Procurement Outlook Still Cloudy

espite months of speculation over Defense Secretary Donald Rumsfeld's approach to shoring up the beleaguered Defense procurement budget, it remains to be seen how the Bush administration will close the gap between the Pentagon's weapons modernization programs and the limited funding for completing them. The military services have ambitious plans to retool their enterprises for the future. The Navy wants to maintain or increase its fleet, which threatens to shrink to fewer than 300 ships at the current rate of shipbuilding. The Air Force wants to replace its fleet of rapidly aging aircraft. And the Army wants to transform its heavy, lumbering force into a more agile, flexible force able to respond to a range of contingencies. The general consensus is that those are laudable goals, but it is unclear how the services will achieve them. The Defense Department's proposed 2002 acquisition budget is $109 billion, including $61.6 billion for procurement and $47.4 billion for research, development, testing and evaluation. Without a substantial and sustained increase over the next several years, the services will not be able to buy the aircraft, ships and artillery they say they need. The administration is reviewing military strategy and modernization plans and has promised major reforms in how and what the department buys. Whatever acquisition programs the Defense Department pursues in the coming years, improving the health of the defense industrial base is a top priority, says Edward "Pete" Aldridge, undersecretary of Defense for acquisition, technology and logistics. Speaking at a June conference on acquisition reform, Aldridge questioned whether defense contractors' profit margins were sufficient to maintain a healthy industrial base. "The last place Wall Street wants to invest is in the defense industry," he said. Aldridge proposed several measures to improve the outlook for contractors, including increasing the pace of interim payments on major acquisition programs and offering better incentives for industry to reduce excess capacity. In addition, the Defense Department no longer will ask contractors to help pay for underfunded research and development programs without clear commercial applications that will benefit contractors. Fostering a strong industrial base is not just good for contractors, Aldridge said. "A healthy defense industry is more competitive than a weak defense industry," and more competition leads to better, more cost-effective weapons for the military, he added. Aldridge also outlined other goals for his office: Chronic underfunding of wea-pons programs in recent years has caused tremendous uncertainty for both contractors and the government. By reforming the acquisition process, Defense officials hope to both improve the stability of weapons programs and reduce the time it takes to field weapons-both of which should help rein in runaway costs. In addition, Aldridge says he wants to build funding reserves into the budget, to cover unavoidable cost overruns. "One of the problems is we've been providing cost estimates that are too optimistic. We need to be more realistic in our budgets," he said.