Opinion: Acquisition Process Needs Incentives, Risk Tolerance

Source: Aviation Week & Space Technology
December 02, 2013
Credit: David B. Gleason

Americans love to look for silver-bullet solutions to monstrous problems, and few monsters are in more need of slaying than the cumbersome and costly system the U.S. uses to acquire defense systems. Since the 1960s, countless blue-ribbon investigative panels and hundreds of reports have called for the government to reform its complex and wasteful system, yet the cost of weapons systems keeps ballooning and program delays are endemic. It is little wonder that there are cries to fire all the bureaucrats, shut the whole mess down and start over.

If only it were that simple. Despite the personal attention of a few presidents—Washington, Truman, Eisenhower—the nation has been struggling to get a handle on defense acquisition since the original six frigates of the Navy were authorized in 1794. The U.S. has used a combination of advanced technology and manufacturing prowess to build a fearsome military that today has far more power and reach than any adversary. But there is an inherent cost: In the last decade or so, the pursuit of cutting-edge technology has increased costs about 3% above inflation every year.

Then there is the fact that Uncle Sam is a monopsony customer, and a fickle and exacting one at that. Developing and fielding the world's first “fifth-generation” fighter is no easy task, but throw in the requirements of Defense Federal Acquisition Regulations, the Defense Contract Audit Agency, Earned Value Management Systems and biennial turnover in federal program management, and one begins to see why only a niche collection of contractors sells large systems to the Pentagon. Compounding the problem is Congress, with its parochial demands to spread work among hundreds of districts, refusal to fund multi-year budgets and propensity to make piecemeal cuts to programs to save money, exacerbating delays and driving up unit costs.

The good news is that there is a renewed emphasis in Washington on acquisition reform (see page 28). That is being driven in part by necessity: In this new era of constrained government budgets, problems can no longer be papered over by throwing more money at them.

Rep. Mac Thornberry, a Texas Republican, was recently put in charge of a House Armed Services Committee drive to reform the acquisition system. And Frank Kendall, the Defense Department's acquisition czar, is applying metrics in an effort to identify shortfalls in the system and develop better ways of doing business.

Applying market solutions such as fixed-price contracts or encouraging more bidders early on can have positive effects, but also may create costs and problems of their own if applied indiscriminately. Nor is trying to increase oversight a magic solution; auditors cost money, and eventually there is a law of diminishing returns. As one of Kendall's predecessors recently put it, “We spend millions to save pennies.” Cutting or streamlining regulations sounds good, but is easier said than done. After all, many mandates were put in place for a good reason.

Simply put, the low-hanging fruit has been picked. But while there is no single solution for this very complex problem, defense acquisition experts have long recommended a course of action. Assuming the nation still wants a military that is second to none, it will need an acquisition system that incorporates more market-based practices. It needs a system that encourages taking educated risks, tolerates a certain amount of failure and uses monetary incentives across the system to reward success—from contracting officers to program managers to publicly owned contractors.

Hard as it is to believe, sensible talk can be heard from both sides of the aisle in Congress. “We can pass all the legislation we want, [but] one of the greatest challenges . . . is getting the incentives right,” says Rep. Adam Smith of Washington state, the ranking Democrat on the Armed Services panel. We agree.

Of course, that is easier said than done in a contracting system where taking risks has long been viewed as a quick way to put a career in jeopardy. Incentives also are not an easy sell to taxpayers who buy into a mythology that government is always wasteful, military contractors are rapacious manipulators, and federal workers are incompetent and lazy. But none of that makes incentives any less appropriate.


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