Pentagon shaves $6.5 billion by selling obsolete equipment, trimming back-office

The Pentagon's office of the chief management officer managed to find $6.5 billion in savings at the Defense Department last year, the office announced recently, including selling "obsolete" weaponry to allied nations abroad, reforming information technology processes, and helping agencies change how contracts are structured.

The savings were diverted to support the military's readiness in other areas. Specifically, funds were reprogrammed for Army training exercises in Asia, upkeep on F-35 fighter jets operated by the Navy and Air Force, computer system upgrades, and other initiatives.

The office of the chief management officer was created in 2018 to drive costs out of the Pentagon's supply chain and reform its business processes, a task that includes working with dozens of defense agencies to get a handle on some $2.7 trillion in assets, as one audit found. The first person to hold that position, Jay Gibson, left the job last year.

The department's newly-confirmed chief management officer, Lisa Hershman, says she views her office as "a startup within the largest, most entrenched bureaucracy in the world."

The Defense Department, already the world's largest bureaucracy, has received sizable increases in funding since President Donald Trump took office in 2017. The president's most recent budget request keeps defense spending at roughly the same level as last year - meaning the department will have to look for savings if it wants to undertake ambitious new projects. The Pentagon already plans to divert $3.83 billion from projects including aircraft purchases and military construction to pay for fencing along the U.S. border with Mexico.

Hershman's job has been to reform the Pentagon's business systems to drive out waste. Much of that comes down to better leveraging the department's advantages, Hershman said in a recent interview. First and foremost is the bargaining power that comes with its massive scale.

"We need to better leverage our size and pay attention to not having disparate initiatives," Hershman said. "We can gain a lot of efficiency and effectiveness just by leveraging our buying power."

As an example of some of the $6.5 billion identified by her office, the Navy saved roughly $97.9 million by purchasing its Arleigh Burke-class destroyers on longer-term, five-year contracts rather than shorter one-year deals. Doing so allowed the department to get a 9.3 percent discount over the previous contract structure, Hershman said.

Other reforms identified by the office of the chief management officer last year included: a revamp of the department's health IT infrastructure that saved $68 million; a technology overhaul within bureaucracy supporting the military services; $2.55 billion from staff cuts and other reduced overhead; and changes to the fee structure for the military's Tricare health insurance program.

The Defense Department also recovered $407 million by selling off certain "obsolete" military equipment. Those sales included nine Black Hawk helicopters that were sold at an auction and 10 more sold to Afghanistan, 100 Patriot missiles sold to the United Arab Emirates, and four C-130 Hercules transport aircraft for Chile and the Philippines.

Dan Grazier, a former Marine Corps captain who now studies the defense spending at the Project On Government Oversight, a watchdog group, said the savings announced this week should be replicated elsewhere.

"It's kind of a drop in the bucket, but it's a starting place, so I applaud that," Grazier said.