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The F/A-18 that almost wasn't

Today I'd like to discuss how fragile the defense acquisition system is by explaining how the Navy came very close to never getting it's air combat mainstay, the F/A-18.

As is well known, the Fighter Mafia of the 1960s advocated simple aircraft designs based on Capt. John C. Boyd's energy manuverability (EM) theory. This resulted in the F-15 aircraft that dug the Air Force out of a bad pickle with the poor performing F-111 aircraft.

However, as the F-15 weight and cost grew, the Air Force starting looking at a lightweight fighter. In keeping with Deputy Secretary of Defense's prototyping methodology, the Air Force funded a fly-off between the General Dynamics YF-16 and Northrop's YF-17. Only a last minute deal made this happen.

As is well known, the YF-16 won the Air Force fly-off.

The Congress intended the Navy to develop a derivative from the YF-16 to increase commonality and reduce overall costs. However, when the Navy did a paper design competition, it found the YF-16 derivatives (1600, 1601, and 1602) were inadequate. The Navy selected a derivative from the Air Force loser, the YF-17. It became called the F/A-18.

The Navy award to Northrop, potentially a mending process aftger Northrop became persona non grata with the DoD due to the F-14 failures, in direct defiance of the Congressional conference report. Naturally, a contract protest was filed to stop the contract award that defied the purpose of the funds disbursed.

YF-16 (near) and YF-17 (far)

The Congress held several meetings during 1975 to investigate the Navy acquisition. The clear tenor of the Congressmen was outrage at the Navy's actions -- first for defying the law; and second for generating more costs due to a duplicative program without having performed the necessary cost-effectiveness analyses. Senator Barry Goldwater said on September 17, 1975:

"So, Mr. Chairman, we may have missed the purpose of the whole exercise which, I htought, was the development of a single effective fighter aircraft for both services that could be afaforded in the numbers required and with the corresponding high degree of commonality, life cycle costs would be reduced significantly. This may only be an impossible dream that some of us have, bbut I believe our services must figure out some way to get together on many of these aircraft systems because we cannot continue forever to pay for these separate air forces with their completely different inventories."

The Navy pointed out that making the YF-16 carrier suitable required extensive modifications. For example, The YF-16 had an empty weight of 13.6K lbs, whereas its carrier derivative increased to 18.6K lbs. Wing span increased from 28 to 33 feet, and the horizontal tail area increased from 42 to 75 squared-feet. By contrast, the F/A-18 increased the empty weight of the YF-17 from 17K lbs to 20.6K lbs. It also had an improved General Electric F-404 engine with 5-15% more trust.

It wasn't until the GAO report of October 10, 1975, that minds started changing. The GAO found that the Navy award to Northrop did not contradict the law,  because the Congressional conference report on the allocation of funds was not legally binding. But the GAO remained neutral on the selection.

The funding for the F/A-18 almost didn't make it through the House, but as Kelly Orr found in his history "Hornet,"  an "odd coalition" of pro defense conservative and liberals from the states like California, Massachusetts, which was home to companies like Northrop and General Electric, voted it through. The vote made it despite opposition from Chairman Mahon of the appropriations commmittee, who was from Texas, home to General Dynamics and LTV.

LTV actually paired with General Dynamics because it was convinced winning the Air Force competition would assure its victory in the Navy compete. LTV even turned away a superior deal from Northrop.

While the House vote nearly assured the F/A-18's approval, Senators remained displeased. Goldwater, to some extent, reversed his opinion. He realized that the economies-of-scale provided by a common Air Force/Navy program would not materialize because of the vast difference in mission requirements. So he stated that:

"... I don't believe, in my years in the Congress, I have ever opposed a weapon system. I want to make it clear that I don't oppose the F-18 weapon system. I oppose the way that they have gone about obtaining it."

It would appear that Goldwater's earlier statements, where he opposed the program on principle that it was not cost-effective, miraculously changed. It was just that the Navy didn't make a good cost-effectiveness case.

Had the GAO ruled against the Navy, I could not see the F/A-18 having ever been developed. It would probably have been either a derivative of the F-14, as pushed earlier, or a derivative of the F-16.

Without highly improbable confluence of John C. Boyd's genius (see Osinga, "Science, Strategy, and War") and David Packard's prototyping reform initiatives, there probably would never have been a F/A-18, nor would there have been an F-16.

Any and all sound attempts to promote diversification in DoD acquisitions are inherently fragile due to the misguided ideals of zero redundancy inherent to the PPBS way of thinking. It forces a static cost-effectiveness mentality that muddies the issues and subtlely injects biases. This is the hoolahoop all programs must go through to get at funding in the PPBS -- a convincing cost-effectiveness analysis.

At the time, prototyping competitions cost in the order of tens of millions of dollars, while full procurement (not including operating/support) went into the billions, if not tens of billions. Prototypes -- and full-scale development -- are learning processes. One cannot fully justify the end-goal of a prototype, it is to learn what is possible and what you might want.

Certainly the DoD can afford more prototypes, and even more full-scale developments. Certainly the F-16 and F/A-18, despite their apparent duplication, broke the trend of exponentially increasing costs and limited performance gains (though, with the F-35 we are back on that trend). And certainly, the Navy should have gone through its own fly-off before buying -- but who can blame them given the precariousness of their funding position with the Congress.

Rickover and the "Nickle Letter"

Today's quote comes from page 53-54 of the 1968 Senate hearings on Economy in Military Procurement, Part 2, featuring Admiral Hyman G. Rickover.

"Admiral Rickover. I reccall a recent experience with this type of thinking "the nickle letters." In August of this year the Navy proposed to place a $50 million contract with a company at a profit of 2.29 percent.

"Chairman Proxmire. Let me understand the 2.29 percent figure. Was that the percentage of profit to sales or to cost?

"Admiral Rickover. It is 2.29 percent of estimated cost. That may sound like a low profit -- 

"Chairman Proxmire. It does indeed. In testimony yersterday, the Department of Defense witness said that the average profit on defense work was 9.4 percent.

"Admiral Rickover. Actually, it was quite adequate under the circumstances. The contract incolved no risk for the company and almost no investment, and the Navy has been working on the same terms with this company for many years.

"In any event, because of the amount oof this contract, it had to be approved by higher authority. When I submitted the contract for approval, I received a formal letter stating the contract was disapproved because the profit was too low....However, in order to have the contract approved, I was willing to increase the fee on this $50 million contract from $1,147,023 to 1,147,023.05 -- and increase from 2.29 percent to 2.29000001  percent."

The nickle letter from Rickover shows the DoD's obsession with profit because it have no understanding of value. Rickover quoted Oliver Cromwell who said: "I beeseach you, in the bowels of Christ, to think it possible you have been mistaken." He had to fight the Navy to let a contract that the firm already agreed to!

Today, there does not seem to be the exact same issue. For example, in billion dollar service contracts where there is little or no risk, there is no question the government will pay a small fee in percentage terms, but a huge one in dollar terms.

As Rickover later showed, almost all of the contract to the prime would be subcontracted out. The prime would only incur $1.473 million in labor costs and receive $1.147 million in profit. Of course, the prime's overhead costs outweighed its labor costs. But that's closer to 50% profit on capital invested. Not too shabby.

The general popint is that the meaningful measure of profitability is the percentage profit on invested capital, and not total sales. Retailers such as Amazon or Wal Mart may make far less profit in percentage terms to their total sales because they are not as "vertically integrated" as, say, commodity producers are. They contribute little end value to the item, so their profits should be lower.

This outcome is natural in market competition, but needs to be willfully imposed in the non-market environment of defense procurement.

It appears forgotten in Rickover's biographies just how sophisticated he was in contracting and procurement. In this hearing, Rickover had no preparation (because he was not initially aware they were occuring) and he still provided an absurdly detailed discussion on a vast array of issues.

Admiral Rickover on improving weapons acquisition

Today's quote is from Admiral Hyman G. Rickover's memo to David Packard on May 22, 1970, concerning Packard's 5000 series directives to improve the acquisition process:

“... to bring about real improvement in weapons acquisition cannot be corrected by management policy directives… My experience has been that when a directive such as the one you propose is issued, most of the effort goes into the creation of additional management systems and reports and the preparation of large numbers of documents within the Service to “prove” that the requirements of the directive are being me—in order to justify funds for the Service…. I think that if you check you will find that virtually all of these documents, which have required so much effort to prepare, are used almost entirely to gain approval for programs, and are simply filed away once funds are released. They are of no use to the working people in performing their jobs. In my opinion the present situation in this regard is worse than I have ever seen it. Further, I predict that the way the present bureaucracy would implement your proposed directive will make matters still worse.”

Rickover was prescient on this matter; inevitably any streamlining and decentralizing initiative gets drowned out by the bureaucratic structure. Yet perhaps that is for good reason, because true deregulation simply cannot happen in today's industrial culture due to the wastefulness and deception contractors can get away with.

In some ways, the statement "trust, but verify" makes a lot of sense in defense acquisition. There must be a building of trust between a multiplicity of actors, not just a monolithic government and a handful of firms. But for trust to solidify, there needs to be verification of that trust -- namely understanding the value of project results.

If the purchaser can properly evaluate a project outcome, which only comes after years of experience with numerous similar projects, then trust is a matter of after-the-fact evaluation followed by reward or punishment (generally filtered through reputation effects, not legal recourse).

If the purchaser knows relatively little about evaluation, evident by constant information gathering and justification requirements, then trust may appear to be a matter of ensuring proper accounting and regulation of profit levels.

The problem with this story, however, is that no one was better than Rickover at understanding technical aspects of engineering projects, and Rickover still relied on cost accounting standards to reveal fraud or abuse.

Though fraud and abuse certainly did occur, it was because of Rickover's other complaint, that the lower echelons were losing technical talent fast and there wasn't a cultural knowledge of project evaluation, and more importantly, they couldn't make project decisions without getting funding requests through 30 or more offices at all levels of the Department. 

Nothing more than this can stamp out the diversity of organizations and projects leading to what is most important: the increased information processing capacity of the Defense system devoted to "doers" and not "reviewers," as Rickover would say.

Roots of the PPBS and scientific mgmt

The Planning-Programming-Budget System (PPBS) found its roots squarely with RAND, but reflected a broader trend in public administration dating back in the U.S. to the late nineteenth century. 

If the logic of military unification derived from German concepts of administration and the general staff, then the PPBS derived from the German historical school of economics.[1] Essential to the German tradition is analytical holism and a rejection of the “fictitious individualistic assumption” of classical liberals. Because markets produced social and economic failures, particularly monopoly, a new class of expert were required to identify remedies using the administrative state. 

The economist as an American profession was built on men schooled in Germany, who then solidified their expertise by creating university departments, prestigious associations, and new government bureaus on statistics and regulation. 

To justify its role for guiding government, the economic expert relied on the legitimacy of the scientific method. One top expert, Henry Farnam, compared the evolution of the economic sciences to the medical sciences. He found that surgery was once primitive and dangerous, but advances in science had made it most beneficial to society. Similarly, the economic expert had by 1910 enough scientific knowledge to make its reforms “more effective and less dangerous.”[2] 

The analogy was repeated over 50 years later by Alain C. Enthoven, Assistant Secretary of Defense for Systems Analysis, who said “My general impression is that the art of systems analysis is in about the same stage now as medicine during the latter half of the 19^th century; that is, it has reached the point at which it can do more good than harm.”[3]

Alain C. Enthoven was 31 when he became head of the
Office of Systems Analysis

---

[1] F. A. Hayek traced the ideas inherent in the German school, particularly logical positivism, back to the French Revolutionaries and the Ecole Polytechnique – but he attributed its spread to the U.K. and U.S. through Germany. This form of rationalism also finds precedent thinkers such as Francis Bacon, who opposed Copernican Astronomy, and Lord Kelvin, who denied evolution because he calculated the Earth too young for its emergence. Ultimately analytical holism goes back to Plato, who believed in a “Guardian” class to guide policy and abhorred asymmetries so much that he thought humans should use both hands with equal dexterity.

[2] Leonard, Thomas C. Illiberal reformers, Princeton University Press, 2016, pp. 22, 33

[3] “Planning Programming Budgeting” Inquiry of the Subcommittee on National Security and International Operations (Jackson Committee), U.S. Senate, U.S. Government Printing Office, Washington: 1970, pp. 127

Why not fixed budgets?

Today's quote is from page 239 of the 1960 book, The Economics of Defense in the Nuclear Age:

Charles Hitch

“With existing institutions, for example, the bargainers are often given the perverse incentive of trying to maximize their budgets (their costs) instead of maximizing capability for whatever budget they receive. A subordinate official may well feel that effort devoted to getting his budget increased is more rewarding than analysis and effort devoted to getting greater capability from a given budget.

“This tendency might be countered by some device for permitting units to keep a part of any cost savings. An extreme form of correction, which admittedly has certain disadvantages, would be to give each unit a budget fixed in amount for two (or even more) years in advance.”

Here, the principal founders (Charles Hitch and Roland McKean) of modern defense resource management admit that there was some logic to the preexisting system of very broad project discretion within a fixed budget, as opposed to make a case for as big of a budget as possible based on the requirements involved.

Why not provide fixed budgets?

Advanced prototyping, a last minute deal for the F-16

Today's quote is from the 1971 Senate hearings on Advanced Prototyping. Here is Air Force General K. R. Chapman:

"... we think three- to five-man teams on each project working closely with the contractor, strongly supported by our inhouse laboratories and systems division, would compare very favorably with 50- to 250-man program offices that are in our full scale production efforts.

“Some of the principles that we have looked at, which we think are useful here, are to reduce the requirement for special reporting by the use of the contractor formatted data; to waive or set aside several hundred procedural policy regulations, manuals and directives that normally govern our full development, procedure; also to, in other cases, selectively apply but not contractually invoke some of these existing directives. Reporting of the program managers would be kept as simple and direct as possible and in terms of the split test program we are talking about the services and the contractor jointly performing this with the contractor retaining the right through his designers to make changes during that program...

"We believe that our solicitation can be reduced to a Request for Proposal of about 25 pages compared to what we are doing today. We think the contractor response can be held to about 60 pages compared to what we have received today.”

General Chapman was one of the service representatives accompanying Deputy Secretary of Defense David Packard. They came to the Senate on September 9, 1971 to plead for additional prototype funding in the FY1972 budget, which officially began on October 1, 1971. Further, Packard said "We believe this should be an authorization rather than a reprograming or tradeoff action."

In other words, increase the DoD top line with three weeks left to the start of budget execution. Rather unorthodox, one might suppose. The amount came to $63.7 million. I wonder if some of that money went directly to the YF-16 and YF-17 flyoff:

"In January 1972, proposals were sought for a fighter with excellent acceleration, turn rate and range in the 20,000-pound weight class… In February 1972, Lockheed, General Dynamics, Boeing, Northrop and LingTemco-Vought (LTV, later Vought) submitted proposals… The Air Force selected General Dynamics and Northrop in April 1972 to design and build two prototypes each"

Notice how they took no time at all, requesting proposals from industry just four months after begging for the money and receiving four bids just a month after that; it only took another two months to select the winners. Both were truly winners, as General Dynamics would go on to build the F-16 after winning the Air Force competition and Northrop the F-18, which evolved out of the YF-17 that lost the competition. Both are mainstays.

I'll frame this as a questionable last minute budget deal, purposefully put out in front of the public, that had unquestionable good results. However favorable prototyping is, and it is favorable, the situation feels like short-termism that allowed the DoD not to internalize the reform it asked for. Packard himself resigned two months after the Sepember 1971 hearings.

That second quote was from “Quest to Build a Better Fighter” by Michael Sanibel.