[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
[H.A.S.C. No. 113-66]
TWENTY-FIVE YEARS OF ACQUISITION REFORM: WHERE DO WE GO FROM HERE?
__________
COMMITTEE ON ARMED SERVICES
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
OCTOBER 29, 2013
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COMMITTEE ON ARMED SERVICES
One Hundred Thirteenth Congress
HOWARD P. ``BUCK'' McKEON, California, Chairman
MAC THORNBERRY, Texas ADAM SMITH, Washington
WALTER B. JONES, North Carolina LORETTA SANCHEZ, California
J. RANDY FORBES, Virginia MIKE McINTYRE, North Carolina
JEFF MILLER, Florida ROBERT A. BRADY, Pennsylvania
JOE WILSON, South Carolina ROBERT E. ANDREWS, New Jersey
FRANK A. LoBIONDO, New Jersey SUSAN A. DAVIS, California
ROB BISHOP, Utah JAMES R. LANGEVIN, Rhode Island
MICHAEL R. TURNER, Ohio RICK LARSEN, Washington
JOHN KLINE, Minnesota JIM COOPER, Tennessee
MIKE ROGERS, Alabama MADELEINE Z. BORDALLO, Guam
TRENT FRANKS, Arizona JOE COURTNEY, Connecticut
BILL SHUSTER, Pennsylvania DAVID LOEBSACK, Iowa
K. MICHAEL CONAWAY, Texas NIKI TSONGAS, Massachusetts
DOUG LAMBORN, Colorado JOHN GARAMENDI, California
ROBERT J. WITTMAN, Virginia HENRY C. ``HANK'' JOHNSON, Jr.,
DUNCAN HUNTER, California Georgia
JOHN FLEMING, Louisiana COLLEEN W. HANABUSA, Hawaii
MIKE COFFMAN, Colorado JACKIE SPEIER, California
E. SCOTT RIGELL, Virginia RON BARBER, Arizona
CHRISTOPHER P. GIBSON, New York ANDRE CARSON, Indiana
VICKY HARTZLER, Missouri CAROL SHEA-PORTER, New Hampshire
JOSEPH J. HECK, Nevada DANIEL B. MAFFEI, New York
JON RUNYAN, New Jersey DEREK KILMER, Washington
AUSTIN SCOTT, Georgia JOAQUIN CASTRO, Texas
STEVEN M. PALAZZO, Mississippi TAMMY DUCKWORTH, Illinois
MARTHA ROBY, Alabama SCOTT H. PETERS, California
MO BROOKS, Alabama WILLIAM L. ENYART, Illinois
RICHARD B. NUGENT, Florida PETE P. GALLEGO, Texas
KRISTI L. NOEM, South Dakota MARC A. VEASEY, Texas
PAUL COOK, California
JIM BRIDENSTINE, Oklahoma
BRAD R. WENSTRUP, Ohio
JACKIE WALORSKI, Indiana
Robert L. Simmons II, Staff Director
Lynn Williams, Professional Staff Member
Spencer Johnson, Counsel
Timothy McClees, Professional Staff Member
Aaron Falk, Clerk
C O N T E N T S
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CHRONOLOGICAL LIST OF HEARINGS
2013
Page
Hearing:
Tuesday, October 29, 2013, Twenty-five Years of Acquisition
Reform: Where Do We Go from Here?.............................. 1
Appendix:
Tuesday, October 29, 2013........................................ 45
----------
TUESDAY, OCTOBER 29, 2013
TWENTY-FIVE YEARS OF ACQUISITION REFORM: WHERE DO WE GO FROM HERE?
STATEMENTS PRESENTED BY MEMBERS OF CONGRESS
McKeon, Hon. Howard P. ``Buck,'' a Representative from
California, Chairman, Committee on Armed Services.............. 1
Smith, Hon. Adam, a Representative from Washington, Ranking
Member, Committee on Armed Services............................ 2
WITNESSES
Chao, Pierre A., Senior Associate (Non-Resident), International
Security Program, Center for Strategic and International
Studies........................................................ 7
Francis, Paul L., Managing Director, Acquisition and Sourcing
Management, U.S. Government Accountability Office.............. 11
Schwartz, Moshe, Specialist in Defense Acquisition Policy,
Congressional Research Service................................. 9
Zakheim, Hon. Dov S., Former Under Secretary of Defense
(Comptroller), Senior Advisor, Center for Strategic and
International Studies.......................................... 3
APPENDIX
Prepared Statements:
Chao, Pierre A............................................... 77
Francis, Paul L.............................................. 112
McKeon, Hon. Howard P. ``Buck''.............................. 49
Schwartz, Moshe.............................................. 87
Smith, Hon. Adam............................................. 51
Zakheim, Hon. Dov S.......................................... 53
Documents Submitted for the Record:
Statement of J. Ronald Fox, ``Defense Acquisition Reform''... 133
Witness Responses to Questions Asked During the Hearing:
[There were no Questions submitted during the hearing.]
Questions Submitted by Members Post Hearing:
Mr. Langevin................................................. 157
Mr. Miller................................................... 151
TWENTY-FIVE YEARS OF ACQUISITION REFORM: WHERE DO WE GO FROM HERE?
----------
House of Representatives,
Committee on Armed Services,
Washington, DC, Tuesday, October 29, 2013.
The committee met, pursuant to call, at 10:10 a.m., in room
2118, Rayburn House Office Building, Hon. Howard P. ``Buck''
McKeon (chairman of the committee) presiding.
OPENING STATEMENT OF HON. HOWARD P. ``BUCK'' MCKEON, A
REPRESENTATIVE FROM CALIFORNIA, CHAIRMAN, COMMITTEE ON ARMED
SERVICES
The Chairman. The committee will come to order.
We convene on a sad day. Yesterday, this committee lost a
former chairman, a hero, a patriot, and a friend. Ike Skelton
will be deeply missed, not only by those of us Members and
staff in this room, but by the men and women in uniform who Ike
worked so hard and so humbly for.
It was always difficult to have a conversation with Ike in
public because our troops were always stopping him to thank
him, to have their picture taken with him, or to let him know
how his service had made theirs better. Ike was always humble
when he met them.
There is no tribute we can offer that can ever match the
gratitude of those men and women. It is appropriate, though,
that we take a moment now to bow our heads and thank God for
the gift of having known Ike and for the opportunity to carry
on his work.
[Moment of silence.]
The Chairman. Thank you.
That brings us to today's hearing. As many of you know,
this committee, under leadership of many like Ike, has a long
track record of tackling incredibly complex and challenging
issues. The subject of today's hearing, acquisition reform, is
one of those issues.
For anyone who needs reminding of the magnitude of defense
acquisition, in 2012 the Defense Department's contract
obligations were 10 percent of the entire Federal budget.
While this committee has led successful efforts to improve
the way the Department acquires items and services, there are
still significant challenges facing the defense acquisition
system. We cannot afford a costly and ineffective acquisition
system, particularly when faced with devastating impacts of
repeated budget cuts and sequestration.
The Congress, together with the Department of Defense and
industry, must be willing to do the hard work to find root
causes, look past Band-Aid fixes and parochial interests, and
have the courage to implement meaningful, lasting reform. To
this end, I have asked our vice chairman, Mr. Thornberry, in
consultation with our ranking member, to engage in a long-term
DOD [Department of Defense] reform effort that includes a hard
look at acquisition.
We have invited an extraordinary panel of witnesses to help
us with that task here today. I am very thankful for their
willingness to be here to examine previous reform efforts,
explore reasons the Department continues to field programs over
budget and behind schedule, and look to ways that we can lead
lasting reform efforts.
Joining us today are the Honorable Dov Zakheim, former
Comptroller of the Department of Defense; Mr. Pierre Chao,
senior associate, Center for Strategic and International
Studies; Mr. Moshe Schwartz, specialist in defense acquisition
policy, Congressional Research Service; and Mr. Paul Francis,
Managing Director, U.S. Government Accountability Office.
Unfortunately, Dr. Ron Fox from the Harvard Business School
could not be here today. He did, however, provide us with
written remarks that you all have a copy of, and I thank him
for that.
And I ask unanimous consent that those remarks be entered
into the record.
Without objection, so ordered.
[The statement of Mr. Fox can be found in the Appendix on
page 133.]
The Chairman. Mr. Smith.
[The prepared statement of Mr. McKeon can be found in the
Appendix on page 49.]
STATEMENT OF HON. ADAM SMITH, A REPRESENTATIVE FROM WASHINGTON,
RANKING MEMBER, COMMITTEE ON ARMED SERVICES
Mr. Smith. Thank you, Mr. Chairman.
First of all, I want to share in your remarks about
Chairman Skelton. I served on this committee with him for 14
years. He was an amazing man. I mean, I can't think of anybody
who was more dedicated to the people who served in the
military. When you would travel with Ike, he always, as we were
doing our meetings with different groups and everything, he
would always say, ``Where are the troops? I want to talk to the
troops.'' And he always did that, and he always looked after
them. He had a knowledge of military history and a dedication
to the men and women who served which is unparalleled.
But he was also just an excellent mentor for everybody who
served on this committee, Republican and Democrat alike. And
Mr. McKeon and I always talk about how this is a--you know, it
is a bipartisan committee. Well, it took dedication of people
like Mr. Skelton to make sure that that was the case. As both
the chairman and ranking member, he went out of his way to work
across the aisle to make sure that we always remembered what we
were doing here, which was to look after the national security
interests of our country and those who served and protected it.
He will be sorely missed by many. I know many of the staff
worked very closely with him for years and years, as well. But
he lived a very, very good life. And he upheld the standards of
this body, Congress, and, in particular, upheld the standards
of the House Armed Services Committee in a way that all of the
rest of us should absolutely aspire to.
So I thank the chairman for taking a moment to recognize
his service. And it is a very sad day. We will all miss Ike,
but we thank him for all that he has done for his country, for
his district, for the men and women in the military, and for
this committee.
It is hard to go from that to talking about acquisition
reform, but I appreciate our panelists being here today. It is
a never-ending challenge. One of the big things that was
accomplished when Ike was chairman of this committee was we
passed a comprehensive acquisition reform bill that I think has
made, you know, some positive steps.
And there is a whole bunch of different things that could
be said about it, but the thing that I have sort of learned in
my time of working on it is that it really comes down to
people. You know, we can pass all the legislation we want. It
really is a matter of how the DOD operates--the procurement
shop, the program managers, you know, what is the ethic that is
put in place there, how do we get to greater efficiency.
I think one of the greatest challenges in that is getting
the incentives right so that the men and women who work in this
have the proper incentive to be innovative, to find the way to
do the thing that is most cost-effective. I think far too often
the incentives that are in place within our personnel system
within DOD are to merely check the box. As long as you did the
process right, regardless of the result, nobody can blame you.
I think we need to better empower the people in the Pentagon to
make those smart decisions.
When you go out in private industry and you see how
companies have, you know, sort of changed paradigms and all of
a sudden become more efficient and more effective than their
competitors, it is not because a group of people sat in a room
somewhere and developed a perfect process and then everybody
robotically followed it. It is because people doing the work
saw opportunities and took them and figured out how to do
things different and better and more efficiently.
So I know there are a lot of other issues around this, but,
for me, empowering the people to make those smart decisions is
one of the most important approaches that we can take.
I look forward to the testimony of our very distinguished
panel, and I thank the chairman for holding this hearing.
[The prepared statement of Mr. Smith can be found in the
Appendix on page 51.]
The Chairman. Thank you.
Mr. Zakheim.
STATEMENT OF HON. DOV S. ZAKHEIM, FORMER UNDER SECRETARY OF
DEFENSE (COMPTROLLER), SENIOR ADVISOR, CENTER FOR STRATEGIC AND
INTERNATIONAL STUDIES
Mr. Zakheim. Thank you, Mr. Chairman. For the record, thank
you for being so nice to my son.
The Chairman. Can you move that mike right--real close?
Thank you very much.
Mr. Zakheim. Were you able to hear me?
The Chairman. You bet.
Mr. Zakheim. Mr. Chairman, Ranking Member Smith,
distinguished members of the committee, I appreciate the
opportunity to appear again before you.
The title of your hearing actually outlines the nature of
the challenge that DOD faces: 25 years of acquisition reform,
and we still have to ask, where do we go from here?
In fact, for much longer than 25 years, talented officials,
many of them with illustrious records in industry, have
grappled with the reality that our defense acquisition system
is fundamentally broken.
And I would ask, because I have a long statement, that it
be placed in the record, and that way I can abridge it now.
The Chairman. All of your statements will be placed in
whole in the record.
Without objection, so ordered.
Mr. Zakheim. Thank you, Mr. Chairman.
The Chairman. Thank you.
Mr. Zakheim. More money is buying less product, and this is
cost growth, not just inflation. The F-35 is a good example of
a very long list. And despite so-called improvements in
manufacturing processes, costs continue to grow. It is decades
since Norm Augustine said that the way costs were rising, we
would wind up with one plane, one ship, and one tank. And
nothing has happened since he said that to change the analysis.
And equally troubling is the management of DOD's
acquisition of services. Services get a lot less scrutiny than
the acquisition of goods, but they account for more than half
of all DOD acquisition. But poor product, duplication, more
generally waste, occasionally fraud and abuse, have plagued the
Department's acquisition of services for years and are a
special cause of concern.
As long ago as 1975, a subcommittee of the Senate
Government Affairs Committee, as it was then called, held a
hearing--a series of hearings on defense acquisition, including
one on major systems acquisition reform. Since then, we have
had DSB [Defense Science Board] reports, commissions, task
forces, think tanks all worrying about the same thing,
government initiatives as well, most recently the Better Buying
Power memorandum of November 2012, and changes all the time to
the DOD 5000 series of acquisition directives.
But the Rapid Acquisition Cell in effect identifies the
heart of the problem and its size. Imagine, we set up a Rapid
Acquisition Cell to get around our own acquisition system.
And so the current era of budget constraints renders the
need for acquisition reform even more urgent than in the past.
We can't afford to waste a cent, much less dollars or billions
of them.
And there is no point blaming anyone for this. We are where
we are. But the executive branch and the Congress have to
commit to a radical restructuring of the acquisition system in
all its manifestations. And by the executive branch, I don't
just mean DOD. I mean OPM [Office of Personnel Management], as
well, and OMB [Office of Management and Budget], too, its
management side.
So what do we need? First, we need a core of educated
consumers. DOD no longer has the monopoly on technology. There
is Silicon Valley, North Carolina Research Triangle, Route 28
in Massachusetts, lots of other places that are ahead of DOD in
advanced technology. But there is no DOD-wide program to ensure
that its civilians remain conversant with the most up-to-date
technological developments. Too often, they have to rely on
contractors for analytical and scientific support.
And, yes, there are online courses at the Defense
Acquisition University and there is the university itself. But
too many program managers appear to be deficient when it comes
to supervising the progress of programs simply because they
don't know the technology that they are supervising.
And, finally, too many contracting officers carry out their
tasks in a lot less than optimal ways. They usually opt for the
lowest price. That way, they can afford to avoid bid protests.
That is not the way you should run the system.
So, in the last minute or so of the time available to me, I
am going to jump to some suggestions.
First, we need to encourage, and not discourage, our
acquisition officers to get outside education. We need to be
sure that when they come back they have jobs that make it a
profession, a career, and not just a job. This does not happen
very often at all.
We must make sure that contracting officers are proficient.
They are not right now. We must guarantee that someone does not
move up the chain of promotion unless they have had the
equivalent of professional military education. You can't become
a lieutenant colonel without going to Command and Staff
College. You can't become a flag or general officer without
going to the NDU [National Defense University] or one of the
other 1-year university courses at the War College level. But
you can get promoted to SES [Senior Executive Service], to GS-
15 and -14 without having taken a single course since you went
to graduate school. And then you are supposed to manage
billion-dollar, leading-edge programs that are state-of-the-
art. It doesn't work. We need to do something about that.
We need to encourage people not to simply spend every penny
they've got because if they do so they will be penalized. It is
absolutely the wrong way around. They should be rewarded for
saving money. The money should go back to DOD. Maybe some would
argue it should go back elsewhere. But it should be saved. And
we need to reward people for that.
Our measurement and reward system is simply not adequate,
and a lot of that has to do with OPM. OPM is still operating
with 1960s rules, with the way it defines particular job
descriptions, with the way it deals with promotions, with the
way it deals with education. This is not just a DOD problem. If
we are talking about defense civilians, then OPM has to weigh
in.
If we are talking about the military, then we have to look
at how long they serve in a particular program management job.
The director of the Nuclear Reactors Program for the Navy
serves 10 years. No senior military officer who is in charge of
a major program should serve for less than 5 years. You cannot
have the kind of turnover we have and expect programs not to
overrun, not to be late, not to miss testing schedules. It just
doesn't work.
Another point that I would like to make regarding some way
to deal with acquisition in a different way from the present is
we need to focus a spotlight on DCMA [Defense Contract
Management Agency]. The Defense Contracts Management Agency has
roughly over 1,000 people--excuse me, more than that. It has--
yes, it has over 1,000 people and over a billion-dollar budget
and, I don't know, about 12,000 contractors.
DCMA has always been under everybody's radar screen, and
yet they are supposed to manage the contracts. They don't
reward people for managing contracts well. People just move up
the chain. This needs to be looked into very, very carefully.
We cannot--we far too often blame contractors, when, in fact,
they are not given clear rules, they are not given clear
directives. DCMA has to enforce that.
And one thing that is exceedingly important for DCMA to
enforce is the whole approach to engineering change proposals
[ECPs]. What often happens is that contractors, because they
know contracting officers will go with the low bid to avoid bid
protests, contractors come in with the lowest bid. They lowball
the bid, and then they figure, well, we will make it up later.
Well, how do you make it up later? You make it up later when
somebody gives you an engineering change proposal. It is like a
dentist who discovers he has to do a crown; he praises God. It
is the same thing with ECPs, because that busts completely
through any firm, fixed-price contract.
Who is supposed to enforce some kind of rigorous control
over ECPs? Well, if you look at requirements, that is done by
the Joint Chiefs. And Admiral Winnefeld has done a tremendous
job in ensuring that once the Chiefs agree on a requirement,
which is based, of course, on what the commanders-in-chief in
the field say, by and large, then you review that requirement
and you come back to it and make sure that it holds. But once
there is an engineering change proposal, that falls through as
well.
DCMA has to ensure that an ECP simply is not approved at
lower levels. You want an ECP? You hand it to your boss, and
your boss hands it to their boss so that you have a senior
person who is responsible, who is accountable, who then signs
off, and I guarantee you the number of ECPs is going to be
minimized. And once that happens, people are going to stop
lowballing because they know they are not going to get their
money back, and the whole cycle that we have now is going to
get reversed.
So I urge you to look very closely at DCMA, at the whole
ECP issue, and talk to everybody about it--the military, the
civilians, industry. You will get the same answer.
It looks like I am way over my time, so I will just say
this. I think what you are doing is exceedingly important. Like
I said, this has been going on for years, for decades. The list
of programs that have overrun is a mile long. And it is not
going to take you 6 weeks or even 6 months to fix the problem.
But the people in the Pentagon, particularly the top, are
dedicated to this. One important thing is that, whoever is the
Secretary of Defense--Democrat, Republican, doesn't matter--
they need to share this objective. You shouldn't just come in
and say, I am going to throw everything overboard because the
other guy had it and this isn't mine. It needs to be a
bipartisan effort, it needs to be a long-term effort, and, God
willing, you will succeed.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Zakheim can be found in the
Appendix on page 53.]
The Chairman. Thank you.
Mr. Chao.
STATEMENT OF PIERRE A. CHAO, SENIOR ASSOCIATE (NON-RESIDENT),
INTERNATIONAL SECURITY PROGRAM, CENTER FOR STRATEGIC AND
INTERNATIONAL STUDIES
Mr. Chao. Mr. Chairman, Ranking Member Smith, distinguished
members of the committee, thank you for the privilege to appear
before you to discuss the very important topic of improving the
defense acquisition enterprise. It is an excellent one for the
committee to be addressing. And, Mr. Chairman, as you noted, in
a period of slowing defense spending, these dollars will be
extremely precious, and it will be strategically important for
the Department of Defense to have an efficient acquisition
system.
I thought I would make five, sort of, key observations
about the acquisition reform system and the efforts and look
forward in terms of what should be done.
First, there has been a very useful evolution of the debate
about acquisition reform. If you take the time to read, you
know, the commissions and studies done after the Revolutionary
War, Civil War, any other conflict, they are filled with
horrific stories about true corruption and fraud and abuse. And
so it should be no surprise that the first 150 years was spent
in terms of putting in laws to prevent those kinds of things.
1980s, 1990s, 2000s, we rotated into looking at how do you
bring efficiencies to the processes and functioning of the
acquisition system.
What I think has been important in the last 7 years has
been the recognition that the acquisition system is part of a
broader system that involves the requirements, budgeting
processes, as well as the acquisition process. I can have the
most perfectly designed and functioning acquisition system, but
if it is fed the wrong requirements or rapidly changing
requirements, it will still produce bad outcomes.
And so continuing that focus and accepting the viewpoint
and the results of GAO [Government Accountability Office]
analyses and others that sits there and says that 85 percent of
the cost of a weapons system is determined by the time the
requirements are set, looking at the functioning of the
requirements processes and systems and how it interfaces with
others I think would be a very fruitful place, you know, to
continue to look as we go forward.
Second, the laws and rules defining and governing the DOD
acquisition system are large and complex. They have accreted
over time. If you go back to the original roots of any one of
those rules or regulations, there was probably a true original
problem. The problem is that we have accreted other rules that
sometimes conflict, everybody forgot why the original rule came
into place, and there has been a tendency to add rules but
never take any away, which is why things like the Section 800
Panel that was done in 1993 or the periodic rewrites of the
5000 instructions are so useful, because it causes a relook.
As an aside, putting a sunset clause on almost all new laws
or rules to force a periodic reexamination would be an
interesting best practice to consider. It would be my
observation that many of the problems of the acquisition system
are really the result of unintended consequences of a very
Byzantine and sometimes outright contradictory set of laws and
regulations rather than outright malice or malfeasance on the
part of the people.
Third point: One size does not fit all in this system. The
Pentagon is acquiring and buying a wide range of technologies,
products, and services. It touches almost every segment of the
economy. We are doing everything from trying to draw in new
technologies to buying very mature platform systems, buying
services. Now, actually, the Pentagon buys as much services as
it does hardware. And we have a system that is trying to live
in a dual mode of both doing rapid acquisition for the war,
where time and speed is critical, at the same time as we are
trying to buy very long-cycle weapons systems.
Reforms being done at one end of the system may actually be
very counterproductive if applied to the wrong end of the
system. And so avoiding the tendency to do, you know, one-size-
fits-all types of rules or regulations would be important, and
looking at, frankly, whether do we need multiple tracks that
run through it, which--different sets of rules and policies and
procedures and, frankly, cultures, as well.
Fourth point: All the cost overruns, missed deadlines,
failed programs are symptoms, not root causes. I think part of
the reason why we have failed to shift the system is because
many of the studies and reform attempts have tried to go after
the systems rather than the root causes. And I would submit
that there are four root causes to consider.
The first one is, we want to have a military at the
technological cutting edge--and that has always been our focus.
If you live at the technological cutting edge, you are going to
have failures, risk, and structural overruns. We will never be
able to get the overruns down to zero, frankly, if we want to
choose that. And attempting to do so is a little bit--is
essentially chasing a chimera that doesn't exist. That doesn't
mean we should tolerate poor performance and not try to improve
it. It simply says that eliminating all cost overruns is
incompatible with our strategic goals.
Two, in terms of another structural disconnect, there are
fundamental and structural disconnects in the timeframes used
by the different actors. I am trying to do a decade-long
program with program managers that rotate over a couple of
years, with oversight by a Congress that has 2- and 6-year
cycles, being executed by companies that have quarterly
performance metrics that they are trying to match.
Getting realignment in those timeframes, I think, would be
useful, to the extent that it is those different timeframes
that creates the friction and cost in the system. So, as Dov
mentioned, having program managers who spend more time there.
If you want to really take on something, looking at budgeting
processes and how we appropriate dollars. In some cases it may
be appropriate to do it on an annual basis, in other cases
maybe on a multiyear basis, in order to better match and create
stability in the system. I believe we waste billions of dollars
in this churning of mismatched timeframes.
The other key structural issue: The economic and profit
incentives embedded in the system creates adverse results. We
would rather pay a billion dollars and 4 percent margins than
$600 million and 20 percent margins. Even though that
differential would save the taxpayers $400 million, I guarantee
you, if it was that, we would have a question about, why did
that contractor make 20 percent margins? And yet, when we use
that kind of a system, we then turn all the economic incentives
in the capitalist system that we have a military to protect and
defend on its head. And so, looking at the disincentives to
reduce costs and the behaviors are there.
And, Ranking Member Smith, I was really encouraged by your
using the word ``incentives'' in your comments, because that is
a topic that has rarely been addressed in prior studies. We
move boxes, we add people, we rearrange things, we pass laws,
and rarely has anybody said, what are the incentives that we
want to put into place? As you noted, in the end, it is down to
the behaviors of people, and they go by those incentives.
The system is set up with a structural incentive to lie to
itself. We want to put in the low bid to win the contract, DOD
wants to accept that low bid in order to get the program going,
Congress wants to accept it so we can get the program going and
get jobs in districts. And part of those cost overruns that you
see is nothing more than that lie being manifest, and it is
something that we knew right from the beginning.
And some of the studies have begun to approach this, you
know, budgeting to the 80 percent probability line rather than
50 percent, and I would argue, again, changing the incentives
for missing that. In fact, we have the ironic counterincentive.
The programs that fail are the ones that get extra money, and
if you actually do your job and come in under budget and ahead
of time, you get your money taken away from you. So why would I
ever want to do that?
If this group focused on this topic of incentives, I would
argue you would move the ball much further than any other
efforts have over the last couple of decades.
Thank you for the opportunity to share some of my thoughts.
I look forward to your questions and the dialogue.
[The prepared statement of Mr. Chao can be found in the
Appendix on page 77.]
The Chairman. Thank you very much.
Mr. Schwartz.
STATEMENT OF MOSHE SCHWARTZ, SPECIALIST IN DEFENSE ACQUISITION
POLICY, CONGRESSIONAL RESEARCH SERVICE
Mr. Schwartz. Chairman McKeon, Ranking Member Smith,
distinguished members of the committee, thank you for the
opportunity to discuss defense acquisitions.
I want to begin with a quotation. ``The policies of the
Department on development and acquisition of weapons and other
hardware have contributed to serious cost overruns, schedule
slippages, and performance deficiencies. The difficulties do
not appear amenable to a few simple cure-alls but require many
interrelated changes in organization and procedures.''
If I told you that this quote was from a report written
last year, I imagine no one in this room would question that or
think twice. However, these words were written in 1970, and
many analysts believe they are as true then as they are today.
On one level, the defense acquisition system works well.
Our military has the most advanced weapons in the world, and no
other military could execute operational contract support on
the scale necessary for the operations we conducted in Iraq and
Afghanistan over the last decade.
But on another level, the system is not working. Consider
these facts: Since 1997, one-third of major defense acquisition
programs have a cost growth of at least 15 percent. From 1996
to 2010, the Army spent more than $1 billion annually on
programs that were ultimately canceled. The time it takes to
develop new aircraft has increased since 1980 and is continuing
to increase, and some programs have development times of 15
years or more. In short, it takes longer to buy fewer weapons
and often with less capability than originally promised.
The acquisition of services, which account for more than
half of DOD contract obligations, have also experienced many
instances of wasteful spending, schedule delays, and capability
shortfalls.
The United States must be prepared to respond quickly to a
diverse range of security challenges within a context of
constrained budgets. Analysts have questioned whether the
current acquisition system is efficient and nimble enough to
ensure that we are prepared to meet the security challenges of
an ever-changing world.
In recent years, there have been significant changes in the
national security and acquisition landscape. Weapons and
information technology systems are more complex than ever. The
defense industrial base has consolidated significantly in the
last 25 years. DOD is a less influential buyer, prompting some
companies to diversify their business and others to forgo
competing for government contracts.
Industry is playing an increasingly important role in
innovation and development, with DOD spending a smaller share
of its contracting dollars on R&D [research and development].
And U.S. spending is declining, necessitating cuts to force
structure and modernization programs.
However, just as the acquisition landscape has changed, DOD
has undergone changes that may make significant reform
possible. Operations in Iraq and Afghanistan have highlighted
the importance of acquisitions to the operational force.
Constrained budgets are fostering a culture of better
decisionmaking. And data is improving, allowing decisionmakers
to make more informed decisions.
So where do we go from here? Most reports have arrived at
the same conclusion: The key to good acquisitions is having a
sufficiently sized and talented workforce and giving them the
resources, incentives, and authority to do their job. Yet most
of the reform efforts of the past decades have not sought to
fundamentally and systematically address the issue of
workforce.
The current system often incentivizes people to make poor
decisions. Yet, even with the right decision incentives,
without the authority to make binding decisions, even the most
skilled and incentivized professionals cannot effectively
manage a program. The current management structure is often
described as too bureaucratic. Too many people can say ``no''
or influence a program. As one program manager quipped, even
program managers are not really sure who is in charge of their
programs.
In addition to improving workforce management, targeted
reform efforts can save money and improve operations. Examples
of possible areas ripe for reform include streamlining
acquisition rules and focusing on contract logistics.
But even such targeted reforms may have only limited
success unless good decisions are made early and throughout the
acquisition process. Former Secretary of Defense Robert Gates
lamented that, in recent years, ``DOD has lost its ability to
prioritize, to make hard decisions, and to do tough analysis.''
Similarly, Under Secretary of Defense Frank Kendall said in his
guidance on implementing the Better Buying Power initiatives,
``The first responsibility of the acquisition workforce is to
think.''
As my opening quotation indicates, the problem with our
acquisition system is longstanding, and multiple reform efforts
have made little cumulative progress. But improvement is
possible, and the right changes, such as empowering good people
to make good decisions, can help our military prepare to meet
the security challenges of the future.
Thank you again for the opportunity to appear before you. I
will be pleased to respond to questions.
[The prepared statement of Mr. Schwartz can be found in the
Appendix on page 87.]
The Chairman. Thank you very much.
Mr. Francis.
STATEMENT OF PAUL L. FRANCIS, MANAGING DIRECTOR, ACQUISITION
AND SOURCING MANAGEMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Francis. Thank you, Mr. Chairman, Mr. Smith, and
members of the committee, for inviting me here to participate
in the discussion of acquisition reform this morning.
I know this was an issue that Mr. Skelton cared about a
lot, and he chaired a hearing in 2009 to discuss these very
issues. So I condole with you over the loss of Mr. Skelton and
then, earlier in the year, our good friend, Doug Roach. I know
it has been a very tough year for the HASC [House Armed
Services Committee] family, so my condolences.
On the question of, should we do acquisition reform, should
we keep at it, I think Mr. Skelton would say yes, so I say yes.
Should we do it the same way? Should we revise policy,
legislate? Maybe not. I think we should answer the question
that David Packard raised, which is, we know what to do, so why
don't we do it?
And when you think about the typical outcomes of
acquisition programs, cost growth and schedule slippage, they
don't really line up with policy. That is not what policy asks
for. So something else is going on, isn't it? And I think of
those, what else is going on, as rival incentives, sort of like
what Mr. Chao mentioned.
And I think we have to remember that practices take root
because they help programs succeed in their environment. So
what is this acquisition environment? Well, I will mention a
couple of features, but one is it is about a lot more than
buying the right piece of equipment at the right price, isn't
it? Weapons systems embody policy, they embody roles and
missions, service reputations, budget shares, jobs, careers. So
they mean a lot more than just getting a piece of equipment.
Another aspect of the acquisition environment is money. If
you look at a commercial endeavor, a product development is an
expense. The company doesn't make any money until that product
is developed, produced, and sold at a profit. In the Department
of Defense, weapons systems are budget line items. They
actually attract revenue. And I'd submit that the incentives
associated with managing an expense in the private sector are
quite different from managing programs in the Department of
Defense which can be considered revenue generators. It is a
different psychology.
So let's think now about a couple of the golden rules of
acquisition--``fly before buy'' and realistic cost estimating--
and put them in this environment. This is an environment where
there is a lot of pressure to compete for funding, and once you
have successfully competed for funding, you compete every year
in the budget process. So there is a lot of pressure to keep
focus on the funding stream and in the near term.
So ``fly before buy,'' early test results, I think we would
all agree that is a good thing. But do early test results
really help you compete for funding? Test results can be really
inconvenient when you are competing for funding.
Realistic cost estimating, there is another golden rule.
``Realistic'' is a euphemism for ``higher.'' So I would again
ask the rhetorical question, does a higher cost estimate
actually help you when you are competing for funding? I would
say no.
So this is not about bad actors. I think the people in the
process are great people acting rationally, trying to meet
needs they consider to be legitimate. However, collectively,
they create competing demands that give rise or force
compromises in good judgment.
So where does that leave us? I'd ask you to entertain the
notion that maybe we have the system we have all asked for.
After a program has gone through the serpentine path of
requirements, cost growth, schedule slippage, testing problems,
we reduce quantities, if it makes it through, we all are kind
of winners. The warfighter gets something, the program office
has a success, the service is happy, the committees have done
their job, industry gets work, localities get jobs, the press
writes about them, the critics and the overseers, we get to
talk about them. It is a pretty good gig.
So I think we have to think about maybe we have the system
we have asked for. So it is not a simple process that is
broken. I think we can fix that. It is a sophisticated
enterprise that is an equilibrium, and it is a much tougher nut
to crack.
So I laid out some ideas on my written statement on what we
can do about it. I don't think they are an improvement on what
has been said. I find them, myself, to be insufficient. But
there are two things I would mention.
One is what you do with money, your money decisions, is
really important. Because right now our process is set up where
you have to make budget decisions about 2 years ahead of a
program decision. So if a program has a milestone B in 2016,
you are starting to authorize money for it now, which creates
incentives for programs to behave a certain way. So if a
program comes forward and it is breaking all the rules--it is
concurrent, it is adopting high risk, it has an unrealistic
cost estimate--and you fund it, that reinforces that behavior
and sends the message that it is okay.
So think about every year the Department of Defense brings
forward a handful of programs to start. That is your highest
point of leverage on a program. So I would look at them as a
group, as a freshman class, even at the full committee level,
and see if that group of new programs adheres to the principles
that you consider important to sound acquisition, and then fund
accordingly.
Then I think, eventually, if we do a number of other
things, our goal should be to put good people in a position to
succeed, which I don't think we do today. I think we put
program managers and staff in very difficult positions and we
grind them up.
So I will leave you with a thought that I think we have to
aim at these rival incentives. And I'd like to think about a
good outcome being, can we help programs intrinsically build
good practice inside them? And can we come up with incentives
or create incentives that are self-sustaining, rather than
impose practice on top of programs that otherwise would not be
planned properly?
So I will conclude with that and welcome any questions.
[The prepared statement of Mr. Francis can be found in the
Appendix on page 112.]
The Chairman. Thank you very much.
We often hear that the problem with the DOD acquisition
system is one of culture and that you can't reform the system
without changing the culture.
In your view, is culture--and this is to all of you--a
major part of the problem? And can you provide some examples
where the culture of the DOD, of industry, and Congress is
causal in the failures of the acquisition processes?
Mr. Francis. Okay. I will start.
Yes, I think culture is a very important ingredient as to
what is going on. Because when you look at the question, why
aren't good people getting good outcomes, I think you get the
culture. Again, I think people know what to do, but they have
conflicting demands and they are asked to do different things.
So, as I explained earlier, there are reasons why you don't
have a realistic cost estimate, because it may not help you.
And I think the culture is really seated in the fact that
people really believe that the program they are working on is
the most important thing for the Nation's defense. And so you
adopt behaviors to help get that program in the end zone. And
they may not be testing when you should, that may be starting
production before you should, because you help guarantee the
program will get through the process.
I think some of the programs that we have looked at in the
past, Future Combat Systems, where this committee did
pioneering work, that was a program where we were rushing 50
technologies, trying to create a system and get it into
production before we knew anything worked yet. I think that is
culture at work.
This afternoon, I believe that Members are going to get a
briefing on the UCLASS, the Navy's unmanned aerial vehicle. We
think that is a pretty good strategy. The problem is the whole
strategy and the fielding complete before milestone B. I think
that is culture. I think that is trying to get the system in
before all of the oversight occurs.
So it is real. We are all part of it, but I think we can
address it.
Mr. Zakheim. I will pick up from there.
Obviously, we look at the F-35 and we say, my God, there
was concurrency, concurrency in testing and concurrence with
production, and why does this happen? You can go all the way
back to the TFX [Tactical Fighter Experiment] and you will see
concurrency of a different kind--you know, concurrency in
research and concurrency in production. It is cultural. Of
course it is cultural.
And, as I think several of my colleagues here on the panel
pointed out, the system of rules we have disincentivizes
savings, incentivizes people just to get, basically get, the
thing out their door, and then they can move on.
If somebody was on the job 5 years, they would be much more
careful about how something was being produced. If you are on a
job 18 months, you just want to get it out of the way, make
sure nothing blows up on your watch, and off you go. Well, that
is part of the culture. The turnover is part of the culture.
Nobody imposed that on DOD.
Another thing. I remember, when I worked in the Reagan
administration, we had trouble with the B-1, and Mr. Weinberger
finally got fed up and asked for a briefing every 2 weeks. And
when you think about how Mr. Gates was his own action officer
on the MRAP [Mine Resistant Ambush Protected], you get the
picture that, somehow, the frustration levels reach so far to
the top that the Secretary feels he has to be his own action
officer.
Now, why does that happen? I would argue, in part, it
happens because the management levels very often are not really
competent--and I will emphasize that--competent to manage
highly complex programs, and so they let things slip in all
sorts of ways. That is cultural.
If you have, for instance, a Deputy Secretary who is a true
manager, he is never going to go to the Secretary to begin
with; it will be pushed downward. And I think the leadership
has to start at the top. We have been far too lax about the
requirements for how somebody should be Deputy Secretary of
Defense, which, frankly, is the chief operating officer of the
Pentagon. That is something probably the Congress could
actually deal with.
If you have an attitude where the new person comes in with
a new set of buzzwords and a new set of terms, you create a
cynical bureaucracy. If you have a bureaucracy that is not
technically competent, it relies on contractors to give them
the technical competence. It also means that whatever the
contractor tells them they will have to believe, they have no
choice.
In the meanwhile, the contractor, as Pierre Chao pointed
out, is being forced into the straitjacket of having very low
profits and driving up costs because there is no other way to
do it except if it is fixed-price and, as I said, there is an
ECP.
So you have a system that essentially drives everybody
crazy. It doesn't have to be that way. That is cultural.
Mr. Schwartz. If I may perhaps give two examples, one is,
with major weapons systems, usually 70 percent of the cost of
the entire system is after it has been acquired. It is O&S
costs, operations and support costs.
And recently I was talking to a program manager of a
multibillion-dollar program, and I asked a similar question.
And his comment to me was, because of the pressure to save
acquisition costs, there is no motivation to pursue long-term
savings. That was an example of the incentive driving a culture
where he was being told, save now at the expense of saving more
later.
Similarly, when I was in--another example is contract
obligations. When I was in Kabul a couple of years ago, I
remember talking to someone from USAID [United States Agency
for International Development], and he was recounting the story
where, recently, a few weeks earlier, he and his team had been
told they have $100 million to spend by the end of the year. He
said, there is no way we can spend that $100 million
competently. But that $100 million got spent, because that is
how they were being measured.
So I would suggest those are two examples of incentives
creating decisions and a certain culture that may not be the
one that you would always like to have.
Mr. Chao. If I could maybe give one or two other examples
that shows, again, that a lot of these things start from a good
originating position but as you interface with the system it
kind of gets turned on its head.
I don't know a single good engineer who doesn't believe
that they can actually do that task that they are asked to do,
right? And part of that structural optimism is, yeah, I can
invent that thing that is invisible and can go, you know, Mach
10; sure, we can do that. And so that part of that lying to
yourself starts off from, actually, a good spot, but there is
no one there to apply the outside metric and sits there and
says, well, can you really? Right? And so that is a little bit
of that cultural issue.
The other one is from an oversight perspective. Former
Under Secretary for AT&L [Acquisition, Technology and
Logistics] Ken Krieg has noted we spend millions in oversight
to chase pennies. Right? The sense of that there is no
threshold level below which--which we sit there and say, all
right--and it is a horrible thing to say, in some ways, and you
would be probably crucified in the press for saying it, but--it
is okay if there is this amount.
I mean, Walmart, frankly, looks at its entire system and
accepts a certain amount of shrinkage, you know, in its system.
Here we will spend millions and millions of dollars to make
sure that there is zero shrinkage. That is a cultural issue,
right, and one that is reflective of the system, and that is
part of the cost that is embedded in that weapons system.
The Chairman. I mentioned yesterday I was meeting with a
CEO [chief executive officer], and he said in one of his plants
he has 200 people there from the government to oversee and make
sure he doesn't have the shrinkage, and then he has to hire 200
to watch them and respond to them. And I said, you know, if we
probably eliminated those 400 people, he couldn't steal that
much, you know, if he wanted to. But it--good point.
Mr. Smith.
Mr. Smith. Thank you, Mr. Chairman.
I guess--and you sort of touched on this, but if you could
just sort of narrow down specifically, how would we change the
incentives? You know, if you had, like, one law that we could
change--you know, we have always heard the classic example, as
you mentioned, about USAID. You know, whenever people think
about government, I swear the first thing they think about is,
you know, the incentive to spend all the money you have, no
matter what. And this has been going on forever, as near as I
can tell.
How would we change the incentives? What law would you
change? What regulation? What approach? Just quickly, a couple
of things that would change the incentives and move them in a
positive direction.
Mr. Zakheim. I think the easiest thing to do is to change
the way you promote people. If you basically promote somebody
because they saved money, you have just changed the incentives.
Now, is that a DOD regulation? It is probably something OPM has
to do.
Mr. Smith. Okay.
Mr. Zakheim. And OPM constantly hides under the table when
these things come up.
Mr. Smith. Why?
Mr. Zakheim. Why does OPM hide? I think OPM hides because
they are OPM. I have never seen an agency that was more--
basically, they are still running the way Chester Alan Arthur
set it up in 1883 under a different name.
We are so out of date with the way we manage personnel
today, it is ridiculous. And there really needs to be a focus
on it, not just in this respect but in many. But the fact of
the matter is, if you promote somebody because they saved
money, everybody is going to want to save money.
Think about how Goldwater-Nichols worked. You couldn't
become an admiral or a general until you went to the Joint
Staff. I remember in the early 1980s the Joint Staff was a
dead-end position. You got into the Joint Staff, you knew you
were going to have to retire. All of a sudden, after Goldwater-
Nichols, the only way you can become flag or general officer is
if you join the Joint Staff. You have just changed the
incentives. And look at the difference our military shows
today. That is what you have to do.
And, frankly, if somebody really managed the system long
enough to lose a ton of money, that should be the end of their
career.
Mr. Smith. Thank you.
Mr. Chao. I also think the issue of aligning the tenure of
the program managers to the phase of the program that they are
watching. I mean, the old joke is you want to be the first and
third program manager, not the second and fourth, right,
because first and third you are the hero, second and fourth is
where all the mistakes show up.
If you were there to suffer the consequences of your
mistakes, you would be a little bit more careful about doing
that. That will run right into the military promotion cycles
and other cycles, and so, I mean, that is what needs to get
reconciled.
The other one is looking at this issue of budgeting and
rewarding program managers who actually perform and not taking
away their money. That is something--that is probably nothing
you could legislate, but that is a bargain that you could have.
Mr. Smith. Well, if I could ask about that, I mean, because
that is always the problem. If you don't spend all the money,
then you don't get as much the next year. But that is the way
it should be. I mean, if you are looking at and you have
learned, okay, we can do it for $50 million instead of $100
million, you wouldn't give them $100 million the next year
because you would be reinforcing the problem.
I mean, so I think you should reward the individuals who
make the decision, to get back to the promotion thing. You have
saved that money, you are more likely to get promoted than if
you don't. Because if you simply say, if you save money, we are
going to give you more, that doesn't quite solve the problem, I
wouldn't think.
Mr. Zakheim. Well, let me deal with that, since I happened
to be in the hot seat of Comptroller for a few years.
We have in the Department a midyear review, and what are we
looking at? We are looking at programs that are spending too
quickly, programs that are spending too slowly. We then come to
you on the Hill and we say, here is a reprogramming, can you
please approve it? And in most cases you do, because it makes
sense.
So if somebody is spending less money, it doesn't
necessarily mean that next year they are going to spend less
money.
Mr. Smith. Right.
Mr. Zakheim. And as long as the Department can reprogram
and the Congress is willing to support the Department, I happen
to think we should have much higher reprogramming ceilings. If
we did that, then I think the Comptroller would have much more
flexibility in moving money around.
And then if we combined that with the incentives that
Pierre has talked about, that I have talked about, for the
individuals so they know, A, they are going to get promoted if
they save money but, B, they might get more money next year
because programs are like that anyway, that will change the
mentality.
Mr. Smith. Okay.
Mr. Chao. And I would put my comments in the context of, we
are programming but we are budgeting programs to the 50 percent
mark, and so they are already--you know, I agree with you that
if it is underspent and legitimately they don't need the money,
why give it to them? It is filling in that 50 percent mark to
the 100 percent where they should be.
Mr. Smith. Okay. Thank you.
Mr. Schwartz. One is accountability. Who is responsible?
And there are two senses of accountability, both positive and
negative. For example, I was speaking to somebody at a private
industry recently, last week, and I said, if somebody in your
company saves $50 million, do they get any benefit out of it?
And the response was, yeah, they could apply for this fund, and
they get $10,000, $15,000, $20,000 potentially, not all the
time, but they can get it.
Then I asked other people there, well, does DOD have
similar structures where, if you save $100 million for the
Department of Defense, you can apply and get some sort of
bonus? And the answer was, well, generally not. Well, that is
one example of positive incentive.
Very often--I remember reading, I believe it was a GAO
report, that said DOD is buying from the GSA [General Services
Administration] schedule and they are not even asking, could we
get a better price? Well, they might ask can I get a better
price, if there was a potential for them to get a bonus. The
optics might not be great on it, but that is one possibility.
Mr. Smith. Right.
Mr. Schwartz. The reverse is also--for accountability is
the negative accountability, which is, if you had a program
that completely went off the rails, who is responsible? And are
they going to be held responsible or are they still going to
continue the path up?
Now, there is a problem with that, which is, if you are
going to hold people accountable, you have to give them the
authority.
Mr. Smith. Exactly. I mean, I think that is where it is
painfully easy to hide. Because it is like, well, I wasn't in
charge of this, he was in charge of that. I mean, I hate to
bring this up, but the Web site, you know, on health care is a
great example of that. He was doing it; no, he was doing it; he
was doing it. It is like, you know, somebody needs to be in
charge and be held accountable and/or rewarded, depending on
the circumstances.
Mr. Francis. I will add a couple to the good ideas my
colleague raised.
One is the end requirements. Again, I think our process
still rewards proposals for new programs that come through
advertising, revolutionary improvements over the existing
system. There are some weapons that maybe have to do that, but
when you think of what we as consumers do, when we buy a new
car, we have to replace our old car. So we have to get
something and we take advantage of what is available. That
doesn't cut it in the Department. It is always something a leap
ahead. So if the requirements process can accept the fact that
sometimes we are just replacing something with something a
little better and not next-generation.
And, again, I think if we can have a candid discussion
about risk. Programs when they come forward, when they take
risk, that is okay, but let's have a candid discussion and fund
risk.
Risks are typically denied. No program is high-risk. The
low-risk programs, they don't worry about. The medium-risk
programs, we apply this balm, and it is called risk-mitigation
strategies, which have everything in them but time and money.
And I think if we had that candid conversation, it is okay
to take a risk, but let's take it together and let's resource
it.
Mr. Smith. Thank you, gentlemen.
Mr. Thornberry [presiding]. I am going to withhold my
questions and give other Members a chance.
Mr. Lamborn.
Mr. Lamborn. Okay. Thank you.
I have heard anecdotal stories from Colorado companies in
my district who end up adding 5 to 10 percent to their costs
simply due to the number of overseers that they have to support
on an ongoing basis from DCAA [Defense Contract Audit Agency]
and DCMA [Defense Contract Management Agency].
How do we strike the right balance between oversight and
efficiency in contract management? For any one of you.
Mr. Chao. I think that is where we go to that threshold
issue in terms of, at what level do we go? And there have been
some of the studies done in acquisition reform over the last 4
or 5 years that have tried to look at that topic. There was one
that Norm Augustine had with BENS, Business Executives for
National Security, that I would recommend you take a look at.
One of the things and proposals some people have said is,
you know, can we turn to outside accounting firms to do the
normal audits and you use DCAA to audit the auditors and make
sure they are following the right processes and procedures.
That would perhaps be more efficient. So people have begun to
look at that.
I would submit to you the key item there is, what is the
right threshold level? I think it is back to that spending
millions to chase the pennies that is really exacerbating and
causing the imposition of the people. You don't want to
eliminate them, right? They have a legitimate role to play. It
is, at what level?
Mr. Lamborn. Okay. Thank you.
Mr. Schwartz. So there are a number of perspectives. One
that has been interesting is, you know, I believe it was
Abraham Lincoln that said, if I had 6 hours to chop down a
tree, I would spend the first 4 hours sharpening my axe. Very
often, the oversight sometimes comes down to, well, they have
had 25 percent growth; let's have the GAO report, let's have
DCAA, let's have DCMA, let's have the hearings.
But perhaps another possibility is spending more time
getting it right up front and focusing on the requirements.
Because oversight, very often, is after the costs have gone 25
percent, now you have the Nunn-McCurdy requirements to go
through another milestone and notify Congress and have the
Secretary of Defense certify that this is required.
So sometimes getting it right up front--programs that start
off right generally, statistically, do much better on cost
schedule and performance later on. So that is another
possibility.
Mr. Lamborn. We could explore this more, but I need to move
on to another question for the sake of time.
Overseeing service contracts versus the purchase of weapons
or other tangible goods, are there any differences there in
approach that you would recommend? Like, in my district, you
have everything from trash removal to operating shooting ranges
to managing satellites. Any advice there?
Mr. Zakheim. Well, for a start, I would say that service
contracting--there are different kinds of services, and you
just pointed that out. You've got brain work which counts as
service contracting. You've got the guy who comes in and does
his old job at the Pentagon but now has a different badge. It
is called ``butts and seats'' in French. That is services. And
then there is collecting trash; that is services.
I think what you need to do is recognize that the real
problem is the second one that I was talking about. You always
have to collect the trash, and you want people to use their
brains. But Mr. Gates pointed out that the, what they call
staff augmentation, the guys coming in and doing the
government's work, doing the civil servants' work, that has
gotten totally out of hand. And there is where I would look. I
think we can cut back significantly.
We are not spending half of our money; we are spending more
than half of our money on services contracting. And considering
the number of weapons that continue to drop each year with
procurement, I would like to see more of that money going from
service contracting to hardware, frankly.
Mr. Lamborn. Mr. Francis.
Mr. Francis. Yes. Services are quite different. So the
people that write requirements are not your standard
requirements organizations; they are bases, they are local
places, people not necessarily well-versed in writing
requirements. Services occur very quickly. A weapons system
could take 10 or 15 years; a service is a level of effort that
is done in months or a year.
In weapons, dollars are a good proxy for risk. Something
big and expensive probably involves risk. It is not the same
for services. Some of your highest risk services, like Dov had
mentioned or interrogators in Iraq, are not high-dollar. And
some of the high-dollar things, which are buying a high volume
of low-risk things, that is not necessarily what you need to be
looking at.
So I think the model for services is it has to be really
front-end-loaded. You have to triage the requirement to see
what we are buying and why we are buying it. Because with
services, once you buy it, it becomes a drug. Then we keep that
service over time, but we don't go back and look. So I think it
is a quite different oversight regime.
Mr. Lamborn. Thank you all.
Mr. Thornberry. Ms. Tsongas.
Ms. Tsongas. Thank you, Mr. Chair.
And thank you all for being here.
I would like to ask the question of, really, coming from
Massachusetts, where we are home to so many high-tech companies
who really engage robustly on solving a lot of these problems,
how should Congress make sure that the Pentagon leverages high-
tech communities like Massachusetts that are willing to partner
with them and to share some of the upfront investment in
bringing the next-generation technology to meet the future
challenges?
And the reason that I ask this is I am proud to represent
Hanscom Air Force Base. The professionals there are responsible
for acquiring some of the Nation's most complex command and
control systems and for making sure that these systems are
adequately sustained through their lifecycle.
So today we are facing new, much discussed challenges, for
example, in the cyber domain, and it is Hanscom that is
responsible for Air Force cyber acquisition. Now, the Air Force
has acknowledged that Hanscom has improved cyber acquisition
with the creation of the Cyber Solutions Cell and the creation
of an organization responsible for lifecycle management of
those cyber capabilities. But we also know that the cyber
threat changes so quickly that the traditional acquisition
process cannot support the evolving cyber requirements.
But we have in Massachusetts a community that is really
rising to and engaging in the challenge. Some of our best cyber
minds really want to solve this problem. So, for example, there
have been initiatives that are in place, including the Advanced
Cyber Security Center, the Massachusetts Green High-Performance
Computing Center, and the Kostas Research Institute for
Homeland Security. And MIT [Massachusetts Institute of
Technology] Lincoln Labs is planning a $450 million upgrade in
facilities to support Hanscom.
These capabilities reside in Massachusetts. They have
already provided great value in working to solve some of our
technical challenges that are currently helping to protect the
soldier in Afghanistan.
So, with the pressure on defense budgets, knowing what we
have in Massachusetts and other States across this country, how
should Congress make sure that the Pentagon does not ignore
these resources, that engages them to solve some of these
problems without sort of reinventing the wheel, looking to what
is there?
Mr. Zakheim. Well, I mentioned Route 128 in my testimony.
Ms. Tsongas. You did, and I was glad to hear it.
Mr. Zakheim. Well, a couple things. I have already spoken
about the need for having technical expertise inside the
Department. They need to know what to get. And right now we
don't have that to any extent, certainly not to the extent we
need to have them.
But a couple of other things. We clearly need to simplify
the rules. A lot of companies just don't want to get involved.
It is too complex. And you have those companies that have done
business with DOD for years, they know how to do it; those that
have not just don't want the trouble.
So one of the things you all might want to think about,
members of the committee, is having a hearing where you bring
in these high-tech company executives and ask them what kind of
rule changes would they like to see, what would get them to
work alongside DOD.
DOD, as you know, part of the culture we have talked about
is not invented here. If it hasn't been invented in a DOD lab
or by some favorite contractor, it can be foreign, it can be
domestic, it can be whatever, they are not interested. And
Congress has tried to legislate in the past, you know, side-by-
side competitions and all that. But there is always a way to
fix the requirements to eliminate anybody you want to
eliminate.
And it seems to me that there is no question that, because
of Moore's law, our civilians who may--and military people who
may not have taken a course in 30 years, by the time they get
senior, have no idea what is going on in the Research Triangle
or Route 128 or Silicon Valley or whatever. We have to educate
them.
But we have to ask industry, how can the FAR, the Federal
Acquisition Regulations, and the defense regulations that are
appended to those be changed to simplify the ability of
companies that really are at the cutting edge to support
defense?
Ms. Tsongas. So do you think the Pentagon has an
appreciation of what the opportunities are? Or do you think
there is some education that needs to be done on that front, as
well?
Mr. Zakheim. I think, at the senior levels, the people who
come in from the outside certainly have an appreciation. I
think that if you have been in the bureaucracy 20 years, what
you do is you rely on another contractor to help you out. It is
called program management support or scientific engineering and
technical assistance, SETA. What it really means is, I don't
know what this is all about, but I will get this contractor to
tell me. How can you make educated choices that way?
Ms. Tsongas. Thank you.
I would love to get your response, Mr. Chao, but we have
run out of time.
Mr. Thornberry. Mr. Turner.
Mr. Turner. Thank you, Mr. Chairman.
Gentlemen, thank you for your testimony today and giving us
some insight into not only what the Department of Defense is
doing, or should be doing, but also what our agenda should be.
And I would like to focus specifically on the issue of the
use of lowest price technically acceptable, LPTA, contracting
and the impact that it is having on both the Department of
Defense and our industrial base.
Let me first say that I certainly believe that it is
important for the Department of Defense to continue its efforts
to lower costs and to seek greater efficiency. However, I am
concerned that lowest price technically acceptable contracting
has become an over-utilized practice in the acquisition
community. And, more and more, we are seeing increasingly
complex and technical contracts be awarded as a result of
lowest price technically acceptable, as opposed to the
traditional best value approach.
While lowest price technically acceptable may make sense in
some cases, I am always hesitant when I learn of its use when
contracting out critical national security capabilities. I
would like to hear each of your thoughts on the lowest price
technically acceptable contracting as it pertains to the
Department of Defense.
Is there a sense that in the long run this practice could
lead to additional long-term costs? Could its overuse lead to a
decrease in competition and an overall decline in the defense
industrial base--quality of contractor workforce, ingenuity,
and efficiency? Would you please provide me your thoughts?
Thank you.
Mr. Chao. It is a great question. And I think the answer
would be yes. I think it is one of these examples of a decent
rule for a particular application being more overly broadly
applied than it should be. You even have--you have had Ash
Carter and Frank Kendall say, you know, this is not what I
intended, in terms of the way it is being rolled out.
And I would submit to you that we are currently seeing
the--you are seeing the early signs of the bad-actor effects of
companies who were awarded contracts that are actually not
technically capable starting to fail in those program. So I
suspect over the next 12 to 18 months you are going begin to
see some of the horror shows, you know, of some of that
behavior.
And so it does fall into the category of something that has
been overused.
Mr. Turner. Before we go on to the others, I want to
underscore what you just said, because I think that was
absolutely critical. You said companies that are not
technically capable. One of the concerns is that technically
acceptable is so borderline that the mistake then degrades to,
as you just said, not technically capable. And that certainly
is a disaster.
Thank you.
Mr. Zakheim. I once was speaking to a contracting officer
who explained to me why they do this. The reason they do this
is because of the lawyers. There is an industry, a bid protest
industry out there. And so everybody protests. And the lawyers
have basically told these contracting officers, look, the best
way to get around it is go with the lowest price. That way, it
is harder to get protested.
Now, what is the solution? The solution is clearly to make
it much harder to protest the bid. And a lot of people aren't
going to like that. But if you raise the bar, that makes it
harder for the contracting officer to say: ``Well, you know, I
am just going to go with the lowest bid.'' Because it is going
to be different. They won't always get hit with a bid protest.
Another thing you do--and this is really in the weeds, but
you have asked an important question--is how you weight the
selection process. In other words, we've got an index, and cost
is one of the elements of that index. And there are other--
there is technical acceptability and so on. What you do is you
make cost a lower priority, so, by definition, it gets much
harder for a company to win just because they are cheaper. That
can be done. You don't even need legislation for it.
Mr. Schwartz. The issue of lowest price technically
acceptable also gets us back to workforce. Do we have the right
people in place to decide when it should be used and when it
shouldn't be used?
In addition to that, it is not just having the right people
in place to decide when to use it, but how to craft what are
the standards for ``acceptable.''
And if the standards for what is acceptable are crafted in
a certain way and if the people in place are there to make the
decision of when or shouldn't it be used, it could be much more
effective.
Mr. Francis. Batting last, I think low price technically
acceptable is, you know, in principle, a good thing for the
government to try to be doing in the right circumstance. What
the government tends to do is, when it develops a new
instrument, it tends to overuse it or not think about what
situations it applies to. And I think, Mr. Turner, you hit--the
real issue is, how sophisticated is the service that you are
buying, and is this an appropriate instrument?
And I think another thing that also kind of gets lost in
the shuffle is we don't do a good job of evaluating past
performance of contractors. So some contractor may look
technically acceptable, but if they have a poor track record
for performance, you need to evaluate that, and you might find
that is not the best way to go.
Mr. Turner. Mr. Chairman, for just a moment, if you might,
could I put an objection on the record to blaming the lawyers,
being a lawyer? Because I never think that is the answer.
Mr. Thornberry. The gentleman's objection is overruled.
Mr. Peters.
Mr. Peters. Thank you, Mr. Chairman.
You know, I think a lot about innovation in this space. And
I have been speaking to a lot of companies in San Diego, where
I live, and also throughout California. I am sure this is true
in other areas. And a couple things strike me. And it is a
little bit anecdotal, but maybe you could think a little bit
about the incentives of a contracting officer.
First, many of them are familiar with the company they have
always been working with. And someone has come along with a
better idea. And it may be a small company who has part of the
technology, and they just can't seem to break through. And I
can understand there is a fear in the contracting authority to
make that change.
But the other thing that strikes me and concerns me a
little bit, and maybe you have some thoughts about this, is
that generally we shouldn't expect these contracting officers
to be nearly up to speed on what is going on in innovation in
the private sector. They are going to be way behind, you know,
almost by definition.
And so how is it that we can incentivize them to take
advantage of what is being developed, which may be more
efficient or more effective, and to adopt that as part of
acquisitions?
Mr. Chao. It is a great question. I think--and over the
last decade, partly because of the war, we have created better
and more mechanisms to act as interfaces for innovation. We
have always had DARPA [Defense Advanced Research Projects
Agency], for example, but there have been other groups. I think
one of the things to look at is making sure that, as we come
out of the war, that we don't forget or lose the lessons that
we have learned the hard way, in terms of doing that.
I would also submit to you that the initial interface, the
ability to get SBIRs [Small Business Innovation Research] and
other types of contracts to attract, you know, companies are
there. The real hard part is the so-called valley of death,
that you get that first initial contract but it is then getting
it into the broader system that becomes difficult. And so a
focus on that would be one of the places.
The third thing that I would note is, which makes it hard
for innovative companies, we have had a basic bargain, cultural
bargain, that we have created over the last couple of years:
Lose money or make very little money on research and
development, make it up in production. Right? That incentivizes
a system to get and it favors large companies.
I would argue, in a downturn environment where preserving
research and development and access to innovation becomes
critical, making research and development a viable economic
proposition is something that would turn the whole system on
its head and actually, I think, help those kinds of companies.
Mr. Zakheim. I think a lot of it has to do with education.
You put your finger right on it. Our people just aren't keeping
up with the technology. And that is why I have argued that, in
order to get to a level where you are a senior contracting
officer, senior acquisition officer of any kind, you need to be
able to spend a year doing something, either learning in a top
technical school with the government paying for it--it is worth
the money, and the money is there--maybe spending time in
industry, like the SECDEF [Secretary of Defense] Fellows do, so
you really know what is going on on the other side.
We need to incentivize people to do that. Very often
somebody goes off for a year and comes back and they don't have
their job anymore and they don't have any place. That is
something DOD could say, no, when you come back, you are going
to have a job that takes advantage of the education you just
got. There are things that can be done so that people can keep
pace with the technology.
You also want to have, probably, integrated teams. You
don't want to just negotiate a contract with a lawyer. You
probably want to have some technical person alongside you, as
well. It will be better for industry.
Mr. Peters. There is another layer on this, though, because
the problem is that it is not a system that listens to what is
happening. So what has happened in the private sector is people
will come up with products we didn't know we needed. They have
a good idea for something. And I see this in defense, is that
there are good ideas on communication. But no one today in
companies I have visited in my district, my area, no one today,
say, in the Navy may be thinking that I need such a thing, so
it is not getting down as a request for acquisition.
So what we need, we need to go beyond educating these
people, which I certainly agree is invaluable and necessary, to
figuring out a way for us to be able to listen to what is
happening in technology for ideas that we may not have thought
we needed but could serve us, you know, make our warfighters
safer, make our budgets tighter, and help us be more efficient.
Mr. Chao. You have touched on one topic which I would
encourage the committee to really look at. We have created a
growing divide and disconnect between the building and the
industry in terms of the dialogue that you are able to have
back and forth. There is, in some cases, you know, such a fear
that if I engage in that, I am going to get in trouble.
And it is exactly those mechanisms that we used to have
that would enable that interchange of information that we are
drifting away from now, I would argue, in a very dangerous
fashion. And I think you are seeing that on the ground, live,
in the companies that you are talking to.
Mr. Peters. And I just have the sense that our adversaries
are better listeners in this way and adapting this technology
in a way that is faster than us, and I don't want to be in the
way of it.
Thank you, Mr.----
Mr. Francis. I----
Mr. Peters. Oh, sorry.
Mr. Francis. I just have one point. And I would say that
the contracting officer is not the right person to be
adjudicating something like this, that the real burden should
be on the people with programmatic responsibility for doing
market research, knowing what is out there. They can construct,
then, a proposal that the contracting officer has to make sure
it abides by law, but they shouldn't be adjudicating the
propriety of what is being done.
Second point I would make is the government needs to have
some venture capital, it needs to have different ways to
explore these things. And they are going to fail, and that has
to be okay.
Mr. Peters. Right.
Mr. Francis. In today's world, you have to hitch your wagon
to a program. And once you do that, you are into long-
established relationships, maybe different standards of
accountability. So we need more flexibility up front.
Mr. Peters. Thank you. My time has expired. I appreciate
it.
Mr. Thornberry. Mr. Wittman.
Mr. Wittman. Thank you, Mr. Chairman.
And, gentlemen, thank you so much for joining us today.
I want to get your perspective on the recent state of
affairs and then where we go in the future with the current
element of what I call ``churn,'' and that is budget
decisionmaking, appropriations decisionmaking, budgeting by CRs
and the uncertainty that comes with that.
In that recent history and then projecting out into the
future, how do you see that affecting acquisition reform? How
do you see us being able to efficiently and prudently get the
necessary equipment to our men and women? How do we make sure
that we are making the proper decisions in acquiring the things
that our military needs?
I just want to get your perspective on where you think we
have been and where you think we are going.
Mr. Zakheim. Well, when I was Comptroller, I gave out
money; now, Bob Hale takes it away. So I feel for him.
To some extent, the two overlap, but I think that is not an
excuse for acquisition reform. And I think that is really the
important point here. The budget situation is going to change.
We know that, historically, there have been highs and lows.
This is not the first budget-constrained environment we have
been in. And what has to be done is to maximize the efficiency
of the acquisition corps, regardless of the budget level.
And so I would say, yes, we have difficulties now, but all
the things that this panel have been talking about are not
really budget-driven. And so I think this committee has a real
opportunity to make change. Now, once the budget environment
eases up, you will see even more benefit from these changes,
but this should not be a limiting factor.
Mr. Wittman. Gotcha.
Mr. Chao. I mean, I would take a little bit of a different
tack from the perspective of the question you asked about all
this churn. I think, without a doubt, it is costing the
Department and the Congress money. You know, starting,
stopping, laying off, rehiring, furloughing, bringing back; I
can't assign contracts to my supply chain; I have to cut them
off because I don't know, in order to follow rules; program
managers afraid of going to jail for violating the Anti-
Deficiency Act, so therefore not spending money.
I guarantee you that that is embedding costs that we are
going to see and we are going to have to pay for in the next 2
or 3 years. And anyone--you know, that is a guarantee that that
is embedded in--as a result of what has been going on.
Mr. Wittman. Very good.
Mr. Francis. I think one of the real consequences is, with
this churn, funding is always being discussed and programs, I
think, always live in the threat that they are going to lose
money. So it keeps them in the cycle, always working on their
funding stream, which I think creates a very short-term
perspective and it dis-incentivizes candor.
You are not going to talk about problems or risks you have
if every month you have another budget battle to fight. So, as
long as we are in that environment, I don't think we are going
to get candid conversations about what is going on in programs.
Mr. Wittman. Very good.
Mr. Schwartz, any comments?
Mr. Schwartz. It was very well said.
Mr. Wittman. Okay. Thank you.
Gentlemen, you all spoke very eloquently about the current
culture and how you change the culture to actually get true
reform in acquisition. You talked about flexibility, which I
think is critical, adaptability within those systems.
How do we change that culture? You know, organizations are
so large, and they figure out how to adjust to different
administrations, to different Congresses. How do we have true
change in that culture and reform?
Mr. Schwartz. So, if I may on this one----
Mr. Wittman. Yes.
Mr. Schwartz [continuing]. One possibility is to start with
something I mentioned before, which is authority. And I want to
quote Heidi Shyu, the Assistant Secretary of the Army, or the
top weapons buyer, who reportedly said recently, ``Having been
in government for only 3 years and having spent 33 years in
industry before that, I am utterly shocked about how little
control the poor PM [program manager] has,'' referring to the
program manager. ``The program manager is a flea on the tail of
a dog, let's put it that way.''
And that is exactly what I have heard from a lot of other
people. Just in the last 2 weeks, I jotted these down in the
last 2 weeks, one program manager said, ``I have authority for
nothing but responsibility for everything.'' Another one said,
``We need more authority in the field.''
Giving them the authority to make decisions and, of course,
holding them to accountability is one way to change the
culture.
Mr. Wittman. Very good.
Any other thoughts?
Mr. Zakheim. Well, one other thing. Culture starts at the
top.
Mr. Wittman. Uh-huh.
Mr. Zakheim. And I think one thing that Congress can do is
really tighten up the requirements for who should be Deputy
Secretary of Defense.
Mr. Wittman. Gotcha.
Mr. Zakheim. Ultimately, that is where the decisions go.
And you are the ones that set the requirements. The Deputy
Secretary of Defense should be the chief operating officer,
should ultimately be accountable for the kinds of things we are
talking about. And there are some clear requirements for that,
I think.
Mr. Wittman. Very good.
Thank you, Mr. Chairman. I yield back.
Mr. Thornberry. Thank you.
Mr. Langevin.
Mr. Langevin. Thank you, Mr. Chairman.
I want to thank the panel for your testimony today. It has
been very helpful.
And I would like to go back, if we could, on the topic of
cybersecurity and how as it relates to the acquisition process.
I know my colleague, Ms. Tsongas, talked about this. I want to
talk about it maybe from a little different perspective.
But acquisition of cybersecurity systems and software is
commonly cited as a circumstance where the current acquisition
system is woefully inadequate, due in large part to the
extremely short timelines required.
Are there concrete ways in which we could give the current
system the speed and flexibility needed without simply
bypassing it?
Mr. Francis. Well, I will start.
I think so. One of the things that you keep in mind when
you are embarking on an acquisition which involves technology
changing at a very rapid cycle is your initial technology that
makes this capability possible, I think you structure your
acquisition around, do we have that? And then make that your
minimal capability and go with that. And then you can fund at
the same time all these different improvements, using
flexibility to allow innovation to occur. And then you can
bring those in as that product is being developed and improve
it over time or improve that capability.
A process where we have to have the whole thing at once
doesn't work in this situation because technology changes too
fast. On the other hand, I don't think you can go out to try to
buy something that hasn't had anything invented yet. So I
think, you know, a first initial capability with a flexible
acquisition strategy to improve over time is the way to go.
Mr. Chao. Well, and given that these are technologies that
are, again, moving at Moore's Law speeds, you know, 9 to 12 to
18 months, a 2-year budget planning and budget execution cycle
just is fundamentally at odds to it. And so you would have to
think through a mechanism by which you could have just much
more flexible dollars. And it probably is a go-around or,
again, a different track with its own set of rules in order to
accommodate that.
And there will be--and there are other technologies,
frankly, that match that, those characteristics. Aside from
that, the gears will grind.
Mr. Langevin. So let me ask this. On the Better Buying
Power, BBP, wanted to focus much attention on training and
process, but absent from the discussion has been a focus on
equipping the workforce with time-saving, modern, analytical
software.
Have acquisition support systems, such as the contract-
writing systems, cost-estimating systems, auditing systems, and
the like, kept pace with acquisition reform and evolution? And
how could technology enable the acquisition workforce to
forecast, estimate, compete, award, and monitor requirements
better?
Mr. Zakheim. Well, a couple things.
I think the first thing is the workforce needs to know how
to use the technologies. One of the interesting things that I
have found in government is they will buy technologies and then
they don't know how to use them, or they will act as if they
know how to use them but use them the wrong way.
So it comes back, again, to training. A tool is only as
good as the person who knows how to use it. And it seems to me
there are tools out there that can be useful.
And I will give you an example of a major failure that I
had when I was Comptroller. I tried to centralize the entire
auditing system. And we had, my God, the CEO of Oracle came to
see me, for goodness' sake, to see if he could sell his
product. And we bought a product, and the staff simply did not
really understand what it was supposed to do. So the whole
thing collapsed of its own weight.
And, of course, you know, we have the same thing, perhaps,
now with the Affordable Care Act. The problem is the staff
needs to know how to use what it buys. So there is stuff out
there, but you need an educated staff to know how to use it.
Mr. Langevin. Good point.
Well, let me ask you this. Could there be a better way to
automate more of the acquisition process, particularly small
contract changes like unilateral modifications, and, in doing
so, free up time to work more complex acquisition issues?
Mr. Francis. I think there are ways to do that. The
government has, in the past, gone through reforms to simplify
acquisitions. Things that fall below a certain threshold should
be easier to approve. I think it is a good time to relook at
that. Government tends to do these things just periodically
after several years.
Given the changing nature of technologies, I think that
there are plenty of opportunities to, again, give people
authority to make decisions using guidelines. Let them make the
decisions and be held accountable. So I think there is quite a
bit of potential to allow some of these smaller decisions, if
you will, to be made much quicker.
Mr. Langevin. Thank you.
Thank you, gentlemen. I appreciate your testimony today.
I yield back.
Mr. Thornberry. Thank you.
Mr. Scott.
Mr. Scott. Gentlemen, thank you for being here.
And I want to talk a little bit about weapons system
sustainment. But I want to go back, before I do that, and give
you a couple of examples that I have heard from--one from a
program manager, one from a contractor that was a building
contractor. He was a roofing contractor. And he got asked one
time by the base command why he never bid on the original
project. And the answer was, because I can't do it at the price
that you are awarding the bid at. But he made a very good
living repairing what the original bid provided for the base.
And the bottom line is the low-bid process is costing us a
tremendous amount of money because it doesn't deal with the
sustainment of it, and nobody in the private sector would use
the system we have. So, I mean, if you have a specific way for
us to change that, I mean, in the end it gets to the people
that we hire and some discretion.
But one program manager, Mr. Schwartz, put it to me this
way. He said, you know, he said, ``If I am buying a tire and I
am told to buy P235/70/16, and I can use discretion to buy a
good tire, then I can get a good price on it. But if I am told
exactly which tire I have to buy, then the private sector knows
that, and I am going to pay a fortune for it.'' And the end
result of that is a frustration and the rubber-stamping of
million-dollar change orders.
So, as we carry that forward into the sustainment of a
weapons system, which is two-thirds of the lifecycle costs of
the weapons system, my questions get back to the current
acquisition system and sustainment and what can be done to make
the sustainment more efficient and the use of our--I represent
Robins Air Force Base, which is a depot--and the balance
between the public sector and the private sector with regard to
making sure that the taxpayer gets a good deal in the
sustainment of the systems.
Mr. Schwartz. So, as we discussed, operations and support
is very often 70 percent of the program. DOD, historically, has
not had very good data upon which to track how reliable those
O&S costs were going to be. So one starting place is to improve
the data available so you can make those future tradeoffs.
A second example is to prioritize the importance of the
long-term operational support costs as a factor in authority
and accountability and keeping the eye on that ball. Because,
you know, Nunn-McCurdy--and there is a lot to be said that is
positive about Nunn-McCurdy, you know, the reporting
requirements, but it very often drives people to try to
sacrifice the long-term costs for the current short-term costs,
particularly in this environment. And if we could figure out a
way to encourage the long-term view, and we have the data to
back that up, then we might be able to get at that.
Mr. Chao. This is also an area where you have a cultural
issue of the issue of colors of money, right, with the
procurement dollars being in a different stovepipe than the O&M
[operations and maintenance] dollars, which is exacerbating
this phenomenon of, well, I don't want to spend extra
procurement dollars, the bidding on the original roof, in order
to save money later on. And looking at that issue of color of
money and can you perhaps allow some of that to slop back and
forth, if it results in good decisions, is probably a topic to
look at.
Mr. Scott. Can I ask a follow-up to that? So in today's day
and time, in the cuts that are being made today, doesn't that
make the problem bigger going forward? Aren't we going to push
more of the costs of sustainment in the future with what we are
doing right now?
Mr. Chao. Yes, for sure. And which is why, you know, never
let a crisis go to waste. You know, and this would be the time
to take a look at that, because it is going to drive that--it
will drive exactly that kind of behavior.
Mr. Zakheim. I think--a couple things you can do. Again, it
is how you frame the contract, how you actually make the
decision about a contract. If price is way too high, then, by
definition, you are going to go with the lowest price.
To my knowledge, sustainability isn't the major factor in
contract decisions anyway, and it can be. I mean, obviously,
you cannot predict the future, but you can certainly say, has
it been tested? There are ways to test things like mean time
between failure and so on. You could have that as a major
standard. It could be part of what is technically acceptable.
``Technically acceptable,'' as has been said, is a very,
very broad term. You raise the bar on what is technically
acceptable and include sustainability in it.
Mr. Francis. I would just add to that, I think structuring
the acquisition up front is very important. If you are going to
focus on operations and support and sustainment, I don't think
we do that. I think performance still wins the debates.
And I think over time the government has given up some of
its ability to make decisions in its own interest. So we get
into situations where we award a contract to a contractor to
develop a product at the same time we give them the contract to
sustain the product. So they are making money on both ends of
the spectrum.
And if we haven't bought the data rights or stood up an
organic capability, the government leaves itself no option but
to go with the developer to sustain the product. And that is a
disincentive to getting the product designed for sustainment.
Mr. Scott. It is an unregulated monopoly, in that case. And
that is the reason I firmly believe we need to continue with
the 50/50 rule, to make sure there is competition out there.
Thank you, gentlemen.
Mr. Thornberry. Ms. Speier.
Ms. Speier. Mr. Chairman, thank you.
The Inspector General has found a number of instances where
contractors grossly overcharge the Department for spare parts.
The IG [inspector general] pointed out this particular bearing
sleeve that costs retail $10 and Boeing charged the taxpayers
$2,286. This is a metal tube assembly. Boeing charged the
taxpayers $12,400; it retails for $1,167.
You know, the American people thought that the $800 coffee
pots and the toilet seats were something of the past, but the
truth is it is still going on today.
So my question to you is, how do we hold these contractors
accountable? Anyone who would like to answer that would be----
Mr. Francis. Well, I think----
Ms. Speier [continuing]. Welcomed.
Mr. Francis [continuing]. The first thing is the structure
of the contract. And I think, rather than the government
focusing on the specific profit rate that is being established
or the cost--the other side of that, Ms. Speier, is you can get
that flood of auditors looking at all these individual things.
So if the price is fair, then I think the government--that is
where the government should be structuring itself.
If they find that the contractor then, after an audit, is
not being fair, that needs to be factored into their past
performance history so that the next time the contract is
awarded it may not go to them. The government has to be a smart
buyer and has to be willing to walk away from somebody who is
not giving them a fair deal.
But I don't know if I would go so far as to break down all
of these individual parts and then create that audit burden. We
have to get the big thing right up front.
Mr. Schwartz. I believe one of the examples that you are
referencing was a part that, in fact, was in DLA [Defense
Logistics Agency] inventory for a very cheap price. So another
side of it is not just the contractor, but who in that
workforce signed off on paying $2,000, I think the figure was,
for that part without calling DLA and saying, ``Hey, can you
beat $2,000 by $1,900?'' So that is another element of the
aspect you are talking about.
Mr. Chao. And, frankly, though, there are two elements to
this. There are going to be the examples where there was
overcharging, and then there is, frankly, the other element we
have to be very careful of of sometimes those prices are
reflecting exactly the overhead burden that we are imposing on
the overall system, right, which they are required to do so.
And so when you ask for that individual part and they are
required to allocate a portion of that overhead burden onto
that individual part, it will make that part look egregiously
expensive, but that is what we have asked of the system.
And so I think we need to distinguish between the two, lest
we sort of go chasing some things that may not be relevant.
Mr. Zakheim. And, of course, if you say ``the system,'' it
means something you ought to be changing. In other words, if
you are going to impose rules on the contractors that only
allow them to make money a certain way, that is how they are
going to make their money. If you were to, for instance,
convert some of these contracts to a firm, fixed price, and
then they have to--and there are no engineering change
proposals allowed, and they have to, basically, if they want to
make a profit, come in below that price, you are going to see a
very different kind of behavior.
So you have two things here. You have the contracting
officer who has no idea what DLA is offering because it is all
over their head anyway and they are just undereducated, and
then you have the rules that, even if they are educated,
squeeze both them and industry in a certain peculiar and
perverse way to come up with, whether it is toilet seats or
hammers or anything else.
Ms. Speier. So, Dr. Zakheim, you mentioned in your opening
remarks that the lack of education is a critical component. So
you would recommend that we have persons who are more highly
qualified, pay them more, so that we are going to get greater
value for the taxpayers?
Mr. Zakheim. I don't know that we even have to pay them
more. I mean, if we are promoting people from GS-13 to GS-14
anyway, they are going to get paid as GS-14s. It will cost some
money to have them educated for a year, but, you know, frankly,
that money is there. We find ways to find money that we need.
And we are not talking about big bucks, and the payoff is huge.
Mr. Chao. And it is making the time available for them to
take that training and put that into the rotation cycles.
Ms. Speier. Thank you. My time has expired.
Mr. Thornberry. Mr. Nugent.
Mr. Nugent. Thank you, Mr. Chairman.
And I want to thank this panel for your insight because, as
someone that has only been here 3 years, it is mind-boggling in
regards to how we spend money, and sometimes have no idea why
we spend it or how we spent it.
I can just give you a simple example, and then to a
question. When we were trying to buy a computer in our office,
it came back that was going to be 1,100 bucks. And the same
computer we were able to buy with authorization through the
purchasing for $500 from Best Buy. One would say that the
Federal Government probably should have a better buying power
than Best Buy, but obviously not.
But I want to get to, in Iraq, when we had issues,
particularly when our enemies exploited the vulnerabilities of
our Humvees to improvised explosive devices, not only in Iraq
but also Afghanistan, the DOD, you know, launched an expedited
program, the MRAPS, to get in the field, which was outstanding
because I have three sons currently serving in the United
States Army. Two have them have been in Iraq and Afghanistan.
But would you talk about the lessons learned--and I guess
anyone can answer this, but Mr. Francis in particular--lessons
learned from the MRAP acquisition? Some of the positive
examples, I guess, of cutting through the bureaucratic system
to get the MRAPs fielded? And maybe if there are some negatives
on important steps ignored?
If you--I know it is three questions, and I can always come
back to it.
Mr. Francis. I will try to muddle up my answer so all three
will get answered. How is that?
Mr. Nugent. Great.
Mr. Francis. Yeah, I think there are good lessons learned
from MRAP. So, on the positive side, once the government
decided it wanted to go there, it did some really good things.
One, it had money, top priority, it could put the best people
on it. And it decided it was going to shop off-the-shelf and
evaluate existing vehicles and then make a modification using
existing equipment. So the government was going to pick the
best vehicle and then put the equipment on it that it needs and
get it out there. And we did it really fast, and it was really
successful. So I think that was good.
You ask yourself then, well, how come we are not producing
that kind of equipment? And that gets to the negative. I think
it took 2 years, at least 2 years, before the government
realized that up-armoring Humvees and so forth wasn't getting
the protection it needed.
Mr. Nugent. Right.
Mr. Francis. Those vehicles that they ended up buying had
been around for years, but that is not where we look first. You
know, we looked at our tried-and-true ways. And only when we
had no other option, then we go out and do the right thing.
So I think the question for the acquisition process is,
could it have done the right thing right away? And I think the
answer is yes. But the organizations have relationships. They
have favorite programs, they have favorite contractors, and it
is very hard to get them to respond differently.
I don't think we need to go to a system that is all rapid
acquisition that breaks the rules all the time, if you will.
But we have to look at the current acquisition and say, can't
the requirements process and the acquisition process be more
responsive to meet needs like that?
Mr. Nugent. Mr. Chao.
Mr. Chao. I do think it also highlights one other thing
that we are going to have to be very careful of as we go
through a little bit of time, right? The acquisition system is
always trading off cost, performance, and time, right? That was
a great example. And you can optimize two and you are going to
have sacrifice the third. Very clear example in the MRAPs of
emphasizing time and performance, and I paid for it in cost,
right?
As we come out of the war and the time imperative decreases
for most of the system--SOCOM [Special Operations Command] and
other parts will still have that time imperative--the system
and the emphasis will shift, and things that will look normal
in the new system--or that looked normal in the old system will
not look normal in the new system.
Mr. Nugent. And, lastly, I am running out of time, but is
it possible to use existing technology without trying to always
reinvent the wheel and then add on to that existing technology
in a way that would save us money?
Mr. Zakheim. Well, it certainly is possible, and it has
been done. But part of the difficulty, if you take the MRAP, it
was basically based on a South African design, as we know. We
tend to be very, very narrow and restrictive about where we
look, and so we tend not to look at what is on the shelf. When
we do take something off that shelf, we tend to modify it so it
is unrecognizable.
That is something that has to change, and that has to be
changed by top management and enforced year after year,
Secretary after Secretary, party after party. If there isn't
consistency in this, the system will just lapse again.
Mr. Nugent. Thank you very much. My time has expired.
Mr. Thornberry. Mr. Larsen.
Mr. Larsen. Thank you, Mr. Chairman.
Mr. Schwartz, do you think that the Defense Acquisition
Workforce Development Fund, first, has made some progress on
getting the right number of people working in the acquisition
field? And, as well, has it increased the professionalism of
the acquisition workforce? Have you done any assessment on
that?
Mr. Schwartz. If I understand, I believe it is
approximately 2,000, or slightly more than that, individuals in
the acquisition workforce that were brought on board to the
Department of Defense as a function of the funding that was
created in the DAWDF, the Defense Workforce Acquisition Fund.
In addition to that, even some of the requirements from
DAWIA, the Defense Acquisition Workforce Improvement Act, from
20 years ago, which required, I believe, program managers to
have 8 years of experience, PEOs, program executive officers,
to have 10 years of experience, those regulations that have
started educating the workforce, those people that went through
that are just now generally getting to that layer of senior
management and have been brought up through that system.
So with DAWIA and Defense Workforce Acquisition, they are--
from my understanding of people in the system, there definitely
has been an improvement of people who went through that who
have better training and more experience.
Part of the problem, though, is that the average age of
many people in the acquisition workforce is much higher. The
workforce was cut substantially in the 1990s, and as we are
hiring more people, it could take 10, 15 years until those
individuals get through that process. So with DAWIA and with
the Workforce, it definitely is setting a good standard, but it
is going to take time to get that workforce back up to where it
needs to, from that perspective.
Mr. Larsen. Yeah.
And a follow-up for that: Can you provide the committee
with an example of some of the challenges that program managers
face trying to navigate and keep track of the steps in the
acquisition program?
Mr. Schwartz. Absolutely. So the acquisition framework is
set forth in the 5000 series. Perhaps I can show you. One
individual recently said, we have legislated and regulated our
way into a black hole.
So this is the--these are the directives of the 5000
series. This is the basis. Now, on this is the Federal
Acquisition Regulation. This is the Federal Acquisition
Regulation. It is about 1,800 pages. But there is guidance that
is necessary to understand that. This is the Defense
Acquisition Guidebook that explains how to use the Federal
Acquisition Regulation.
And that is for all of government. Now, defense is slightly
different.
Mr. Larsen. Thank God that one is in a binder, anyway.
Mr. Schwartz. This is the Defense Federal Acquisition
Regulation Supplement just for the Defense Department.
Now, just to make sure you understand how to use that,
there is the Defense Acquisition Regulation Procedures,
Guidance, and Information that explains that.
That is one of the challenges of the program managers
today.
Mr. Larsen. That looks like about 13 inches of challenges
or so. All right. Good. Could you read those for us? No, I am
just kidding.
Mr. Schwartz. We can make a CRS [Congressional Research
Service] report with all that.
Mr. Larsen. Great. Thanks.
I think another challenge, too, for Mr. Francis to answer,
is, looking at your GAO report, noting in your ``Analysis of
DOD Major Defense Acquisition Program Portfolios,'' page 2, is
kind of the depressing number here, that from 2008 to 2012 the
average delay in initial operating capability for these
programs have gone from 22 months to 27 months. The change in
development costs from first full estimate has gone from 42
percent to about 49 percent.
Where is the--is there a good news in this story?
Mr. Francis. I think there is some good news. I think in
the last 2 years we have seen some benefits from acquisition
reform in WSARA [Weapons System Acquisition Reform Act] and
Better Buying Power. We have seen some difficult decisions
made, I think, after 2008. That is when Secretary Gates made a
lot of decisions in 2010 to get rid of some bad programs and
have them come out of the portfolio. So I think that was good.
I think some of the things that they are doing today on
cost studies and making requirements tradeoffs, I think those
are doing okay. But I am not willing, at this point, to say we
have turned the corner, all of a sudden the trend is going up.
What we tend to see is, when you see improvements like that,
they are imposed by strong individuals. It is the hero model. I
don't think yet that the process has been institutionalized,
and we would have to see this over time.
Which is why I think this hearing is very important.
Because when people like Ash Carter leave and Frank Kendall
leave and some of the service acquisition executives leave, are
we going to see this trend continue or is it going to
disappear? I think this is mainly operating on the strength of
individuals, which is good, we will take that success so far,
but we need to institutionalize it.
Mr. Larsen. Thank you.
And, Mr. Chairman, if we could, as the committee hearing
ends at some point, if we could get a dolly in to help Mr.
Schwartz take the regs back, I would appreciate that. I am sure
he would appreciate it.
Mr. Thornberry. We are definitely going to record the stack
for posterity.
Ms. Davis.
Mrs. Davis. Thank you, Mr. Chairman.
And, certainly, I reflect on the memory of Ike Skelton, as
well, and the fact that he was very concerned about this issue,
as you all mentioned earlier.
It does feel a little like deja vu. I know that Mr. Andrews
and Mr. Conaway took part in a very active task force quite a
number of years ago. I guess that was in 2009. And what I
recall from that was that issues such as bundling and other
ways in which--we question whether small businesses could get
more in the fight, if you will. And we talked about that a
little bit earlier, in terms of innovation.
Do you see improvements in this way? I mean, has that made
a difference? And is there something that Congress should be
doing with addition to language or what have you?
I mean, I am looking at the stack, and I am--one question
really is, how much of that do you relate to what Congress has
done? I know that is a part of rulemaking, but in terms of the
effort that Congress has made that has been positive and both
negative in that regard. You know, are we 3 inches of that or
are we--what part of it does Congress represent?
And I am particularly interested in the bundling issue
because I think that has been a great frustration to small
businesses. It is very difficult for them to be able to jump
in. And we have seen this, you know, we have seen this in the
ACA [Affordable Care Act], as well.
Mr. Schwartz. It being my stack, apparently I will answer
that question.
This is an improvement from the 1970s, when it was 30,000
pages and streamlined across the government. So, on one level,
the acquisition system, while not aggregately perhaps
improving, has kept up with the change. So even as systems and
other services are more complex, generally, at least the cost
overruns haven't skyrocketed more than they are currently. So
that is one way of looking at it.
In the last six National Defense Authorization Acts, the
Title VIII of acquisition had approximately 250 different
sections. So some people have suggested that perhaps that is
more active. Others have said, well, some of these are very
well-timed. But a number of these perhaps were right on target
15 years ago but might not be appropriate now. Others of these
might have had unintended consequences but just stayed on the
books because we haven't, since 20 years ago with the 800 panel
that Dr. Zakheim referred to, been gone through. And some of
them didn't have--had a bad result, unintended.
Mrs. Davis. Uh-huh.
Mr. Schwartz. So I think a review, perhaps, of this stack
and say which of them are outdated, which of them had
unintended consequences, perhaps could be repealed or amended
to say, how do we streamline it without undercutting some good
oversight and some good things that may very well be in there.
Mrs. Davis. And the mechanism for that? I mean, is that a
role of the Congress? Is that a role of a task force? Is that a
role--how do you see that?
Mr. Schwartz. So I would suggest the way it was done last
time was collaborative. And, generally, if you look at the past
reform efforts, those that have been successful have been
substantial, collaborative efforts across departments and
across branches of Congress.
You know, Packard, I believe it was, who said that he was
shocked that when--when he was Deputy Secretary of Defense, he
was shocked that they would put in at the Department of Defense
on a senior level these reforms and the services wouldn't buy
into them.
Mrs. Davis. Uh-huh.
Mr. Schwartz. So, no matter what the senior level does, if
the services don't buy in, it won't be as effective.
Even if the services do it, if the lower components don't
buy in, it won't be effective. And, arguably, it is the same
with Congress and DOD. If it is a collaborative effort
together, which is how it was done in the 800 panel--Congress
required, I believe it was Defense Acquisition University to do
a study, and that was turned over to Congress, with input from
numerous experts, and then that is how we got the Streamlining
Act.
Mrs. Davis. Uh-huh. But I guess part of what I wonder
about--because we have talked about the education piece. If you
have a lot of the same people, even though perhaps they are
newer to the process, are we going to get the same results?
Mr. Zakheim. I think that one place we haven't talked about
is the White House. I think you will need OMB, OPM, and OFPP,
the Office of Federal Procurement Policy, to play in this. A
lot of this stuff is generated, or at least is theoretically
under the oversight of those offices.
Mrs. Davis. Uh-huh.
Mr. Zakheim. And, again, a lot has to do with merits and
measurement and reward. The services, if they know that they
will not be penalized for not listening to a Deputy Secretary,
they are not going to listen.
So there is a combination of things. It has to be
collaborative. It has to be nonpartisan. And within the
Department, there has to be a sense of----
Mrs. Davis. And do you think that this is something that
Congress actually has to----
Mr. Zakheim. Well, Congress should play in this and ask for
it.
Mrs. Davis. Yeah. Okay. All right.
Mr. Francis. Ms. Davis, just a couple points.
A couple of teasers. We are doing work on bundling right
now, so we will have a report coming out. And we are also
looking at small-business innovative research for this
committee. So we are looking at how small businesses are faring
in that world.
And then just a little conundrum that we are facing here.
If we were to, let's say, talk a lot about small business,
Congress' role, they might write a law about small business
that might add this. We talked earlier about cybersecurity;
there might be something added for that. And we talked earlier
about the defense acquisition workforce; we might want to pass
laws and legislation on that. All individually good things to
do. But then at the end, you say, have we looked at the
cumulative effect?
Mrs. Davis. Uh-huh. All right. Thank you.
Mr. Thornberry. I thank the gentlelady.
Mr. Kilmer.
Mr. Kilmer. Thank you, Mr. Chairman.
I have a few questions. One, it seems appreciated and
understood that the use of commercial off-the-shelf products
tends to be cheaper when initially purchased and maintained as
compared to custom solutions. Part 10 of the Federal
Acquisition Regulation supports that notion and encourages the
use--encourages agencies to seek out those commercially
available solutions while conducting market research.
I guess, a few questions. One, are organizations adopting
this shift? Have we actually realized a significant shift to
purchasing commercial off-the-shelf? And are there any
statistics that you have seen that support such a trend?
Mr. Schwartz. There has been significant change in that
since the 1990s with, I believe it started with Secretary of
Defense Perry, when there were mil-specs, military
specifications, for virtually everything, and he really
initiated that efforts move away from that and buy commercial.
What a number of people have suggested is, while that is
definitely good, perhaps at some point the pendulum went too
far, and we are trying to force that buying into commercial,
which, as a number of the other people on the panel talked
about, is, well, when that was the incentive, everybody had to
buy commercial, whether it was the right thing or not. Now,
perhaps, it is settling a little bit more. So that is one
thing. And I will take that as a task and, over the next week
or so, try to get you some statistics on that.
The other issue with that, in addition to a clear increase
in doing that as well, is there have been a number of
instances, unfortunately, where the initial effort seemed that
it was ideal to get off-the-shelf, and then when it was adapted
to military requirements or when some of the regulations
started kicking in, it ceased to be that. And then somehow a
major development effort had to be done to incorporate these
regulations, and then you lost the whole benefit of that, and
sometimes the costs even went higher than otherwise.
Mr. Chao. So here is where I would quibble a little bit. I
mean, the reforms of the 1990s were actually fairly
revolutionary in terms of switching the whole system from
defaulting on mil-spec to now defaulting on commercial and
proved to me why it should do mil-spec.
Over the last decade, I think that pendulum has kind of
started to swing back a little bit, and it has been creeping
back--mil-spec has been creeping back into the system. And I
would argue a review, you know, of that would be important.
I think I saw a statistic that something around 28, 29
percent of the dollars are being spent on a commercial basis,
and it has kind of plateaued. And you would think, if you think
of all the technologies that are moving more and more
commercial, like IT [information technology], you would think
that that percentage should be growing.
Mr. Kilmer. Okay. Thank you.
I also had a question around the small-business preferences
that exist within our procurement policy. I know there are
preferences to encourage disabled veteran and female and
minority businesses. I want to get your sense of how successful
those programs have been in encouraging qualified individuals
to establish businesses and to grow their businesses. Have you
seen--is there competition between the various preferences that
might inhibit the achievement of each agency's goals in that
regard?
Mr. Zakheim. Well, my experience as a contractor for more
than the time that I was in government tells me that, as usual,
the system gets played.
So, for example, big companies will hide behind the small
business, which doesn't really have the capability to do
everything that the government demands of it. That begs the
question, should the government be demanding as much as it does
from small businesses that forces them to turn to the big
companies to back them up? So that is one issue that I think
needs to be perhaps dealt with.
Another is, yes, there is clearly a competition. If you
want to have a woman-owned business, a disabled-owned business,
a veterans business or so on, they are all competing against
each other.
Does DOD always meet its goals in terms of small business?
No. The answer is, you know, sometimes it does, sometimes it
doesn't. Is there a desire on the part of industry to bring in
small business? Always, because you know that if you get a
small business in, you have a better chance of winning the
contract.
But, again, it is kind of backwards. It is the big company
that is looking for the small company in order to win the
business, as opposed to the government looking for the small
company for the reasons that presumably you support.
Mr. Kilmer. So, from a public policy standpoint, what would
you do differently?
Mr. Zakheim. You probably would not make as great demands
on the small companies, and just give them the opportunity to
bring in what they bring in without forcing them, in effect, to
join the big guys because, otherwise, they can't win a
contract.
Mr. Chao. I mean, as a mechanism for incubating small
businesses, I would argue it has been successful. The place
where it has gotten a little bit perverse is, as companies hit
that threshold, deciding to stay there rather than crossing
over. And, I mean, ideally, you would think that that was a
policy established to incubate companies and let them grow all
the way up. And now we have people that are just deciding to,
you know, opt out, ``I don't want to go across the fence into
the maelstrom,'' and so they stay right at that level. And that
is probably something to take a look at.
Mr. Kilmer. Thank you.
Thank you, Mr. Chairman.
Mr. Thornberry. Mr. Carson.
Mr. Carson. Thank you, Mr. Chairman.
This question is for all the panelists. It has been
repeated often by Members on both sides of the aisle that
sequestration is, I think we all agree, is the worst possible
way to cut back our defense spending. The same goes for
domestic spending. And we should eliminate both immediately.
But I think it would be foolish not to learn from our
mistakes. The DOD is effectively being forced to make decisions
that it would likely not have considered if it were not for
sequestration.
Are there lessons we can take from sequestration about DOD
acquisition and potential efficiencies that could be pursued?
And what do we know now about DOD's ability to make tough
choices in acquisition that we didn't know prior to
sequestration?
Mr. Francis. Okay. I will start.
Mr. Carson, we have taken a look at how the Department has
handled its investment accounts, and I think for fiscal 2013
for the sequester it has taken short-term measures. It has
postponed some decisions, may have pushed out some quantities,
but it hasn't done anything drastic, in terms of canceling
programs. It hasn't broken up any big contracts. So it hasn't
done anything that I would say was imprudent. That is okay for
this year.
Next year, some of those same tools are not going to be
available to the Department. So some of the things they have
put off, particularly in shipbuilding, for example, where you
have advance funding to buy long-lead items, you can put them
off for a year, but you can't take them away. So they can't put
them off again next year.
I think lower budgets, if you know they are coming, can
actually force some good decisions, some hard choices. They can
bring discipline to a process. We have seen the opposite, where
big budgets don't necessarily make for better decisions.
I think the structural issue here is the Department has put
forth a budget that does not yet reflect the sequestered
amount. So when it goes back in, I am not sure it is going to
make decisions to put it on a long-term glide path to save
money. The decisions are not--are going to be, again, short-
term in nature and maybe not as well-advised if you know you
are going to be sitting on lower budgets for the long term.
Mr. Schwartz. I believe it was Winston Churchill who said,
``Gentlemen, we are out of money. We now need to think.'' That
concept is starting to really pervade the Department of
Defense.
In the past, there was this culture, perhaps we can call
it, of, well, that program is going to increase in costs but we
will get funding for it, and we will ask for more money, and we
will ask for the cost cap to be raised, and we will ask for
more money, and it will get funded one way or the other.
That is not necessarily the culture now that a lot of
people, not everyone, but a lot of people are feeling in the
Department of Defense. It is no longer a given that if there is
cost overrun, they are going to get funding. And it is no
longer a given that if they promise more capability, that is
going to sell.
And Secretary Gates started this when he said, we don't
need exquisite technologies anymore, we need the 80 percent
solution. And a lot of people have traced that change in
culture to comments like that.
Mr. Chao. So, I mean, the most damaging thing about
sequestration was the elimination--and it was designed to be so
horrific that it would never be taken up--but of the across-
the-board cuts of everything having to be applied. And so, how
can I cut, you know, a fifth of a ship, for example? And yet,
you know, hence we were down that path.
And so the Pentagon knows how to plan. In fact, it is very,
very good at it. And I think that is one of the--if you give it
the opportunity to do so, if it was told, here is the level to
which you need to plan to, I would submit to you it can do a
very, very good job of that. You know, the current environment
has eliminated that ability and has created the turmoil. And I
think that is where you are picking up all the inefficiencies,
because it cannot do that planning.
Mr. Zakheim. You know, even without sequestration, there
has always been cut drills for years and years and years. And
what happens is programs that are promising very often get cut
because they just don't have the right sponsors in the right
places.
I don't know whether the Department right now has made the
kinds of structural, as opposed to near-term, choices. I agree
with my fellow panelists about where we are headed over the
next year, but if you are talking about fundamental change in
the way you do your acquisition, it is not clear to me that
that is happening. And, at some point, the budgets will go up
again. And if you don't have those kinds of changes, you are
not going to get the efficiencies; you will waste money again.
Mr. Carson. Uh-huh.
Mr. Zakheim. So the sequester may have focused people's
minds. The next question is, have they done the kinds of things
that will allow for more efficient acquisition regardless of
the budgetary environment? And I think the jury is out on that.
Mr. Chao. If I could quickly follow up on that, if the
budgets actually peaked, including the OCO [Overseas
Contingency Operations] accounts, in 2009 and we are planning
the 2015 budgets, we are actually 6 years into the downturn. I
know it doesn't feel like that. And if you look at the historic
cycles, we usually had
10-, 12-year cycles. I would submit to you we are almost,
quote/
unquote, halfway through.
So as I talk to industry, I tell them, if you are starting
to think about the downturn now, you are way too late. You
should actually be thinking about what the next upturn looks
like and what do we want to do during this downturn to
strategically position ourselves. And I think the Pentagon
really wants to do that. I think it is a great role for
Congress, you know, to also play in thinking about how to do
that.
I mean, to end on an optimistic note, you know, for as much
complaining, we still end up with the best equipped military in
the world. Now, we may sit there and say, you know, that is a
``we suck less'' strategy and that doesn't feel very good. But,
you know, this is as much of an opportunity, I think, to
position for--you know, to position ourselves for, frankly, for
what the next upturn looks like.
Mr. Carson. Thank you, gentlemen.
I yield back my time, Mr. Chairman.
Mr. Thornberry. Thank you.
And thank you all. We have covered a lot of ground today.
Members had a lot of good questions.
I guess I do want to ask, is there some key element of this
that we have not touched on that any of you all think that you
would like to highlight as a last comment? You don't have to
say anything. I am just giving you the chance in case we missed
something.
Mr. Chao. So, one last topic, which was touched upon
obliquely. It is another politically sensitive one. It is the
issue of the revolving door. Right? To the extent of, if we
have these issues in the workforce and you need to get better
quality people in, and we have 15 percent, I think, of the
Federal workforce eligible for retirement and another 30
percent coming in the next 5 or 6 years and there is going to
be this brain drain, the ability to pull people mid-career into
the system and back out again is probably something that needs
to be really, really looked at.
And it has become almost a one-way trip, either one way or
the other. It has become very, very difficult to do that.
Again, to sit there and say, ``I want to increase the revolving
door'' is not politically palatable or popular, but it is a
real topic, I would argue, to look at.
Mr. Zakheim. Another one that is clearly a tremendous
frustration is, how do you bring people in at the political
appointee level? A lot of people just don't want to get
involved because it is just so hard to make it through the
confirmation process.
And I know that takes place in the other Chamber, but it
seems to me it is a challenge for everybody involved in
acquisition. And it is something that, as you talk to your
colleagues in the other Chamber, it really needs to get
resolved. It is not a partisan issue. It is an issue of, can we
get the best people for this country? And there are an awful
lot of good people out there who just don't feel they can
serve.
Mr. Thornberry. Okay.
Mr. Francis. Mr. Thornberry, I just would conclude that it
is kind of easy to say the acquisition workforce should do
something different, or the executives or the program managers,
but I think we have to think holistically and look at all of us
put pressures on the system and create pressures. And I think
it responds pretty much to those pressures.
So if we want to get different results, I think we each
have to look at what are we contributing to the current state
of affairs and what can we do to take some of the pressure out
of it. And I think that is going to be key to getting results
in the future, instead of just looking at what the other guy
can do.
Mr. Schwartz. And perhaps to sum that up, what the role of
Congress--and there was a question before. So this committee
has done a lot of work, as other committees have, on
operational contract support. And everyone I have spoken to in
the Department of Defense had said that the progress made could
not have been made without the effort in Congress.
I would suggest that the past successful reforms, Congress
has always played a critical role. And there is a critical role
for Congress to play in the future.
Mr. Thornberry. Well, I appreciate that. You all heard what
the chairman and Mr. Smith have agreed to do. And, as I think
each of you have said at one time or another, that requires not
only Republicans and Democrats, House and Senate, it requires
various levels of the Pentagon and also working with industry.
Because until you get, kind of, everybody more on the same
page, we are not going to have the success we need.
So thank you all very much for your time today. And I hate
to break it to you, but we are going to be calling on you in
the future to help guide this effort.
With that, the hearing stands adjourned.
[Whereupon, at 12:21 p.m., the committee was adjourned.]
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A P P E N D I X
October 29, 2013
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PREPARED STATEMENTS SUBMITTED FOR THE RECORD
October 29, 2013
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[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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DOCUMENTS SUBMITTED FOR THE RECORD
October 29, 2013
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[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
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QUESTIONS SUBMITTED BY MEMBERS POST HEARING
October 29, 2013
=======================================================================
QUESTIONS SUBMITTED BY MR. MILLER
Mr. Miller. Dr. Michael Gilmore, Director of Operational Test &
Evaluation, consistently speaks about developmental test & evaluation
(DT&E) as being key to successful operational test & evaluation (OT&E).
Prior to enactment of the Weapons Systems Acquisition Reform Act
(WSARA) of 2009, the GAO and the Defense Science Board found that 50%
of programs completing initial operational test & evaluation since 2000
were assessed as ``not operationally effective or suitable.'' GAO
suggested that ``. . . beginning production before successfully
demonstrating that the weapon system will work as intended increases
the potential for discovering costly design changes . . . and usually
requires substantial modification costs at a later time.''
Do you believe enhancing the authority and resourcing of
the Deputy Assistant Secretary of Defense for Developmental Test &
Evaluation would improve that office's oversight effectiveness,
resulting in reduced cost overruns and schedule delays?
How would you recommend enhancing that authority and
resourcing?
Mr. Zakheim. It is not clear why the DASD for DT&E requires
additional resourcing. OSD is already overstaffed. At most, personnel
should be dropped from other OSD offices in order to add a few more
slots to the DT&E office.
The key is additional authority, rather than resources. In order to
ensure that DT&E has the desired impact in the acquisition cycle, the
DOD 5000 series should require that the DASD DT&E certify to the
Defense Acquisition Board that developmental testing and evaluation has
been completed and that the program in question can move to production.
The DOD Directive should make it clear that there will be no movement
to production without such certification unless a waiver is explicitly
granted in writing by the Deputy Secretary of Defense.
Mr. Miller. Over the past several years, this committee has
attempted to pass legislation that would provide authorities to enter
into long-term and/or multi-year procurement contracts. The constant
obstacle is the CBO and the manner in which they score these
initiatives. What are your thoughts on CBO scoring methodology
associated with multi-year procurements and do you think it is time for
the Congress to provide new guidance to CBO regarding the scoring of
long-term procurements?
Mr. Zakheim. CBO scores multi-year programs in the year they were
approved. This results in frontloading their costs and pushing aside
other programs that cannot fit into budget caps or other prescribed
spending ceilings.
Should the Congress wish to change the nature of CBO's scoring, it
could of course provide new guidance to that effect. However, doing so
would compromise CBO's independence by opening the door for other
changes in CBO's methodology . . . something the Congress might do best
to avoid.
Mr. Miller. Termination liability is often cited by both CBO and
OMB as an obstacle to adopting long-term and/or multi-year procurement
contracts. Industry continues to tell the CBO and OMB that termination
liability can be mitigated through contract terms. What are your
thoughts on termination liability?
Mr. Zakheim. There is no doubt that termination liabilities are a
function of the contracts that are signed for a given program.
Contracts, when amended or modified, are notoriously vague with respect
to those liabilities. Engineering change proposals and other variations
to the original contract change overall program cost and therefore
affect the amount of termination liability, which arises when the
Government chooses to terminate a contract for its convenience. In my
testimony I suggested much more rigorous control over contract changes;
included in that suggestion would be clarity regarding termination
liability--a specific sum to be appended to every contract
modification.
Mr. Miller. Dr. Michael Gilmore, Director of Operational Test &
Evaluation, consistently speaks about developmental test & evaluation
(DT&E) as being key to successful operational test & evaluation (OT&E).
Prior to enactment of the Weapons Systems Acquisition Reform Act
(WSARA) of 2009, the GAO and the Defense Science Board found that 50%
of programs completing initial operational test & evaluation since 2000
were assessed as ``not operationally effective or suitable.'' GAO
suggested that ``. . . beginning production before successfully
demonstrating that the weapon system will work as intended increases
the potential for discovering costly design changes . . . and usually
requires substantial modification costs at a later time.''
Do you believe enhancing the authority and resourcing of
the Deputy Assistant Secretary of Defense for Developmental Test &
Evaluation would improve that office's oversight effectiveness,
resulting in reduced cost overruns and schedule delays?
How would you recommend enhancing that authority and
resourcing?
Mr. Chao. I would focus attention on whether the office of the DASD
(DT&E) has the proper resources rather than on the tinkering of
authorities. Generally it is a good practice to push testing and
evaluation earlier into the process and more into the actual design and
development process, as the GAO has noted. The best practices found in
industry and the commercial world place a great deal of emphasis on
testing as you go, and building in assessment into the development
process rather than waiting until the end to discover whether a product
or system works. It should be noted however that the more complex the
system is and the more that the deliverable product is a system of
systems, the more there is a reality that the weapon system can only be
fully tested when completed--that is the nature of very complex system
of systems.
Mr. Miller. Over the past several years, this committee has
attempted to pass legislation that would provide authorities to enter
into long-term and/or multi-year procurement contracts. The constant
obstacle is the CBO and the manner in which they score these
initiatives. What are your thoughts on CBO scoring methodology
associated with multi-year procurements and do you think it is time for
the Congress to provide new guidance to CBO regarding the scoring of
long-term procurements?
Mr. Chao. I believe serious consideration should be given to re-
examining how multi-year procurements are scored and assessed. While
very aware of the issues of annual appropriations, the anti-deficiency
act and the prerogatives of Congress, there are sufficient advantages
to multi-year procurements from a cost perspective that the topic
should be examined. It will be particularly important as defense
budgets decline and cost savings and the need to provide some stability
to the defense industrial base becomes critical. The rules regarding
multi-year procurement scoring in many ways offset the exact reason
that they are useful/efficient--for long term visibility and stability
the customer gets lower cost. Force the entire contract or large
portion to be accounted for in one year and it naturally creates a huge
disincentive to use the mechanism and short circuits the normal
economics. These are ultimately rules that Congress has set for itself,
and therefore can only be addressed by Congress.
Mr. Miller. Termination liability is often cited by both CBO and
OMB as an obstacle to adopting long-term and/or multi-year procurement
contracts. Industry continues to tell the CBO and OMB that termination
liability can be mitigated through contract terms. What are your
thoughts on termination liability?
Mr. Chao. Multi-year contracts have a known and well studied set of
economic benefits. By buying in economically efficient lots they lower
cost; they potentially reduce the overhead burden; they incentivize
standardization and reduce start up costs (which also lowers cost);
stabilize work forces and incentivize investments in productivity by
the contractors. While they are not useful for every case, they can be
ideal for situations where the requirement/need is stable, there is a
base level of demand, and the costs are amenable to multi-year
efficiencies.
An issue raised, as you note, is termination liability with the big
risk being the cancellation of a program early in its life. Given that
the budgeting rules require the funding of the termination liability it
certainly creates a disincentive to using multi-years. Ultimately this
is a cultural issue--the component that creates the greatest fear (``I
don't have flexibility, what if I need to change the contract''), is
exactly the element that generates the savings (``this is stable, they
can't change the contract''). The core topic is therefore risk
mitigation, and as any business person will note risk can be managed/
negotiated via contract terms. For example, termination liabilities can
scaled or risk adjusted. The issue of termination liabilities should
not a priori preclude the examination of using a multi-year.
Mr. Miller. Dr. Michael Gilmore, Director of Operational Test &
Evaluation, consistently speaks about developmental test & evaluation
(DT&E) as being key to successful operational test & evaluation (OT&E).
Prior to enactment of the Weapons Systems Acquisition Reform Act
(WSARA) of 2009, the GAO and the Defense Science Board found that 50%
of programs completing initial operational test & evaluation since 2000
were assessed as ``not operationally effective or suitable.'' GAO
suggested that ``. . . beginning production before successfully
demonstrating that the weapon system will work as intended increases
the potential for discovering costly design changes . . . and usually
requires substantial modification costs at a later time.''
Do you believe enhancing the authority and resourcing of
the Deputy Assistant Secretary of Defense for Developmental Test &
Evaluation would improve that office's oversight effectiveness,
resulting in reduced cost overruns and schedule delays?
How would you recommend enhancing that authority and
resourcing?
Mr. Schwartz. A number of analysts and government officials have
echoed GAO's suggestion that beginning production before successfully
demonstrating that systems will work as intended increases the
potential for costly modifications at a later time. As Vice Admiral
David Venlet reportedly stated, DOD was surprised at the extent of the
changes required--and the associated cost--that resulted from the high
rate of concurrency found in the Joint Strike Fighter program.\1\
---------------------------------------------------------------------------
\1\ Richard Whittle, ``JSF's Build and Test Was `Miscalculation,'
Adm. Venlet Says; Production Must Slow,'' Breaking Defense, December 1,
2011, at http://breakingdefense.com/2011/12/jsf-build-and-test-was-
miscalculation-production-must-slow-v/.
---------------------------------------------------------------------------
In the DOT&E FY2012 Annual Report to Congress, Dr. Gilmore stated
that since 2009 (the year the Weapon System Acquisition Reform Act was
enacted into law), there has been progress in a number of areas related
to testing, including significant progress in increasing the scientific
and statistical rigor; early engagement with the requirements community
to develop realistic, feasible, and testable requirements; and
increased attention in reliability management, design, and growth
testing.\2\ The report also stated that DOD recognizes ``the
significant adverse long-term life cycle cost impacts and reduced
operational capability resulting from systems being unreliable.'' \3\
---------------------------------------------------------------------------
\2\ Office of the Director, Operational Test & Evaluation, FY 2012
Annual Report, December 2012, p. X.
\3\ Ibid., p. v.
---------------------------------------------------------------------------
An example of DOD's increased recognition and focus on the
importance of testing in general, and developmental testing in
particular, can be seen in the recently released draft DOD Instruction
5000.02, which contains a more robust discussion on testing than the
current instruction. The draft instruction states that developmental
test and evaluation
demonstrates the ability of the system to meet its stated and
derived requirements, including the approved KPPs, and that
system production or fielding can be supported. The effort
requires completion of DT&E activities consistent with the Test
and Evaluation Master Plan and may include operational
assessments. Successful completion of adequate developmental
testing with production or fielding representative prototype
test articles will normally be the primary basis for entering
LRIP or Limited Fielding.
The draft instruction also contains two enclosures dedicated
exclusively to test and evaluation requirements, including Enclosure 2-
3, which is an eight page discussion of developmental test and
evaluation. The current instruction does contain such a focus on DT&E.
Despite the progress cited above and the increasing attention being
paid to the importance of testing, there are numerous areas ripe for
improvement, such as the rate of systems meeting required reliability
thresholds. According to the annual report, ``reliability continues to
lag; only 7/13 systems (54 percent) evaluated in 2012 met their
reliability thresholds and overall between 1997 and 2012 only 67/118
systems (57 percent) were reliable.\4\''
---------------------------------------------------------------------------
\4\ Ibid., p. 6.
---------------------------------------------------------------------------
Given the progress cited by Dr. Gilmore, the draft of the 5000.02
instruction, the Weapon System Acquisition Reform Act, and other reform
efforts currently underway (including a heightened focus on program
cost), there is little consensus as to what impact enhancing the
authority and resourcing of the Deputy Assistant Secretary of Defense
for Developmental Test & Evaluation would have on the goal of improving
that office's oversight effectiveness, and its ability to address cost
overruns, and schedule delays. Some could argue that enhancing the
authority and resources of DT&E activities will improve the process,
particularly in those areas where observable progress has not occurred;
others can argue that implementing further changes could have
unintended consequences or may hinder the progress currently underway.
Mr. Miller. Over the past several years, this committee has
attempted to pass legislation that would provide authorities to enter
into long-term and/or multi-year procurement contracts. The constant
obstacle is the CBO and the manner in which they score these
initiatives. What are your thoughts on CBO scoring methodology
associated with multi-year procurements and do you think it is time for
the Congress to provide new guidance to CBO regarding the scoring of
long-term procurements?
Mr. Schwartz. The statutory authority for executing MYPs include 10
U.S.C. 2306b (providing for the use of MYP for the procurement of
goods) and 10 U.S.C. 2306c (providing for the use of MYP for the
procurement of services). MYPs are further governed by DOD acquisition
regulations.\5\ Generally, CBO does not score authorizations for MYP
that are executed under existing legislation such as 10 U.S.C. 2306b.
However, CBO does score new legislation that would provide new types of
MYP contracts, increase the maximum term of such contracts, or add
additional goods and services to those authorized under current law.\6\
In conducting its analysis, CBO adheres to the principle that MYPs
incur future obligations in excess of currently available
appropriations. When scoring MYPs, CBO includes the total expected
obligation for all out years, not just the current obligation and the
termination cost if the contract is cancelled after the first year.
---------------------------------------------------------------------------
\5\ For more information on MYP, see CRS Report R41909, Multiyear
Procurement (MYP) and Block Buy Contracting in Defense Acquisition:
Background and Issues for Congress, by Ronald O'Rourke and Moshe
Schwartz.
\6\ For example, see U.S. Government Accountability Office,
Department of Veterans Affairs Major Medical Facility Lease
Authorization Act of 2013, Cost Estimate: H.R. 3521, December 6, 2013,
http://www.cbo.gov/sites/default/files/cbofiles/attachments/
hr3521_1.pdf.
---------------------------------------------------------------------------
The Congressional Budget Act (P.L. 93-344 section 312(a)) provides
that for purposes of enforcement, spending and revenue levels ``shall
be determined on the basis of estimates made by the Committee on the
Budget of the House of Representatives or the Senate, as applicable.''
As such, Congress need not consider CBO scoring or analysis. Congress
could also choose to provide new guidance to CBO as it relates to MYP
scoring methodology, such as whether scoring should be based on
termination costs or on all out-year costs in the contract. Such
guidance may not be binding on CBO unless appropriately enshrined in
statute.
Mr. Miller. Termination liability is often cited by both CBO and
OMB as an obstacle to adopting long-term and/or multi-year procurement
contracts. Industry continues to tell the CBO and OMB that termination
liability can be mitigated through contract terms. What are your
thoughts on termination liability?
Mr. Schwartz. There is a general consensus that MYPs generate cost
savings for DOD. Compared with estimated costs under annual
contracting, estimated savings for programs being proposed for MYP have
ranged from less than 5% to more than 15%, depending on the particulars
of the program in question, with many estimates falling in the range of
5% to 10%.\7\ In practice, actual savings from using MYP rather than
annual contracting can be difficult to observe or verify because of
cost growth during the execution of the contract that was caused by
developments independent of the use of MYP rather than annual
contracting.
---------------------------------------------------------------------------
\7\ CRS Report R41909, Multiyear Procurement (MYP) and Block Buy
Contracting in Defense Acquisition: Background and Issues for Congress,
by Ronald O'Rourke and Moshe Schwartz.
---------------------------------------------------------------------------
The anticipated government savings generated from MYPs explain why
DOD seeks to pursue such contracts. Generally, contractors are
interested in signing multi-year contracts to book future work;
contractors are more likely to make long-term investments in support of
a contract if the contract period is long enough to ensure that the
contractor will recoup its investment (and increase profits). However,
because the federal government can terminate contracts for convenience,
companies may forgo making long-term investments to guard against the
government terminating the contract before the contractor recoups its
investment. Generally, two main factors give contractors the confidence
that DOD will not terminate an MYP contract and that the multiyear
stream of business will materialize:
For a program to qualify for MYP, DOD must certify, among
other things, that the minimum need for the items to be purchased is
expected to remain substantially unchanged during the contract in terms
of production rate, procurement rate, and total quantities.
MYP contracts include a cancellation penalty intended to
reimburse a contractor for costs that the contractor has incurred
(i.e., investments the contractor has made) in anticipation of the work
covered under the MYP contract. The undesirability of paying a
cancellation penalty acts as a disincentive for the government against
canceling the contract (and if the contract is canceled, the
cancellation penalty helps to make the contractor whole).
A 2008 report by GAO found that, while DOD terminated hundreds of
contracts for convenience each year, fewer than a dozen contracts
terminated from 1995-2007 were worth more than $100 million.\8\
However, from FY1999-FY2008, DOD contract obligations (adjusted for
inflation) increased every year. From FY2008-FY2013 (adjusted for
inflation), DOD contract obligations have decreased every year.
Shrinking contract spending and the accompanying focus on cost
increases the risk that DOD will terminate a contract for convenience.
---------------------------------------------------------------------------
\8\ U.S. Government Accountability Office, Defense Acquisitions:
Termination Costs are Generally Not A Compelling Reason to Continue
Programs or Contracts that Otherwise Warrant Ending, GAO-08-379, March
14, 2008, p. 1.
---------------------------------------------------------------------------
To the extent that there is an increased risk in contract
termination or substantial funding changes, government officials have
less of an incentive to enter into long-term or MYP contracts that
carry a substantial termination liability. In the current environment,
termination costs can also be the determining factor in deciding
whether to continue or terminate a contract. The lack of reliable or
complete information can lead to poor decisions, an issue discussed in
a report by the DOD Inspector General which found that the Secretary of
Defense did not have sufficient termination cost information to
determine the cost-effectiveness of continuing or terminating the C-
130J MYP contract.\9\
---------------------------------------------------------------------------
\9\ See Department of Defense Office of the Inspector General,
Acquisition: Contracting and Funding for the C-130J Aircraft Program,
D-2006-093, June 21, 2006, p. 3. According to the report the Secretary
of Defense wrote a letter to Congress stating that it was in the best
interest of DOD to complete the multiyear contract based on the
additional cost estimated to terminate the C-130J MYP contract.
However, the IG found that ``The Air Force acquisition personnel
provided the Secretary of Defense with an unsupported cost estimate to
use in deciding whether to terminate the C-130J aircraft MYP contract.
This occurred because the Air Force included ambiguous language in the
contract and did not have cost and pricing data needed to develop an
accurate cost estimate. As a result, the Secretary of Defense did not
have sufficient termination cost information to determine the cost-
effectiveness of continuing or terminating the C-130J MYP contract.''
---------------------------------------------------------------------------
Part 49 of the Federal Acquisition Regulation is dedicated
exclusively to contract terminations, including the responsibilities of
the parties in determining and settling termination liabilities. In
addition to the rules and regulations governing contract termination,
termination liability can be addressed in the contract itself. However,
the budget environment in recent years makes MYP a less attractive
strategy for the government, particularly given the level of
uncertainty in recent years related to
what the future overall defense base budget will be;
if DOD will be required to operate under a continuing
resolution due to the lack of a budget being enacted;
whether a continuing resolution will include language
prohibiting DOD from signing MYP contracts for the life of the
continuing resolution;
whether sequestration will be triggered in future years;
and
the stability of funding for individual programs.
Mr. Miller. Dr. Michael Gilmore, Director of Operational Test &
Evaluation, consistently speaks about developmental test & evaluation
(DT&E) as being key to successful operational test & evaluation (OT&E).
Prior to enactment of the Weapons Systems Acquisition Reform Act
(WSARA) of 2009, the GAO and the Defense Science Board found that 50%
of programs completing initial operational test & evaluation since 2000
were assessed as ``not operationally effective or suitable.'' GAO
suggested that ``. . . beginning production before successfully
demonstrating that the weapon system will work as intended increases
the potential for discovering costly design changes . . . and usually
requires substantial modification costs at a later time.''
Do you believe enhancing the authority and resourcing of
the Deputy Assistant Secretary of Defense for Developmental Test &
Evaluation would improve that office's oversight effectiveness,
resulting in reduced cost overruns and schedule delays?
How would you recommend enhancing that authority and
resourcing?
Mr. Francis. We examined the staffing and influence of the DT&E
office during our 2010, 2011, and 2012 assessments of DOD's
implementation of the Weapon Systems Acquisition Reform Act of 2009.\1\
In our 2011 and 2012 assessments, we reported that the office had to
drop virtually all but the largest programs from its oversight list and
eliminate oversight of some major automated information systems because
its staff could not adequately cover a portfolio of over 200
acquisition programs. In addition, the office was providing minimal
coverage to programs prior to the start of development, which is the
most opportune time to influence a program's acquisition strategy. In
our 2011 assessment, we also reported that the Deputy Assistant
Secretary for DT&E would like his office to be staffed with a larger
proportion of government employees as he believed it is important to
maintain a core cadre of people with the required institutional
knowledge and skills to support current and future program office
needs. At that time, about two-thirds of the staff were contractors.
Our 2011 report also discussed concerns about T&E's influence within
DOD. However, we could not determine if the office had the appropriate
amount of influence because it was not tracking the extent to which its
recommendations were being adopted or impacting weapon programs. This
type of information would provide some indication of whether additional
authority is needed.
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\1\ GAO, Defense Acquisitions: DOD Needs to Develop Performance
Criteria to Gauge Impact of Reform Act Changes and Address Workforce
Issues, GAO-10-774 (Washington, D.C.: July 29, 2010); GAO, Weapons
Acquisition Reform: Actions Needed to Address Systems Engineering and
Developmental Testing Challenges, GAO-11-806 (Washington, D.C.: Sept.
19, 2011); Weapons Acquisition Reform: Reform Act Is Helping DOD
Acquisition Programs Reduce Risk, but Implementation Challenges Remain,
GAO-13-103 (Washington, D.C.: Dec. 14, 2012).
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Accordingly, dedicating more resources to DT&E activities would
allow the office to oversee activities on more programs. However,
finding additional resources at a time when defense budgets are
shrinking may be difficult to achieve. We do note (1) the difficulty in
finding such resources given competing demands, and (2) the capability
of the DT&E office is but one of many factors that could address cost
growth and schedule delays. Collectively, the program offices and the
offices of DT&E, Systems Engineering, Cost Assessment and Program
Evaluation, and others need to address these issues. For example, while
some of these risks could be addressed with additional testing earlier
in a program, other risks may best be identified through increased
attention to early systems engineering or more accurate cost
estimating. In addition, while we have no analytical basis for
recommending a change in the DT&E office's authority, we reported in
our 2012 assessment that the department must address challenges related
to cultural barriers between OSD and the services that make service
officials reluctant to accept DT&E's recommendations.
Mr. Miller. Over the past several years, this committee has
attempted to pass legislation that would provide authorities to enter
into long-term and/or multi-year procurement contracts. The constant
obstacle is the CBO and the manner in which they score these
initiatives. What are your thoughts on CBO scoring methodology
associated with multi-year procurements and do you think it is time for
the Congress to provide new guidance to CBO regarding the scoring of
long-term procurements?
Mr. Francis. While we are familiar with CBO's scoring methodology
we generally do not comment on it as CBO is a sister legislative agency
and we feel that Congress is best served by having one support agency
on this topic. We do note that, according to OMB scorekeeping
guidelines, when a law provides the authority for an agency to enter
into a long-term or multiyear contract, it is to score the entire
amount of the government's estimated legal obligation in the year in
which the budget authority is first made available to make clear the
Government's total estimated legal obligations over the life of the
contract.
GAO has long supported such up-front disclosure of the full
commitments of the government. We have advocated that it is the best
way to ensure recognition of commitments embodied in budgeting
decisions and maintain government-wide fiscal control. When certain
costs are not fully recognized up-front, before funds are committed,
important information on full budgetary effects may not be considered
as trade-offs are made among competing priorities.
Mr. Miller. Termination liability is often cited by both CBO and
OMB as an obstacle to adopting long-term and/or multi-year procurement
contracts. Industry continues to tell the CBO and OMB that termination
liability can be mitigated through contract terms. What are your
thoughts on termination liability?
Mr. Francis. While it is true that termination liability can be
negotiated up front, it is also true that multiyear contracts can
entail higher costs if the contract is terminated. We have previously
observed that a good understanding of potential termination costs can
better position an agency to fulfill its mission. The amount of a
termination settlement reflects costs for which the contractor is
entitled to be reimbursed, including costs incurred in performance of
the contract to date, and is typically limited in multiyear procurement
contracts by a negotiated termination liability which places a ceiling
on these costs. As a further limitation, under certain circumstances
DOD procurement regulations provide for ``special termination costs''
clauses that may be used after negotiation and agreement with the
contractor.\2\ Multiyear contracts allow contractors to enter into
contracts for a period of up to five years so they can purchase more
than 1 year's worth of equipment or materials from their suppliers,
thus incurring costs sooner. We have reported that compared to a series
of annual contracts, this approach could result in cost savings when a
multiyear contract is completed. However, if the contract is
terminated, it may result in higher incurred costs and thus a higher
termination settlement.\3\ Termination liability is one factor to
consider when looking at the stability of a program's funding, a key
element in determining whether a multiyear contract should be awarded,
and should be considered an added risk that an otherwise stable,
realistically priced program can avoid. Immature, volatile programs and
those at risk of future changes should not be proposed as multiyear
candidates because such instability puts the savings attributed to
efficiencies of production and buying at risk.
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\2\ Defense Federal Acquisition Regulation Supplement, 48 C.F.R.
Sec. 249.501-70; 252.249-7000.
\3\ GAO, Defense Acquisitions: Termination Costs Are Generally Not
a Compelling Reason to Continue Programs or Contracts That Otherwise
Warrant Ending, GAO-08-379 (Washington, D.C.: Mar 14, 2008).
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______
QUESTIONS SUBMITTED BY MR. LANGEVIN
Mr. Langevin. Better Buying Power (BBP) 1 and 2 focused much
attention on training and processes, but absent from the discussion has
been a focus on equipping the workforce with time saving, modern,
analytical software.
Have acquisition support systems such as the contract
writing systems, cost estimating systems, auditing systems, and the
like kept pace with acquisition reform and evolution?
How could technology enable the acquisition workforce to
forecast, estimate, compete, award, and monitor requirements better?
Could there be a way to automate more of the acquisition
processes, particularly small contract changes like unilateral
modifications, and in doing so free up time to work more complex
acquisition issues?
Mr. Zakheim. While providing the types of software outlined in the
question certainly could help improve the efficiency of the workforce,
far more fundamental is the question of how the recommendations of both
versions of Better Buying Power will be implemented. The two documents
correctly identify the problems that best the acquisition system.
Better Buying Power 2.0, in particular, outlines an exhaustive list of
actions that must be taken to overcome those problems. Nevertheless,
with some notable exceptions--for example, presenting affordability
analyses to the Milestone Decision Authority; DAU incorporating
Performance Based Logistics assets into its curricula; limiting the
time for staff review of Acquisition Strategies and Decision
Memoranda--even the lengthier and more detailed implementation
memorandum for Better Buying Power 2.0 is full of words such as
``review,'' ``evaluate,'' ``determine'' and ``study.'' Directives that
incorporate such language invariably are either circumvented or ignored
by the bureaucracy. Acquiring expensive software or systems without
ensuring bureaucratic performance invariably results in underuse or
misuse of the software/systems. Only by basing bonuses, pay increases
and promotions on actual performance, and by mandating far more
stringent training requirements than are currently in force, will
bureaucratic performance be improved. And at that point, it will be
advantageous to acquire software/systems to further enhance that
performance.
Mr. Langevin. One area of focus in acquisition reform has been the
state of the acquisition workforce. Are there any international
examples of different approaches to acquisition workforce management
policies that have potential benefit for application in the U.S.?
Similarly, are there examples of international acquisition systems,
organizational structures and procurement processes that are structured
fundamentally differently than our own that could be adopted to the
benefit of our own defense acquisition system?
Mr. Zakheim. Because the American acquisition program and budget is
so much larger than its equivalent anywhere else, there are limits to
the lessons that might be learned from foreign acquisition systems.
Those that tend to function more effectively, such as the Israeli
system, involve fewer, and smaller, programs. What is noteworthy about
the Israeli system is the emphasis on having operators involved in all
aspects of a program's development. Matching requirements to
developmental performance is key to a successful program; the Vice
Chairman of the Joint Chiefs has begun to implement this process, but
it can be carried much further.
There are some lessons to be learned from the French system as
well. France has traditionally shared program management among the
chiefs of staff and the Director General for Armaments (DGA). Since the
late 1990s program teams have been organized in integrated, cross
disciplinary fashion. While French acquisition has suffered from many
of the same ailments as other nations, the system is far more tolerant
of multi-year acquisition programs than the United States. The DGA also
emphasizes harmonization of programs under a smaller number of
contracts, to improve contract management, and the greater use of pilot
programs. It may therefore be worth exploring whether these efforts
might be applied within the American context.
There may also be much to be gleaned from the DGA's human resource
management, education and training system. French engineers are
generally drawn from the country's top school, the Ecole Polytechnique,
where they earn the equivalent of a Master's degree. They will also
have had a year of military training. They also can obtain up to two
additional years of specialized engineering education at one one of
several advanced technical engineering schools, two of which are
managed by the DGA itself. Many also train in foreign laboratories or
earn doctorates. As a result, the leading career officials in the DGA
not only have the highest level of technical education that France
offers, but also military experience and, in many cases, foreign
experience as well.
The DGA has a more demanding system of continuing education than
its American counterpart. French continuing education includes a staff
course taken jointly by civil servants and defense company executives,
a 44 day course for program directors (compared to 80 hour requirements
for senior program managers in the DOD system), and a program for
confirmed managers in their tenth year of service.
The British acquisition system has suffered from cost overruns and
schedule delays for some time. In 2004 the Ministry of Defense issued a
series of ``smart acquisition'' guidelines (not dissimilar from the
DOD's ongoing Better Buying Power initiatives) to address these
challenges, but within a year a parliamentary committee found that cost
overruns and schedule delays persisted. Other attempts to improve the
process since then have also been unsuccessful. As a result, the
Ministry of Defense is considering the option of outsourcing the
management of its acquisition and support operations, a task that in
the United States is considered ``inherently governmental.'' The plan
is highly controversial in Britain and has come under attack from
former senior government officials such as Lord Peter Levene, who has
argued that it would more efficient to revamp the government's own
acquisition organization. The Royal United Services Institute, leading
British think tank, is also opposed to the plan. The MoD may
nevertheless proceed with an award of a one year pilot contract to one
of two bidders who would manage the $22 billion British program.
Clearly, outsourcing acquisition and support would obviate the need for
an acquisition workforce comparable to the one functioning in the MoD,
or for that matter, in the US DOD. I am dubious that the British
experiment, if undertaken, will succeed, however, nor, in the US
context, would it be useful to extend inherently governmental functions
to contractors. If anything, there should be greater scrutiny to ensure
that contractors do not cross over the line the demarcates those
activities that properly should only be carried out by the US
government.
Several European states have attempted to coordinate their
acquisition efforts. At one end of the spectrum, the Nordic nations--
Denmark, Sweden, Norway, Iceland and Finland established Nordic Defense
Cooperation (NORDEFCO) in 2009 to coordinate their defense
capabilities. The nations work jointly on acquisition and life cycle
support, delineating areas for cooperation. The states claim to have
saved several tens of millions of Euros, but their budgets and
acquisition programs are quite small, even when aggregated among them
all (Iceland does not even have a defense force). On the other hand,
France and Britain have repeatedly attempted to coordinate their
acquisition efforts, with at best moderate success. In 2010 the two
countries agreed to strengthen the UK-France High Level Working Group's
efforts in the areas of industrial and armaments cooperation, which, if
anything, was an indication of that Group's lack of success until that
time.
Mr. Langevin. One area of focus in acquisition reform has been the
state of the acquisition workforce. Are there any international
examples of different approaches to acquisition workforce management
policies that have potential benefit for application in the U.S.?
Similarly, are there examples of international acquisition systems,
organizational structures and procurement processes that are structured
fundamentally differently than our own that could be adopted to the
benefit of our own defense acquisition system?
Mr. Chao. The topic of lessons to be learned from acquisition
workforce practices of our international peers has been studied by
various think tanks, academics and FFRDCs over the last 10-15 years and
there are several good reports that are worth reading. The focus of the
studies has been mostly on our NATO allies and the larger, more
technologically sophisticated countries. The common cautionary note in
most of these studies is that no other country has an acquisition
system required to purchase the scope, scale and sophistication of the
U.S. It does not mean there are no lessons to be learned, simply that
the practices cannot be applied directly to the U.S. acquisition
system.
There are two key elements which stand out and are worthy of
consideration:
The first is that certain countries, such as France, have a
professionalized and independent acquisition work force. Unlike the
U.S. system where an acquisition assignment is one of many that can be
had during a military career, in the systems that have professional
acquisition corps, it becomes a permanent avocation. This is culturally
very different than the U.S. system and although the notion has been
raised in prior acquisition reform studies, it has not gained much
traction. The related topic, that is perhaps better suited for the U.S.
acquisition system, is how the Services treat their acquisition cadre--
in terms of promotion, flag officer billets, etc. If pursuing an
acquisition track is deemed to be negative to a career, then naturally
the best talent will stay away and it will impact the quality of the
acquisition system.
The second element that one finds in the U.K., French and other
allied acquisition workforces is a far greater exchange of
professionals between industry and the government/civil service/
military. This is achieved through military officer exchange programs
and civilians moving back and forth between industry and government
service throughout their careers. It creates a far better understand of
the industry, their capabilities and their motivations by the
government; and I would submit better ability to perform oversight. The
growing divide between industry and the acquisition system in the U.S.
is a dangerous trend--without fail former government acquisition
professionals who have joined industry say ``I wish I knew then what I
know now about industry and how it works'', and vice versa when members
of industry go into government service. Examining how these countries
enable that interchange, manage conflicts of interest and ethics issues
would be areas of fruitful examination.
Aside from these two key areas, there are a few other practices
also worth looking at. The Australian practice of charging programs a
cost of money creates some very interesting and healthier behaviors--it
places a premium on getting programs done quickly. Also countries that
truly implement total cost of ownership evaluation have a better
ability to analyze programs that require higher up front costs but save
money once in operation--our current system with the different colors
of money (procurement separate from O&M) makes this hard in the U.S.
system.
Mr. Langevin. One area of focus in acquisition reform has been the
state of the acquisition workforce. Are there any international
examples of different approaches to acquisition workforce management
policies that have potential benefit for application in the U.S.?
Similarly, are there examples of international acquisition systems,
organizational structures and procurement processes that are structured
fundamentally differently than our own that could be adopted to the
benefit of our own defense acquisition system?
Mr. Schwartz. A number of countries have undertaken efforts to
reform or improve their defense acquisition system, resulting in novel
and innovative approaches to acquisitions. Some analysts have suggested
that the United States can benefit from looking at the defense
acquisition practices of other countries.
1. Some analysts have suggested that DOD should emulate the
approach taken by such countries as England, France, Sweden, Australia,
Israel, and Germany, and create a centralized (joint) acquisition
organization. Some of these analysts argue that just as Goldwater-
Nichols created a `joint-ness' in the operational forces, it is time to
extend the principles of Goldwater-Nichols to the acquisition sphere
and create a joint acquisition organization. Such an approach was
outlined in HR 965, Independent Defense Procurement Corps Act of 1989
(the bill was not enacted into law).\1\
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\1\ Section 101 of the bill read as follows:
Congress finds the following:
(1) It is essential that Congress act to establish an independent
procurement system for the Department of Defense that will minimize
abuses and provide high quality, competitively priced, and effectively
designed defense products.
(2) The frequent movement of individuals from the private sector to
the Department of Defense, and from the Department of Defense to the
private sector, fosters real and perceived conflicts of interest in
defense acquisition.
(3) The parochial interests of each military department often lead
to duplication of effort and higher costs.
(4) There should be an independent, well-trained, and well-paid
team of professionals who have chosen the Independent Procurement Corps
as a stable career path and who represent the public interest and the
legitimate needs of the Department of Defense in all negotiations with
defense contractors in all matters related to the procurement of
property and services required by the Department of Defense, including
research, development, production, and management.
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Others have taken the opposite view, arguing that the military
services should be endowed with more acquisition authority, at the
expense of the Office of the Under Secretary of Defense for
Acquisition, Technology, and Logistics. This position is consistent
with those analysts and officials from other countries who are not
persuaded that a centralized acquisition organization is inherently
more efficient or effective.
Below is a list of selected countries that some analysts or
officials have suggested provide examples of approaches to defense
acquisitions that can be emulated by the Department of Defense.
Israel \2\
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\2\ Information provided to CRS by an official at the Embassy of
Israel in Washington D.C., December 12, 2013. Information also based on
discussions with Israeli officials throughout 2012.
The acquisition of goods and services for the Israeli military is
generally executed by the Ministry of Defense's Directorate of
Procurement and Production. The directorate is organized into five main
divisions:
2. Air
3. Land
4. Sea
5. Information and Telecommunication
6. Maintenance and Services.
Each of these divisions corresponds to and works closely with its
operational counterpart. Requirements are developed by the relevant
service, not by the Directorate of Procurement and Production. A
separate organization, the Directorate for Research and Development,
focuses on R&D programs and can set its own operational requirements.
Some analysts and officials have suggested that another positive
aspect of the Israeli requirements and acquisition process is that it
allows for more rapid development and fielding of systems than the MDAP
acquisition process in the United States.\3\
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\3\ One example is Israel's Iron Dome system, which was developed
and deployed within a timeframe that was faster than generally possible
in the current DOD acquisition process.
Sweden \4\
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\4\ Based on information and documentation provided to CRS by an
official of the Defense Materiel Administration, November 29, 2013
(unless otherwise cited). Documents available upon request.
The Defense Materiel Administration (FMV) is the centralized
organization that procures goods and services for the Swedish military.
Starting January 1, 2014, the FMV will be expanded to also provide
logistics. After January 1, the FMV will consist of six divisions:
7. Systems and Production
8. Logistics and Procurement
9. Storage, Service and Workshops
10. Tests and Evaluation
11. GRIPEN (Strategic Projects)
12. Commercial Operations.
Some analysts have suggested that the United States should emulate
the pay structure used by the FMV to attract and retain its acquisition
workforce. According to acquisition expert Ronald Fox, Sweden addresses
the challenge of
attracting and retaining senior people--military and civilian--
by a special law that allows an added salary increase for
crucial acquisition positions. Thus, a Swedish colonel serving
as a program manager can receive a significantly higher salary
than other colonels and even the director general of the
agency. This incentive provides prestige and draws highly
qualified, experienced people to senior acquisition
positions.\5\
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\5\ J. Ronald Fox, Defense Acquisition Reform 1960-2009: An Elusive
Goal (2011), p. 204.
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The same policy applies to all FMV personnel in the acquisition
workforce, including technical experts and project managers. Pay and
benefits, which are influenced by the complexity of the task and the
performance of the individual, are more flexible than DOD's GS (General
Scale) or uniform pay structures. According to the Swedish government
Pay determination shall be individual, differentiated and
adjusted to market conditions for all categories of personnel.
It is the responsibility of each manager to ensure that his/her
employees are evaluated and awarded based on performance . . .
. In the pay review the individual evaluation shall be based on
whether the employee has achieved the expected result and
fulfills the competency requirements for his/her position.\6\
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\6\ Documentation provided by the Defense Materiel Administration.
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A consequence of the pay system is that different positions have
different salary ranges within which an individual's pay is
determined.\7\
---------------------------------------------------------------------------
\7\ Based on email discussion with official from the Defense
Materiel Administration.
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France
In 1961, France became one of the first nations to consolidate all
defense acquisition under one bureau, the Direction Generale de
l'Armement (DGA-General Directorate for Armament), which is responsible
for virtually all aspects of weapon system development (including
exports). Some analysts have argued that the French approach to defense
acquisition can provide lessons in improved acquisition performance.
One report found that cost overruns in French weapon acquisitions
tend to be relatively minor in scope; on the order of 5-10
percent per weapons platform, versus an average overrun of 26
percent per platform in the United States.\8\
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\8\ Ethan B. Kapstein and Jean-Michel Oudot, ``Reforming Defense
Procurement: Lessons from France,'' De Gruyter Business and Politics,
vol. 11, no. 2 (August 2009). A policy brief written summarizing the
full abstract was written by the author and issued by the Center for a
New American Security. The policy brief can be found at http://
www.cnas.org/files/documents/publications/CNAS%20Policy%20Brief%20-
%20defense%20acquisition_1.pdf.
CRS has not determined the extent to which this comparative
analysis adjusts, as appropriate, for size, complexity, or
technological advances in weapon programs The report points out that
the methodology used by the Government Accountability Office to
determine `average' cost growth of 26%is unknown. As a result, the
authors ``look at both the arithmetic and geometric averages in our
account of the French case, and thus the spread in averages from 5-10
percent.''
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The report argues that three related factors are substantially
responsible for cost control:
13. hard budget constraints;
14. technical knowledge and experience of the acquisition
workforce, coupled with a more collaborative relationship between the
military department and industry; and
15. empowered program managers.
Another difference between the U.S. and French systems is the role
of the legislative branch. The French legislature is viewed as having
less authority in the budget process over individual weapon systems
than the U.S. Congress.
Australia \9\
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\9\ Based on discussions with officials from the Australian Senate
and the Embassy of Australia, December 2013, and documentation provided
to CRS December 13, 2013. Documents available upon request.
The Defense Materiel Agency (DMO), established in 2000, is the
centralized organization responsible for the acquisition of goods and
services for the Australian military. In 2012-2013, the DMO was
responsible for 40% of the Australian military's budget. According to
the Australian government, since the establishment of a centralized
acquisition organization:
On average, projects are delivered under budget (using 98% of
available funds).
Average schedule slips have decreased from 50% to 30% in 2007; the
number of projects delivered on time has doubled.
One unique feature of the DMO is that it provides independent cost,
schedule, and risk analysis to the military and civilian government,
providing independent analysis from those executing the acquisition
programs (the DMO does not weigh in on capability requirements).
According to government documentation,
DMO is responsible for delivering military equipment to the ADF
(Australian Defense Forces) according to the cost, schedule and
specifications agreed by the Government. To be properly held to
account for doing so, DMO needs to be able to provide
independent advice to Government on matters which it remits.
Another unique feature of the Australian system is the role of Gate
Review Boards. Gate Reviews are the rough equivalent to DOD milestones.
Gate Reviews are conducted by Gate Review Boards. Each board is made up
of
Senior DMO management;
DMO officials independent of the program in questions;
and
Independent non-DMO officials.
The board conducts in-depth analysis of the program, and the Chair
of the board provides guidance to the program manager and the senior
executive responsible for approving the program's readiness to advance
to the next acquisition phase. Australian officials have indicated that
this process has been very successful in improving the performance of
the acquisition process.
Challenges to Adopting Foreign Practices
While there may be lessons to be drawn from the acquisition
practices of other countries, it is worth noting the vast difference in
scale between DOD and the military establishments of other nations,
including the
1. comparative size of the defense acquisition workforce;
2. number of complex and challenging acquisitions undertaken by
DOD; and
3. significantly larger acquisition budget of DOD.
Put in context, DOD obligated more money on just contracts in
FY2012 ($360 billion) than the combined value of the five largest non-
U.S. total defense budgets in the world ($335 billion). Some policies
that appear effective in smaller acquisition organizations or in less
complex procurements may not prove to be as effective when pursued on
the scale of DOD.
Another challenge in adopting foreign practices is the difference
in the organizational structure of DOD compared to that of most other
countries. Title X of the U.S. Code endows the military services with a
substantial role in the acquisition process. This is in marked contrast
to the structure established in many other countries, including most
European countries, where there is a centralized defense acquisition
organization. Policies that work in a centralized acquisition
organization may not be transferable to or as effective in the military
service-oriented structure of the Department of Defense.
Mr. Langevin. Better Buying Power (BBP) 1 and 2 focused much
attention on training and processes, but absent from the discussion has
been a focus on equipping the workforce with time saving, modern,
analytical software.
Have acquisition support systems such as the contract
writing systems, cost estimating systems, auditing systems, and the
like kept pace with acquisition reform and evolution?
How could technology enable the acquisition workforce to
forecast, estimate, compete, award, and monitor requirements better?
Could there be a way to automate more of the acquisition
processes, particularly small contract changes like unilateral
modifications, and in doing so free up time to work more complex
acquisition issues?
Mr. Francis. Theoretically such systems could assist the
department, but, in DOD's past experience, such systems have proven
problematic. For example, in October 2011, the Under Secretary of
Defense for Acquisition, Technology, and Logistics noted that the
Standard Procurement System (SPS)--the department's contract writing
system that supports nearly 27,000 procurement professionals in issuing
solicitations, award contracts and modifications, approving payments,
and closing out contracts--was difficult to maintain and improve and
was technologically fragile. As a result, no new contracts, agreements
or orders are to be awarded through SPS after September 30, 2015, and
the use of the system is to cease two years later. As we noted in our
February 2013 high-risk update, DOD needs to ensure that these types of
business systems investments are managed with the kind of acquisition
management rigor and discipline that is embodied in relevant guidance
and best practices so that each investment will deliver expected
benefits and capabilities on time and within budget.\1\
---------------------------------------------------------------------------
\1\ High-Risk Series: An Update, GAO-13-283 (Washington, D.C.: Feb.
2013).
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GAO has not assessed specific technologies or software that could
enable the acquisition workforce to better execute or automate contract
management, but we have found means of achieving greater efficiency
that are not software related but could improve acquisition practices.
For example, one way that improved analytics and data can help DOD and
other federal agencies potentially save billions of dollars is through
the expanded use of strategic sourcing.\2\ Generally speaking,
strategic sourcing is a procurement process that seems to move an
organization away from numerous individual procurements to a broader
aggregate approach. The tools and techniques that come with strategic
sourcing enable organizations to:
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\2\ GAO, Strategic Sourcing: Improved and Expanded Use Could
Provide Significant Procurement Savings, GAO-13-765T (Washington, D.C.:
July 15, 2013).
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develop a better picture of what they are spending on
goods and services,
better understand cost drivers,
prioritize their requirements,
better manage suppliers,
take advantage of market trends, and
target savings.
Leading companies strategically manage 90 percent of their
procurement spending, and report savings of 10 percent or more of total
procurement costs. We have found, however, that federal agencies have
been slow to embrace this approach, even in a time of great fiscal
pressure, due in part to the lack of leadership commitment, expertise,
and data barriers among other factors. As a result, we found that while
DOD and the Departments of Homeland Security, Energy, and Veterans
Affairs accounted for 80 percent of the $537 billion in federal
procurement spending in fiscal year 2011, less than 5 percent of that
spending was managed through strategic sourcing efforts.
In addition, our audits of civilian agencies have found that
agencies did not always take full advantage of acquisition planning to
develop a strong foundation for the services contracts they awarded.\3\
In particular, GAO found that agencies faced challenges defining their
needs, documented cost estimates to varying degrees, and documented
lessons learned to a limited extent.
---------------------------------------------------------------------------
\3\ GAO, Acquisition Planning: Opportunities to Build Strong
Foundations for Better Services Contracts, GAO-11-672 (Washington,
D.C.: Aug. 9, 2011).
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Mr. Langevin. One area of focus in acquisition reform has been the
state of the acquisition workforce. Are there any international
examples of different approaches to acquisition workforce management
policies that have potential benefit for application in the U.S.?
Similarly, are there examples of international acquisition systems,
organizational structures and procurement processes that are structured
fundamentally differently than our own that could be adopted to the
benefit of our own defense acquisition system?
Mr. Francis. We have not recently assessed other countries'
acquisition workforce management policies, but our prior work found
that the experiences of other nations in developing their workforce
performance management systems as a whole could be instructive to U.S.
agencies considering reforms. For example, in 2002, we noted that
Australia, Canada, New Zealand, and the United Kingdom had begun to use
their performance management systems to help their governments achieve
results.\4\ To do so, these countries
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\4\ GAO, Results-Oriented Cultures: Insights for U.S. Agencies from
Other Countries' Performance Management Initiatives, GAO-02-862
(Washington, D.C.: Aug. 2, 2002).
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created a ``line of sight'' between individual and
organizational goals,
used competencies to provide a fuller assessment of
individual performance,
linked pay to individual and overall organizational
performance, and
fostered organization wide commitment to results-oriented
performance management.
While the performance management initiatives in these countries
reflected their specific organizational structures, cultures, and
priorities, we concluded that their experiences provided a useful point
of reference for U.S. agencies. In addition to the performance
management practices used by other countries, our prior work has
identified management practices that could help improve the capacity of
the federal acquisition workforce. They include robust workforce
planning, succession planning, and using practices that have shown to
boost employee morale and engagement.
Similarly, while we have not assessed other nations' acquisition
systems or procurement processes, we have participated in numerous
forums, conferences, and meetings with our fellow auditors from around
the world to compare experiences and exchange lessons learned.
Acquisition systems, organizational structures, and procurement
processes vary from country to country and may have similarities to or
differences from our own. While British and Australian defense
acquisition processes have a ``gated'' review processes similar to DOD,
for example, they use a more portfolio-oriented approach for program
execution. Regardless of acquisition structure or policy, however,
foreign audit entities report outcomes similar to those here at home.
For example, British and Australian audit agencies release an annual
report on the performance of their defense acquisition programs much as
we do. Those reports communicate the same kinds of cost and schedule
overruns and note similar reasons for overruns such as poor cost and
schedule estimating and a bias towards performance over cost when
tradeoffs are needed. It should also be noted that Britain, Australia,
and other countries procuring major defense systems do not tend to
engage in as many, or as costly and complex, development programs as
DOD.