Why Can't We Get Acquisitions Right?
- Published: Tuesday, 13 October 2015 16:26
- Written by Alden Munson
- Hits: 10133
How the Conspiracy of Hope Undermines Acquisition Performance
Acquisition of the major technical systems that are so central to the security of the US is a major responsibility of the Intelligence Community and the Department of Defense. While the successes of this process are many, there have been, increasingly, notable failures of the process to deliver systems at all, or failure to deliver systems with the balance of cost, schedule and benefit that was promised at the time the programs were initiated. The acquisition system has been studied many times over the last 20 years or so with the intent to implement systematic reforms, and many changes have been made. The most obvious result of these reform initiatives is that the acquisition system has gotten successively more bureaucratic, even sclerotic. This article posits that the intense political environment in which the acquisition system is immersed, the arcane nature of most technical defense and intelligence procurements, the challenges faced by the acquisition priorities in competing with “mission” and a Conspiracy of Hope across government and industry have combined to thwart the most well-meaning of reform initiatives. The article offers an unvarnished assessment of causes for the decline of acquisition system performance. The author provides specific recommendations aimed at stemming the decline.
© Copyright, Potomac Institute Press
A fundamental underpinning of a strong, modern military force, and, therefore, essential to the security of any modern nation, is a system to acquire the physical materials and services to be employed by that military force in defense of the nation. And, with the caveat that we’re talking about a modern military force, this system must be able to acquire elements that are not readily available in everyday commercial markets and may involve extremely ambitious technology components – think of intelligence satellites, aircraft carriers, fighter aircraft, armored combat vehicles, myriad special electronic equipment, etc. This is not to say that a military force doesn’t require elements commonly available in commercial markets; of course they do. These commercial purchases are acquired through the formal acquisition system, but they do not drive the peculiar, stressing requirements that have led to the complex, comprehensive acquisition system in the use by the US Department of Defense (and the US Intelligence Community) today. It is the requirements for very specific national security mission related equipment and systems cited above that are the drivers. Within this acquisition system, provision must be made for:
- Conducting basic and applied research to create the technologies and innovations on which to base specific advanced national security systems;
- Turning those technologies and innovations into achievable, producible designs for said systems;
- Developing, manufacturing and testing for these systems and for support of these systems in operations;
- Building specialized facilities in which the above tasks and subsequent operational support for these systems can be accomplished; and
- Contracting for services in support of all phases and elements.
Much of this acquisition, or purchasing, activity occurs on the leading edge of technology or innovation; because of inherent risk, pundits sometimes call it the “bleeding” edge. Therefore, it has become commonplace that much RDT&E (research, development, test and evaluation) work is contracted with industry under cost reimbursable type contracting. Under this model, all legitimate direct and indirect costs associated with accomplishing the required effort for producing the required products are reimbursed, and an appropriate profit on the work is also provided to industry. For these high risk development efforts, with essentially no broader markets in which the resulting systems and products can be offered, the premise is that industry cannot be expected to bear the risk of development without being fully compensated; the government customer bears the development risk. The cost reimbursed contracting model is contrasted with fixed price contracting, with which we are familiar in our everyday lives as we purchase a house, a car, household items, clothing, food, etc. For programs that begin with a challenging RDT&E phase, presumably to be followed with a production phase, such as the ongoing F-35 program and so many other past and current weapons systems programs, it is common for the RDT&E phase to be contracted on a cost reimbursable basis with the production items (e.g. individual or groups of aircraft) to be acquired on a fixed price basis. Most of our well known weapons systems are acquired in this mixed procurement model. For systems with no large production runs, such as most of our space systems (with relatively small production runs) and nearly all of our advanced data systems (in which production involves creating computer software which is replicated with de minimis incurred cost), an entire program may be procured under the cost reimbursable model. Cost reimbursable procurements are initiated through a request for proposal conveying the acquisition requirements and terms under which the program is to be conducted. A significant element of a responsive proposal is the so-called “Cost Volume,” in which all the reasonable costs expected to be incurred in conduct of the program are presented in excruciating detail. Evaluation of the cost proposal is a major element of the source selection process. Since no absolute criteria exist for what constitutes “reasonable costs” for a particular new development program, the evaluation of a cost proposal for “reasonableness and credibility” is largely a matter of judgment; lower is frequently judged “better.” Since the proposed cost is generally a significant factor in the source selection process, suppliers are highly incentivized to make their proposed cost as low as possible, while endeavoring to make that cost appear credible.
All of the acquisition or procurement activities outlined above are governed by the Federal Acquisition Regulations (FAR). For the DoD and the IC, additional specific regulations are promulgated in DoD 5000 and ICD 801, respectively, as modified over the years.
As specified in the FAR and in all more specific acquisition regulations, and as strongly embedded in the American system and values, competition among aspiring suppliers is the Gold Standard for acquiring the systems, material and services required for the national defense.
It is relatively straight forward for the average US citizen to go into the competitive US auto market and come home with a car that satisfies his/her driving needs and with reasonable certainty that s/he paid a fair price for that car. No such straight forward process, that the average US citizen could execute or even comprehend, exists for the acquisition of complex military systems. To begin, for advanced military systems, there is no catalog, no accepted fair price, no ability to test drive, nor demonstrated performance. Instead, the formal DoD acquisition system must be invoked, and it is becoming decreasingly effective in many dimensions.
The aforementioned acquisition regulations have steadily gotten more thicket-like over the years, as successive generations of acquisition officials have sought to insure that the most recent “failure” of the acquisition system “never happens again.” Additionally, the FAR has become a vehicle to promote national objectives such as competition, diversity, promotion of small and/or disadvantaged businesses, and a propensity to “buy American.” And, these continually expanding acquisition regulations are employed by legions of government acquisition professionals (assisted by more legions of supporting professionals from industry) to acquire the required national security capabilities from a rich diversity of sophisticated and capable industrial suppliers, all constituting the US “military/industrial complex” (per retiring President Eisenhower’s characterization in 1960).
The unintended consequences when this arcane process fails to deliver on its objectives, too frequently make the press, cause investigations, waste taxpayer monies and underserve our war fighters and policy makers. Even when the process does not “run off the rails” or cause some onerous harm, even when it is being executed “properly,” it can decreasingly be executed in a timely or efficient manner. Ambitious, paradigm busting space systems that the US fielded early in the space age in 5 years, would likely take 8, 10, or more years today. When faced with the deadly impacts of IEDs (Improvised Explosive Device) in Iraq (which by 2006 constituted 80% of the casualties), the DoD abandoned the formal acquisition process and created the JIEDDO (Joint Improvised Explosive Device Defeat Office) to develop and deploy defenses. They also employed a special task force to acquire the MRAP vehicle. Quoting from former SecDef Gates’ memoir, Duty (p. 126): “The hidebound and unresponsive bureaucratic process that the department uses to acquire equipment performs poorly in peacetime. As I saw it, it did so horribly in wartime.”
The Intelligence Community (IC) has long had the ability to execute an efficient, streamlined acquisition process when imperatives required a rapid response, and these authorities have been a significant factor in many extraordinarily successful IC acquisitions.
When the formal acquisition process does “run off the rails” the impacts can be staggering. The Intelligence Community’s most notorious failure, the FIA (Future Imagery Architecture) program, cost billions in the process of failing and more billions to reestablish US capability in this critical mission area. In about the same time period, the DoD/USAF Space Based Infrared Reconnaissance System (SBIRS) program was overrun by billions and years late, although it finally did achieve its mission objectives without the need to start over. These two programs represent manifest failures of the acquisition system to accomplish its primary objectives:
- Select a supplier (team) with the proven capability to execute the program.
- Get on contract with that supplier at an achievable cost, performance and schedule baseline.
- Execute the program to achieve the required results within that baseline.
Note that unless 1 and 2 above are achieved, 3 is clearly unachievable. 1 and 2 are addressed in the competition/selection process and constitute the most critical elements of the overall acquisition process. This is where the basis for an executable program is established. And, this is where the current acquisition system frequently comes up short, although there are still opportunities for a properly constructed program to run off the rails in 3. More on all of this below.
The two major acquisition failures noted above were on space programs. There are numerous other examples. The author has current, reasonably close exposure to two ground data system programs that will exceed their original cost and schedule targets by wide margins, but which will most probably produce the required capabilities eventually, without a major restructuring or restart. (These 2 programs, plus a third with which the author has lesser intimacy, are not named herein because they are currently on journeys through the acquisition “valley of the shadow of death”[see below] and don’t need gratuitous attention at this point, journalistic standards notwithstanding.) The Army’s Future Combat System (FCS) mega-program is generally seen as a failure because it was terminated after having expended fairly substantial monies, but not because it crashed and burned. The failure of FCS presents an opportunity to discuss another facet of the acquisition system wherein acquisition difficulties can originate.
Acquisition professionals refer to the Little “a” and the Big “A.” The Little “a” is where the nuts and bolts work of acquisition occurs. The source selection occurs and the program is executed in the Little “a.” The Little “a” is conducted in the context of the Big “A,” the larger world of the stakeholders of a program: the requirements sponsors; operators, users; operational test and evaluation folks; operational customers of a program; the executive management of the DoD, the IC, etc.; the programming planning and budgeting functions; and the political system, including the congress (and by extension, the effects of lobbying from private industry, regional governments, and others). Failures in the Big “A” can prevent the right conditions for a successful program from solidifying, as happened on FCS (and was detected reasonably early in the program execution), and can lead more or less directly to an acquisition program failing to deliver acceptably, as happened with SBIRS and FIA. The fact that the DoD did not choose to restructure and restart FCS presents the prima fascia case that the program was not supported in the Big “A,” and, perhaps should never have been undertaken. Even heroic execution in the Little “a” is rarely able to overcome serious issues in the Big “A.” Having said all of this, we need to dig deeper into the proximate causes of acquisition failure resulting in these general domains.
But first, a short digression into a slightly more ethereal view of our acquisition challenges. I had the privilege to participate in the 2005 Defense Acquisition Performance Assessment (DAPA), led by Lt. Gen. Ronald Kadish, USAF (Ret.), former Commander of the Missile Defense Agency. I offered in that study that acquisition programs are perennially cursed by a Conspiracy of Hope. Lt. Gen. Kadish adopted this phrase to punctuate his study; I have subsequently used it in Op-Ed pieces on acquisition challenges. The Conspiracy of Hope pervades all elements of the acquisition system in both government and industry. In this paradigm, participants across the Big “A” and the Little “a” see the possibility for important benefits to their organizations, their missions, their careers, or their business prospects tied to the success of a particular program. Without ever having a conspiratorial conversation, the players “hope” that:
- The money will be found for the program even if it’s not in the budget;
- The requirements are achievable and accurately represent operational needs;
- The technical risks can be manageable;
- “I can win the competition”;
- The selected contractor will have the required domain knowledge and will find the right people;
- “If I’m overrunning (both Gov’t and industry program managers), I can find a way to survive and not get cancelled”;
- “The execution difficulties we’re encountering will be resolved soon”;
- The acquisition staff is competent and experienced enough to manage the program;
- And more.
The Conspiracy of Hope, leads to a slew of distortions.
- Contracts are sometimes let at a small fraction of an independent cost estimate for the programs,
- Contractors are selected without evidencing the required domain knowledge or experience,
- Leadership personnel are cycled through a challenging program like interchangeable parts of some machine,
- Success is assumed in a critical technology development without commitment of monies and time for its maturation,
- Growing execution shortcomings are allowed to linger without being specifically addressed,
- Increasing cost overruns and schedule erosions are played down,
- Program is not staffed as indicated by independent estimates, and so on.
The conspiratorial component in all of this is that the various program participants are sometimes reluctant to call a foul on their correspondents because they fear that the program will suffer, and then none of their collective hopes for success will be realized. Not all of these sins occur in all programs, but I have seen episodic evidence of some of them in all programs, especially in poorly performing and failed programs. This is the stuff of failed acquisition programs.
When acquisition programs fail outright, or fail to deliver the required performance or are significantly delayed, the impacts are manifest. The worst and most obvious impact is that our national security forces are deprived of critical capabilities. The aforementioned work-a-rounds to address the IED threats in Iraq and Afghanistan were to avoid just such a disastrous outcome; lives of our military personnel were at stake because the formal acquisition system could not respond effectively. FIA’s failure required that a closed production capability be reactivated to produce interim capability (at significant expense!) to gain the time to put a replacement program in place. The cost of the FIA failure has been variously estimated to approach $15B. Fortunately, our space assets have evolved to performance levels and on-orbit lifetimes such that the Nation suffered no serious shortfalls in capability during this regrettable episode. For SBIRS, the government/contractor team just plowed ahead and eventually achieved an acceptable performance capability, although at costs and on schedules that beggar the imagination. Again, long lived surviving assets protected the Nation from exposure to extreme risk during the delay.
But, in both of these cases, there was another insidious cost of the poor execution. The trust and confidence among the senior leadership in the executive branch and in the Congress towards the government and industry acquisition participants was seriously compromised. When I joined the Office of the Director of National Intelligence (ODNI) as the first Deputy Director of National Intelligence for Acquisition and Technology I found that the IC’s acquisition reputation and credibility had seriously declined. The Congressional oversight committees and the senior administration leadership expressed a near total lack of confidence in the IC’s ability to execute its acquisition programs. Indeed, this lack of confidence had played into the reorganization of the ODNI in 2007 to bring focus to the IC’s major acquisition programs.
While this article focuses primarily on DoD and IC acquisitions, over the years, NASA has had its share of acquisition issues as well. The James Web Space Telescope program (JWST) is years and billions beyond its original plans. Recent GAO reports1 cite the Space Network Ground Segment Sustainment program (SGSS) for substantial cost and schedule overruns. If one reads the GAO report (with only occaisional dips between the lines) in the context of program execution difficulties as enumerated herein, a clear picture of a program deep in its journey through the “valley of the shadow of death” emerges; contractor staffing and performance issues, technology challenges, falling productivity in later more difficult program phases, consumption of contract reserves to resolve early issues, and so on. Much of the nuanced wording in the reporting seems calculated to avoid the obvious conclusion that the original contract was awarded based on an aggressively optimistic bid from a supplier not fully qualified to deliver on that bid.
In recent years, an additional area of acquisition challenge has arisen. Most well-known acquisition programs result in tangible deliveries: airplanes, ships, satellites, communications and data systems, etc. It is commonplace to contract for expert staffing in many areas of the US defense and intelligence establishment. These experts from industry, working on contract, assist the government in mission and technical analyses, operations, maintenance, and myriad other tasks. And, in some of today’s critical fields – many areas of information and electronics technology – the required skills are also in very high demand in commercial markets. The evaluation of the experience and skills being proposed in response to a government solicitation for sophisticated technical performance is proving to be an extremely difficult task for government source selection teams. When coupled with the extreme competition for high level skills in both government and commercial markets and increasing cost pressures in competing in the government marketplace, the government is increasingly being faced with selected contractors unable to provide staffing with the required skill and experience levels at the costs promised in the bids. I have seen cases wherein competing suppliers, seeking to displace an incumbent in such a service paradigm, have proposed prices 40% below the cost currently being incurred. Contract costs in such an application are almost totally dominated by the salaries of high demand individuals, and it is inconceivable that the required performance levels could be achieved at the implied salary rates. Just as the failure of a development program for an airplane or a satellite can harm the US defense or IC capability, so too can a failure to achieve the required skills, experience and staffing levels on service contracts in support of critical US capabilities.
The litany above could suggest that the US is totally incapable of conducting complex national security development programs successfully; this is clearly not so. The US currently has underway a wide spectrum of space, air, maritime and ground development programs with every reasonable expectation that they will eventually meet their performance objectives and go on to satisfy their US national security missions. What does seem clear, as a seminal assertion of this article, is that few of these programs were procured competitively and went on to success without the painful journey through “the valley of the shadow of death.” The hope is that they go through a vigorous, cost reimbursable competitive process and transition from that process into smoothly executing programs, meeting the cost, schedule and performance projections that were the bases for their roles in the US national security architecture and their source selection decisions. Instead, experience over the last 20 or so years would seem to prove that we no longer have the ability to achieve this result. If so, this indicates a serious systemic flaw in our acquisition system, seriously needing to be remediated.
The Defense Science Board has addressed acquisition challenges in the DoD several times over the years. Two recent reports are “DoD Policies and Procedures for Aquisition of IT,” March 2009 and “Creating a DoD Strategic Acquisition Platform.” April 2009.2,3
Causes of acquisition failures
While the NRO and industry were roundly criticized for the FIA failure as a failure in the Little “a,” it was most certainly a failure in the Big “A,” exacerbated by poor execution in the Little “a.” While many of the specifics remain classified, an article by Phil Taubman in the New York Times laid out the very convincing case for this assessment.4 There was Congressional interaction on the program (some might call it meddling) and many “agendas” were being worked in the context of the program. The NRO failed in the first two of the three primary objectives of an acquisition outlined above: it failed to select a team with demonstrated capability to produce the required systems (although the team was comprised of fine companies with demonstrated performance in other areas) and, it failed to issue a contract at a credible price – the contracted price was perhaps a factor of two below a credible cost estimate for the program. After selecting a contractor team with a long, expensive learning curve ahead of it and a non-credible cost/schedule baseline, additional requirements added to the program with inadequate additional funding or schedule accommodation, and the Congress stepped in to reduce the NRO’s flexibility to manage the program by capping the total expenditures. From the Taubman article in The New York Times:
“FIA was grossly underfunded,”
“This train wreck was predetermined on day 1,”
A. Thomas Young, former senior defense industry executive and chairman of a FIA failure review panel.
“The FIA contract was technically flawed and un-executable the day it was signed.”
Robert J. Herman, former Director of the NRO.
“I shouldn’t have allowed it to go forward.”
Keith Hall, former Director of the NRO, commenting in hindsight after the congressionally directed funding cap was imposed on FIA.
Without accurate cost and schedule baselines, credible cost and schedule planning and management is impossible. If the Conspiracy of Hope then “intrudes” (as it inevitably does), both the contractor and various elements the government may worry that if these issues receive the harsh light of objective scrutiny, the viability of the program will be questioned. To keep projected costs from soaring out of sight, the program is staffed and managed as if the contracted cost and schedule accurately represent the program that needs to be executed. This means that many tasks that must ultimately be accomplished in a successful program are understaffed (or not staffed at all). Before too long, evidence of the mismatch between the contracted cost and schedule and actual cost and schedule accomplishments and plans begins to emerge. Frequently, the mismatch is initially explained or hope’d away. Eventually, everyone acknowledges the problem and efforts to address the mismatch begin. Occasionally, (contrary to the fervent hopes of the participants) a program is terminated at this point as not having sufficient mission value to be worth more than the contracted cost; the program would be scored as a failed acquisition at this point, but the damage might be manageable. More frequently, the contractor is asked for a proposal to address the additional work that will be required. That proposal is presented to the government amid promises that the cost and schedule baselines are now correct. Frequently they are not; the insidious Conspiracy of Hope intervenes to constrain the new cost and schedule estimates to levels perceived to be below those which might precipitate immediate cancellation. Large, complex programs can sometimes go through several such evolutions, each accompanied by promises that the new cost and schedule estimates are correct. A couple of new factors emerge. First, as time proceeds with tasks being undone (or underdone), a bow-wave of additional work accumulates that will be needed to correct errors in incomplete or poorly done earlier work and to accomplish work not yet done at all; the costs for this additional work are only slowly realized. Second, with poor cost, schedule and technical performance on the contract and a continuing stream of broken promises, working relationships among program participants degenerate; leaders are replaced, questions from Congress are generated, independent reviews – or even IG investigations – are spawned. I refer to this period wherein there is no credible cost or schedule baseline for the program, program performance is poor, relationships and trust erode, etc., as the journey through the “valley of the shadow of death” for a program. Some don’t survive this journey – FIA did not. Some do – SBIRS has, but it has not shed the taint of its painful development journey. Some even go on to be judged as extraordinarily successful programs, as memories of the pain of the development period fade amid excellent or even just acceptable mission performance.
An important factor in achieving the acquisition objectives is related to the quality, consistency and constancy of the government’s acquisition management team. As important as the absolute imperative to get a competent contractor team on board, is the need for the government acquisition office to be staffed with trained, experienced acquisition professionals in assignments of responsibility and duration commensurate with the program being acquired. Most complex national security programs take many years to complete, even if we restrict ourselves to the primary RDT&E phase. For space and major weapons systems programs, this phase is commonly 8-10 years, or more. This issue was addressed in a pair of OpEd pieces I did a few years ago.5
Consider a salient assertion in Malcolm Gladwell’s book Outliers: It takes 10,000 hours to become truly an expert in some field.6 Gladwell points out that even the Beatles put in their 10,000 hours playing nonstop engagements in Hamburg, Germany before any of us in the US had ever heard of them. In “Talent is Overrated,” Geoff Colvin7 argues that 10 years of “deliberate practice” involving a “well defined set of activities” pursued “diligently” with regular “feedback” is required to achieve excellence. Notwithstanding the compelling arguments supporting the requirement for acquisition program leadership assignments of substantive durations, the Government program manager on a program to which I was recently exposed, reported that he had been cursed with a 250% rotation rate among his senior subordinates during his first 12 months at the head of the program. On another program, a program manager was parachuted in for 18 months (and then moved on to another assignment) while the program was deep in its journey through “the valley of the shadow of death.”
I offer the following assessment relative to the acquisition workforce:
- The acquisition workforce is growing less experienced and less well trained as more experienced acquisition professionals retire or seek positions closer to “mission” as a protection in a downsizing.
- Positions in acquisition are sometimes filled by generalists as “broadening assignments,” and short tour rotations are common, especially in the services, a point made forcefully in the Space News pieces cited herein.
- Acquisition, as a “skills, knowledge and experience” based profession, is not universally recognized or respected, relative to professions closer to “mission.” This is particularly problematic given that over 60% of the IC’s budget, for example, is expended through the acquisition system.
- The less qualified government acquisition workforce is poorly matched against industry’s longer serving professionals, meaning that in the contest of competing interests involved in major programs, the government’s interests are sometimes poorly served.
- This less qualified workforce is also tempted to treat acquisition regulations as “chiseled in stone” and to follow the most conservative direction/guidance of the compliance oriented members of the acquisition community (contracting offices and attorneys) to avoid personal career risk. Such conservatism is a major causative factor in our inability to operate with the flexibility and agility that many insist is permitted by the FAR and other policies.
This assessment (along with others discussed throughout this article) is echoed in a recently unpublished study on acquisitions in the IC.
The second of the primary objectives of an acquisition system enumerated earlier – getting on contract with a credible supplier at an achievable cost, schedule and performance baseline – presents the domain wherein almost limitless difficulty can occur. As noted earlier, the RDT&E phases of most significant national security systems are conducted under cost reimbursable contract models. And, since the costs actually incurred in conduct of a program will be reimbursed, even if they exceed the originally proposed cost by a wide margin, the disincentive to submitting an incredible, low cost bid are weak, especially if the program is critical to the offeror’s business. To wit: perhaps the most respected industry executive of our recent past is widely quoted as declaring that “there is no excuse to lose a cost reimbursable competition on cost.” To the extent that this attitude and the resulting practices are shared across industry (and they are!), cost proposals on cost reimbursable procurements cannot be assumed to be reasonable and credible representations of what the government and the taxpayers should expect to pay for a particular national security system. The disastrous execution trajectories for SBIRS and FIA and many other programs before and after them began with non-credible cost (sometimes called “low ball”) proposals. This issue is perhaps the most insidious flaw in the US acquisition system currently, and, exacerbated by the Conspiracy of Hope across government and industry, has been stubbornly resistant to resolution. Lest the reader conclude that this problem is squarely and solely the fault of industry, it must be observed that industry is responding to the Government’s inability to accurately assess complex cost proposals and to award at other than a “low” price.
Another factor that can cause acquisition failures involves the advanced technology that is frequently required for ambitious national security programs; significantly, many, but not all, involve space programs. If elements of advanced technology are required for a particular program and if sufficient time, monies and rigor are not applied to the development and maturation of those technologies, they can stall program progress, frequently at the time when the program is staffed at its maximum level and spending at its maximum rate. And, maturity of critical technology is yet another area where the Conspiracy of Hope is frequently a factor with corrosive impact on program execution. When President John F. Kennedy committed the US to the Moon Mission, the technology challenges were daunting – even overwhelming. But, instead of just hoping that these challenges would be overcome in a timely manner, a well-funded and rigorously managed program, with parallel paths and options was undertaken to assure that the required technologies were ready when they were required. And that model has been followed in others of our most ambitious programs in space and elsewhere. Unfortunately, it has not been applied everywhere it was needed, and has contributed to acquisition difficulties and outright acquisition failures; both FIA and SBIRS were impacted by technology challenges that were not rigorously addressed in the development process, and “hope” proved to be an insufficient substitute.
An additional factor not always associated with outright acquisition failure but an increasing factor in the unresponsiveness of the acquisition system, is that of Bid Protests. In short, if a competitor feels that he has been treated unfairly in a source selection process, several venues are open to seek redress. In the early days of our modern acquisition system, bid protests were extremely rare, and success in causing a source selection decision to be overturned were even much rarer. Today, a major focus in the government’s preparation to conduct a competitive procurement is around actions to take (or not take) to decrease that chance that the eventual decision will be protested by a loser in the competition. This emphasis on avoiding protests is having a stultifying effect on the competitive process. To avoid the risk of communicating more richly with one or another competitor, the government has reduced the periods within the competitive process wherein communication with potential competitors can occur and has reduced the quality of those communications. This has the effect of reducing the clarity and increasing the ambiguity in the bidders’ understanding of the government’s needs, and therefore, in the responsiveness of the bids to those needs. An insidious impact on an acquisition is that any such ambiguity or lack of clarity is invariably turned into optimistic assumptions, leading to an overly optimistic (read: unrealistic) cost proposal, with the obvious implications as discussed elsewhere in this article. If a bid decision is protested, the program can be delayed years while the issues are resolved. The Air Force Tanker competition is a telling recent example.
Another impact of the ever present threat of bid protests is that the government is more frequently using (or misusing) LPTA (Low Price, Technically Acceptable) and IDIQ (Indefinite Delivery, Indefinite Quantity) procurement vehicles. These vehicles both have appropriate uses in acquisition; the former, to procure commodity like products or services; the latter, to procure variable quantities of differing products or services. Neither of these vehicles is likely to serve the Nation or the war fighters well when they are employed by relatively inexperienced acquisition personnel, primarily because they are thought to be less vulnerable to bid protest, in acquisition of highly complex, highly differentiated systems or services.
In any gathering of government and/or industry acquisition professionals, bid protests are bemoaned for their corrosive impacts on the acquisition process, generally. However, in a recent gathering of industry acquisition officials, a suggestion that industry might offer a moratorium on bid protests as an incentive to stimulate discussion around alternatives to decrease protests, was summarily rejected. The assertion was offered that bid protests are now a more or less routine element of business strategy in industry instead of an extraordinary mechanism, to be used sparingly in only the rarest of circumstances. On the other side, if the government eschews true professionalization of acquisition, it can expect that its decreasingly domain knowledgeable, trained and experienced acquisition staff will conduct increasingly ambiguous competitions and increasingly subject its acquisition decisions to bid protests.
Before we go on to suggested remedies, let’s summarize those causes of acquisition difficulty or failure that we’ve touch on – with a little paraphrasing:
- Lack of a contract based on a credible cost, schedule and performance baseline;
- Selection of a contractor without the requisite experience, domain knowledge and capability to perform;
- Inexperienced government acquisition workforce, lacking in training, skills, domain knowledge and experience and/or assigned on short tours in acquisition programs;
- Dependence on immature technologies without the requisite time, funding and process rigor to provide a high confidence of timely success;
- Instability in requirements and/or funding;
- Gyrations in the Big “A” perturbing the program and/or limiting the options of program management;
- “Conspiracy of Hope,” with impacts on funding; contractor selection; technology maturity; government acquisition office capabilities; program cost, schedule and performance progress and risk assessments and projections; and
- Bid Protests.
What to do?
Let’s now consider possible remedies to the underlying causes of acquisition failures:
- Contractual Baseline: Given that overly optimistic, and therefore unachievable, bids in competitive cost reimbursable contracts have become virtually the standard, we must conclude that the costs and schedules submitted in such competitions are no longer dependable factors for selection decisions. This may sound like heresy, but the recent track record in competitions across the DoD and the IC is undeniable. In a 2011 letter to the then DoD Undersecretary for Acquisition, Technology and Logistics, Dr. Ashton Carter, I proposed that contracts should be awarded at or near the Government determined “should cost/schedule” as the “target cost/schedule,” essentially independent of what cost/schedule was proposed. This implies that the selection decision is based on so-called technical, management and past performance factors with cost (and schedule) considered lightly or not at all. Such contracts should be structured to pay fee only on the costs that were bid and to provide positive/negative fee incentives for underrunning or overrunning the target cost and schedule. This is essentially what happens on programs with large overruns, but with my proposed approach, the contractor begins working immediately to the correct cost and schedule baseline and avoids for the government and himself the painful journey through “the valley of the shadow of death” and the costs of redoing poorly done work in the always futile attempt to forestall the inevitable. Since the letter to Dr. Carter, an additional contract provision to discourage overly optimistic bids has emerged. A major factor in a decision to submit an overly optimistic bid is that all costs, including indirect costs, are reimbursed even if the contract is massively overrun. If a bidder sees an attractive long term business opportunity flowing from a program competition, having only to forego the profit (generally a few percentage points of costs incurred) on the amount of an instant contract overrun may be a good trade off. Therefore, it is recommended that only a fraction of the indirect costs be reimbursed on the overrun amount. In particular, it would seem only fair and reasonable that the IRAD (independent research and development) and B&P (bid and propose) allocations not be reimbursed on the overrun costs. In any case the government must work to avoid issuing a contract at some non-credible cost and schedule.
- Selection of a qualified supplier: While competition is a bedrock principle of the American economic system, it does not work in some circumstances without serious, unintended consequences. Such circumstances are common in the very specialized world of DoD and IC procurement. Especially after the major consolidation of the industrial base following the end of the Cold War, there are market segments wherein there is only one credible supplier; aircraft carriers provide a well-known example, and there are many others. If there is only one truly competent supplier for a particular capability, running a competition risks getting a disastrous outcome (such as FIA) or a manifestly suboptimal outcome, wherein an industrial team with no credible chance of winning is induced to spend government reimbursed research and bidding monies and company funds that could have been applied elsewhere for greater National benefit. A cruelly ironic factor in a bid by a nonqualified competitor is that his labor cost estimate should be higher than that of a qualified competitor to account for the inevitable learning that must occur. But, since he doesn’t know what he doesn’t know, his lack of experience will drive his labor bid even lower! It is this factor that has led to the worst of our acquisition disasters. The government “should-cost/schedule” for a program referred to above, generally assumes that a competent supplier will be doing the work. If through some vagary of the competition process, a supplier of lesser capability is selected, the should-cost/schedule must be increased to account for the need to develop (read: for the government to pay to develop) the required capabilities to execute the program.
In a market without true competitors, the interests of the warfighters and the taxpayers are better served if the government simply selects the qualified supplier and then jointly works with that supplier to define the required capability and the cost and schedule to develop that capability and contracts accordingly. Many of our most exquisite DoD and IC systems have been procured in this manner for decades. If for political or other reasons competition is mandated, the government must spend time and money (for large, complex systems – years and billions) to “create” a competition.
- Professional, qualified government acquisition staff: As outlined in the above referenced 2014 IC acquisition study, acquisition management is a skills, training, and experience based profession. Acquisition is not the domain of generalists or short serving specialists from other domains on career broadening rotations. Acquisition must be recognized as the professional career field that it is. Its professionals must be led, trained and rewarded appropriately and must include not just the program managers and contracting officers, but systems engineers, costing and scheduling experts and other specialties as needed. In the previously referenced Op-Ed pieces on USAF staffing of space system acquisition assignments, there is the thinly veiled implication that, if frequent assignment rotations are mandated by the “big” Air Force, then perhaps the Air Force needs to commit to a civilian acquisition core so that it can get the sustained high level performance required by today’s complex acquisition programs. In the IC’s civilian agencies, acquisition professionals must be recognized and rewarded comparably with the professionals who serve “closer” to critical missions.
- Technology maturity: When an acquisition program has the need of one or more advanced technologies, the risks, costs and time inherent in bringing the required technology through the maturation process must be acknowledged and accommodated in the program plans from the very beginning. The costs and schedules must be worked into the baseline, and, if indicated by objective measures of risk (such as Technology Readiness Level), separate initiatives and parallel approaches pursued.
- Requirements and funding stability: It is axiomatic that if you don’t have a firm baseline on what you are to build and can’t count on the funds to build it, you won’t have a successful acquisition program. It is naïve to expect, given today’s rapidly evolving technologies and threats, that complex multiyear DoD and IC development programs should enjoy unchanging requirements baselines. And, the US employs yearly budgeting, notwithstanding the compelling cases made over and over again for the cost saving achievable through multi-year funding. But, recognizing these realities doesn’t mean that disciplined management of the requirements baseline and driving for the maximum possible funding stability shouldn’t be in the top priorities of an acquisition management staff – they must be! Temptations to go after that last new capability or accommodate a newly emerging customer must be carefully managed. Bigger changes must be accommodated through block strategies for programs to avoid harmful perturbation in the often high risk initial development phase. And, agencies with multiple, simultaneous acquisition programs must be unsentimental about triage in the face of budget instability, instead of just “butter spreading” cuts across all programs.
- Gyrations in the “Big A”: Many actions in the “Big A” are inherently part of US system of governance: checks and balances, redress of grievance, petition to the Government, advocacy of one’s interest, etc. and the legitimate actions of the “customers” of the acquisition system to hold it accountable. Changes in these domains invariably require legislative action and are problematic because they involve these fundamental “rights.” They also require that acquisition oversight and decision rights in the executive and legislative branches of the government be addressed – never an easy proposition. The “…hidebound and bureaucratic process…” to which former SECDEF Gates referred is an immutable result of the efforts of the various holders of budget authority and decision rights to defend, or even expand, those authorities and rights relative to acquisitions. The recent Better Buying Power (BBP) initiatives of the DoD represent thoughtful attempts to address some of these issues, and others. BBP1 included strong support for fixed price (FP) contracts. Of course, FP contracting should be used whenever it is appropriate. But, to use FP contracting for national security programs with high RDT&E content invites financial disaster for industry and unmet requirements for the intelligence professionals and the war fighters. The poster child and legacy of an ill-conceived initiative to remedy acquisition problems in the 1980s through FP contracting, was the Navy’s failed A-12 aircraft development program, which recently exited a 20 year journey through the courts. The recently released BBP3 includes some of the acquisition remedies proposed in this article.
- Conspiracy of Hope: Given that “hope” is among the most enduring and empowering of the human emotions, it is unreasonable to expect that it can be completely purged from the acquisition system. However, replacement of hope with commitment to the disciplines of good acquisition management: objectivity, rigor, risk assessment, cleared eyed judgment, solid financial projections, etc., can substantially improve the performance of the acquisition system. Imposition of discipline in acquisitions is the purview of the acquisition oversight bodies and they can make a difference if they, themselves, adhere to those same disciplines. The acquisition overseers must be willing to “throw the flag” consistently when they encounter lack of discipline in any element or phase of the acquisition system. As foretold above, the actions to mitigate the Conspiracy of Hope include the following:
- Do not begin acquisition programs that are not affordable.
- Do not award contracts (for both end item development and services) at other than the cost and schedule captured in a credible government “should cost” for the program.
- Do not run competitions for a major development programs unless there are at least two fully qualified candidate suppliers.
- Depend only on mature technology (high TRL – technology readiness level) for major programs, or commit to rigorous technology maturation programs.
- Professionalize the government acquisition workforce and make acquisition personnel decisions consistent with the expected challenges and durations of all programs.
- Rigorously manage program requirements and fund the program to those requirements.
- Conduct regular rigorous, objective reviews on all development programs.
- Bid Protests: The government must strive to reduce the vulnerability of its acquisition decisions to bid protests. The first line of action must be that the acquisition process be put in the hands of domain knowledgeable, trained and experienced acquisition professionals; no amount of half measures involving increasingly bureaucratic, stultifying “rules” implemented by amateurs or generalists will do the job, while enhancing the responsiveness of the acquisition process to the needs of the Nation. Not only is this action likely to reduce the probability that decisions will be protested, it will increase the government’s ability to defend forcefully and competently its award decisions. And, acquisition oversight officials must assure that the appropriate contracting vehicle is used for each acquisition. Discouraging industry’s use of protests except in the most obvious and consequential cases is a harder problem, and legislation might be needed. However, once the government has demonstrated its commitment and ability to conduct protest resistant procurements and to defend vigorously and successfully its decisions, industry’s recent protest aggressiveness might well decline. Joint industry/government dialog on the subject of protests might also be helpful.
As evidenced by the steady stream of acquisition reform initiatives over the years, most having relatively little positive impact, the acquisition system has proven itself remarkably resistant to systemic reform. I am tempted to conclude (as have others before me) that this is so because the participants in the system have found ways to advance their particular interests under the existing system and do not desire that it be changed in any fundamental ways. Accepting this reality, I have proposed specifically focused proscriptions that could be implemented under the direction of DoD and IC agency heads and acquisition oversight authorities that would avoid the worst of the acquisition shortfalls of the present and recent past.
1. “NASA: Assessments of Selected Large-Scale Projects,” GAO Report 15-320P, March 2015.
2. “Department of Defense Policies and Procedures for the Aquisition of Information Technology.” Report of the Defense Science Board Task Force. March 2009.
4. Philip Taubmean, “In Death of a Spy Satellite Program, Lofty Plans and Unrealistic Bids,” New York Times 11 November, 2007.
5. I wrote about staffing issues in national space programs in a pair of Op-Ed pieces in Space News: “Can the Air Force Fill Space Acquisition Assignments?,” November 23, 2010 (See more at: http://spacenews.com/guest-blog-can-air-force-fill-space-acquisition-assignments/#sthash.E77nMT8p.dpuf) and “Air Force Staffing of Space Acquisition Assignments – Revisited,” April 4, 2011 (See more at: http://spacenews.com/guest-blog-air-force-staffing-space-acquisition-assignments-revisited/#sthash.P4fyPNns.dpuf).
7. Geoff Colvin, Talent is Overrated: What Really Separates World-Class Performers from Everybody Else (Penguin Publishing Group: New York, 2008).