without bearing as much of the cost. In its latest budget priorities statement, the
Pentagon similarly said it will maintain key combat support capabilities such as sustainment as well
as combat service support capabilities such as civil affairs maintained at a high readiness level in the
Reserve Component. 64 It may be possible to save money by locating additional capabilities in the
Reserve Components.
Rebalancing between the traditional Active and Reserve Components also could be a way to increase
manpower flexibility and potentially save money. Easing service members ability to flow from one
type of commitment to another is a more direct, but also more unusual, approach. The division be-
tween the Active and Reserve Components is stark at present. CSIS envisioned this polarized model
being replaced by a continuum model:
The 39-days-a-year one size fits all [Reserve Component] model is no longer adequate. In
some cases it unduly constrains DoDs ability to develop units in high demand specialty
areas comprised of individuals who are willing to put in more than 39 days a year. Conversely,
it may also complicate DoDs efforts to develop nontraditional contracts for reservists who
can perform critical functions without needing to drill one weekend a month plus two weeks
of training a year. Manning and maintaining the operational reserve could be greatly facilitated
by fully implementing what the Department of Defense calls a continuum of service approach,
in which individual reservists can seamlessly transition in and out of active service to meet
various mission requirements over a lifetime of service. At the core of this concept is the no-
tion of creating many more on ramps and off ramps between active duty and reserve duty
in the US military.65
Such an approach might have optimized savings by allowing service members to transition between
active and inactive statuses as rapidly as the demand for their skills changes. Reserve Component pro-
fessionals in specializations like medicine, law, finance, and public affairs as well as potentially those
in fields like logistics and civil affairs often have very similar civilian jobs, benefit from training and
education in those jobs, and face irregular peaks and valleys in the militarys demand for their skills.
They may have the ability to flow seamlessly into and out of service. Building a framework that allows
them to do so may better match labor supply and demand. Savings could flow from permitting more
missions to be located in a less-than-active force and by minimizing the time needed for mobilization
when required.

The ideas presented above represent some of the ways that utilizing manpower more efficiently may
make it possible to save money. Most of these ideas have been discussed many times. Some have been
implemented at least partially, while others still seem unadvisable to most. Together, they provide a
range of possible savings, as described in the table below. What savings can actually be achieved is a
question of political judgment rather than simply analysis.

Streamlining redundancy and duplication $25
Reducing infrastructure billets $100
Concentrating service members on inherently military functions $50
Reducing civilian manpower $200
Relying less on contractor support $110
Better balancing between the active and reserve components $35
Total Possible Savings $520

BETTER ACQUISITION PRACTICES
The Pentagon has spent more than $360 billion on contracts in each of the last three years, and more
than $200 billion of that through its procurement and research and development appropriation titles.66
Weapon programs tend to be the most visible acquisitions, but contracting also includes very sizeable
sums spent on services, information technology, and commercially-available goods. Many believe these
sums are not spent as efficiently as they could be. The Government Accountability Offices high risk
list has included defense weapons system acquisition since 1990. It likewise has included defense con-
tract management since 1992.
Related to, but broader than, acquisition practices is the issue of financial management. Transpar-
ency and accountability are keys to efficiently administering any account at any government agency.
Since defense investment is so sizeable, the topic comes up especially frequently for the Pentagon
with respect to its acquisition programs. Defense financial management likewise has been on GAOs
high-risk list since 1995.
Version 5.4 15 June 2010
Planning,
Programming,
Budgeting & Execution
DoD Decision
Support Systems
Effective Interaction
Integrated Defense Acquisition, Technology, and Logistics Life Cycle Management System
Process is Essential This chart is a classroom aid for Defense Acquisition University students. It provides a notional illustration of interfaces among three major
DEPSECDEF Oversight
DoD 7000.14-R Following the Materiel Development Decision, the Milestone Decision Authority may authorize entry into the acquisition process at any point, consistent with phase-specific entrance criteria and statutory requirements decision support systems used to develop, produce and field a weapon system for national defense. Defense acquisition is a complex process
with many more activities than shown here and many concurrent activities that cannot be displayed on a two-dimensional chart. Supporting
information is on back of this chart. For more information, see the Defense Acquisition Portal (http://dap.dau.mil).
Joint
Capabilities Integration
Defense
Acquisition Materiel Solution Analysis Phase Technology Development Phase Engineering & Manufacturing Development Phase Production & Deployment Phase Operations & Support Phase
& Development System System
VCJCS Oversight USD(AT&L) Oversight Complete Analysis of Alternatives to assess potential materiel solutions to Reduce technology risk, determine and mature appropriate set of technologies to integrate into full system, Develop a system or increment of capability; complete full system integration, develop affordable and executable manufacturing process; Achieve operational capability that satisfies mission needs. Low-rate initial production (limited deployment for software intensive Execute support program that meets materiel readiness and
CJCSI 3170.01 series DoDD 5000.01
capability need, identify key technologies and estimate life cycle costs. demonstrate critical technology elements on prototypes, and complete preliminary design. Identify an ensure operational supportability; reduce logistics footprint; implement human systems integration; design for producibility; ensure systems with no development hardware) and full-rate production (full deployment for software intensive systems). Deliver operational support performance requirements and
Consider commercial-off-the-shelf and solutions from both large and
small business. Identify materiel solution to capability need. MS affordable program or increment of militarily useful capability, demonstrate technology in relevant
environment, and identify and assess manufacturing risks. Provide for two or more competing teams MS affordability; protect critical program information; and demonstrate system integration, interoperability, safety, and utility.
Integrated System System Capability & Manufacturing MS fully funded quantity of systems and supporting material and services for program or increment to users.
Full-Rate Production/Deployment Overlaps Production and Deployment Phase.
sustains system in most cost-effective manner.
Complete Technology Development Strategy.

A producing prototypes of system and/or key system elements prior to or through Milestone B.
B Design Post- Process Demonstration C Low-Rate Initial Production FRP Life Cycle Sustainment Disposal
Decision Points/Milestones MDD CDR A DR IOC FOC
FDDR
Joint Capabilities Integration and Development System - Acronyms Supportability System Threat Assessment Supportability System Threat Assessment For software Supportability System Threat Assessment
Strategic Guidance CDD Capability Development Document IOC Initial Operational Capability Requirements Requirements intensive Requirements
CPD Capability Production Document IT Information Technology Compliant Technical
Force Survivability Compliant Technical Force Survivability Compliant Technical Force Survivability
systems
DCR DOTMLPF Change
Ch Recommendation
R d ti JP 3 0J
3-0 i tP
Joint bli ti
Publication 3-0,
3 Joint
0 J i tOOperations
ti Solution Standards & Protection KPP Solution Standards & Protection KPP Solution Standards & Protection KPP
Joint Operations Concepts KPPs Architectures Net-Ready interfaces KPP KPPs Architectures Net-Ready interfaces KPP KPPs Architectures Net-Ready interfaces KPP
DOTMLPF Doctrine, Organization, Training, Materiel, JROC Joint Requirements Oversight Council
Joint
Concept of Operations Leadership and Education, Personnel, & Facilities MUA Military Utility Assessment Traceable KPP Traceable KPP Traceable KPP
FOC Full Operational Capability KPP Key Performance Parameter To ICD & Net Centric To ICD & Net Centric To ICD & Net Centric
Operations Plans JP 3-0 Information
Data & Services Selectively Applied JP 3-0 Information
Data & Services Selectively Applied JP 3-0 Information
Data & Services Selectively Applied
ICD Initial Capabilities Document KSA Key System Attribute Assurance Assurance Assurance
Strategy Strategy Strategy
Capabilities Capabilities-Based System Energy System Energy System Energy

Assessment Training Efficiency Training Efficiency Training Efficiency
KPP KPP Joint Operations Concepts KPP Joint Operations Concepts KPP
Joint Operations Concepts KPP KPP
Joint Staff Review Concept of Operations Joint Staff Review Concept of Operations Joint Staff Review
Integration &
Concept of Operations
System Threat Assessment System Threat Assessment
Technology Development Strategy Draft Threshold/objective tradeoffs
J-1 Joint manpower. J-2 Intelligence/threat.
Component/JROC AoA (if updated) Threshold/objective tradeoffs
Component/JROC AoA (if updated) Threshold/objective tradeoffs
Component/JROC Validated and approved
ICD AoA Report
CDD Revised Performance Attributes
J-3 Operational suitability, sufficiency, &
supportability. J-4 Facilities, sustainment, & energy Validation & CDD DoD Enterprise Architecture & Revised Performance Attributes
supportability. J-4 Facilities, sustainment, & energy Validation & CPD DoD Enterprise Architecture & Revised Performance Attributes
supportability. J-4 Facilities, sustainment, & energy Validation & CDD & CPD for each increment of
Development
DoD Enterprise Architecture & efficiency. J-5 Alignment with strategy & priorities. efficiency. J-5 Alignment with strategy & priorities. efficiency. J-5 Alignment with strategy & priorities.
evolutionary acquisition
J-6 IT/NSS interoperability & supportability. Approval Solution Architecture J-6 IT/NSS interoperability & supportability. Approval Solution Architecture J-6 IT/NSS interoperability & supportability. Approval
Solution Architecture KPPs KPPs
J-7 Systems training. J-8 Weapons safety. Information Support Plan J-7 Systems training. J-8 Weapons safety. Information Support Plan J-7 Systems training. J-8 Weapons safety.
Technical Standards Profile
JROC/ Technical Standards Profile Technical Standards Profile
System Component Information MUA/Final Demo Information MUA/Final Demo Information MUA/Final Demo
Validation and Support Availability Ownership Report for Support Availability Ownership Report for Support Availability Ownership Report for
Approval Plan Reliability Plan Reliability Plan Reliability
KSA KPP Cost Joint Capability Technology KSA KPP Cost Joint Capability Technology KSA KPP Cost Joint Capability Technology
KSA Demonstrations & other KSA Demonstrations & other KSA Demonstrations & other
(need-driven) Materiel Availability &

Operational Availability
prototype projects Materiel Availability &
prototype projects Materiel Availability &
prototype projects
DCR
Non-materiel
Initiate Evolutionary Acquisition Strategy Evolutionary Acquisition Strategy

solutions
(If program initiation, or if equiv to FDDR)

A B C
Clinger-Cohen Act (IT incl NSS) Clinger-Cohen Act (IT incl NSS) Clinger-Cohen Act (IT incl NSS) Clinger-Cohen Act (IT incl NSS)
Increment 2
P-
CDRA FRP
- Compliance - Compliance - Compliance - Compliance
- CIO Confirmation of Compliance - CIO Confirmation of Compliance MS B - CIO Confirmation of Compliance - CIO Confirmation of Compliance
MS A
Cert Cert
E it
Exit TRA E it
Exit Cost-Type E it
Exit E it
Exit E it
Exit A B C
DAB/ DAB/ DAB/ Contract Post- TRA DAB/ DAB/
ITAB MDA ADM PSR Criteria
ITAB MDA ADM APB Criteria
ITAB
MDA ADM Determination PDR A ADM Criteria MDA ADM APB Criteria
ITAB
MDA ADM PSR APB Criteria
ITAB
MDA ADM P-
CDRA
Increment 3 FRP
Met PSR Met (if applicable)

Met PSR Met Met
Oversight Exit
Criteria
Exit
Criteria PDR Report
Exit
Criteria PDR Report
Required if PDR is
after Milestone B
Post-CDR Report
Exit
Criteria
Exit
Criteria
Exit
Criteria
Technology Development Strategy (TDS) Acquisition Strategy Acquisition Strategy Acquisition Strategy
& Acquisition Approach
Source & Related Documents
Business Strategy
Resource Management
Acquisition Approach
Resource Management
Program Security

Resource Management
Program Security Considerations

Resource Management
Program Security Considerations
Review Capability Needs

Top-Level Integrated Schedule
Program Security
Considerations
Capability Needs
Considerations
Test & Evaluation
Oversight & Review and Contracting Acronyms
ADM Acquisition Decision Memorandum MAIS Major Automated Information System
Capability Needs

Test & Evaluation
Data Management
Capability Needs

Test & Evaluation
Data Management
Total Life
TLCSM Program Interdependency &
Interoperability Summary
Test Planning
Data Management &
Data Management
Life-Cycle Sustainment Planning
AoA Analysis of Alternatives
APB Acquisition Program Baseline
MDA Milestone Decision Authority
MDD Materiel Development Decision
Program Interdependency &

Life-Cycle Signature Support Plan

Life-Cycle Signature Support Plan
Cycle Systems
Management
International Cooperation Technical Data Rights International Cooperation Life-Cycle Signature Support CDR Critical Design Review NSS National Security Systems International Cooperation CBRN Survivability International Cooperation CBRN Survivability
Risk & Risk Management Life-Cycle Sustainment Risk & Risk Management Plan CBRN Chemical, Biological, Radiological & Nuclear PDR Preliminary Design Review Risk & Risk Management Human Systems Integration Risk & Risk Management Human Systems Integration
Technology Maturation & Planning Technology Maturation CBRN Survivability DAB Defense Acquisition Board P-CDRA Post Critical Design Review Assessment Technology Maturation ESOH Technology Maturation ESOH
AoA Study AoA Study Competitive Prototyping Life-Cycle Signature Industrial Capability & Human Systems Integration ECP Engineering Change Proposal P-PDRA Post PDR Assessment Industrial Capability & Military Equipment Valuation & Industrial Capability & Military Equipment Valuation &
Guidance Plan Industrial Capability & Support Plan Manufacturing Readiness ESOH ESOH Environment, Safety, and Occupational Health PSR Program Support Review Manufacturing Readiness Accountability Manufacturing Readiness Accountability
Manufacturing Capabilities CBRN Survivability Business Strategy Corrosion Prevention & Control EVM Earned Value Management RAM-C Reliability, Availability, Maintainability & Cost Business Strategy Corrosion Prevention & Control Business Strategy Corrosion Prevention & Control
FRPDR Full Rate Production Decision Review Rationale Report Purpose of LRIP:
FDDR Full Deployment Decision Review RFP Request for Proposals
Complete manufacturing development
AoA
updated as
AoA Initial Final RFP cannot be released necessary AoA Final RFP cannot be released
IBR Integrated Baseline Review
ITAB Information Technology Acquisition Board
RFI Request for Information
TRA Technology Readiness Assessment
updated as
necessary AoA Final RFP cannot be released Establish initial production base
MAIS
only Final RFP cannot be released
RAM-C until TDS is approved until Acq Strategy is approved until Acq Strategy is approved
Report LRIP Low Rate Initial Production TLCSM Total Life Cycle Systems Management until Acq Strategy is approved Ramp to production rate
Source Draft RFP Source Draft RFP Source Draft RFP Produce systems for IOT&E Source Draft RFP
Acq Source Acq Source Acq Source Acq Source
Contracting Study
Contracts
Plan Selection RFP &
Proposals Selection Technology Plan
Selection RFP &
Proposals Selection Engineering & Plan
Selection
Plan
RFP &
Proposals Selection Plan
Selection RFP &
Proposals Selection Production
Post-Production Software Support Contracts
Plan Plan LRIP Plan
Development Manufacturing Contract
Contract Management ECPs/Changes Contract Management ECPs/Changes Contract Contract Management ECPs/Changes Contract Management ECPs/Changes
Contract Contract Development Contract Contract Contract Contract
Closeout Closeout Closeout Closeout
IBR EVM IBR EVM IBR EVM IBR EVM Sustainment Contracts
Surveillance Surveillance Surveillance Surveillance
Major Alternative
Materiel System Initial Production Initial
Product
Low-Rate Initial Final Full-Rate
Materiel Prototypes Performance Prototypes Product Representative Production Product Production
Products Solutions Solution Spec Baseline Articles
Baseline
(verified) Systems Baseline
Systems
Post-Deployment
Review
Product Support Package/PBL Implementation Product Support/PBL Management

Refine Develop Initial Product Support Strategy Product Support Plan Demonstrate Product Support Capability Operations and Sustainment
Define Set Product Support Elements Supply Chain Management Public-Private Partnering Continuous Tech Refreshment
Logistics/ Evaluate Product Supportability Statutory/Regulatory Product Support Elements Footprint Reduction Joint Operations
Initiate Product Support BCA Product Support Supply Chain Management Obsolescence Management Peacetime
Supportability Objectives/ Source of Support -Supply Support -Training Supply Chain Management Support and Cost Baseline Revalidate BCA
Support Capabilities (Define Ground Rules & Assumptions) Strategy Legacy Considerations -Maintenance -Support Data Product Support Elements Contract for Sustainment Refine Life Cycle Sustainment PBA Modifications Configuration Control Training Crises
Objectives
FRP
Constraints
Sustainment Conduct Product Support BCA -Manpower & personnel Finalize Product Support BCA Plan Assessment of PSI/PSPs Data Management Revalidate BCA Refine LCSP
A B C
(organic & Commercial) Monitor Performance & Adjust
MDD
Revalidate PBA/BCA
Post-CDR A Production Qualification
Testing DR
Product Support
INPUTS OUTPUTS INPUTS OUTPUTS INPUTS Performance-Based Logistics (PBL) Strategy (Preferred Product Support Approach) OUTPUTS
Pre-IOC and Post IOC Supportability Assessments
ICD Preliminary System Spec ICD & Draft CDD System Allocated Baseline Sys Performance Spec Performance-Based Business Case Product Support Integrator/ Initial Product Baseline AOTR OTRR
Defense
Agreements Analysis Product Support Provider
AoA Study Plan Systems Engineering Plan Approved Materiel Solution PDR Report Test Reports Acquisition Strategy Test Reports
Exit Criteria T&E Strategy Exit Criteria SEP TEMP PESHE PPP TRA Exit Criteria Technical & Logistics Acronyms SEP TRA PESHE TEMP IOT&E BLRIP
Alternative Maintenance System Safety Analysis Support & Maintenance Concepts NEPA Compliance Schedule APB CDD STA ISP ASR Alternative Systems Review
AOTR Assessment of Operational Test Readiness
OA Operational Assessment
OTRR Operational Test Readiness Review NEPA Compliance Schedule Report to FOT&E Disposal Most
Acquisition & Sustainment Concepts Support & Maintenance Concepts & Technologies Risk Assessment LCSP SEP TEMP PESHE PPP BCA Business Case Analysis PBA Performance-Based Agreement Elements of Product Support Full-Up System Level LFT&E Congress
Acceptable
& Technologies Systems Engineering Plan Validated Systems Support & Maint NEPA Compliance Schedule BLRIP Beyond Low Rate Initial Production PESHE Programmatic Environment, Risk Assessment as required
Objectives & Requirements Risk Assessment CDR Critical Design Review Safety & Occupational Health Evaluation Recycle/Reuse
Inputs
puts to:
to AoA
o Report
epo t Life Cycle Sustainment Plan Joint Interoperability
System
CI Configuration Item PDR Preliminary Design Review
System Safety Analysis Validated Sys Support & Maint System Safety Analysis LFTE
-draft CDD -AoA -TDS -IBR T&E Strategy DT&E Developmental Test & Evaluation PCA Physical Configuration Audit Certification Testing
-Cost/Manpower Est. Inputs to: -CDD -ISP -STA -IBR Objectives & Requirements EOA Early Operational Assessment PRR Production Readiness Review Inputs to: -CPD -STA -ISP Report to
Technology Development Strategy Reprocessing
-Acq Strategy Product Support Strategy ESOH Environment, Safety & Occupational Health PPP Program Protection Plan -IBR -Cost/Manpower Est. JITC Joint Interoperability Congress
-Product Support Strategy System Safety Analysis
Test Certification
(event-driven) -Affordability Assessment System Safety Analysis FCA Functional Configuration Audit PSI Product Support Integrator
-Cost/Manpower Est. FMECA Failure Mode Effects & Criticality Analysis PSP Product Support Provider
FOT&E Follow-On Test & Evaluation RCM Reliability Centered Maintenance FCA Disposal
ITR ASR SRR FTA Failure Tree Analysis RMS Reliability, Maintainability & Supportability SVR PRR Landfill
IOT&E Initial Operational Test & Evaluation SEP Systems Engineering Plan INPUTS OUTPUTS INPUTS OUTPUTS Least
Interpret User Needs, Analyze/Assess Interpret User Needs. Demo & Validate System Interpret User Needs, Interpret User Needs, ISR In-Service Review SFR System Functional Review Integrated DT&E/OT&E/LFT&E Test Results Product Baseline Service Use Data
Verification/ Data for In-Service Review Acceptable
Analyze Operational Validation Concepts Versus Analyze Operational Validation & Tech Maturity Versus Refine System Refine System ISP Information Support Plan SRR System Requirements Review Demonstrate System to Exit Criteria Test Reports User Feedback Failure Reports
ITR Initial Technical Review STA System Threat Assessment Validation Input to CDD for next increment
Capabilities & Linkage Defined User Needs & Capabilities & Linkage Defined User Needs & Performance Specs & Performance Specs & Specified User Needs and APB CPD SEP TEMP SEP PESHE TEMP Discrepancy Reports
JITC Joint Interoperability Test Command SVR System Verification Review Linkage Modifications/upgrades to fielded
Environmental Constraints Trades Environmental Constraints Environmental Constraints Trades Environmental Constraints Environmental Constraints Environmental Constraints Trades LFT&E Environmental Constraints
Technical
Live Fire Test & Evaluation TEMP Test & Evaluation Master Plan Product Support Element System Safety Analysis SEP systems
LORA Level of Repair Analysis TDS Technology Development Strategy Requirements Inputs to: -IBR System Safety Analysis SEP Test Reports
MTA Maintenance Task Analysis TRA Technology Readiness Assessment PESHE - Cost/Manpower Est. Product Support Element
Trades Trades System DT&E, OT&E, LFT&E System Safety Analysis
Systems Engineering Develop Concept Assess/Analyze Develop System Performance Trades
Demo/Model
Develop System Functional Develop System Functional NEPA National Environmental Policy Act TRR Test Readiness Review
System Safety Analysis - Product Support Package Requirements Product Support Package
Performance (& Constraints) Concept & Verify (& Constraints) Spec & Specs & Verification Plan to Specs & Verification Plan to & OAs Verify System
Test and Evaluation Definition & Verification
Verification
Linkage System Concepts Enabling/Critical Tech &
Verification
Linkage
Integrated System Versus
Evolve System Functional Evolve System Functional
Verification
Linkage Functionality & Constraints
Performance Spec In-Service
Supportability Objectives Performance Prototypes Verification Plan Baseline Baseline Compliance to Specs PCA
Lighter blocks reflect technical Review
efforts required if PDR is Analyze Deficiencies Verify and Validate Monitor & Collect
Verification/ Implement and
required after Milestone B. To Determine Corrective Production Service Use & Supply
Decompose Concept Assess/Analyze Develop Functional Demo System & Prototype
SFR Evolve Functional SFR Evolve Functional Integrated DT&E, LFT&E & Actions
Validation
Configuration Chain Performance Data Trades
Field
Performance into System Concept Linkage
Verification Definitions for Enabling/ Verification Functionality Performance Specs into Performance Specs into
Verification
EOAs Verify Performance
Functional Definition & Linkage Versus Functional Critical Tech/Prototypes & Linkage System Allocated Baseline
Linkage
Compliance to Specs
Versus Plan System Allocated Baseline
Verification Objectives Capabilities Associated Verification Plan
FMECA PDR PDR TRR Analyze Data to: Trades
Assess Risk of
Modify Configuration Validate Failures &
Improved System
Decompose Concept Assess/Analyze Decompose Functional FTA Evolve CI Functional (Hardware/Software/Specs) Determine Root Causes
Demo Enabling/Critical Individual CI
Functional Definition into Verification Enabling/Critical Definitions into Critical Verification
RCM Specs into Product Verification
To Correct Deficiencies
Technology Components Linkage Verification
Component Concepts & Linkage Components Versus Component Definition & Linkage (Build to) Documentation
Versus Plan DT&E
Assessment Objectives Capabilities Technologies Verification Plan LORA & Verification Plan
MTA
CDR Determine
Integrate and Test
System Risk/
Corrective Action
Develop Component Concepts, Design/Develop System Concepts, Hazard Severity
LFT&E Fabricate, Assemble,
i.e., Enabling/Critical i.e., Enabling/Critical Technologies, (with alternate
Waiver LFT&E Plan)
Code to Build-to
Technologies, Constraints, Update Constraints, & (if appropriate) Documentation
& Cost/Risk Drivers Cost/Risk Drivers Cost Acronyms
CARD Cost Analysis Requirements Description Process Change
Develop
MSA Phase TD Phase Full Funding CCE Component Cost Estimate Full Funding Full Funding - Operations/Maintenance Support
Corrective
Fully Funded Fully Funded Economic Analysis (MAIS) In FYDP CCP Component Cost Position In FYDP Economic Analysis (MAIS) In FYDP Action Materiel Change
Economic Analysis (MAIS) Manpower Estimate (MDAP)
ICE Independent Cost Estimate Manpower Estimate (MDAP) Manpower Estimate (MDAP) - Hardware/Product Support Package
Financial
MDAP Major Defense Acquisition Program
MAIS Major Automated Information System
Affordability PMO Program Management Office Affordability
CARD CCE CCP ICE CARD CCE CCP ICE CARD CCE CCP ICE CARD CCE CCP ICE
Management MDAP/MAIS MDAP MDAP MDAP/MAIS MDAP MDAP
Assessment RDT&E Research, Development, Test & Evaluation
MDAP/MAIS MDAP MDAP

Assessment
MDAP/MAIS MDAP MDAP
Cost Estimation Parametric Actual Costs

Methods Analogy Engineering
Types of RDT&E Advanced Technology Development RDT&E Advanced Component Development and Prototypes RDT&E Systems Development & Demonstration
PMO POM Input Procurement Operations and
Funds Maintenance
RDT&E Management & Support
PMO Budget Estimate
Appropriated Funds To Support Contracts

Planning, Military
Departments and POM/Budget Formulation POM/Budget Submit
Planning, Programming, Budgeting, and Execution Acronyms
FYDP Future Years Defense Program PMO Program Management Office
Programming,
MBI Major Budget Issues POM Program Objectives Memorandum
Defense Agencies OMB Office of Management and Budget DoD Testimony DoD Appeals
July
Budgeting Defense Planning &

Issue Nominations/Disposition
SECDEF Option
Allocation
& Execution Office of the

Secretary of Defense
National Military Strategy Programming Guidance Integrated Program/Budget
Review
Decisions MBI DoD Budget Apportionment
Process and Joint Staff National Defense Strategy Fiscal Guidance

April
FYDP
updated
August - November November December
FYDP
updated
(annual- Budget Authorization Appropriation
Authorization/
Appropriation
calendar-driven) White National Security Strategy
OMB
Presidents Budget to
Congress
Committees Committees Committees Acts Passed
Fiscal Guidance
House January February (1st Monday)
Congressional Budget Process
National Strategy Documents (updated as necessary) March
February September
Authors Chuck Cochrane and Brad Brown For a single copy of this chart, send a request to daupubs@dau.mil Send recommendations to improve the content of this chart to wallchart@dau.mil
Integrated Defense Acquisition, Technology, and Logistics Life Cycle Management System, Version 5.4, Defense Acquisition University, June 15, 2010.
BETTER ACQ U ISITIO N PR A CTI CE S | 33

Many studies and commissions over the years have offered recommendations of how to reap efficien-
cies and savings from the acquisition process. These recommendations can be binned into the following
categories: constructing contracts, managing the acquisition workforce, committing to best practices,
and generating requirements.
Constructing Contracts
Government contracts come in many different types. Contract vehicles can set an up-front price when
the government and the provider are especially clear about what is to be delivered or, when what is
desired is less clear, the contract can provide for regular invoicing with a profit margin on top. The
contract award can be determined based on the lowest price to minimize the governments total cost
or based on best value to maximize the governments return on each dollar spent. Acquisitions can be
made on a year-by-year basis to hedge the governments commitment or on a multi-year basis to reap
the efficiency advantage from economies of scale.67
All these choices have cost ramifications. They can be subdivided into contractor selection, compari-
sons between different contract types, and the interaction between government and contractor.
In its Better Buying Power Initiative, begun in September 2010 (Version 1.0) and updated in Novem-
ber 2012 (Version 2.0), the Pentagon emphasized a need to clarify different standards for selecting
among contractors proposals. Best value evaluates how well the contractor can do what it claims
even if its bid is not the lowest. But the Pentagon argues that industry tends to default to threshold
performance levels because they are less costly and source selections seldom give predictable credit for
performance above threshold. An insufficient understanding of how value is judged may mean that
contractors are not defending higher costs on the grounds that their value warrants it. Lowest Price
Technically Acceptable is another structure for making a selection, but the Pentagon similarly noted
that these competitions essentially default to the lowest bidder, independent of quality. Better evalu-
ations of benefits relative to costs underpin the Better Buying Power emphasis on defining both best
value and technically acceptable.68
Comparisons between contract types also have been recurring parts of the debate. DBB has been clear
that contract type is not the defining problem for cost overruns. Still, in a January 2010 report it did
determine that the preferred choice is fixed-price, then cost-plus, then time and materiel contracts. It
also counseled using incentives in both cost-type and fixed-price vehicles as a way to balance risk and
motivate superior performance.69
The 2005 Defense Acquisition Performance Assessment (DAPA) took a wholly different approach and
challenged how government fundamentally interacts with contractors. Rather than the current solicit-
and-respond structure that governs contract types generally, it suggested that the Pentagon propose
regulatory changes that would formalize a risk-based source selection process in which cost proposals
are replaced by industry and government agreements on most probable cost. An affordability deter-
mination is then made to determine when proposals are within the competitive range 70 Under
this model, costs would have been determined in a more collaborative and iterative interaction with

industry, compared to a current approach that hinges more heavily on either accepting or rejecting a
contractors cost proposal.
In each of these issues selecting a contractor, alternatives between contract types, and the interaction
between government and contractors more informed choices may lead to more efficiency.
Managing the Contracting Workforce

All acquisition reforms depend on the judgment of the government acquisition professional that over-
sees the contract. The way that the Pentagon constructs and manages this workforce greatly influences
how well the acquisition system functions. Concern about civil servants acquisition career paths date
back at least to the 1986 Packard Commission, a Presidential-level task force led by former Deputy De-
fense Secretary David Packard. It found that:
The existing civilian personnel management system has not, however, allowed similar improve-
ments in career paths and education for civilian acquisition personnel [relative to the military
workforce]. To attract and retain a good work force requires a more flexible system for man-
agement of contracting officers Major innovations in personnel management and regulations
are needed.71
Writing in January 2010 and again in April 2012, DBB underscored the need to make defense acquisi-
tion an attractive career prospect, especially by defining the key elements of a career path.72 Those
elements included a tour with industry prior to being a program manager, expanding programs
like the Defense Fellows Program with industry, and considering ways to create incentives for military
personnel to pursue acquisition careers.73
A House Armed Services Committee panel co-chaired by Rep. Rob Andrews (D-NJ) and Rep. Mike
Conaway (R-TX) also reiterated needs similar to those identified by the Packard Commission. This pan-
el, charged by the committee with a full review of defense acquisition, recommended that the Pentagon
improve this career path by taking full advantage of authorized pay incentives and by institutionalizing
standards, including for recertification.74 Business Executives for National Security (BENS), a nonprofit
organization that channels private sector executive expertise into national security issues, also tackled the
issue. It raised the options of streamlined hiring and dismissal and a review of ethics regulations for the
benefit they offer relative to the barriers to entry they impose.75
The Pentagons approaches to improving the contracting workforce have addressed the total staff cadre
generally and acquisition leaders specifically. One workforce-wide initiative has concentrated on size.
Then-Secretary Gates decided as part of the 2010 budget request to insource 11,000 contract acquisi-
tions professionals and to add an additional 9,000 positions in order to better oversee requirements
creep.76 The Pentagons 2014 budget overview reported that 7,700 of those new positions have been
filled to date, though it also noted that the Department will shift in focus from primarily recruiting and
hiring, to training and continuous improvement in the qualifications and experience set of the acquisi-
tion workforce.77

Should all of these 20,000 new personnel be added to the civil service, it would take the total acquisition
workforce from 127,000 to 147,000 people, according to another January 2010 DBB report. 78 This 16 per-
cent increase raised concern about chasing the numbers rather than focusing on quality. The DBB
report responded emphatically: Bigger isnt better; better is better. 79 Its primary recommendations
for Services and Components to focus foremost on quality and skill-based hires followed closely on that
finding. Engineers involved in acquisition oversight and decision-making received particular attention
when DBB returned to this topic in April 2012.80
Leadership of the acquisition workforce also is a point of emphasis for the Pentagon. Its Better Buying
Power 2.0 Initiative was direct about the goal to establish higher standards for key leadership posi-
tions. Qualifications, not just certifications, were the standards on which it focused, including experi-
ence, education, and training. 81
Meanwhile, DAPA considered the structure of acquisition management. One part would have in-
cluded an elevated role for Service Acquisition Executives to ensure that clear lines of responsibility,
accountability, and authority for program execution are established and maintained. It similarly
would have:
establish[ed] Four-Star Service Systems Commands that will be responsible for aligning the
acquisition workforce to include requirements and acquisition budget personnel, by establishing ap-
propriate certification requirements based on formal training, education and practical experience.
This organization provides advocacy for the acquisition workforce and will institute formal and
informal mentoring of program managers.82
DBB shared this focus on management. Rather than creating new institutions, however, it focused
on the service chiefs existing responsibilities. In its own words, the Service Chiefs, in collaboration
with senior acquisition leaders, should be accountable for the career path management, training,
education, and particularly promotions and equal promotion rates of military acquisition personnel,
as required by law. 83
Whether its the leadership, the full cadre of the acquisition workforce, or the management structure
that guides how the two interact, better oversight and implementation may equate to an across-the-
board improvement in acquisition efficiency.
Coming to Best Practices

Contracts terms and the workforce that manages them are key parts of the structure for defense acqui-
sition. Within that structure, acquisition practice also is a significant indicator of efficiency. This section
now turns to techniques that may qualify as best practices.
Given the longstanding cost growth in acquisition programs, affordability is one of the most basic con-
cerns. The Pentagons Better Buying Power 2.0 initiative favored affordability caps for programs. Specifi-
cally, it would have demanded long-term investment planning to derive affordability caps; used those

affordability caps to force prioritization of requirements; and urged senior acquisition officials to halt
programs that will not be within the established cap. In other words, cancel programs that have lost
control of costs. Better Buying Power 2.0 also sought to implement should-cost based management,
in which the cost a program should incur is used as an analytical and negotiating counterweight to what
the program actually is costing.84
Timeliness also has drawn particular attention as programs tend not only to exceed their budgets but
also to suffer schedule slips. DAPA sought to improve timely and reliable delivery by prioritizing time
in developing a program. It would have:
establish[ed] Time Certain Development as the preferred acquisition strategy for major
weapon system development. These strategies will require delivery of the first unit to
operational forces within approximately six years of the Milestone A decision. Through
early fielding of a basic capability, operational users will gain a clearer understanding
of requirements that should be incorporated during future block or spiral upgrades, and
technologies will mature that will enable producers to satisfy those requirements. Time
Certain Development differs from evolutionary acquisition in that a specific time frame is
established in which useful military capability will be fielded The time frame will not be
adjusted to accommodate new requirements or capability enhancements prior to fielding
the useful military capability.85
CSIS also explored acquisition timeliness in its Beyond Goldwater-Nichols analysis. It noted options
for expediting an acquisition program and recommended increasing that authority for defense-wide
rapid acquisition. Specifically, it proposed waiving and exempting the Joint Rapid Acquisition Cell
from regulations that impede responsive acquisition, as well as endowing it with a billion-dollar capi-
tal fund pulled from unobligated balances.86
The Andrews-Conaway panel took yet another path. It concluded that:
for the most urgent operational needs, special acquisition processes are clearly warranted. At
the same time, the Panel believes the Department and Congress should not accept program de-
velopment timelines routinely measured in the double digits for most of the Departments needs
as this approach will not be responsive to the Departments operational requirements. The Panel
believes that the Department must begin to actually apply its policies expressing a preference for
evolutionary acquisition and open systems architecture in ways which result in different acquisi-
tion strategies and shorter development timelines.87
Tailoring the contract process based on the need being met was again a theme for the Andrews-Con-
away panel as it considered information technology. In the words of a witness before the panel, the
standard acquisition process is:
Ill-suited for information technology systems. Phase A is intended to mature technology; yet in-
formation technologies are now largely matured in the commercial sector. Phase B is intended
to ready a program for production; yet information technologies are not produced in quantity.

Phase C is a production phase, which again is generally not relevant to information technology
that is not produced in quantity.88
The consequences of this mismatch between the good being acquired and the process for acquiring it
was clear to the panel:
The Department is unable to keep pace with the rate of IT innovation in the commercial
market place, cannot fully capitalize on IT-based opportunities, and seldom delivers IT-based
capabilities rapidly. By way of example, the private sector is able to deliver capabilities and
incrementally improve on those initial deliveries on a 12 to 18 month cycle; defense IT sys-
tems typically take 48-60 months to deliver. In an environment where technology is obsolete
after 18 months, defense IT systems are typically two to three generations out of date by the
time they are delivered.89
The Andrews-Conaway panel responded to this assessment by recommending a separate acquisition

process for information technology, including milestone decision points more aligned with how the
private sector develops these tools. The Defense Science Board (DSB) also reached this conclusion in a
2009 acquisition study, and it offered even more detail: IT acquisition should occur in rapid increments
driven by successful prototyping in order to keep up with the pace of IT change, according to DSB, and
capabilities should be released as they become available even within increments. 90 In a larger frame,
both of these positions were responses to a need for the acquisition process to adapt according to the
type of goods or service being acquired.
Regulations affect how adaptable the acquisition process can be and defense acquisition is subject to a
massive scale and fine detail of regulation. The Packard Commission found 26 years ago that federal
law governing procurement has become overwhelmingly complex. Commissioners felt so strongly
about this problem that they recommended a wholesale recodification of government-wide procure-
ment into a single law.91 Yet these regulations still continue to frustrate. From the Pentagons viewpoint,
one example has been its Better Buying Power 1.0 announcement that it would work with Congress to
eliminate the requirement for the full suite of Nunn-McCurdy [cost breach] assessments and report-
ing activities in special circumstances where quantity-induced or other external reasons cause critical
breaches to occur.92
The business community also has its concerns about procedural rigidity and a corresponding perspec-
tive on regulatory flexibility. According to BENS:
A key to fundamental, systemic change lies with the Congress, which, through the body of
Federal law and its oversight function, shapes the regulatory framework and influences the
culture of defense acquisition. Any attempt to fix the system must first consider the anteced-
ent of todays dysfunctional acquisition system, the body of acquisition law. Fundamental
reform of that body of law is clearly something neither the Pentagon, nor even the Executive
Branch, can undertake alone. The Task Force believes the impetus for reform must originate
with Congress.93

DBB likewise returned to the Packard Commissions position in its April 2012 report, urging the Execu-
tive and Legislative Branches to zero base the entire system, including all directives and regulations.94
Later it identified several regulations it would cut to help improve the relationship between industry
and the Pentagon. Specifically, it favored Congress and the White House minimizing financial disin-
centives, limiting recusals, allowing true blind trusts, providing tax incentives and longer divestures in
adverse markets, as well as reassessing the post-government prohibitions in order to shorten the time
period and limit the scope of coverage to specific programs. 95
Prototyping is another frequently mentioned best practice, one that is specific to the acquisition of
goods. Extensive evaluation of prototype technologies, for instance, may provide firmer understandings
of cost and capability, permitting better managerial decisions as the program moves into procurement.
The Pentagons Better Buying Power 2.0 initiative set the goal of being more stringent in how proof-
of-concept demonstrations are conducted.96 Prototyping was captured as well by the Packard Com-
mission, which prioritized building and testing prototype systems and subsystems before proceeding
with full-scale development.97 DSB in 2009 also emphasized prototyping as a way to achieve more
thorough analysis at the outset of system development and during key aspects of the development
process.98
The risks of a development program can be avoided altogether if the needed system already exists.
DSB argued that, when possible, the Department of Defense should purchase systems proven on
the commercial market rather than a new development program. Many advanced capabilities are
available on the commercial market and offer an important option for supplying U.S. forces, DSB
determined.99 Part of acquisition best practice is knowing when to take advantage of these already
available capabilities.
DSB concluded its report with a far-reaching observation on best practices: you can and will only im-
prove what you can measure. It did not find a particular shortcoming in the Pentagon on this count but
rather reiterated that the Secretary of Defense must personally insist on continuous improvement. It
therefore recommended that:
The Secretary of Defense, with the Under Secretary of Defense for Acquisition, Technology,
and Logistics at the lead, should develop acquisition performance metrics for monitoring
the newly reengineered acquisition process monitoring each program against performance
metrics for cost, schedule, and quality, with quarterly reporting. The metrics should be visible
to all. 100
Measurement is the essence of a much more general discussion about defense financial management.
The Pentagon is one of three federal agencies unable to meet the standards of financial audit and the
only one that lacks even a qualified audit.101 This is different than failing an audit. Rather, much of
the Pentagon lacks the data fidelity to begin an audit. GAO includes defense financial management
on its high-risk list out of concern over DODs ability to control costs; ensure basic accountability;
anticipate future costs and claims on the budget; measure performance; maintain funds control; pre-

vent and detect fraud, waste, and abuse; address pressing management issues; and prepare auditable
financial statements. 102
In response to these financial management challenges, the fiscal year 2010 defense authorization
required the Pentagon to achieve audit readiness by September 2017. In October 2011 testimony
before the House Armed Services Committee, then-Secretary Panetta accelerated the deadline for
a core element of the audit package to 2014. Congress codified that sub-goal in the fiscal year 2013
defense authorization.103 This partially fulfills one aspect of the HASC Andrews-Conaway Panels
recommendation to comply with the audit standard well before 2017. That panel was firm in its
belief that the full deadline should move forward, however, on the grounds that failure to do so
is fundamentally incompatible with the spirit of acquisition reform. Consequently, it also recom-
mended that Congress defense committees withhold funding or apply penalties in the absence of
clear and quick progress.104
More rapid, flexible, accountable, and strategic acquisition all elements of best practice have clear
connections to efficiency.
Generating Requirements
Each of these acquisition process options has attracted the attention of experts and senior leaders. Many
believe, however, that they have a common root. The Packard commission in 1986 found the acquisition
systems problems begin with the establishment of approved military requirements for a new weapon, a
step that occurs before development starts. 105 Twenty-four years later, the Andrews-Conaway panel en-
countered the same sorts of problems. The Panel heard at almost every hearing, regardless of the primary
content focus of the hearing, that obtaining consistent, realistic requirements as a basis for the acquisition
process is a critical problem in the defense acquisition system. 106
The Pentagons Better Buying Power 2.0 initiative included a specific determination: More than any-
thing, requirements drive cost. 107 On that topic, it aimed to improve requirements definition;
prevent requirements creep, especially by improving the quality of planning.108 In its April 2012
report, DBB was equally frank: Freeze requirements early after cost, schedule, and technical feasi-
bility trade-offs.109 The centrality of requirements is a consensus point, and there is a litany of cor-
responding perspectives.
One possible response to this challenge would be to change how different organizations help create
requirements. CSIS would have altered membership of the Joint Requirements Oversight Council,
which formally approves requirements, to add the Office of Cost Assessment and Program Evalua-
tion (CAPE) and to replace Service Vice Chiefs with Combatant Command Deputies. It also would
have refocused the Office of the Under Secretary for Acquisition, Technology, and Logistics on
research and engineering, dedicating this part of the institution to the long view, and would have
returned management and execution authority to the military Services. These changes could foster
service competition to meet COCOM requirements and permit the Office of the Under Secretary of

Defense for Acquisition, Technology, and Logistics (USD AT&L) to substantially reduce its staff.110
Meanwhile, moving the services back into management and execution could clarify issues of account-
ability and serve several Packard Commission design principles that remain valid today to create
clear, unambiguous command channels, limit reporting requirements, keep staffs small and establish
close communication with the end user.111
BENS also weighed in on the Joint Requirements Oversight Council membership. It shared CSIS con-
cern with the balance between near- and long-term focus, but its recommendation was nearly opposite.
BENS acknowledged that the COCOMS are leaders on immediate needs but found that the military
Services are more likely to take the long view that should guide the requirements process.112 Specifi-
cally it recommended that:
Sustaining needs should remain with the Service Chiefs (and Defense Agencies, as appropri-
ate) it should be the responsibility of the JROC to assure operational compatibility among the
Services, working through the joint requirements organizations with special attention and rapid
action for the near-term requirements.113
HASCs Andrews-Conaway panel offered a bridge between the CSIS and BENS perspectives. It un-
derscored the importance of COCOM, CAPE, and USD AT&L perspectives on the Joint Require-
ments Oversight Council and favored consideration of whether they should become voting mem-
bers. It emphasized taking those positions into account, however, over an institutional change to the
bodys composition, and made no suggestion that the Service Vice Chiefs should be replaced if the
COCOM Deputies joined. Instead, it recommended designating a COCOM as the end-user propo-
nent for all major defense acquisition programs as a means to include war fighter views in the pro-
cess. Meanwhile, the panel expressed concern that the divide established in the Goldwater-Nichols
Act between acquisition and the military service chiefs has become so wide that it hinders both the
acquisition and requirements process The service chiefs should also be given greater authority
and responsibility to oversee contract quality assurance, especially for contracts that are highly op-
erational in nature.114
DBB addressed the role played by CAPE in this process. It determined that CAPE cost estimates should
be presented, when relevant, at Functional Capability Boards, Joint Capability Boards, and as part of
JROC discussion. Related to that, DBB also found that these cost estimates should influence the ser-
vices as they build their Program Objective Memoranda and that they should be part of programming
decisions made by USD/AT&L.115
DAPA targeted its recommendations more at the standards that underpin requirements than at Joint
Requirements Oversight Council membership itself. The standards it proposed dovetail closely with its
emphasis on Time Certain contracting. Specifically, it would have forgone schedule slips by releasing
technology only when the COCOM determined that it was operationally acceptable and/or operation-
ally usable, instead of when it fulfills criteria set out by the Director of Operational Test and Evaluation. 116
It likewise would have helped institutionalize these standards by:

replacing the Joint Capabilities Integration and Development System by designating the Joint
Chiefs of Staff/J-8 to lead the integration of the Combatant Commands extended planning an-
nexes into a Department wide, time-phased, fiscally-informed and prioritized Joint Capabilities
Acquisition and Divestment plan.117
Since many identify requirements as the root cause of cost growth in acquisition, controlling require-
ments may have the biggest impact on achieving savings.

The sheer scale and complexity of the acquisition system creates a perpetual risk of inefficiency that must
be managed. Time after time, boards and commissions have found fault with the acquisition system.
The previous two sections have considered direct options to save money by compensating and utilizing
our service members more efficiently. Reforming acquisition practices could yield comparable savings,
in the eyes of some, by catalyzing better management. But these savings would be achieved indirectly.
Instilling more discipline in the requirements process or choosing contract vehicles more deliberately,
for instance, do not formulaically correspond to a savings figure, but rather allow the Pentagon to iden-
tify efficiencies on a case-by-case basis. Some cost growth would probably occur even if all these re-
forms were implemented. Consequently, the possible savings from these options should be considered
in the aggregate instead of as an itemized list.
GAO has helped to quantify the risk of inefficiency just in weapons system acquisition, setting aside
other programs for services or information technology. It reported that:
The total estimated cost of the Department of Defenses (DOD) 2011 portfolio of 96 major
defense acquisition programs stands at $1.58 trillion. In the past year, the total acquisition
cost of these programs has grown by over $74.4 billion or 5 percent, of which about $31.1
billion can be attributed to factors such as inefficiencies in production, $29.6 billion to quantity
changes, and $13.7 billion to research and development cost growth.118
That circumstance stabilized somewhat during 2012. In its 2013 update to that report, GAO wrote that:
The Department of Defense (DOD) 2012 portfolio of 86 major defense acquisition programs
is estimated to cost a total of $1.6 trillion, reflecting decreases in both size and cost from the
2011 portfolio. Those decreases are largely the result of more programs exiting than entering
the portfolio, as well as reductions in procurement quantities due to program cancelations and
restructurings. Notably a majority of programs in the portfolio gained buying power in the last
year as their acquisition unit costs decreased. DODs 10 costliest programs, excluding the
Missile Defense Agencys Ballistic Missile Defense System, drive most of the portfolios cost
performance and funding needs.119

Saving money requires not only stabilizing this trend, though, but also reversing it. The proposed fiscal
year 2014 defense plan would spend $1.9 trillion on procurement and research and development over
the 10 years from 2014-2023, which does not include many service contracts found in the operating
and maintenance appropriations.120 GAO found that major acquisition programs costs grew by five
percent in 2011 and stabilized in 2012. If acquisition reform proposals produced savings of only a few
percentage points, it is possible that savings stemming from acquisition reforms and better practices
could be on the order of a hundred billion dollars or even more over the next 10 years.

Constructing Contracts
Managing the Contracting Workforce
Coming to Best Practices
Generating Requirements
Total Possible Savings $100+

CONCLUSION
Although many disagree about what the Defense Department should do and how much it should cost,
all agree that whatever it does should be done as efficiently as possible. This report has identified pos-
sible savings of $300 billion over the next 10 years by reforming how personnel are compensated. It
identified almost $500 billion of possible savings through the more efficient use of manpower. And
although it is difficult to estimate an exact savings figure from improved acquisition processes, it is pos-
sible that being more deliberate and disciplined could generate more than $100 billion in savings. If all
of these efficiencies were realized, they would represent close to $1 trillion, or almost 20 percent of the
planned defense budget over the next 10 years.
Few are likely to go that far. The options presented in this report have been proposed often, and for
many years. Some reforms similar to these proposals have been made in the past and have achieved
savings, but many more have not. Many of these options would require overcoming significant political
opposition or would be difficult to implement, requiring sustained change over long periods of time.
Offsetting effects might erode savings if some were implemented. The likelihood that these proposals
might be taken and how well they might perform is a question of political judgment. Each observer will
have a different take on each option and its likelihood.
Nevertheless, in the constrained budget environment the Defense Department faces, changes will be
made and efficiencies will be enforced. This report has captured some of the possible ways that efficien-
cies can be gained. More importantly, efficiencies must be gained to ensure that U.S. defense dollars are
spent as wisely as possible and that American citizens get the best and most effective defense possible,
no matter what defense strategy the U.S. pursues.
CO N CL U S I O N | 45
ENDNOTES
1 Corporate Downsizing Applications for DOD, Defense Busi- pay-schedules-and-rates-are-set.

ness Board (21 July 2011): Slide 3: http://dbb.defense.gov/pdf/
FY11-07_Corporate%20Downsizing%20Applications%20for%20 13 $200 Billion in Illustrative Savings (Bowles-Simpson), Nation-
DoD.pdf. al Commission on Fiscal Responsibility and Reform (November
2010): Option 41: http://www.fiscalcommission.gov/sites/fiscal-
2 The Eleventh Quadrennial Review of Military Compensation was commission.gov/ files/documents/Illustrative_List_11.10.2010.
published in June 2012 and it features in this report, as appropri- pdf. Note that this option includes savings from tax advantages
ate. Its role here is more limited than that of the Tenth Quadren- and retirement accrual, but not from bonuses.
nial Review of Military Compensation, however, because its remit
was considerably narrower. Each reference to a Quadrennial 14 Tenth QRMC Vol. I, pg. xvii.
Review of Military Compensation is designated as either Tenth or
Eleventh. 15 Eleventh QRMC, pg. 16.
3 Volume II: Deferred and Non-Cash Compensation, Tenth 16 Tenth QRMC Vol. II, pg. xi.
Quadrennial Review of Military Compensation (February 2008):
pg. xiii: http://prhome.defense.gov/MPP/docs/Tenth_QRMC 17 This principle is generally one of marginal utility and specifi-
_Feb2008_Vol%20II.pdf/. cally a reflection of consumer choice theory. MIT microeco-
nomics curricula refers to it as the Carte Blanche Principle:
4 Volume I: Cash Compensation, Tenth Quadrennial Review of Consumers make optimal choices for themselves given prices,
Military Compensation (February 2008): pg.33: http://www.whs. constraints, and income Consumers are always weakly better
mil/library/doc/Tenth.pdf. off receiving a cash transfer than an in-kind transfer of identical
monetary value. [Weakly better off in that they may be indifferent
5 Tenth QRMC Vol. I, pp. xiv-xv. between the two.] Autor, David. Lecture 4: Theory of Choice
and Individual Demand, Massachusetts Institute of Technology,
6 Report of the Eleventh Quadrennial Review of Military Compen- Fall 2010: http://ocw.mit.edu/courses/economics/14-03-mi-
sation, Eleventh Quadrennial Review of Military Compensation croeconomic-theory-and-public-policy-fall-2010/lecture-notes/
(June 2012): pg.26: http://militarypay.defense.gov/reports/ MIT14_03F10_lec04.pdf.
qrmc/11th_QRMC_Main_Report_%28290pp%29_Linked.pdf.
18 CBO 2011 Budget Options, Discretionary Option 6.
7 Ibid, pg. 28.
19 CBO 2009 Budget Options, Option 050-20.
8 Fiscal Year 2014 Budget Request: Overview, Department of
Defense (April 2013): pg. 5-2: http://comptroller.defense.gov/ 20 Tenth QRMC Vol. II, xxvi.
defbudget/fy2014/FY2014_Budget_Request_Overview_Book.
pdf. 21 Wormuth, Christine and Michele Flournoy, Patrick Henry, and
Clark Murdoch. The Future of the National Guard and Reserves,
9 Tenth QRMC Vol. I, pg. xv. Center for Strategic and International Studies (July 2006): pp.
110: http://csis.org/files/media/csis/pubs/bgn_ph3_report.pdf.
10 Analysis of Federal Civilian and Military Compensation,
Congressional Budget Office (20 January 2011): pg.4: http:// 22 Fiscal Year 2013 Budget Request: Overview, Department
www.cbo.gov/sites/default/files/cbofiles/ftpdocs/120xx/ of Defense (February 2012): pg. 5-2: http://comptroller.defense.
doc12042/01-20-compensation.pdf. gov/defbudget/fy2013/FY2013_Budget_Request_Overview_
Book.pdf.
11 Budget Options, Volume II, Congressional Budget Office (Au-
gust 2009): Option 050-15: http://www.cbo.gov/sites/default/ 23 Wormuth et al, pp. 110-111.
files/cbofiles/ftpdocs/102xx/doc10294/08-06-budgetoptions.
pdf. Reducing the Deficit: Spending and Revenue Options, 24 TRICARE Prime Enrollment Fees, Department of Defense
Congressional Budget Office (March 2011): Discretionary Spend- (Viewed April 2013): http://www.tricare.mil/Home/Costs/Health-
ing Option 2: http://www.cbo.gov/sites/default/files/cbofiles/ PlanCosts/PrimeOptions/EnrollmentFees.aspx.
ftpdocs/120xx/ doc12085/03-10-reducingthedeficit.pdf.
25 The Military Compensation System: Completing the Transi-
12 Obama, Barack. Presidential Memorandum -- Federal tion to an All-Volunteer Force, Defense Advisory Commission on
Employee Pay Schedules and Rates that are Set by Administra- Military Compensation (April 2006): pp. xxviii: http://prhome.
tive Discretion, White House Office of the Press Secretary, defense.gov/RFM/MPP/docs/dacmc_finalreport7_11.pdf.
21 December 2012: http://www.whitehouse.gov/the-press-
office/2012/12/21/presidential-memorandum-federal-employee- 26 Tenth QRMC Vol. II, pg. xvi.
EN D N O TE S | 47
Report0293.pdf.
27 CBO Budget Options 2011, Discretionary Option 3.
48 2012 Annual Report: Opportunities to Reduce Duplication,
28 Ibid. Overlap and Fragmentation, Achieve Savings, and Enhance Rev-
enue, Government Accountability Office (February 2012): Option
29 Restoring Americas Future (Rivlin-Domenici), Bipartisan 22: http://www.gao.gov/assets/590/588818.pdf.
Policy Center (November 2010), pg 114: http://www.biparti-
sanpolicy.org/sites/default/files/BPC%20FINAL%20REPORT%20 49 Avdellas, Nicholas and Joseph Berry, Michael Disano, David
FOR%20PRINTER%2002%2028%2011.pdf. Oaks, and Earl Wingrove III. Future Capability of DOD Mainte-
nance Depots, LMI Consulting (February 2011): pp. 6-1, 6-15:
30 CBO Budget Options 2011, Discretionary Option 4 http://armedservices.house.gov/index.cfm/files/serve?File_
id=5ea27615-e4fe-41ad-8884-d205988dd772. (Note: This
31 Ibid. report is in fulfillment of 322 of the 2009 National Defense
Authorization Act.)
32 Healthcare for Military Retirees Report, Defense Business
Board (December 2005): Slide 11: http://dbb.defense.gov/pdf/ 50 2011 Annual Report: Opportunities to Reduce Duplication,
Healthcare-for-Military-Ret.pdf. Overlap and Fragmentation, Achieve Savings, and Enhance Rev-
enue, Government Accountability Office (February 2011): pg. 38:
33 Tenth QRMC Vol. II, pg. xvii. http://www.gao.gov/new.items/d11318sp.pdf.
34 CBO 2011, Discretionary Option 5. 51 Bowles-Simpson, Option 56.
35 Conference Report for the National Defense Authorization 52 GAO 2012 Efficiencies Report, Option 36.
Act for Fiscal Year 2012, 701, http://www.rules.house.gov/
Media/file/PDF_112_1/legislativetext/HR1540conf.pdf. 53 Gebicke, Scott and Samuel Magid. Lessons from around
the World: Benchmarking Performance in Defense, McKinsey on
36 National Defense Authorization Act for Fiscal Year 2013, Government (Spring 2010): pg. 7.
712, http://www.gpo.gov/fdsys/pkg/BILLS-112hr4310enr/
pdf/BILLS-112hr4310enr.pdf. 54 FY2012 Defense Manpower Requirements Report, Office
of the Under Secretary of Defense for Personnel and Readiness
37 FY2014 Budget Request Overview, Figure 5-2. (April 2012): Table 2-1: http://prhome.defense.gov/RFM/TFPRQ/
docs/FY12%20Defense%20Manpower%20Requirements%20Re-
38 Ibid. port%20%28DMRR%29%20--%20Apr%202012.pdf..
39 Modernizing the Military Retirement System, Defense Business 55 Rivlin-Domenici, pg. 100.
Board (October 2011): pp. 2-3: http://dbb.defense.gov/pdf/FY11-
05_Modernizing_the_Military_Retirement_System1.pdf. 56 Reducing Overhead and Improving Business Operations, De-
fense Business Board (July 2010): Slides 10, 25: http://dbb.defense.
40 DACMC, pp. xx-xxii. gov/pdf/DBB_Overhead_final_07_22_Board_Meeting.pdf.
41 Tenth QRMC Vol. II, pp. xiii-xiv. 57 Bowles-Simpson, Option 53.
42 Asch, Beth and Richard Johnson and John Warner. Reform- 58 National Defense Budget Estimates for FY2013, Office
ing the Military Retirement System, RAND Corporation (1998): of the Under Secretary of Defense/Comptroller (March 2012):
pp. xi-xii: http://www.rand.org/pubs/monograph_reports/2007/ Table 7-5: http://comptroller.defense.gov/defbudget/fy2013/
MR748.pdf/. FY13_Green_Book.pdf
43 Rivlin-Domenici, pg. 112. 59 DBB Overhead & Business Operations 2010, Slides 20 and
40.
44 DBB Retirement Report 2011, Slides 5-6.
60 Hale, Robert. Testimony before the Senate Budget Commit-
45 Ibid, Slide 13 tee, 28 February 2012.
46 Levinson, Robert and Kevin Brancato. Military Pension 61 DBB Overhead & Business Operations 2010, Slide 40.
Change Could Save the Pentagon $37 Billion, Bloomberg Gov-
ernment (14 December 2011): pp. 8, 10. 62 FY2013 National Defense Authorization Act, 955.
47 Powell, Colin. Report on the Roles, Missions, and Functions 63 Eliminating Major Gaps in DoD Data on the Fully-Burdened
of the Armed Forces of the United States, The Joint Staff (Febru- and Life-Cycle Cost of Military Personnel: Cost Elements Should
ary 1993): III-1: http://www.airforce-magazine.com/SiteCollec- be Mandated by Policy, Reserve Forces Policy Board (January
tionDocuments/ TheDocumentFile/Defense%20Reviews/Powell- 2013): http://ra.defense.gov/rfpb/_documents/RFPB_Cost_

Methodology_Final_Report_7Jan13.pdf. 79 Ibid, Slide 14.
64 Defense Budget Priorities and Choices, Department of 80 DBB Requirements, Acquisition, and Budget Processes: Slide
Defense (26 January 2012): pp. 12-13: http://www.defense.gov/ 21.
news/Defense_Budget_Priorities.pdf.
81 Better Buying Power 2.0, pg. 6.
65 Wormuth et al, pp. 94-95.
82 DAPA, pp. 9-10.
66 USAspending.gov
83 DBB Requirements, Acquisition, and Budget Processes: Slide
67 The U.S. government provides a detailed overview of contract 20.
types, available at https://www.acquisition.gov/far/current/html/
FARTOCP16.html. 84 Better Buying Power 2.0, pg. 2.
68Better Buying Power 2.0: Continuing the Pursuit for Greater 85 Ibid.
Efficiency and Productivity in Defense Spending Office of the
Under Secretary of Defense for Acquisition, Technology, and Lo- 86 Murdock, Clark and Michele Flournoy. Beyond Goldwater-
gistics (13 November 2012): pp. 3-4: http://www.defense.gov/ Nichols: US Government and Defense Reform for a New Strategic
news/BBPWorkforceMemo.pdf. Era, Center for Strategic and International Studies (July 2005):
pg. 97-98: http://csis.org/files/media/csis/pubs/bgn_ph2_re-
69Best Business Practices for Fixed-Price Contracting, Defense port.pdf.
Business Board (21 January 2010): Slide 12-14: http://dbb.
defense.gov/pdf/FY10-03_Best_Business_Practices_Fixed_ 87 HASC Andrews-Conaway, pp. 8-9.
Price_Contracting.pdf.
88 Ibid, pg. 16.
70 Defense Acquisition Performance Assessment (DAPA),
December 2005, pg. 13: http://www.defense.gov/pubs/pdfs/ 89 Ibid, pg. 17.
DAPA%2012-22%20WEB%20Exec%20Summary.pdf.
90 Creating a DOD Strategic Acquisition Platform, Defense Sci-
71 A Quest for Excellence: Final Report to the President The ence Board (April 2009): pg. 25: http://www.acq.osd.mil/dsb/
Presidents Blue Ribbon Commission on Defense Management reports/ADA499566.pdf.
(Packard Commission) (June 1986): pp. xxiii: http://www.ndu.
edu/library/pbrc/36ex2.pdf. 91 Packard Commission, pp. xxii & xxv.
72 Acquisition Workforce Growth and Recommendations for 92 Better Buying Power: Guidance for Obtaining Greater Ef-
Insourcing, Defense Business Board (21 January 2010), pp. 7, ficiency and Productivity in Defense Spending, Office of the
13, 14: http://dbb.defense.gov/pdf/Acquisition_Insourcing_Re- Under Secretary of Defense for Acquisition, Technology, and
port_FY10-04_Combined_29_Mar_2010.pdf. Logistics (14 September 2010): pg. 15: http://www.acq.osd.
mil/docs/USD_ATL_Guidance_Memo_September_14_2010_FI-
73 Linking and Streamlining the Defense Requirements, Acquisi- NAL.PDF.
tion, and Budget Processes, Defense Business Board (April
2012), Slide 20: http://dbb.defense.gov/pdf/FY12-02_Linking_ 93 BENS, pp. 5-6.
and_Streamlining_the_Def_Req_Acq_and_Budget_Processes.pdf.
94 DBB Requirements, Acquisition, and Budget Processes: Slide
74 Panel on Defense Acquisition Reform Findings and Recom- 17.
mendations (Andrews-Conaway), House Armed Services Com-
mittee (23 March 2010): pg. 38-40: https://acc.dau.mil/adl/en- 95 Ibid, Slide 24.
US/364298/file/50236/ HASC%20Panel%20on%20Defense%20
Acquisition%20Reform%20Final%20Report%2023MAR2010.pdf 96 Better Buying Power 2.0, pg. 5.
75Getting to Best: Reforming the Defense Acquisition Enter- 97 Packard Commission, xxvi.
prise, Business Executives for National Security (July 2009): pp.
10-11: http://www.bens.org/document.doc?id=44. 98 DSB, pg. 18.
76 Gates, Robert. Defense Budget Recommendation State- 99 Ibid, pg. 21.

ment, Department of Defense (06 April 2009): http://www.
defense.gov/speeches/speech.aspx?speechid=1341. 100 Ibid, pg. 37.
77 FY2014 Budget Request Overview, pp. 3-10. 101 Citizens Guide to the 2011 Financial Report of the United
States Government, Department of the Treasury, Table 2 (pg. 5):
78 DBB Acquisition Workforce 2010, Slide 3. http://www.fms.treas.gov/fr/11frusg/11frusg.pdf.
EN D N O TE S | 49
102 High-Risk Series: An Update, Government Accountability
Office (February 2011): pg. 77: http://www.gao.gov/new.items/
d11278.pdf.
103 For the overall statutory requirement, see Section 1003 of

the FY2010 National Defense Authorization Act. For Panettas
decision to accelerate the Statement of Budgetary Resources,
see his 13 October 2011 testimony before the House Armed Ser-
vices Committee. For Congress codification of Panettas goal,
see Section 1005 of the FY2013 National Defense Authorization
Act.
104 HASC Andrews-Conaway, pg. 43.
105 Packard Commission, pg. 45.
106 HASC Andrews-Conaway Panel, pg. 22.
107 Better Buying Power 2.0, pg. 3.
108 Ibid, pg. 6.
109 DBB Requirements, Acquisition, and Budget Processes:

Slide 17.
110 Murdock and Flournoy, 84-85.
111 Ibid, pg. 94.
112 BENS, pg. 7.
113 Ibid, pg. 10.
114 HASC Andrews-Conaway, pp. 29-30.
115 DBB Requirements, Acquisition, and Budget Processes:

Slide 19.
116 DAPA, pg. 12.
117 Ibid, pg. 11.
118 Defense Acquisitions: Assessments of Selected Weapon

Programs, Government Accountability Office (March 2012): pg.
2: http://www.gao.gov/assets /590/589695.pdf.
119 Defense Acquisitions: Assessments of Selected Weapon

Programs, Government Accountability Office (March 2013): pg.
2: http://www.gao.gov/assets/660/653379.pdf.
120 Budget Authority and Outlays by Function, Category, and

Program (Table 31-1), Office of Management and Budget, (April
2013): http://www.whitehouse.gov/sites/default/files/omb/bud-
get/fy2014/assets/31_1.xls.

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MANAGING the

Adjusting the formulas for cash compensation growth.

Streamlining duplication and redundancy.

Contracts are constructed.

4 | M A N A GING T HE MILITARY MORE EF F ICIENTLY

Any errors are solely the responsibility of the authors.

Reforming Personnel Compensation

More Efficient Utilization of Manpower

Better Acquisition Practices

PO TENTIAL SAVINGS SEPARATE FRO M ST R ATE G Y | 11

Adjusting the Formulas for Cash Compensation Growth

REFO RMING PERSO NNEL CO MPE N S ATI O N | 13

increase as well, rising first entering

14 | M A N AGING T HE MILITARY MORE EF F ICIEN TLY

Targeting pay to higher-demand specialties rather than overcompensating lesser-demand special-

Transferring Non-cash Compensation into Cash Compensation

Figure 2-1. Major Components of Military Compensation for Active Duty

Revising the Health Care Beneficiary Pool

Figure 1: Distribution of Beneficiaries as of May 2012

Reporting to the Under Secretary of Defense (Personnel and Readiness),

Adjusting the Cost-sharing Ratio and Fee Structure

Table 9. The Defense Advisory Commission on Military Compensation

18 | M A N AGING T HE MILITARY MORE EF F ICIEN TLY

Modernizing the Retirement Plan

Survival of Entrants to Given YOS

0.60 0.60 Navy

REFO RMING PERSO NNEL CO MPEN S ATI O N | 19

Previous groups have recommended overhaul

Defense Manpower Commission (1976):

20 | M A N AGING T HE MILITARY MORE EF F ICIEN TLY

REFO RMING PERSO NNEL CO MPEN S ATI O N | 21

Parameters for Possible Savings

22 | M A N AGING T HE MILITARY MORE EF F ICIEN TLY

Adjusting the formulas for cash compensation growth $20-$30

Total Possible Savings $155-$300

REFO RMING PERSO NNEL CO MPEN S ATI O N | 23

Streamlining Duplication and Redundancy

MO RE EFFICIENT U TIL IZ ATIO N O F MA N P O W E R | 25

Figure 3: Timeline of Military Health System Governance Studies

26 | M A N AGING T HE MILITARY MORE EF F ICIEN TLY

Page 9 GAO-12-911 Defense Health Care

Concentrating Service Members on Inherently Military Functions

Reduce Civil Service and Contract Personnel

MO RE EFFICIENT U TIL IZ ATIO N O F MA N P O W E R | 27

Balance between Active and Reserve Components

28 | M A N AGING T HE MILITARY MORE EF F ICIEN TLY

MO RE EFFICIENT U TIL IZ ATIO N O F MA N P O W E R | 29

APPROXIMATE POSSIBLE SAVINGS IN BILLIONS OF DOLLARS OVER 10 YEARS

Total Possible Savings $520

30 | M A N AGING T HE MILITARY MORE EF F ICIEN TLY

Complete Technology Development Strategy.

Capabilities Capabilities-Based System Energy System Energy System Energy

(need-driven) Materiel Availability &

Initiate Evolutionary Acquisition Strategy Evolutionary Acquisition Strategy

(If program initiation, or if equiv to FDDR)

Met PSR Met (if applicable)

Review Capability Needs

Product Support Package/PBL Implementation Product Support/PBL Management

MDAP/MAIS MDAP MDAP

Cost Estimation Parametric Actual Costs

Appropriated Funds To Support Contracts

Budgeting Defense Planning &

& Execution Office of the