By Andrea Shalal-Esa

WASHINGTON (Reuters) - The Pentagon will unveil
new rules Tuesday aimed at ending years of massive cost
overruns on major weapons programs, a targeted approach largely
backed by industry that could save Defense Secretary Robert
Gates from another major battle with Congress.

Gates and chief weapons buyer Ashton Carter are due to
announce next steps in a major drive to cut overhead costs by
$100 billion over the next five years, while ensuring real
growth in defense spending of at least 1 percent.

The measures will include a renewed focus on
competition, moves to include suppliers outside the defense
industry, simpler paperwork requirements, quicker work on
programs and efforts to discourage frivolous contract protests,
according to one source briefed on the measures.

Carter brief military acquisition officials about the new
directives at the National Defense University Tuesday
morning and will address industry executives Thursday.

Air Force Chief of Staff General Norton Schwartz
underscored the need for the military and industry to pursue a
unified approach given mounting pressures that could cause U.S.
defense spending to level out or even decline in coming years.

That meant taking a "somewhat longer view" than the
near-term focus on quarterly earnings reports, he told
reporters at the annual Air Force Association conference.

Gates has won the grudging admiration of many watchdog
groups, impressed with his ability to halt the Lockheed Martin
Corp F-22 fighter and efforts to hold contractors more
accountable for budget overruns and schedule delays.

Industry executives, grateful that Gates is fighting for
continued real growth in defense spending, are already
scrambling to align themselves with the Gates initiative,
cutting jobs, selling off divisions and streamlining operations
to ensure continued profits in a more difficult market.

"We get it," Roger Krone, who heads Boeing Co's
space and networks division, told Reuters, noting that Boeing
was looking for any cost-saving measures it could find.

Targeting overhead costs could also spell some relief for
lawmakers, who have rejected some of Gates' bigger program cuts
given concerns about protecting high-paying aerospace jobs in
the current difficult economy.

Lawmakers have repeatedly rejected the Pentagon's efforts
to kill a second engine being developed for the Lockheed F-35
fighter by General Electric Co and Britain's Rolls Royce
Group Plc in addition to the one built by United
Technologies Corp'sPratt & Whitney unit.

Supporters of the second engine say they cannot understand
why the Pentagon is promoting competition on one hand, but
wants to cancel the second engine in a potential market valued
at around $100 billion. Maintaining competition, they argue,
could save around $20 billion in the longer-term.

Gates scored a victory Tuesday when the Senate defense
appropriations subcommittee included no money in its 2011
budget proposal for the alternate engine, but the House could
still push for the funding during conference negotiations.


"Congress is the last universe that's going to embrace real
acquisition reform and weapons cuts," said Danielle Brian,
executive director of the nonpartisan Project on Government
Oversight, which has no position on the second engine debate.

Brian said she is cautiously optimistic about Gates' newest
efficiency initiative, given the Obama administration's
hands-on approach to cancel the F-22 fighter program and other
projects long favored by Congress.

But she faulted Gates for waffling on the need for further
testing of the Pentagon's biggest acquisition program, the
Lockheed F-35 Joint Strike Fighter, which is projected to cost
up to $382 billion over the next two decades.

"Gates has been applying discipline in the Pentagon in
various troubled areas and the Joint Strike Fighter is an area
where the hemorrhaging needs to be staunched the most," she
said, noting that Gates had rejected congressional moves to tie
the number of aircraft purchased to successful testing.

"This is all much ado about nothing," said Loren Thompson
of the Virginia-based Lexington Institute, a consultant with
close ties to defense companies and government officials.

He said Carter had told him last week the Pentagon still
planned to add thousands of civil servants to its payrolls to
bolster oversight of acquisition programs at the very time that
weapons makers were cutting jobs left and right.

"Industry is trying to save money by cutting jobs, but the
Pentagon is planning to add 20,000 civil servants," he said.
"What does that tell you about their efficiency drive?"

For exclusive reporting on developments in the defense
industry, please see coverage of the Reuters Aerospace and
Defense Summit:
(Reporting by Andrea Shalal-Esa; editing by Bernard Orr, Dave
Zimmerman and Andre Grenon)