The Pentagon buried an internal study that exposed $125 billion in administrative waste in its business operations amid fears Congress would use the findings as an excuse to slash the defense budget, according to interviews and confidential memos obtained by The Washington Post.
Pentagon leaders had requested the study to help make their enormous back-office bureaucracy more efficient and reinvest any savings in combat power. But after the project documented far more wasteful spending than expected, senior defense officials moved swiftly to kill it by discrediting and suppressing the results.
The report, issued in January 2015, identified "a clear path" for the Defense Department to save $125 billion over five years. The plan would not have required layoffs of civil servants or reductions in military personnel. Instead, it would have streamlined the bureaucracy through attrition and early retirements, curtailed high-priced contractors and made better use of information technology.
The study was produced last year by the Defense Business Board, a federal advisory panel of corporate executives, and consultants from McKinsey and Company.
Based on reams of personnel and cost data, the report revealed for the first time that the Pentagon was spending almost a quarter of its $580 billion budget on overhead and core business operations such as accounting, human resources, logistics and property management.
The data showed that the Defense Department was paying 1,014,000 contractors, civilians and uniformed personnel to fill back-office jobs far from the front lines. That workforce supports 1.3 million troops on active duty, the fewest since 1940.
Initially for the military, the major allure of the study was that it called for reallocating the $125 billion for troops and weapons. Among other options, the savings could have paid a large portion of the bill to rebuild the nation's aging nuclear arsenal, or the operating expenses for 50 Army brigades.
But some Pentagon leaders said they fretted that by spotlighting so much waste, the study would undermine their repeated public assertions that years of budget austerity had left the armed forces starved of funds. Instead of providing more money, they said, they worried Congress and the White House might decide to cut deeper.
So the plan was killed. The Pentagon imposed secrecy restrictions on the data making up the study, which ensured no one could replicate the findings. A $2.9 million consulting contract signed by the Pentagon stipulated that none of the data or analysis could be released to the news media or the public. A 77-page summary report that had been made public was removed from a Pentagon website.
"They're all complaining that they don't have any money. We proposed a way to save a ton of money," said Robert Stein, a private-equity investor from Jacksonville, Fla., who served as chairman of the Defense Business Board.
Stein, a campaign bundler for President Barack Obama, said that the study's data were "indisputable" and that it was "a travesty" for the Pentagon to suppress the results.
"We're going to be in peril because we're spending dollars like it doesn't matter," he added.
The Defense Business Board was ordered to conduct the study by Deputy Defense Secretary Robert Work, the Pentagon's second-highest-ranking official.
In an interview with the Post, Work did not dispute the board's findings about the size or scope of the bureaucracy. But he dismissed the $125 billion savings proposal as "unrealistic" and said the business executives had failed to grasp basic obstacles to restructuring the public sector.
"There is this meme that we're some bloated, giant organization," he said. "Although there is a little bit of truth in that ... I think it vastly overstates what's really going on."
He said the Pentagon is adopting some of the study's recommendations on a smaller scale and estimated it will save $30 billion by 2020. Many of the programs he cited, however, have been on the drawing board for years or were unrelated to the Defense Business Board's research.
Pentagon spokesman Peter Cook said Tuesday that senior managers at the Pentagon concluded that the study, "while well-intentioned, had limited value" because it didn't take into account existing programs to improve efficiency and because it lacked "specific, actionable recommendations appropriate to the department."
White House spokesman Josh Earnest disputed that it had been suppressed. He noted that a defense trade publication in early 2015 had written about the report and that at least as of Tuesday it was available on the Pentagon's website.
'Played for fools'
Both Earnest and Cook said some cost-cutting policies proposed by the Pentagon have been blocked by Congress.
"There are many self-described defense hawks and fiscal conservatives in the United States Congress who are blocking Pentagon-recommended reforms that would strengthen our military and save taxpayers billions of dollars," Earnest told reporters aboard Air Force One. "That's the real scandal."
Cook said Defense Secretary Ashton Carter has pushed for changes, some of which he has been unable to get through Congress. The department is pushing for a new round of base closures and adjustments to health care fees.
Carter "agrees that we must continue to aggressively pursue efficiency especially in the times of constrained budgets," Cook said. He spoke to reporters in Tokyo, where he was traveling with the Pentagon chief.
But a Democratic senator, Claire McCaskill of Missouri, said if the Post report is true, "the Pentagon played Congress and the American public for fools." She said she would investigate in her role as the top Democrat on the Senate Homeland Security and Governmental Affairs Committee in the next Congress.
The chairmen of the House and Senate Armed Services committees issued a joint statement saying the report provided valuable data to the committees' work aimed at reducing the Pentagon's bureaucracy, "even if reasonable people can differ over the report's assumptions and the unique challenge of government reform."
Rep. Mac Thornberry of Texas and Sen. John McCain of Arizona also expressed concern that restrictions on the release of data behind the report "may have denied taxpayers the transparency they deserve." They urged the Pentagon to make sure that all materials associated with the study are publicly available.
The numbers
McKinsey presented its report, titled "Transforming DoD's Core Business Processes for Revolutionary Change," to the Defense Business Board at the end of January 2015.
"We are spending a lot more money than we thought," the report stated. It then broke down how the Defense Department was spending $134 billion a year on business operations -- about 50 percent more than McKinsey had guessed at the outset.
Almost half of the Pentagon's back-office personnel -- 457,000 full-time employees -- were assigned to logistics or supply-chain jobs. That alone exceeded the size of United Parcel Service's global workforce.
The Pentagon's purchasing bureaucracy counted 207,000 full-time workers. By itself, that would rank among the top 30 private employers in the United States.
More than 192,000 people worked in property management. About 84,000 people held human-resources jobs.
The study laid out a range of options, including renegotiating service contracts and hiring less-expensive workers. After a discussion, the full board voted to recommend an option that would save $125 billion over five years.
Afterward, board members briefed Work. They were expecting an enthusiastic response, but the deputy defense secretary looked uneasy, according to two people who were present.
He singled out a page in the report. Titled "Warfighter Currency," it showed how saving $125 billion could be redirected to boost combat power. The money could cover the operational costs for 50 Army brigades, or 3,000 F-35 Joint Strike Fighters for the Air Force, or 10 aircraft-carrier strike groups for the Navy.
"This is what scares me," he said, according to the two people present. Work explained he was worried Congress might see it as an invitation to strip $125 billion from the defense budget and spend it somewhere else.
Apprehension grew in the following weeks. In briefings in February, uniformed military leaders of the Army, Navy and Air Force were receptive at first. But the McKinsey consultants had also collected data that exposed how the military services themselves were spending high sums to hire defense contractors.
For example, the Army employed 199,661 full-time contractors, according to a confidential McKinsey report obtained by The Post. That alone exceeded the combined civilian workforce for the Departments of State, Agriculture, Commerce, Education, Energy, and Housing and Urban Development.
The average cost to the Army for each contractor that year: $189,188, including salary, benefits and other expenses.
During this time, Carter replaced Chuck Hagel as defense secretary. The backlash to the $125 billion savings plan intensified over the next month.
On Feb. 6, 2015, board members briefed Frank Kendall III, the Pentagon's chief weapons-buyer. Kendall's operations were a major target of the study; he oversaw an empire of purchasing agents and contractors that were constantly under attack from Congress for cost overruns and delays.
In an interview, Kendall acknowledged he was "very disappointed" by the board's work, which he criticized as "shallow" and "very low on content." He said the study had ignored efforts by his agencies to become more efficient, and he accused the board of plucking the $125 billion figure out of thin air.
"It was essentially a ballpark, made-up number," he said.
Still, Kendall knew that lawmakers might view the study as credible. Alarmed, he said, he went to Work and warned that the findings could "be used as a weapon" against the Pentagon.
"If the impression that's created is that we've got a bunch of money lying around and we're being lazy and we're not doing anything to save money, then it's harder to justify getting budgets that we need," Kendall said.
Stein, the board chairman, ultimately accused Carter of deliberately derailing the plan through inaction. "Unfortunately, Ash -- for reasons of his own -- stopped this," he said in an interview.
Cook, the Pentagon spokesman, said Carter was busy dealing with "a long list of national security challenges."
In April, three months after Stein had been reappointed as board chairman, Carter replaced him with Michael Bayer, a business consultant who had previously served on the panel and clashed with Stein. The $125 billion savings plan was dead.
Information for this article was contributed by Craig Whitlock, Bob Woodward and Evelyn Duffy of The Washington Post and by staff members of The Associated Press.
A Section on 12/07/2016