US Acquisition Reform Flawed?

[buglerbilly]

Weapons Spending: Much of the Logic Behind Acquisition Reform is Flawed

(Source: Lexington Institute; issued February 14, 2010)

(© Lexington Institute; reproduced by permission)

The Department of Defense has embarked on another crusade to reform the weapons acquisition process. It's a worthwhile effort, because the department wastes billions of dollars every year on poorly managed programs and processes. But the ranks of military reformers seem to be populated with people who all share the same, flawed convictions about how to make the system work. After watching so many campaigns to fix the acquisition system falter, isn't it time that policymakers re-examined their assumptions?

Here are four contrarian views they might want to consider.

1. Competition reduces efficiency.
In classical economics, the free interplay of self-interest in a competitive marketplace is the "invisible hand" disciplining price and performance. But defense isn't anyone's idea of a classic market. There is only one customer -- the government -- whose behavior is often driven by non-economic influences. And there are only two or three qualified suppliers for most major military systems, each of them almost entirely dependent upon the government for revenues.

The notion that normal rules of competition can be made to work in a system of monopsony buyers and oligopolistic sellers is nonsensical, because the market is too distorted to function normally. If there are to be two suppliers, then the sole customer must pay for two sets of everything -- design teams, production facilities, spare parts, etc. That's precisely what proponents of the F-35 alternate engine propose to do, even though many experts doubt that benefits resulting from competition between two sources will ever justify the cost.

When the government is a smart buyer, it can forego the cost of a second source and still motivate primary sources to continuously improve performance. You don't need a second source to motivate supplier efficiency, just a suitable structure of incentives and a competent buyer. Secretary Gates seems to favor the latter approach, but many acquisition reformers wrongly believe there is no substitute for competition.

2. Fixed pricing raises costs.
Conventional wisdom has it that the only way to discipline the pricing behavior of defense contractors once they have won an award is to insist on a fixed price. That way, the contractors know that they will have to absorb any cost overruns, and they work hard to stay within budgets.

The problem with this reasoning, though, is that the future is largely unknowable and the government always insists on tinkering with programs after awards have been made. What if a hurricane hits the shipyard where a contract is being executed? What if the cost of production inputs goes up after a multiyear award is made? What if the government increases performance requirements for the system it is buying?

The logical way to deal with such unpredictable developments in a fixed-price environment is to bid high at the outset, thereby mitigating any unanticipated cost risks. But incentivizing offers to bid high at the outset defeats the whole purpose of requiring fixed prices in the first place.

Is it really so hard to fashion a cost-plus approach to weapons development where the contractor is rewarded for holding down costs rather than encouraged to bid high from day one?

3. Cost realism is never rewarded.
Bidding conservatively in the defense business is a prescription for going out of business. The top tier of system integrators has consolidated into half a dozen military conglomerates that all have similar skills and similar levels of proficiency. What that means in practical terms is that cost becomes the key discriminator in most competitions, so if one side bids optimistically and the other bids pessimistically, the optimists will usually prevail. What source-selection authority is going to pick the system that costs a billion dollars more when all of the competing solutions meet performance requirements?

The latest installment in this long-running story came last week, when the Army decided to award a $3 billion truck contract to a challenger that bid 30% below what the incumbent is currently charging for identical trucks, assuming a one-percent profit margin on the work that will only be achieved if it receives financial aid from state and local governments.

That's a very risky pricing profile, but the Army had already decided that cost was the sole discriminator between competing bids, so it picked the lowest cost proposal. This is why incumbents almost never win competitions for next-generation spacecraft -- they know too much to make the optimistic assumptions of challengers, and so they don't get selected.

4. More professionals compound the problem.
The Obama Administration thinks the acquisition system can be improved by adding 20,000 more acquisition professionals to the ranks of the civil service. Let's set aside the fact that the acquisition workforce is being expanded right after the department canceled a slew of weapons programs, and consider a more basic issue: what magnitude of savings would be required to justify all these new hires?

Roughly half of them will occupy new positions, and half will take the place of contract personnel. But as civil servants rather than contractors, the new hires are likely to stay with the government until retirement, absorbing healthcare and other benefits in addition to their pay for decades to come. The fully loaded annual cost of an acquisition professional is about $100,000, so the compensation for 20,000 new personnel will run about $2 billion per year. But they will also have to be trained, equipped, housed and otherwise supported, and provision must be made for their retirement once they depart government service.

When you add up all these costs, the long-term burden of taking on 20,000 new acquisition professionals will be over $80 billion -- which just happens to be the projected cost of buying a replacement for the Trident ballistic-missile sub. Of course, some of this burden is diminished through cost avoidance on contract personnel no longer needed.

But there's the rub: you can get rid of contractors whenever their services are no longer required; you seldom can get rid of civil servants. So as procurement activity wanes with the drawdown in Iraq and cutbacks in big-ticket weapons programs, will the new acquisition personnel generate benefits commensurate with the vast burden they impose on future defense budgets? Don't count on it.

-ends-

[buglerbilly]

Pentagon CTO: Equipment Development Must Speed Up

By ANTONIE BOESSENKOOL

Published: 17 Feb 2010 19:20

The Pentagon will look more to developing equipment on a commercial timeline, measured by weeks and months rather than years, the director of Defense Research and Engineering and chief technology officer said at a conference Feb. 17.

DoD will look to "deliver capabilities on a commercial timeline, [with] commercial cycles and certainly the commercial cost curves. I'm talking about weeks and months, not years and decades," Zachary Lemnios said at a conference hosted by Aviation Week in Washington, D.C.

That goal "requires a solid partnership between the Department and defense industrial base. And I suspect in years forward, we'll see a reshaping of that defense industrial base to be far more agile, to encompass far greater concepts out of the research community and even out of the commercial sector," he said.

Lemnios reiterated four goals his office, which oversees research organizations like the Defense Advanced Research Projects Agency (DARPA), laid out last July: to accelerate the fielding of technology needed for current conflicts; prepare for "an uncertain future" by developing technologies now that will be the basis for future technologies; shorten acquisition timelines and lower acquisition cost; and develop science, technology, engineering and math skills that DoD can draw on in the future.

Lemnios talked about steps his office is taking to reach those goals, such as restructuring the Joint Concept Technology Demonstration program, aimed at developing technology for transformational, joint and coalition warfare.

"Our Joint Concept Technology Demonstration program is a key part of our efforts to provide rapid solutions," Lemnios said. "In the past, many of the JCTD efforts simply have gone too long in timing, and some have gone on as much as five years, which is defeating the entire purpose of providing immediate capabilities to fill the inevitable capability gaps." His office recently restructured the program, in conjunction with the services' combatant commanders, to shorten the length of time from idea to first proof of concept to 10 months.

"Most importantly, that program now has injection points for new ideas that can be inserted anytime during the year, with the insight of the combatant commanders, that allows us to innovate our way to new concepts as they become available," Lemnios said.

"Rapid innovation will be the hallmark of our new battlefield," he said. "To meet this challenge, the [science and technology] community has to strengthen its skills for discovering and rapid fielding of new ideas. We simply have to be the best at all of this. It's a very different world, and it's likely to be that way for many years."

Lemnios also said his office will soon release a technology concept called "Systems 2020." The initiative would be aimed at improving efficiency in designing, building and testing weapons systems that require the integration and management of multiple sub-systems, according to a DoD spokeswoman.

"I want to take a deep look at the way we build systems of complexity in the environment that we're likely to be fielding systems in the next decade," Lemnios said of the Systems 2020 concept. "In particular, we need new tools and approaches that will be required to effectively engineer, design, test and construct very complex systems. We'll be paying special attention to interoperability, trust, assurance and key performance parameters that are constrained by the fact that we have very little insight into component pedigree," or the origin of those components.

[buglerbilly]

Contractors prepare for new Defense Department conflict-of-interest rules

By Marjorie Censer

Monday, May 17, 2010

Divesting the Chantilly-based TASC from parent company Northrop Grumman wasn't a simple amputation.

TASC, which operated as Northrop's advisory services business, depended on the defense contractor for back-office support and personnel services for such programs as benefits, retirement, 401(k) and payroll. Since the December sale, TASC company has had to develop its own such offices.

But Wood Parker, TASC president and chief executive, said the decoupling has eliminated potential conflict-of-interest issues within Northrop Grumman, allowing TASC to work with a broader set of federal agencies.

The company provides high-end government support, including systems engineering, technology analysis, and testing and evaluation, primarily to the intelligence community and the Defense Department. Parker said the company is now looking into additional opportunities at both the Department of Homeland Security and the Federal Aviation Administration.

Northrop Grumman cut TASC loose after the government announced it would be taking a harder stand on potential organizational conflicts of interest -- or cases in which a company provides multiple services that could have conflicting interests, such as building a system and then performing the tests to see if it works.

But whether such divestitures are necessary remains to be seen. The Defense Department recently released its draft rules for governing organizational conflicts of interest. In many cases, the government would allow contractors to take steps to mitigate potential conflicts, such as setting up institutional firewalls to separate groups.

Stan Z. Soloway, president and chief executive of the Professional Services Council, a trade group for contractors, said the proposed regulations still need to spell out more clearly what the industry needs to do to avoid running afoul of the rules, and the draft does not appear to take into account the integrated nature of the information technology industry.

But he said he was pleased the proposed rules leave the door open for companies to propose solutions. "I think the idea that you can never mitigate a potential conflict of interest is not only incorrect but could potentially ... have a truly chilling effect, not only on industry but on government as well and the ability to access the right kinds of solutions and capabilities," he said.

It's still unclear how local companies will ultimately react to the new regulations. Arnold Punaro, executive vice president at Science Applications International Corp. in McLean, called the Pentagon's draft language a positive development.

Punaro said SAIC has already been taking inventory of its own contracts to ensure it is prepared for new guidance.

"We didn't want to be caught flat-footed, and we aren't going to be," he said. "We don't have any serious heartburn about the situation."

The Defense Department's proposed regulations are open for comment through June 21.

[buglerbilly]

Design for Affordability

Recapitalize to Lower Ownership Costs

By Michael W. Jones

Published: 17 May 2010

The current U.S. Defense Department acquisition system is broken and getting worse. Several recent studies by the General Accountability Office and Office of the Undersecretary of Defense for Acquisition, Technology and Logistics show that many new programs are over budget or behind schedule.

What's more, the total cost to own and run existing platforms continues to grow above inflation, consuming a larger share of the services' total obligation authority. Plus, affordability is not static - what was affordable when most of today's platforms were on the drawing board may not be so in today's fiscally constrained budget environment.

In response, the Office of the Secretary of Defense (OSD) and the senior leadership of the services, particularly the Navy, have placed new emphasis on reining in the total ownership cost (TOC) of new and existing platforms.

A renewed focus on TOC has been tried and has failed many times in the past. To ensure success this time, a new recapitalization strategy is necessary that balances the need for next-generation advanced capabilities with investment to drive affordability on platforms already fielded.

The challenges are daunting. The acquisition life cycle for a major DoD weapon involves concept and product development lasting a decade or more. Many systems must operate for multiple decades. Some, like the next-generation aircraft carrier, will have an operating life span of nearly half a century.

These long life spans compartmentalize responsibility, fragment leadership and lead to changing requirements and funding instability. In addition, the behaviors surrounding the annual Program Objective Memorandum process and the pressures from diverse stakeholders, including Congress, OSD and contractors, as well as the best intentions of program managers to keep a program of record "sold," all have an irrational effect on programs and help drive up the TOC.

Moreover, in general, Shipbuilding and Conversion, Navy Appropriation and Aircraft Procurement Navy budgets focus on next-generation capabilities or additional units of weapons already fielded. Very little money is set aside to specifically address affordability in a systematic way.

Affordability Through Design

Experience with highly complex engineered products - whether commercial, such as automotive and airlines, or with a broad range of DoD weapon systems - indicates that there is one undeniable tenet for TOC: By the time the first 15 percent of detailed design is complete, 85 percent of the total ownership cost of the system will be permanently locked in. This observation applies both to the cost of acquiring the system as well as the cost to operate and sustain it.

For a DoD weapon system, the critical decisions and trade-offs on TOC are made at the 15 percent design stage. Thus, once a platform is fielded, it is almost impossible to have a material impact on the total system's cost using management techniques such as Lean Six-Sigma or Total Quality Management, which focus on cost at the margins.

Certainly, these processes can help control costs somewhat, but the sheer magnitude of cost reduction required cannot be achieved with this type of in-year execution funding.

To make a true material impact on TOC, a new investment strategy is needed that carves out dedicated funding for existing system retrofits that incorporate fundamental design decisions. It is these design decisions that affect the true cost drivers of TOC.

This may mean rethinking a core design component of a fielded system, such as whether it has a steel or composite hull, how large a crew it will support, or the type of propulsion system it has.

Today, funding for this type of retrofit does not exist because current priorities are focused on next-generation capabilities and additional units of fielded systems. But it's precisely these types of retrofits based on core design decisions that are needed to drive long-term affordability on existing platforms.

Changing the TOC

We need a recapitalization strategy that balances between investments to push the capability frontier and investments needed to improve TOC affordability on platforms already fielded. Today, we have detailed technical baselines and modernization plans for most of our key weapon systems. What we don't have is a true TOC affordability road map attached to them.

The armed forces must be committed to recapitalization through design. This means that each platform or capability suite needs a road map with TOC affordability built into the very earliest stages of its design, as well as dedicated funding for existing system retrofits. In this way, we can prudently invest in next-generation capabilities while making a commitment to reinvest funds that ultimately will drive TOC affordability on platforms already fielded.

-----

Jones, a senior vice president at Booz Allen Hamilton, leads the firm's supply chain and logistics business.

The current system doesn't seem to be hurting Booze Allen's too much if this article is to be believed.............


Cyberwar Cassandras Get $400 Million in Conflict Cash

By Noah Shachtman

http://www.w54.biz/showthread.php?87-New-Tactics-for-Cyber-Combat/page3

[buglerbilly]

Department Hires Acquisitions Workers to Help Reforms

(Source: US Department of Defense; issued May 19, 2010)

WASHINGTON --- The Defense Department is making strides toward acquisition reform and budget reductions, starting with the buildup of its federal acquisitions work force, department officials told a congressional panel today.

The department created the Office of Cost Assessment and Program Evaluation and has hired more than 3,000 employees since the end of March to improve its purchasing processes, John Roth, deputy comptroller for programs and budgets, told the House Oversight and Government Reform Committee’s national security subcommittee.

Acquisition reform is a key component of Defense Secretary Robert M. Gates’ efforts to improve processes while also cutting overhead costs. Part of that reform calls for reducing the department’s use of contractors and replacing them with federal workers. The new hires are the first step in reducing contractors from 39 percent to 26 percent of the department’s work force, Roth said. Officials are requesting an additional $218 million in the fiscal 2011 budget to expand the reform efforts, he said.

“Good people are an essential element of any acquisition reform strategy,” said Nancy Spruill, the department’s director of acquisition resources and analysis, who also spoke before the subcommittee. “We’re committed to growing the work force. But, more than numbers, we are focused on quality. We are pleased that we’re attracting talented people every day to help us work on acquisition reform.”

In addition, Roth said, the secretary already had made “unprecedented cuts” to major weapons programs that are underperforming or over budget. Overall cost savings will be converted to sustain combat power and make future investments, he said.

“The department has had a change of emphasis,” Roth said. “That change is to a stronger, better-controlled business environment.”

The department has 102 major acquisitions programs, and is focusing its reforms on the ones in which it can intervene in the early stages, Spruill said. “We have an increased emphasis on the front end of the process,” she said, starting programs right, reviewing them early on and getting independent reviews.

Department officials are working hard to implement the reforms of the 2009 Weapons System Acquisition Reform Act and the provisions of reform legislation this year, Spruill said. “We have made support to the warfighter our highest priority, and we are improving the acquisitions work force,” she said.

Better systems engineering, technical maturity, and especially cost estimate improvements are driving reform, Spruill said, adding that cost estimates are the most difficult.

Michael J. Sullivan, the General Accountability Office’s director of acquisition and sourcing management, also spoke to the subcommittee, and outlined Defense Department progress on acquisition reform since the GAO reported in 2008 on problems in 42 programs. Acquisitions workers, he said, have done a good job of recognizing problems, and are on track to make long-term changes.

Under Gates’ leadership, Sullivan noted, 13 programs were removed from the department’s acquisitions portfolio at a cost savings of $179 billion.

Defense acquisitions problems have existed for decades, Sullivan said, but change is possible “when we have leadership in the department like we do now.”

“It boils down to accountability and leadership, and when leadership takes charge of things, things can happen,” he said.

-ends-

[buglerbilly]

CSIS: Pinching Acquisition Pennies To Get Harder

By WILLIAM MATTHEWS

Published: 26 May 2010 17:38

A year after President Obama signed weapons acquisition reform legislation into law, evidence of savings are elusive.

Obama said the Weapon System Acquisition Reform Act of 2009 would "limit cost overruns," increase oversight and accountability, and increase competition - all designed to save money in the ballooning defense budget.

But acquisition experts at the Washington-based Center for Strategic and International Studies said May 26 it will take at least three or four years to tell whether the law actually delivers results.

And in the meantime, several trends are likely to make it harder for the U.S. military to wring savings out of its weapons programs.

Competition would be one way to force prices down, but CSIS analysts predict that in coming years there will be fewer companies offering goods and services to the Pentagon, decreasing opportunities for competition.

It's already happening. Between 2004 and 2008, spending on "single source contracts" for major weapons increased from 76 percent to 87 percent, a CSIS team led by David Berteau reported.

While the law - referred to as WSARA - focuses on increased competition, "it does not reflect the fact that competition is only possible when the industrial base is there to support it," the team said in a report.

Another challenge is that defense budgets are likely to be far less generous in the future than they have been in the past decade. Defense spending has increased from $294.4 billion in 2000 to $719.2 billion this year.

Big annual spending increases enabled the services to overcome program problems by simply spending more money on them, the report says. But such big increases are extremely unlikely in the future, and troubled programs will have to be dealt with.

"There will be more Nunn-McCurdy breaches," the team predicts. But the breaches will result more from stricter reporting requirements than from deteriorating program performance, they said.

Nunn-McCurdy is a law that requires Congress to be notified when weapons costs exceed cost estimates by 15 percent. Programs are supposed to be canceled when costs increase by more than 25 percent. Although such cost increases are fairly common, cancellations remain exceedingly rare.

To get better control over programs, the Defense Department is trying to build up its acquisition workforce - the acquisition experts who oversee the buying of goods and services.

But building up the work force "probably constitutes the single most daunting challenge for U.S. defense acquisition," the report says.

"Between 2001 and 2008, Department of Defense spending on goods and services almost doubled, while the acquisition work force continued to decline." Recent efforts to reverse the decline "hold promise," but have not delivered results, the CSIS team said.

[buglerbilly]

U.S. Army Announces 120-Day Acquisition Review

By KATE BRANNEN

Published: 27 May 2010 16:45

The U.S. Army will launch a 120-day study of how the service acquires and manages equipment in an effort to improve its processes and policies in the near term.

The study will serve as a blueprint for actions the Army can take over the next one to two years to improve the way the Army develops and buys things, said Lt. Gen. William Phillips, military deputy to the Army's acquisition executive, speaking May 27 at an Army breakfast in Arlington, Va.

"It's an opportunity to really improve acquisition," Phillips told reporters at a media roundtable after the breakfast.

Phillips said the review will be conducted by an independent panel co-chaired by Gil Decker, a former Army acquisition executive, and retired Army Gen. Lou Wagner, who once served as the Army deputy chief of staff for research, development and acquisition, and later as commander of the Army Materiel Command.

"The analysis will build upon progress made in acquisition reform following the 2009 implementation of the Weapons Systems Acquisition Reform Act and will identify areas for growth, improved efficiencies and cost savings," states a May 26 press release. It will also incorporate lessons from fielding items rapidly to Iraq and Afghanistan, the release says.

"We're very good at rapid," said Maj. Gen. Thomas Spoehr, director of force development in the Office of the Deputy Chief of Staff (G-8). "We're also good at deliberate, and there's no middle ground. I think we want the best of both worlds."

The review will look at requirements, funding, acquisition policies and processes, the acquisition work force, external relationships and oversight, and major acquisition programs, both successes and failures, according to Phillips' briefing slides.

"It's really looking at what's value-added in the review process: what brings value and what doesn't add value in the process, so you can shorten the length of time," said Phillips.

For example, for the Warfighter Information Network-Tactical program's recent milestone decision, more than 60 documents had to be prepared, Phillips said. The study intends to look at how the Army can gain efficiency in programs like that without skipping important steps.

Even rapid acquisition needs a closer look, said Phillips. While Mine Resistant Ambush Protected (MRAP) vehicles were rapidly delivered to troops in combat, there are now more than 12,000 of them without thorough sustainment plans, Phillips said.

"We're working through the challenges of sustaining those MRAPs over time and the Army's looking at how many of them will remain in the inventory, because it's not a program of record," he said.

A program of record would have addressed sustainment earlier in the process, but the vehicles never would have been ready in 12 months if they had been developed and fielded through the program-of-record process, Phillips said.

The review is taking place at the same time the Pentagon is examining acquisition challenges and opportunities, the release says. Rather than duplicate efforts, the review will build on recent studies, particularly the Gansler Commission Report on expeditionary contracting and the Army's Reno Study on the requirements process, Phillips said.

One of the key recommendations from the Reno Study was that before fielding a system across the entire Army, an assessment of a system's lifecycle costs is critical, said Spoehr.

The panel will provide interim status updates at the direction of Army Secretary John McHugh, who signed the review's terms of reference.

[buglerbilly]

Sen. Tom Coburn: America’s Fiscal Defense Crisis

27-May-2010 19:04 EDT


Sen. Tom Coburn

Guest article by Sen. Tom Coburn, R-OK

This memorandum describes what I believe are serious problems in our defense budget and some ideas to address them. I appreciate that some of these thoughts are controversial – even to the point that I have some reluctance in suggesting them. However, if we are to fulfill our mandate, we must make some difficult choices, not just recommend that others do so. In other cases, such as exacting financial accountability from the Department of Defense, I believe we all can agree. Indeed, without our adopting controversial, but vitally important, ideas, I fear we cannot achieve our mandate.

Despite the sacrifice, heroism, and professionalism that our military personnel have shown in Iraq and Afghanistan, America’s defenses have been decaying, despite – perhaps even because of – increasing budgets. The ongoing corrosion and growing expense have been with us for decades, and span numerous presidents and political parties. Our Commission affords us an opportunity to start some very late due diligence on national defense spending. If these reforms are taken without the usual forms of compromise that always seem to occur – and prevailing practices that corrode our defenses are truly discarded – a stronger American military will result.

What Problems?


USA: Avg. Aicraft Age

As Stephen Daggett from the Congressional Research service noted in an earlier discretionary working group meeting, total Pentagon spending is higher today – in inflation-adjusted (“constant”) dollars than at any time during the last 60 years. This includes the Korean War, the Vietnam War, and the Defense Department spending during President Regan’s administration.
Not counting the spending for the wars in Iraq and Afghanistan, the “base” Pentagon budget has increased from $407 billion in 2001 to $553 billion for 2011 in inflation-adjusted dollars, according to the newest US defense budget data. Over the past decade, this means a cumulative total increase of almost $1 Trillion for the base DOD budget.1

Compared to China, Russia, Iran, North Korea, and Cuba, we are spending more than three times what all those nations spend, combined.2

US defense spending almost matches what the entire rest of the world spends.3

The Obama Administration’s current plan is to increase DOD spending by one to two per cent (real growth) each year for the foreseeable future.4

Shrinking Forces: The US Navy has fewer combat ships than in any year since 1946; the US Air Force has fewer combat aircraft, and the Army hit a post World War II low in combat division-equivalents in 2008 – from which it has barely recovered. These trends are not new; as the defense budget has grown over time, our forces have shrunk. Secretary Gates noted in a recent speech that current submarines and amphibious ships are three times as expensive as their equivalents during the 1980s and we have fewer of them.5

The current DOD plan is to make the Air Force even smaller, at dramatically increased procurement costs. The Navy has a draft shipbuilding plan to marginally increase the fleet from 287 ships to just over 300, but only if shipbuilding budgets are increased by 30 percent or more. Meanwhile current plans to “upgrade” naval aviation mean a smaller force than we had during the 1990s but at a cost of more than quadrupling spending for naval combat aircraft. The Army is spending up to $88 billion to increase its core active duty combat brigades from 38 to just 42.6


A-10 at Bagram AB

Aging Forces: At the same time, major hardware inventories have actually grown older, on average. According to the Congressional Budget Office (CBO), among others, major categories of military equipment are aging in an unprecedented manner. CBO data also shows us that the DOD plan in many major hardware categories is for this problem to grow worse – assuming no further cost growth or schedule delay in each program. While cost of the high operating tempos for our forces in Iraq and Afghanistan have exacerbated this trend, it predates those wars and would be worsening even without them.7

For waging conventional war, the new weapons we buy to replace old ones increase in cost far faster than the budget increases (which makes inevitable the shrinking and aging of our weapons, at growing cost). Also, the new systems rarely, if ever, bring a performance improvement commensurate with the cost increase. In some cases the new system is even a step backwards. The F-35 Joint Strike Fighter’s close air support capability is a good example. Among the aircraft it is to replace is the 1970s vintage – but still much used and almost universally praised – A-10 close air support aircraft. Even if the F-35 stays at its currently stated purchase price of $131 million per aircraft8 it will cost almost nine times more than an A-10, using inflation adjusted dollars. At that huge additional cost, it will have less payload than an A-10; it will not be able to loiter over the battlefield to help troops engaged in combat hour after hour; it will be too fast to be able to find targets independently, and even if it could, it will be too fragile to survive at the low altitude it must fly at to be truly effective, even against the primitive small arms and machinegun defenses terrorists and insurgents can mount. It also lacks the extraordinarily effective 30 mm cannon the A-10 carries, a weapon of astounding lethality against a wide variety of target types, including heavy armor.9


Cougar MRAP

Slow and Inflexible Acquisitions: For traditional programs within the acquisition system, the Government Accountability Office has also reported many cases of schedule delays of months and even years are due to the numerous additions of new requirements for weapon systems.10 For the current conflicts in Iraq and Afghanistan, senior military leaders had to go outside the normal acquisition process in order to obtain both body armor and Mine-Resistant Ambush Protected vehicles (MRAPs).11 In frustration regarding the acquisition of the MRAP vehicles and other requirements for the wars in Iraq and Afghanistan, Secretary of Defense Robert Gates himself has said that the Pentagon is not on a ‘war’ footing when it comes to budget and acquisitions.12

Where Did the Money Go?

Hardware Cost Growth: Since 2001, spending for our shrinking, aging hardware inventory has grown from $75 billion in annual procurement dollars to $113 billion today.13 The Defense Department’s Selected Acquisition Reports (SARs) show two types of problems in this increased spending: programs that hugely increase in cost to buy no extra weapons, and programs that hugely increase in cost to buy fewer weapons.14

For example:

•In 2000, the Air Force promised 341 F-22 fighters would cost $61.9 billion ($181.5 million each). Today’s estimate is $66.7 billion for 188 aircraft ($354.5 million each). Program cost went up 8 percent. Unit cost went up 95 percent. The inventory to be bought shrank by 45 percent.
•In 2001, DOD predicted 2,866 F-35 Joint Strike Fighters for $226.0 billion, or $79 million each. Today, DOD is predicting 2,457 F-35s for $328.3 billion. The unit cost has gone up 68 percent to $131 million each, while the units to buy shrank by 14 percent. The negative trends for this aircraft are not reassuring for the future.
•In 2000, the Navy projected 12 LPD-17 amphibious warfare ships for $10.7 billion ($891.7 million each); today we expect to build 11 LPD-17s for $18.7 billion ($1.7 billion each). Program cost went up 75 percent, and unit cost went up 89 percent, while the inventory shrank by a ship.

The Government Accountability Office (GAO) found that cost growth from 2001 to 2008 in major weapon systems amounted to $296 billion.15

Pork: Congress added at least $60 billion in pork to post-September, 2001 defense bills.16 Earmark projects were added without an objective estimate of actual cost, without an independent evaluation of need or efficacy, and without competition.

The budget growth for hardware (as discussed above) is simply unaffordable. The longer we wait to solve the problem, the steeper the cuts must be in both accounts in order to operate at a sustainable rate.

Will Recent Legislation Fix the Problem?

Despite decades of acquisition reform from Congress, the Pentagon, and the think tanks, the Government Accountability Office (GAO) tells us that cost overruns in weapon systems are higher today, in inflation adjusted dollars, than any time since they have been measured. Last year, Congress passed the Weapon System Acquisition Reform Act of 2009. Almost every Member of Congress supported it, along with top Department of Defense managers. The early returns on the enactment of this legislation are not encouraging.

For example, one area of immense focus in the legislation was the goal of obtaining realistic, objectively derived cost estimates for major weapon systems. Despite this emphasis and the rhetoric of top Pentagon management, the new cost estimates for DOD’s largest acquisition program, the Joint Strike Fighter, reject much of the work of an independent cost estimating team, known as JET II.17 As a result, Congress and the Pentagon are locking themselves into a program that will only continue to grow in cost, and yet the Pentagon still plans to spend over $70 billion to purchase 420 Joint Strike Fighters before completing flight testing.18

In yet another example of the bill’s ineffectual support for another reform (competitive “fly-before-buy” procurement), the Army is also rushing ahead into production its various “spin-offs” from the cancelled – ultra complex, underperforming, high cost growth – Future Combat Systems program. The Army is nonetheless blindly plunging ahead into production of the “spin-offs” despite the DOD operational testing office’s finding that they exhibit “notable performance deficiencies.”19

Fixing the Mess

The single most important step to solving this depressing array of problems is to better understand how the Pentagon spends its money – both historically and prospectively. Without an accurate grasp at the start of a spending program as to its most likely cost, schedule, and performance, how can decision makers understand the future consequences of their actions? Today, an ethic continues to predominate in the Pentagon that consistently paints an inaccurate picture – one that is biased in the same, unrealistic and ultimately unaffordable direction. The errors are not random: actual costs always turn out to be much higher than, sometimes even multiples of, early estimates.

The reason is simple; the Pentagon doesn’t know how it spends its money. In a strict financial accountability sense, it doesn’t even know if the money is spent. This incomprehensible condition has been documented in hundreds of reports over three decades from both the Government Accountability Office (GAO) and the Department’s own Inspector General (DOD IG).

In a depressing and little-noticed report, the Pentagon Inspector General reported the following in its “Summary of DOD Office of the Inspector General Audits of Financial Management.”20

•The financial management systems DOD has put in place to control and monitor the money flow don’t facilitate but actually “prevent DOD from collecting and reporting financial information … that is accurate, reliable, and timely.” (page 4)
•DOD frequently enters “unsupported” amounts in its books (page 13) and uses those imaginary figures to make the books balance. (page 14) Inventory records are not reviewed and adjusted; unreliable and inaccurate data are used to report inventories, and purchases are made based on those distorted inventory reports. (page 7)
•DOD managers do not know how much money is in their accounts at the Treasury, nor when they spend more than Congress appropriates to them. (page 5) Nor does DOD “record, report, collect, and reconcile” funds received from other agencies or the public (page 6), and DOD tracks neither buyer nor seller amounts when conducting transactions with other agencies. (page 12)
•“The cost and depreciation of the DOD general property, plant, and equipment are not reliably reported ….the value of DOD property and material in the possession of contractors is not reliably reported.” (pages 8-9)
•DOD does not know who owes it money, nor how much. (page 10)
•DOD does not accurately estimate or report the cost of cleaning up its facilities, does not track its environmental liabilities, and does not have a complete record of its ranges and operational activities. (page 11)
Amazingly, it gets worse; overall –

•“audit trails” are not kept “in sufficient detail,” which means no one can track the money;
•DOD’s “Internal Controls,” intended to track the money, are inoperative. Thus, DOD cost reports and financial statements are inaccurate, but the size, even the vector, of the errors cannot be identified because the data cannot be verified, and
•DOD does not observe many of the laws that govern all this.
That final finding is perhaps the most appalling. Congress and the Pentagon annually report and hold hearings on all this and sometimes enact new laws, but nothing changes. Many of the new laws simply permit the Pentagon to ignore the previous ones.

For example, the DOD IG reports that

•“The Chief Financial Officers Act of 1990 … required … [DOD] to prepare … financial statements that were audited by either the Inspector General or an independent public accountant…”
Beginning in 1991, DOD began preparing and submitting financial statements for audit. However, DOD OIG audits of those financial statements for FYs 1991 through 2001 identified pervasive and long-standing material weaknesses which caused those financial statements to be unauditable.

•In 2001 Congress limited the amount of audit work performed by the DOD IG under the CFO Act based on management’s representation regarding the [un-]reliability of the financial statements.” (page 1 of the summary report identified above.)
In other words, the new law imposing competence was waived by the update. The actions in question and the inaction were the accomplishments of both Democratic and Republican administrations and Congresses. The behavior continues to this day. The recently enacted National Defense Authorization Act for 2010 contains a Section 1003 (“Audit Readiness of Financial Statements of the Department of Defense”) which instructs DOD management to produce a plan “ensuring the financial statements of the Department of Defense are validated as ready for audit…”21 The plan sets September 30, 2017 as the date when the Pentagon must receive a clean audit opinion.

If we do not have a system that does not accurately know what its spending history is, and does not know what it is now how can we make a competent, honest estimate of future costs? No failed system can be fixed if it cannot be accurately measured.

And yet, there is no sense of urgency in the Pentagon to do anything about it. Indeed, in the 1990s, we were promised this problem would be solved by 1997. In the early 2000s, we were promised it would be solved by 2007; then 2016; then 2017. Now we are being told 2017 is unrealistic.

It is quite clear that this essential key to controlling spending will not be effectively addressed by a Pentagon left to its own devices.


Back to the future?

The overall discussion above suggests a number of ways to control defense costs and ensure the reduced spending brings reform and improves our forces. The summary paragraphs below describe the essence of these ideas; however, it is worth mentioning that riddling such reforms with loopholes and exceptions will only result in yet more business as usual.

1. Begin a crash program to have the Pentagon pass a financial audit. To provide the necessary incentive for a financial audit the “base” Pentagon budget should be frozen in FY2012 at the FY2011 level. Unless and until all major components and all major defense acquisition programs are certified by the Inspector General or an independent public accountant for an unqualified audit opinion, spending for those components and those programs should remain frozen. This freeze should not apply to any spending for direct support of overseas contingency operations or Defense Department personnel and wounded warrior accounts. If the Secretary of Defense or Congress asserts that a freeze will harm the national security of the United States or our troops in combat, funding may be increased but only by equally reducing other Defense Department components or programs.

2. Stop High Cost Growth Acquisition and Reinvest the Savings: No defense acquisition program may progress beyond a very limited number of Low Rate Initial Production items, unless and until the Director of Operational Test and Evaluation has reported to the secretary of defense and Congress that it is effective and suitable and that all planned development and operational testing is complete. There will be no exceptions from this prohibition of “concurrency;” no programs currently being developed in the Department of Defense are exempt, except that during combat operations authorized by Congress. That hardware may be delivered before the completion of operational testing to combat theaters on the direct, written request of the pertinent regional commander. Any immediate savings from the suspension of premature production of incompletely or untested defense programs may be reinvested in expanded production of fully tested defense programs to enlarge operational inventories and reverse inventory aging. For example, the short term savings from the suspension of further F-35 production may be used to purchase additional F-15, F-16, and F-18 aircraft and to refurbish A-10 aircraft which would immediately assist our ground forces in Afghanistan with additional support.

3. End the Pork Process: No line item increase “earmark” in defense spending bills and reports should be allowed without an estimate from CBO of its past, current, and future costs, an evaluation from GAO as to its need and efficacy. Finally no funds for congressional “earmarks” should be obligated unless there is a true full and open competition.

4. Support Military Pay and Benefits but Curtail the Excess: Congress should assess the long term affordability of DOD personnel pay and benefits, including for dependents, retirees, and survivors. Pay and benefits should be reformed to the extent that all such benefits are affordable within a DOD budget that assumes zero real growth for the foreseeable future. One of the areas that should be examined is the massively complicated pay structure built in to the Department of Defense. The layers of complexity involved with administering all the special pays, incentives, and tax benefits have a huge cost on the Defense Department in the area of administrative and human resources costs that do not benefit our troops. Similarly, the Defense Department should determine which benefit programs are valued the most by our servicemen and women to determine if certain prized benefits can be boosted while underutilized and obsolete benefits are phased out. Regarding the sheer number of personnel in the Department, Secretary Gates has also noted that the Department of Defense has far too many headquarters, staff, and bureaucracy that merely create more work for subordinate units.22 Thorough examination in areas such as these could yield significant savings without any reduction in benefits for our troops and their families.

5. Eliminate Non-Defense Pentagon Spending: The secretary of defense and the director of the Office of Management and Budget should move out of the National Defense budget function any and all spending that does not directly and substantially contribute to the national defense. A list of such activities now within the defense budget includes DOD Medical research for non-combat applications duplicated by the National Institutes of Health, National Guard counter-drug activities duplicated by local police and state-run efforts, and DOD expenses for running grocery stores and other commercial operations.23

6. Eliminate End of Year Spending Sprees: Eliminate the current bureaucratic policy that all appropriated funds under unit commander’s control must be spent before the end of the fiscal year; permit one-half of such funds retained to be used by local level unit commanders for proven, urgent needs for military readiness (“urgent” to be defined by OMB); the rest to be returned to the Treasury for deficit reduction. Base and unit commanders shall be evaluated on their ability to save such funds, use them for truly urgent readiness needs, and return money to the Treasury. The DOD IG shall be notified of all such retention and use of funds to enable selective audits.

Many other cost-saving and military reform ideas have already been articulated by GAO, CBO, nonprofit think tanks, and others. Given the limited time our commission has to fulfill our duty, I encourage other commission members to examine the numerous recommendations from these organizations.

I strongly believe that we can work together for common-sense ideas that can both reduce wasteful, unnecessary, and duplicative defense spending that does nothing to make our nation safe.

I look forward to working with National Commission on Fiscal Responsibility and Reform on this momentous task.

Sincerely,
Tom A. Coburn, M.D.
United States Senator

[buglerbilly]

Army Seeks Balance with Rapid Acquisition

(Source: US Army; issued June 4, 2010)

WASHINGTON --- The difference between rapid acquisition and traditional acquisition can be as much as six years or more.

The rapid acquisition process allows the Army to bypass some of the rules, policies and procedures associated with acquisition for large projects and to get them into the hands of Soldiers quicker, said Lt. Gen. William N. Phillips, military deputy to the assistant secretary of the Army for acquisition, logistics and technology. He spoke May 27 at an AUSA Institute of Land Warfare breakfast.

One example he used was the Mine Resistant Ambush Protected Vehicles - which took about 12 months to field, and the MRAP All-Terrain Vehicles took about 15 months to field.

With the Ground Combat Vehicle, which will go through the traditional acquisition process, Army officials say they expect to see prototypes of that in seven years.

"Really it's looking at what is value added in the review process," he said. "What brings value and then what doesn't add value to the process. So you can shorten the length of time."

Phillips said that when the Army does rapid acquisition on a system, it looks to see where efficiencies can be gained to speed technology into the hands of Soldiers.

"As you look at that process where you do a program like that, how could you gain efficiency? And as you gain efficiency, ensure you have the same level of effectiveness on the back end without missing anything that is required," he said.

Nevertheless, with rapid acquisition, there are points that get overlooked and that must be dealt with afterward, Phillips said.

"Those 12,000-plus MRAPs we have, today there is really not sustainment," he said. "We are working though the challenges of sustaining those MRAPs over time. And the Army is looking at how many will remain in the inventory, because it is not a program of record. "

Brig. Gen. Mark Brown, deputy for acquisition and systems management, said with rapid acquisition, the Army can deliver good performing systems, but must question the cost.

"What is the balance between due diligence ... thinking the whole problem through and knowing all the answers before you move out (and) speed, which is do it now, do it today get it out there and have discovery and learning after the fact," he asked.

"The systems we put out there fast are very good performers, but every day we are discovering things we didn't think through when we pushed them out," he said. "We seek every day to find that right space and I think by and large we do a good job. And we could do a better job and we owe that to our share holders."

-ends-

[buglerbilly]

Ares

A Defense Technology Blog

Paying the Defense Bill

Posted by Paul McLeary at 6/10/2010 9:41 AM CDT

“This is a long journey, this is a labor of years,” Frank Kendall III, the Pentagon’s principle deputy undersecretary for acquisition & technology said of acquisition reform this morning in Washington. Kendall warned that over the next several years as his office works to reform the defense budgeting system, budgets will tighten due to the economic downturn and the spiraling national debt, although he did say that while “we don’t anticipate a dramatic drawdown in the budget … we’re gonna see some gradual drawdown in [DoD] investment” over the next several years.

Kendall made his comments at a daylong symposium sponsored by Credit Suisse and McAleese & Associates dedicated to defense resourcing and acquisition. Following Kendall was congressman Adam Smith, (D-Wa.), chairman of the House Armed Services Committee’s Air/Land Subcommittee, who pointed out that the United States is $13 trillion in debt and while everyone is in favor of federal spending cuts, when he goes home and speaks with his constituents, every one of them has their own list of government programs that they feel should be spared the budget axe.

Smith also spoke of the need—from a Capitol Hill budgetary perspective—to “sacrifice a little bit as far as top of the line” and rethink the need for “huge long term projects,” like the Future Combat Systems, which Secretary Gates scuttled last April. Smith complained that “we’re still trying to unwind Future Combat Systems … it is my opinion that we have not yet worked that out” even though the Army feels that they have the remnants of the program under control. Smith admitted that due to today’s somewhat ragged financial realities, while “we have a lot of things in the developmental pipeline,” when it comes to some of the big-ticket procurement programs, “we are not going to be able to afford those programs.” In the end, as the DoD’s Frank Kendall pointed out, “we have to get a threat matrix that [not only] defines what the threats are, but how we pay for trying to meet those threats.”

[buglerbilly]

Gates Describes Frustrations in Changing Processes

(Source: U.S Department of Defense; issued June 16, 2010)

WASHINGTON --- Changing some processes in the Defense Department has required his personal attention, Defense Secretary Robert M. Gates said today, but he added that he believes those changes are on their way to becoming part of how the Pentagon works.

The secretary told the Senate Appropriations Committee’s defense subcommittee that one frustration with his job has been that the Defense Department “is organized and structured to plan for war, but not wage war.”

Gates has personally intervened to focus the department’s attention on programs that benefit today’s warfighters, such as Mine-Resistant, Ambush-Protected vehicles; more intelligence, surveillance and reconnaissance assets; and more processes and technologies to counter roadside bombs.

The secretary told the senators he has had to form ad hoc task forces to confront these problems, “where I chair them and essentially have all of the senior players, both uniformed and civilian, at the table and to be able to force the kind of rapid action that has been necessary to support those in the field.”

Now, he added, that mindset is changing.

“In several of these areas, I think that the work has reached a point where I think I can begin to take actions to begin to return these efforts to … where they would traditionally have a bureaucratic home,” he said.

But for the long term, the secretary said, this remains a serious issue in the Defense Department.

“One [problem] that I have not yet found the answer to [is] to get urgent action in an area supporting men and women in combat today that ranges across the entirety of the department, both uniformed and civilian and all the different defense agencies,” he said.

Balancing the capabilities needed to confront the threats of today versus future dangers is another aspect Gates said he must confront.

“If you took a broad look at our budget, about 50 percent of our procurement budget is for what I would call long-term modernization programs to deal with near-peer countries,” he said. “About 40 percent is dual-purpose, like C-17s and other things we will use no matter what kind of conflict we're in, and about 10 percent has actually been for irregular or the kind of asymmetric warfare we’ve been talking about.”

-ends-

[buglerbilly]

Carter Cost Fix Rumors Fly

By Colin Clark Friday, June 25th, 2010 1:56 pm

There is a lot of worried people hanging around waiting for this announcement!

Over the last few hours calls have gone out from the head of Pentagon acquisition to senior defense industry types to stand by for a Monday morning briefing on cost cutting or efficiency measures, setting off a frenzy of speculation and concern. We hear Ash Carter will make a major public announcement about acquisition processes that afternoon.

Industry is mighty worried.

“This is so last minute,” said one industry observer, noting that the Pentagon has shared no information with industry yet. “If this was seen as collaborative effort on how to fix challenges you would see much less anxiety since it would then be predictable.”

Another defense source said “industry “is quite apprehensive about what cumulative impact this may have on profits.”

How concerned should they be? We don’t have much information yet but we hear this marks follow up to Defense Secretary Robert Gates’ speech at the Eisenhower Library in Abilene, Kansas.

[buglerbilly]

A bit more on this.............

DoD Calls Acquisition Summit

Carter To Talk With Industry, Program Leaders

By JOHN T. BENNETT and VAGO MURADIAN

Published: 28 June 2010

Pentagon acquisition chief Ashton Carter has summoned leading U.S. industry executives and military acquisition officials to Washington for two unprecedented sessions June 28 to discuss policy, process and work force changes meant to reduce the cost of acquiring goods and services.

Spurred by Defense Secretary Robert Gates' drive to trim $101.9 billion from Pentagon spending budget over five years, Carter is expected to brief attendees "on the substance of what they are thinking," one industry source said.

Carter's session with industrialists will be held at the Center for Strategic and International Studies, a think tank in downtown Washington. Carter will then head to the 500-seat Baruch Auditorium on the campus of National Defense University at Washington's Fort McNair, where he will address hundreds of military acquisition executives and program managers.

Another source described the sessions as discussions "on how to better deliver acquisition value to the taxpayer and the war fighter."

Efforts to improve the Pentagon's acquisition work force also will be on the agenda, according to sources.

Several sources said the kinds of things the department will propose are rather dry - "not the kind of stuff the average person would immediately get," as one source said - but could have major consequences.

The Pentagon declined comment.

Ron Epstein, an aerospace and defense analyst with Banc of America Securities, applauded the effort.

"It is a very good thing that DoD is acknowledging things are going to get harder," with defense budgets expected to cease the meteoric rise of the past decade, he said.

Epstein said Carter faced a tough task: "trying to incentivize a noncommercial entity like the Pentagon and the defense industry to act like a commercial entity." And he noted, "In the end, it's all just procurement reform - and how has that turned out?"

'A First Breakfast'?

Pentagon industrial policy chief Brett Lambert has long quipped it is high time for a "first breakfast," a reference to the 1993 "last supper," a Pentagon meeting where then-Defense Secretary William Perry urged U.S. arms makers to consolidate.

It is unclear whether Carter will outline the Pentagon's view on mergers and acquisitions on June 28, but it's clear that the Clinton-era meeting shaped the acquisition executive's views on industrial strategy.

"I was at the 'Last Supper' with Bill Perry and John Deutch [undersecretary of defense for acquisition at the time] who had the foresight to realize that as times changed, the structure of the defense industry would change, and the department had some responsibility to play some part in that change," Carter said. "I feel they were absolutely right, and I feel that same responsibility today. So I'm going to be looking toward my industrial policy staff to help me and the secretary and the deputy to get on top of that question."

But Gordon Adams, who oversaw defense budgeting for the Clinton administration, doubts the June 28 meetings will produce similarly major changes.

"I just don't think we're at that same kind of come-to-Jesus moment," said Adams, now a professor at American University here.

Industry officials slated to attend the early morning session said they are not exactly sure what to expect.

Details Scarce

"This was planned very quickly, and we really don't know what he is going to say to us," the first source said.

Several sources said the Pentagon has asked that the scant details it has released about the meeting be held closely.

On May 8 in Kansas, Gates announced he plans to shift billions of dollars from unnecessary and redundant support programs to protect force structure and modernization efforts.

Citing a Defense Business Board finding that overhead consumes nearly 40 percent of the defense budget, Gates had alerted the military services, the Joint Staff, all major and functional commands, and Pentagon civilians to take a "hard, unsparing look at how they operate, in substance and style alike."

Deputy Defense Secretary William Lynn said the Office of the Secretary of Defense will order all military services, components, combatant commands and agencies to find one-third of the cuts "within force structure and modernization."

Adams said savings from acquisition efficiency are unlikely, and larger cuts are coming.

"Deficit reduction and [Iraq and Afghanistan] withdrawals will likely drop defense budgets far deeper than Gates is currently projecting," he said. "The industry will not hear that from Carter, but they need to be ready for it." ■

E-mail: jbennett@defensenews.com, vmuradian@defensenews.com.

[buglerbilly]

Industry Wary Of ‘Productivity’ Moves

By Colin Clark Monday, June 28th, 2010 4:37 pm

It was not another April 6, nor a third Last Supper, but Ash Carter’s briefings today should mark the beginning of long-term changes for the defense industry, changes which industry sources view with worried eyes.

Carter, the military’s head of acquisition, said the Pentagon did not mean to cut industry profits but wants ‘productivity” gains, just as happens in private industry where there are often scores of competitors and the race often goes to the swift, the flexible and the prudent. Carter made a pretty clear case. The defense budget will grow at slow rates — 2 percent to 3 percent — for the foreseeable future. But to do that and keep procurement and R and D accounts primed efficiencies must be found.

He said commercial industry regularly eked out productivity gains. The monopsony that is the defense industry had not. “More has been costing more,” Carter said during his afternoon press conference.

He dismissed industry worries that his measure might affect profits. “This is about costs, not profits,” he said. If the department can lower costs, it should be able to buy greater capability for less cost, he argued.

Over the next few weeks, Carter said he would offer detailed proposals that would flesh out the memo he issued today.

Industry stood back and said, hmm. “Carter’s memo is a mixed bag for defense contractors — it depends upon whether a company’s product is considered meat or fat. Carter does promise to bring in more competition, which may help the smaller and mid-sized companies,” said Jeff Evanson, a defense technology analyst at Dougherty & Co.

The Professional Services Council, which represents companies most likely to be hit hardest by changes Carter has proposed, praised his effort but worried about the content.

“We share the goals that Undersecretary of Defense Carter has identified for the department and while many of the recommended guidelines—such as increasing competition and choosing the right kind of contract—are laudable, PSC is concerned about how the department proposes to implement them,” Alan Chvotkin, the Professional Services Council’s executive vice president, said after being briefed by Carter this morning. “For example, the department is right to focus on choosing the right contract vehicle, but why take a tool out of the toolbox by eliminating time and material contracts?”

And the PSC noted this is not the first go round for some of these proposals. “While many of the preliminary initiatives the department proposes have been tried before, the environment under which they are being discussed is different and the approach being taken appears to be different,” Chyotkin said.

America’s largest defense contractor, dependent on the Pentagon for the single largest defense program in history, was more positive about Carter’s moves.

“We see the world through exactly the same lens as Secretary Gates and Dr Carter, and we intend to be relentless in focusing on program execution, on continuously improving our quality, and on driving affordability into every process and every program. We’ve already made changes with the Secretary’s goals in mind — and those changes have resulted in reduced costs in several areas — but we’ve just started,” CEO Bob Stevens said in a statement.

Lockheed, worried about any possible threat to the Joint Strike Fighter, has moved fast and hard to publicly address cost issues. The company has clearly made strategic decisions that guaranteeing JSF cash flow stands as a paramount institutional goal. With that in mind, perhaps the most interesting sentence in Stevens’ release was the final one: “We welcome this opportunity and believe that working together, we can achieve better buying power for the warfighter and taxpayer, improve defense industry productivity, remove government impediments to leanness, and avoid boom-and-bust program turbulence.”

Loren Thompson, who was briefed on Carter’s measures last Friday and had time to think about them over the weekend, said the proposed changes “are long overdue, and may help to shield contractors from more draconian cuts imposed by Congress or the White House as pressure to reduce deficits mounts.” But, as Thompson knew, defense companies “will fear that targeting overhead costs endangers industry profits. Those profits are already at risk due to $330 billion in weapons cuts recommended by Secretary Gates last year and insourcing initiatives aimed at pulling contracted services back into the government. When combined with the more demanding acquisition procedures imposed by recently-enacted reform legislation and the prospect of reduced funding for overhead functions, the emerging pattern is far from encouraging for key sector players.”

One sentence in Carter’s memo stood out, and it gives a clear picture of just how gradual the changes will be. Carter wrote that new contracts will be the focus of the department’s efforts. So it will take years to achieve productivity gains and existing programs — like the JSF — are unlikely to feel the sting.

Smaller companies and those who don’t concentrate on defense may view this as a good time to bail out. Thompson concluded that the latest moves “will accelerate the plans of some” companies to leave the defense business “before valuations begin to erode in response to softening demand.”

[buglerbilly]

New Pentagon Cost-Cutting Proposals Could Impact Contractor Margins

(Source: Lexington Institute; issued June 28, 2010)

(© Lexington Institute; reproduced by permission)

The Department of Defense today will propose a series of cost-cutting initiatives intended to reduce the budgetary burden of contracting for military goods and services. In meetings with industry executives, acquisition workers and the media, Under Secretary of Defense for Acquisition, Technology & Logistics Ashton Carter will explain how his part of the defense establishment intends to implement guidance from Secretary of Defense Robert Gates to avoid $100 billion in overhead costs during the 2012-2016 period.

Gates expects the efforts at greater economy to ramp up gradually, but eventually he aims for the defense department to save more money each year than most countries spend on their entire military posture.

The Carter initiatives being proposed today are not about cutting weapons systems. However, from the perspective of industry and the investment community they might as well be, because the areas being targeted for savings largely determine how profitable military contracts can be. For example, one item that will be discussed is when it is appropriate to use various contract types. So-called "time and material" contracts typically generate bigger margins than cost-plus contracts, which in turn are usually more profitable than fixed-price contracts. There is longstanding concern among Pentagon policymakers that the acquisition system wastes billions of dollars each year by using inappropriate contract types, permitting excessive overhead charges, requiring unnecessary performance features, and generally failing to get the best deal.

Under Secretary Carter proposes to change all that -- gradually at first, but fundamentally and permanently over the long run. Carter is operating on the assumption that weapons budgets are unlikely to grow significantly above the rate of inflation in the years ahead, and therefore that keeping technology investment plans on track will require shifting money from non-value-added activities to activities that produce real value for warfighters and taxpayers. Such changes are long overdue, and may help to shield contractors from more draconian cuts imposed by Congress or the White House as pressure to reduce deficits mounts.

However, defense companies are not likely to welcome the Carter initiatives, because they will fear that targeting overhead costs endangers industry profits. Those profits are already at risk due to $330 billion in weapons cuts recommended by Secretary Gates last year and insourcing initiatives aimed at pulling contracted services back into the government. When combined with the more demanding acquisition procedures imposed by recently-enacted reform legislation and the prospect of reduced funding for overhead functions, the emerging pattern is far from encouraging for key sector players. Carter's initiatives undoubtedly will accelerate the plans of some of those players to exit the business before valuations begin to erode in response to softening demand.

The good news is that Under Secretary Carter is a smart, open policymaker who will not rush into implementing poorly-constructed initiatives. He will consult with his workforce and contractors before making decisions on where to seek savings, and he understands that profits are essential to preserving a healthy defense industrial base. The industry could not ask for a more intelligent, reasonable partner.

The bad news, though, is that industry will need all the help it can get from Carter and his government colleagues, because Wall Street has gotten the message that the long-anticipated defense downturn is upon us.

-ends-

[buglerbilly]

Affordability, Not Just Appetite, Must Be Designed Into Weapons Programs: Carter



The era of rapidly rising defense budgets has ended; its time to end the waste and abuse that became standard practice while the money spigot gushed over the last decade; its also time for defense firms to stop charging outlandish sums for late and underperforming weapons systems; we’re going to “incentivize” industry to be more productive and efficient; oh, and expect more program cuts going forward.

That was the message delivered to defense industry executives yesterday by the Pentagon’s chief weapons buyer Ashton Carter, a message he relayed to military acquisition officials and then to the press later in the day. Read Carter’s memo here.

He questioned why weapons systems always increase in cost every year when in the private sector most products and services prices drop over time. “Your computer costs less every year, why not defense weapons?”

Its all part of Defense Secretary Robert Gates effort to wring savings out of the defense budget top line that can then be reinvested into weapons for the wars we’re fighting today. Gates’ ambitious target is to realize 2–3% annual growth in spending on “warfighting capabilities” without increasing the DoD budget.

“We want our managers to acquire weapons for what they should cost,” Carter said, and his office will use historically informed independent cost estimates to arrive at that “should-cost” figure.

On all new weapons programs, “affordability and not just appetite must be designed in from the start.” Carter said affordability will be the mandate in new programs such as: the SSBN-X, the presidential helicopter, the Ground Combat Vehicle, and the Air Force/Navy long range strike family of systems.

The new acquisition approach intended to restore affordability and productivity in Pentagon buying means there will be fewer, a lot fewer, cost-plus contracts, and a lot more fixed price contracts. Carter said if a firm is inventing some new technology that nobody quite knows how much it will eventually cost, then cost-plus is appropriate.

However, on those systems where the technology is well known, when the military knows what it wants, then fixed-price contracts make more sense. He used the KC-X tanker as an example. It’s not an invention, he said, it’s a commercial aircraft with minor modifications. The builder should know what it will really cost. “The rule of reason needs to apply.”

Carter singled out the Air Force’s underperforming and costly Global Hawk drone (pictured) as an example of a program that will feel the full weight of his office’s new acquisition value proposition.

How will he know if the new “value” initiative is working? When program costs stop growing or even start coming down, he said. “We’ve gotten so used to seeing program costs grow inexorably, you don’t see that in typical industries.”

– Greg Grant.

Read more: http://defensetech.org/2010/06/29/affordability-not-just-appetite-must-be-designed-into-weapons-program-carter/#more-7950#ixzz0sFip5ZFd
Defense.org

[buglerbilly]

After Afghan Trip, Carter To Hear Industry's Efficiency Ideas

By JOHN T. BENNETT

Published: 1 Jul 2010 18:22

Following a 10-day swing through Afghanistan, Pentagon acquisition executive Ashton Carter will again huddle with industry officials about defense officials' push to more effectively buy weapons and services from private companies.


Pentagon acquisition chief Ashton Carter said the purpose of the mid-July session with industry officials is to get their ideas about squeezing billions annually from U.S. weapons programs. (ROB CURTIS / STAFF)

The purpose of the mid-July session with industry officials is to get their ideas about squeezing billions annually from U.S. weapons programs, Carter said during a taping of the "This Week in Defense News" television show, which will air at 11 a.m. (EST) July 4 on WUSA Channel 9 in the Washington area.

Carter departs for Afghanistan on July 4.

The meeting with industry leaders after he returns will mark the second time in a month the Pentagon's top weapons buyer will have conferred with titans of the U.S. defense sector. The first meeting came June 23, when Carter, the undersecretary of defense for acquisition, technology and logistics, briefed industry on the Pentagon's desire, as Defense Department officials say, to get a better deal on the weapons and services it buys from private-sector firms.

Defense Secretary Robert Gates this spring announced a new fight on overhead and administrative costs, aiming to free up $101 billion over the next five years from within the baseline Pentagon budget. The savings will be transferred to the Pentagon's weapons modernization portfolio, which Gates and Carter have determined must grow by 2 percent to 3 percent annually to field the U.S. military force they think will be needed.

Pentagon officials will seek to take two-thirds of that amount from support functions. The remaining one-third, or about $33 billion, will be squeezed from within the weapons portfolio.

Finding 2 percent to 3 percent of unnecessary and inefficient costs should be "an achievable goal," Carter said.

Gates this week formally tapped the acquisition executive to lead the drive to identify things to cut. Carter said during the TV show's taping that he plans to issue guidance with specific monetary targets and directions on how the military services and agencies can more efficiently do business.

Carter did not disclose when the second meeting with industry leaders will occur, saying only that it will come after his trip to Afghanistan, his third to the U.S. Central Command region in a year.

Following the taping, Carter told Defense News the trip comes at "the most critical time for logistics in Afghanistan." He has in the past said logistics takes up a majority of his workdays.

Moving troops, equipment and supplies into landlocked Afghanistan, with its rugged and mountainous terrain, is a massive challenge.

Carter said his trip will take him "all over the country," with a particular focus on ongoing efforts to counter improvised explosive devices and "making sure we're squared away" with private contractors that support American and allied troops there.

The acquisition, technology and logistics chief said he will not simply jump from headquarters to headquarters in Afghanistan. Rather, "I'll be out where the work is being done" to ensure "we're doing all we can to get set for this fighting season," he said.

Once back in Washington, his focus will quickly turn back to Gates' war on inefficiencies.

During the TV show's taping, Carter repeated his assertion that Pentagon officials are not attempting to cut into companies' bottom lines.

"This is about costs," he said, noting that for defense companies, a primary way to boost profits is to cut costs. "We want to incentivize that."

Defense officials are looking at a number of ways to generate savings within the Pentagon's modernization portfolio, including altering contracts.

Defense analysts say companies' profits almost certainly will shrink a bit as a result of the Pentagon's efficiency push, and of flattening annual U.S. defense budgets.

[buglerbilly]

Acquisition Reform Plays Key Role in Pentagon’s Cost Savings

(Source: U.S Department of Defense; issued July 15, 2010)

WASHINGTON --- The Defense Department has the opportunity to save billions of taxpayer dollars through acquisitions reform, but only if it grows its workforce with the right federal workers in place to oversee contracts, a senior Pentagon official said today.

“There is a significant opportunity to save billions of dollars, but only if we have a well-trained and sufficient workforce,” Shay Assad, the acting director of the department’s procurement and acquisition policy, said during a Senate Budget Committee hearing.

Assad called acquisitions reform and improved efficiencies a top priority of Defense Secretary Robert M. Gates, with a goal of $100 billion in savings over five years, starting in fiscal 2012. He said the secretary ordered his staff to consider two questions with regard to old-style contracting procedures: Is this respectful of the American taxpayer at a time of economic and fiscal duress? And, is this the best use of limited dollars?

With cost savings derived from better efficiencies, Assad said, department officials hope to attain 2 to 3 percent net growth in warfighting capabilities without a mirrored budget increase.

Earlier this month, Ashton Carter, undersecretary of defense for logistics, “directed all echelons of the department to take a hard look” at ways to cut costs, Assad said. Carter’s directive, he said, “really was about increasing the buying power of the department and in getting a better deal for taxpayers.”

“We need to examine not only what we acquiring, but how we are acquiring it,” Assad added.

The department procured three million contracts in fiscal 2009, amounting to $375 billion, Assad said. It spent $372 billion in contracts last year, he said. About 53 percent of those costs, he said, go to contracted services, while 47 percent go to products, such as equipment.

Overall, the entire federal government, including defense, spent $560 billion in fiscal 2009, according to Daniel I. Gordon, administrator of federal procurement policy in the White House’s Office of Management and Budget, who testified alongside Assad. That compares to $535 billion the government spent in fiscal 2008, Gordon said, adding that this year’s amount would have been much larger without major cost-cutting initiatives.

Agencies are now pooling their purchases, using more fixed-price contracts, having Internet-based “reverse auctions” for contracts, and paying more attention to contract management, Gordon said. The result, he said, is a drop in annual contract growth that averaged 12 percent every year between 2001 and 2008, to an average of 4 percent since then.

During that time, Gordon said, there was no expansion of the federal workforce to oversee the “tsunami” of contracts coming through. Over the next several years, the Obama administration is investing in hiring thousands of new federal procurement officers, the “lifeblood” of acquisition reform, he said.

To improve the procurement of services, Assad said, the defense department also must expand competition, move away from longstanding “incumbent” contractors, ensure that work statements are understood, and use proper contracts.

With regard to weapons systems, Assad said, “It’s all about properly defining the requirements.” Contractors now are “spending a lot of time up front” to ensure that contracts are realistic to avoid future add-on costs, he said.

In the past, defense procurement officials spent too much time measuring processes rather than outcomes, Assad said. And that, he said, is where expanding the workforce with highly trained acquisition professionals comes in.

The Pentagon plans to add 20,000 federal procurement workers over the next five years, Assad said. Among other things, he said, the additional workers are needed to properly oversee contracts “from an arm’s length.”

The department is making good progress, having already hired 4,600 acquisitions and procurement workers, Assad said. Many of the workers, he said, are former servicemembers who’d used the equipment and services they will now help to procure.

-ends-

[buglerbilly]

DoD’s Carter To Issue 16-Point Efficiency Guidelines

Posted by Bradley Peniston | July 19th, 2010

By JOHN REED, FARNBOROUGH, Britain – The Pentagon officials will receive orders in early September on how to execute U.S. Deputy Defense Secretary Ashton Carter’s 16-point efficiency plan to save two to three percent per year, Carter said July 19.


Ashton Carter, U.S. deputy defense secretary for acquisition (Defense News photo by Rob Curtis)

The Pentagon’s top weapons buyer flew into the Farnborough International Air Show in part to discuss the plan with officials from the defense industry and move ahead with their feedback.

He also listed several new programs that will likely feature hard costs as a central requirement.


“I will issue guidance based upon consultations [with industry] in those 16 areas and others that are identified” by September, Carter told a handful of reporters here on July 19. “Through the fall, I’ll be expecting our program managers and our [program executives] to be reporting to me on how they are implementing that guidance.”

The plan will provide DoD and industry with a clear roadmap on how to achieve the efficiencies and savings Carter and U.S. Defense Secretary Robert Gates demanded earlier this spring.

Carter describe three of the points, intended to align the U.S. defense complex with trimmed budgets expected to be the norm in the coming decade.

They included:

– Move toward fixed-price contracts, even for new systems such as the $35 billion KC-X effort.
– Restore affordability to programs that are consistently over budget such as the F-35 Lightning II Joint Strike Fighter.
– Make affordability a key requirement of all new programs.

Carter specifically called out the F-35 and the projections of massive cost overruns that have emerged over the past year.


“We cannot allow [the forecasts] to come true,” he said.

He said the Pentagon “must be satisfied that every dime spent” on the JSF program is absolutely needed in order to ensure that the cost projections do not come true.

The deputy defense secretary listed new programs that are likely to feature affordability as a built-in requirement:

– The replacement for the Navy’s Ohio class ballistic missile submarines.
– The Marine Corps’ VXX presidential helicopter replacement program.
– The so-called family of ISR, strike and electronic warfare aircraft that will replace the Air Force’s cancelled Next Generation Bomber effort.
– The Army’s Ground Combat Vehicle replacement program.

Carter said the purchase of these weapons will be carefully planned to ensure they are not loaded down with excess features that can cause cost overruns and schedule delays.


“I think that industry leaders recognize that . . . the budget’s not going down, but it’s not going up at the rate it did in the last decade,” he said. “I think that people who are cognizant of that know that what we’re asking for is achievable and secondly they consider the alternative” of broken programs, budget turbulence, financial instability and reduced military readiness.

[buglerbilly]

Carter Pushes Efficiency With Contractors

Jul 27, 2010

By Amy Butler
Farnborough

Many senior defense industry leaders say the Pentagon’s acquisition reform is “noble,” but few appear convinced that real change to a burdensome—and some say broken—procurement process is on the horizon.

One executive goes so far as to say the acquisition reform initiative is a “facade.” Another predicts the Pentagon will “get the budget reductions [desired], but I don’t think they’ll get the acquisition reform” to change dynamics that are pushing weapon system costs up, prompting schedules to slip and promoting risk-aversion in programs. These management problems are partially responsible for the squeeze on research funding.

Ashton Carter, Pentagon acquisition chief and head of the U.S. delegation at the Farnborough air show, said one of his primary missions in meeting with industry executives at last week’s event was to emphasize the need to improve affordability and productivity in weapon systems development and procurement, and to solicit input.

Two separate but related initiatives are converging this summer as the Pentagon crafts its 2012 budget. Defense Secretary Robert Gates is on a drive to reduce waste with the ultimate goal of saving 2-3% annually in the U.S. defense budget. In concert, Carter is demanding industry to work more efficiently. “What we are asking is achievable,” he told reporters here last week. “Consider the alternatives, which are broken programs and financial turbulence.”

Some cost-saving measures for existing programs will be evident in the forthcoming budget and, Carter says, he intends to “make affordability a requirement” for new programs, such as a new Marine One presidential helicopter and next-generation intelligence collector and strike platform.

In pushing defense companies to reduce overhead costs, Carter also hopes to see savings for taxpayers. In the case of Lockheed Martin’s Joint Strike Fighter program, he cited overhead as a key problem.

While several industry executives say on background that the procurement system discourages innovation and rapid fielding, none would talk on record because they are leery of openly disparaging their top customer.

One executive says that because companies already answer to shareholders, they are often leaner than the government. Northrop Grumman recently merged its space and aircraft sectors, reducing overhead between the two. Lockheed Martin significantly reduced its footprint at the Farnborough air show this year, with CEO Robert Stevens electing not to attend in part because of cost. In his pre-show briefing to reporters, Boeing Defense Space and Security President Dennis Muilenburg says the notion of reduced overhead is “not something new to us at Boeing . . . This is a continual process, part of something we do every day.”

The notion that further overhead reductions translate to savings at the Pentagon is “a little bit of a misunderstanding by the acquisition community of how our industry works,” says a representative from a smaller U.S. *company. Because executives anticipate leaner U.S. budgets ahead, they are looking overseas for sales growth. In the case of Muilenburg, he hopes to boost international revenue to 25% of sales within five years. In the past five years, that market grew to 16% from 7% of defense sales at Boeing.

Another of Carter’s initiatives is fixed-price contracts, including for development projects. He emphasizes that fixed pricing is not suitable for highly risky developments, but the Pentagon is often buying mature technologies or modified commercial systems. This, he says, is where fixing the development cost can benefit the Pentagon.

During his talk with reporters, Muilenburg said, “It drives a different behavior and a different program management style” than cost-plus contracts. Privately, some executives say that because fixed-price developments put more risk on the contractor, they are becoming more risk averse and, consequently, less innovative. “I’m not going to sign up to fixed price unless I believe I can do it,” says one. “I’m not going to bet the company.”

But, this executive says for reform to work, the government must be in lockstep with industry and rigorously control requirements. Evolving requirements on contracts always drive cost up and often cause delays. Freezing requirements, as well as streamlining them to a set of system-level needs—rather than prescribing detailed specs—will help companies be innovative, but precise with designs, says another executive. Without that, “fixed-price contracts don’t work.”

Another executive says that in his own business he has successfully used the strategy of articulating only system-level requirements and allowing engineers to perform trades on projects. But, the Defense Department’s cumbersome acquisition process rejects this approach, he says. “There is always a reason to say no. There is never a reason to say yes,” he continues, especially as government program managers have become more risk averse in light of more industry source-selection protests.

Carter says he wants to make the Long-Range-Strike Family of Systems effort an example of acquisition reform, but many executives remain skeptical.

[Milne Bay]

Defense Business Board Warns DoD Is Heading For Chapter 11


(Source: Lexington Institute; issued July 27, 2010)


(© Lexington Institute; reproduced by permission)



The Defense Business Board (DBB), a panel consisting of senior former defense officials, business executives and economists has just published its study of how the Department of Defense (DoD) can reduce overhead costs and improve business practices. According to the Board, if DoD were a corporation or a nation, it would be on the verge of having to declare Chapter 11. Like GM and Chrysler, DoD’s costs are increasing even as the size of the military shrinks.

The DBB’s characterization of the situation all but likens DoD to Greece. Military retirement requires that the government pay veterans and their families for sixty years based on only twenty years of service. Not only do veterans receive generous, indexed pensions but also lifetime medical care. Almost 25 percent of active duty military personnel serve in commercial activities. Despite fighting two wars, some 40 percent of those in uniform have never deployed anywhere overseas.

The size of headquarters and staffs is increasing relative to the number of warfighters as are their salaries. Like Greece, modern business practices have not been applied to major overhead areas so as to improve efficiencies and reduce costs. Congress has made the problem even worse by increasing the generosity of benefits packages and expanding eligibility.

The DBB proposes a set of modest corrections to what is a massive problem. It recommends a hiring freeze and reduction in the total number of DoD civilians back to the levels at the beginning of the Iraq War in 2003. Apparently, the Board didn’t notice that the Secretary of Defense is trying to increase the size of the bureaucracy. The Board also recommends eliminating or merging duplicative or redundant organizations, downsizing or eliminating Combatant Commands and OSD agencies and cutting indirect spending. These are straightforward, proven measures, the kind that most sensible companies took at the start of the current recession. In many cases, the rise in profitability by these corporations demonstrates the wisdom of cost cutting.

Much more is needed. Perhaps the model for DoD is the administration’s handling of the catastrophe in the automobile industry. Some combination of Chapter 11, government bailout, protection of union employees and merger with foreign companies might solve the problem. For example, pension and health care costs for current retirees or those nearing eligibility for retirement could be taken out of the DoD budget and placed in a special government corporation. For those now entering the military a new retirement/health care package would be put in place. For DoD civilians, part of their salary would be converted to long-term bonds that would only be vested if their policies proved successful.

This would be particularly useful for the civilian acquisition community. It would either require longer service or reduce benefits proportionately. All non-inherently governmental functions should be sold to the private sector just like in the developing world when they embrace capitalism. These functions would include logistics and maintenance, commissaries, transportation (with certain exceptions for sensitive items and war zones), military medicine and most space launches and intelligence activities.

We could not only cut the number of overseas bases -- like the automobile companies canceling dealer franchises -- but even eliminate low payoff territories. Finally, we could seek a partial merger of capabilities or functions with allied nations. Ultimately, we could even agree to a new division of geographic responsibilities in the world. For example, the EU takes over all responsibilities for Europe short of major war and we assume the burden in East Asia.

Boards and panels with ties to the organizations they are assessing often have a difficult time telling their “employers” the unvarnished truth. The DBB has done an excellent job of telling DoD it must reform or go out of business.

[buglerbilly]

The report above is already in the Quad Defense Report thread below.................

[buglerbilly]

Carter: Existing Programs Subject to Cost-Cutting

By JOHN T. BENNETT

Published: 28 Jul 2010 14:14

A U.S. Defense Department effort to save money by overhauling its procurement policies and practices will be applied to existing and new weapon programs, Pentagon acquisition chief Ashton Carter says.

The new acquisition efficiencies guidance, to be issued in September, will be applied to new starts like the Navy's new nuclear submarine effort, the Air Force's family of long-range strike-electronic attack-ISR aircraft program, and the Army's new Ground Combat Vehicle initiative, Carter said during a July 28 telephone interview.

For such new starts, "we are making affordability a key requirement."

But the acquisition, technology and logistics chief was adamant that it also will be applied to existing programs.

"We are looking at programs that are ongoing and have projected costs, and asking if there are ways that can bring down costs in the program and bring down projections of what [those efforts] are going to cost," Carter said.

Carter's comments clarified ones made 24 hours earlier by Brett Lambert, the Pentagon's industrial affairs chief. Speaking to an audience of mostly industry officials, Lambert said the Pentagon's belt-tightening will not put any existing weapon program in the budget-cutting cross hairs.

The coming guidance will require DoD acquisition managers and professionals, as they "craft and execute the department's contracts in coming years, to scrutinize these terms to ensure that they do not contain inefficiencies or unneeded overhead," according to a Pentagon memo.

Asked to which existing programs the new guidance will be applied, Carter said: "Every one is a candidate."

"The guidance will apply to all" programs, he said, new and those already underway.

[buglerbilly]

Industry Wants Changes In DoD Contract Reforms

By TOM SPOTH

Published: 29 Jul 2010 16:10

Provisions in the House and Senate 2011 defense authorization bills could inadvertently increase government spending and limit competition for defense contracts, a coalition of eight trade associations warned lawmakers July 28.

Of particular concern to industry are sections in the legislation that cover the transition of contracted work to federal employees, and restrictions on what criteria are used in contract awards.

In comments submitted to the House and Senate armed services committees, the Acquisition Reform Working Group (ARWG) said, among other things:

■ The group supports language in the House bill that would prohibit the use of quotas to move contracted work in-house. However, the industry groups recommend that more cost analysis be built into "insourcing" decisions and that the impact on small businesses be carefully considered.

■ Provisions in the House bill should be eliminated that require the Defense Department to assign equal importance to cost when awarding contracts. The provisions "arbitrarily restrict the ability to make the best decisions … when acquiring supplies and services," the ARWG wrote.

■ A section of the Senate bill should be modified or eliminated that would restrict firms from competing for certain defense contracts unless they implement procedures to monitor and protect their supply chains. The working group said the provision doesn't give companies the opportunity to protest if they are excluded, and because the exclusions would be made public, they would be "tantamount to a de facto debarment without any due process." The working group said the provision could serve to squelch competition and hurt the industrial base.

"Adopting ARWG's recommendations would ensure Congress's proposed reforms do not have unintended consequences that could stifle industry innovation, delay programs and drive up the cost to government during this time of increasingly austere budgets," Alan Chvotkin, executive vice president of the Professional Services Council, said in a statement.

PSC is one of eight industry groups that make up ARWG. The others are Aerospace Industries Association, the American Council of Engineering Companies, the American Council of Independent Laboratories, the Associated General Contractors of America, the National Defense Industrial Association, TechAmerica, and the U.S. Chamber of Commerce.

[buglerbilly]

Shake Up AF Acquisition

By Colin Clark Monday, August 2nd, 2010 4:41 pm



If you wanted to put words in Lt. Gen. Dave Deptula’s mouth, that headline would work. Sitting down with reporters today for his last official press conference as an Air Force officer at the Pentagon, Deptula was not quite that direct but the message was unmistakable.

The current Air Force acquisition system was born of the industrial age of warfare, not the current age, he said, noting carefully that his views on acquisition were “personal.” Instead of relying on that system, Deptula pointed to the Liberty program and the Big Safari office as examples the service “should adopt as the norm rather than the exception.” Big Safari is an independent office that has helped develop Air Force RPVs since the early 1960s.

During a recent meeting with his staff during a meeting to discuss Remotely Piloted Vehicle capabilities, Deptula asked them when a program might make it to Initial Operational Capability if they started work on right away, they told him it would take until 2020, not exactly the sort of quick solution that the Pentagon has increasingly sought since the departure of Donald Rumsfeld.

Deptula pointed to one of the most complex and disliked parts of the acquisition process — the Joint Capabilities Integration Development System (JCIDS) — and gently ridiculed it, noting that “Al Qaeda doesn’t have a JCIDS process.”

Many service officials, acquisition experts, industry mavens and independent observers would say “Amen” to that.

In addition to his comments on how best to buy the best gear, Deptula addressed a range of hot button Air Force issues. As the first Air Force deputy chief of staff for intelligence, surveillance and reconnaissance, he said RPVs (as the Air Force insists on calling UAVs) are “not a panacea” for air warfare. The Air Force will still need people in cockpits to exercise judgment and to make decisions. The next generation bomber (or whatever we’re calling it this week) will definitely have pilots, for example, since Deptula said he “could not imagine” sending nuclear weapons aboard an autonomous RPV

Finally, Deptula said he did not think the WikiLeaks documents on Afghanistan would have any chilling effect on intelligence sharing with allies or moving intelligence down to the front ranks of troops on the ground.

[buglerbilly]

What’s An Efficiency?

By Colin Clark Wednesday, August 18th, 2010 7:19 pm



One answer to this came yesterday from Lt. Gen. Patrick O’Reilly when he told reporters that his approach to finding them at the Missile Defense Agency would involve competing $37 billion in contracts that have been sole source.

Now that doesn’t sound like an “efficiency” to me, but it certainly is a savings, and it is one that companies can’t claim is eating into their profit margins without seeming churlish. After all, doesn’t everyone in America love competition? And it is certain to spread throughout the four services as they seek fast and relatively painless — but effective — ways to bring down their budgets so they can show Defense Secretary Robert Gates that they heard him when he called for $100 billion in savings over the next five years.

Into the savings or efficiencies morass wades the Aerospace Industries Association, many of whose members fear that Gates’ push will erode their profits. AIA, one of the most powerful lobby groups in Washington, focuses on contracts as its first recommendation, but competing sole-source deals is not one of its recommendations. This is not surprising since most of its largest members benefit handsomely from sole source contracts, especially in the worlds of space and intelligence.

But AIA also argues that the defense industry suffers from the lowest profit margins of any major American industry. It cites a February 2009 study by the Institute for Defense Analysis, “Defense Department Profit and Contract Finance Policies and Their Effects on Contract and Contractor Performance.” AIA says “the report states that the margins for the defense industry are lower than companies in other sectors.”

AIA suggests more multi-year procurements,which they argue can save more than 10 percent. Congress has traditionally been reluctant to approve multi-years without a strong political or fiscal rationale. And the administration resisted mightily efforts by the Hill to force an F-18 multiyear down its throat.

The industry lobby group also pushes for more long-term “performance– and outcome-based product support contracts,” which would mean more PBL deals, something the services view with increasing suspicion. And AIA likes the idea of buying more commercial off-the-shelf equipment.

Their Nr. 2 recommendation is to shorten the time and limit the amount of data that must be provided when a company pursues a contract.

The current “process is lengthy and cumbersome and often results in unfairly low returns for contractors. Contracting Officers assume a reasonable price can only be based on the submission of voluminous cost data…” they say in their paper.

The AIA paper says comapnies had to submit the huge amounts of paper for airplane contracts “even though all three aircraft have extensive incurred cost history.” How much paper? The C-17 was 63,000 pages; the F-22 multi-year was 94,000 pages and the F-18 was 20,000 pages. Solution? You guessed it: reduce the amount of data and paper required.

Finally, AIA wants the government to make its oversight process more efficient. Combine the work of different organizations within the Defense Department so companies know what rules they are playing by and only have to respond to one set. Fix the arms export regime and only do audits when data indicates they are really necessary. Oh, and fix the requirements process, please.

Whose vision of what constitutes an efficiency will win? My bet is, in the shorter term, on the government. Changing government processes and regulations takes time and even Robert Gates has only a limited store of that precious commodity.

Read more: http://www.dodbuzz.com/2010/08/18/whats-an-efficiency/#ixzz0x0O2LS3u

[buglerbilly]

Rationalizing Requirements

Address Immediate and Long-Term Priorities

By MICHAEL CADENAZZI and J. MICHAEL BARRETT

Published: 6 September 2010

The U.S. Defense Department is fighting rapidly changing, decentralized 21st-century enemies with tools designed by cumbersome, overly centralized 19th and 20th century planning techniques. This process-based approach is the antithesis of the modern movement toward agile design, spiral development and rapid fielding. Worse, the system is bloated and inefficient due to the inevitable growth caused by nearly a decade of wartime budgets.

While reforms are needed throughout the acquisition process, an essential starting point is the chasm between stated requirements and budgetary realities.

The military capabilities delivered to war fighters are rightly driven by operational requirements, but there is always an inherent tension between providing for today and funding to meet tomorrow's needs. Over the course of several decades, the DoD has established a variety of requirements-focused processes and systems.

But no matter how many processes are used, the result is the development of solutions to address a few key issues: cybersecur-ity, counter-IEDs, unmanned vehicles or geospatial systems.

The Center for Strategic and Budgetary Assessments recently laid down a clear marker in its "Strategy for the Long Haul" series. The article, "Regaining Strategic Competence," holds particular relevance for today.

"Strategy is fundamentally about identifying or creating asymmetric advantages that can be exploited to help achieve one's ultimate objectives despite resource and other constraints, most importantly the opposing efforts of adversaries or competitors and the inherent unpredictability of strategic outcomes."

This definition makes the point that it is not simply demand that defines our war-fighter needs. Effective strategy is about identifying the things that create persistent advantages and then pursuing them. The current operational requirements process articulates the demand, but not the advantage.

All-weather, all-purpose, all-capable sensors and weapons will clearly be the enabler of future victory, but which sensor? And once you state it, why say it again every year, seven different ways through six different chop chains?

In economics, when too much money chases too few opportunities, it results in a "bubble." Over the past nine years of open conflict, significant money has been chasing every conceivable solution to operational challenges. In a more austere postwar budget environment, we can easily envision a future where too little money is chasing too many ideas.

In economic terms, this is part of the necessary rebalancing as competitive pressures ensue and, ideally, only the best ideas win. Not just "may the best UAV win," but "how many UAVs do we need versus how many MRAPs," for example.

Use of a centralized, bureaucratic approach to create innovative, rapidly fielded solutions has two primary flaws.

First, the operators define tactical and operational needs, but the centralized review and decision-making functions operate at a more abstract strategic level, with much of the granularity of specific needs getting lost in the process.

Second, fielded troops do not necessarily have the global context to articulate capability statements based on long-term strategic priorities, and are unlikely to have the most current understanding of what is technically possible.

Battling asymmetric warfare while ensuring against broader strategic surprise also requires a two-pronged approach:

■ Allocate a discrete portion of the budget to address urgent operational needs. Establish a select cadre of personnel to meet truly urgent operational needs. Create teams to coordinate the best scientific and engineering knowledge resident across the large DoD laboratory system as well as industry.

This will entail embracing solutions based on previous defense and commercial lab breakthroughs and adapting military or commercial off-the-shelf solutions. Indeed, the mantra of this cadre must be to "fail early, fail often" in order to push forward workable solutions.

■ Continue the longer-term requirement process with realigned strategic priorities.

This portion of the process, which would consume perhaps three-quarters of the budget, would address more traditional focus areas such as emergent technologies, over-the-horizon threats and technological breakthroughs required for dominance across the entire spectrum of conflict. The expertise of the defense laboratories and industry engaged in more basic science would be brought to bear along with that of academia.

Implementing an intentionally bifurcated requirements process that services immediate needs in parallel to a broad-based strategic requirements review may sound inefficient but ultimately could enable success at both levels.

In an era of asymmetric warfare, successful militaries adhere to the business adage of "innovate or die." When addressing the need for a dual-tracked requirements process, it is time to innovate.

---

Michael Cadenazzi is a former U.S. Navy officer and strategist. J. Michael Barrett, a former White House director of strategy, is author of two books and articles on national security. They are co-founders of Diligent Innovations, a Washington consulting firm.

[buglerbilly]

Memo: Carter To Unveil Affordability Guidelines

By JOHN T. BENNETT

Published: 13 Sep 2010 12:51

Chief U.S. weapons buyer Ashton Carter on Sept. 14 will announce new guidelines to govern how the Pentagon purchases everything from weapons to support services, the Defense Department has told industry.

The announcement will mark the culmination of several months of back-and-forth with industry and internal DoD deliberations about bringing down the costs of things the U.S. military buys from the private sector. The goal is to increase the Pentagon's "buying power," Brett Lambert, DoD industrial affairs chief, wrote in a Sept. 10 memo to industry.

"This is the start of a long-term effort to bring better buying power to the department, while at the same time ensuring a robust and financially healthy industrial base," states the Lambert memo, addressed to Lawrence Farrell, president of the National Defense Industrial Association (NDIA).

The guidelines were informed, in part, by "500 specific recommendations we've reveived from members of the acquisition community, industry, academia and Congress," Lambert wrote.

One industry source told Defense News "some tug" developed in writing the new guidelines between Pentagon acquisition officials and its industrial affairs shop. The latter office felt the guidelines should help industry maintain high profits, while the acquisition shop was pushing bold reforms to drive down costs, the source said.

Carter also will meet with industry chief executives on Sept. 16 to discuss the new guidelines, according to the memo.

Industry insiders say they expect the Pentagon will unveil a set of temperate buying reforms.

"If Carter stays true to what he has said about protecting industry profits, then we'll see moderate changes," the industry source said.

[buglerbilly]

DoD Unveils Buying Guidelines for 'New Era'

By JOHN T. BENNETT

Published: 14 Sep 2010 17:24

The program managers who develop and buy U.S. weapons will soon need to weigh affordability as they would performance attributes such as speed and lethality, according to new rules unveiled Sept. 14 by Defense Secretary Robert Gates and Pentagon acquisition executive Ashton Carter.


Program managers who develop and buy U.S. weapons must give more consideration to affordability under new rules announced by Defense Secretary Robert Gates. (Chip Somodevilla / Getty Images)

The officials said the new rules are needed in a "new era" defined by flat or shrinking budgets and the explosive growth, since 2001, of outsourced support services.

Since 9/11, program managers have been able to throw money at problems, but those days are over, Carter told reporters at a Pentagon briefing.

A 17-page directive focuses on five contracting "points of high ground," Carter said. They include:

■ "Target affordability and control cost growth."

■ "Incentivize productivity and innovation in industry.

■ "Promote real competition."

■ "Improve tradecraft in services acquisition."

■ "Reduce non-productive processes and bureaucracy"

Each of the five comes with a handful of initiatives and goals, more than 20 in all.

Gates said program managers must set affordability targets that can only be changed with the approval of the DoD acquisition executive.

At Milestone B, managers must show Pentagon acquisition officials how the cost of the platform would change as more subsystems and features are added.

Carter said Pentagon brass likely would omit some capabilities when likely costs get too high.

DoD acquisition leaders also will require the kind of "should cost" analysis that led Pentagon officials to revamp the F-35 program.

Last year, Carter said he wasn't satisfied with what the F-35 program office and prime contractor Lockheed Martin told him the new fleet of jets "will cost." Carter told Gates the Pentagon should not pay that price, prompting a DoD review to find what the F-35 program "should cost."

Gates, Carter and other defense officials have been meeting semi-regularly with industry to craft the new rules. The duo said they attempted to write them in a way that will incentivize companies to keep down the costs of new platforms.

For instance, if a prime contractor delivers a new fleet of combat platforms in line with the Pentagon's "should cost" analysis, that will mean "higher profits" for that firm, Gates told reporters.

This approach already was used on the Navy's next-generation nuclear submarine, they said. The review helped bring down the expected cost of that program "by 16 percent on route to 27 percent," Carter said.

'Incentivizing' Performance

The Pentagon also plans to "adjust progress payments to incentivize performance," according to a summary of the new rules.

Carter repeated several times that the idea is to keep a healthy industrial base by having policies that give companies every reason to design, develop, build and deliver weapons at a lower cost to the U.S. taxpayer.

Gates said that meant higher profits for contractors who do so.

The officials announced they will expand the Navy's "Preferred Supplier Program" to a DoD-wide pilot project. It rewards companies that regularly perform well.

To promote "real competition," the new rules will require program offices to present to DoD acquisition officials "a competitive strategy at each ... milestone," according to the summary. The guidelines also will do things like giving firms ample time to form a bid and "require non-certified cost and pricing data on single offers" - both are aimed at getting more than one company to bid.

Too often now, Carter said, only a single defense firm will seek a contract. And too often in those cases, the Pentagon pays too much.

In other cases, like the Navy's Littoral Combat Ship (LCS) effort, two design teams were aiming to keep building ships when a service had planned to eventually down-select to just one design. In such instances, the Pentagon's costs went up - that can't happen in this "new era" of smaller DoD budgets, the buying chief said.

The new guidelines also are tailored to "reinvigorate industry's independent research and development and protect the defense technology base."

To reform how the military buys support services, the Pentagon will: move to a common "taxonomy for different types"; following the Air Force in creating a "senior manager for acquisition of services" within each military branch; and "address causes of poor trade craft in services acquisitions," states the summary.

Several of the main points call for bringing in small businesses more often.

Additionally, the guidelines call for reducing the number of "non-productive processes," things like internal reviews and reports for Congress.

A related provision sates DoD will "reduce non-value-added overhead imposed on industry."

Finally, the department seems to have heard industry's gripes about how the Pentagon audits major programs. Industry submitted hundreds of recommendations this summer to DoD to help shape the guidelines, and reforming the defense contracting audit arms bubbled to the top of many such lists.

Industry advocates say unneeded overhead and heavy-handed audits drive up companies' costs, and in turn, the price DoD pays for new platforms.

The new guidelines will "align" Pentagon auditing agencies' "processes to ensure work is complementary," states the summary.

Carter is slated to meet with industry executives about the new guidelines Thursday in Washington.

Gates has set a target of shifting $101 billion over five years from overhead and other costs to weapons procurement.

[buglerbilly]

Pentagon Radically Reducing Oversight of Contracts Worth Tens of Billions

(Source: Project On Government Oversight; issued Oct. 29, 2010)

The Pentagon has radically decreased the Defense Contract Audit Agency’s (DCAA) review of contracts, according to an October 18 DCAA memo obtained by POGO. DCAA’s job is to protect taxpayers from contractor overbilling.

“POGO has long feared contractors and their government allies would block DCAA from exposing contractor ripoffs,” said Nick Schwellenbach, POGO’s director of investigations. “Why are billions of dollars being put at risk when Secretary Gates is demanding cost savings?”

According to the memo, contracting guidance “now limits contracting officer requests for audit services to Fixed-price proposals over $10 million and Cost-Type proposals over $100 million, unless there are exceptional circumstances.”

These audit services are reviews of cost data (referred to as “reviews”) and they entail an examination of a contractor’s cost proposal to the government. In these proposals, contractors estimate how much it will cost them to accomplish work on a contract.

Previously, there was no dollar threshold for reviews on fixed-price contract proposals, but contracting officers would limit requests for DCAA reviews of proposals over a threshold tied to the submission of cost or pricing data, which is currently $700,000. The old threshold for reviews of cost-type proposals was $10 million, but could be lower if the contractor has systemic problems estimating costs.

In FY 2009, a total of at least $92 billion in Defense Department contracts fell between the old thresholds and the new ones, according to USAspending.gov. The $92 billion figure is a conservative estimate – it reflects awarded and funded contracts, rather than contract proposals, which are often higher than the funded contract award amounts.

The guidance states that cost proposals below the new dollar thresholds for review may be sent instead to the Defense Contract Management Agency (DCMA). DCMA is typically less thorough than DCAA, according to a 2009 Wartime Contracting Commission report. The DCMA also does not specialize in examining and verifying cost and pricing data.

The reason for this new restriction is DCAA’s attempt to perfectly comply with Generally Accepted Government Auditing Standards (GAGAS). With this standard, which requires meticulous documentation of findings, DCAA is unable to cover as much ground as they used to, thus the need to restrict “audits” as defined by GAGAS. The number of DCAA reports produced annually has plunged: 33,801 in FY 2007 to 30,352 in FY 2008 to 21,276 reports in FY 2009.

Rather than subjecting reviews of cost or pricing data to GAGAS, DCAA should consider these reviews as financial advisory services, which are not subject to all GAGAS requirements. This would better protect taxpayers and warfighters by allowing DCAA to review cost data and deliver advice to contracting officers in a timely fashion.

Founded in 1981, the Project On Government Oversight (POGO) is a nonpartisan independent watchdog that champions good government reforms. POGO's investigations into corruption, misconduct, and conflicts of interest achieve a more effective, accountable, open, and ethical federal government.

-ends-

[buglerbilly]

Additional Guidance Needed to Improve Visibility into the Structure and Management of Major Weapon System Subcontracts.

(Source: Government Accountability Office; dated Oct. 28, issued Oct. 29, 2010)

According to some Department of Defense (DOD) and industry experts, consolidation of the defense industry along with a shift in prime-contractor business models has resulted in prime contractors subcontracting more work on the production of weapon systems and concentrating instead on systems integration.

Based on some estimates, 60 to 70 percent of work on defense contracts is now done by subcontractors, with certain industries aiming to outsource up to 80 percent of the work.

At the same time, there is evidence that subcontractor performance may contribute to cost and schedule delays on weapon system programs. Congress has raised questions about the extent to which primes are awarding subcontracts competitively and about the government's insight into the process prime contractors use for determining what work to make in-house and what work should be bought from subcontractors (make-or-buy decisions).

In the 2009 Weapon Systems Acquisition Reform Act (WSARA), Congress directed DOD, as part of efforts to improve competition throughout the life cycle of major defense programs, to ensure that contractors' make-or-buy decisions are fair and objective. Specifically, the Secretary of Defense was directed to require prime contractors to give full and fair consideration to qualified sources other than the prime contractor for the development or construction of major subsystems and components of major weapon systems. These actions were to be taken by November 22, 2009.

Congress also directed DOD to revise its acquisition regulation regarding organizational conflicts of interest (OCI).

In response to both of these requirements, DOD has drafted revisions to its acquisition regulation that are pending final approval. The 2010 National Defense Authorization Act required us to study the structure and management of major subcontracts under contracts for the acquisition of selected major weapon systems.

In response to this mandate and given the reliance on subcontracts and the possible implications for government oversight, we (1) examined how government and prime contractors defined "major" subcontract, and the number and value of those considered major, (2) analyzed prime contractors' approach to selecting and managing major subcontractors, (3) examined the extent to which the government has visibility into major subcontracts and, finally, (4) examined how potential OCIs are addressed and the government's role in selecting the approach chosen.

While the Federal Acquisition Regulation (FAR) provides dollar thresholds for reporting on subcontracts, there is no set definition for major subcontract. Prime contractors and various government entities (program and contracting offices, as well as DCMA and DCAA) define "major" subcontract differently, for example based on a certain dollar value or on the criticality of the item being purchased. These differing definitions could affect levels of government or prime contractor insight, particularly with regard to contractor subsidiaries or affiliates, which the primes did not always consider to be subcontractors.

The number and value of major subcontracts also varied considerably among programs in our review--particularly when affiliates and subsidiaries were included. One program had as many as 364 major subcontracts, representing 58 percent of the total value of all subcontracts. Another program had 13 major subcontracts, but they made up over 90 percent of the total value of all subcontracts.

Prime contractors did not always include subsidiaries or affiliates in their definitions of major subcontract, even when they were managed as such.

(2) Prime contractors in our review told us they structure their subcontracts to provide the required items, while reducing their risk exposure and maximizing their profit potential.

For example, prime contractors generally attempted to shift cost risk onto their subcontractors through the use of fixed-price subcontracts even when their own contract with the government was cost-reimbursement.

Primes also use make-or-buy processes to define what products and services must be retained internally to exploit their core competencies, and what should be outsourced to qualified suppliers to achieve cost efficiency. While primes define work performed by affiliates as part of their company's core competency--that is "make" activities--they often select and manage affiliates using similar methods to those used with external subcontractors.

(3) The FAR emphasizes the prime contractor's responsibility in managing its subcontractors. Officials in our case studies underscored the limited role of the government in selecting and managing subcontracts. Prior to contract award, the government's visibility into subcontracts is restricted to the minimum amount of information necessary to determine that subcontract costs are fair and reasonable. To a great extent, the prime contract approach has implications on the degree of government's visibility into subcontract costs.

For prime contracts awarded competitively, programs generally rely on the prime contractor to evaluate subcontractor proposals (even when subcontracts are not awarded competitively).

For prime contracts awarded noncompetitively, the government has greater visibility into subcontract costs by validating noncompetitively awarded subcontractors' cost and pricing data over certain thresholds. Four of the six prime contracts we reviewed were competed in the development phase, and all six low-rate production contracts are planned to be awarded on a sole-source basis. In addition, when the prime contractor designates a subcontract as a commercial item, the government's visibility is significantly limited, including DCMA's postaward monitoring.

(4) Most programs we reviewed displayed limited concern about the potential for organizational conflicts of interest (OCI) in their contracts. Although the FAR requires contracting officers to identify and evaluate potential OCIs, government officials told us that it was the prime contractors' responsibility to identify an OCI at both the prime and subcontract level. Some contracting officers also stated that they assume the OCI clauses are included in any support contracts, such as for testing and evaluation, and that they saw no need to include the clause in the weapon system contract itself. Consequently, most programs did not use contract clauses as a means to prevent an OCI.

Click here for the full report (68 pages in PDF format) on the GAO website.

http://www.gao.gov/new.items/d1161r.pdf

-ends-

[buglerbilly]

AT&L Directive On Better Buying Power Is A Leap Into the Unknown

(Source: Lexington Institute; issued November 9, 2010)

(© Lexington Institute; reproduced by permission)

Pentagon acquisition chief Ashton Carter is continuing his drive to improve the efficiency of buying weapons systems and services. On November 3 he published a memorandum to provide specific implementation guidance directed at achieving better buying power through greater efficiency and productivity in defense spending.

This implementing memorandum orders the Department of Defense to take a number of bold, even radical, steps to make defense acquisitions more affordable, reduce acquisition costs, incentivize productivity and innovation, improve competition, enhance the way the Pentagon contracts for services and reduce bureaucracy. Fully implementing this guidance across the thousands of contracts, and hundreds of acquisition programs is the basis for a revolution in defense acquisition.

One of the most important proposed changes is to establish an affordability target as a key performance parameter for every program at Acquisition Milestone A. At Acquisition Milestone B an affordability requirement will be established not only for production costs but operating and support, as well. In addition, a “should cost” target will be established for all ACAT I programs. The Under Secretary’s memorandum directs that the notional should-cost figure will be based on “sound estimating techniques that are based on bottom-up assessments of what programs should cost, if reasonable efficiency and productivity enhancing efforts are undertaken.”

The memorandum also orders the military services to establish and hold to economical production rates. The importance of these measures is that they force the services to address their unending appetite for capabilities and the tendency (mirrored by the Congress) to continually alter production quantities while feigning surprise at the resulting program cost growth.
The memorandum seeks to fundamentally change the nature of defense contracting. For example, it directs the expanded use of so-called Fixed-Price Incentive Firm Target (FPIF) contracts. A fixed-price incentive contract contains a target cost, a target profit, a price ceiling, and a formula by which the contractor and the defense department will share any differences between target costs and actual final costs, as negotiated. The formula rewards you with more profit if final costs are less than the target cost, and it takes profit away if final costs exceed the target. Initially, the Under Secretary calls for a 50/50 sharing of savings and cost overruns and a target ceiling for cost growth of 120 percent.

The problem with the fixed price approach is that the defense industry is subject to unique market forces that make projecting expected costs a very dicey business. If Congress implements Buy America provisions for defense contracts, the cost of specialty metals can skyrocket, imposing unacceptable costs on contractors. Moreover, while the government has deep pockets with which to cover unanticipated cost growth, most defense companies do not. A single major spike in a program cost could drive a company into bankruptcy.

Elsewhere in the same memorandum the services are directed to increase competition by aggressively seeking out prospective bidders and encouraging small businesses to participate in larger contract efforts, conducting more frequent re-competes for knowledge-based service contracts (and limiting the term of such contracts to three years) and restricting the use of time and material or award fee contract in favor of Cost-Plus contracts.

These measures are likely to add to the costs of doing business with the government without producing any significant improvement in efficiency or expenditures. Increasing the frequency of re-competes does not mean improvements in performance or costs, except to increase the costs to contractors. Many defense contracts, particularly in logistics, sustainment and support can be highly varied in demands, tempo and costs. Their costs depend greatly on the demands imposed by the military, often in the midst of hostilities.

The Under Secretary should be applauded for his efforts to establish a more rational basis for acquiring defense systems and services. At the same time, however, he must recognize that the defense industrial base is unlike any other, primarily because of its relationship to the customer and its commitment to do whatever is required -- short of bankruptcy -- to support that customer.

This industry is unlike the computer or commercial electronics industrial bases. So ideas like “should costs” and FPIF contracting should be approached with great care.

-ends-

[buglerbilly]

USAF Considers New Contracting Methods

Nov 15, 2010

By Amy Butler
Washington



Miz Conaton should also admit to the fact the USAF is exploring using a 1932 Law, a dubious one at that, to Single Source a major, Multi-Billion dollar helicopter requirement despite this being prepared as a Competetive Bid................ :dunno

The U.S. Air Force is likely to begin implementing new purchasing practices for the Evolved Expendable Launch Vehicle (EELV) rocket family and existing and new satellite programs in the interest of efficiency, says Air Force Undersecretary Erin Conaton.

This could include bulk buys of EELV—an effort the Air Force has been exploring for months—as well as multi-year satellite procurements and changes in how the service calculates financial awards for contractors.

Proposals are now under review by officials in the Air Force and the Office of the Secretary of Defense (OSD). The first of these are likely to be included in the Fiscal 2012 budget request, which will go to Congress for review in February. Conaton took office in March after serving as staff director at the House Armed Services Committee.

Defense Secretary Robert Gates intends to cut $100 billion in wasteful Pentagon spending during the next five years. The unclassified Air Force-led account for space development and procurement is usually about $9-10 billion annually. However, the portfolio has been riddled with billions of dollars of cost overruns and major delays.

Cost overruns have hampered the service’s ability to fund new research and development projects and marred its credibility in procuring systems with Capitol Hill. Conaton says that continuing to repair these troubled programs and build new ones based on sound systems engineering and contracting is a priority for her term in office. “The health of the Air Force budget and our ability to deliver capabilities to the warfighter is dependent on our ability to have solid acquisition programs that don’t break the back of the overall Air Force budget,” Conaton says.

Gates’s demand for savings has come at a tenuous time for military space programs. During the past decade, the Air Force has experienced multiple cost overruns on the Space-Based Infrared System early missile warning constellation, Advanced Extremely High Frequency communications system and Global Positioning System IIF spacecraft. Now, however, these programs are beginning to turn around, so officials may be hesitant to disrupt them by trimming funds or renegotiating contracts.

Conaton, however, says that the Air Force is at least exploring new buying processes across the entire portfolio, including projects already underway and new programs. The reviews are ongoing, with an eye toward also stabilizing the space industrial base, including companies responsible for launch systems and satellites, as well as second- and third-tier suppliers.

Improving the industrial base is among Conaton’s top priorities. She and the National Reconnaissance Office (NRO) director, USAF Gen. (ret.) Bruce Carlson, have restarted meetings of the Space Industrial Base Council. There had been no council meetings for 18 months prior to her taking office. Conaton says she and Carlson are proceeding “with an eye toward getting a better handle on the range of critical technologies in the space arena that we need to focus on for the defense industrial base.” The council is also seeking input from the Commerce Department on smaller suppliers in the space industrial base.

The launch industrial base has also been under extensive review since the White House decision to terminate NASA’s Constellation program and look to the commercial market to develop future boosters. The Pentagon is expected soon to complete a congressionally mandated study of the solid-rocket motor industrial base—largely held by Alliant Techsystems. “There is overcapacity in that industry,” Conaton says. “We need to keep a capability over time but we first need to give the industry the encouragement to right-size the infrastructure that they have.”

Also, a Launch Broad Area Review (BAR) +10 Years study ordered by Air Force Secretary Michael Donley has been completed and results are now being fused with some follow-on work commissioned by the Air Force and NRO on specific measures for EELV contracting, Conaton adds.

New contracting procedures and incentive structures are also being explored for both the rocket and satellite areas. “How we incentivize our contracting partners and whether we have got the right incentive set in place to get the behavior we are looking for , and I’m not convinced at this point that we have got that exactly right,” she says. “I think that we need to take a careful look at contract type[s] and the way we give fees out. This is work that we are taking on quite aggressively.”

Pentagon procurement czar Ashton Carter has embraced the use of fixed-price contracts for some programs, including the Air Force’s Small-Diameter Bomb II development, KC-135 replacement program and Joint Strike Fighter production. While useful in projects where cost is somewhat predicable, Carter says it is not for every program. Conaton says that fixed-price may not be the “best fit” early in satellite development programs. “As we try to look at different acquisition strategies and we consider the degree to which multi-year procurement or other things may be helpful to the stability of the industrial base . . . then we do have to look at where we can apply fixed price contracts.”

[I]Photo: USAF

[buglerbilly]

Pentagon to Contractors: How About You Pay for Your Overbudget Gear

By Spencer Ackerman November 16, 2010 | 4:09 pm



Couldn't agree more with the INTENT of this BUT there are a number of aspects that would need to be discussed and added: -

1) Everything is orientated to Cost Increase. Carter and his crew also need to consider what their approach is going to be for Costs DECREASE where the same 50/50 share split should apply. They might be surprised for various Mutli-billion dollar contracts where such a Saving could be achieved............Industry calls it Risk-or-Reward contracts and it can prove EXTREMELY lucrative for ALL.

2) Allied to this STRINGENT Change Control needs to be applied and all Changes need to be subject to Project and Defense Department approval PRIOR to insitigation NOT after. Project Growth is often due to nice-to-have additions by Project, Client and Contractor, Engineers getting lost in the fantasy of what "might" be achieved NOT what NEEDS to be achieved, i.e.must-have.

It’s the rare military plane, truck, ship, gun, sensor or service that comes in on time and under budget. So the Pentagon’s acquisitions chief has a proposal to keep costs in line with what defense contractors and the military promise they’ll be: go halfsies on any dollar over the agreed price.

In a recent memo to the military (http://www.ndia.org/Advocacy/Resources/Documents/LegislativeAlerts/Implementation_Directive_6Nov2010.pdf), Undersecretary of Defense Ashton Carter insists that future contracts for purchases include a “50/50 share line,” meaning that the Pentagon and the vendor will equally split the fee if a program goes over budget.

And not infinitely over-budget: Carter wants caps of 120 percent on big-ticket items. Go beyond that, and the contract might get revoked. “When we get to $120″ on a $100 item, Carter told an audience at the Center for American Progress in Washington, “I’m out of Schlitz and it’s all yours.”

But Congress might refill the kegs. The undersecretary said that no matter how severely the Pentagon budget may get constrained by the deficit and the weak economy, the budget “certainly won’t be going up.” That is, if you factor out the incoming chairman of the House Armed Services Committee.

Carter is the pointy end of the spear for Defense Secretary Robert Gates’ “efficiencies initiative,” a plan to wring $100 billion over the next five years out of the Defense Department’s overhead operating costs and invest it back in buying planes, ships and bombs. But part of the problem is that the costs of that hardware keeps rising. Every year, he said, “I go to Congress with same systems as last year, [and ask] for more money.” Case in point: one variant of the Joint Fighter jet, the Air Force’s F-35A, which Carter’s team estimates will cost $92 million per plane, rather than the $50 million promised when the program was conceived.

The answer is to build “efficiencies” into the contracts themselves, Carter said, like through paying prime contractors who perform responsibly more than ones who don’t — something the Pentagon doesn’t currently do. But it’s “not fair” to make companies eat the entire overage fee for cost estimates, Carter said: “That allows me to load on additional requirements he has to pay for.” It’s a point often raised by defense companies: the Defense Department puts out vague contracts for what a plane or a bomb needs to be, only to ask for more bells and whistles down the line that the contractor would be on the financial hook to provide.

“A 50-50 share line is a square deal,” Carter said. “I’m telling my contract people I want see 50-50 share lines, and if you depart from that, I want to see why.” Putting the burden too greatly on either the contractor or the military’s shoulders is “a trouble sign for me,” indicating that the project’s corporate and uniformed partners “have a different idea of the risk of this program.”

Carter’s probably not going to meet too many objections in Congress with that approach. But the premise behind it is a different story. The basic idea of the efficiencies initiative is that the Pentagon needs to spend more of its budget on vehicles, weapons and combat support. The post-9/11 money spigot is closing, so the Pentagon’s got to plan on doing more with less.

Intuitive, sure — these are tough economic times — but not necessarily correct. In a speech yesterday, Representative Buck McKeon, the likely incoming chairman of the House Armed Services Committee, made a robust case against cutting the defense budget, and argued that the budget growth that the Pentagon forecasts is actually a “net cut.” Many newly-empowered House Republicans view the efficiencies initiative as a stalking horse for looming cuts, which is why they’re lukewarm about it.

Formally speaking, the efficiencies initiative is agnostic between larger and smaller budgets. It just holds that the Pentagon needs to spend its money “as carefully and as parsimoniously as we possibly can,” Carter said. McKeon said yesterday he doesn’t object. He’d just like to see the military do more with more.

Photo: DoD

[buglerbilly]

Carter: Institutionalize Rapid Weapons Buying for Contingency Ops

By John Reed Monday, March 28th, 2011 12:47 pm



Undersecretary of Defense Ashton Carter today told the bipartisan Commission on Wartime Contracting in Iraq and Afghanistan that the DoD must institutionalize a rapid and flexible acquisition process to meet the unpredictable demands of 21st Century contingency operations and low-intensity wars.

Calling the Pentagon’s annual budgeting process a relic of the Cold War designed to “prepare for war not to wage wars,” Carter reiterated the calls for a streamlined acquisition process that can rapidly deliver the goods and services needed for the fight in Afghanistan.

“We have to create a fast lane for contingency acquisitions so requirements are not done in the ponderous usual way but quickly so that we do the acquisitions quickly,” said Carter.

This means the Pentagon must establish permanent ways of giving contracting officers all the power they need to implement contracts fast, and that Congress must develop a quick way of approving the Pentagon’s wartime budget reprogramming requests. He also called for faster methods for fielding weapons systems once they are purchased.

“All those things, the normal system won’t do, so we’re constantly hot-wiring and working around and so forth; that is not satisfactory,” said Carter. “We need a better system.”

Carter is moving to “put on a more permanent footing the constellation of ad hoc systems that we’ve been using” to rapidly but goods and services for the war effort.

He went on to say that if the U.S. moved to buy weapons and services under the traditional budgeting process it would “constantly be behind the 8 ball in Afghanistan and Iraq.”

He cited everything from a surge in the numbers of bomb-sniffing dogs to tethered surveillance balloons as the sometimes unpredictable purchases that must be made quickly in order to succeed in wars such as Afghanistan.

Read more: http://www.dodbuzz.com/2011/03/28/carter-institutionalize-rapid-weapons-buying/#ixzz1HxBTbmcb

[buglerbilly]

Pentagon to Include Contingency Contracting Procedures Into War Plans

By John Reed Monday, March 28th, 2011 5:11 pm



Keeping in line with his comments about streamlining the wartime contracting and acquisition process, Ashton Carter, the DoD’s weapons czar today said the Pentagon is working to integrate steps to buy weapons quickly into the its war plans.

So called, “contingency contracting” or contracting that calls for rapid buys of equipment and services to meet immediate and unexpected wartime needs “is going to be a part of our military operations as far as the eye can see,” Carter told The Commission on Wartime Contracting in Iraq and Afghanistan today.

This means that military officials must know how to properly implement these buys from now on rather than risking the mismanagement of emergency contracts or wasting time figuring out how to get around a cumbersome acquisition process.

“As part of our war plans, as part of our staffing plans, as part of our training plans, we are building contingency operations into them at all levels, from commanders all the way down,” said Carter.

All of this came at the same hearing where Carter said that the Pentagon must institutionalize steps for quickly buying and deploying new gear, calling the current annual budgeting process a relic of the Cold War that isn’t well suited to fighting wars.

Read more: http://www.dodbuzz.com/2011/03/28/pentagon-to-include-contingency-contracting-procedures-into-war-plans/#ixzz1HxCZ1ESC

[buglerbilly]

Navy Setting Up Contract Fraud Investigation Unit

By John Reed Monday, April 11th, 2011 6:20 pm



The Navy has put together a special investigative unit to look into contracting fraud in the wake of indictments being filed against several defense contractors who attempted to bride Navy procurement officials, Navy Secretary Ray Mabus said today.

The move is preemptive one designed to plug any holes in the service’s acquisition community that could lead to fraud, according to the secretary.

“The special review team is to look at fraud, bribery, kickbacks, things like that and how to deal with it” Mabus told reporters during the Navy League’s annual Sea, Air, Space conference held just outside of Washington, DC. “We had this situation where people had been indicted for giving bribes to Navy shipbuilding officials for preferential treatment. That got my attention as to what we can do to make sure that doesn’t get that far again.”

“Seeing what was said in the indictment, it’s a safety mechanism to make sure we’re doing everything we can” to run a clean acquisition shop, said the secretary.

“Anything like that, which has the ability to undermine the confidence in the procurement process, I’m going to go after just as hard as I possibly can,” said Mabus who served as a prosecutor in his role as Mississippi’s state auditor in the 1980s. “I set up this team to look at ways that, under the procurement system, under our contracting system, we can be as tough as possible within the broader federal rules to hold people accountable.”

During a speech earlier in the day, Mabus said the Navy has expanded the use of fact-based suspensions and debarments and that it has “to do more.“

Read more: http://www.dodbuzz.com/2011/04/11/navy-setting-up-contract-fraud-investigation-unit/#ixzz1JGYL2fst

[buglerbilly]

UPDATE 1-U.S. defense officials urge dialogue with industry

Mon Apr 11, 2011 3:56pm EDT

* Cost, weight and energy efficiency critical factors

* Greater efforts by Pentagon to rein in requirements (Adds comments from Navy Secretary Mabus, edits)

By Andrea Shalal-Esa

NATIONAL HARBOR, Maryland, April 11 (Reuters) - Top U.S. defense officials said on Monday the tough budget environment underscored the need for honest dialogue with the defense industry, as well as greater discipline by the military services in setting requirements for new weapons.

Assistant Marine Corps Commandant General Joseph Dunford said growing concerns about U.S. budget deficits meant that defense companies would need to focus more on cost, weight and energy efficiency as they developed new weapons systems.

"Those three questions increasingly are important to us," Dunford told the annual Navy League conference. "We've got to take a look at those capabilities that are most relevant."

Dunford and officials with the U.S. Navy and U.S. Coast Guard welcomed congressional passage of a stopgap bill funding the federal government for another week and said they hoped the fiscal 2011 budget would be finalized this week.

Industry executives are bracing for tighter budgets and pressure on profit margins given the current climate.

Rob Stallard of RBC Capital Markets said he had modest expectations for defense stocks as companies prepare to report first quarter earnings, but said weak revenues and bookings due to the budget impasse would largely be forgiven by investors.

"Despite the potential for soft toplines, we think cost cutting and buybacks may help keep EPS (earnings per share) on pace with consensus," Stallard said in a note to investors.

Officials at the Navy League conference agreed that the Pentagon faced increasing budget pressures in coming years and said that meant industry and government needed to work closely together to lower weapons costs and keep programs on schedule.

Navy Secretary Ray Mabus told participants that recent missions such as the Japanese nuclear disaster and strikes on Libya underscored the flexibility of U.S. naval assets.

He said he remained committed to growing the current fleet of warships of 288 ships to a minimum of 313 ships and said current budget plans would result in a fleet of 325 ships in the early 2020s. But to achieve those goals, new ships needed to be affordable and come in on budget and schedule.

The Navy found $42 billion in savings through 2016 while working on the 2012 budget, which allowed it to fund 56 new ships over the next five years, and those cost-savings efforts were continuing, Mabus said.

He said he would not hesitate to cancel programs that are "too expensive, ineffective or unneeded," such as General Dynamics Corp's (GD.N) Expeditionary Fighting Vehicle, which was canceled in February, the only program he knew where the test vehicles needed a service "life extension program."

Mabus told reporters after his speech that the "obvious candidates" among large programs had already been scrapped and further cancellations would likely focus on smaller programs.

Dunford said the military was reforming the way it defined its needs, noting that in the past senior leaders had largely been "spectators" to that process. Now costs were increasingly factored in as military requirements were being established.

"I'd appreciate frankness when we're doing something stupid," said Navy Admiral Jonathan Greenert, vice chief of naval operations, urging executives to speak up when officials sought capabilities that could not be realistically achieved.

He said consolidation in the industry had left the military with limited choices and urged industry to be more innovative, particularly in the area of unmanned air and water systems.

Stable budgets and stable requirements were imperative, he said, as well as good partnerships with industry, such as those that had been able to drive down the cost of the Virginia-class submarine and the DDG-51 destroyer.

Energy efficiency was also critical in the current climate, officials said, noting that one Marine Corps battalion had just returned from Afghanistan where it ran two bases that used zero fossil fuels. The Marine Corps was now buying all available equipment to equip additional battalions and was setting its sights on better efficiency of ground vehicles, Dunford said.

Dunford said the Marines remained committed to developing a new amphibious assault vehicle instead of the EFV.

Marine Corps Commandant James Amos was personally keeping close tabs on the Marines' version of the Lockheed Martin Corp (LMT.N) Joint Strike Fighter and officials were pleased with progress seen on that program.

Amos' approval was needed for any changes that added even a pound of weight to the airframe, Dunford added. (Reporting by Andrea Shalal-Esa; editing by Tim Dobbyn and Andre Grenon)

[buglerbilly]

DoD To Focus on Price During Contract Talks

By MARCUS WEISGERBER

Published: 12 Apr 2011 17:29

The Pentagon will place a greater emphasis on price when negotiating weapons or service purchases, said Shay Assad, DoD's director of defense procurement and acquisition policy.

A new part of Pentagon acquisition executive Ashton Carter's year-old Better Buying Power initiative, the effort will help weapon buyers save money that can be put toward more goods or other priorities, Assad told an audience at a Defense Acquisition University-sponsored conference at Fort Belvoir, Va.

"Price … should always be important," Assad said. "There may be times when it's difficult to place price as the most important thing, but it ought to be pretty important every single time."

Assad called for an "intelligent business discussion" with industry on pricing.

"We gotta get a better deal," he said. "We have to do a better job at the table than we're doing today. It doesn't mean that we don't have folks out there who are capable and competent and in fact are being very effective. But the reality is, across the board, we've got to do much better."

To that end, Carter will be announcing "an increased emphasis on pricing, an increased emphasis on understanding what it is that we're paying for the goods and services that we buy," Assad said.

"I think as you see coming down the road here, price is going to play a role in everything that we do, it has to," he said.

Companies frequently put an emphasis on price and the Pentagon should, too. Assad called on DoD's weapons buyers to "intelligently examine where price should be."

At the same time, the Pentagon must also change the way it spends money, Assad said.

"We're the only company in the world that tries to spend our money as fast as we can and get nothing for it," he said. "Every other company treats cash for what it is and only tries to spend it when they absolutely have to and spend it only right before they have to. In our case: Spend it as quickly as you possibly can, get it obligated, get it out the door, get it expended.

"What we want you to do is actually spend what you need to spend, but don't spend any more than that and spend it when you have to," he continued. "We've developed a cash flow model."

The cash flow model "calculates the value of money to a contractor" and "calculates the value of money to us," Assad said.

Commercially, if a customer pays a company more money up front, the contractor typically reduces the price of an item. But when DoD pays up front, it gets nothing for it, according to Assad.

"Let's pay attention to that because there's value there," he said.

The Pentagon expects this and a number of other Better Buying Power initiatives to save it money during the acquisition process. The accounts that receive those savings are still being determined, according to Assad. Carter will be meeting in the coming week or so with the three service acquisition executives and Pentagon Comptroller Robert Hale to determine "the fairest way to go about doing that."

[buglerbilly]

DoD To Rewrite Acquisition Requirements Process

By DAVE MAJUMDAR

Published: 14 Apr 2011 14:19

COLORADO SPRINGS, Colo. - The U.S. Defense Department is scrapping the ponderously slow Joint Capabilities Integration and Development System (JCIDS) process, which defines acquisition requirements for the military.

"We're starting to rewrite JCIDS. We're going to throw it away," U.S. Marine Corps Gen. James Cartwright, vice chairman of the Joint Chiefs of Staff (JCS), said April 14 before an audience at the 27th National Space Symposium. "We're going to try to align ourselves with acquisition and three levels of risk."

Cartwright said the new strategy would allow the Defense Department to more quickly buy urgently needed equipment. Such systems could range from a truck to something the size of an aircraft carrier.

"It demands of industry to go out to get the tools that allow us to build a truck in less than 14 years," Cartwright said.

It would also allow the Defense Department to buy space systems for one-third of the cost it now pays because the Pentagon would be able to buy equipment off the shelf.

Related to the process, Cartwright said, "As we stand down Joint Forces Command, we will move that function into the J-7 of the Joint Staff. And we will align J-8 and J-7."

The J-8 will be material solutions, J-7 will be non-material solutions. The two offices will work together under auspices of the vice chairman of the JCS, he said.

Having the two offices under one roof is key, Cartwright told reporters after his speech.

"I want one person in charge of that, so they can oversee it," he said.

The two offices will ensure that if the Defense Department has to purchase hardware, all of the necessary training and ancillary hardware is available, Cartwight said.

He cited real-world absurdities, such as satellites being in orbit without the necessary ground terminals to use them, as situations the two offices would work to avoid.

[buglerbilly]

The Navy’s acquisitions hiring boom

By Philip Ewing Friday, April 15th, 2011 4:57 pm



The Navy’s Department’s top weapons-buyer, Sean Stackley, set down a priority this week at the Sea Air Space show that probably won’t get a lot of attention like the “Great Green Fleet” or the “313-ship Navy.” Still, he said he hopes it could pay huge dividends if successful. The department, Stackley said, needs to add thousands of uniformed and civilian acquisitions experts who know how to smooth out the complicated process of buying big, expensive things. Not as flashy as a rail gun, but it could save the department hundreds of millions of dollars.

“Ten to 15 years of downsizing has thinned our professional corps and we need to reverse that decline,” Stackley said. That includes deckplate-level inspectors working for the Supervisor of Shipbuilding, program managers, contract wranglers, test and evaluations professionals, and so on. For the past several years, the Navy has struggled with accepting warships that needed expensive re-work after entering the fleet, or which sailed late or over-budget because of quality problems. Just this week, you read here on Buzz about how manufacturing problems caused hull cracks aboard the littoral combat ship USS Freedom.

According to information provided Friday by Navy spokeswoman Capt. Cate Mueller, the goal is to increase the Navy’s acquisition workforce across the board by about 16 percent, or more than 6,000 people, over the next five years. Most of those people will be government employees, either service members or full-time Navy Department workers.

“We’re doing this at the expense of support contracts, but that’s a good trade-off,” Stackley said Wednesday.“The goal is not to restore government employees, but to restore our core competence.“

Read more: http://www.dodbuzz.com/2011/04/15/the-navys-acquisitions-hiring-boom/#ixzz1JdlgdnS6

[buglerbilly]

Pentagon acquisition chief promises rewards for good suppliers

By Marjorie Censer, Published: April 25

The Pentagon is launching a preferred supplier program to incentivize its vendors as part of a larger effort to promote competition and curb unnecessary paperwork and other bureaucratic hurdles in the procurement process.

Ashton Carter, the Pentagon’s acquisition chief, said the Defense Department is making changes in hopes of driving down the cost of programs. He and Defense Secretary Robert M. Gates last year first unveiled a departmental effort, dubbed the “better buying power initiative.”

Speaking at the Heritage Foundation last week, Carter offered an update on the effort to date.

He said the Pentagon is readying the Superior Supplier Incentive Program, designed to recognize contractors who receive high marks in the Defense Department’s performance-tracking system.

The recognition won’t help suppliers win work, but if they do receive orders, they could see better performance payments, among other rewards, said Carter.

Additionally, Carter said he is now requiring all program managers to have a competitive strategy, or an explanation for how they will use competition to reduce the cost of their program.

Acknowledging that head-to-head competition isn’t always feasible, Carter said there are other ways to cut program costs, such as contract provisions that provide companies a share of any savings they produce.

The Pentagon also plans to reduce “non-productive processes and bureaucracy,” Carter said.

Paperwork the department mandates not only costs money, but also obstructs companies unaccustomed to defense work, he said.

“It’s important that we have an open defense system that is attractive and isn’t so exotic to sell to that companies, particularly small companies, can’t do it,” Carter said.

He said the Pentagon will consider canceling more existing weapons programs but will also focus on driving down the costs of new programs.

“You see that philosophy reflected in the new tanker,” Carter said of the Defense Department’s recent award to Boeing to build the next-generation aerial refueling tanker. The fixed-price contract means “we, the government, are insulated against cost growth in the tanker program, both in development and production.”

[buglerbilly]

Acquisition Pros Must Be Fiscal Stewards, Commander Says

(Source: US Air Force Materiel Command; issued April 28, 2011)

WRIGHT-PATTERSON AIR FORCE BASE, Ohio --- Emphasizing that America's number-one national security challenge may well be our fiscal health as a nation, the commander of Air Force Materiel Command opened the 2011 Defense Acquisition University Acquisition Insight Conference with a bracing observation.

"We're on an unsustainable path," Gen. Donald Hoffman told the audience of Defense acquisition professionals April 26 at Dayton's Sinclair Community College. "Americans need to make individual and collective sacrifices to live within our means. DoD needs to play and Air Force Acquisition needs to play ... if significant efficiencies aren't identified and wholly committed to, resources for modernization, readiness and facilities will not be available.

"Many of these efficiencies will have to be found in the fastest growing element of our spending ... the cost of personnel. Not unique to DoD, but the fully burdened cost of manpower is growing faster than our other spend lines. Don't just look at pay checks, but consider health care, education, retirement and the like," General Hoffman said.

Initiatives over the last year in AFMC to advance the Acquisition Improvement Plan the Air Force launched in 2009 have been fruitful, General Hoffman noted. Expedited hiring of civilian employees in critical areas was accomplished. The process of establishing requirements for weapon systems and components was improved. Budget and financial discipline became more rigorous. The source-selection process improved and acquisition organizations were aligned for greater efficiencies.

In addition to General Hoffman's keynote remarks, AFMC Vice Commander Lt. Gen. Janet Wolfenbarger participated in a panel discussion moderated by AFMC Executive Director Dr. Stephen Butler. They were joined by Lt. Gen. Mark Shackelford, principal military deputy to the Assistant Secretary of the Air Force for Acquisition, and his Army counterpart, Lt. Gen. William Phillips.

General Wolfenbarger delivered the Capstone Summary as the conference wound down April 27.

Sponsored by the Defense Acquisition University, the two-day conference was planned around the theme, "Implementing Acquisition Efficiencies: How Do You Fit In?"

-ends-

[buglerbilly]

Watchdog Group Asks Pentagon to Investigate Darpa Chief

By Spencer Ackerman May 9, 2011 | 9:13 am



One of Washington’s leading good-government organizations formally asked the Pentagon to investigate financial conflicts of interest in the Defense Department’s best-known research branch.

The Project on Government Oversight (POGO) asked for the inquiry after news reports that Darpa handed out $1.75 million in contracts to a company owned in part by agency director Regina Dugan and her relatives. What’s more, Dugan is owed $250,000 by her family firm, RedXDefense. POGO wants to verify that Dugan had nothing to do with the contracts, and to determine if “any Darpa employee” dealing with the company knew of its connections to the woman at the top.

In a letter to the Pentagon inspector general written on Monday, Danielle Brian, POGO’s executive director, calls for an investigation that goes beyond Dugan, who recused herself from any dealings with RedXDefense upon becoming director. Brian cites recent comments from Kaigham “Ken” Gabriel, Dugan’s deputy, calling financial conflicts ”prevalent” at the agency, since Darpa’s highly technical work requires it to recruit talent from many of the firms and researchers who bid on its contracts.

“We urge the DoD IG to immediately pursue an audit to ensure that Darpa selects and awards grants and contracts with integrity,” Brian writes in the letter to Inspector General Gordon S. Heddell. Perhaps “more stringent measures” are needed to prevent potential conflicts-of-interest.

POGO also questions just how closely the Pentagon oversees Darpa. The Pentagon inspector general’s office hasn’t audited the agency’s contracting methods since 1997. “Inappropriate decisions are more likely to occur when processes are circumvented and decisions,” Brian writes. Further, Brian asks if “any changes in the last three years in the interpretation of ethics rules” by Darpa’s leadership and determine if and how it impacted the selection of contracts.

Darpa insists Dugan did nothing wrong. Its spokesman, Eric Mazzacone, told Danger Room that Dugan “personally and substantially” has nothing to do with RedXDefense — Darpa’s program managers deal with contractors — and notes that the company has lost out on millions more in contract awards than it’s won since Dugan took office.

Brian questions whether Dugan’s personal recusal is enough of a check against inappropriate awards. Just look at Darpa’s org chart, she writes: “We are especially concerned because there is only one layer of management between the Director and program manager.”

Other defense agencies require their leadership to “divest from all defense contractors” in which they hold a financial stake. Brian wants Heddell to evaluate whether Darpa should adopt a similar policy.

POGO’s word carries weight in executive agencies and on both sides of the aisle. The group was instrumental in getting the Department of Energy to tighten up security at its nuclear labs. Last year, in response to POGO inquiries, Congress opened a federal contracting database to the Internet and bolstered a consumer protection bill.

If Heddell takes up Brian’s case, don’t expect to hear much about it in the near future. The Pentagon inspector general’s office doesn’t formally confirm or deny investigations it conducts.

And if Heddell is unmoved by Brian’s letter, POGO might not have much more luck on Capitol Hill. Danger Room contacted several Congressmen responsible for overseeing Darpa. They were noncommittal about further investigation.

The most aggressive was Rep. Mac Thornberry, the Texas Republican who chairs the Emerging Threats and Capabilities panel within the House Armed Services Committee. And he wasn’t very aggressive at all. He tells Danger Room he’ll “continue to monitor the situation.” For now, “the subcommittee has been told that Dr. Dugan’s continuing ties to RedXDefense was thoroughly reviewed by Darpa’s General Counsel and that proper procedures were followed to ensure there was no conflict of interest.”

Photo: Virginia Tech

[buglerbilly]

U.S. Army Acquisition Chief Resigns

By KATE BRANNEN

Published: 1 Jun 2011 12:40

After just more than a year in the job, U.S. Army acquisition chief Malcolm O'Neill told his staff May 31 that he is resigning due to personal reasons.


Malcolm O'Neill, U.S. Army acquisition chief, announced his resignation June 1. O'Neill was sworn into office March 10, 2010. (Sheila Vemmer / Staff)

"The effective date of my resignation is as soon as possible, but I am working with the Secretary of the Army and the Under Secretary of Defense (Acquisition, Technology and Logistics) to ensure that our organization continues to operate without interruption," O'Neill said in a May 31 email to his staff.

One source said he is leaving for a health-related issue; the resignation has nothing to do with his work.

O'Neill's departure marks the second big change in Army leadership this week. On May 30, President Barack Obama announced that Gen. Martin Dempsey would be leaving his post as Army chief of staff to become the next chairman of the Joint Chiefs of Staff. If confirmed by Congress, Gen. Ray Odierno will replace Dempsey as service chief.

O'Neill was sworn into office March 10, 2010. During his short time on the job, he picked a team of acquisition officials to help him revamp the Army's research and development program, including Marilyn Freeman as deputy assistant secretary for research and technology and Scott Fish as the Army's chief scientist.

At a conference of the Association of the U.S. Army in February, O'Neill directed industry to focus its efforts on soldier technology and dismounted operations.

O'Neill also put his mark on the Army's Ground Combat Vehicle (GCV) program, forming a red team to investigate the program's weaknesses. After soliciting bids for the vehicle, the Army withdrew its request for proposals in August 2010 and announced it would release a revised request in 60 days that would correct what O'Neill saw as the program's flaws.

He also worked closely with Pentagon acquisition chief Ashton Carter on the Defense Department's drive to find efficiencies and reduce overhead costs.

"It has been my great privilege to lead the Army Materiel Enterprise, a hard working team dedicated to the success of our Soldiers at war and in operations throughout the world," O'Neill said in his memo. I have witnessed firsthand the difference we make in providing the American Soldier, our most important customer, with world-class weapon systems and equipment. I am grateful for the many opportunities I have been given during my career and especially in my current position. I have enjoyed my time here, and I wish you every success in the future."

O'Neill retired as a lieutenant general after 34 years in the Army that included a stint as director of the Ballistic Missile Defense Organization, now the Missile Defense Agency. After his Army career, he turned to industry, working for Lockheed Martin from 1996 to 2006. More recently, he served as chairman of the board on Army Science and Technology for the National Academies and the National Research Council.

[buglerbilly]

Assad, in New Position, To Help Pentagon Get Best Deal

By MARCUS WEISGERBER

Published: 2 Jun 2011 15:53

There will be a new negotiator at the table as the Pentagon and Lockheed Martin hammer out a pricing deal for the latest batch of F-35 Joint Strike Fighters.


Pentagon veteran Shay Assad has been named the U.S. Defense Department’s director of defense pricing. (File photo / U.S. Defense Department)

Shay Assad, the newly named director of defense pricing, will help the U.S. Defense Department buy weapons at a lower cost than official budget estimates. The creation of the new position is part of the Pentagon's quest to drive down the cost of weapons at a time when defense budgets are constricting.

"We simply intend to be much more professional, much more capable, when it gets to sitting at the table and negotiating the price on behalf of the taxpayers," Assad said during a June 2 briefing at the Pentagon.

The creation of the position is part of Pentagon acquisition executive Aston Carter's Better Buying Power initiative to buy more for less money. Part of that initiative is looking beyond program cost estimates and determining what a program should cost.

In his new role, Assad will help program managers hit these should-cost targets, which will be set at levels less than official budget estimates.

In addition, he will spend more time improving the contracting and pricing work forces in "improving their skills on what it is we pay on the goods and services we buy."

One of the major elements of this is to transform the Defense Contract Management Agency (DCMA), Assad said. DCMA has hired 300 pricing analysts who will assist contract officers during negotiations for weapons, sustainment, services and other contracts. It will take 18 to 24 months to bring this work force up to speed, Assad said.

Officials are also creating an online system that will "enable our contracting officers to get insight into the financial aspects of the companies that we deal with in a real-time way," he said. The system, which already includes rate data, is being tested.

Currently, it could take contracting officers months or even a year to compile this type of data. Soon it will all be organized under one roof and should take minutes to retrieve.

"What we're really trying to do is have contracting officers push away from the table and say: 'I did very well by the taxpayers,' " Assad said.

Assad previously served as director, defense procurement and acquisition, a position he has held since 2006. Richard Ginman, Assad's former deputy, has assumed that position and is responsible for general acquisition and contract policy.

While Assad will conduct peer reviews for sole-source programs that cost more than $1 billion and selective deals above $500 million, Ginman will work on competitive programs.

Assad will be "intimately involved" supporting the acquisition of the F-35, the Pentagon's most expensive program. DoD converted the program to a fixed-price construct last year and has entered new negotiations for the fifth batch of production aircraft.

The F-35 negotiations will likely not wrap up until this fall, Assad said.

[buglerbilly]

Pentagon Acquisition Chief Talks 'Better Buying Power'

(Source: US Department of Defense; issued June 3, 2011)

More mindless twaddle, more shades of (un)SMART procurement...............

HANSCOM AIR FORCE BASE, Mass. --- The undersecretary of defense for acquisition, technology and logistics spoke to the electronic systems center workforce May 25 regarding Defense Department budget challenges, efficiency initiatives and their impact.

Dr. Ashton B. Carter said the defense budget for the next decade will not be similar to the past 10 years, and implementing efficiencies will be up to everyone. "Supporting the ongoing fight is job one for all of us," he said. "Job two is to get the best value for the taxpayer and the warfighter."

During the town hall meeting, Dr. Carter spoke about cutting programs that were performing poorly or weren't needed. Now, cost savings need to be found in remaining programs, he said.

"What we have is what we want and need, and we need to complete them and we need to make that happen ... for not more money every year," he said. He discussed the points of the "better buying power" guidance he put out in September and also the usage of contract types.

Using fixed price incentive firm contracts is "not dogma," Dr. Carter said. "It applies only if we know what we're doing, it isn't going to change and the contractor knows the projected cost and has mastered the process."

He said contracts are business deals with contractors. The contractors should know if they don't perform, their contract dies. And those who are performing well should be rewarded.

He also highlighted competition, including sole-source contracts by comparing them to a marathon runner who is only looking to beat the clock. "The contractor should be looking for follow-on business and reputation," he said.

Knowing what a program's requirements are is also important for success, Dr. Carter said. There needs to be a rapport between requirements and acquisition, and if acquisition personnel see an opportunity to save money or change the way things are done to improve, they need to ensure they have that relationship with the customer.

"Program managers should have a deep understanding of the product," the undersecretary said, while admitting that the systems-engineering capability is not as strong as it should be in the DOD. "I know you are doing a lot with less than you should have."

Dr. Carter made it a point to say the acquisition workforce had been cut too much previously, on both the civilian and military sides, and both he and Air Force Principal Deputy Assistant Secretary for Acquisition David Van Buren would be keeping a close eye on acquisition personnel numbers.

"You are a very important part of meeting this national challenge," he told the audience.

-ends-

[buglerbilly]

Flawed Logic, Extraordinary Irony Abound in Lobbyists' Arguments Against Contractor Disclosure Directive

(Source: The Project On Government Oversight; issued June 3, 2011)

On Tuesday, the American League of Lobbyists (ALL) sent an almost-laughable letter to the White House requesting that President Obama withdraw the draft executive order (EO) that would require bidders on federal contracts to disclose their political contributions and voicing their support of House Amendment No. 27, offered by Congressman Tom Cole (R-OK) to the FY 2012 Defense Authorization bill (H.R. 1540).

The lobbyists are concerned that "The Draft Order would inhibit one of the most vital tools in the advocate's arsenal by creating a fear of retribution for political donations."

In spite of the absurdity of the idea that lobbyists must be able to give money in secret to do their jobs, Ryan J. Reilly of TPM Muckraker recently opined that contractors and their advocates are dominating the messaging war surrounding the EO. But the central message from opponents of the EO—that more disclosure and transparency will allow the Obama administration to pick and choose contractors based upon political contributions—is simply not credible.

To turn the tables in this messaging war and to expand upon POGO's arguments in support of the EO, here are three reasons why this rationale and the rhetoric used to attempt to defeat the EO are flawed and extraordinarily ironic:

Contractor Contributions Go to Opponents of the EO

Those who resist disclosure have a vested interest in ensuring that the American public is unaware of the undue influence they garner through contributions. If contributions are unrelated to the awarding of contracts, there should be no cause for alarm when contractors are asked to provide this information to the public. Not coincidentally, the businesses receiving these contracts, the lobbyists securing the contracts, and the Representatives receiving contributions from these contractors are the very same groups aggressively fighting disclosure.

According to campaign contribution data from the Center for Responsive Politics, Rep. Cole, who sponsored the amendment that would effectively nullify the draft EO, has received hundreds of thousands of dollars in campaign contributions from government contractors since joining the House. Specific examples include the $23,000 he received from the Defense/Aerospace sector in 2010 and the $28,500 he's received during his five House elections from prominent defense contractor BAE Systems, which would be required to disclose all contributions if the EO were to go into force. Cole has also received more than $166,000 from lobbyists for his five House elections.

The ties between Senator Susan Collins (R-ME), sponsor of the draft bill that is expected to be introduced in the Senate to nullify the EO, and major government contractors are even greater. During her 2002 and 2008 elections, her second largest donor was General Dynamics, one of the most prominent government contractors, whose employees, political action committee (PAC), and affiliates gave her nearly $100,000. Raytheon, another massive defense contractor, also made her top ten donor list with total contributions exceeding $34,000.

The ALL would undoubtedly contend that these contributions in no way influenced the decision of these Representatives to oppose the EO. But ironically, ALL's own former two-term president Wright Andrews concedes in an interview with the Center for Responsive Politics that "access is more available to those who give a lot of money and raise a lot of money. Access then puts you much more in the game. It is power. It does translate into ability to get things done." This is precisely why it is vital for the public to know how contractors are using contributions to secure contracts.

Disclosure ≠ Politicization

POGO, along with more than 30 other pro-transparency groups, signed a letter on May 4th supporting the EO, which noted that "In response to numerous contracting scandals, more than a dozen states have imposed specific campaign finance disclosure requirements on government contractors."

According to a report by Perkins Cole, LLP, disclosure laws comparable to those in the draft EO exist in California, Maryland, New Mexico, Pennsylvania, and Rhode Island, and many more states explicitly ban contributions from government contractors and their affiliates. There is no evidence that these disclosure requirements have in any fashion politicized contractor selection in these states.

Similarly, many federal government contractors are already required to disclose some of their campaign finance activities, including contributions reported to the Federal Election Commission. Once again, there is no evidence that these disclosure requirements have politicized procurement officials. Therefore, there is no reason to believe that the draft EO would, in any way, increase politicization of contractor selection.

Citizens United Actually Supports Disclosure of Donors

Opponents of the EO have also attempted to use the Citizens United decision to bolster their case against transparency. In their letter to the President, the ALL write, "the ability to voice a political position using financial resources has been preserved by our nations [sic] deliberative and judicial branches, your Executive Order, if enacted, would undermine that preservation."

This is a cursory and incomplete understanding of the Citizens United decision. Ironically, this same decision that opened the door for virtually unlimited money to pour into the campaign finance process also makes a compelling argument for disclosure of that information. According to the Majority Opinion, "Disclosure permits citizens and shareholders to react to the speech of corporate entities in a proper way. This transparency enables the electorate to make informed decisions and give proper weight to different speakers and messages."

Why POGO Supports the EO

The intent of the draft executive order is not to allow contracts to be granted based upon political contributions. In fact, just the opposite is true. Procurement officials cannot accept political contributions from contractors—those opposing the EO can and do. Opposition to the EO is predicated upon self-interest, not the national interest. Disclosure allows the public to identify when the decisions of government are being driven by campaign contributions and successful monitoring of contractors' use of contributions to influence selection decisions will be impossible without implementing the EO.

By making contractor contribution information publicly available, anyone with a suspicion of quid pro quo can immediately look into the issue to determine if a contract was awarded unjustly. Full disclosure works to guarantee that contracts are awarded based upon merit not money.

-ends-

[buglerbilly]

U.S. Army embracing 'should-cost' approach to weapons, acquisition programs

08:32 GMT, June 16, 2011 WASHINGTON



I find most of what is writtten in here as mindless drivel, NOT because the journo doing the writing is the dumbo but the stuff he is writing about is like hearing Idiots in the Playroom..............I'm a life-time Procurement professional and I've done everything from every angle but fer Crissakes the so-called Should-Cost/Will-Cost is imbecilic to the extent they feel it absolutely necessary to even say it............do most of the Muppets in the World go into Defence Procurement? I'm starting to beleve so..........:jerkit

[Our good buddy "G" is most specifically EXCLUDED from the above statement]

The U.S. Army is working to drive productivity growth, maximize efficiency and eliminate redundancy through an approach called "Should-Cost/Will-Cost" management, service officials said.

The push to implement the new approach to acquisition came as guidance from Ashton Carter, undersecretary of defense for acquisition, technology and logistics.

"Doctor Carter is challenging program managers to drive productivity improvements into their programs during contract negotiation and program execution," said Heidi Shyu, the acting assistant secretary of the Army for acquisition, logistics and technology.

Shyu said the approach involves scrutinizing every element of government and contractor costs.

The "Should-Cost/Will-Cost" approach is grounded in an effort to lower costs and improve affordability within acquisition programs by increasing scrutiny and targeting areas of potential cost reduction. Carter's guidance to the services stresses the need to reduce overhead costs where possible and increase the measure of analysis given to programs.

"I will require the manager of each major program to conduct a Should-Cost analysis, justifying each element of program cost and showing how it is improving year by year or meeting other relevant benchmarks for value," wrote Carter in a Sept. 14, 2010, Memorandum for Acquisition Professionals.

Carter went on to say that managers should be driving productivity improvements in their programs, and should be scrutinizing every element of program cost to determine if what elements can be reduced relative to the year before.

Because of the guidance, each program manager must now provide a "Should-Cost" estimate, designed as an internal management tool for incentivizing performance.

The "Should-Cost" estimate will then be compared and measured against the "Will-Cost" estimate, described as the official program position for budgeting, programming and reporting.

"By January 1, 2012, all ACAT I, II, and III programs will have milestone decision authority-approved 'Should-Cost' execution targets," Shyu writes.

The goal of the approach is to improve business practices and increase efficiency in contracting and acquisition program management.

"Program managers must begin to drive leanness through 'Should-Cost' management," Shyu said.

Program managers have historically argued that they could bring certain elements of a program in for less cost compared to independent cost estimates developed by outside organizations, said Cherie Smith, who directs the ASA(ALT) Performance Assessment and Root Cause Analysis Directorate.

"It doesn't take a crystal ball to see that we are going to be expected to do more with less," Smith said. "Within the established financial boundaries, Miss Shyu's goal is to incentivize our PMs by allowing them the ability to use these savings to lower risk in other areas of their program."

Along with mandating affordability and establishing a "Should-Cost" management approach, additional elements of the Army effort to implement Carter's guidance include initiatives to eliminate redundancy within warfighter portfolios, make production rates more stable and economical and set shorter time lines to manage programs.

----
Kris Osborn, ASA (ALT) / Army News Service

[buglerbilly]

Locked and Loaded: Pentagon Contractor Helped Write Its Own Armored-Truck Deal

By Spencer Ackerman July 11, 2011 | 6:44 pm



How badly did the Pentagon want special trucks that could protect against insurgent bombs? So badly that it let the contractors responsible for providing them essentially write their own contracts.

That’s one of the conclusions from a Pentagon inspector general’s report released late Monday (.pdf) into a contract to provide logistics and maintenance work on Mine Resistant Ambush Protected vehicles (MRAPs) worth nearly half a billion dollars. The line between contractor and government vendor became so porous that officials “increased the risk for potential waste or abuse on the contract,” the inspector general wrote.

Getting the resilient MRAPs into Iraq and Afghanistan was a top priority for former Defense Secretary Robert Gates. That urgency led some officials at the Army’s Contracting Command and the Joint Program Office-MRAP into a too-cozy relationship with Jacobs Technology and its subcontractor SAIC, which won a $193.4 million award for logistics services on the MRAPs in November 2007.

In a reversal of how contracting is supposed to work, the inspector general finds that Jacobs/SAIC employees “directed Government personnel in Iraq,” ordering them to report to the contractor team and not government officials. In another case, a battalion commander with the 402nd Army Field Support Brigade allowed a contractor employee to assist in reprimanding an unnamed Defense Department official for an unspecified infraction, another no-no. “[C]ontractor employees appeared to be directing the day-to-day operations of DoD personnel,” the inspector general finds.

But the coup de grace came in 2009, ahead of the re-up of the contract. The contractors’ Army partners and the Joint Program Office “worked together to prepare the contract requirement” for the successor to the MRAP bid, a deal worth $285.5 million that ended in May. Shockingly, that contract went to SAIC, too.

“The contractor’s performance of these functions violates the two underlying principles in the acquisition process: preventing unfair competitive advantage and preventing the existence of conflicting roles that might bias a contractor’s judgment,” the inspector general writes.

Yet the report doesn’t assess how much cash, if any, was wasted as a result. Nor does the inspector general recommend any punishment more punitive than sending contracting officials back to training on “inherently governmental functions and organizational conflicts of interest requirements.”

Government watchdogs were stunned at the MRAP audit results. “We were allowing a company to help write contract requirements for a contract that it was bidding on — and it ended up winning the contract!” says Nick Schwellenbach, lead investigator for the Project on Government Oversight. “The contractor could have stacked the deck in its favor, steering the contract towards a worse deal for the taxpayer.”

How could this have happened? In order to get the MRAPs into the warzones swiftly, the inspector general finds that JPO MRAP made SAIC employees middlemen between the overall head of the MRAP program and its deputies in Iraq and Kuwait. “This structure gave the contractor authority over DoD employees, which enabled the contractor to perform inherently governmental functions and allowed organizational conflicts of interest,” the inspector general writes.

It’s not been the greatest moment for oversight in military contracting. Late last year, the Defense Department restricted its own ability to review conflicts of interest on big contracts after an industry freakout. And this is right as the Pentagon’s top gear-buyer bangs the table about making contractors pay if their programs go over budget.

Of course, if the contractor is really the one in charge, the government doesn’t have much leverage. “The buyer-seller relationship is turned on its head when the company that is working for the government can discipline the government’s own employees,” Schwellenbach says, after reminding that “the government hires contractors to work for it.” How old-fashioned.

Photo: U.S. Air Force

[buglerbilly]

Pentagon Seeking Out Supply-Chain Weaknesses

Aug 4, 2011

By Graham Warwick



A Pentagon review of the defense supply chain is under way in an effort to find the weak points where funding needs to be applied to prevent the loss of critical capabilities.

The “sector-by-sector, tier-by-tier” (S2T2) assessment is an effort to map the anatomy of the supply chain and increase understanding of sub-tier connections between programs so the Defense Department can improve its supply-chain management.

In addition to building a detailed database, the S2T2 initiative is expected to result in targeted actions to shore up areas where there are only one or two key suppliers and a risk of companies exiting the market or being sold overseas.

“We are challenged by our understanding of what the industrial base looks like at the second to fifth tiers,” Brett Lambert, deputy assistant secretary of defense for manufacturing and industrial base policy, told an Aerospace Industries Association suppliers’ conference in Ft. Lauderdale, Fla., last week.

“We need to identify single points of failure and apply tools like Title III,” he said. Title III authorizes the government to provide incentives to develop, maintain, modernize or expand domestic production capacity in critical areas.

The Pentagon has already “taken course corrections on some very specific areas in the third and fourth tiers that you will see in the fiscal 2012 budget,” Lambert said. “There are single points in the U.S. where we could lose capability and have to rely on offshore suppliers.”

As a result of congressional action that allows it to make industrial-base interventions and not just assessments, the Pentagon is preparing to use a range of tools to shore up points of stress in the supply chain.

Title III funding, which has declined to $50-200 million a year from billions of dollars, can be used to provide incentives such as low-interest loans to manufacturers to underwrite capital expenditures to develop and maintain critical capabilities.

“S2T2 will identify critical points of failure, then we can use Title III to make investments,” Lambert said. Industry will be incentivized to put in money also using investment guarantee mechanisms available under Title III.

“Title III is very broad and it’s controlled not by the armed services committees [in Congress] but by the banking committees,” Lambert said. “It can do things like invest in 40,000-ton presses that have no commercial use now, but will have in the future.”

Other mechanisms for bolstering the supply chain include manufacturing technology (ManTech) funds totaling around $250 million a year, but controlled by the individual services. ManTech is intended to transition higher-risk technologies to industry.

“We can also work with programs to smooth out production rates and avoid the EKG [peaks and troughs] that really impact the second and third tiers,” he said.

[I]Photo: Wikipedia

[buglerbilly]

Weapons Acquisition Reform: Actions Needed to Address Systems Engineering and Developmental Testing Challenges

(Source: Government Accountability Office; issued Spt. 20, 2011)

The new offices for systems engineering and developmental test and evaluation are continuing to make progress implementing Reform Act requirements. Since GAO’s 2010 report on this topic, the Deputy Assistant Secretaries for Systems Engineering and Developmental Test and Evaluation have issued additional policies and guidance, assisted more weapons acquisition programs in the development of acquisition plans, and provided input to senior leaders at Defense Acquisition Board meetings.

DOD also designated the Deputy Assistant Secretary for Developmental Test and Evaluation for concurrent service as the Director of the Test Resource Management Center. This was an optional Reform Act provision, which places oversight of testing resources and acquisition program developmental testing activities under one official.

Despite these steps, the developmental test and evaluation office reports having difficulty covering its portfolio of about 250 defense acquisition programs with its current authorized staff of 63 people.

Current and former testing officials believe the office needs more influence and resources to be effective, but they said thorough analysis has not been done to determine the appropriate office size. Further, according to the Deputy Assistant Secretary for Developmental Test and Evaluation, a statutory provision that designates the Test Resource Management Center as a field activity may limit his ability to achieve management and reporting efficiencies that could be obtained by combining or shifting resources between the two organizations. GAO has a matter for Congressional consideration to allow shifting resources between the Test Resource Management Center and the developmental test and evaluation office.

The military services are facing workforce challenges that could curb systems engineering and developmental testing efforts, if not properly addressed. The services planned to increase their systems engineering and test and evaluation career fields by about 5,000 people (14 percent) and about 300 people (4 percent), respectively, between fiscal years 2009 and 2015 through hiring actions and converting contractor positions to government positions.

The services have increased the systems engineering career field by about half of its projections and exceeded its planned growth for the test and evaluation career field through the end of fiscal year 2010.

However, future growth may be difficult because of budget cuts and a clarification in DOD’s insourcing approach, which may make civilian hiring more difficult. For example, the services now plan to hire about 800 fewer systems engineers by 2015 than they originally projected.

Further, cuts to development test ranges’ fiscal year 2012 budgets of nearly $1.2 billion (17 percent) over the next 5 years could offset some of the workforce gains already achieved. Currently, the services lack metrics that could be used to justify funding levels, effectively allocate funding cuts, make workforce decisions, or make difficult decisions related to mothballing, closing, or consolidating test capabilities, if future budget cuts are necessary.

To the extent DOD cannot provide adequate systems engineering and developmental testing support to its weapon systems portfolio, the risks of executing the portfolio within cost and schedule are increased.

Click here for the full report (39 pages in PDF format) on the GAO website.

http://www.gao.gov/new.items/d11806.pdf

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