Defense Acquisition Reimagined

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Try to imagine a blue-ribbon panel of technologists, policy experts, military officers, and business executives being asked to devise, from scratch, a resilient system for delivering to DoD what it needs, when it needs it, at the best value to the taxpayer.  

One thing is certain -- this panel would not come up with anything that remotely resembled the current defense acquisition system.

It’s no secret that DoD acquisitions often take much longer than planned and cost much more than they ought to. According to a recent GAO report, major defense acquisition programs have accumulated over $628 billion (or 54 percent) in total cost growth since program start.  Further, the time to deliver initial capabilities has increased by 30 percent (an average delay of over 2 years).  Sadly, we have become almost resigned to this dismal result. 

What is not widely appreciated is that this poor performance is largely the unintended consequence of decades of rules and regulations to ensure that the defense industry does not gouge the taxpayer.  Ironically, this good intention has hurt the taxpayer -- launching countless pages of statutes, regulations, executive orders, and instructions -- reflecting a culture that prizes compliance and risk avoidance.  Each successive step tends to be increasingly prescriptive and costly to implement.

The defense industrial base has also suffered.  As DoD has become a more difficult and less important customer, compared to commercial markets, more companies are diversifying their revenue streams away from defense.  Still, others choose not to compete for defense contracts due to burdensome and ever-changing regulations, low profitability, arcane auditing requirements, and funding instability. (See:  Vital Signs 2020: The Health and Readiness of the Defense Industrial Base; Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States

It would be great if we could just blow this all up and start afresh with our own blue ribbon panel, but that’s not in the cards.  However, what if we were to focus on the needs of the acquisition workforce and work our way outwards?  This would mean developing a top professional cadre and equipping them with the resources, authority, and proper incentives to do their job.  Here incentives become key.

This professional acquisition cadre should be given the authority to make tough trade-offs between cost, schedule, performance, and security without having to devote hours of slavish compliance with minute regulations on allowable cost.  Senior (and seasoned) acquisition professionals should be empowered to make such value trades -- not just for a particular acquisition, but also among a broad portfolio of systems within major missions.  They would also need considerably more budget flexibility.

Now let’s imagine providing this empowered acquisition workforce being allowed to negotiate prices that permitted competitive profit margins in defense R&D and manufacturing.  Acquisition professionals could make best-value decisions among a strong, diverse pool of competitors.

This is how we normally shop in everyday life.  We really don't care what it cost Apple or Samsung to make their smartphones or what profit they will make from them.  Ever ask either of those questions when you walked into a retail store?  Of course not.  You just select the device that gives you the best features for your needs at a price the market sets.

DoD could reap major benefits from a system in which competitive market forces and product value constitute the basis for a negotiated price:

  • It would encourage more entrants into the defense market, bringing increased competition, diversity, and technological innovation.
  • DoD could greatly reduce acquisition timelines and enjoy associated long-term cost reductions.  Time is money, and GAO found in 2015 that major acquisition programs were taking two years on average just to determine and document their requirements. p. 8
  • Higher profitability would encourage companies to invest more of their own funds on defense-related R&D. Without adequate profit inducement, companies other than defense “pure plays” will favor R&D investments in non-defense markets where the returns are higher.
  • Finally, increased margins will allow companies to absorb the major costs that DoD requires to increase resilience, such as through cyber protection and supply chain integrity.

There are some actions that DoD and Congress could take now to help inch towards acquisition reimagined. 

First, DoD should make maximum use of those commercial authorities that already exist.  This would mean the expanded use of OTAs and mid-tier acquisition authorities.  Also, the adoption of the House's Section 820 in the FY 2021 National Defense Authorization Act (NDAA) would help nudge DoD toward more commercial buying. 

Second, DoD and Congress should take a hard look at the massive collection of certifications, audit requirements, and documentation imposed on contractors, with an eye toward minimizing unnecessary requirements. For example, Congress should limit the requirement for certified cost data to situations where the government benefit clearly outweighs the contractor's burden.

Third, DoD should adopt commercial best practices for managing and auditing contractors. Both House and Senate versions of the FY 2021 NDAA (sections 804 and 845, respectively) would scrap DoD’s outdated approach to auditing contractors’ business systems in favor of those in line with “generally accepted auditing standards."  This should be the start of adopting more commercial style audits.

These steps would be helpful, but they are just a start to make real what we can easily reimagine.

Bryan Smith is a Senior Fellow at George Mason University’s National Security Institute.  He held senior career positions at OMB and in the Intelligence Community and served as a staff member of the House and Senate intelligence committees.

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