Technical skills shortage hurts Pentagon's bottom line.

The trials and tribulations experienced in various Pentagon big-ticket programs in recent years have prompted a thorough self-examination at the Defense Department. At issue is who really is to blame for failures, delays, cost overruns and an overall dearth of innovation.

Defense officials are beginning to recognize that the Pentagon may need to rethink its approach to managing defense programs, so it can become a "smart buyer," better equipped to oversee increasingly complex technologies, and to determine if a potentially innovative technology is worth the financial risk.

It is not unusual to hear defense officials complain that contractors are too focused on their financial bottom lines, rather than on the quality of their products and the needs of the customer. They also blame the industry's rapid consolidation into a handful of conglomerates for a perceived decline in technical innovation.

Many of the problems seen today, for example, in space and information technology programs, may in fact be a byproduct of an ingrained culture of trying to make everything "faster, better and cheaper." But they also can be attributed to a gradual decline in the Defense Department's in-house expertise to manage and oversee highly intricate weapon systems and vast network integration efforts.

Among the staunchest campaigners for boosting in-house technical know-how at the Defense Department is Ronald Sega, the director of defense research and engineering. This past year, he was the driving force behind the so-called "National Defense Education Act," to encourage U.S.-born students to seek advanced engineering degrees.

The red flags that Sega is raising about a looming shortage of technical talent should not be ignored, said retired Adm. Arthur Cebrowski, the Pentagon's director of force transformation. "The long-term viability of our technical skills" is an issue of concern, he told reporters. Navy Secretary Gordon England, who also leads the Defense Department's personnel reform efforts, lamented that there will be a woeful shortage of engineers in coming years. "I'm worried about the U.S. scientific base," he said. Meanwhile, the cost of employing technical talent to work on Pentagon programs is skyrocketing, according to recent industry studies. While Pentagon contracts generally allow for a 3.5 percent manual inflation for salaries, the compensation for aeronautical and electrical engineers with security clearances is soaring by 10 to 15 percent every year.

There is an "astonishing" shortage of key specialized workers both in the defense industry and the Defense Department, said Edward Swallow, who chairs a National Defense Industrial Association study on workforce issues. "The salary inflation is impacting current programs," he noted. The upshot is that the pressure to contain costs is squeezing out innovation.

As to why innovation is not among the measures of success, the basic explanation is that the Pentagon rewards contractors for reducing the technical risk in a program and ensuring it's delivered on time, not for being innovative, Swallow explained. "People want to be able to get programs out the door," he said. "People want to declare success."

Large defense companies, particularly, are not pushing innovative technologies, he added, as their corporate investments are better spent on "risk reduction" and "cost containment" efforts. The top defense firms are becoming "integrators," rather than innovators.

This trend, however, is by no means welcome universally across the Defense Department. Air Force Lt. Gen. Brian Arnold, commander of the Space and Missile Systems Center, said that while the government is learning to be a smart buyer, industry has shown disappointing performance, and would benefit from attending a "sellers' course."

He scolded contractors for lacking discipline, quality control, and for Failing to anticipate and restrain cost overruns. Space programs, particularly, have suffered as a result. "We see a lot of quality problems," Arnold said.

A similar phenomenon is happening at NASA, where a talent drought has forced the agency to consider outsourcing high-skilled jobs to countries such as Russia and Japan. Most of NASA's funds, about 80 percent, actually pay for contractors to manage large programs, said Theron Bradley, NASA's chief engineer. When so much of the management work is outsourced, the government cannot properly oversee the quality of the work, he said. "The government needs to be an informed buyer."

The Air Force, for its part, is taking aggressive steps to improve its buying expertise. The service has been so rattled by space program debacles that it now plans to create a "space cadre" of acquisition professionals, who will be carefully selected and trained in the intricacies of space systems procurement.

The Army also is coping with how best to manage massive programs. Its biggest weapon project, the Future Combat Systems, has prompted questions about the Defense Department's ability to supervise technologically complicated systems. The Army outsourced the management to a "lead systems integrator," a decision the service defends fervently, because the success of FCS is based entirely on the ability to integrate 17 systems into a single network. The Army, much like the other services, is organized in "stovepipes," making integration efforts very difficult, said an industry expert. "The Army couldn't do this without an LSI," he said. "The CEOs of 17 companies can 'talk turkey' in a way the Army can't."

The LSI trend is not likely to slow down. The Army now plans to hire an integrator to manage small-caliber ammunition production.

As things stand today, large firms see more of their revenues coming from integration contracts. It will be up to small businesses to deliver innovative technologies.

These issues may not qualify as immediate and pressing concerns at a time of war and fears of terrorist attacks, but unless current trends change, decision makers at the Defense Department may one day find that they lack a strategy for how to keep critical military programs from spinning out of control.