Lockheed Martin Corporation


Defense Leaders Lay Out Aggressive Action Oriented Reform Agenda

Emphasizing that the nation's ability to provide US war-fighters with the tools required to meet growing international challenges was eroding, DoD and industry leaders today outlined a broad reform agenda aimed at realigning the Defense Department's acquisition and budgetary processes with 21st century requirements. Stressing the need for a renewed partnership between industry, the Congress, the administration and the Pentagon, conference participants outlined an action-oriented agenda designed to immediately revitalize this essential partnership.

The recommendations resulted from the AIAA Defense Reform 2001 Conference, held on the 14th & 15th of February in Washington, D.C. The conference was jointly organized by Mrs. Darleen Druyun -- the principal deputy assistant secretary of the Air Force for acquisition and management, the American Institute for Aeronautics and Astronautics, and five major aerospace companies -- BAE SYSTEMS, Boeing, Lockheed Martin, Northrop Grumman, Raytheon, and TRW.

Darleen Druyun, co-chair of the conference, emphasized the urgency of the reform agenda. "US security relies on our ability to provide sufficient numbers of superior weapons and equipment to the brave men and women that confront the nation's enemies." she said. "We must ensure that the means through which the Department acquires this equipment, and the industry which provides it, remain as effective in the 21st Century as they have been in the past." To accomplish this goal, she noted, "we must build greater stability into our defense investments, make it easier for the Defense Department to access the advanced technologies emerging from the commercial economy, and provide the incentives to industry to invest further in the nation's future."

Throughout the conference, speakers stressed the potential for immediate action. Brian Dailey, conference co-chair, stated that, "The new legislative session and DoD's newly initiated policy and budget reviews offer indispensable opportunities for implementing reforms over the next two hundred days, roughly the time left in the current fiscal year." He went on to note that with strong leadership from the Department and the support of the White House, the complete agenda could be accomplished within three years.

The final report of the conference, A Blueprint for Action, will be released in early March. In it, the conference organizers lay out the context and detailed implementation plans for key reforms in a number of critical areas. Among the major recommendations emanating from the Conference:

  Acquisition Reforms

   1. The Conference report specifies a wide variety of specific actions to
   slash the time required to develop new weapons and cut their cost.  Many
   of these reforms could be demonstrated and evaluated immediately in pilot
   programs.  The Conference called on the Congress to work with the Defense
   Department to encourage seven types of transformational pilot programs to
   streamline the acquisition process.

   2. Instability in defense modernization programs drives up costs and
   prolongs development cycle times.   Multi-year production and development
   contracts would save the government money and speed new equipment into
   the hands of US war-fighters.  The Conference called on the Congress to
   authorize and appropriate funds for a much larger number of production
   contracts and to permit the Department to experiment with development
   contracts that cover full milestone periods, rather than single years.

   3. Private companies clearly can provide certain logistical and support
   services more efficiently than the government can, but the Department's
   ability to contract for such services is restricted by legislation.  The
   Conference called on the Congress to lift these limitations, particularly
   the limits on depot maintenance work.

  Industry Reforms

   4. Overall return on invested capital for defense companies has shown a
   decline, and their ability to attract market capital has diminished as a
   result.  The conference called for revisions to DoD policy which would
   encourage higher return on investment capital on research and development
   work, the greater use of award fees for performance, and consideration of
   earning a return on invested capital tied to a firm's cost of capital and

   5. Although defense companies have consolidated since the end of the Cold
   War, they have not combined development and manufacturing facilities to
   the degree suggested by the now much smaller size of defense investments.
   Nor do they have incentives to do so, as the methods typically used by
   the Defense Department to compensate contractors reward bloated
   infrastructures financially.  The Conference called for changes in
   accounting procedures that would permit contractors to share the savings
   obtained from smaller infrastructures with the government.

   6. The government typically pays defense contractors as they incur costs,
   but holds back a certain portion.  This so-called progress payment rate
   is now only 75 percent, and has an adverse effect on company cash flows.
   The Conference called on the DoD to raise the rate immediately to 85 or
   90 percent, and on the Congress to appropriate the necessary funds to
   meet this near-term increase in outlays.  Ultimately, the Department
   should move away from payments based on cost reimbursements all together,
   in favor of a milestone payment system tied to performance.


   7. A variety of restrictions hamper the ability of US defense companies
   to participate in the global economy.   Export and security restrictions
   make it tough for them to sell their products overseas and to work
   cooperatively with foreign companies on joint projects.  This is harming
   the ability of US armed forces to operate with allied nations, as well as
   having adverse economic effects on US businesses.  It is also causing
   political difficulties in the United States' relations with its allies.
   The Conference called on the executive branch and the Congress to
   immediately reform both the Dual-use Technology and Munitions Control
   processes, and for the Department to review security procedures which
   unnecessarily complicate cooperative projects with companies in allied

  Civil-Military Integration

   8. A variety of restrictions and special practices now discourage
   commercial companies from taking part in the defense sector.  These
   include the Department's special accounting procedures, unique military
   requirements often specified for commonly available equipment, and the
   detailed oversight of manufacturing processes often insisted upon by DoD
   regulations.   These restrictions are denying US war-fighters access to
   the advanced technologies now available commercially, especially in
   telecommunications and information technologies, as well as needlessly
   driving up costs.  The Conference recommended a series of actions to
   facilitate the greater use of commercial products in defense weapons and
   equipment, and to encourage additional firms, including small and
   disadvantaged businesses, to enter the defense sector.

  Budget Reforms

   9. The excessive size of the Defense Department infrastructure relative
   to today's much smaller forces diverts resources from investment budgets
   and pressing modernization needs.  The Conference urged the White House,
   DoD, and congressional leaders to forge an agreement this year on
   processes for reviewing DoD bases, laboratories, and other facilities for
   closure and realignment. The process should include greater latitude for
   DoD to make relatively small adjustments unilaterally.

   10. In recent years, defense investment accounts have been cut repeatedly
   due to unexpected expenses for military operations.  This practice has
   played havoc with the weapon development programs tagged to pay the
   bills.  The Conference urged the Congress to erect firewalls between
   investment and operational accounts within the defense budget, and to
   create new contingency funds to handle any unexpected operational needs.

The full report of the AIAA Conference, A Blueprint for Action, will be available on or about March 6th. Please see the contact below for further information, or check out http://www.defensereform.org/ or http://www.aiaa.org/.

CONTACT: Kathy Watkins of the American Institute for Aeronautics and Astronautics, 703-264-3847.

PRNewswire -- March 1

SOURCE: American Institute for Aeronautics and Astronautics

Company News On-Call: http://www.prnewswire.com/comp/534163.html or fax,
800-758-5804, ext. 534163