Getting The Most From Acquisition Reforms

While defense acquisition has far more in common with business than with traditional governmental functions, it is not an easily recognized form of business. It consists of a monopsony (i.e., a buyer's monopoly) run by the world's most powerful customer that makes the rules and enforces them. Yet, embedded within this monopsony are occasional monopolies in the private sector affecting specific products. The firms operating in this environment are expected to compete not only against each other but against the myriad of commercial firms around the globe that seek equity and debt from the same financial sources. How might a business perspective improve the practice of defense acquisition? First, it would ensure that the interests and incentives of all enterprise stakeholders are communicated, understood and agreed upon. Second, reform would begin to create an environment where, rather than striving to become error-free on the process side, the acquisition system is aimed at achieving successful outcomes, that is, providing users what they need, when they need it, and at a cost they can afford. Third, it would open lines of communication between DoD and its suppliers, the defense industrial base in particular as well as the larger commercial sector. The private sector operates as a community of buyers and sellers. In defense acquisition such relationships are at "arm's length" and legally restrained. The Task Force stresses these attainable values throughout this report. However, the first challenge is to recommit the enterprise to certain principles that provide the foundation on which a sound defense acquisition system and its sustaining enterprise can be built.

The past decade has seen a significant change in business practices within the Federal contracting arena. Acquisition reform initiatives have fundamentally transformed the protocols and processes the Federal Government utilizes to procure billions of dollars' worth of goods and services every year. Reforms provided under the Federal Acquisition Streamlining Act (FASA), the Federal Acquisition Reform Act (FARA), and the Services Acquisition Reform Act (SARA), along with ensuing regulatory provisions in the Federal Acquisition Regulation (FAR), have created a more business-to-business-like contracting methodology. One such methodology is the FAR 13.5 Test Program for Commercial Items. FAR 13.5 allows the utilization of Simplified Acquisition Procedures (SAP) for all commercial-item designated goods and services up to and including $5.5 million. The FAR 13.5 provisions are aimed at improving the efficiency and effectiveness of Federal contracting processes. The FAR 13.5 regulatory provision has tremendous potential to alleviate field contracting activities' work-in-process backlogs, improve cycle-time, reduce transaction costs, and increase customer satisfaction in the business processes designed to provide essential goods and services. However, based on the researcher's review of the business decision protocol at many acquisition and contracting centers, and as a result of similar research conducted in 2004, 2005 and 2006, this text asserts many contracting activities may not be effectively utilizing the legislative and regulatory authority under FAR 13.5 to garner desired efficiencies and effectiveness. Therefore, the objective of this research study is to determine the extent to which the Navy's FISC (Fleet and Industrial Supply Center) activities are capitalizing on the legislative provisions and regulatory provisions of FAR 13.5 and to make specific recommendations for improving the full utilization of the FAR 13.5 commercial-item designation provisions. This sponsored research study: 1) provides an overview of the applicable legislative and regulatory provisions, specifically FAR 13.5, and urges full utilization of the FAR 13.5 provisions, 2) investigates current business practices within the Fleet and Industrial Supply Centers (FISC) related to the FAR 13.5 regulatory provisions, 3) determines the extent to which FISC is reporting FAR 13.5 utilization and the degree of effective and efficient utilization of the FAR 13.5 provision, and 4) provides research conclusions and specific recommendations for better utilization of the FAR 13.5 provisions designed to benefit all process-protocol stakeholders, including the FISCs, their supported customers, the Navy and, ultimately, the American taxpayers.

While defense acquisition has far more in common with business than with traditional governmental functions, it is not an easily recognized form of business. It consists of a monopsony (i.e., a buyer's monopoly) run by the world's most powerful customer that makes the rules and enforces them. Yet, embedded within this monopsony are occasional monopolies in the private sector affecting specific products. The firms operating in this environment are expected to compete not only against each other but against the myriad of commercial firms around the globe that seek equity and debt from the same financial sources. How might a business perspective improve the practice of defense acquisition?

Defense acquisition reform initiatives have been Department of Defense perennials over the past fifty years. Yet reforming the acquisition process remains a high priority each time a new administration comes into office. Many notable studies of defense acquisition with recommendations for changes have been published, and each has reached the same general findings with similar recommendations. However, despite the defense community's intent to reform the acquisition process, the difficulty of the problem and the associated politics, combined with organizational dynamics that are resistant to change, have led to only minor improvements. The problems of schedule slippages, cost growth, and shortfalls in technical performance on defense acquisition programs have remained much the same throughout this period. The importance of the Department of Defense's huge acquisition projects over the years cannot be overstressed. The United States has often turned to cutting-edge technological solutions to solve strategic and operational challenges. To highlight the importance of acquisition issues, the Department of Defense began a project in 2001 to write a history of defense acquisition from the end of World War II to the start of the twenty-first century. The U.S. Army Center of Military History served as the executive agent for that project until funding was effectively withdrawn in 2009. Two volumes of that history are nearing publication, which will take the story up to 1969. To capitalize on essential information on defense acquisition reform initiatives from the three unpublished draft volumes covering the period from 1969 to 2000, the Center decided to publish extracts from those volumes, with additional analysis by J. Ronald Fox, a subject matter expert on acquisition and an adviser to the project. Much of chapter two of this acquisition reform study was written by Walton S. Moody and David G. Allen for their draft Volume III (1969-1980) of the Defense Acquisition History Project and then edited, analyzed, and augmented by Fox. Similarly, most of chapter three was taken from Thomas C. Lassman's draft chapters three and five of his Volume IV (1981-1990), and much of chapter four was written by Philip L. Shiman as chapter eight of his Volume V (1991-2000) of the Defense Acquisition History Project. Fox was able to take their chapters, provide additional analysis and insights, and consolidate and edit them with his own work to prepare this important volume focusing on defense acquisition reform. This volume is the result of all of their research and writing efforts and their collective insights into an incredibly complex system. Professor Fox's Defense Acquisition Reform, 1960-2009: An Elusive Goal, provides valuable historical analysis of the numerous attempts over the past fifty years to reform the defense acquisition process for major weapons systems. It identifies important long-term trends, insights, and observations that provide perspective and context to assist current defense decision makers, acquisition officials, and the acquisition schoolhouse. It is an important work on an important subject that continues to defy solution.

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Turning first to the topic of acquisition reform - it has been my sense that it is easy to talk about wAy we need meaningful reform of the system; harder to talk about how and even harder to do. The Congress and the Department of Defense have been talking about acquisition reform for a very long time. More importantly, we are together now doing something about implementing real reforms. We are at a point in our acquisition reform program that is not too much different than the situation faced by Winston Churchill during World War II when the US entered the war. He observed that "This is not the end, or even the beginning of the end, but it is, I believe, the end of the beginning." When you stop to think about it, this is exactly where we are in our program of acquisition reform and the reason why I selected "The End of the Beginning" as the theme for the "Acquisition Reform Day" recently observed about three weeks ago on May 31st by all Department of Defense acquisition activities around the world. It is important to note that "Acquisition Reform Day" was not a bad news story-it was a good news story. I felt a "stand-down" like this was necessary because we now have enough reforms under our belts that it was time to share with the entire DOD acquisition community our many successes and accomplishments. Perhaps the most successful aspect of the day was the effort made to promote horizontal communications among peers for sharing lessons learned, best practices, and initiatives under way. Many people did not realize the progress made by their peers. Based upon all the preliminary feedback received so far, it was a very successful day. The plan is to give the field activities an opportunity, over the next 60 days, to provide feedback up the chain of command on what's working, what's not, and what needs improvement. Lasting change will only come about with ownership i.

The Department of Defense (DOD) relies extensively on contractors to equip and support the U.S. military in peacetime and during military operations, obligating more than $300 billion on contracts in FY2013.

GAO discussed current and proposed legislation affecting the test and evaluation (T&E) of defense systems. GAO noted that: (1) it generally supports most of the acquisition reform proposals, but most of the T&E reforms should not be enacted because they address perceived rather than actual problems and undermine a key management control over the Department of Defense's (DOD) acquisition process; (2) independent operational T&E is the most realistic way to determine if new defense systems meet performance requirements, but systems developers resent the delays and expense imposed by testing; (3) the T&E reform proposals support DOD use of low-rate initial production despite possible system deficiencies; (4) the T&E reform proposals decrease the priority of T&E in defense systems procurements; (5) many of the systems that DOD allowed to go into production before operational T&E required costly design changes and retrofits; (6) DOD needs to establish controls over low-rate initial production to prevent premature production; (7) acquisition reform legislation should apply to all systems acquisitions; (8) DOD should limit its commitments to defense systems until developers demonstrate that the systems meet performance requirements; and (9) any changes to current T&E legislation would weaken the primary mechanism used to discipline the DOD acquisition process.

There is increasing dissatisfaction with cost growth in major defense acquisition programs. Cost growth crowds out other investments, stresses budgets or causes schedule slips, all of which result in a military force that is less capable than previously expected. Several recent studies have recommended two categories of reforms: capital budgeting reforms seek stability in acquisition accounts, and rational cost model reforms seek to reduce the percentage increase of final cost over budget estimates. In both categories, undesirable secondary effects may be worse than the desirable primary effects; specifically, reforms that reduce cost growth may do so by driving total costs higher. This study examines these reforms and discusses their secondary effects. The paper concludes that the current practice of generating low estimates, coupled with dissatisfaction with cost growth may best serve to limit total cost.

The UK spends approximately £20bn annually on military goods and services, around two-thirds of the total Defence Budge The challenges are constantly evolving, and there has been a succession of reforms to the acquisition process, each building on the last, and between them delivering significant improvement: more recent equipment projects show less tendency towards cost growth and time slippage; there is a more holistic, 'throughlife' approach to providing capability (Chapter 5); and a stronger and more mutually beneficial relationship with industry (Chapter 6). Around 98 per cent of major projects deliver the operational performance needed at the front line. But they also tend to increase in cost - by an average of 2.8 per cent each year - and to suffer delay averaging 5.9 months. More projects must be delivered to cost and time. An independent report into defence acquisition by Bernard Gray (available at: http://www.mod.uk/NR/rdonlyres/78821960-14A0-429E-A90A-FA2A8C292C84/0/ReviewAcquisitionGrayreport.pdf) concluded that overall plans for new equipment were too ambitious, and needed to be scaled down to match the funding likely to be available; and management of equipment portfolios must be improved. This strategy is built around those conclusions. The framework is designed so that the Ministry of Defence will make better decisions about what equipment (and wider services) to buy, how to ensure they are delivered on time, to cost and provide the desired performance; and in doing so, recognise and properly manage all the other strands (training, personnel, information, doctrine, organisation, infrastructure and logistics) needed to deliver and sustain effect on the ground.