Winner-Takes-All is a Dumb Way for the Armed Forces to Buy Equipment

Oshkosh Corp. was recently awarded the Joint Light Tactical Vehicle contract by the U.S. Army and U.S. Marine Corps. The JLTV contract is worth on paper $30 billion for an initial order of 55,000 vehicles and parts. But the gravy train will not stop there. Consider that the HMMWV, the vehicle that the JLTV is intended to replace, had almost 300,000 units built by AM General. In addition to regular production there will be inevitably decades of upgrades and customizations. This all means it is likely the value of the award will be north of $200 billion over the life cycle of the JLTV.

If you are one of those hacks in the press that caption pictures of armored personal carriers as “tanks”, or flip-flop wearing guerrillas toting rusty Kalashnikov-variant rifles as “heavily armed”, you might not know what a HMMWV is, or worse, think it is a Jeep. A Jeep is one of the off road capable light utility vehicles that Fiat Chrysler sells to the public, or if you are a real traditionalist, the WWII era model MB or GPW or Korean War and Vietnam era M-38. Jeeps were originally designed to be military grade cars–something that the HMMWV (commonly known as the Humvee) or the JLTV are definitely not. They are heavy duty trucks.

In the modern U.S. Army and Marines, the unarmored or lightly-armored 2-ton HMMWV is a jack-of-all-trades. It is a personnel carrier and a weapons platform suitable for missions for which one cannot field 60 ton tanks or 30 ton armored personnel carriers, which is most. They are more fuel-efficient, versatile, and less expensive. That’s why the Pentagon has bought more than twenty times as many HMMWV’s as Bradley Infantry Fighting Vehicles and M-1 Abrams tanks.

And that is why Lockheed Martin has protested the Oshkosh JLTV award. The stakes are so enormous it would be no exaggeration to say that the fortunes of both companies could be irrevocably changed forever just on the basis of this one vehicle. It is akin to the Boeing protest of the KC-X tanker contract to EADS (a protest which Boeing eventually won), itself worth at least $100 billion. It is winner-takes-all, literally. The only question is, why is there a winner-takes-all procurement in the first place? Why not partition such an unwieldy contract into several smaller contracts to several companies?

The Army and Marine Corps hate doing that. They manage billions in dollars of a supply chain that even with a fairly homogeneous set of military equipment often becomes obsolete even before it is used, wasting precious taxpayer dollars. So they seek to simply the supply chain by continuing to limit the number of vehicle models in use. Another reason is training. Troops have to be trained on equipment so it becomes second nature and an edge on the battlefield. Poorly trained troops might as well go into battle naked and on foot.

The problem is that there is really no such thing as a unified homogeneous vehicle procurement. The Pentagon often farms out mature designs to multiple manufacturers during war in order to increase production, which introduces new variants into the supply chain. And even in a sole-supplier procurement, constant technological change means modifications and upgrades every several years that essentially amount to the creation of completely new vehicle types.

Choosing a single manufacturer for such a large procurement comes with another massive weakness–the phenomenon of feast or famine. A Lockheed Martin can weather the loss of such a large contract, but most federal contractors cannot. The end of life cycle of a military vehicle often means the loss of hundreds of thousands of jobs, the wholesale economic destruction of factory towns, and the wasteful forced-obsolescence of experienced workers and that will require eventually the training of new ones at very high cost.

Defense contractors have cleverly spread out their contract work to multiple states in order to curry favor with as many politicians as possible and to improve their standing in a winner-takes-all procurement. But that means the agonizing pain of a company in its death throws in the aftermath of a large military contract loss is spread across the national landscape.

The real solution is so obvious, it pains me when I think how much industrial capacity has been destroyed or frittered away in these winner-take-all contests. There should be at least three different manufacturers of every piece of major military equipment, and in those cases where billions of dollars are involved, perhaps even more. Smaller contracts are easier to manage, reduce schedule risk, do not (in spite of commonly held program management theory) increase procurement cost, and mitigates technological and supply chain risk.

Never will happen you say? It does every time the Pentagon gets its ass in a crack, like that with the $50 billion in MRAP vehicles and spare parts bought for low-intensity guerrilla wars in Afghanistan and Iraq. We should put an end to all multi-decade procurement cycle vehicle programs that are capped by winner-takes-all slug fest. After all, our defense budget should not just be about profits and home town politics. It should be about big-picture military readiness and best-in-class national security.

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