Why the Pentagon Must be a Smarter & Better Customer
It is challenging for the private sector to justify investing in an unfriendly defense acquisition environment when compared to the more attractive commercial markets available.
After 35 years in aerospace, I find myself passionate about defense acquisition reform because the stakes are high, the challenges are deep, and the opportunities are great. Today we face both resurgent threats and a budget crisis: Russia, China, North Korea, Iran, the Islamic State, Al Qaida, and the U.S. is $19 trillion in national debt. Former Deputy Secretary of Defense John Hamre and others have estimated that a full third of procurement dollars goes to overhead. We have a widely recognized loss of technological superiority, and an acquisition system that too often delivers needs late, and costs more than necessary.
We have tackled such shortcomings over time with new policies aimed at being a better steward of citizens’ money, and advocate for the warfighter and buyer of the things he needs. To this day, the government has neglected the importance of how it can become a better customer for the defense industry.
This forum is a small part of the surging conversation on acquisition reform in recent years. Congress, Department of Defense (DoD), think tanks, industry and the media have dedicated remarkable resources to this topic. Senator John McCain and Congressman Mac Thornberry have been great advocates about how the government can become a better customer. Thornberry was particularly optimistic in a speech at the Center for Strategic and International Studies last yearstating that, “never before have all of the stars been so favorably aligned with the necessity of reform, the people in key positions, and the commitment to make it happen.”
On the other hand, acquisition reform has been more or less a continuous conversation over decades, and MIT Professor Harvey Sapolsky famously summarized the lack of progress in his well-known 2009 article “Let’s Skip Acquisition Reform This Time:”
The limited number of available reforms have all been recycles. You can centralize or decentralize. You can create a specialist acquisition corps or you can outsource their tasks. You can fly before you buy or buy before you fly. Another blue-ribbon study, more legislation, and a new slogan will not make it happen.
I corresponded with Professor Sapolsky in recent weeks and discovered that he is even more pessimistic. His remarks in that article seem particularly relevant today given current and proposed legislation which is now, once again, decentralizing DoD acquisition and walking back many Packard Commission and Goldwater-Nichols reforms. The claim is that today is different. In the 1980s, we were just recovering from the Cold War, but today we face a different environment. That may be true for arguments about strategy and tactics, and perhaps the kind of equipment we are buying, but those considerations have little to do with how we buy.
Secretary Ashton B. Carter in an April House Armed Services Committee (HASC) testimonyreported that DoD’s Better Buying Power (BBP) program has slowed annual growth metrics for contracted costs on major programs, dropping from nine percent to three and a half percent. A much higher percentage of major programs are also projecting cost reductions relative to initial baselines. Better Buying Power has also improved the professionalism of the acquisition workforce, but restoring our diminishing technical dominance, increasing competition, and timeliness of acquisition have proven elusive.
It is challenging for the private sector to justify investing in an unfriendly defense acquisition environment when compared to the more attractive commercial markets available. While BBP focuses on technical dominance and acquisition tradecraft, DoD struggles with access to technology and low rates of competition. One hundred thousand companies have stopped doing business with the Department of Defense. The 2012 HASC report Challenges to Doing Business with the Department of Defense describes many issues driving companies to make that choice.
The Department of Defense has taken steps to reach out to the private sector and the non-traditional defense industrial base in particular. Over the last several years, DoD has established the Defense Innovation Initiative, the Third Offset Strategy, the Defense Innovation Unit Experimental and new Manufacturing Innovation Institutes such as those in Silicon Valley and atMIT. These measures point to a flawed strategy and assume the solution is related to education, outreach or proximity while missing the essential truth: non-defense companies already know who DoD is and what it means to work for a difficult defense acquisition customer, and these companies choose to do business somewhere else.
The Defense Acquisition System
The defense acquisition system is a construct of government, erected over decades and codified in statute that now exceeds 180,000 pages. It is so complex that the Air Force commissioned a supercomputer to make sense of it.
Suppliers contemplating business with the DoD must consider the burden of an acquisition system that imposes strict limits on return on investment, controls on the internal supply chain, risks intellectual property rights, and imposes social and political policy objectives unrelated to business or national defense.
Being a Better Customer
The importance of being a better customer arises not in the interest of suppliers, but from the government’s duty to responsibly handle taxpayer dollars when awarding contracts. DoD needs the best technology available, the top minds and companies working on its problems, and the lowest cost-effective solutions for acquisition, operations, and services. The most important principle of being a better customer is recognizing that suppliers have a choice as to which markets to serve –acquisition policy should create an environment which motivates suppliers to do business with the government.
Being a better buyer and customer are not mutually exclusive. Being a better buyer and customer is a philosophy based on self-interest. This is because better customers increase the pool of potential suppliers eager to work and the effectiveness of market forces when the customer makes a purchase. Better buying becomes important when awarding a contract because buyers have no access to innovation, energy, expertise, or products and services outside the supplier pool. The buying process is where a relationship with the right incentives and checks and balances can be created to demonstrate to potential suppliers the benefits associated with being a better customer. Ultimately, being a better buyer and customer complement one another.
Achieving Department of Defense Acquisition Goals
In the first BBP memo, Carter recognized that DoD cannot succeed alone, that many weapons and services essential to deterrence and warfighting are provided by private industry, and that “industry partners are patriots as well as businessmen.”
The Department of Defense and the private sector can work together to develop a more comprehensive DoD strategy to achieve acquisition goals by being both a better buyer andcustomer. Many issues confront such a strategy which embraces Carter’s sentiment, but we can begin by tackling these five difficult aspects of current acquisition strategy: lack of trust, unproductive process, intellectual property policy, acquisition of commercial items, and profit policy.
The indispensable ingredient. The 2005 Defense Performance Assessment admits the current acquisition system is based on lack of trust. This drives predictable behavior and erection of protection on both sides of a contract, and it’s a barrier to partnership. Lack of trust is expensive, consuming tremendous resources in unproductive process better directed to delivery of actual equipment and service to the warfighter. Despite headlines about imagined fraud, waste and abuse, these things are as a practical matter extremely rare. The 1986 Packard Commission understood “The nation’s defense programs lose far more too inefficient procedures than to fraud and dishonesty. The truly costly problems are those of overcomplicated organization and rigid procedure, not avarice or connivance.” If we are to achieve the revolutionary improvement in acquisition reform so elusive these past decades, we must establish an environment of trust both in the indispensable, patriotic private sector and the professionalism and judgment of DoD’s acquisition workforce.
More than just consuming limited resources, the acquisition system drives so much time and cost into defense systems that product technology can become obsolete before being fielded, or makes them cost more than they need to, or pushes so much cost into the programs that they ultimately fall into irrelevance and cancellation.
For 40 years, Pratt & Whitney has been manufacturing F100 engines and components and each year it must renegotiate prices for each one. After building 180 C-17 aircraft, the bulk of the Air Force fleet, Boeing was obliged to submit sixty-three thousand pages of data in a subsequent buy. Are these role model examples for the protection of the taxpayer’s interests? I suggest instead they are great opportunities for common sense and tremendous savings in time and treasure. Suppose for example that for mature products and services, we simply allow alternate buys at base price plus agreeable government economic indices. How many of the 150,000 acquisition professionals in AT&L, and how many in industry can be freed up with such a simple change and their resources applied to other critical tasks or to the straining budget?
Rep. Thornberry is tackling this problem. “One of the reasons things have gotten so bogged down in bureaucracy is that we’ve tried to paperwork away all risk … Over and over again, I heard that program managers and industry are forced to manage the process rather than manage the programs.”