Another Attempt at Defense Procurement Reform Begins
Mac Thornberry is taking a sledgehammer to the Pentagon’s $600 hammer.
That particular bogeyman of wasteful defense spending never actually existed, but many real (and larger) inefficiencies continue to plague the defense procurement process. Last month, the Chairman of the House Armed Services Committee released draft legislation designed to make fundamental reforms to the government’s acquisition of defense-related goods and services. Chairman Thornberry’s bipartisan initiative, which he drafted with HASC Ranking Member Adam Smith, aims to increase the transparency, flexibility, and responsiveness of the defense acquisition system. The Chairman launched his initiative before a standing-room-only audience at the Center for Strategic and International Studies (CSIS), where he argued that the accelerating pace of technological development and the proliferation of strategic threats compel the need for rapid, comprehensive reform. In this post, we review some highlights of the proposal and examine the potential implications for government contractors.
Several key themes dominate the reform effort. First, the name of the game—indeed, the first word of the bill title—is “agile.” The pace of innovation and the growth of national security threats are both accelerating, and we cannot rely on a procurement system that lags months or years behind.
Second, according to Chairman Thornberry, the “stars are aligned” for reform. Several key stakeholders have emphasized that reform must be a priority during the 114th Congress; included in this list are Senators John McCain and Jack Reed, the Chairman and Ranking Member of the Senate Armed Services Committee; Secretary of Defense Ash Carter; Deputy Secretary Robert Work; and Under Secretary Frank Kendall, the Pentagon’s chief weapons buyer. Chairman Thornberry remarked that it is “fairly rare” to have such unity of purpose in the House, Senate, and Pentagon, particularly given the partisan divisions that have sharpened in anticipation of the 2016 presidential election year.
Third, this draft legislation is not the endgame. In the accompanying letter to his HASC colleagues, Chairman Thornberry calls the text a “discussion draft” designed to spur debate over the next several weeks. He intends to finalize legislative language for inclusion in the National Defense Authorization Act (NDAA) for FY2016. He invited critique and debate in advance of the Committee’s NDAA mark-up, scheduled for April 29. Moreover, Chairman Thornberry acknowledged that this initiative only addresses “the first tranche of legislative proposals” required for full procurement reform. He compared the process to “fixing the engine while the plane is still in flight.”
Fourth, “transparency” and “accountability” are the keys to the regulation-cutting aspects of the legislation. A principal objective is to empower Pentagon program managers: give them the tools and authority to manage the process; provide training on the ethics of military-industrial relations; and hold them accountable if they fail to deliver a program on time and on budget.
Issues in Focus
The draft legislation organizes reform around four principles: improving the acquisition workforce; redesigning the acquisition strategy and planning process; implementing a responsive and responsible chain of command; and eliminating unnecessary regulations.
Manpower. The personnel-related reforms include changes to the military promotion system. Today, that system offers few incentives for top military talent to serve in acquisition billets. The draft legislation would implement a “dual-track career path that allows [leaders] to gain experience in and receive credit for a primary career in combat arms and a functional secondary career in the acquisition field to more closely align the military operational, requirements, and acquisition workforces of each armed force.” The HASC would also commission a report from the Chair of the Defense Business Board to examine the question whether “current processes and practices … unnecessarily create hiring delays and limit the pool of highly qualified candidates that would otherwise be willing to accept a position in Government service.” Chairman Thornberry argued that the “pendulum has swung too far” on the restrictions preventing experienced executives from moving between industry and government. Transparency and ethics training, he suggested, are the appropriate checks on potential conflicts of interest.
Chairman McCain, in his own remarks at CSIS two days later, suggested that he would go considerably farther and re-examine the fundamental tenets of the thirty-year-old Goldwater-Nichols Reorganization Act. He commended Chairman Thornberry’s efforts and added that “[a]cquisition reform is actually a large piece of an even larger priority, which is the final one I plan to focus on as Chairman [of the Senate Armed Services Committee]—the structure, roles, and missions of our civilian and military organizations within the Defense Department.”
Planning. The new acquisition strategy borrows a page from military planning. The legislation would require every program to begin with a written strategy, subject to periodic adjustments. This strategy is designed to consolidate at least six separate documents into one. Importantly, the document must identify the most appropriate type of contract for the acquisition, and must include risk mitigation analysis—akin to the “operational risk management” element of military planning. During the CSIS event, Chairman Thornberry floated the idea of removing the restrictions on shared savings on service contracts, in order to align the incentives of service contractors, their shareholders, and their government customers.
Chain of Command. Chairman Thornberry introduced this portion of reform with self-deprecation: “As a recovering lawyer, I can attest that the fewer lawyers that are involved in the process, the smoother it’s probably going to go.” The draft legislation streamlines the decision-making process in two respects. First, it eliminates the requirement for legal certifications at several Milestone A and B decision points. Second, it pushes decision-making authority to lower levels, in order to expedite the process and focus on fewer points of responsibility and accountability. The legislation gives the Milestone Decision Authority (MDA) authority to determine when a program can advance, eliminating the current requirement for two Deputy Assistant Secretaries to review and approve the MDA’s recommendation. It also raises the dollar threshold on a number of programs and vests subordinate leaders with more authority to approve smaller acquisitions. For example, the simplified acquisition threshold would rise from the current inflation-adjusted $150,000 to $500,000.
Relief from Regulations. “Dozens” of reporting requirements would be eliminated under the new regime. Chairman Thornberry blamed the current glut of regulations as knee-jerk bureaucratic overreach. As an example, he repeatedly ridiculed the requirement for vast numbers of programs—including computer software—to include a “corrosion report.” He admitted that the Department of Defense has taken steps to reduce the burden of that particular regulation, but the illustration supported a broader argument: time-consuming regulations cannot inoculate the procurement process against risks of malfeasance or incompetence. Instead of attempting to “regulate our way out of human frailties,” the draft legislation emphasizes the importance of training, transparency, and accountability.
Implications for Government Contractors
Contractors should not pass up the invitation from Chairman Thornberry to contribute to the debate about procurement reform. Although this “discussion draft” is not finalized, it sets the terms for the upcoming NDAA mark-up and gives various stakeholders in industry and government some indication of where their efforts are most likely to pay off.
For example, Title V of the bill may look like a hotchpot of initiatives grouped under the rubric of “Industrial Base Matters,” but manufacturers with international sales should highlight the industrial base implications of their foreign clients. In his remarks at CSIS, Chairman Thornberry described foreign military sales as “critically important” to the industrial base, and acknowledged the need to eliminate obstacles to those sales.
In addition, contractors that find themselves embroiled in bid protest challenges may see the draft legislation as an opportunity to offer what is sure to be differing perspective on whether the system is working in its present form. The legislation and accompanying report suggest that frivolous protests contribute to the overall inefficiency of the procurement process. The legislation requires a short-fuse, independent study of “[t]he variable influences on the net benefit (monetary and non-monetary) to contractors either filing a protest of indicating intent to file a protest … and [t]he extent to which companies file protests even if they do not contest that there was an error in the procurement process.” The draft thus criticizes supposed bad actors who manipulate the bid protest rules to delay meritorious awards or extract unwarranted extensions of performance.
Policy differences and partisan politics may yet derail these ambitious reform efforts. In the meantime, however, the defense industry should take advantage of the opportunity to shape the conversation and upcoming decisions at the Pentagon and on Capitol Hill.