Basic Issue of Maintenance of
Defense Equipment
by
Yoshio SHONO
Senior Member of Research Committee,
Preface
The measure of defense equipments acquisition and procurement reform since 1998 has produced certain appreciable results, in terms of promoting competition principle for procurement cost reduction and securing fairness and transparency in defense contracts.
On the other hand, an excessive competition for low-priced tenders and lack of appropriate communication between the government and private sector have been generated, causing attrition of enterprise power and loss of critical human relationship between the concerned personnel, leading to the stagnation of defense power maintenance promotion.
Here, the direction to the solution of various problems of defense equipment maintenance is considered, with references to cases of foreign countries.
１. Concept of Defense Equipment Maintenance
(１) Establishing Defense Capability Maintenance Concept
Japanese direction of defense capability maintenance is made public in the annual Defense White Paper, and the maintenance plan is shown in the National Defense Program Outline and the Mid-Term Defense Build-up Plan.
Will it be really assumed, based on these basic plans, that the defense capabilities of the Ground, Maritime and Air Self-Defense Forces maintained well-balanced and without functional lack?
In reality, each of the Ground, Maritime and Air Staff Offices of Defense Agency has decided the original defense concept respectively without mutual adjusting, and demanded each defense budget, then the Internal Bureau has adjusted the total national defense budget, and so the defense equipment has been maintained. These procedures do not involve an integrated budgeting system, where the Joint Staff Council and the Bureau of Defense Policy would establish the overall defense plan and decide the priority of individual budget demand from each staff office, to bring forth an integrated national defense budget plan.
Thus, the defense capability maintenance of our country is not such that the defense capabilities of Ground, Maritime and Air Self-Defense Forces are appropriately constructed without excess or deficiency under an integrated policy related with the change in the strategic environment, as well as the national security policy and the defense equipments maintenance plan for the Self-Defense Forces.
(２) Forecast of Future Combat Aspect
As a precondition of defense capability maintenance, it starts naturally by forecasting and presumption of war potential of the object countries, based on an idea that his intention and military potential form the threat to us. However, the presumption forecast of his intention including the strategy and the tactics is not necessarily certain.
It is important to investigate, to presume, and to forecast current and future status of his physical military potential such as the size of forces, mobile capability, and functional performance and amount of weapons, operation and maintenance capabilities. The result would lead to the requirement of our combat capability to be maintained.
Thus, it is the target of our defense capability maintenance to cope with the forecasted future combat aspect, which is the future “Needs”; however, it is by no means certain, because the needs are based on the presumption of their future military potential.
(３) Domestic Acquisition or Foreign Buy
It is the mission of the Self-Defense Forces, under a political restriction of exclusively defense-oriented policy, to maintain the defense capability to fight and win, or at least not lose, in the future combat environment
Then, it is necessary to secure the functional performance and the amount of equipment that will suit to be used under the combat aspect in the forecasted future.
This equipment would be acquired, if it is within the reach of domestic technology, through research and development specifying the time of necessary demand and functional performance, or else, will purchase from foreign countries.
However, even if better foreign equipment is known and a possibility exists of its procurement, it is necessary to emphasize the principle of giving higher priority to domestic production of defense equipment than to the economic principle.
The recent tendency to easily depend on buying the equipment from foreign countries when it is less costly than domestic procurement only because of stringent budgetary situation might indicate the stagnation of strategic thinking.
(４) Maintaining and Preservation of Defense Industry
The acquisition and procurement reform have concentrated on the financial priority and correction of industry attitude, in recognition of only economic principle such as "pursuit of economic efficiency", to the loss of cooperative attitudes between government and private sectors.
The equipment acquisition and procurement strategy in the national security framework has not been established. Therefore, there are insufficiencies in the peacetime policies for promotion of research and development of superior equipments, fostering and securing of specialized engineers, steady procurement and maintenance, and storing of important resources, raw material and equipment.
Much less, there are no integrated emergency policies at all for institutions of emergency equipment procurement, securing of important raw material and its distribution system, protection of production engineers and technicians and securing of important production line and facilities, etc.
This shows that the maintenance and promotion of production and technological bases of defense industry are neglected among the important basic national policies.
The defense industry, which is one of the foundations for the national security, should be steady and be strong. Moreover, this should not depend on foreign sources.
If production and technological bases collapse, a huge financial expenditure and a long time are required for recovery, and the crisis of the nation would be invited due to such a void situation.
(５) Examples in Foreign Countries
a. Defense System Integration Concept Reform in
The defense equipment acquisition and procurement reform in the UK Ministry of Defence was a part of them, and the course of action was shown clearly in the Smart Procurement Initiative (SPI) policy in 1998. That is, the acquisition and procurement of equipment is a business process through the life cycle of equipment from acquisition requirement, development, procurement, delivery, operation, and abolishment.
Various combat systems with high mobility, flexibility, and the interoperability would be used in the future war. Neither the former distinction of traditional three Services of the Army, Navy and Air Force nor the maintenance discrimination of equipment is meaningful.
Therefore, unlike the method used till then that the three Services established the maintenance plan of equipment by the distinct defense system integration concept and enforced acquisition and procurement of the equipments respectively, it was improved to a new approach. That is the method where the Ministry of Defence, a supplier, establishes an abstract concept of the “Capability” answering the common “Needs” to attain the national common purpose of war, and achieves the “Capability” as a customer.
This is an idea that the “Capability” of military affairs, which would be realized forecasting the overall change of international security situation, on the technology for requesting the achievement after 10 to 20 years, as needs of equipment in the future should compose national defense, and this is an extremely reasonable concept.
Four Capabilities of “Strategic Deployment”, “Strike”, “Maneuver” and “Information Superiority” for the integrated expedition operation was settled as the customer first in mid-1999. And, as of 2002 planned and executed 13 Capabilities are, such as “Under Water Battle Space”, “Deploy, Sustain and Recover”, “Deep Strike”, “Control and Denial of Theatre Airspace”, “Combat Support Services”, “Tactical Mobility”, “Command, Control and Information Infrastructure”.
b. Achievement of Needs
Requested needs in the future are assumed to be the Capability
forecasting the technology that can be achieved in 10 to 20 years in
Thus, the advanced countries in
c. Utilization of Outsourcing
The UK Ministry of Defence adopts wide-ranging outsourcing when it would be economically feasible that contracting with the private enterprise is more advantageous than the government possession, operation and use the equipment. For instance, a time charged lease of the flight simulator for the pilot training, and a lease of the Boeing C-17 transport plane for the air lift mission, and the ro-ro ship for the strategic sea lift mission are the utilization of outsourcing.
The German Federal Force is reducing the planned maintenance procedure of defense equipment for the expenditure efficiency improvement corresponding to the reduction of national defense budget, and converted to the trouble-related on-call-base maintenance procedure. Simultaneously, the many kinds of equipment with low operational efficiency were sold off to private sector, and the wide range utilization of outsourcing to private enterprises was introduced.
Moreover, the German Federal Force carried out a drastic rationalization of separating each logistic division from three Services respectively, and restructuring them to an integrated logistic support command on October 2001. At the same time, much outsourcing which leases the transportation capacity of the private enterprises for the purpose of accomplishing efficient transportation mission was started.
２. Acquisition and Procurement of Equipment
(１) The Present Problems of Acquisition and Procurement Reform
ａ. Pursuit of Cost Reduction
Our defense equipment has never experienced attrition in actual war, and never been exported to foreign countries. Therefore, the Japanese defense equipments are many models of small quantity production where mass-production effect is not available for the manufacturing, and cost reduction is not easy.
The government is attempting at cost reduction by degrading the performance requirement of equipment and by use of cheap mass production type COTS, and companies are put in competition with each other to make the equipments still less costly.
Unlike the muss-produced civil products, the achievement of performance and functional requirements, rather than the cost, is basically assumed to be the first target in case of defense equipment in general. It would turn a blind eye to future trouble if the performance and functional specifications were easily degraded for the sake of cost reduction.
ｂ. Fair Cost Calculation
Much intellectual endeavors and plenty of work are needed for preparation of proposal to the government request for proposal (RFP), or the company’s calculation of estimated cost breakdowns for design and production required for government’s cost estimation, but no cost of these works is admitted by the government. Payment is logical for borrowing the power of private sector when the government accomplishes its own business. Demanding unpaid work from the private sector contradicts the spirit of the acquisition and procurement reform.
ｃ. Competition Principle
RFP and the procurement specification of the equipment are difficult to be strictly and accurately described. Therefore, the method of supplementing the intention and the background of the content of these documents, which could not be written in detail, through the conversation between the government and private sector is necessary especially for open bid contract.
As a result of stressing the competition principle, it is said that there are a number of companies, which have no other choice to receive an order than by the deficit contract, for the maintenance of securing the continuous contract results and the production and technological bases of the company under the present situation.
ｄ. Contract Method
As for the contract method of present equipment procurement, we do
not have such variety of contract methods the
(２) Acquisition and Procurement Reform in Foreign Countries
ａ. Defense Procurement Reform in
A new concept of “Smart Procurement Initiative”(SPI)
was created in the
Creation of “Integrated Project Team”(IPT) that is the supplier of “Capability” which should be achieved as the customer is a kernel of the institutional reform. The IPT leader is invited by public participation widely from the serviceman, the civil service, and the civilian contingent selected by not expertise but management skills. The main contract company besides the personnel specialist of the demand, procurement, contracting, accounting, technology, and logistics also participates in the member of the IPT.
"Partnering" concept is created as an expression of the interactive commitment between the government and private sector for the purpose of achieving an intimate supplier/customer relationship.
The Ministry of Defence and Defence Science and Technology Laboratory (DSTL) are assuming that the cooperation of the industry-government-academia complex is as the most important for military science and technology research and development of the defense equipment.
There are three research programmes such as short-term "Applied Research programme" corresponding to 13 Capabilities in 2002, long-term "Corporate Research Programme" that is the strategic plan for future ten years or more, and "Joint Grant Scheme" for encouraging the bilateral relations between the researchers of government research institute, universities and their laboratories.
ｂ. Acquisition and Procurement Reform in
The policy of acquisition and procurement reform of DGA, the French government procurement organization, is positive promotion of the competition principle, use of civil products and industrial standards, use of private services, procurement cost reduction and the strengthening of productivity of defense industries. Therefore, they make positive efforts to select outsourcing, and the risk sharing contract method between the government and private sector has been achieved.
“The 30 years Forecast Plan”(PP30) in R&D has been advanced from the pursuit of operational needs. The present problem which should be solved is assumed to be the needs in the future, then the functional analysis and all of the technologies available to use in the future would be forecasted, and the possibility of achievement and the restricting matters be analyzed.
The progress of the company integration and
merging in
ｃ. The
The basic feature of the
The purpose of acquisition and procurement is achievement of the required performance, and then there is even a contract method, which admits the extra cost in the contract implementation if a reasonable additional expenditure is required. Determining criterion of the procurement is the integrated evaluation, evaluated with “Best Value” of technological proposal element, management system, proposal price, and practical accomplishment etc., and the price element is assumed as rather a small factor in general.
There are various contracting forms and a detailed procedure is provided. The federal government contract method is divided roughly into “Fixed-Price Contracts” and “Cost-Reimbursement Contracts”, and the method is selected according to the mutual agreement of the government and private sector.
“Fixed-Price Contracts” includes “Firm-Fixed-Price Contract” which takes all responsibilities for the achievement of the cost and the required performance based on clear specification, “Fixed-Price Contract with Economic Price Adjustment” which can be corrected by authorized contingency, “Fixed-Price Incentive Contracts” which confers on target cost, target profit, and upper limit of payment price, and “Fixed-Price Incentive (Successive Targets) Contracts” which can correct target cost and profit several times on the way.
“Cost-Reimbursement Contracts” includes “Cost Contract” which dispends incurred expenses without profit, “Cost-Plus-Incentive-Fee Contract” which guarantees overall cost within permissible limits and minimum profit, and “Cost-Plus-Fixed-Fee Contracts” which guarantees a minimal profit when the government and private sector are expected to have the risk.
Moreover, there are several government support business contracts such as the advisory and technical/engineering assistance contract and the System/Scientific Engineering and Technical Assistance (SETA) contract as the intellectual work contract. In addition, to evaluate the cost of the intellectual endeavor fairly and accurately, the Department of Defense defines the content (level) of occupational categories, and has decided an appropriate purchase cost of each. That is, labor is divided into 70 categories or more such as chief scientist, program manager, system engineer, analyst, specialist, programmer and hourly rate of cost (standard expense ratio) is designated.
３. Direction to Problem Solution
(１) Maintenance and Preservation of Defense Industry and Establishment of Acquisition and Procurement Strategy
There are few newly promoted specific measures to advance the maintenance and preservation of production and technological bases of the defense industry as an important item in national security policy.
It is now believed that the promotion of specific fields of industry or the sole source contract with a designated enterprise is in contradiction to the transparency and fairness and would lead to the collusive relationship between the government and private sector. This is based on the assumption of inherently evil nature of Japanese company in recent years.
However, stressing the competition principle might cause the failure
like in the initial stage of the reform in
For instance, the following should be examined, be executed, and be promoted.
① Establishment of the defense capability maintenance strategy by integrated priority decision of the integrated functional defense power maintenance policy, which corresponds to the “Capability” of the UK- MOD.
② Storing of raw material and necessary equipment for emergency use, maintenance of the specific production capacity and technology, and establishment of emergency procurement system, and creating the integrated logistic support command for three Self-Defense Forces.
③ Positive execution of strategic outsourcing measures.
④ Establishment of the principle, to divide between the domestic production or foreign procurement of defense equipment under globalization of economy and industrial activity and stress on interoperability of defense systems.
⑤ Creating the concrete measure of maintenance and preservation of production and technological bases of defense industry to minimize the life cycle cost of the equipment.
(２) Reconstruction of Framework for Government and Private Sector Cooperation
Impartiality of the government and private sector in acquisition and procurement business is indispensable. It is necessary to establish the method to share a risk by the government and private sector, and to assure private sector a certain amount of profit.
(３) Diversification of Contract Method
It is necessary to adopt new contract methods including the following items.
① Contract method such as “Cost-Plus-Fixed-Fee Contracts”, which the government also allots a risk.
② Various risk incentive contract methods, which can be selected by private sector according to difficulty of business judged by conference with the government.
③“Firm-Fixed-Price Contracts” for “Information, Communication and Electronics Equipments”(ICEE) by catalog procurement, when it is difficult to estimate the pertinent cost by cumulating hardware and software costs.
④ Abolition or review of the excess profit return articles in the fixed price contract and the open bid contract.
(４) Use of external capability
It is necessary to establish the independent organization for supporting or supplying the procurement business, and to promote the use of outsourcing for investigation, research, inspection, education and training, repair and maintenance, replenishment, and service procurement, etc. Moreover, the SETA (System Engineering Technical Assistant) system should be introduced for reinforcing a technical capability of the government.
Conclusion
The following points have been made here.
There is no integrated equipment maintenance policy for three Self-Defense
Forces as one of the basic defense capability maintenance strategies of the
national security policy, and no concrete measure to give priority to the
domestic production over defense equipments acquisition and procurement and to
maintain defense industry production and technological bases. There are neither flexibility nor fairness in the present contract
system in pursuing competition principle, cost reduction, and cost management.
Therefore, the establishment of much more reasonable and fair acquisition and
procurement system, like in
Ensuring the national security through the problem solution by the study and cooperation of the government and defense industry is necessary.
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