Change is coming for government, including the Department of Defense (DOD) and the defense industry. Improving government efficiency is a central initiative of the incoming Presidential administration. Change can be fast-tracked by understanding lessons from the past – what has worked and what didn’t, but likely has been forgotten or overlooked. When it comes to federal business, changes in contracting procedures affect both government and industry but is absolutely necessary to improve efficiency and overall outcomes. Increased efficiency and delivering killer outcomes is what winning looks like.
There is a long history of what government has done wrong. Despite the 1972 Commission on Government Procurement pointing out the undesirable “mass and maze” of procurement regulations, regulation has steadily expanded since.(?) It’s been multiple generations since the problem was first acknowledged, only to get worse and become normalized. It has become the status-quo. Prioritizing regulations over goals has separated companies into those that specifically do government business -and- those who don’t. Companies willing to take on costly overhead, lengthen timelines, do weird accounting, and serve government diktats versus those who want to develop and deliver products to serve the broader markets (i.e. consumers). The Defense Science Board report on acquisition reform pointed out that entire segments of the defense industry could be converted into commercial practices. Conscious business approaches to foster dual-use, commercialization, and with the mindset of providing the greatest overall bang for the buck are still being lost in the bureaucratic status-quo. The “costs too much, takes too long” system just keeps going, having an extremely negative effect overall. At the end of Cold War, the Secretary of Defense convened a meeting of defense contractors, dubbed ‘The Last Supper’ and urged them to consolidate. A senior industry official, with DOD insider experience, indicated this was necessary, as defense companies were unable to diversify into commercial business due to the non-value added overhead associated with government standards and regulations. Over the following years, FIFTY-ONE prime contractors consolidated into just FIVE huge prime contractors today. Policy created monopsony!
Recognition of the undesirable nature of the current situation and a policy to correct it were enacted in law many years ago. The statutory civil-military integration policy has been ignored by DOD leadership and bureaucracy.
Title 10 U.S. Code, section 4811(b) states:
(b) Civil-Military Integration Policy.-The Secretary of Defense shall ensure that the United States attains the national technology and industrial base objectives set forth in subsection (a) through acquisition policy reforms that have the following objectives:
(1) Relying, to the maximum extent practicable, upon the commercial national technology and industrial base that is required to meet the national security needs of the United States.
(2) Reducing the reliance of the Department of Defense on technology and industrial base sectors that are economically dependent on Department of Defense business.
(3) Reducing Federal Government barriers to the use of commercial products, processes, and standards.
Past is prologue, programs in the past have blazed new trails in how to restructure government business. Unfortunately, once the congressional or executive branch champions leave, these programs often lapse. An example is the Technology Reinvestment Project (TRP) which highlighted the then recently enacted science and technology Other Transaction (OT) contract (currently 10 U.S.C. 4021). Under Secretary Paul Kaminsky commented:
The TRP increases DOD’s access to affordable advanced technology by leveraging commercial technological progress for military benefit. And, perhaps as important, the TRP is spreading this new way of doing business throughout DOD…. And this technology will be more affordable, available, and continuously improving because once created, it will stay embedded in the dynamic commercial marketplace.
TRP featured industry led multi-party, cost shared agreements. U.S. Government user organizations were often participants in these arrangements. Agreements were structured to meet project needs – not like the phony, so-called consortium agreements widely in use today. Government contracting offices have lost the vision of TRP and substituted a contracting easy button (hack) approach instead of synergistic partnerships aimed at furthering project goals.
Under Secretary John Deutch (later Deputy Secretary of Defense) said DOD can no longer afford to have its own industry. Section 4811 the civil-military integration policy quoted above reflects that sentiment. The Commercial Operations and Support Savings Initiative (COSSI) was a brilliant way to effect cost savings in sustainment programs. Using prototype OT agreements COSSI saved costs by substituting state-of-the-art qualified commercial products for outdated components and subsystems of legacy platforms. The COSSI program resulted in upgraded military systems with documented cost savings of 30:1 in procurement and operations and maintenance costs over a ten-year period! With advances in additive manufacturing, this program is more relevant and needed today! Like TRP, the COSSI program was allowed to lapse once its advocates left the scene. Reversion to business-as-usual, despite success with innovative business approaches, has been a repeated theme in DOD acquisition.
DARPA, the Defense Innovation Unit, and some other organizations make good use of flexible contracting authorities and innovative techniques. However, much of DOD and many other government agencies are still using procurement contracts to fund research and development (R&D) efforts. This makes no sense. It is even contrary to policies within the Federal Acquisition Regulation (FAR 35.002 and 003). Understanding the ‘why’ behind flexible contracting instruments is essential for gaining a broader perspective to support overdue process innovation to deliver new advanced capabilities. Flexible contracting opens the door to conscious business arrangements focused on outcomes, not compliance with rules. Once that mind shift occurs, possibilities open. Current leadership gets an F grade for failing to provide the vision, policies, and equipping the workforce to seize the opportunities, to fulfill their mandate. The same as it ever was.
The status quo prevails. A senior official of a major defense contractor once asserted, “in the defense business you are either all the way in or all the way out.” That is exactly the wrong type of thinking! There must be fluidity between the defense industrial base and the broader national industrial base. What the official said is not the law, the civil-military integration policy (10 U.S.C. 4811) is law.
Metrics and incentives in government acquisition are all wrong. A Government Accountability Office report pointed out that in the private sector the contracting function is judged by how well it aligns with the strategic goals of the organization, i.e. results and outcomes. The GAO study found the government metrics were focused on the contracting procedures themselves, i.e. how well the rules and regulations were followed, compliance. Prioritizing the bureaucracy over purpose (mission) is largely the problem. This results in poor outcomes for which these institutions are entrusted to perform. Publicly funded R&D represents ‘our’ collective hope and is one of the few places taxpayers can expect any sort of return. ‘We’ want contracting processes that support accomplishing goals, supporting the troops, national security, and don’t bankrupt us in the process. This is important stuff, ‘we’ want those involved in publicly funded R&D to knock-it-out-of-the-park, solutions are needed, not excuses for striking out.
Cutting wasteful programs and unnecessary or overlapping personnel positions is all well and good. However, steps need to be taken to actually change business practices – the entrenched mindset that isolates the defense industry and creates barriers to entry for outsiders. Congress has provided government agencies with many legal authorities and directed policies that can greatly improve the way the government does business. Clear vision and incentives need to be established and enforced to effectuate this change. The flexible contracting authorities Congress has provided to DOD, if used intelligently, can also be a catalyst for bettering the requirements process and for how projects are funded, including the application of private sector funding. Congress has already delivered the policies, there is no need to wait for additional legislation, it is already in place. Reformation of government business practices can happen now! If ‘we’ are all going to show up and devote years of time, why not make it count, why not knock-it-out-of-the-park? It is frequently said that the greatest source of happiness is found in being service to others. So why not focus on that, instead of bureaucratic rules that don’t? You can.
In future articles and podcasts we will explore in additional detail how needed reform can be implemented. In the meantime comments and suggestions are welcome.
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