Focusing on Acquisition Reform
Recently the Center for Strategic and International Studies (CSIS) hosted a seminar reflecting on the recommendations made by the Packard Commission 30 years ago. It was a fascinating discussion, made more so by the presence on its panel of Dr. Jacques Gansler—who participated in the commission’s study and later served as the under secretary of defense for acquisition, technology and logistics—and Gen. John Jumper, USAF (Ret.), a former Air Force chief of staff as well the retired CEO of SAIC. Gansler provided the historical and theoretical background, while Gen. Jumper was able to offer the views of someone who had observed the defense acquisition process as both a senior customer and a major supplier.
What was the Packard Commission? The commission was among the most notable of several efforts to evaluate the management of the U.S. Defense Department from the perspective of how it dealt with its planning, programming and budgeting system (PPBS) and its acquisition system. The commission was established under executive order by President Ronald Reagan and was chaired by David Packard, a widely respected former deputy defense secretary and co-founder of Hewlett-Packard Corporation. The report was well received and many of its suggestions were incorporated into Defense Department practices, while many others were enacted into the 1987 Goldwater-Nichols Act mandating major changes to how the Pentagon conducted business. But in two key areas, the Pentagon still struggles nearly 30 years later.
First is the area of long-range planning. The Packard Commission argued that, in the absence of thorough long-range planning that can be reasonably translated into budgetary priorities and line items, budgets will have minimal value and programs insufficient operational focus. The commission stated that, “… new procedures are required to help the Administration and the Congress do the necessary long-range planning and meaningfully assess what military forces are needed to meet our national security objectives.” Unfortunately, this aspiration remains largely unmet—a condition validated by Gen. Jumper, who spoke from the panel on the continuing need for a greater effort to develop concepts of operations (CONOPS) that inform programs and budgets.
Second, and arguably of greater significance, the Packard Commission noted that, “Each new statute adopted by Congress has spawned more administrative regulation. As law and regulation have proliferated, defense acquisition has become ever more bureaucratic and encumbered by unproductive layers of management and overstaffing.” Gansler displayed a graph to demonstrate that over the past four decades the number of pages of federal acquisition regulation and code has doubled to more than 180,000 pages. Moreover, the cumulative cost of compliance resulting from these regulations has doubled in the past decade and now accounts for $1.7 trillion in expenses.
Both Gansler and Gen. Jumper agreed that the most significant, deleterious effect of all these regulations and costs was that they served as major barriers for entry into the defense marketplace for those who might consider getting in—and simultaneously as a major incentive for those already in to exit. This steady migration of companies, both large and small, from defense is what we have witnessed over the past three decades, as detailed in my blog entry from last month. In the 2015 Fortune 100 only four companies are in aerospace and defense. Two are primarily commercial firms, one of which largely is exiting the defense market. In the 2016 Fortune 100, there will be likely only two aerospace and defense enterprises.
Discussions about “acquisition reform” continue as they have for many years. Current Senate Armed Services Committee Chairman John McCain, and his House counterpart Mac Thornberry, both are interested in the topic. That is good. But we continue to see “reform” discussions focused more on the secondary issues of the acquisition chain of command, milestone authority, the proper role of the service chiefs and the amount of necessary auditing, when the real problem is the shrinking size of the defense industrial base.
True acquisition reform must focus on this industrial base issue and the specific items that drive it. Companies that are in the defense industrial base, or considering entering it, have little interest in the title of the senior official declared ultimately responsible or who has the authority to declare Milestone C production, although they certainly would like to see more programs reach that point. What companies really want are clear understandings of requirements—something requiring routine and candid conversation with the customer; a mutual understanding of technological status and risk, which must be shared the more complex the program; fewer reports, audits, and reviews; less intrusion into supply chains that are increasingly global; more flexibility in schedules when technological maturity allows; and, perhaps most significantly, greater profit potential.
On the last point regarding profit, several defense industry analysts stated that the decision by United Technologies to sell Sikorsky—since announced as being bought by Lockheed Martin for $9 billion—was driven by the fact that Sikorsky’s profit margin was less than half that of United Technology’s major commercial units. In other words, the commercial marketplace values air conditioners and elevators more than 100 percent higher than the Pentagon values the world’s best military helicopters. Some no doubt feel that overstates the issue, and to some degree it may. But in a world now heavily driven by commercial technologies that defense contractors incorporate into military systems, this value differential must be addressed. If it is not, then at some point the title of the individual with milestones authority will be a very moot issue.
M. Thomas Davis is a former corporate vice president with General Dynamics Corporation and a past assistant professor of economics at West Point, the U.S. Military Academy.
