Former Pentagon official wants to end use-it-or-lose-it spend policy

Former Pentagon policy chief Michele Flournoy says the Pentagon should instill a more cost-conscious culture by taking away the incentive for program managers to hurry up and spend at end of the fiscal year. “Today's system essentially penalizes anyone who does not spend every last dime of their budget by the end of the fiscal year,” Flournoy told attendees at the National Contract Management Association conference here on Monday.

Flournoy, who served as undersecretary of Defense for policy from 2009 to 2012, said managers know that if they don’t spend their remaining budgets, then Congress is likely to cut program spending the following year, which, she added, "is not exactly a recipe for promotion."

“It’s a use-it-or-lose-it kind of situation,” she said. A better system, Flournoy said, would be to reward program managers who meet milestones while saving tax dollars. Those managers could receive accelerated promotions and awards, she said.

“This would be one very important step to create a more cost-conscious culture within the department.”Flournoy also said DOD needs to be more aggressive in adopting cost savings techniques that work in the private sector, such as spend analysis, strategic sourcing and reverse auctions across the department.

She was encouraged that Defense Secretary Chuck Hagel has identified cutting overhead spending as a priority, though she said Congress needs to give the department greater flexibility in enacting a host of reforms that could save money without hollowing out military forces. She said she saw the overhead problem first-hand overseeing about 1,000 employees as the Pentagon's top policy official.

“My judgment was that I didn’t actually need that many to pursue the mission that we had,” she said. But Flournoy said she lacked the authorities to “streamline and reshape.”