“Learning the Lessons from 25 Years of Acquisition Reform” · “Learning the Lessons from 25...

““Learning the Lessons from 25 Years of Learning the Lessons from 25 Years of Acquisition ReformAcquisition Reform””

* Dr. Gansler served as Under Secretary of Defense (Acquisition, Technology and Logistics) from 1997 - 2001

The Honorable Jacques S. Gansler*

Professor and Roger C. Lipitz ChairDirector, Center for Public Policy and Private Enterprise

School of Public PolicyUniversity of Maryland

ComDef 2012; National Press ClubWashington, D.C., September 5, 2012

ComDef 2012, September 5 1

First, First, AA Personal Note:Personal Note:• I was an active participant in the “Packard Commission on Acquisition

Reform” (over 25 years ago); and then Bill Perry, Jim Woolsey, and I testified to both Houses of Congress on the Commission’s recommendations.

Clearly, some significant, positive changes have resulted (e.g. in terms of “jointness”)

But, there were also some “unintended consequences” (e.g. to address the “overpriced toilet seats,” Congress legislated the “maximum price of a toilet seat,” and added 5,000 auditors!)

• Subsequently, I tried again (while Under Sec. (AT&L) from 1997 to January 2001), [e.g. Global Hawk and JDAM stories] – but then, after September 11, 2001, the budget “flood gates” opened.

2ComDef 2012, September 5


MDAP Overruns, as they relate to DoD Budget Authority in Constant Dollars

22% AvgGrowth

Program Growth Data from Mecham, Michael. Planning for an Earthquake. AW&ST June 28, 2010 p.20

Percent M

DAPGrow

thDoD Budget Authority (Billions)

© CPPPE 2010

300

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0%

5%

10%

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20%

25%

30%

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

overrun (pre 2001) overrun (post 2001) Buget (pre‐2001 in Billions) Budget (post‐2001 in Billions)

6% AvgGrowth

0

20

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1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

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DoD Procurement Budget Acquisition Organization Workforce

Source of workforce data: DoD IG Report D-2000-088 Feb 29, 2000 & DoD IG Report D-2006-073 April 17, 2006Source of Budget data: Annual Defense Reports, available at http://www.dod.mil/execsec/adr_intro.html.Procurement supplemental for FY2005 and FY2006 not yet reflected in Annual Defense Reports were obtained from Congressional Research Service Reports.

DoD Authorization Act for FY 96 Required

DoD to reduce acquisition workforce by 25% by the end of

FY 2000

ComDef 2012, September 5 4

A Personal Note (continued)A Personal Note (continued)

Because I believe Aristotle’s warning that “People who do not learn from history are doomed to repeat it”; while USD (AT&L), I paid for A “History of Defense Acquisition” to be written; and the first volume – covering the post-WWII, post- Korean “war”, and the Eisenhower era (i.e., from 1945 to 1961) – just came out; and it has many relevant lessons for today:• Budget wind-down and worn-out equipment; but much future

“unknowns” to prepare for• Overcoming political, technological, organizational, and

(institutional resistance to change (e.g. A.F. and N resistance to ballistic missiles)

• But changes were required for the new budget and security environments


The Current EnvironmentThe Current Environment

Declining Defense Appropriations (Budget plus Supplementals)

But with costs rising (equipment, services, government labor [military and civilian], health, energy, etc.)

Declining force structure in Iraq and Afghanistan will help; but equipment worn-out

And trends in U.S. demographics and debt payments adverse to needs

A rapidly-changing world: Technologically, economically, geopolitically, and (particularly) in security

Broad spectrum of security concerns: pirates; terrorists; cyber “attacks”; chemical/bio/nuclear; IEDs; regional instabilities (that draw us in); widespread proliferation; “loose nukes”; pandemics; struggles for scarce resources (energy, water, raw materials); violent religious extremism; and, on up to the threat of nuclear Armageddon -- with much uncertainty as to “what’s next.”

Perhaps the biggest national security concern is the U.S. economy (Adm. Mullen: “America’s #1 national security threat is the deficit.”) - - and sequestration adds to the uncertainty


To successfully respond to this 21To successfully respond to this 21stst century environmentcentury environment

20th century policies, assumptions, laws, structures (government and industry), acquisition practices, must change!

Requires a focus on:

Affordability (government and industry)

Changes to resource allocations (dollars and people); and to organizations and process

Flexibility and responsiveness (government and industry)

Overhead reductions (government and industry)

Budget and Program stability and predictability

Multiagency approaches (both “soft” and “hard” power)

Multinational approaches (strategy, plans, equipment, exercises)

All 21st century security issues require coalition responses

Must partner with China (vs. we make them an enemy) -- it is the “existential” issue.

Recent steps (initiated by Admiral Mullen and Sec. Panetta) are positive. 7

ComDef 2012, September 5

On Making Change in GovernmentOn Making Change in Government


Expect Significant Resistance to ChangeExpect Significant Resistance to Change• From Congress (e.g. base closures; public/private

competition; foreign sourcing)• From Unions (e.g. outsourcing)• From the Military (if “disruptive”/countercultural)• From incumbent businesses (e.g. current products)

This resistance must be overcome!

It will take proactive Leadership/Management at multiple levels and perspectives (e.g. OSD, P.M.s, Industry, etc. - - and Congress)


Most Important, the U.S. Government Most Important, the U.S. Government (DoD and Congress) (DoD and Congress)

Must Change the Way It Does Its Business.

Four, critical, interrelated “Affordability” Issues:

1.What goods and services to buy (the “requirements” and Budget processes)

2.How to buy them (acquisition reform)

3.Who does the acquiring (the acquisition workforce)

4.From whom is it acquired (the industrial base)

All Four Must Be Addressed, To “Do More With Less.”All Four Must Be Addressed, To “Do More With Less.”10ComDef 2012, September 5

1. What is Acquired?1. What is Acquired?

To meet the wide range of challenges, within a resource- constrained environment, we must focus on:• Lower cost systems and services (as a “requirement”); yet must be high

quality, and meet performance needs• Optimized, net-centric systems-of-systems (vs. optimized individual

“platforms”) - - including Cybersecurity as a requirement; • More “balanced” allocation of resources (to address 21st Century needs: e.g.

“irregular” operations; “war among the people”); C3 ISR; unmanned systems (air, land, underwater); Special Forces, Land Warrior systems; missile defense; cyberdefense; etc.

• Interoperability of “Joint” systems; multi-agency systems; and coalition systems

• Planning and exercising “as we’ll fight”: with allies, multi-agencies, and “contractors on the battlefield” (~170,000 contractors in Iraq, Afghanistan warzone – over 50% of “Total Force”)

• Maintain state-of-the-art leadership (“technological superiority”) through continued Research investments (even with declining budgets).


2. How Goods and Services are Acquired2. How Goods and Services are Acquired To achieve higher performance at lower costs , and faster:

• Require “cost” as a design/military “requirement” (because cost, in a resource- constrained environment, is numbers; and, per Lanchester, number are critical)

• In many cases, total lifecycle cost should also be a “requirement” (e.g. for a ship, lifecycle cost drivers are fuel and people)

• Provide viable, “continuous competition options” (as the incentive for higher performance at lower costs) e.g. competitive prototypes; competitive split-buys; etc.

• Make maximum use of commercial products and services (at all levels - - utilizing Other Transactions Authority (OTA); especially at lower tiers)

• Take advantage of the potential benefits of “globalization”• Implement modern, enterprise-wide IT systems (logistics, business, personnel, etc.) - - including linking Government and Industry

• Fully evaluate impact of program “changes” (requirements, budgets, etc.)(continued)


Change Order ImpactChange Order Impact


2. How Goods and Services are Acquired2. How Goods and Services are Acquired (continued)

•Institutionalize a “rapid acquisition” process (to respond to urgent needs) - - It doesn’t exist now

•Create policies, education, etc. for buying services (today ~ 60% of acquisition $ - - but policies, practices, etc. are based on buying goods)

•Create incentives for contractors to achieve desired results (in cost, schedule, and performance) - - e.g. reward with sole-source follow-on if you get higher performance at lower costs

•Minimize Conflict of Interest concerns (from LSI Make/Buy SETA)

•Fully utilize “spiral development” (hardware and software)

•Modernize the DoD Logistics system (the highest-cost acquisition area, but it is not “world class”)


Current Trends are in the Wrong DirectionCurrent Trends are in the Wrong Direction

Greatly increased use of “Low Price, Technically Acceptable (LPTA)” awards - - is actually more expensive in the long run (vs. “best value” buying)

Large numbers of “winners” on IDIQ contracts, to take part in bidding on tasks (vs. 2 or 3 firms) is very expensive and ineffective

Proposal to “compete all services after three years” - - regardless of performance and cost trends - - is a big disincentive to industry (vs. a follow-on reward for higher performance and lower costs)

And, where big savings are possible (like 2nd engine on F-35) government refuses to have competition [in spite of “lessons learned” on “the Great Engine War”]

Recent proposals for government to be the integrator and split out subsystems for them to compete and manage, is a very high risk (vs. assuring the prime competes the critical subsystems)

Competing ideas from unsolicited proposals discourages innovation(continued)


Still Basing Requirements on Individual Platform Still Basing Requirements on Individual Platform RequirementsRequirements

Requirements should be based on “system-of-systems” (since, in a “net- centric” world) that is the critical elementThe “requirement” must be stated as a “mission need”

and the response considered will (in the future) be a system-of-systems (not a single platform)In many cases, this will be a joint solution -- often,

also, in a coalition -- and may often combine manned and unmanned systemsNew tools, and new thinking, will be required to

achieve this perspectiveAs will some changes in organizations and budgeting


(continued)

Current Trends are in the Wrong DirectionCurrent Trends are in the Wrong Direction

In many cases today, award fees are being based on “compliance,” rather than results achieved.

Export controls are often harmful to U.S. industry; without preventing technology spread (e.g. night vision leadership has been lost, due to export controls)

Recent “Data Act” (out of oversight committee) requiring contractors to report back to government every payment they receive from the government! [adds increased costs; plus penalties for errors; and increased subpoena authorities for agency IGs]

We will be in a coalition, and facing tactical ballistic missiles, but MEADS was cancelled

(continued)


3. Who Does the Acquiring?3. Who Does the Acquiring? A flexible, responsive, efficient, and effective

acquisition program (for sophisticated, hi-tech goods and services) requires “smart buyers.”• Program Managers, especially, must be provided with

flexibility, authority, and experience.• Overall, this requires both quantity and quality of senior and

experienced military and civilian personnel (especially for expeditionary operations)

• In the last 15+ years, this “requirement” has not been met!• Simply adding more auditors (the congressional solution) is

not the answer!

The Acquisition Workforce has been greatly undervalued.The Acquisition Workforce has been greatly undervalued.19ComDef 2012, September 5

Acquisition Workforce Declined Even as Procurement Acquisition Workforce Declined Even as Procurement Appropriations IncreasedAppropriations Increased

DoD Authorization Act for FY 96 required DoD to reduce its acquisition workforce by 25% by the end of FY 2000

Source of workforce data: DoD IG Report D-2000-088 Feb 29, 2000 & DoD IG Report D-2006-073 April 17, 2006

Source of budget data: Annual Defense Reports, available at http://www.dod.mil/execsec/adr_intro.html. Procurement supplementals for FY2005 and FY2006 not yet reflected in Annual Defense Reports were obtained from Congressional Research Service Reports. (Defense Science Board, 2008)


Acquisition Workforce Acquisition Workforce –– Across the Federal Across the Federal Government Government –– Is a Critical Concern Is a Critical Concern

Aging workforce (across the entire government) - and previously had few younger hires – so, as wave of retirement occurs, few experienced people to step in

DOD, especially, has an acquisition workforce problem (for inherently-governmental jobs):– Greatly reduced senior officers and SESs

• In 1990, the Army had 5 General Officers with Contract background; in 2007 had 0.

• In 1995, the Air Force had 40 General Officers in Acquisition; in 2007 only 24; and 87 SESs down to 49.

• DCMA (25,000 down to 10,000; 4 General Officers to 0).

Recent government hires mostly at “intern” level (32% of workforce have less than 5 years experience)

Need more people in government who understand industry.21ComDef 2012, September 5

4. From Whom Goods and Services are 4. From Whom Goods and Services are AcquiredAcquired

A clear vision of a 21st Century National Security Industrial Base is required:1. Efficient, responsive, technologically advanced, highly-competitive (at all

levels, including public and private sectors)

2. Healthy; and investing in IR&D and capital equipment

3. Globalized (utilizing “best in class” - - requires changes to export and import controls) - - and security must be a primary consideration

4. Includes commercial, and maximizes dual-use facilities and workforce

(continued)

“The last two decades have seen a consolidation of the Defense Industry around 20th Century Needs – The next step is DoD leadership in transforming to a 21st

Century National Security Industrial Structure.”

(DSB Report on 21st Century Defense Industry, 2008)

“The last two decades have seen a consolidation of the Defense Industry around 20th Century Needs – The next step is DoD leadership in transforming to a 21st

Century National Security Industrial Structure.”

(DSB Report on 21st Century Defense Industry, 2008)


Take Advantage of GlobalizationTake Advantage of Globalization

Today Industry, Technology, and Labor are Globalized

We will be fighting in a coalition – so interoperability and maximum total force capabilities are critical

The U.S. can benefit from foreign ideas/products/jointness [e.g. MRAP example]

Today, every U.S. weapon system contains some foreign parts (which were chosen for their performance benefits)

We currently have significant barriers to taking full advantage of the potential economic and military capabilities from globalization

These barriers must be removed!


Why Why ““Dual UseDual Use”” (Commercial and Military)?(Commercial and Military)?

U.S. economy benefits from military R&D and processes:

Aircraft; internet; jet engines; etc.

Program management; interchangeable parts; etc.

Military benefit from civilian R&D and processes:

Information technology; biotechnology; nanotechnology; etc.

Low cost designs and processes; high volume; etc.

But, U.S. currently has legislative and regulatory barriers to integrated industrial operations - - and the barriers are increasing:

Excessive export controls; demands for data rights; specialized cost accounting; etc. [note Boeing stories]

These barriers must be removed!

Note that Russia, Japan, China, etc. have explicit national policies to encourage dual-use operations (in order to gain the benefits -- including rapid technology-transfer, overhead absorption, and low- cost focus).


4. From Whom Goods and Services are 4. From Whom Goods and Services are Acquired Acquired (vision continued)(vision continued)

5. Has “Independent” systems-of-systems architecture and systems engineering firms (to support Government)

6. M&As to be based on this vision; (concern is the tendency for further horizontal and vertical integration as dollars decline –thus, reducing/eliminating competition; especially, in critical, lower-tier areas)

7. Strong Government-Industry Communications encouraged

8. No appearance, or reality, of Conflict of Interest (C.O.I.) -- yet not go too far (to eliminate relevant experience)

9. All non-inherently-governmental work to be done competitively (public vs. private; for currently-government-performed work) [e.g. vs. 50% congressionally-mandated, sole-source maintenance work in government depots] – average savings from Public/Private competitions has been over 30% (with higher performance) – and often with public sector wins


Some Some ““InsourcingInsourcing”” Examples*Examples*

Proposed insourcing of Air Force Maintenance work:- C-17 airframe structure (from Boeing)- F-117 engine (from Pratt & Whitney)- Joint Strike Fighter (from Lockheed-Martin)- KC – X Tanker (from Boeing or Northrop–Grumman)- “others under discussion” (e.g., F-22s and UAVs)

Air Force stated they “expect savings” (of 40%)

Clearly, this work is not inherently-governmental (except the management and/or oversight of it)

* Aviation Week & Space Technology, February 1, 2010


Cost Comparison Studies of Cost Comparison Studies of ““InsourcingInsourcing””CBO: “Logistics Support for Deployed Military Forces,”

October, 2005“Over a 20 year period, using army military units would cost

roughly 90% more than using contractors”And “Contractors can be hired and terminated as needed”

GAO: “Warfighter Support: A Cost Comparison of Using State Department Employees vs. Contractors for Security Services in Iraq,” March 4, 2010

“Using State Department employees to provide state security for the Embassy in Bagdad would cost approximately $858 million for 1 year; vs. $78M charged by contractor” (over 90% more for State Department employees).


Performance Based Logistics* Availability and Response TimePerformance Based Logistics* Availability and Response Time

F-14 LANTIRN

Navy Program Pre-PBL Post-PBL*

H-60 Avionics

F/A-18 Stores Mgmt System (SMS)

Tires

APU

73% 90%

71% 85%

65% 90%

70% 85%

98%65%

Material Availability Logistics Response TimePre-PBL Post-PBL*

56.9 Days 5 Days

52.7 Days 8 Days

42.6 Days 2 Days CONUS 7 Days OCONUS

28.9 Days 2 Days CONUS 4 Days OCONUS

35 Days 6.5 Days

* PBL is contractor-based [a recent AIA study said PBL could save $25-$30 billion per year]


http://www.clipart.com/en/close-up?o=903057&memlevel=C&a=c&q=tires&s=1&e=30&show=all&c=&cid=&findincat=&g=&cc=&page=

This is a Critical PeriodThis is a Critical Period

Similar to the period following the launch of Sputnik or the fall of the Berlin Wall

Today the security world is changing dramatically—especially since 9/11/01 (geopolitically, technologically, threats, missions, war fighting, commercially, etc.) – and a holistic perspective is required (including STATE, DHS and DNI, as well as coalition operations)

Moreover, a decade of solid budget growth – which will almost certainly change – has deferred difficult choices (between more 20th Century equipment vs. 21st Century equipment); and severe resistance can be expected.

However, the controlling acquisition policies, practices, laws, etc. and the Services’ budgets and “requirements” priorities have not been transformed sufficiently to match the needs of this new world (in fact, there is still an emphasis on “resetting” vs. “modernization”; and of “preserving” the industrial base, vs. “transforming” it).

Leadership (from Executive and Legislative branches) is requiredto achieve the needed changes!

Leadership (from Executive and Legislative branches) is requiredto achieve the needed changes!


Actions Required of CongressActions Required of Congress Streamline Acquisition

Remove Barriers to buying commercial and buying foreign (when they represent economic and/or security benefits)

Remove cost-additive legislation and regulations (which create unnecessary administrative burdens and yield little benefits)

Provide adequate and predictable funding (vs. current, great uncertainties)

Provide the resources for a trained and experienced workforce

Allow public/private competitions (for non-inherently governmental work)

Reduce the infrastructure (close bases as recommended by DoD)

Revise Military Depot rules to enable optimization of weapon system sustainment


Obviously, implementing these will be “difficult”— but they are necessary for nation’s future security

Achieving the required “affordability” changes will take political courage and sustained, strong leadership - - by both the Executive and Legislative branches (working together and providing continuous pressure for change)

This “leadership” must be demonstrated at multiple levels (OSD, JCS, Services, PM’s, industry, Congress, etc.)

The American public, and particularly, our fighting men and women, deserve it - - and the nation’s future security depends upon it.

I Believe It Can Be Achieved!I Believe It Can Be Achieved!

Conclusion:Conclusion:


For For ““Culture ChangeCulture Change”” Two Things Two Things Are RequiredAre Required

1. Recognition of the need (a “crisis”) -

[In this case, the combination of the economic/budget conditions the acquisition workforce issues; and the “changing world” conditions]

2. Leadership - with a “vision,” a “strategy,” and an “action plan” - - as well as the ability to align and motivate all those who would normally resist the changes

[Leaders of both parties make speeches in support of change - - now the questions are: which changes? And can the resistance to the “right” changes be overcome?]

There will clearly be actions. The big issue is will they be the ones that result in satisfying 21st Century needs – with higher performance at lower costs and with greater agility

and speed?

There will clearly be actions. The big issue is will they be the ones that result in satisfying 21st Century needs – with higher performance at lower costs and with greater agility

and speed?


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