Donald Trump has tapped Elon Musk to help cut government spending, and Musk has already hinted that the defense sector could be a priority target in this big austerity drive. The Pentagon’s budget for fiscal year 2024 is $841 billion — about 12.5 percent of the entire federal budget — and the Defense Department has long been plagued by cost overruns and financial waste, Business Insider writes.
Musk plans to overhaul federal spending through a new initiative: the “Department for Government Efficiency” (DOGE). Although DOGE will not be an official agency and Congress remains responsible for setting budgets for federal agencies, Musk could play an important role in advising Trump on spending cuts, including drastic cuts of up to $2 trillion. How it will manage to reach these huge sums remains a mystery, however, and its previous announcements suggest that defense could be the first sector targeted.
Defects in government contracts in the Defense sector
Elon Musk has been a constant critic of the way the US government contracts with major defense companies. They allow for unpredictable spending, leaving the government on the “payroll” in the event of cost overruns in the construction of warships, aircraft and combat vehicles. In contrast, SpaceX’s business model has focused on fixed-price contracts, where the government and contractors set a price at the start of the project, and the company receives payments as it meets various goals.
That approach has been successful for SpaceX, which has won contracts with NASA, including a $1.6 billion one in 2008 for 12 missions under the Commercial Resupply Services program. This type of contract, which carries greater risk for the contractor but provides tighter control over costs, could be replicated in other areas of the federal budget, including defense.
Defense: a sector with exploding costs
The defense industry has been a hot spot for the US government for many years, often criticized for inefficient management and ever-increasing costs. Large-scale projects such as the F-35 have exceeded initial estimates, and total program costs could exceed $2 trillion. In addition, many large shipbuilding projects are years behind schedule, and new types of ships and submarines are, in some cases, well behind schedule. For example, the construction of the Ford-class aircraft carrier or the Columbia submarine is years behind schedule.
Criticism also points to the “use it or lose it” use of funds at the end of each fiscal year, which forces government agencies to quickly spend allocated money to avoid running out of funds for the following year.
Faced with these financial challenges, Musk could propose a radical change in the Pentagon’s contracting model, moving from “cost-plus” contracts (which allow for cost overruns) to fixed-price contracts. Such a system would put more pressure on private contractors to manage costs efficiently, given that any overruns would be borne out of their profits.
The challenges of such a model
Switching to fixed-price contracts is not without risks, however. Some defense experts point out that this model could favor small and new companies at the expense of large and established ones, which have more resources to carry out large-scale projects. In addition, for defense projects involving unique products made specifically for the US government (such as aircraft carriers or nuclear submarines), the fixed-price model could create more difficulties, as the risks of cost overruns could severely affect companies that they cannot bear such losses.
To achieve significant savings, Musk and his team could suggest changing the project requirements in the initial stages of development. Providing a tighter framework for mid-process changes could significantly reduce additional costs. Also, establishing clear and immutable specifications from the outset would help keep the budget within predictable limits, as has been the case for other defense programs, which have stayed on budget due to a clear definition of requirements.
A plan that could save billions, but risks weakening US military power
While initiatives to cut spending are welcome, there are significant risks to US defense capabilities. Drastic budget cuts or the implementation of overly severe economic measures could reduce efficiency and affect the delivery of high-tech equipment essential to maintaining military superiority. John Harvey Jr., a retired admiral, points out the dangers of an overly economical approach: “However well-intentioned, defense savings can undermine military activity.”
In this context, even some members of Congress believe that the US should allocate more resources to defense. Sen. Roger Wicker of Mississippi, chairman of the Senate Armed Services Committee, said the current level of investment is not enough to meet increasingly complex global threats.
So while Musk’s plan to cut government waste could yield significant savings, the challenge will be finding a balance between efficiency and the ability to maintain national security in an increasingly uncertain and challenging world.
Source: ziare.com
