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The Godfather Of Stealth Won't Slip This One By


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THE GODFATHER OF STEALTH WON'T SLIP THIS ONE BY

Deputy Defense Secretary William J. Perry is a Pentagon rarity: someone with a track record for overcoming bureaucratic resistance and cutting through red tape. As a top Defense official in the Carter Administration, Perry championed radar-evading stealth technology and cruise missiles over the objections of skeptical generals and admirals. And he slashed a decade off typical development time for weapons, putting stealthy fighters and cruise missiles into production in four years.

Now back in the Pentagon after 12 years in the private sector, Perry is taking on an even tougher task: He is overhauling the way the Defense Dept. buys all military gear, from tents to tactical missiles. His plan involves junking thousands of unique military-product specifications and contracting practices (table) that inflate the Pentagon's $45.5 billion procurement budget by increasing manufacturers' costs and limiting suppliers to those willing to jump through all the military hoops. Instead, Perry wants to replace customized goods with off-the-shelf commercial products. That, he argues, would enable Defense to save billions in overhead, gain faster access to advanced technology, and broaden its shrinking base of suppliers.

LEGACY. To succeed, Perry will have to shake up the Pentagon's entrenched culture and defuse opposition on Capitol Hill, which over the years has imposed strict contracting practices to stamp out procurement fraud. And he will have to overcome a history of procurement-reform proposals that went nowhere.

Still, Perry has the backing of the White House, Defense Secretary Les Aspin, and Armed Services Committee chairmen Senator Sam Nunn (D-Ga.) and Representative Ronald V. Dellums (D-Calif.). And he's determined to achieve what has eluded others. "When I leave this job in four years, I'd like to look back and say I've left some legacy," he says. "Acquisition reform is high on the list of things I'm trying to change."

Perry seems well groomed for the task. He has seen military acquisition from both sides of the fence. A mathematician by training, Perry co-founded ESL Inc., a Silicon Valley defense electronics company, before becoming Defense Under Secretary for Research & Engineering in 1977. After leaving the Pentagon in 1981, he became managing director of Hambrecht & Quist Inc., a San Francisco venture-capital firm that backs high-tech startups, many of which do defense work. He later chaired a consulting firm whose clients included Lockheed Corp., Boeing Co., and other big military contractors.

In security circles, Perry, 65, commands respect as the godfather of stealth and other sophisticated weapons that proved effective in the Persian Gulf War. His reputation was burnished by his tenure at Stanford University's prestigious think tank, the Center for International Security & Arms Control, where he worked with former Soviet officials on defense conversion. Perry's track record, wide-ranging intellect, and a 16-year friendship with Aspin give him clout in the Administration.

DRIVING FACTOR. Soft-spoken and gentlemanly, Perry doesn't seem the type to challenge the status quo. But aides say persuasion, not frontal attack, is his style. "He has a knack for putting himself psychologically in the place of government and industry people and synthesizing an approach both can accept," suggests Vitalij Garber, a Perry deputy in the Carter era.

Perry's gracious ways also mask enormous discipline and drive. In an Administration where top officials take their cue from habitually late President Clinton, Perry is punctual. His "in" box is crammed with paper on budget, base closure, and other day-to-day problems of the Pentagon. Yet he believes he must focus on bigger-picture questions such as procurement reform.

Cost is the driving factor behind Perry's push. Defense experts estimate that paperwork required to comply with onerous rules gobbles up 40% of the Pentagon's procurement budget. "Milspecs," the 35,000 specifications that dictate in minute detail the capabilities and even manufacturing meth-

od mf everything the military buys, are a key culprit. Some are ludicrous, such as the 15-page specs for lemon-pie filling.

Switching to commercial standards could save the Pentagon a bundle. Kent M. Black, executive vice-president of Rockwell International Corp., says his company was able to shave nearly 30% off the price of global-positioning-system (GPS) receivers the U.S. Air Force ordered in March because the service set only performance standards.

Stringent accounting rules and the legions of Pentagon auditors that scrutinize compliance also boost costs. Now, some lawmakers think that has gone too far. "While guarding against waste and fraud, you shouldn't spend millions of dollars trying to save thousands," says Senator Jeff Bingaman (D-N.M.), chairman of the Senate Armed Services acquisition subcommittee. Working with Perry, Bingaman plans to introduce a procurement-reform bill early in 1994.

Fear of incurring criminal penalties for violating the accounting safeguards forces most contractors to erect internal walls between their commercial and defense operations. Rockwell, for example, makes commercial GPS receivers at a plant in Richardson, Tex., and similar military receivers in Cedar Rapids, Iowa. "We won't allow a commercial business to take a [defense] contract," says Black. "We can't take the risk that it will inadvertently break the law."

Besides jacking up prices, the separation slows access to advanced technology in the commercial sector. Consider what happened when the Army placed a rush order for 6,000 Motorola Inc. commercial radio receivers at the outbreak of the gulf war: Because that Motorola unit lacked the record-keeping systems the Pentagon requires to show it is getting the lowest available price, Motorola was leery of selling. The Pentagon got the receivers only after Japan bought them for the U.S. Army.

"SUICIDE." Business is divided over Perry's plans for streamlining Pentagon shopping. Large companies are enthusiastic. Acquisition reform "would give us more opportunity to bid on contracts with the Pentagon," says Jim Baum, senior vice-president at Motorola Government & Systems Technology Group.

But small businesses fear losing mandated preferential treatment under Perry's plan to drop minority and other preferences for purchases under $100,000, and they have plenty of support on Capitol Hill. Many lawmakers will balk at some of Perry's ideas, many of which will require congressional approval. "A member from Detroit is not going to support doing away with 'buy American' provisions," says a House staffer. "It would be political suicide."

Perry is optimistic that despite the resistance, this time procurement reform will work. Having forged a team of both top defense officials and politicians committed to the overhaul, he's better positioned to make changes than previous reformers. And he has an argument that few dispute: In an era of shrinking budgets, the Pentagon can no longer afford the acquisition system it now has. THE PENTAGON'S CULTURAL EVOLUTION

To save billions in overhead, which eats up some 40% of the Defense Dept.'s

procurement budget, Bill Perry would:

JETTISON many of the 35,000 specifications that dictate in excruciating detail

the capabilities of everything the military buys, from fruitcakes to fighter

planes

ELIMINATE special accounting and other rules that prevent the Pentagon from

buying commercial items from nondefense contractors

PERSUADE Congress to drop buy-American, small-business, and other socioeconomic

requirements for military purchases under $100,000

DATA: BUSINESS WEEK

Amy Borrus in Washington


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