To combat typical cost growth that could defeat the Pentagon’s global strategy, the Defense Department is pushing a series of acquisition reforms, a senior Pentagon official said at a Senate aerospace caucus breakfast hosted by the Aerospace Industries Association Sept. 19. The changes could significantly alter the way the agency and contractors do business, rewriting instructions to acquisition officers, training the work force and killing unaffordable programs earlier in the development cycle.
“If we do what’s historically the norm, we’re not going to execute the strategy,” said Frank Kendall, undersecretary of defense for acquisition, technology and logistics. “We’re just not going to get the programs that we need to support it.”
Kendall, providing what he described as a “sneak peek” of the updated Better Buying Power memorandum, drafts of which will be sent to industry for comment in the coming weeks, said the new guidance will have to confront institutional barriers that have typically produced cost overruns.
“All budgets tend to be optimistic,” he said. “Our history in the department is we overrun our programs fairly often.”
To combat those overruns, Kendall said the department is seeking reforms in its updated memorandum, what he called Better Buying Power 2.0. The original version of the memo was released by Kendall’s predecessor and current deputy defense secretary, Ashton Carter, in September 2010. That version has been the guiding document behind acquisition policy for the last two years, according to industry analysts.
Among the additions will be an effort to rewrite DoD Instruction 5000.02, the document that provides the management framework for the acquisition system. Kendall said the addition of various new laws over the years has complicated the document and made it difficult to work with.
“I’ve discovered that the document that I used to know when I first got into acquisition in 1985 was 20 pages long,” he said. “The current version is 200 pages long.”
Kendall said the DoD is working on a legislative proposal that will help combat the increased complexity of the system.
“In going through the newest draft of 5000.02, I discovered the enormous complexity that a corporation has to wade through just to figure out what applies to everybody in acquisition,” he said.
Another addition will be an emphasis on training the acquisition work force, a group that is relatively inexperienced due to an influx of new workers in recent years, to handle purchasing more efficiently.
“We’re turning our attention toward increasing the capability of the professionals that work for us,” he said. “Acquisition is hard. I’ve been in the business a long time. I have ample opportunity to use my engineering degrees, my business degrees and my law degrees. It’s a very complicated business. I don’t expect everybody to have that many degrees, but I do expect people to really know their stuff.”
Part of the shift that Kendall wants is a culture change toward value, he said.
“There’s this culture of, get the money out the door, and by the way if you don’t get it out the door you’ll have less next year,” he said.
To combat that notion, Kendall and DoD budget chief Robert Hale recently sent a memo to the acquisition staff emphasizing that slowing spending can be good.
“What we’re trying to tell people is that, if you have a good reason not to have obligated the money, that’s fine,” he said. “If you saved some money for the program by doing that, if you’ve waited a little longer to get a better business break from your supplier, that’s a good thing, and we shouldn’t punish you for that.”
Version 2.0 will carry over many of the same concepts from the original Better Buying Power, including efforts to kill unaffordable programs earlier in the acquisition process, Kendall said.
“If you look at the programs that were killed in the last few years, a thread that runs through them is that they were never affordable,” he said. “We spent billions on R&D [research and development], we got into initial production, then we discovered that they weren’t affordable. Then we killed them, and we wasted a lot of money.”
Kendall pointed to the termination of the Marine Corps Expeditionary Fighting Vehicle as an example of termination that came too late.
“The Marine Corps woke up one day and said, ‘Gee, if we buy this it is going to cost so much that we can’t buy anything else,’” he said. “We should really have figured that out much earlier.”
The new memo will still emphasize fixed-priced contracts, but Kendall warned against an overreliance on that contracting type.
“What happened was a bit of an overreaction,” he said. “People thought that that was the solution, so that was what they did. We want people to use the right type of contract for whatever it is they’re doing.”
Kendall said he will also continue to focus on service contracting as well, given its position as a majority of DoD contracting.
He said that all of the reforms are necessary to save the nearly half trillion dollars already cut from the DoD budget by the Budget Control Act. The further automatic budget cuts known as sequestration that would take effect Jan. 2, he repeated, would be “devastating.”
Speaking at the same breakfast, Sen. Saxby Chambliss, R-Ga., laid out his anticipated timeframe for legislative action to avert the Jan. 2 cuts, a timeframe that would leave action until after the election during the lame duck Congress.
“We’ll come back the week after the election; that week will be consumed with organization measures on the Senate side, and probably on the House side,” he said. “We’ll break for Thanksgiving, and come back with the idea that we’re going to be here until we get to any number of these critical issues and other matters that have to be resolved before the end of the year. How and to what extent we’re going to address sequestration, nobody really knows at this point in time.”
Kendall said that he saw Chambliss’ comments as a positive development.
“I was encouraged by what Sen. Chambliss said, hopefully, we can do something there, maybe more than just delay sequestration, maybe actually solve it, that would be ideal,” he said. “Even if all we get done in the lame duck is delay sequestration, and give the new Congress the ability to address it, that would be preferable by a wide margin to letting sequestration actually occur,” he said.
Sen. Patty Murray, D-Wash., also speaking at the breakfast, repeated a common refrain from the Democratic Party that action is needed, but that both cuts and increased revenue must be used.
“As someone who has seen all of these battles up close, every number, every line, all of the possibilities out there and what it’s going to take, I can tell you that as Democrats on our side understand this is going to take compromise,” she said. “We’re willing to come to the table to do that, and we understand the tough concessions that we will need to make.”
“But in order to accept that, we need to have from the other side a willingness to put revenue on the table.”