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Tuesday, February 24, 2009

The $500 Million Ship

A Littoral combat ship class of small vessels designed for coastal operations. The cost to build the ships has more than doubled to what?

CNN, Tue February 24, 2009


Cost overruns have military facing 'train wreck,' McCain says


WASHINGTON (CNN) -- Cost overruns on big-ticket Pentagon projects have left the U.S. military facing a budgetary "train wreck" at a time of growing budget deficits, Sen. John McCain said Tuesday.

McCain and Sen. Carl Levin, D-Michigan and the chairman of the Senate Armed Services Committee, said the cost of 95 major weapons systems -- ships, aircraft and armored vehicles -- have ballooned by a total of 30 percent in recent years, to about $1.3 trillion. The senators announced an effort, including legislation, to rein in that spending and tighten Defense Department oversight.

With U.S. troops fighting two wars overseas and personnel costs dominating the defense budget, "We're facing a train wreck," said McCain, the ranking Republican on the committee and the GOP's presidential candidate in 2008.

"We cannot continue on this path of escalating costs without at some point making some tough choices, which may endanger our nation's security," he said.

McCain and Levin singled out the Navy's planned construction of Littoral combat ships, a class of small vessels designed for coastal operations, for particular criticism. Levin said the ships are "way beyond" their projected construction time of two years, and the program has grown from a cost per ship of about $220 million to more than $500 million, according to a November report from the Congressional Research Service.

"We can't have a ship that's a small ship that's supposed to be built in two years run completely out of control to double or triple or quadruple its original cost estimates," McCain said.

He also criticized the planned purchase of 28 new Marine helicopters for the White House that he said cost "more than Air Force One." But White House spokesman Robert Gibbs said Tuesday that President Barack Obama has put that $11 billion order on hold.

Pentagon spokesman Bryan Whitman said Tuesday that the Defense Department is committed to reviewing its big-ticket contracts, "particularly those programs that are underperforming." The presidential helicopter project "is one of those programs," he said.

Levin and McCain said their push will include hearings into military contracting, legislation creating new watchdog posts in the Pentagon and an effort to stiffen congressional oversight of big-ticket programs.

"The Department of Defense has the major responsibility to make sure that these programs are run efficiently. Congress has an oversight responsibility," Levin said. "Neither of those activities have been carried out adequately."

Their announcement comes as Obama is scheduled to deliver his budget address to Congress, and Defense Secretary Robert Gates is already examining whether to cut back on some of the armed services' biggest purchases.

"This moment also presents an opportunity, one of those rare chances to match virtue to necessity, to critically and ruthlessly separate appetites from real requirements," Gates told a Senate hearing in January.

Among the other items under scrutiny: The $950 billion joint strike fighter program, the Army's $200 billion Future Combat System and the Navy's Virginia-class attack submarines.



8 comments:

  1. Overall, the legislation is designed to ensure that more Pentagon contracts are fixed-price awards, which the defense industry bristles at because it hurts profitability and can leave companies footing the bill for changes to programs.

    The legislation also seeks to inject a greater degree of competition into the acquisition process, including a requirement that defense companies build prototypes of certain weapons systems. Officials would also give greater weight to proposals from big companies that foster competition among subcontractors as a way to reduce costs and promote innovation.

    The bill would also re-establish a senior position for a Pentagon official to watch weapons programs on a daily basis to make sure contractors are delivering on technological promises.


    How US Buys Weapons

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  2. The only way you'll spur technical innovation and new thinking is by drastically cutting the budget. The budget should not be 2x greater than that of China or Russia.

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  3. On the Road, for Reasons Practical and Spiritual

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  5. - New York Times: Fannie Mae Eases Credit To Aid Mortgage Lending -
    September 30, 1999

    In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

    The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

    Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

    ''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer.
    ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

    In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

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