LETTER TO WILLIAM CASEY FROM DAVID PACKARD

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88G01332R000800990022-2
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 45
• Document Creation Date: December 27, 2016
• Document Release Date: December 9, 2011
• Sequence Number: 22
• Content Type: LETTER

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ROUTING AND RECORD SHEET
STAT
(OPt,onaij
"A Formula for Action" - A Report on Defense Acquisition
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PRESIDENT'S BLUE RIBBON COMMISSION
ON DEFENSE MANAGEMENT
14r N,, I Sr-j,
Nr In ns ll Cal-i
Pa,
The Honorable 'illiam Casey
Director, Central Intelligence
Washington, D. C. 20505
I am pleased to forward to vou the latest
report of the Commission, Formula for Action," - A
Report on Defense Acquisition, which ..as presented to
President Reagan today.
Sincerely,
i.
4Da~.'~~ackard
Enclosure
a/s
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The President established the Blue Ribbon Commission on Defense
\lanagetnent in part because public confidence in the effectiveness of the
defense acquisition system has been shaken by a spate of "horror
stories"-overpriced spare parts. test deficiencies, and cost and schedule
oycrrtnls. Unwelcome at anv time, such stories are particularly unsettling i~ hen
the Administration and Congress are seeking ways to deal with record budget
deficits. .1 major task of this Commission has been to evaluate the defense
acquisition system, to determine how it might be improved, and to recommend
changes that can lead to the acquisition of military equipment with equal or
greater performance but at lower cost and with less delay. For this purpose, the
Commission formed an Acquisition Task Force.`
We analyzed the horror stories, as others have done. but concluded that a
diagnosis based on recognized deficiencies could lead only to band-aid
treatments for a system more fundamentally ill. Therefore, our basic
methodology has been deliberately quite different.
We compared the defense acquisition system with other systems, both
government and commercial, that develop and produce equipment of
comparable complexity. in order to find success stories that could provide a
model on which reforms of the defense acquisition system could be based.
Defense acquisition represents the largest and, in our judgment, the most
important business enterprise in the world. It deserves to be managed with the
highest standards. We therefore conducted a "search for excellence" by
examining organizations that had been most successful in acquisition, in order
to find a model of excellence for defense acquisition.
The major recommendations developed by the Acquisition Task Force
were presented in our Interim Report of February 28, 1986. This, the
Commission's Report on Defense Acquisition. is intended to provide additional
detail and to assist in implementing the recommendations already made.
*The .cork of the Task Force was directed by William J. Perm. In addition to David
Packard. its members included Louis W. Cabot, Charles J. Pilliod. Jr.. R. James Woolsey. and
the late Ernest C. Arbuckle.
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~C. The Scope af the
Defense Ac"visition
System
D(tense acquisition is the largest business enterprise in the world. Annual
purchases by the Department of Defense (DoD) total almost S I T O
I,illi?n-more than the combined purchases of General Motors. EXXON. and
11))%1 combined. DoD's research and development (R&D) expenditures are
nm0)re than fifteen times those of France. Germany, or the United Kingdom.
and eighty times those of Japan. Defense acquisition involves almost 15 million
separate contract actions per year-or an average of 56,000 contract actions
every working day.
DoD makes only a small percentage of its equipment. It depends primarily
on the nation's industrial companies to develop its weapons and to
manufacture everything from belt buckles to aircraft carriers. In general, these
companies do not work solely on defense contracts. Most of the top 50 defense
contractors also engage in substantial commercial production. Boeing, for
example, supplies aircraft both to DoD and to commercial airlines. IBM
supplies computers for military and commercial applications. In this way, the
technological base developed for commercial products can be effectively
applied to military products, and vice versa. On the other hand, this dual
commercial-military product base greatly complicates DoD's task of regulating
and auditing the technical and financial performance of industry.
DoD employs more than 165,000 people, both civilian and military, to
manage this vast array of R&D, procurement, and logistics programs. Nearly
all of these people work for the Services, which directly manage these
programs subject to the oversight of a relatively small staff in the Office of the
Secretary of Defense (OSD). Further oversight is provided by the Executive
Office of the President, including the Office of Management and Budget,
particularly in connection with the President's defense budget. And the
Congress, in exercising its constitutional responsibility to provide for our
Armed Forces, authorizes and appropriates funds for each of more than 2,600
specified procurement and R&D line items, and plays a major role in
overseeing acquisition programs.
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A responsible analysis of problems in the defense acquisition system Must
take into account the complexity and scope of acquisition programs. A
responsible prescription for change must address the actions of everyone
who-for better or worse-can influence these programs, from defense
contractors and program managers to OSD officials and Members of Congress.
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Fr c b I e m s i t h I'i e
Fresent Acquisition
System
~lI of our analysis leads us unequivocally to the conclusion that the defense
acquisition system has basic problems that must he corrected. These
problems are deeply entrenched and have developed o\ er several decades
from an increasingly bureaucratic and overregulated process. As a result, all
too many of our weapon systems cost too much, take too long to develop, and,
by the time they are fielded, incorporate obsolete technology.
Recent public attention has focused on cases of spare parts overpricing
that have been prominently reported by the media. Many of these cases were
uncovered by DoD itself, which has a major effort underway to detect spare
parts overpricing and to minimize such problems in the future. By contrast, we
have focused on the acquisition of major weapon systems, because improved
efficiency there can lead to cost savings greater by orders of magnitude. We
nonetheless also analyzed the spare parts cases to determine whether they are
indicative of systemic problems and, if so, how these should be addressed.
Although each of the cases we examined had its own peculiarities, we
identified a number of problems that frequently recurred: for example,
government insistence on rigid custom specifications for products, despite the
commercial availability of adequate alternative items costing much less: the
ordering of spare parts so late in a program, after the close of the production
line, that they must be expensively hand tooled: the use of unsuitable cost
allocation procedures that grossly distort the price tags of inexpensive spare
parts: the buying of spare parts in uneconomically small quantities and hence
at higher prices: and the simple exercise of poor judgment by acquisition
personnel.
In general. we discovered, these problems were seldom the result of fraud
or dishonesty. Rather they were symptomatic of other underlying problems
that affect the entire acquisition system. Ironically, actions being prescribed in
law and regulation to correct spare parts procurement tend to exacerbate these
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underlying problems hv making acquisition procedures even more inflexible
and by removing whatever motivation exists for the exercise of individual
judgment. This Report will concentrate on ways of improving the efficiency of
the overall acquisition system. Removing bureaucratic inefficiencies in our
acquisition of' major weapon systems also will realize significant improvements
in our procurement of associated spare parts.
Problems with the present defense acquisition system begin with the
establishment of approved "military requirements" for a new weapon, a step
that occurs before development starts. Two common methods exist for
establishing the need for a new system-"user pull" and "technology push."
Both methods are unsatisfactory.
User pull defines the institutional process by which users (notably the
Services) assess the adequacy of existing weapons to meet military needs, and
state the characteristics of the next generation of equipment desired to
overcome identified inadequacies. In general, this process does not adequately
involve participants with a sophisticated knowledge of the cost and schedule
implications of technical improvements required to satisfy these characteristics.
Consequently, user pull often leads to goldplating-that is. the inclusion of
features that are desirable but whose cost far exceeds their real value. If users
understood the likely impact of their requirements on the schedule, quantity,
and maintainability of the weapons they eventually received, they would have
strong motivation for compromise. Generally, however, that compromise-a
conscious trade-off between performance and cost-does not take place to an
adequate degree. Implicitly, it is assumed that military requirements should be
pure." and that any necessary trade-offs will take place later in the process.
Alternatively, requirements often are established by technology push. .-k
government or industry team conceives of a new or advanced technology. It
then tries to persuade users to state requirements that will exploit the new
technology. Most of the really significant improvements in military
technology-radar, jet engines, and the atomic bomb, for example-have
occurred by technology push rather than by an abstract statement of
requirements. Because participants in this process tend to push technology for
its own sake, however, this method is no less prone to result in goldplating than
user pull.
Once military requirements are defined, the next step is to assemble a
small team whose job is to define a weapon system to meet these requirements,
and "market" the system within the government, in order to get funding
authorized for its development. Such marketing takes place in a highly
competitive environment, which is desirable because we want only the best
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ideas to survive and be funded. It is quite clear, however, that this competitive
environment for program approval does riot encourage realistic estimates of
cost and schedule. So. all too often. when a program finally receives budget
apprmal. it embodies not only overstated requirements but also understated
Costs.
Funding having been approved. the DoD program team is then enlarged
allcf given the task of preparing detailed specifications. Weapon system
specifications fora major program typically run to thousands of pages, not
counting generic military specifications included by reference. System
specifications effectively become a surrogate for overstated military
requirements, which tend to fade from view.
DoD then invites industry to hid on the program. The overly detailed
system specifications serve as a basis for defense contractors to prepare
competitive proposals describing how they Would meet the specifications, and
at what cost to them and price to the government. The preparation of
competitive proposals may very well expose technical problems with the
specifications, or reveal modifications that would be cost effective. The
environment in which program competition typically takes place, however,
encourages improvements within specifications, but discourages modifications
that deviate from specifications. This effectively forecloses one principal
factor-trade-offs between performance and cost-on which the competition
should he based. The resulting competition, based instead principally on cost,
all too often goes to the contractor whose bid is the most optimistic.
In underbidding, contractors assume there will be an opportunity later in
a program to negotiate performance trade-offs that make a low bid achievable,
or to recover understated costs through engineering change orders. Today,
however, most production and many development contracts are negotiated on
a firm, fixed-price basis. For the government, the advantages of a fixed-price
arrangement. particularly the incentives it creates for realistic bidding, are
obvious. The disadvantages to the government, while more subtle, are
nevertheless of real concern. Fixed-price contracts effectively can enshrine
overstated requirements and understated costs in a legal arrangement that
allows little or no flexibility for needed trade-offs between cost and
performance. This contractual arrangement, intended to protect the
government, may cause both sides to lose.
In the face of these daunting problems, DoD selects a successful bidder
and launches the program. The DoD program manager sets out to accomplish
the improbable task of managing his overspecified and underfunded program
to a successful conclusion.
But What was merely improbable soon becomes impossible. The program
manager finds that, far from being the manager of the program, he is merely
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one of' the participants who can influence it.An army of advocates for special
interests descends oil the program to ensure that it complies with various
standards for military specifications. reliability. maintainability. operability,
small and minority business utilization, and competition, to name a few. Each
of these advocates can demand that the program manager take or refrain from
taking some action, but none of' them has any responsibilit% for the ultimate
cost. schedule, or performance of' the program.
None of' the purposes they advocate is undesirable in itself. In the
aggregate, however. they leave the program manager no room to balance their
many demands, some of which are in conflict with each other, and most of
Which are in conflict with the program's cost and schedule objectives. Even
more importantly. they produce a diffusion of management responsibility, in
Which everyone is responsible, and no one is responsible.
Meanwhile. throughout this process, various committees of Congress are
involved. During the marketing phase, it is not enough for the program
manager to sell the program to his Service leaders and the various staffs in the
Office of the Secretary of Defense. He also must sell the program to at least
four committees and to numerous subcommittees of Congress, and then resell
it for each fiscal year it is considered. In so doing, the program manager is
either assisted or opposed by a variety of contractors, each advocating its own
views of the program on Capitol Hill. While congressmen have an abstract
interest in greater program effectiveness. they also have an intense pragmatic
interest in their own constituencies. These two interests are frequently in
conflict, as they exert pressure on specific programs through legislative
oversight.
All of these pressures. both internal and external to DoD, cause the
program manager to spend most of his time briefing his program. In effect. he
is reduced to being a supplicant for, rather than a manager of, his program.
The resulting huckster psychology does not condition the program manager to
search for possible inconsistencies between performance and schedule, on the
one hand, and authorized funding, on the other. Predictably, there is a high
incidence of cost overruns on major weapon systems programs.
But a much more serious result of this management environment is an
unreasonably long acquisition cycle-ten to fifteen years for our major weapon
systems. This is a central problem from which most other acquisition problems
stem:
? It leads to unnecessarily high costs of development. Time is money, and
experience argues that a ten-year acquisition cycle is clearly more expensive
than a five-year cycle.
? It leads to obsolete technology in our fielded equipment. We forfeit our
five-year technological lead by the time it takes us to get our technology from
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the laboratory into the field.
? And it aggravates the very goldplating that is one of' its causes. Users,
knowing that the equipment to meet their requirements is fifteen years away,
make extremely conservative threat estimates. Because long-term forecasts are
uncertain at best, users tend to err on the side of' overstating the threat.
This description of the acquisition system is stark, but it by no means
exaggerates the environment of many, if not most, defense programs. Given
this pernicious set of underlying problems, it is a tribute to the dedication of
many professionals in the system, both III and out of DoI). that more programs
do not end up in serious trouble.
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ALL Acquisition Mtode
to Emulate
Problems attendant to defense acquisition are not new, nor are such
problems unique to DoD. Rather, they are typical of the way in which large
bureaucracies, particularly government bureaucracies, manage large, complex
projects. With this in mind, we compared how other large institutions have
managed programs of similar complexity-that multi-year, multi billion
dollar programs incorporating state-of-the-art technology.
Two recent efforts have been made to draw such a comparison (see
Appendix A). Notably, average cost growth in major defense programs has
been found to be less than that experienced by many comparable civil
programs, including highway projects. water projects, public buildings, and
large processing plants. The good news from these studies is that DoD is no
worse than other large bureaucratic organizations in managing major
programs.
This leaves unanswered, however. what level of excellence can be achieved
in defense programs. To answer this question, a landmark study was
undertaken by the Defense Science Board (DSB) last year. The DSB compared
typical DoD development programs with successful programs from private
industry. It used as case studies the development of the IBM 360 computer.
the Boeing 767 transport. the AT&T telephone switch, and the Hughes
communication satellite. Each of these programs compares in complexity and
size to a major weapon system development, yet each took only about half as
long to develop and cost concomitantly less. These commercial programs
clearly represent the models of excellence we are seeking, but it is not obvious
that DoD, or any large bureaucratic organization, can follow successfully the
management procedures used in private industry.
To address that question, the Acquisition Task Force examined several
DoD programs that were developed under special streamlined procedures-
the Polaris missile, the Minuteman missile, the air-launched cruise missile
(ALCM), and several highly classified projects. We found that, in these
programs, DoD achieved the accelerated schedules of the successful
commercial programs.
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It is clear that major savings are possible in the development of weapon
systems if DoD broadly emulates the acquisition procedures used in
outstanding commercial programs. In a few programs, DoD has demonstrated
that this can be (lone. The challenge is to extend the correct management
techniques to all major defense acquisitions. and more widely realize the
attendant benefits in schedule and costs.
To this end, we analyzed a number of' successful programs to identify
management features that they had in common, and that could be
incorporated in the defense acquisition system. We identified six underlying_
features that typified the most successful commercial programs:
1. Clear command channels..- commercial program manager has clear
responsibility for his program, and a short, unambiguous chain of command to
his chief executive officer ("CEO), group general manager. or some comparable
decision-maker. Corporate interest groups, wishing to influence program
actions, must persuade the responsible program manager, who may accept or-
reject their proposals. Major unresolved issues are referred to the CEO. who
has the clear authority to resolve any conflicts.
2. Stability. At the outset of a commercial program. a program manager
enters into a fundamental agreement or "contract" with his CEO on specifics of
performance, schedule, and cost. So long as a program manager lives by this
contract, his CEO provides strong management support throughout the life of
the program. This gives a program manager Maximum incentive to make
realistic estimates, and maximum support in achieving them. In turn, a CEO
does not authorize full-scale development for a program until his board of
directors is solidly behind it, prepared to fund the program fully and let the
CEO run it within the agreed-to funding.
3. Limited reporting requirements. A commercial program manager reports
only to his CEO. Typically, he does so on a "management-bv-exception" basis.
focusing on deviations from plan.
4. Small, high-quality staffs. Generally, commercial program management
staffs are Much smaller than in typical defense programs. but personnel are
hand-selected by the program manager and are of very high quality. Program
staff spend their time managing the program, not selling it or defending it.
5. Communications with users. A commercial program manager establishes
a gue With the customer, or user, at the conception of the program when
the initial trade-offs are made. and maintains that communication throughout
the program. Generally, when developmental problems arise, performance
trade-offs are mnade-with the user's concurrence-in order to protect cost and
schedule. As a result, a program manager is Motivated to seek out and address
problems, rather than hide them.
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6. Prototyping and testing. In commercial programs. a system (or critical
subsystem) involving unproven technology is realized in prototype hardware
and tested under simulated operational conditions before final design approval
or authorization for production. In many cases, a program manager establishes
a "red team." or devil's advocate, within the program office to seek out
pitfalls-particularly those that night arise from operational problems, or from
an uneypectc I respOnse by a competitor. Prototypin-,, early operational
testing, and red teaming are used in concert for the timely identification and
correction of problems unforeseen at a program's start.
It is clear from our earlier description that defense acquisition typically
differs fraud this commercial model in almost every respect. Yet a number of
successful DoD programs have incorporated some or all of these management
features to a greater or lesser degree. We therefore concentrated our efforts
on deriving a formula for action-steps by which defense acquisition can come
to emulate this model to the maximum extent practical.
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%,/* A Formula for Act-ion
Thile we would model defense acquisition after the practices of the best
itr(lustri:tl companies. %%e recognize the unique 1prohients Dot) faces.
Management of the acquisition of military equipment requires a unique blend
of flexibility and judgment. The contributions of innovative scientists and
engineers. necessary for equipment to achieve maximum performance. Must be
matched bN those of military personnel who will use and maintain the
equipment. Overlaying these complexities is the need for an informed trade-
off between quantity and quality. At some point, more weapons of* lower
performance can overcome fewer weapons of higher performance. Hence it is
necessary to achieve a critical balance between high military capability and low
life cycle cost. In these and other respects. defense acquisition is one of' the
most difficult management jobs.
Despite the difficulties, we believe it is possible to make major
improvements in defense acquisition by emulating the model of the most
successful industrial companies. Surely this will not he easy, because present
procedures are deeply entrenched. Acquisition problems have been With us for
several decades, and are becoming more intractable with the growing
adversarial relationship between government and the defense industry, and
the increasing tendency of Congress to legislate management solutions. In
frustration, many have come to accept the ten-to-fifteen-year acquisition cycle
as normal, or even inevitable.
We believe that it is possible to cut this cycle in half. This will require
radical reform of acquisition organization and procedures. It will require
concerted action by the Executive Branch and Congress. and the full support
of defense industry. Specifically, we recommend that the Administration and
Congress join forces to implement the following changes in the defense
acquisition system.
A. Streamline Acquisition Organization and
Procedures
As we noted in our Interim Report, federal law governing acquisition has
become steadily more complex. the acquisition system more bureaucratic, and
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acquisition management more encumbered and unproductive. In the absence
of' a single. senior DoD official working full time to supervise the overall
acquisition system, policy responsibility has become fragmented. As a result.
the Services have tended to assume policy responsibilities and to exercise there
at times without necessary coordination or uniformity. Worse still, authority for
executing acquisition programs-and accountability for their results-has
become vastly diluted.
For these reasons, it is fundamental that we establish unambiguous
authority for overall acquisition policy, clear accountability for acquisition
execution, and plain lines of command for those with program management
responsibilities. It is also imperative that we streamline acquisition procedures.
This can be facilitated by five related actions:
1. We strongly recommend creation by statute of the new position of
Under Secretary of Defense (Acquisition) and authorization of an additional
Level II appointment in the Office of the Secretary of Defense (OSD).
This new U itder Secretary should have full-time responsibility for
managing the defense acquisition system. He should be a Level II Presidential
appointee and should have a solid industrial background in the management
of complex technical programs. The new Under Secretary should be the
Defense Acquisition Executive. As such, he should supervise the performance
of the entire acquisition system and set overall policy for R&D, procurement,
logistics, and testing. He should have the responsibility to determine that new
programs are thoroughly researched, that military requirements are verified,
and that realistic cost estimates are made before the start of full-scale
development. (In general, we believe. cost estimates should include the cost of
operating and maintaining a system through its life.) He should assure that an
appropriate type of procurement is employed, and that adequate operational
testing is done before the start of high-rate production. He also should be
responsible for determining the continuing adequacy of the defense industrial
base.
Appendix B sets outs an illustrative reorganization of acquisition
responsibilities within OSD. Reporting to the new Under Secretary should be a
Director of Research and Engineering*; an Assistant Secretary of Defense for
Production and Logistics`: the Assistant Secretary of Defense for Command.
Control, Communications, and Intelligence; the Director of Operational Test
and Evaluation: and such other offices and agencies as the Secretary of
Defense may designate. The Under Secretary should be responsible to the
'We use these ne%N titles to represent a reorganization of acquisition responsibilities for
officials reporting to the new Under Secretary.
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Secretary of Defense for balancing the sometimes conflicting views and
interests of these various offices. He should establish overall acquisition policy,
as Well as contract audit policy: should promulgate and issue appropriate
directives and regulations: and, except for criminal investigations. Should
supervise oversight of defense contractors. Finally, he should prepare annual
and other reports to Congress on major issues of acquisition policy and on
a((IU1511ion pro rani .
2. The Army, Navy, and Air Force should each establish a comparable
senior position filled by a top-level civilian Presidential appointee.
The Commission considered recommendations to consolidate all defense
acquisition activities under the Defense Acquisition Executive, but concluded
that such centralization would not serve the cause of reducing the bureaucracy.
because it would tend to separate further the acquisition staff from the military
user. We believe that it is important to maintain the Services' traditional role in
managing new weapon programs.
Accordingly, we recommend that each of the Military Departments
establish a Service Acquisition Executive selected by the Service Secretary in
consultation with the Defense Acquisition Executive. The Service Acquisition
Executive should be a top-level civilian Presidential appointee, of rank
equivalent to a Service Under Secretary. He should be responsible for
administering Service acquisition programs under policy guidance from the
Defense Acquisition Executive: accordingly, he should have substantial
experience in acquisition and should devote full time to his acquisition
responsibilities. For major programs, the Defense Acquisition Executive and
his Service counterpart should function respectively like chief executive
officers of a corporation and a principal corporate subsidiary. They should
resolve major issues and conflicts as they arise, and represent programs before
most senior decision-makers (here, the Secretary of Defense, the President, and
Congress, rather than a board of directors).
3. Each Service Acquisition Executive should appoint a number of
Program Executive Officers.
Each Service Acquisition Executive should appoint a number of Program
Executive Officers (PEO) who, like group general managers in industry, should
be responsible for a reasonable and defined number of acquisition programs.
Program managers for these programs should be responsible directly to their
respective PEO and, on program matters, report onl\v to him. The Defense
Acquisition Executive should insure that no additional layers are inserted into
this program chain of command.
4. By this means, DoD should substantially reduce the number of
acquisition personnel.
Establishing these short, unambiguous lines of authority will streamline the
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acquisition process and cut through bureaucratic red tape. This should allow
for a substantial reduction in the total number of personnel in the defense
acquisition system, to levels that more nearly compare with commercial
acquisition counterparts.
5. Federal laws governing procurement should be recodified into a
single, greatly simplified statute applicable government-wide.
A streamlined organization for defense acquisition is not enough. It Must
be matched by streamlined procedures. Over the years, Congress and DoD
have tried to dictate management improvements in the form of ever more
detailed and extensive laws or regulations. As a result, the legal regime for
defense acquisition is today impossibly cumbersome. For example, we have
identified 394 different regulatory requirements in the Federal Acquisition
Regulation (FAR) and the DoD FAR Supplement that are pegged to some 62
different dollar thresholds, ranging from as little as S15 to as much as S 100
million or more. In our judgment, there can be far fewer of these
requirements. and those that are retained can apply at far fewer dollar
thresholds.
The sheer weight of such requirements often makes well-conceived reform
efforts unavailing. At operating levels within DoD, it is now virtually impossible
to assimilate new, legislative or regulatory refinements promptly or effectively.
For these reasons. we recommend that Congress work with the Administration
to recodifv federal laws governing procurement in a single, consistent, and
greatly simplified procurement statute.
B. Use 'Technology to Reduce Cost
We recommend a high priority on building and testing prototype
systems to demonstrate that new technology can substantially improve
military capability, and to provide a basis for realistic cost estimates prior to
a full-scale development decision. Operational testing should begin early in
advanced development, using prototype hardware. The early phase of R&D
should employ extensive informal competition and use streamlined
procurement processes. To promote innovation, the Defense Advanced
Research Projects Agency should engage in prototyping and other advanced
development work on joint programs and in areas not adequately emphasized
by the Services.
Fully exploiting our technological leadership is critical to the national
security. The Soviet Union has twice as many personnel in its armed forces,
and produces military equipment in far greater quantities than the United
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States. We depend on our technological advantage to offset this quantitative
disadvantage. But our technology can be exploited in two quite dif'f'erent ways:
to reduce cost (so that we can better compete in quantity), or to increase
performance (so that we can compensate for our smaller quantity).
We believe that DOD should place a much greater emphasis on using
technology to reduce cost-both directly by reducing unit acquisition cost and
indirectly by improving the reliability, operability, and maintainability of'
inilitarv equipment. (d)st reduction has been a pI'lillal y n otivatlt)I1 111 the
introduction of new technology to commercial products. 11115 emphasis has led
to a tenfold reduction in the cost of computer products during the past decade.
DOD should give a similar high priority to cost reductions by exerting greater
discipline in the setting of performance requirements for new platforms, and
by increasing the use of technology to extend the life of existing platforms. We
could. for example. extend the effective life of Most of our existing aircraft ten
to twenty years by replacing their electromechanical subsystems with modern
microelectronics. This would reduce the cost of operating, and maintaining our
aircraft, and at the same time improve their performance.
III some of our new weapon systems-fighter aircraft. for example-the
need for maximum performance will be sufficiently compelling to justify the
introduction of state-of-the-art technology. But this is not the case for all new
systems.. weapon system should be predicated on state-of-the-art technology
only when the benefits of the new technology offset the concomitant risks. This
principle, easy to state, is hard to apply because of the difficulty in getting
reliable information with which to make the trade-off of risks and benefits.
The only consistently reliable means of getting such information is by
building prototypes that embody the new technology. Accordingly, we
recommend that such prototyping, either at the system or critical subsystem
level, be done as a matter of course for all major weapon systems. Operational
tests should be combined with developmental tests of the prototype to uncover
operational as well as technical deficiencies before a decision is made to
proceed with full-scale development.
The early phase of R&D should follow procedures quite different from
those of approved production programs, in order to complete the entire
prototyping cycle in two or three years. Contracting should be streamlined to
speed up the process of evaluating diverse new ideas. In the advanced
technology phase of a program, competition should play a critical role, but the
emphasis should be on an informal competition of ideas and technologies,
rather than a formal competition of cost. At this stage. a formal competition
based on detailed specifications not only is ineffective, but also introduces
substantial delay. In fact, recent emphasis on cost competition has stretched out
the time required to let some R&D contracts from a few months to as much as
a year.
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In general, prototvping and testing in the early stage of' R&D should be
done by the Service that Would be the primary user of the resulting system. In
order to promote the use of prototyping. however. we recommend expanding
the role of the Defense Advanced Research Projects Agency (DARPA).
At present. DARPA conducts research and exploratory development in
high-risk, high-payof'f' technologies. DARPA should have the additional
mission of stimulating a greater emphasis on prototvping in defense systems. It
should do this by actually conducting prototype projects that embody
technology that might he incorporated in joint programs, or in selected Service
programs. On request. it also should assist the Services in their own
prototvpin(,T programs. The common objective of all of these prototvping
programs should be to determine to what extent a given new technology can
improve military capability, and to provide a basis for making realistic cost
estimates prior to a decision on full-scale development. In short, the prototype
program should allow us to fly-and know how much it ?.v ill cost-before we
buy.
C. Balance Cost and Performance
A restructured joint Requirements and Management Board (JRMB),
cochaired by the Under Secretary of Defense (Acquisition) and the Vice
Chairman of the joint Chiefs of Staff, should play an active and important
role in all joint programs and in all major Service programs. The JRMB
should define weapon requirements for development, and provide thereby an
early trade-off between cost and performance.
Full-scale development of a new weapon system is the single most critical
step in the acquisition process. At this point, a number of fundamental
decisions must be made-whether to undertake a new development or adapt
an existing system, how far to push the new technology being incorporated in
the system, what cost and schedule to authorize, and what the management
structure will be. Misjudgment about any of these items can start a program off
on a course that dooms it to failure. Currently, this critical decision is made by
the Secretary of Defense, acting on advice from the Defense Systems
Acquisition Review Council (DSARC), after the DSARC has made a detailed
review of whether the proposed system will meet the stated user requirements
and whether the cost and schedule estimates are credible. The recommended
new emphasis on prototvping will contribute materially to improving the
judgments about cost and schedule estimates. But the DSARC process, while
adequate to determine whether the proposed specifications will meet the stated
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user requirements, lacks a viable mechanism for dial/o'n in& those requirements.
Fundamental to the ultimate success of a new program is an informed
trade-off bet%%een user requirements, on the one hand, and schedule and cost.
on the other. A delicate balance is required in formulating system specifications
that allow for a real advance in military capability but avoid goldplating.
Generally, users cfo not have sufficient technical knowledge and program
experience. and acquisition teams do not have sufficient experience With or
insight into operational problems, to strike this critical balance. It requires a
blend of diverse backgrounds and perspectives that, because the pressures for
goldplating can be so great, must be achieved at a very high level in DoD.
The DSARC is not the proper forum for effecting this balance. It has had
very little success, for example, in stimulating the use of nondevelop-nental
items as an alternative to developing unique military products. Any time the
military needs new trucks, tractors, radios. computers. and transport aircraft,
for example, it should be the rule rather than the exception that DoI) adapts
products already developed by industry or by the armed forces of an allied
nation. Much greater reliance on such items could realize major savings of
money and time, but experience indicates that a decision to use non-
developmental items must come from a high level in DoD, and must reflect
operational judgment as well as technical sophistication.
We recommend, therefore, that the JRMMB be restructured to make such
trade-offs and then to decide whether to initiate full-scale development. The
JRMIB should have this authority for all joint programs and appropriate
Service programs. It should evaluate major trade-offs proposed as a program
progresses. Its determination, in effect, should substitute for the decision now
made by the DSARC at what is called Milestone II. The JRMB should be
cochaired by the Under Secretary of Defense (Acquisition) and the Vice
Chairman of the Joint Chiefs of Staff.
Thus, the JRMB should be responsible for two decisions commonly made
in industry, but not now an explicit part of DoD's decision-making process.
One of these is the "affordability" decision, and the other is the "make-or-buy"
decision.
The affordability decision requires that a subjective judgment be made on
how much a new military capability is worth. If a new weapon system can be
developed and produced at that target cost, it may be authorized for
development: otherwise, ways should be found to extend the life of the
existing system. Determining a target cost is difficult, to be sure, but CEOs in
industry must make comparably difficult decisions on which their companies'
survival depends.
The make-or-buy decision requires that the JRMMB assess the need for a
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unique development program, and determine if it is possible instead to buy or
adapt an existing commercial or military systern.At present, DoD passes up
many valid opportunities for adapting existing systems. opportunities that
could improve military capability more quickly and at reduced cost.
D. Stabilize Programs
Program stability must be enhanced in two fundamental ways. First, DoD
should fully institutionalize "baselining" for major weapon systems at the
initiation of full-scale engineering development. Second, DoD and Congress
should expand the use of multi-year procurement for high-priority systems.
In connection with the decision to begin full-scale development of a major
new program. the program manager should prepare a brief baseline
agreement describing functional specifications, cost, schedule. and other
factors critical to the program's success. This baseline agreement should be
submitted, through the responsible Program Executive Officer and the Service
Acquisition Executive. for approval by the Defense Acquisition Executive.
Within the terms of this agreement. the program manager should have
full authority to execute the program. He should be fully committed to abide
by the program's specified baseline and, so long as he does so. the Defense and
Service Acquisition Executives should support his program and permit him to
manage it. This arrangement would provide much-needed program stability,
which could he enhanced significantly if the program were approved for multi-
year funding. We recommend that Congress approve multi-year funding for
the development and low-rate production of all major programs approved for
full-scale development by the JRMB. In this way, Congress could join in the
baseline agreement with the program manager, enhance program stability, and
promote lower unit prices.
A program manager should agree to a baseline for all phases of his
program. For the Acquisition Executives, however, the agreement should
extend only to the first two phases of a program, full-scale development and
low-rate production. Before a program could enter its third phase, high-rate
production. it must be subjected to developmental and operational testing.
Operational tests are particularly critical, and should continue through full-
scale development. The first units that come off a low-rate production line
should be subjected to intensive operational testing. Low-rate production
should continue during testing, but a program should not be approved for
high-rate production until the results of these tests are evaluated.
The JRMMB should then reconsider the program at its second major
milestone-whether to authorize high-rate production, at what level of
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funding, and on what schedule. At this stage, available test results should
provide a realistic portrait of the weapon's probable performance under
operational conditions, current intelligence data should yield a realistic threat
estimate, and low-rate production experience should provide a realistic
estimate of production costs. Thus, the JRMB would possess the necessary data
to make an informed judgment on high-rate production.
If the JR\1B so determines, a program manager could proceed in
accorda-lce with the balance of his baseline agreement. Congress would be
asked to authorize multi-year funding for the production phase of the
program.
E. Expand the Use of Commercial Products
Rather than relying on excessively rigid military specifications, DoD
should make greater use of components, systems, and services available "off-
the-shelf." It should develop new or custom-made items only when it has
been established that those readily available are clearly inadequate to meet
military requirements.
No matter how DoD improves its organization or procedures, the defense
acquisition system is unlikely to manufacture products as cheaply as the
commercial marketplace. DoD cannot duplicate the economies of scale possible
in products serving a mass market, nor the power of the free market system to
select and perpetuate the most innovative and efficient producers. Products
developed uniquely for military use and to military specifications generally cost
substantially more than their commercial counterparts. DoD program
managers accordingly should make maximum use of commercial products and
devices in their programs.
A case in point is the integrated circuit or microchip-an electronic device
used pervasively in military equipment today. This year DoD will buy almost S2
billion worth of microchips, most of them manufactured to military
specifications. The unit cost of a military microchip typically is three to ten
times that of its commercial counterpart. This is a result of the extensive testing
and documentation DoD requires and of smaller production runs. (DoD buys
less than ten percent of the microchips made in the U.S.) Moreover, the
process of procuring microchips made to military specifications involves
substantial delay. As a consequence, military microchips typically lag a
generation (three to five years) behind commercial microchips.
When military specifications for microchips were first established, they
assured a high standard of quality and reliability that was worth a premium
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price. The need for quality and reliability in military equipment is as great as
ever. In the last few years. however, industrial consumers of microchips have
come to demand equivalent standards, and manufacturing processes and
statistical methods of' quality control have been greatly improved. It is now
possible for DoD program managers to buy the bulk of their microchips from
commercial lines with adequate quality and reliability, and thus to get the latest
technology at a substantially lower cost. The Electronic Systems Division.
responsible in the Air Force for the quality of electronic devices, recently began
revising its procedures to achieve these objectives. We recommend that the Air
Force accelerate its efforts and that the other Services follow its lead.
This same principle-the expanded use of commercial items-can apple to
a great variety of products and services bought by DoD. These range from
personal computers, computer software, and professional services, to a host of
non-technical products such as bath towels and steak sauce.
We recommend that the Defense Acquisition Executive take steps to assure
a major increase in the use of commercial products, as opposed to those made
to military specifications. He should direct that program managers get a waiver
before using a product made to military specifications. if there is an available
commercial counterpart. When a "make-or-buy" decision must be made, the
presumption should be to buy. This would invert present procedures, biasing
the system in favor of commercial products and services, but permitting the use
of items made to military specifications whenever a program manager believes
it necessary to do so.
In addition, we recommend that the DoD Supplement to the Federal
Acquisition Regulation be changed to encourage streamlining military
specifrcatons themselves. Applying full military specifications, far from being
ideal, can be wasteful. A program manager should strive to invoke neither
minimum nor maximum, but only relevant, requirements: and he should think
in terms of optimization rather than deviations and waivers.
Thus, DoD should reduce its use of military specifications when they are
not needed. and should take steps to improve the utility of military
specifications when they are needed. This will require a serious effort to
harmonize military specifications with the various commercially used
specifications. For example. required military drawings for integrated circuits
could incorporate a manufacturer's standard design specifications, test
methods, and test programs. More generally, military specifications could be
based on industry standards, such as those promulgated by the American
National Standards Institute and the American Society for Testing and
Materials. This would provide the technical underpinning for DoD to make
substantially greater use of commercial devices and products, and thereby take
advantage of the much lower costs that result from larger production runs.
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One indirect benefit of buying commercial products is that the price is
determined by market forces. This should relieve Dot) of the administrative
burden and cost of verifying a producer's overhead costs. For I)oI) to realize
the full benefit of commercial buying, it should let competitive market forces
provide a check on price and direct its own attention to validating quality.
F. Increase the Use of Competition
Federal law and DoD regulations should provide for substantially
increased use of commercial-style competition, emphasizing quality and
established performance as well as price.
Even when commercial products are not suitable for DoD's purposes, it
can still use commercial buying practices to real advantage. Foremost among
these practices is competition, which should be used aggressively in the buying
of systems, products. and professional services. DOD clearly understands the
need for such competition, which was articulated in the 1981 Carlucci
Initiatives. Although DoD has made major efforts in this direction, much more
can be done. It is particularly important to focus on achieving more effective
competition, modeled after the competitive procurement techniques used in
industry.
Commercial procurement competition simultaneously pursues several
related objectives: attracting the best qualified suppliers, validating product
performance and quality, and securing the best price. Price is. of course, as
important a factor in commercial procurement as it is in DoD procurement.
But it is only one of several equally important factors. Price should not be the
sole determinant, especially for procurement of complex systems and services.
Defense procurement tends to concentrate heavily on selecting the lowest price
offeror, but all too often poorly serves or even ignores other important
objectives.
In validating product quality, for example, DoD places too much emphasis
on specific details of how the manufacturing process is to be done and too little
on modern techniques of quality control. Industry makes extensive use of
statistical sampling, and will accept or reject an order on that basis. Typically,
an industrial company will keep lists of qualified suppliers that have
maintained historically high standards of product quality and reliability. As
long as these standards are maintained, industrial buyers do not require
exhaustive inspection, and thereby save expense on both sides. Suppliers are
highly motivated to get-and stay-on lists of qualified suppliers by
t nsistently exceeding quality control standards.
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Moreover, because competition is not a one-way street for the buyer,
defense procurement practices must be less cumbersome if DoD is to attract
the best suppliers. Procurement officers must be allowed and encouraged to
solicit bids through purchase descriptions that are stated as functional
performance characteristics rather than through detailed design and "how-to"
specifications; to limit bids to qualified suppliers: to give preference to
suppliers that have demonstrated the quality and reliabilit\ of their products:
and to recognize value (quality and price) based on products' commercial
acceptance in the marketplace. These practices have been found to yield
effective competition in the commercial field, and their use in defense
acquisition could provide better military equipment at no increase in cost.
Although Congress has ardently advocated increasing competition, some
provisions of recent legislation in fact work at cross purpose to that objective.
For example. burdening suppliers of off-the-shelf catalog items to identify all
component parts and their producers, or to submit detailed pricing
certifications, inhibits qualified companies from competing for government
contracts. Regulatory implementation-for example, DoD's efforts to require
contractors to release rights in technical data on their products-has a similar
effect.
A further problem sterns from confusion regarding the intent of recent
legislation-notably the Competition in Contracting Act's (CICA) requirement
of "full and open competition," which some have interpreted to mean that the
government must buy from the lowest offeror. CICA sought to make it clear
that the award of a contract through competitive negotiation is a method of
procurement no less acceptable than an award using formal advertising or
sealed bids, and thus to recognize that competition entails more than just an
assessment of lowest price. This goal has been obscured by the notion that full
and open competition precludes the government from establishing
qualification criteria, and forces the award of a contract based on price without
regard, for example, to technical expertise or life cycle costs. This reinforces
DoD's proclivity for writing detailed military specifications rather than
functional product descriptions-in this context, in order to insure that all
bidders offer identical items. At the same time, however, these narrow product
specifications preclude the acquisition of most commercial products and. in
effect, DoD's doing business with many qualified suppliers. Thus, the full
potential of CICA is not being realized because of a focus on the quantity
rather than the quality of competition.
In sum, we believe that DoD should greatly increase its use of truly
effective competition. using as a model the competitive buying practices of
major corporations and their suppliers. We recommend the elimination of
26
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those legal and regulatory provisions that are at variance with full
establishment of' commercial competitive practices.
G. Enhance the Quality of Acquisition Personnel
DoD must be able to attract and retain the caliber of people necessary for
a quality acquisition program. Significant improvements should be made in
the senior-level appointment system. The Secretary of Defense should have
increased authority to establish flexible personnel management policies
necessary to improve defense acquisition. An alternate personnel
management system should be established to include senior acquisition
personnel and contracting officers as well as scientists and engineers.
Federal regulations should establish business-related education and
experience criteria for civilian contracting personnel, which will provide a
basis for the professionalization of their career paths. Federal law should
permit expanded opportunities for the education and training of all civilian
acquisition personnel.
Our study convinces us that lasting progress in the performance of the
acquisition system demands dramatic improvements in our management of
acquisition personnel at all levels within DoD.
A pivotal recommendation of the Commission is the establishment of the
position of Under Secretary of Defense (Acquisition) and comparable Service
positions, all to be filled by leaders with outstanding business management
credentials. Recruiting the most capable executives for jobs of such importance
to the nation is extremely difficult, however, in the face of current disincentives
to entering public service. A recent report of the Presidential Appointee
Project of the National Academy of Public Administration* analyzes this
problem and details twenty-three separate recommendations for improving the
recruitment of senior-level Executive Branch personnel. These include, for
example, specific suggestions for simplifying financial disclosure reports and
for allowing Presidential appointees to defer capital gains taxes incurred by
divesting assets to comply with conflict-of-interest provisions. Such steps would
improve the government's ability to attract and retain the highly qualified
people needed for effective senior management of defense acquisition. We
strongly support these proposals.
'Leadership In Jeopard':: The Fral.in* of the Presidential Appointments Stistent (Final Report of
the Presidential Appointee Project). November 1985.
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Comparable Improvements also are required for effective middle
management and better line personnel. The defense acquisition work force
mingles civilian and military expertise in numerous disciplines for management
and staffing of' the world's largest procurement organization. Each year billions
of dollars are spent more or less efficiently, based on the competence and
experience of these personnel. Vet, compared to its industry counterparts. this
work force is undertrained, underpaid, and inexperienced. Whatever other
changes may be made, it is vitally important to enhance the quality of the
defense acquisition work force-both by attracting qualified new personnel and
by improving the training and motivation of current personnel.*
The General Accounting Office (GAO) has been engaged in an important
study to evaluate the capabilities of DoD program managers and contracting
officers. The results of GAO's stud't confirm the central importance of
improving the quality of training for these two critical acquisition specialties.
The caliber of uniformed military personnel engaged in program
management has improved significantly of late. Military officers manage over
90 percent of DoD's roughly 240 program offices. Their ranks range from 0-5
(lieutenant colonel/commander) to 0-8 (major general/rear admiral). Each of
the Services has established a well-defined acquisition career program for its
officers. These include the Army's Materiel Acquisition Management (MAM)
program. the Navy's Materiel Professional (MP) programs. and detailed career
planning regulations for Air Force technical personnel and program managers.
We strongly support these measures. We also support recent legislation that
has further defined career paths for all program managers. In 1984, Congress
established a minimum four-year tenure for program management
assignments. The 1986 Authorization Act prescribed requisite qualifications
and training, including at least eight years of acquisition-related experience
and appropriate instruction at the Defense Systems Management College (or
equivalent training).
To this end, the Assistant-Secretarv of Defense for Acquisition and Logistics recently
proposed creating a single Defense Acquisition Corps, modeled after the State Department's
Foreign Service. See DoD Acgulsition Improvenuent-Tire Challenges Ahead. Perspectives of the
Assistant Secretary of, Defense for Acquisition and Logistics: White Paper No. `?-Revitalization
of the DOD Acquisition and Logistics Workforce (Nov. 5, 1985). We studied this proposal
carefully, and support many of its specific features. Because it would have the undersirable
result of putting too much distance between acquisition programs and users, however, we do
not support the proposal in its full form.
"See U.S. General Accounting Office, DoD Acqul,%itlon: Capahilitiec ol Key DoD Personnel in
System Acquisition (G:AO/NSI.AD-86_45).
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By contrast, much more remains to be done concerning cix-iliart acquisition
personnel generally. Civilians frequently cite the rigid pax- grades and
seniority-based promotion standards of the federal ci' ii service as disincentives
to continued employment. Higher pax- and better opportunities in private
industry lure the best college graduates and the bri,7htest trainees away from
government. particularly in such highly competitive fields as science.
engineering, and contracting. One extremely important means to inmprove the
acquisition work force is to establish an alternative ~r:~onnel in,anagcnkent
system permitting greater flexibility with respect to the status, pay, and
qualifications of civilian employees.
We reviewed the results of the Navy's so-called China Lake personnel
project. in which recruitment and retention of key civilians were correlated
with pay, incentives. and advancement based on performance. The China Lake
experiment, which is outlined briefly in Appendix C. served to increase the
retention of engineers and scientists, improve supervisor-employee
relationships. and dramatically reduce management paperwork. Legislation is
now pending to implement such a system for all federal scientists and
engineers. The China Lake personnel system has produced significant benefits.
It merits expansion. We therefore recommend that federal law permit the
Secretary of Defense to include other critical acquisition personnel in such a
system, and facilitate greater professionalism among civilian acquisition
employees through government sponsorship of graduate instruction in
acquisition management.
Among acquisition personnel. contract specialists have an especially critical
role. More than 24,000 members of DoD's acquisition work force specialize in
the award and administration of contracts. Eighty-five percent of these contract
specialists are civilians. Contract specialists must master the extensive, complex
body of knowledge encompassing materials and operations management.
contract law, cost analysis, negotiation techniques. and industrial marketing.
Yet, the Office of Personnel Management designates the Contract Specialist
personnel series (GS 1102) as an administrative and not a professional series
under Civil Service Title VIII. This administrative designation prohibits the
establishment of any business education requirement for contract specialists. As
a result. only half of DoD's contract specialists have college degrees, which may
or may not be business-related. We recommend establishing a minimum
education and Ior experience requirement for the Contract Specialist series.
Such a requirement, similar to that now established for the Accounting
personnel series, would mandate an entry-level criterion of twenty-four
semester hours in business-related courses or equivalent experience.
Independently, DoD should enhance the professional status of contract
specialists by increasing the number of outside hires, conducting on-campus
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recruitment, mandating the use of written tests for in-service placement and
promotion, and establishing upward mobility programs for purchasing agents
(GS 1105) and procurement clerks (GS 1106). DoD already has established
acquisition training programs at five major facilities, and requires that all
civilian contract specialists complete an average of six-hundred hours of
mandatory training. According to a 1984 report of the DoD Inspector
General,* however, approximately two-thirds of all Doll contract specialists
had not completed this training. In a recent report, the Executive Committee
on Federal Procurement Reform- also recognized the inadequate training
given contract specialists.
Insufficient management attention and financial resources are serious
impediments to adequate training of contract specialists and, for that matter,
all acquisition personnel. Such training-like that provided generally in DoD
intern programs-should be centrally managed and funded. This is necessary
to improve the utilization of teaching faculty, to enforce compliance with
mandatory training requirements, and to coordinate overall acquisition
training policies.
*Office of the Inspector General. DoD. Report on the Audit of D,partment o/ Defense
Procurement Training, No. 84-U47 (Feb. 14, 1984).
tExecume Committee on Federal Procurement Reform Task Group No. 6. Guidancr on
Establishing Procurement Career .11ana ement Proirrtnns, Vol. I tAlav. 1985).
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V1. Recwmmewft
as 1 ided
Executive and
i ?
Legs[atve Changes
We have described a series of major reforms that, taken in aggregate, can
make the defense acquisition system substantially more efficient. These
reforms not only will save money but also will improve military capability by
reducing the time it takes to field new weapon systems. Most of these reforms
can be implemented by the President and Secretary of Defense. Some will
require legislation.
We urge that Congress take the following steps:
? Create by statute the new position of Under Secretary of Defense
(Acquisition); authorize an additional Level II appointment in the Office of
the Secretary of Defense; and make necessary conforming changes to the
current statutory organization of acquisition responsib;lities within that
Office.
? Recodifv federal laws governing acquisition in a single, consistent, and
greatly simplified procurement statute; and remove those features of current
law and regulation that are at variance with the expanded acquisition of
commercial products and the establishment of effective commercial-style
procurement competition.
? Simplify and clarify financial disclosure reporting forms; amend tax laws to
permit Presidential appointees to delay the impact of capital gains taxes they
incur in divesting assets to comply with conflict of interest laws; and take
other legislative actions necessary to implement fully the recommendations of
the National Academy of Public Administration's Presidential Appointee
Project.
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? Amend civil service laws to permit flexible personnel management policies
for acquisition professionals, and to expand opportunities for the education
and training of all acquisition personnel.
? Authorize and appropriate multi-year f unding of those programs for ~~ hich
the joint Requirements and Management Board (as restructured by the
Secretary of' Defense) has authorized full-scale development or high-rate
production.
We urge that the Secretary of Defense change current DoD acquisition
organization and procedures as follows:
? Request that Congress create the new position of Under Secretary of Defense
(Acquisition): designate this Under Secretary as the Defense Acquisition
Executive: and invest him with full authority to supervise the defense
acquisition system, including authority over all offices and agencies within the
Office of the Secretary of Defense necessary for that purpose.
? Designate Service Acquisition Executives within each Military Department;
and retain within the Services the traditional responsibility for managing
acquisition programs.
? Assign to the Defense Advanced Research Projects Agency a specific mission
in the conduct of prototype programs; and direct the Services to increase
their emphasis on prototyping.
? Restructure the Joint Requirements and Management Board (JRMMB) by
directing that it be cochaired by the Under Secretary of Defense (Acquisition)
and the Vice Chairman of the Joint Chiefs of Staff; delegate to this
restructured JR\1B the responsibility for authorizing full-scale development
and high-rate production in all joint programs and in major Service
programs: and direct the JRMB to:
1. require the testing of prototype systems and subsystems before the
authorization of full-scale development:
2. require the use of baselining for all major new programs;
3. require that operational test data be available before the authorization
of high-rate production; and
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4. significantly increase the use of nondevelopmental items as an
alternative to new development programs.
? l nstruct the Defense Acquisition Executive to take steps necessary to amend
the DoD Supplement to the Federal Acquisition Regulation so as to:
1. effect a major increase in the acquisition of available commercial
components and systems by requiring program managers to obtain
?.x aiv ers for use of products Made to military pccif ications ~~ hen
commercial alternatives are available; and
2. establish commercial-style competitive procurement practices to the
full extent permitted by law.
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VIE. Coddson
At a recent meeting with the Defense Science Board, the Chairman of the
Joint Chiefs of Staff stated that the most important way technology could
enhance our military capability would be to cut the acquisition cycle in half. We
agree that this objective is critically important. and we believe that it can be
achieved. It cannot he done by technology alone, however. It requires a radical
departure from our current organization and procedures. This, in turn,
necessitates a new spirit and a willingness to change among acquisition
professionals. It demands that government and industry repair their vital
partnership. Most importantly, it presumes a special cooperation between
Congress and the Executive to act for substantial improvement of the defense
acquisition system.
We urge Congress and the Administration to work together to implement
the Commission's formula for action to accomplish these critical reforms.
35
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APPENDIX A
A Comparison of Cost Growth in Defense and Non-
Defense Programs
Rand Corporation and The Analytic
Sciences Corporation (TASC) separately
analyzed the cost growth experienced by
major DoD weapon system programs and
comparably large, complex civil programs.
The civil programs included numerous
public and private sector projects that
typically required many years to develop,
involved substantial technical risks, and
depended on the performance of many
contractors. The results of these studies are
outlined in Figures A-1 and A-2. Both
studies lead to the conclusion that average
cost growth in major DoD weapon system
programs is lower than cost growth in many
large scale civil programs.
Figure A-1
COST GROWTH IN MAJOR PROJECTS (RAND)
1960s 1970; Hjghwa} water
eta or ti%eapon projects Projects
s\stems 11972 i1972i
Pubic Very large All Nonpioneer
building; construct on Pioneer
1972 19-- Process Plants
(1983)
37
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Percent Cost Growth
Chesapeake Bay Bridge
7 Highway Projects
Pennsylvania Ave. Redevelopment
Bay Area Rapid Transit
River Flood Control Projects
Public Buildings
Drugs: Compounds
FA.A, Dept. of Commerce Radars
Nuclear Power Plant
Drugs: Proprietary'
Drugs: New Chemical Entities*
Chemicals*
Energy Process Plants
Drugs: Product Improvements'
Major Weapon Svstems
Water Projects
New Chemicals'
Cong. Office Buildings
Dept. of Commerce Satellites
Dulles Airport
New Orleans Superdome
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APPENDIX B
An Illustrative Organization of the Acquisition Staff
of the Secretary of Defense
The current organization of the Office
of the Secretary of Defense (OSD) allocates
acquisition responsibilities generally as fol-
lows among eight senior OSD officials*:
1. The Under Secretary of Defense for
Research and Engineering (USDR&E) pro-
vides policy and oversight for weapon sys-
tem program development through full-
scale engineering. USDR&E is responsible
for managing the Defense Advanced Re-
search Projects Agency (DARPA) and for de-
velopmental test and evaluation.
2. The Assistant Secretary of Defense
(Comptroller) is responsible for all DoD fi-
nancial matters and for management of the
Defense Contract Audit Agency (DCAA).
3. The Assistant Secretary of Defense
iAcquisition and Logistics) is responsible
for policy and oversight of weapon system
production, logistics, contracting policy
and regulation, and management of the De-
fense Logistics Agency (DLA).
4. The Assistant Secretary of Defense
(Command, Control, Communications, and
Intelligence) (C31) is responsible for C31 sys-
tems and policy and oversight of all associ-
ated research, development, and produc-
tion activities.
5. The Director of Program Analysis
and Evaluation (PA&E) is responsible for
providing the Secretary of Defense with an
independent assessment of DoD programs,
including force structure, mission areas,
weapon systems, manpower, etc. The Cost
Analysis Improvement Group, which pro-
vides independent cost assessment of
weapon system programs, reports to the
Director of PA&E.
6. The Inspector General (IG) has au-
thority to evaluate all DoD operations and
activities, to oversee all phases of the acqui-
sition process, to establish contract audit
policy, and to investigate potential criminal
conduct and evidence of fraud, waste, or
abuse.
7. The Director of Operational Test
and Evaluation (OT&E) provides policy and
oversight for operational testing and evalu-
ation, and assesses the success of weapon
system testing conducted by the Services.
8. The Director of Small and Disadvan-
taged Business Utilization establishes, and
monitors the achievement of, policy and
budget goals for utilization of small and dis-
advantaged businesses.
To consolidate diverse policy-making
responsibilities for improved management
of the overall acquisition system, the Com-
mission has recommended establishment
by law of the position of Under Secretary of
Defense for Acquisition (USD(A)). In the
'Certain of these officials-notably the Comptroller, Assistant Secretary of De-
fense (C31), the Director of PA&E, and the Inspector General-have various non-
acquisition responsibilities not fully described here.
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Commission's view, this new Under Secre-
tary should have extensive experience in in-
dustrial management, and should:
? Be a Level II appointee.
? Work full-time on acquisition
matters.
? Cochair the restructured joint Re-
quirements and Management Board.
? Serve as a member of the Defense
Resources Board.
? Develop and implement DoD-wide
acquisition policy, including policy
for research and development and
operational testing, and contract
audit.
? Oversee the execution of weapon
system programs, so that develop-
ment and production decisions are
validated by program requirements,
technical performance, and cost.
? Generally supervise contractor
performance.
For these broad purposes, the USDiA)
should have authority over all elements
of the OSD necessary to place the tol-
lowing functions under his direct
supervision:
? All acquisition policy, including con-
tract audit policy.
? Oversight of all acquisition programs
(including C31 programs) at all stages
(including conceptualization, re-
search, development, testing, pro-
duction, and logistics).
? Oversight of advanced technology
programs.
? Oversight of Test and Evaluation
(T&E), including both developmental
and operational T&E.
? Oversight of small and disadvantaged
business utilization.
? Responsibility for independent cost
assessments, including those of
weapon system programs.
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APPENDIX C
The Navy Demonstration Project: An Alternative
Personnel Management System
Purpose
The Federal Classification and
Compensation System of the Civil Service
has remained largely unchanged since the
passage of the Classification Act of 1923. In
intervening years, the size and composition
of the federal work force has changed
dramatically. Today there is widespread
agreement that the Civil Service system
frequently inhibits effective recruitment,
retention, and management of federal
civilian employees. This is especially true of
occupations for which there is strong
private sector demand, such as scientists,
computer specialists, engineers, and
contract specialists.
In 1980, the Office of Personnel
Management authorized the Department of
the Navy to conduct a five-year
demonstration of an alternative personnel
system, designed to allow management to
reward individual performance and
compete in the labor market for high
quality personnel. Under the authority of
the Civil Service Reform Act of 1978, the
Navy has conducted this Personnel System
Demonstration project at the Naval
Weapons Center at China Lake, California,
and at the Naval Ocean Systems Center in
San Diego. In 1984, the project was
extended for a second five-year period.
Features
The project has included full-time
personnel in the scientist, engineer, senior
professional, administrative, and technical
specialist career fields at both Naval
facilities. At the San Diego facility, the
project also has included clerical
personnel, in order to ensure a
comprehensive basis for evaluating the
alternative system's performance and
potential.
In the alternative system, five new
general personnel classification levels have
replaced the 18-grade General Schedule.
The system initially has assigned each
employee to a respective classification level
on the basis of his attained professional
expertise. Thereafter, it has ranked each
employee competitively within his
respective classification level on the basis
of the quality of his performance. Length of
service and veterans preference have been
secondary considerations. The higher an
employee's performance rating, the better
his chance of advancement-or retention in
the event of personnel cutbacks.
Each classification level is matched to a
broad range of compensation. (See Figure
C-1.) The broad pay ranges applicable at
different levels of expertise have allowed
line managers significantly more flexibility
to make initial salary offers competitive
with local market conditions.
Compensation has been linked to
performance, rather than time in grade.
Thus, it has been possible to reward
deserving individuals with higher pay
without having to promote them to a higher
classification level. Moreover, both Naval
facilities have established pools for cash
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awards in order to provide managers an
additional means for recognizing superior
performance. End-of-year performance
bonuses have provided tangible incentives,
and have made it possible to reward
especially deserving employees without
permanently increasing their pay.
Results of the First Five Years
For its initial five-year period, the
demonstration project reported the
following salient results:
? Improved ability to attract high
quality personnel to entry-level
positions.
? Dramatically reduced separation rates
for scientists and engineers-from
8.1 percent in 1979 to 4.2 percent in
1983.
? Improved employee morale, through
greater potential for advancement
and professional growth.
? Reduced personnel management
costs and streamlined personnel
administration, including the
reduction of personnel paperwork by
50 to 80 percent.
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Figure C-1
CLASSIFICATION/PAY BAND EXAMPLE*
Classification Group: Scientists, Engineers and Senior Staff
Current
Navy Personnel System
Pay Range
Svstem
Demonstration Project
in thousands)
GS-5
I
$14
4
6
Entry Level
.
to
7
25.7
8
9
II
21.8
10
Advanced Training
to
11
34.3
111
31.6
Journeyman
to
48.9
IV
44.4
14
Senior Specialists,
to
15
Supervisors &
67.9
Managers
61.3
16
V
to
17
Professional
72.3
18
Exceptional
(pay ceiling set by
Congress)
`Other classification groups, such as technicians, technical specialists, administra-
tive specialists, and clerical, have similarly designed pay bands.
43
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PRESIDENT'S BLUE RIBBON COMMISSION
ON DEFENSE MANAGEMENT
David Packard, Chairman
Ernest C. Arbuckle
Robert H. Barrow
Nicholas F. Brady
Louis W. Cabot
Frank C. Carlucci
William P. Clark
Barber B. Conable, Jr.
Paul F. Gorman
Carla A. Hills
James L. Holloway, III
William J. Perry
Charles J. Pilliod, Jr.
Brent Scowcroft
Herbert Stein
R. James Woolsey
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PRESIDENT'S BLUE RIBBON COMMISSION
ON DEFENSE MANAGEMENT
Staff
Rhett B. Dawson, Director
Paul S. Stevens, Deputy Director and General Counsel
Robin Deck, Counselor for Legislative Affairs
David J. Berteau, Executive Secretary
Peter R. O'Connor, Administrative Deputy
PROFESSIONAL AND TECHNICAL STAFF
Richard C. Morris
James G. Ling
Robert Steve Dotson
Jeffrey P. Metzger
Andrew Hamilton
Shauna D. Russell
Rebecca D. Paulk
Mary F. Nugent
Kenneth J. Krieg
SENIOR CONSULTANTS
John C. Beckett
Jacques S. Gansler
Vincent Puritano
Phillip L. Harrington
James J. Lindenfelser
John T. Kavanaugh
Thomas E. Reinkober
Robert T. Marlow
Toney Stricklin
Michelle S. Kalkowski
Jeanne briguglio
Donna M. Rivelli
PUBLIC AFFAIRS
Herbert E. Hetu, Counselor
Alexis B. Allen
TECHNICAL ADVISERS TO THE ACQUISITION TASK FORCE
E. Oran Brigham Walter M. Locke
Dale W. Church Bill B. May
Paul G. Kaminski Barry H. Whelan
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