Penny Wise and Pound Foolish

Reducing government expenditure is critical but those who would cut budgets need to remember the old adage that it is easy to be penny wise and pound foolish.

In a short sighted attempt to save a relative pittance - at the expense of reliability and performance - the Pentagon and Congress have canceled the development of a second engine for the F-35 Joint Strike Fighter which, in various versions, will replace all existing fighters (except the F-22) used by the Air Force, Navy and Marine Corps. It will also be sold to a number of allied nations. The total production run is expected to be at least 3,000 and possibly as many as 4,000 aircraft.

The history of sole source procurement provides a simple lesson: it is rare that the frequently conflicting goals of quality, reliability, performance and cost are met. When the F-15, F-16 and F-14 fighters first went into service, the engines were procured on sole source contracts. Verne Orr, Secretary of the Air Force and John Lehman, Secretary of the Navy, were instrumental in developing second engines for these aircraft. John Lehman, in an article published in the New York Post (click here to read the entire article), describes what happened:

"Nowhere was the wisdom of annual competition better demonstrated than in the establishment of an alternative engine for the Air Force F-15 and F-16 fighters. Despite strong opposition from his own bureaucracy, Air Force Secretary Verne Orr, fed up with constant cost growth and repeated grounding of all fighters due to flaws in the sole-source engine, forced through the qualification of an alternative engine and contractor, and had the two compete every year thereafter.

The benefits from this annual competition came swiftly, were many and have endured. There was steady improvement in reliability, performance and fuel economy and a dramatic drop in engine-caused accidents. By the second year of full competition, the cost per engine had dropped 20 percent. The Navy soon followed suit in choosing an alternative engine for the F-14 with similar benefits."

Following the Congress's refusal to appropriate funds to continue the development of the second engine for the F-35, the Pentagon bureaucracy has issued a 'Stop Work' order, as of March 31, 2011, to General Electric and Rolls Royce. The result is to leave Pratt and Whitney as the sole source provider. Given relentless pressure from the military for more features - and yet more features, all of which cause the sky to be blackened by streams of criss-crossing [and extremely profitable] change orders and contract modifications, it can reliably be predicted that the resulting engines will suffer from performance and reliability issues. Meanwhile costs will escalate uncontrollably.

The only small consolation is that General Electric has decided, at its own expense, to keep a small development team at work on the second engine. When politicians and the bureaucracy realize, or are forced to accept the fact, that competition in defense procurement is essential, it may yet be possible to realize some of the same benefits that Secretaries Orr and Lehman obtained for us in the 1980s.

Karl Marx claimed that history repeats itself, first as tragedy, second as farce but the F-35 situation simply seems to embody both tragedy and farce in equal portions.