Nothing makes Frank Kendall cry like the Joint Strike Fighter. Sitting in his office in the Pentagon’s E Ring, recalling his record-long tenure as the U.S. Defense Department’s acquisition czar, he still has the F-35 on his mind—his hair-pulling experience with one of the most complex, troubled and expensive weapons systems ever.

As the undersecretary of defense for acquisition, technology and logistics (AT&L), Kendall has often been on point with the JSF. His office has been where it all meets—the public anger over costs, the frustration over Lockheed Martin’s performance and the military’s demand for a technological marvel guaranteeing U.S. air dominance for decades to come.

“When I took office, it was my biggest headache,” Kendall tells Aviation Week. “Despite the fact that we were a few years into production, we did not have a stable design. We had a lot of issues. I very seriously contemplated stopping production entirely and taking about a two-year gap in production.”

Ultimately, Kendall opted to flatten production at 30 aircraft a year for two years while design problems were hammered out. He installed a new program manager on the government side, Air Force Lt. Gen. Christopher Bogdan, a strong leader with an outspoken style (AW&ST Sept. 24, 2012, p. 24). And Lockheed made management changes that Kendall now says were a breakthrough.

Today, the program seems to be over its worst days. Initial aircraft have been delivered to most JSF international partners. Feedback so far from operators has been positive.

“The highlight of the Army-Navy game for me was not Army winning,” says Kendall, an Army veteran. He teared up, but not about football. “It was the four F-35s that flew over my head. It has been a very long, hard journey [but] well worth it.”

For Kendall as well as his predecessor, Ash Carter, now the defense secretary, and Bob Work, the deputy defense secretary, the JSF was not the only grueling experience. The three have flown in formation through other programs’ near-death experiences while trying to reform the established U.S. military-industrial approach to technology and operations. While their efforts promise benefits to warfighters and taxpayers alike, they have upset some in the industrial establishment. Agree or disagree with what they have done, their impact is undeniable. For these reasons and others, Aviation Week recognizes the Defense Department’s top three officials, Ashton Carter, Robert O. Work and Frank Kendall, as the 2016 Persons of the Year.

Examples of their efforts include how the tortured KC-X acquisition became the Air Force KC-46A aerial refueling tanker, with prime contractor Boeing forced to invest more in its success, and how the Air Force B-21 stealth bomber competition was restarted, awarded to Northrop Grumman as a model “should-cost” program and survived a high-profile bid protest.

In recent years, so-called Nunn-McCurdy breaches—cost and schedule overruns big enough to  trigger legally mandated cancellation threats—have been almost eliminated across major defense acquisition programs (MDAP). Under the Better Buying Power reform initiative, the Pentagon has ratcheted up competition among its industrial base. It has better trained its own acquisition workforce. Through the new Defense Innovation Unit, Experimental, (DIUx) offices, it has instituted an outreach to the technology sector in Silicon Valley and beyond to bring in new capabilities, personnel and thinking to the department and the defense industry. And the legacy defense contractors are being encouraged to bring more radical and rapid proposals to the Pentagon via the newly unveiled Strategic Capabilities Office (SCO).

Through Work’s craftsmanship, the Pentagon has pivoted to a Third Offset Strategy of pursuing and operationalizing game-changing technologies such as artificial intelligence (AI), human-machine teaming and other innovations to maintain military technological superiority. All of this serves to speed up the hidebound Defense Department and its industrial base—especially via rapid acquisitions—to stay ahead of threats in a decentralized world that moves exponentially faster than it did during the Cold War.

Some of the Carter-Work-Kendall thrusts have roots in earlier defense efforts. But their intertwined experiences, personal chemistry and continuity in office have allowed them to push to the next level. 

Most recently, Carter has focused on the high-level institutional aspects of innovation, Kendall on acquisition and R&D and Work on the operational side. But Carter, 62, has held both Work and Kendall’s jobs, and he has taught at Harvard University and worked at the Pentagon as assistant secretary of defense for international security policy in the 1990s. He is not just a policy wonk, however. He is also a scientist, with a doctorate in theoretical physics from Oxford University.

Work, 63, is a deep-thinking Marine. He both commanded an artillery battalion and wrote extensively on the future of warfare for Washington think tanks. He served as the undersecretary of the Navy in 2009-13. When he stepped down, he became CEO of the Center for a New American Security. 

Kendall, 67, graduated from the U.S. Military Academy at West Point. He left the army as a lieutenant colonel. And he has an advanced-degree “trifecta”: master’s degrees in aeronautical engineering and business administration, and a juris doctor degree.

Carter says their shared experiences have been essential to their effectiveness. “The ability to give them direction and also support that was informed by the fact that I knew exactly what they were doing and what their responsibilities were,” he tells Aviation Week. “That’s been a help to me as I’ve been their boss. But it’s a help to them also, I think, to have a boss who knows what you’re doing and isn’t trying to do it but who backs you up and supports you when you’re doing the right thing. That has made us as a team effective.”

Evidence Speaks

The defense acquisition system can still be improved, of course. Carter, Work and Kendall admit to unfinished business. And, not surprisingly, their reforms and initiatives triggered criticism from upholders of the status quo.

“These measures point to a flawed strategy and assume the solution is related to education, outreach or proximity [to innovators] while missing the essential truth:  non-defense companies already know who [the Defense Department] is and what it means to work for a difficult defense acquisition customer, and these companies choose to do business somewhere else,” Scott Chandler of the industry-funded Lexington Institute said at a forum last June.

But more often, defense analysts, policy wonks and many aerospace executives have lauded the three for what they have achieved.

“They drove tremendous change,” says Andrew Hunter, director of the Defense-Industrial Initiatives Group at the Center for Strategic and International Studies (CSIS) think tank.

“They have been successful,” says Steven Grundman, a fellow at the Atlantic Council and a Pentagon acquisition official in the 1990s. “The changes they have put in place will do better than endure—the actual benefit of them will be in greater evidence as time goes on.”

Raytheon CEO Tom Kennedy says Carter, Work and Kendall have done a “tremendous job,” especially in using the Third Offset to focus the department on technologies such as hypersonics and machine learning to enable U.S. forces to make and carry out decisions faster than their adversaries. “This is good stuff,” Kennedy says. “We’re on the right road here.”

It all begins with numbers. Outside the door to Kendall’s office is a plaque that quotes W. Edwards Deming: “In God we trust; all others bring data.” Indeed, one of Kendall’s proudest, albeit indirect, achievements has been compiling and issuing a now-annual report card called the Performance of the Defense Acquisition System. What started four years ago as just another government report destined to collect dust on a shelf has turned into a must-read magnum opus for industry officials, congressional aides and anyone else with a stake in defense acquisition.

The latest report is full of data and speaks to improvement. Growth of contracted costs for MDAPs like the JSF and KC-46A has dropped overall to a new 30-year low of 3.5% in 2015 from 9% in fiscal 2011 (see graph on page 30). Competitive source selections have increased by half.

Even though bid protests to the Government Accountability Office (GAO)have nearly doubled since 2001 to about 1,300 annually, the GAO has kept sustaining the Pentagon’s work at the same rate. Reversals of contract decisions have been flat at just 2%.

On cost and schedule overruns, the trends are even more encouraging. Nunn-McCurdy breaches have trended downward since 2009 (see graph on page 33). Consulting giant Deloitte says that in 2008-12, the cost of major defense programs increased 51%, while in 2012-15, total MDAP costs grew only 5%. Since 2011, nearly three-quarters of programs in the current portfolio have kept their cost growth below 10%. Before 2011, fewer than half of the programs did so.

The Pentagon’s appetite for new major weapons programs also has been curbed. Deloitte says both the number of programs in the current MDAP portfolio and their total cost is at the lowest level since 2004 (see graph on facing page).

The CSIS’s Hunter, whose tenure as a defense official in 2011-14 included a stint as director of the Joint Rapid Acquisition Cell, says this shows that the Pentagon no longer rubber-stamps troubled MDAPs to go forward.

Weapons for Warfighters

The key measure of success, however, is putting superior weapons into the hands of warfighters. As Carter, Work and Kendall prepare to leave the Pentagon, their efforts are finally starting to pay off.

The F-35 had a milestone year, making its first international deployment and reaching initial operating capability for the Air Force’s first F-35A squadron. As Air Force and Marine Corps pilots start operating the fifth-generation fighter and discover its unique capabilities, the “trillion-dollar boondoggle” label is beginning to fade.

The JSF remains a hot topic. President-elect Donald Trump criticized the nine-nation, three-variant program’s costs in a recent tweet. The program office still is struggling to finish the aircraft’s development phase, announcing in December a possible seven-month delay and yet another $530 million increase on top of the roughly $60 billion in research and development funds the government has already spent on the program. Meanwhile, the fighter program continues to wrestle with unexpected software and weapons integration issues.

But by most accounts, the JSF program has overcome the worst of its design issues, made progress since a critical cost breach and subsequent rebaselining in 2010 and stuck to its original fix-it plan. “Let’s put that in perspective,” Bogdan says. “[If] anybody would’ve told us in 2011 that we would be within a few months and a couple hundred million dollars of a $13 billion rebaseline, we’d all have slapped the table and said, ‘We’ll take it.’”

Boeing’s KC-46A tanker is another example of a program that has overcome big hurdles. The Air Force has given Boeing the green light for initial production of the aircraft after months of technological snags and serious schedule delays.

The new stealth bomber, the Air Force’s B-21 Raider, is so far another acquisition success story. The Pentagon’s 2015 selection of Northrop Grumman to build the new bomber survived a bid protest by a losing Boeing/Lockheed Martin team. In its declassified ruling, the GAO praised the Air Force for conducting a comprehensive source selection process and scathingly critiqued the protest.

How They Did It

One aspect of the success of Carter, Work and Kendall has been the Better Buying Power (BBP) initiative and related efforts that started under Carter in 2010 and were expanded by Kendall. BBP 1.0, as it is now called, focused on training the Pentagon’s own acquisition workforce to be wiser, more accountable buyers and better managers. BBP 2.0 and 3.0 introduced “should-cost” assessments of what the Pentagon buys and emphasized technology insertion in acquisition as well as open architecture in program designs and leveraging competition across the board.

Meanwhile, the DIUx field offices in Silicon Valley, Boston and Austin, Texas, are reaching out to the U.S. tech sector, and Carter has met with entrepreneurs at tech startups and incubators. The DIUx leadership and function were overhauled in May 2016 to reflect the tech community’s axiom of “failing fast” to learn and adapt development efforts.

Not only is DIUx’s aim to spur nontraditional industries’ interest in defense but also to reorient the Pentagon itself toward a more rapid and open development culture. In fiscal 2016, the office awarded 12 contracts, worth $36 million—but just $8 million came directly from DIUx. Initial awards deal with autonomous systems, machine learning and AI, protecting defense networks, commercial space payloads and sensors, and biotechnology.

The reorientation was not uniformly welcomed by established defense contractors, but protests were muted. One reason may have been the SCO, the secret office Carter announced in 2016, which was investigating new offerings from legacy primes looking in part to leverage their existing weapons.

Indeed, the “a-ha!” moment that sparked the Third Offset was when then-Deputy Defense Secretary Carter established the SCO in 2012, Work says. At the time, Pentagon officials were beginning to realize they needed a new approach to address the troubling trends cropping up in the Western Pacific.

“When I came in, I was intent on following up on Secretary Carter’s idea of SCO, but making it bigger,” Work tells Aviation Week. 

The SCO’s efforts remain mostly in the shadows, but Carter cites as an early success an offensive capability for the SM-6 over-the-horizon missile. Carter also says the office is upgrading the Army’s Tactical Missile System to allow it to strike moving targets on both land and water, as well as working on an airborne “bomb truck” dubbed the arsenal plane.

Third Offset

The Third Offset is the natural evolution of the SCO, Work says. The strategy aims to use technology to assure U.S. military dominance in the face of asymmetric threats from near-peer adversaries such as Russia and China. Besides AI, autonomy and man-machine teaming, Work has focused on what he calls “deep-learning” machines. Operationalizing technologies for battlefield use is also key. For example, anyone could buy night-vision goggles in 1975, but the Army devised tactics and procedures to make them useful for forces operating at night.

“People say, ‘Somebody might be able to get this new technology into the fleet faster than we can,’ and I say, ‘Who cares?’” Work says. “The amount of time it takes to do the concept, to do the doctrine, to do the training, to do the exercises and become proficient in it—that’s what people should look at.

“You have to be prepared for technical surprise,” he continues. “You have to have an organization that’s agile and resilient, [and] when it is surprised, is able to respond quickly without losing momentum.”

To do so, the department must tap into the commercial sector—quickly. Work emphasizes that the threats are various and dynamic: large-state powers China and Russia, medium-state powers like Iran and North Korea, and “non-state actors” or terrorists. The Pentagon can no longer afford to spend many years developing the next great-leap weapons, as it did with the First Offset (nuclear weapons and missiles) and the Second Offset (an array that includes stealth aircraft, precision-guided weapons, networked command and control, and space-based communication and navigation).

Work knows today’s game-changing technologies may have a short lifespan in any particular application. So the Third Offset has to be about the culture and speed.  “That’s why we’re saying, ‘Let’s shoot off on an initial vector, start getting things right,’” he says. “And then we’ll reexamine and say, ‘What do we have to do?’ Because we know we’re in a temporal competition.”

One example of applying Third Offset thinking is the establishment of the Joint Interagency Combined Space Operations Center, an experimental effort to improve battle management of the U.S. military space constellation. It established battle-management and command-and-control tools to defend the network in space and still provide the level of support that the warfighter needs on the ground.

Another example is the Army’s first tactical electronic- and cyberwarfare unit, which is designed to protect Army maneuver forces on the move.

“These are both being infused with new technology; learning machines, human-machine collaboration, advanced visualization, big data analytics, lots of unmanned-manned teaming, new types of autonomous weapons,” Work says.

Criticism and Response

As with the SCO, industry has mostly been a vocal fan of the Third Offset. Raytheon’s Kennedy says, “We need to make sure the next administration carries this forward.” But some established defense companies have seen the Pentagon trio’s efforts—stressing competition, establishing the DIUx, pushing for greater intellectual property access, and leveraging research reimbursements—as an attack on their way of business.

“Despite leadership denials of a war on profit, the visible, practical Defense Department profit policy is to minimize profit apparently at any cost,” the Lexington Institute’s Chandler says.

Pentagon leaders have always denied that, and industry financial results argue against it, too. Leading primes have seen rising profit margins (see graph on facing page), and the Aerospace Industries Association has celebrated record industry revenues for several years.

“There never was a ‘war on profits,’” Capital Alpha Partners defense analyst Byron Callan says.

Industry also has benefited from compromises with Carter, Work and Kendall on many issues. For instance, to work through monopoly complaints about the F-35 and its Pratt & Whitney F-135 engine, the Pentagon started new programs with the prospect of opportunities for other defense companies. 

“We are starting follow-on programs to the F-35,” Kendall says. “I was able to get something in front of the budget a couple of years ago called the Aerospace Innovation Initiative, which is a classified program, so we can’t say much about it. But it is on the road to the next generation of tactical aircraft capability, developing technologies relevant to that.”

Carter talks about future fighter-engine development efforts, one result of the “engine war” between the F-135 and the GE-Rolls-Royce F-136 in 2010-11. “The competition we ended up substituting for a competition between two redundant systems was a competition between an engine we were building and an engine that we were developing,” he says. “The key there was to get our industry partners to accept that as a way that worked for them as a business proposition.”

The Future

Trump has announced a replacement for Carter, Work is almost sure to be replaced, and Kendall has said he will depart. Will the reforms they have instituted stick?

The future of Kendall’s office itself is in doubt. Senate Armed Services Committee Chairman John McCain (R-Ariz.) has pushed for eliminating AT&L altogether and splitting the oversight of innovation and R&D into one job and management of procurement and logistics into another.

“We have put too much under AT&L,” says House Armed Services Committee Chairman Mac Thornberry (R-Texas). “It is essentially impossible to make the person who is responsible for buying things efficiently be chief innovation officer.” 

Intelligence. Analysis. Insight.

This story is a selection from the January 9, 2017 issue of Aviation Week & Space Technology. New content posted daily online.

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Last year, Congress took a middle path, keeping Kendall’s office but creating a new “chief technology officer” position to focus on innovation and new technology. Implementation of the position is deferred until 2018.

“The research and engineering position is the guy who gets to do the cool fun stuff, and he’s allowed to fail as much as he wants to. And the acquisitions and sustainment person is supposed to deliver things to the warfighter and never have a schedule overrun or a cost overrun,” Kendall says. “I want the first job; I don’t want the second one.”

Carter, Work and Kendall expect future defense leaders and presidents to pick up where they leave off, in part because the Defense Department—despite its flawed acquisition and management history—tries to plan and adapt to win. 

“It’s not just about me,” Carter says. “It’s about rapid acquisition in response to war. It’s about strategic transition from an era where we focused primarily on counterinsurgency and counterterrorism to one where we still have to do that and can’t unlearn that but are also turning our strategic and programmatic attentions to near-peer threats.

“In all of those cases, we have learned to do better.”