Chairman 

Mr. David Packard 

Members 

Mr. Ernest C. Arbuckle 

Gen. Robert H. Barrow 

USMC (Ret) 

Mr. Nicholas F. Brady 

Mr. Louis W. Cabot 

Mr. Frank C. Carlucci 

Mr. William P. Clark 

Mr. Barber B. Conable. Jr. 

Gen. Paul F. Gorman 

USA (Ret) 

Mrs. Carla A. Hills 

Adm. James L. Holloway 

USN (Ret) 

Dr. William J. Perry 

Mr. Charles J. Pilliod. Jr. 

Lt. Gen. Brent Scowcroft 

USAF (Ret) 

Dr. Herbert Stein 

Mr. R. James Woolsey 

Director 

Mr. Rhett B. Dawson 

PRESIDENT'S BLUE RIBBON COMMISSION 

ON DEFENSE MANAGEMENT 

June 30, 1986 

The President 

The White House 

Washington, D. C. 20500 

Dear Mr. President: 

On behalf of your Blue Ribbon Commission on 

Defense Management, I have the honor to present this 

Final Report, which compiles the detailed findings, 

conclusions, and recommendations produced by our yearlong study. They address, in addition to the areas on 

which we have reported previously, several additional 

aspects of defense management. 

The Final Report is intended to assist the 

Executive and Legislative Branches as well as industry 

in implementing a broad range of needed improvements, 

including the many Commission recommendations endorsed 

by you in April 1986. Its title -- "A Quest for 

Excellence" -- reflects a basic management philosophy, 

as well as a standard to which those engaged in the work 

of our nation's defense must always aspire. 

Without exception, the recommendations of our 

Final Report have the support of all members of the 

Commission. All members have contributed invaluably to 

this work, and I am deeply grateful for their unstinting 

efforts. We are most fortunate to have had the assistance of a talented and dedicated staff. 

We have tried to conduct a study of the important dimension you intended. We are gratified by 

your confidence in us and your support of our 

recommendations. We hope that, under your leadership, 

they will help realize a new era in defense management 

for the benefit of all Americans. 

736 Jackson Place. N.W. Washinqton. D.C. 20503 

I* 

(202) 395-7365 
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Chairman 

Mr. David Packard 

Members 

Mr. Ernest C. Arbuckle 

Cen. Robert H. Barrow 

USMC (Ret) 

Mr. Nicholas F. Brady 

Mr. Louis W. Cabot 

Mr. Frank C. Carlucci 

Mr. William P. Clark 

Mr. Barber B. Conable. Jr 

Cen. Paul F. Gorman 

USA (Ret) 

Mrs. Carla A. Hills 

Adm. James L. Holloway 

USN (Ret) 

Dr. William J. Perry 

Mr. Charles 1. Pilliod, Jr. 

Lt. Gen. Brent Scowcroft 

USAF (Ret) 

Dr. Herbert Stein 

Mr. R. James Woolsey 

Director 

Mr. Rhett B. Dawson 

PRESIDENT’S BLUE RIBBON COMMISSION 

ON DEFENSE MANAGEMENT 

June 30, 1986 

Dear Mr. Secretary: 

On behalf of the President’s Blue Ribbon 

Commission on Defense Management, I have the privilege 

to present a copy of our Final Report, which was 

submitted to the President today. 

We hope this Final Report will assist the 

Department of Defense to implement a range of management improvements. Among these are the many Commission 

recommendations which the President designated in 

April 1986 for quick and decisive implementation. For 

this purpose, I would be pleased to continue to work 

with you in any way possible. I look forward to joining 

you, as the President recently requested, in a progress 

report in early 1987. 

Please accept our sincere thanks for the 

responsive manner in which your Office, and the 

Department of Defense generally, assisted in the work of 

the Commission. 

David Packard 

The Honorable Caspar Weinberger 

Secretary of Defense 

Washington, D. C. 20301 

736 Jackson Place. N.W. Washmgton. D.C. 20503 (202) 395-7365 
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A Quest for Excellence 

Final Report to the President 

by the President's 

Blue Ribbon Commission 

on Defense Management 

~ 

June 1986 
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TABLE OF CONTENTS 

Page 

Foreword by David Packard .......................................... xi 

Summary ........................................................... xu 

Introduction ........................................................ 1 

Chapter One: National Security Planning and Budgeting ............. 7 

Chapter Two: Military Organization and Command .................. 33 

Chapter Three: Acquisition Organization and Procedures .............. 39 

Chapter Four: Government-Industry Accountability .................. 73 
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LIST OF APPENDED MATERIAL 

Appendix” 

A. Detailed Recommendations, President’s Blue Ribbon Commission on 

Defense Management 

B. Executive Order 12526 (July 15, 1985) 

C. National Security Decision Directive 219 (April 1, 1986)’ White House 

Summary 

D. President’s Special Message to the Congress (April 24, 1986) 

E. Recommended Process for National Security Planning and Defense 

Budgeting 

F. A Comparison of Cost Growth in Defense and Non-Defense Programs 

G. An Illustrative Organization of the Acquisition Staff of the Secretary of /’ 

Defense , 

H. Wendy T. Kirby, Expanding the Use of Commercial Products and “CommercialStyle” Acquisition Techniques in Defense Procurement: A Proposed Legal 

Framework (1 986) 

I. Logistics Management Institute, The Department of Defense and Rights in 

Technical Data ( 1986) 

J. The Navy Demonstration Project: An Alternative Personnel Management 

System 

K. Survey of Department of Defense Acquisition Workforce ( 1986) 

L. U.S. National Survey: Public Attitudes on Defensp Management (1986) 

M. Defense Industry Initiatives on Business Ethics and Conduct 

N. Ethics Resource Center, Final Report and Recommendations on Voluntary 

Corporate Policies, Practices, and Procedures Rvlating to Ethical Business 

Conduct ( 1986) 

0. Peat, Marwick, Mitchell & Co., Report on Survey ojDefense Contractors’ Internal 

Audit Processes ( 1986) 

P. Arthur Andersen & Co., Study of Government Audit and Other Oversight 

Activities Relating to Defense Contractors ( 1986) 

*Appended material is contained in a separate Appendix to iinal Report. 
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FOREWORD 

By David Packard, Ch‘lirman 

Less than one year ago, President Reagan established his Blue Ribbon 

Commission on Defense Management to “stud) the issues surrounding defense 

management and organization, and report is findings and recommendations.” 

In February 1986, the Commission submitted an Interim Report to the President. 

Intended as a blueprint for overall improvement in defense management, the 

Interim Report provided initial recommendations concerning key aspects of national security planning and budgeting, militar), organization and command, acquisition organization and procedures, and government-industry accountability. 

This Final Report compiles the Commission’s full findings and recommendations 

in each of these areas. I wish to add a final personal word on the “Quest for Excellence”-a standard to which defense management must always aspire. 

As the Commission concludes its efforts, the urgent need we have found for 

reforms in defense management should not obscure accomplishments ofrecent 

years. The American people justly continue to have high confidence in the 

United States military as an institution, and in the ability of our men and women 

in uniform to defend the nation. The morale and fighting ability of our Armed 

Forces have achieved a level higher than at any time in my recent memory. 

Despite many positive achievements, however, I believe the importance of 

revitalizing defense management has become ever more apparent. The paramount purpose of the Commission’s work has been to identify and develop solutions for those structural problems-and to e<lse the stifling burdens of regulation, reporting, and oversight-that have long limited the success of the many 

people in government and industry on whose talents and dedication the nation’s defense depends. Innovations in American industrial management, yielding products of ever higher quality and lower cost, have provided a keyinsight: 

human effort must be channeled to good purpose through sound centralized 

policies, but free expression of people’s energy. enthusiasm, and creativity must 

he encouraged in highly differentiated settings 

The Commission’s recommendations are intended to help establish strong 

centralized policies that are both sound in themselves and rigidly adhered to 

throughout the Department of Defense (DoD). In any large organization, policies must be executed through discrete structures. In the large, complex enterprise of national defense, centers of management excellence dedicated to advancing 

xi 
DoD’s overall goals and objectives. The Commission’s recommendations, if fully 

implemented, will help create an environment In which each DoD component 

can achieve ever higher standards of performance by summoning forth the enthusiasm and dedication of every man and wonlan involved in accomplishing its 

mission. Excellence can flourish, I believe, only where individuals identify with 

a team, take personal pride in their work, concentrate their unique efforts, develop specialized know-how, and above all co~lstantly explore new and better 

ways to get their job done. Freedom and incentives of just this sort, President 

Reagan has observed, “unleash the drive and entrepreneurial genius that are 

the core of human progress.” 

This technique-establishment of strong centralized policies implemented 

through highly decentralized management structures-has its legacies at DoD. 

On this model, for example, Navy-industry teams working together as one 

brought the Polaris submarine-launched missilc system from initiation to successful operational test in one-third the time it would take now. In today’s advance development work, centers of excellence should include select program 

management and industry teams working morct closely together on new prototype weapons. If DoD truly is to fly and know the cost before it buys, the early 

phase of research and development must be on(: of surpassing quality, following 

procedures and meeting timetables distinct from those of approved production 

programs. 

Despite formidable bureaucratic obstacles, I believe that a centers-of-excellence approach can tangibly improve productivity and quality. If widely adopted 

and steadfastly supported, it could achieve revolutionary progress throughout 

defense management. The potential applications are almost without number. In 

1984, for example, DoD began to apply this concept to managing its installations 

as potential centers of excellence, by according installation commanders much 

greater latitude to run things their own way, cut. through red tape, and experiment with new ways of accomplishing their missions. As a result, commanders 

and their personnel have found more effective means to do their jobs, identified 

wasteful regulations, and reduced costs while irnproving quality. The program 

has shown the increased defense capability that comes by freeing talented people from over-regulation and unlocking their native creativity and enthusiasm. 

Excellence in defense management will nor and can not emerge by legislation or directive. Excellence requires the opposite-responsibility and authority 

placed firmly in the hands of those at the working level, who have knowledge 

and enthusiasm for the tasks at hand. To accomplish this, ways must be found to 

restore a sense of shared purpose and mutual confidence among Congress, 

DoD, and industry. Each must forsake its current ways of doing business in 

favor of a renewed quest for excellence. 

xii 
~~ 

Congress must resist its inveterate tendencv to legislate management practices and organizational details for DoD. Excellence in defense management will 

not come from legislative efforts to control and arrange the minutest aspects of 

DoD’s operations. Congress can more usefully ( ontribute by concentrating on 

larger, often neglected issues of overall defenst. posture and military performance. 

DoD must displace systems and structures that measure quality by regulatory compliance and solve problems by executive fiat. Excellence in defense 

management can not be achieved by the numerous management layers, large 

staffs, and countless regulations in place today. It depends, as the Commission 

has observed, on reducing all of these by adhcring closely to basic, commonsense principles: giving a few capable people the authority and responsibility to 

do their job, maintaining short lines of communication, holding people accountable for results. 

Defense contractors and DoD must each assume responsibility for improved 

self-governance to assure the integrity of the contracting process. Excellence in 

defense management will not be achieved through legions ofgovernment auditors, inspectors, and investigators. It depends on the honest partnership of 

thousands of responsible contractors and DoD, each equally committed to 

proper control of its own operations. 

Xlll ... 
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Summary 

Final Report 

to the President 
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I n July 1985, this Commission was charged by the President to conduct a 

defense management study of important dimension. Our findings and 

recommendations,* summarized below, concern major features of national security planning and budgeting, military organization and command, acquisition 

organization and procedures, and government-industry accountability. This 

summary represents, with certain important additions, the blueprint for overall 

improvement in defense management presented as our Interim Report to the President on February 28, 1986. 

National Security Planning and Budgeting 

The Commission finds that there is a great rleed for improvement in the 

way we think through and tie together our security objectives, what we spend to 

achieve them, and what we decide to buy. The entire undertaking for our nation’s defense requires more and better long-range planning. This will involve 

concerted action by our professional military, the c-ivilian leadership of the 

Department of Defense, the President, and the Congress. 

Congress reach coherent and enduring agreemelit 011 national military strategy, the forces to carry it out, and the funding that should be provided-in 

light of the overall economy and competing clairr~s 011 national resources. The 

absence of such a system contributes substantiall) to the instability and uncertainty that plague our defense program. Thest. r’ause imbalances in our military forces and capabilities, and increase the costs of procuring military 

equipment. 

Better long-range planning must be based on military advice of an order 

not now always available-fiscally constrained, fi)~-w;~rd looking, and fully integrated. This advice must incorporate the best possible assessment of our overall 

military posture vis-a-vis potential opponents, atd must candidly evaluate the 

performance and readiness of the individual Sel-vices and the Unified and 

Specified Commands. 

missions in the Department’s presentation, and (:o~gress’ review, of the defense budget. The present method of budget review, involving duplicative 

‘Today, there is no rational system whereby the Executive Branch and the 

To conduct such planning requires a sharpcwed focus on major defense 

*The Commission’s recommendations are set forth infull arld detailed form at Appendix A to 

this Final Report. All appended material is collected in a separate Appendix to Final Report. 

xvii 
effort by numerous congressional committces and subcommittees, centers on either the minutiae of line items or the gross tlollar allocation to defense, and 

obscures important matters of strategy, o1)er;ltional concepts, and key defense 

issues. As Senator (;oldwater, Chairman of’ the Senate Armed Services (’ ,ommittee, recently observed, “The budget ocess (1istort.s t.he nature of congressional oversight by focusing prirnarily on I he question of how much Iwfore we 

answer the key questions of what for, whv, ;itld how well.” 

Of greater concern, congressional appro\al of the budget on a year-t.o-year 

basis contributes to and reinf0rces the L)c.partrnent’s own historical penchant 

for defense managemenl. by fits antl starts. Anticipated defense dollars are always in flux. Individual programs must he hastily and repeatedly ;~(‘otn~~~

dated to shifting overall budgets, irrespective of‘ military strategy antl planning. 

The net effect of this living day-t.o-day is Itw defense and more cost. Although 

often hidden, this effect is signif’icatlt--allcl it can be avoided. 

Biennial budgeting, authorization ancl ;tppropriation of’ major programs 

not annually but only at key milestones, a11cl ;I f’ocus on strategy and operational concepts instead of line items are anlong the most important changes 

that could be made to improve defense planning. ‘They would enhance the 

congressional role in framing good natio~~al security policy. 

Budgeting based on strategy and oper.;ltion:d concepts also would provide 

a far greater inlprovcment in the perfi)r111,11~~ of the Office of‘ the Secretary of‘ 

Defense than would any legislated r-eoI-gal~iz~~tio~~ of’ that Office. In general, we 

believe, (hngress should permit the Secrcbtal-y to organize his Office ;IS he 

chooses to accomplish centralized policy f0rnlulation and decentralized inlplementation within the Department. 

The Comrnissiorl concludes that new procedures are required to help the 

Administration and the Congress do t he rlewssar-y long-range plal1rlirlg and 

n1eaningfully assess what military forces :IIT needed to meet our national security objectives. Public and of‘ficial debate inust be brought to bear on these 

larger defense policy questions. ‘The Commission strongly urges adoption of a 

process that emphasizes the element of so1tnd, professional military advice provided within realistic confines of anticipatc4 long-term funding. 

Recommendations 

‘To institutionalize, expand, and link a series of critical cieterrninations 

within the Executive Branch and Congrehs, we recommend a process that 

would operate in substance as follows: 

xviii 
Defense planning would start with a comprehensive statement of national 

security objectives and priorities, based on recommendations of the National 

Security Council (NSC). 

Based on these objectives, the President would issue, at the outset of his 

Administration and thereafter as required, provisional five-year budget levels to the Department of Defense (DoD). These budget levels would reflect 

competing demands on the federal budget and projected gross national product and revenues and would come from recommttndations of the NSC and the 

Office of Management and Budget. 

The Secretary of Defense would instruct the Chairman of the Joint 

Chiefs of Staff (JCS) to prepare a military strategy for the national objectives, 

and options on operational concepts and key defense issues for the budget 

levels provided by the President. 

The Chairman would prepare broad military options with advice from 

the JCS and the Commanders-in-Chief of the Unified and Specified Commands (CINCs). Addressing operational concepts and key defense issues 

(e.g., modernization, force structure, readiness, sustainability, and strategic 

versus general purpose forces), the Chairman would frame explicit trade-offs 

among the Armed Forces and submit his recommendations to the Secretary 

of Defense. The Secretary of Defense would make such modifications as he 

thinks appropriate and present these to the President. 

The Chairman, with the assistance of the JCS and the Director of Central 

Intelligence, would prepare a net assessment of the effectiveness of United 

States and Allied Forces as compared to those of possible adversaries. The 

net assessment would be used to evaluate the risks of options and would accompany the recommendations of the Secretary of Defense to the President. 

The President would select a particular military program and the associated budget level. This program and budget level would be binding on all elements of the Administration. DoD would then develop a five-year defense 

plan and a two-year defense budget conforming to the President’s 

determination. 

The President would submit to the Congress the two-year budget and the 

five-year plan on which it is based. Congress would be asked to approve the 

two-year budget based upon this plan. It would authorize and appropriate 

funding for major weapon systems at the two key milestones of full-scale engineering development and high-rate production. 

xix 
DoD would present the budget to Congress on the basis of national strategy and operational concepts rather than line items. The details of such presentation would be worked out by the Secretary of Defense and appropriate 

committees of Congress. 

Military Organization 

and Command 

In our Interim Report, the Commission recommended the changes in rnili tary 

organization and command described below. l'hese were designed to assure 

unified action by our Armed Forces. On April 24, 1986, in a Special Message to 

Congress, the President endorsed these recornmendations and requested early 

enactment of legislation required to implement thern. As the culmination of' a 

major legislative effort begun in the House oi' Representatives in 1982 and 

joined in the Senate by passage of the Barry (;oldwater Department of Defense 

Reorganization Act of 1986, we anticipate erxtctment of our basic 

recommendations by the end of 1986. 

Recommendations 

Current law should be changed to designate the Chairman of the Joint 

Chiefs of Staff (JCS) as the principal uniformed military advisor to the President, the National Security Council, and the Secretary of Defense, representing his own views as well as the corporate views of the JCS. 

Current law should be changed to place the Joint Staff and the Organization of the Joint Chiefs of Staff under the exclusive direction of the Chairman, to perform such duties as he prescribes to support the JCS and to respond to the Secretary of Defense. The statutory limit on the number of 

officers on the Joint Staff should be removed to permit the Chairman a staff 

sufficient to discharge his responsibilities. 

The Secretary of Defense should direct that the commands to and reports 

by the Commanders-in-Chief of the Unified and Specified Commands 

(CINCs) should be channeled through the Chairman so that the Chairman 

may better incorporate the views of senior combatant commanders in his advice to the Secretary. 

The Service Chiefs should serve as members of the JCS. The position of 

a four-star Vice Chairman should be established by law as a sixth member of 

xx 
the JCS. The Vice Chairman should assist the Chairman by representing the 

interests of the CINCs, co-chairing the Joint Requirements and Management 

Board, and performing such other duties as the Chairman may 

prescribe. 

The Secretary of Defense, subject to the direction of the President, 

should determine the procedures under which an Acting Chairman is designated to serve in the absence of the Chairman of the JCS. Such procedures 

should remain flexible and responsive to changing circumstances. 

Subject to the review and approval of the Secretary of Defense, Unified 

Commanders should be given broader authority to structure subordinate 

commands, joint task forces, and support activities in a way that best supports their missions and results in a significant reduction in the size and 

numbers of military headquarters. 

The Unified Command Plan should be revised to assure increased flexibility to deal with situations that overlap the geographic boundaries of the 

current combatant commands and with changing world conditions. 

For contingencies short of general war, the Secretary of Defense, with 

the advice of the Chairman and the JCS, should have the flexibility to establish the shortest possible chains of command for each force deployed, consistent with proper supervision and support. This would help the CINCs and 

the JCS perform better in situations ranging from peace to crisis to general 

war. 

The Secretary of Defense should establish a single unified command to 

integrate global air, land, and sea transportation, and should have flexibility 

to structure this organization as he sees fit. Legislation prohibiting such a 

command should be repealed. 

Acquisition Organization 

and Procedures 

Action within the Administration and in Congress to improve national 

security planning and budgeting and military organization-as recommended 

by the Commission-will provide the element of stability required for substantial 

improvement of the acquisition system. This element is critical, and has been 

missing. While significant savings can be and have heen made through better 

procurement techniques, more impressive savings will come from eliminating 

the hidden costs that instability imposes. 

xxi 
~~~~~~ ~~ ~~~~~~~~~~ 

Our study of acquisition reveals, and our collective experience fully confirms, that there are certain common characleristics of successful commercial 

and governmental projects. Short, unambiguous lines of communication 

among levels of management, small staffs of highly competent profession;ll 

personnel, an emphasis on innovation anti productivity, smart buying practices, 

and, most importantly, a stable environment {)f' I)lanning and funding-all are 

characteristic of efficient and successful man;lgelrlent. 

These characteristics should be hallmarks of' defense acquisition. 'l'hey are, 

unfortunately, antithetical to the process the (htlgress and the Departnlellt of 

Defense have created to conduct much of' dtbter~se acquisition over the years. 

With notable exceptions, weapon systems take loo long and cost too much to 

produce. Too often, they do not perfornl as promised or expected. 'I'he reasons are numerous. 

Over the long term, there has been chrotlic instability in top-line f'unding 

and, even worse, in programs. 'r'his eliminate> kev economies of scale, stretches 

out programs, and discourages contractors f'rotn rnakirlg the long-term investments required to improve productivity. 

Federal law governing procurement has I )ecornr: overwhelmingly cornplex. 

Each new statute adopted by Congress has splwlled more administrative regulation. As law and regulation have proliferatecl, defense acquisition has 1)ecome 

ever more bureaucratic and encumbered 1)y tlnproductive layers of management and overstaffing. 

day no single senior official in the Office of' the Secretary of Deftmse (OSl)) 

working full-time to provide overall supervisron of the acquisition system. 

While otherwise convinced that the Secretarv .;hould be left free to organize his 

Office as he sees fit, the Commission cotdudt's that the demands of the :quisition system have become so weighty as to 1c.cluil-e organizational change 

within that Office. 

In the absence of such a senior OS11 off'icial, policy responsibility has 

tended to devolve to the Services, where at titlies it has been exercised without 

the necessary coordination or uniformity. 

Authority for acquisition execution, and .lc-countability for its results, have 

become vastly diluted. Program managers ha1.e in effect been deprived of control over programs. They are confronted instcd l~y never-ending bureaucratic 

obligations for making reports and gaining al)pt.ovals (,hat bear no relation to 

program success. 

Deficiencies in the senior-level appointmc~rlt system have complicated the 

recruitment of top executive personnel wit11 tllt~us'tria~ anct acquisit.ion experience. Recent steps to improve the professionJism of military acquisition personnel have been made within the 1)epartnwtlt of' Defense and reinforced by 

Responsibility for acquisition policy has I)ecorne fragmented. 'There is toxxii 
legislation. The existing civilian personnel rnanagerrlellt system has not, however, allowed similar improvements in career paths and education for civilian 

acquisition personnel. ‘1-0 attract and retain a good work force requires a more 

flexible system for management of contracting ofi‘ic.ers and other senior acquisition personnel---one comparable to the successful svstern for scientists and engineers recently demonstrated in the Navy’s so-called China Lake personnel 

project. Major innovations in personnel management and regulations are 

needed. The Commission’s recommendations in this critical area can and should 

be acted upon quickly and are of the highest priority. 

A better job of. determining requirements and estimating costs has been 

needed at the outset of weapons development. More rnoney and better engineering invested at the front end will get more relial)lcx alld better performing 

weapons into the field more quickly and cheaply. 1;or example, recent improvements in budgeting to most-likely cost have denlotlstrateci that this approach 

can result in a reduction in overruns. 

All too often, requirements for new weapon systems have been overstated. 

This has led to overstated specifications, which has led to higher cost equipment. Such so-called goldplating has become deeplv emt)etIded in our system 

today. The current streamlining effort in the 1)eikllse Ikpartment is directed 

at this problem. 

Developmental and operational testing have bc.etl loo divorced, the latter 

has been undertaken too late in the cycle, and prototvpes have heen used and 

tested far too little. 

In their advanced development projects, the Se1.vic.t.s too often have duplicated each other’s efforts and disfavored new ideas alld systems. ‘T’he Defense 

Advanced Research Prqjects Agency has not had a sui‘i’icient role in hatdwatx 

experimentation and prototyping. 

Cornrnon sense, the indispensable ingredient tor ;I successful system, has 

not always governed acquisition strategies. More coml)etition, for exanlple, is 

beneficial, but the mechanistic pursuit of competition fOI its own sake would be 

inefficient and sacrifice quality-with harmful results. hlulti-year p~-ocurement, 

baselining, and the use of non-clevelopmental iternc all entail costs to management flexibility, but would yield far greater benef’its ill program st.ability. rI’he 

Defense Department has initiated some baselining f the 13-1 is an example) and 

has made progress in gaining congressional accept:tnc’e of multi-year 

contracting. 

In sum, the Commission finds that there is legttirrlate cause for dissatisfiiction with the process by which the Department of Ikf‘erlse and Congress buy 

military equipment and material. We strongly disagree, however, with the commonly held views of what is wrong and how it must be fixed. The nation’s tlefeme programs lose far more to inefficient proc:etiures than to fraud and I 

xxiii 
dishonesty. The truly costly problems are those of’ overcomplicated organization 

and rigid procedure, not avarice or connivance. 

Chances for meaningful improvement will come not from more regulat.ion 

but only with major institutional change. Conltnon sense must be made to prevail alike in the enactments of Congress and the operations of the Ileprtrtment. 

We must give acquisition personnel more author it^ to do their jobs. If u.e make 

it possible for people to do the right thing the first time and allow them to use 

their common sense, then we believe that thc. 1)epartment can get by with far 

fewer people. 

The well-publicized spare parts cases are only one relatively srrlall aspect of 

a far costlier structural problem. Each spare Iwts case has its own peculiarities, 

but there are several major recurring causes that are systemic in nature. Many 

of these causes have been identified by the 1)ef’ense Department. 

It is undoubtedly important to buy spare parts with care and at reasonable 

cost. It is yet more important not to let the SlJare parts cases lead us to ignore 

larger problems or, even worse, to aggravate them. Policy makers must address 

the root causes of inefficiency, not dwell on tnargirlal issues. The prescription 

we offer for those larger problems will, we twlieve, result in savings on major 

weapon systems and minor spare parts alike 

Recommendations 

Notwithstanding our view that the Secretary of Defense should be free to 

organize his Office as he sees fit, we strongly recommend creation by statute 

of the new position of Under Secretary of Defense (Acquisition) and authorization of an additional Level I1 appointment in the Office of the Secretary of 

Defense. This Under Secretary, who should have a solid industrial background, would be a full-time Defense Acquisition Executive. He would set 

overall policy for procurement and research and development (R&D), supervise the performance of the entire acquisition system, and establish policy for 

administrative oversight and auditing of defense contractors. 

The Army, Navy, and Air Force should each establish a comparable senior position filled by a top-level civilian Presidential appointee. The role of 

the Services’ Acquisition Executives would mirror that of the Defense Acquisition Executive. They would appoint Program Executive Officers (PEO), 

each of whom would be responsible for a reasonable and defined number of 

acquisition programs. Program Managers for these programs would be responsible directly to their respective PEO and report only to him on program 

matters. Each Service should retain flexibility to shorten this reporting chain 

even further, as it sees fit. 

xxiv 
Establishing short, unambiguous lines of authority would streamline the 

acquisition process and cut through bureaucratic red tape. By this means, the 

Department of Defense (DoD) should substantially reduce the number of acquisition personnel. 

Congress should work with the Administration to recodify all federal 

statutes governing procurement into a single government-wide procurement 

statute. This recodification should aim not only at consolidation, but more 

importantly at simplification and consistency. 

DoD must be able to attract, retain, and motivate well qualified acquisition personnel. Significant improvements, along the lines of those recommended in November 1985 by the National Academy of Public Administration, should be made in the senior-level appointment system. The Secretary 

of Defense should have increased authority to establish flexible personnel 

management policies necessary to improve defense acquisition. An alternate 

personnel management system, modeled on the China Lake Laboratory demonstration project, should be established to include senior acquisition personnel and contracting officers as well as scientists and engineers. Federal 

regulations should establish business-related education and experience criteria for civilian contracting personnel, which will provide a basis for the 

professionalization of their career paths. Federal law should permit expanded opportunities for the education and training of all civilian acquisition personnel. This is necessary if DoD is to attract and retain the caliber of 

people necessary for a quality acquisition program. 

The Joint Requirements and Management Board (JRMB) should be cochaired by the Under Secretary of Defense (Acquisition) and the Vice Chairman of the Joint Chiefs of Staff. The JRMB should play an active and important role in all joint programs and in appropriate Service programs by 

defining weapons requirements, selecting programs for development, and 

providing thereby an early trade-off between cost and performance. 

Rather than relying on excessively rigid military specifications, DoD 

should make much greater use of components, systems, and services available “off the shelf.” It should develop new or custom-made items only when 

it has been established that those readily available are clearly inadequate to 

meet military requirements. 

A high priority should be given to building and testing prototype systems and subsystems before proceeding with full-scale development. This 

early phase of R8cD should employ extensive informal competition and use 

streamlined procurement processes. It should demonstrate that the new 
technology under test can substantially improve military capability, and 

should as well provide a basis for making realistic cost estimates prior to a 

full-scale development decision. This increased emphasis on prototyping 

should allow us to “fly and know how much it will cost before we buy.” 

The proper use of operational testing is critical to improving the operations performance of new weapons. We recommend that operational testing 

begin early in advanced development and continue through full-scale development, using prototype hardware. The first units that come off the limitedrate production line should be subjected to intensive operational testing and 

the systems should not enter high-rate production until the results from these 

tests are evaluated. 

To promote innovation, the role of the Defense Advanced Research Projects Agency should be expanded to include prototyping and other advanced 

development work on joint programs and in areas not adequately emphasized 

by the Services. 

Federal law and DoD regulations should provide for substantially increased use of commercial-style competition, relying on inherent market 

forces instead of governmental intervention. To be truly effective, such competition should emphasize quality and established performance as well as 

price, particularly for R8cD and for professional services. 

DoD should fully institutionalize “baselining” for major weapon systems 

at the initiation of full-scale engineering development. Establishment of a 

firm internal agreement or baseline on the requirements, design, production, 

and cost of weapon systems will enhance program stability. 

DoD and Congress should expand the use of multi-year procurement for 

high-priority systems. This would lead to greater program stability and lower 

unit prices. 

DoD must recognize the delicate and necessary balance between the government’s requirement for data and the benefit to the nation that comes from 

protecting the private sector’s proprietary rights. That balance must exist to 

foster technological innovation and private investment which is so important 

in developing products vital to our defense. DoD should adopt a data rights 

policy that reflects the following principles: 

0 If a product has been developed with private funds, the government 

should not demand, as a precondition for buying that product, unlimited data rights even if the government provides the only market. The 

government should acquire only the data necessary for installation, 

operation, and maintenance. 

xxvi 
0 If a product is to be developed with joint private and government funding, the government's needs for data should be defined during contract 

negotiations. Government contribution to development funding should 

not automatically guarantee it rights to all data. 

0 If a product is developed entirely with government funds, the government owns all the rights to it but may under certain circumstances make 

those rights available to the private sector. 

The President, through the National Security Council, should establish a 

comprehensive and effective national industrial responsiveness policy to support the full spectrum of potential emergencies. The Secretary of Defense, 

with advice from the Joint Chiefs of Staff, should respond with a general 

statement of surge and mobilization requirements for basic wartime defense 

industries, and logistic needs to support those industries and the essential 

economy. The DoD and Service Acquisition Executives should consider this 

mobilization guidance in formulating their acquisition policy, and program 

managers should incorporate industrial surge and mobilization considerations in program execution. 

Government-Industry 

Accountability 

In recent years there has been increasing public mistrust of the performance of private contractors in the country's defense programs. Numerous reports of questionable procurement practices have fostered a conviction, widely 

shared by members of the public and by many in government, that defense contractors place profits above legal and ethical responsibilities. Others argue that 

contractors have been unfairly discredited throug ti ill-conceived official actions, 

exaggerated press, and mistaken public dialogue. The depth of public sentiment and prospect of continuing tensions and divisions between government 

and industry are cause for concern. 

Our nation relies heavily upon the private sector in executing defense policy. (hoperation between government and indusr ry is essential if private enterprise is to fulfill its role in the defense acquisitiotl pr-ocess. Contractor or government actions that undermine public confidelice in the integrity of' the 

contracting process jeopardize this needed part1 rersllip. 

procurement punishes and deters misconduct 111, the few, vindicates the vast 

majority who deal with the government lawfully, and recoups losses to the 

Treasury. As President Reagan emphasized in ptlblic remarks announcing the 

Aggressive and sustained enforcement of. civll and criminal laws governing 

xxvii 
formation of this Commission, “Waste and fraud tw corporate contractors are 

more than a ripoff of the taxpayer-they’re a t)lou’ to the security of our nation. And this the American people cannot ;111d should not tolerate.” Specific 

measures can and should be taken to make ci\ il and criminal enforcement. still 

more effective. 

Management and employees of companies tllat contract with the Defknse 

Department assume unique and compelling ol)ligations to the people of‘ our 

Armed Forces, the American taxpayer, antl 0111- Ilation. ‘l’hey must apply (antl 

be perceived as applying) the highest standards of‘ business ethics and conduct. 

Significant improvements in contractor self-goc.el-rlance, addressing prot>lenls 

unique to defense contracting, are required. ( :ontractors have a legal and 

moral obligation to disclose to government a111 horities misconduct discovered 

as a result of self-review. 

Improvements also should be made in the Department’s administration of 

current standards of conduct for military personnel and civilian employees. Additional enforcement and compliance, and complementary efforts to address 

the respective ethical concerns of government and industry, are required. 

Despite an unquestioned need for broad ;dministrative oversight of contractor performance, defense programs have too often suffered from lack of 

clear direction and cooperation among oversight agencies. Proliferation of 

uncoordinated contractor oversight-both xIItlinistrative and congressional-has added unnecessary cost and inefficiency in the procurement 

process. 

their own performance. The Commission is concerned that., for example, 

overzealous use of investigative subpoenas by Ikfknse Department agencies 

may result in less vigorous internal corporate auditing. 

The Services and the Defense Logistics A,qency are authorized to suspend 

or debar contractors, prohibiting the award of new government contracts for a 

particular period. Suspension and debarment arc powerful administrative 

tools. Existing regulations provide insufficient guidance, however, as to when 

and how these sanctions should be used to prolccl legitimate government intcrests. If poorly administered, used for impermissible purposes, or applied too 

broadly, the sanctions can foreclose importanr sources of’ supply and itlflict 

substantial harm on responsible contractors. 11 unif0rm policy and more precise administrative criteria are required to assure predictable and equitable application of these sanctions throughout the Dcxpart tnent of Defense. 

Government action should not impede eff’orts by contractors to improve 

xxviii 
Recommendations 

The Commission’s recommendations address each of the above aspects of‘ 

the Defense Department’s relations with industr\,-law enforcement, corporate 

governance, official ethics, and contractor oversight. 

We recommend continued, aggressive enforcement of federal civil and 

criminal laws governing defense acquisition. Specific measures can be taken 

to make enforcement still more effective, including the passage of Administration proposals to amend the civil False Claims Act and to establish administrative adjudication of small, civil false claims cases. 

To assure that their houses are in order, defense contractors must promulgate and vigilantly enforce codes of ethics that address the unique problems and procedures incident to defense procurement. They must also develop and implement internal controls to monitor these codes of ethics and 

sensitive aspects of contract compliance. 

The Department of Defense (DoD) should vigorously administer current 

ethics regulations for military and civilian personnel to assure that its employees comply with the same high standards expected of contractor personnel. This effort should include development of specific ethics guidance and 

specialized training programs concerning matters of particular concern to 

DoD acquisition personnel, including post-government relationships with defense contractors. 

Oversight of defense contractors must be better coordinated among the 

various DoD agencies and Congress. Guidelines must be developed to remove undesirable duplication of official effort and, where appropriate, to encourage sharing of contractor data by audit agencies. 

Government actions should foster contractor self-governance. DoD 

should not, for example, use investigative subpoenas to compel such disclosure of contractor internal auditing materials as would discourage aggressive 

self-review. The new Under Secretary of Defense (Acquisition) should establish appropriate overall audit policy for DoD agencies and generally supervise the DoD’s oversight of contractor performance. 

Suspension and debarment should be applied only to protect the public 

interest where a contractor is found to lack “present responsibility” to contract with the federal government. Suspension and debarment should not be 

imposed solely as a result of an indictment or conviction predicated upon 

former (not ongoing) conduct, nor should they be used punitively. The Federal Acquisition Regulation should be amended to provide more precise 

- 

xxix 
criteria for applying these sanctions and, in particular, determining present 

responsibility. Administration of suspension and debarment at DoD should be 

controlled by a uniform policy promulgated by the Secretary of Defense. 

xxx 
Final Report 

to the President 
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Introduction 

1. Background 

In July 1985, the Commission was chargeci by the President to conduct a 

defense management study of important dimension, including: 

the budget process, the procurement systen), legislative oversight, and 

the organizational and operational arrangements, both formal and 

informal, among the Office of the Secretary of Defense, the 

Organization of the Joint Chiefs of Staff, the Unified and Specified 

Command systems, the Military Departments, and Congress." 

The Commission held its first organizational meeting on August 15-16, 

1985, and received briefings from Secretary of Defense Weinberger and other 

officials. Following this meeting, Commissioners were organized into six panels: 

Strategy and Resource Planning; Military Orgarlization and Command; 

Acquisition; the Human Element-Personnel; (;onduct and Accountability; and 

Implementation. 

day-long working sessions. Included among these were five days of public 

hearings at which the Commission took testimolly on a variety of defense 

management issues. Witnesses at these and other meetings included members of 

the Senate and House of Representatives, officials of the Office of the Secretary 

of Defense (OSD) and Military Departments, inclustry leaders and associations, 

public interest organizations, defense experts, and private citizens. In response 

to its published requests, the Commission received and considered numerous 

public comments on a wide range of acquisition-.related issues. The Commission 

also met with the three former Presidents, as well as former Secretaries of 

Defense and Assistants to the President for National Security Affairs. We 

received presentations from a broad range of current and former civilian 

officials and military officers. Among these were Chairmen of the Joint Chiefs 

of Staff, Service Secretaries and Service Chiefs, combatant and logistics 

commanders, other military leaders, and high-ranking civilian officials of the 

OSD and Military Departments. We also had tht. benefit of numerous briefings 

by major defense research centers. 

In all, between August 1985 and June 1986 the Commission had some 30 

*See Executive Order 12526 (July 15, 1985), included as Appendix B to this Final Report. 

1 
On February 28, 1986, the Commission presented its Interim Report to the 

President, which contained our initial findings and recommendations. These 

recommendations were offered as a single blueprint for overall improvement in 

defense management. They have provided the framework for three subsequent 

Reports to the President: Defense Acquisition, which we submitted on April 7, 

1986; National Defense Planning and Budgeting, submitted June 12; and Conduct 

and Accountability, submitted June 30. The prescmt document, A Quest for 

Excellence: Final Report to the President, compiles our detailed findings, 

conclusions, and recommendations from each of these separate submissions. 

II. Purpose 

We have tried to take a broad and searching look at defense issues, and to 

address the root causes of defense problems. Our overall blueprint for change 

flows from certain enduring propositions of sound national security policy, 

effective government, and basic management. 

The Armed Forces of the United States are now and for the foreseeable 

future an essential bulwark against the advanc.e of tyranny. The purpose set 

forth two centuries ago by the drafters of the Constitution-to “provide for the 

common defense”-is one that we can meet today only with Armed Forces of the 

utmost strength and readiness. Maintaining peace and freedom requires 

nothing less. 

relations between the Executive Branch and the Congress, and between 

government and defense industry. Public and private institutions must 

cooperate well, to serve the national good rather than mere partisanship or 

special interest. The spirit of cooperation needed to promote the common 

defense is today in jeopardy. This vital spirit rnllst be preserved. Like the 

effectiveness of our forces, it cannot simply be taken for granted. 

The United States’ defense effort is an enormous and complex enterprise. 

It poses unique challenges-to plan sensibly fo~ an uncertain future, to answer 

new and unexpected threats to our security, to husband our technological and 

industrial capacities and resources. Meeting these challenges will require, we 

believe, a rededication by all concerned to some basic principles of management. 

Capable people must be given the responsibility and authority to do their job. 

Lines of communication must be kept as shorr as possible. People on the job 

must be held accountable for the results. These me the principles that guide our 

recommendations on defense organization and acquisition. They apply whether 

one is fighting a war or managing a weapons program. 

The present structure of the Department of Defense (DoD) was established 

To achieve this military capability, a sense of shared purpose must prevail in 
by President Eisenhower in 1958. His proposed reforms, which sprang from 

the hard lessons of command in World War I1 and from the rich experience of 

his Presidency, were not fully accomplished. Intervening years have confirmed 

the soundness of President Eisenhower’s purposes. The Commission has sought 

to advance on the objectives he set for DoD. 

Together, our recommendations are designed to achieve the following 

significant results: 

Overall defense decision-making by the Executive Branch and the Congress 

can be improved. 

Our military leadership can be organized and chartered to provide the 

necessary assistance for effective long-range planning. 

Our combatant forces can be organized and commanded better for the 

attainment of national objectives. 

Control and supervision of the entire acquisition system-including 

research, development, and procurement-call be strengthened and 

streamlined. 

Waste and delay in the development of new weapons can be minimized, and 

there can be greater assurance that military equipment performs as expected. 

DoD and defense industry can have a more honest, productive partnership 

working in the national interest. 

111. Implementation 

Having called in our earlier Reports for a new spirit of cooperation among 

the Executive Branch, Congress, and industry, we are especially gratified to note 

that important actions have been and are being taken, byeach of these 

3 
institutions which share responsibility for the nation’s defense, to implement the 

Commission’s recommendations. 

On April 1, 1986, the President issued National Security Decision 

Directive (NSDD) Number 2 19, directing DoD and other responsible 

Executive agencies to implement virtually all of those recommendations 

contained in our Interim Report that do not require legislative action.* On 

the same day, the Secretary of Defensc issued detailed instructions to 

DoD for this purpose. 

On April 24, 1986, the President sent to Congress a Special Message 

requesting the early enactment of 1egisl.ltion in order to implement the 

balance of the recommendations in the Commission’s Interim Report. This 

included statutory designation of the (:hairman of the Joint Chiefs of 

Staff as the principal military adviser to the President, the Secretary of 

Defense, and the National Security Council; provision for the 

Chairman’s exclusive direction of the Joint Staff and the Organization of 

the Joint Chiefs of Staff; and creation of‘the new position of Under 

Secretary of Defense for Acquisition at 1,evel I1 of the Executive 

Schedule. The President also asked Congress to take recommended 

action to simplify and consolidate procurement laws, develop procedures 

for the authorization and appropriation of defense budgets on a bienn

basis, encourage the use of multiyear procurement, and support 

milestone funding for major weapon systems.? 

Both the House and Senate have passed legislation, now awaiting 

conference, which substantially achieves the objectives of our Zntvrim 

Report with respect to the role and authority of. the Chairman of the Joint 

Chiefs of Staff, the establishment of a Vice Chairman, and the authority 

of Commanders-in-Chief of the Unified Commands. By late June 1986, 

both the House and Senate had approved legislation establishing the 

Under Secretary of Defense for Acquisirion at Level 11. 

*The unclassified portions of NSDD 2 19, as announced III summary form by the White House, 

are included as Appendix C to this Final Report. 

?The President’s April 24 Special Message to Congress is included as Appendix 11 to this Fznal 

Report. 

4 
A substantial number of leading defense contractors recently have 

pledged to adopt and implement principles of business ethics and 

conduct that acknowledge corporate responsibilities under federal 

procurement laws. This important initiative, discussed more fully in our 

report on Conduct and Accountability, is in keeping with the Commission's 

recommendations on improvements in (:ontractor self-governance. 

It is only through a willingness to change ty both public and private 

institutions that our recommendations will achieve their ultimate purpose of 

restoring stability to defense programs, saving money, and fielding better 

military forces. These steps toward implementation are a promising beginning. 

But much more remains to be accomplished. As an aid to the complete 

implementation of our recommendations, we offer the succeeding portions of 

our Final Report. 

5 
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Chapter One 

National Security 

Planning and Budgeting 
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1. Introduction 

A mong the major tasks assigned to the Commission by the President in July 

1985 was the study of resource allocation for defense, including the 

legislative process. While national security planning is primarily the 

responsibility of the Executive Branch, principally the President, the National 

Security Council, the Secretary of Defense, and the Joint Chiefs of Staff, the 

defense of the nation requires constructive collaboration between the President 

and Congress. Although the planning process has improved in recent years, we 

believe that further reforms are required. Reforms must deal with three major 

problems in the current national security planning and budgeting process: the 

need to relate military plans more adequately to avdable resources; the 

instability of the defense budget process in both thc Executive Branch and 

Congress; and the inefficient role of Congress in the review of the defense 

budget. Our work has addressed each of these proldems in turn. 

This Chapter sets forth our findings and recommendations* on the role of 

the President in national security planning, a new process for planning national 

military strategy, and an improved defense budget process in the Executive and 

Legislative Branches. (A schematic representation of the process we propose is 

provided in Appendix E to this Final Report.) 

*Amplifying on our Interim Report, these were presented earlier in National Security Planning und 

Budgeting: A Report to the President, submitted June 12, 1986. 

9 
II. The Role of the President in National 

Security Planning 

I n our Znterim Report, the Commission fount1 that there is a need for more and 

better long-range planning to bring together the nation’s security objectives, 

the forces needed to achieve them, and the rcsources available to support those 

forces. It is critically important that this relationship be clearly established 

through a national military strategy. At the same time, military strategy cannot 

be carried out in isolation from the larger questions of the nation’s overall 

foreign policy and its domestic economic and fiscal objectives. Within the 

Executive Branch, only the President can make the decisions necessary to 

balance these elements of national policy. For this reason, the Commission sees 

a need to streamline the present extensive process for defense planning and 

budgeting within the Executive Branch by establishing a mechanism for early, 

firm Presidential guidance. 

Today, the President provides national sccurity objectives to the Executive 

Branch in the form of National Security Decision Directives (NSDDs) that are 

issued through the National Security Council (NSC). Formulated by an 

incoming President as policy guidance, these clirectives are updated periodically, 

either as a result of a continuing review of major national security issues or as 

additional guidance in response to crises. 

Historically, this process has yielded unclear guidance for national security 

planning because objectives have been stated in NSDDs without recognition of 

the limits to fiscal resources that are finally made available. Because of the lack 

of early Presidential guidance on fiscal limits, defense resource plans are subject 

to debate and change within the Administration up to the moment the 

President makes final decisions before sending his annual budget to Congress. 

These changes can ripple throughout the entire five years of the planning 

period, resulting in annual change-sometimes quite large-to each year of the 

Five-Year Defense Program. 

Based on Presidential guidance contained in NSDDs, the Secretary of 

Defense currently issues his own Defense Guidance document, early in the 

budget planning year, for development of detailed programs and budgets by 

the Military Departments and agencies of tlre Department of Defense (DoD). 

The Secretary’s Defense Guidance incorporates fiscal guidance to the Military 

Departments and Defense Agencies for a five-year period. His guidance is built 

on a judgment of the threats to national interests and the adequacy of our 

10 
military forces to meet those threats. But it also reflects such changeable nearterm factors as the previous year’s congressional decisions, the current budget 

debate in Congress, guidance from the Office of Management and Budget 

(OMB) to DoD based on Presidential decisions during the previous year’s 

budget formulation, and recent international e\ ents with national security 

implications. 

budget plan. First, Congress makes decisions on the budget submitted to it at the 

beginning of each calendar year. Typically, these decisions are postponed by 

Congress as long as possible. Congress usually does not enact a defense budget 

until after the fiscal year has begun on the first of October, with obvious 

disruptive effects not only for execution of the budget, but also for planning a 

defense program for subsequent years. Recentlv, moreover, congressional 

decisions increasingly have diverged not only from the President’s budget 

proposal, but also from Congress’ own pronouncements on future defense 

budgets as projected in earlier concurrent budget resolutions. 

Second, in November of each year before the President transmits his 

budget to Congress in late January, OMB conducts an independent review of 

the Secretary’s budget plan, drawing upon updated economic projections, 

recently enacted congressional budget decisio~ls, and the President’s budget 

priorities. As late as December, based on issues taised by the OMB review, the 

President often directs changes to the Secretary’s budget plan that affect 

thousands of line items and require major revisions to the Five-Year Defense 

Program. Such Presidential decisions on the defense budget, so close in time to 

presentation of the President’s budget to Congrctss, do not allow the Secretary of 

Defense sufficient time to review and advise the President of their effects on the 

national defense program. 

and budgeting process can be substantially reduced, and its effects can be made 

far less disruptive. As the Commission recommtmded in our Znterim Report, 

defense planning should start with a comprehellsive Presidential statement of 

national security objectives and priorities based on recommendations of the 

NSC. On this basis, the President would issue plovisional five-year budget levels 

to the Secretary of Defense reflecting competing demands on the federal 

budget as well as projections of gross national product and revenues. These 

budget levels would be based on recommendations from the NSC with the 

advice and assistance of the OMB. 

would instruct the Chairman of the Joint Chiefs of Staff UCS) to prepare a 

national military strategy that best achieves the llational security objectives 

within provisional budget levels. The Chairmitn would also be instructed to 

Late in the year, two events can cause extellsive changes to the Secretary’s 

In the Commission’s view, the instability induced by the present planning 

Upon receipt of Presidential planning guidance, the Secretary of Defense 

11 
develop strategy options for each of the provisional budget levels, based on 

consideration of major defense policies and operational concepts, to meet the 

entire range of threats to these national secrlrity objectives. A recommended 

national military strategy and options would he prepared by the Chairman with 

the assistance of the other members of the JCS and the Commanders-in-Chief 

(CINCs) of the Unified and Specified Commands. The military capabilities 

provided by this strategy and options would be compared with the present and 

projected capabilities of potential opponents 111 a military net assessment. 

The Secretary of Defense would review the Chairman’s recommendations 

as described, and make such modifications as he deems appropriate. Upon 

completing that phase of the new defense planning process, the Secretary, and 

the Chairman as the principal military adviser, would present to the President a 

recommended national military strategy, strat eg)’ options, and the net 

assessment. 

After review by the NSC, the President would select his preferred national 

military strategy and its corresponding five--year defense budget level, based 

upon his national security objectives and priorities, and an acceptable level of 

risk. He would provide this decision to the NSC, the OMB, and the Secretary of 

Defense. The Presidential decision, including the five-year fiscal guidance, 

would be binding on the Executive Branch unless changed byfurther 

Presidential decision. 

Based on the President’s decision, the Secretary of Defense would develop 

a detailed Defense Guidance for the Military Departments and Defense 

Agencies to launch the Planning, Programming, and Budgeting System (PPBS) 

internal to the DoD. The final version of the Defense Guidance would contain 

the Secretary’s detailed guidance on defense objectives, policy, strategy, force 

levels, and fiscal guidance, all based on the Pres‘ident’s decisions. The detailed 

fiscal guidance would be the basis for a new Five-Year Defense Program and for 

detailed pricing and scheduling of the new defense budget. 

five-year defense budget level, clearly linked to a Presidentially approved 

national military strategy, is necessary to achieve a more orderly and more stable 

process for executive and congressional planning and budgeting for defense. 

Early Presidential determination of an appropriate five-year budget level would 

better integrate all elements of the Executive Branch in the resource allocation 

process, result in more coherent and stable long-range planning for national 

defense, and provide the Congress a proposed defense program more readily 

explained and justified in terms of national security requirements. 

Our recommended improvements in natlonal security planning and 

defense budgeting process (outlined in Appendix E to this Final Report) should 

The Commission strongly believes that all early Presidential decision on a 
be commenced immediately to assist the defense plannillg and budgeting 

activities now underway in DoD and in Congress to construct the first biennkal 

defense budget. The budget to be submitted to Congress in January 1987 for 

fiscal years 1988 and 1989 should be the transitional budget for the new 

planning process. The new defense planning and budgeting process would 

thereby be fully implemented for the fiscal year 1990-9 1 budget. To achieve 

that end, the President should provide the strongest quidance possible to the 

NSC, the OMB, the Secretary of Defense, the Chairnlan of the JCS, and the 

Military Departments. 

Recommendations 

To institutionalize, expand, and link a series of critical Presidential 

determinations, we recommend a process (Appendix E) that would operate in 

substance as follows: 

The National Security Council would develop and direct a national 

security planning process for the President that revises current national 

security decision directives as appropriate and that provides to the Secretary 

of Defense Presidential guidance that includes: 

0 A statement of national security objectives; 

0 A statement of priorities among national security objectives; 

0 A statement of major defense policies; 

0 Provisional five-year defense budget levels, with the advice and 

assistance of the Office of Management and Budget, to give focus to the 

development of a fiscally constrained national military strategy. Such 

budget levels would reflect competing demands on the federal budget 

as well as projections of gross national product and revenues; and 

0 Direction to construct a proposed national military strategy and 

strategy options for Presidential decision in time to guide development 

of the first biennial defense budget for fiscal years 1988 and 1989. 

Following receipt of the Secretary’s recommended national military 

strategy, accompanying options, and a military net assessment, the President, 

with the advice of the NSC, would approve a particular national defense 

program and its associated budget level. This budget level would then be 

13 
provided to the Secretary of Defense as five-year fiscal guidance for the 

development of biennial defense budgets such that: 

The five-year defense budget level would be binding on all elements of 

the Administration. 

0 Presidential guidance, as defined above, would be issued in mid-1986 

to guide development in this transitional year of the first biennial 

defense budget for fiscal years 1988 and 1989 to the maximum possible 

extent. 

0 The new national security planning process would be fully implemented to determine the course of the defense budget for fiscal years 

1990 to 1994. 

14 
111. A New Process for Planning National 

Military Strategy 

T o provide the President and the Secretary of Dcfense with military advice 

that better integrates the views of the nation’s combatant commands and 

Military Services, the Commission in our Interim Report recommended legislation 

creating new duties for the Chairman of the Joint Clliefs of Staff (ICs). In the 

Commission’s view, the Chairman should become thc principal military adviser 

to the President, the National Security Council, and the Secretary of Defense, 

representing his own views as well as the corporate views of the JCS. The 

Chairman should be given exclusive direction of the loirlt Staff, and other 

elements of the Organization of the Joint Chiefs of Staff, to perform such duties 

as he prescribes to support the JCS and torespond to the Secretary of Defense. 

To further assist the Chairman in performing his new duties, a new position of 

Vice Chairman of the JCS should be created. We note that in a message to 

Congress on April 24, 1986, the President endorsed these recommendations 

and that the Senate and House have separately passed legislation along these 

lines. 

In making these recommendations, the Commission envisioned that, the 

new duties of the Chairman would include a majol role in national security 

planning. The Commission recommended that the Chairman, with the advice of 

the other members of the JCS and the Commanden-in-Chief (CINCs) of the 

combatant commands, be given responsibility for prc-paring and submitting to 

the Secretary of Defense a fiscally constrained national military strategy, with 

strategy options, based on the President’s initial guidimce on national security 

dbjectives and priorities, and his provisional five-year budget levels. The 

Chairman would also, with the assistance of the othel. members of the JCS, and 

i’ consultation with the Director of Central Intelligellce, prepare a military net 

ssessment of the capabilities of United States and Allied Forces as compared to 

t ose of potential adversaries. The net assessment wcfuld he used to evaluate the i isks of the strategy and the strategy options. 

On April 1, 1986, the President issued a directivc to the Secretary of 

C to this Final Report) calling filr a new process for 

strategy. The following sec.tion of this report 

the Commission’s views on the new process to aid in implementing 

15 
Improved Defense Strategy Development 

Just as the President’s guidance on national security objectives and priorities 

should provide a clear statement of what we must achieve, military strategy 

should provide a clear statement of how we will achieve it. That strategy must 

address how we plan to achieve particular national ends with available, or 

reasonably anticipated, military means. Specifically, a strategy must relate 

proposed military force levels to available resources. 

the nation’s military forces into the next century, to apply financial limits to 

military force planning in a way not previously attempted. The questions that 

such planning entails must be answered in that light. These include: 

It is incumbent upon our senior military leaders, as they chart a course for 

0 What kind and what numbers of forces should we field in the future? 

0 What kind of equipment should they have? 

0 How rapidly should we modernize their equipment? 

How, and at what pace, can we best incorporate the benefits of 

technological advances? 

0 How much should we spend on readiness and sustainability, on the one 

hand, and modernization, on the other? 

0 What balance should we strike between strategic nuclear and general 

purpose forces? 

0 How can we keep the overall cost of building and maintaining military 

forces within limits while achieving performance objectives? 

To develop a well-designed national mllitary strategy, the Chairman should 

first ensure that he has a full range of views from the Joint Chiefs, who as 

individual Service Chiefs are charged with (leveloping and providing the 

nation’s Armed Forces, and from the combatant commanders, who are charged 

with employing them. Second, the Chairman should integrate the sometimes 

conflicting perspectives arising from the dif.ferent responsibilities held by these 

officers into a coherent military strategy. ‘rhis strategy thus would reflect the 

best thinking of the nation’s senior military leadership. 

The product of such a strategy-deve1ol)ment process would reflect the fiscal 

16 
constraints directed by the President for the planning period and would include: 

0 an appraisal of threats to the achievement of'our national objectives 

across the full range of potential conflict during the five-year planning 

period; 

a recommended strategy to meet our objectives and to respond to these 

threats during the planning period; and 

the force requirements and capabilities to support the strategy. 

In order to frame a wide range of decision alternatives for the President, 

the Chairman would be directed to provide the Secretary with strategy options 

resulting from the President's five-year budget l(.vels and from variations within 

a given budget level. These would reflect explicir trade-offs among the Services 

and among competing requirements from the combatant commands. In 

addressing options to the proposed national military strategy, the Chairman 

would consider major defense policies and operational concepts (e.g., 

modernization, force structure, readiness, sustaillability, security assistance 

policy and funding levels, strategic nuclear forces versus general purpose forces, 

etc.). 

In order for the Chairman of the Joint Chiefs of Staff to provide sound 

military advice on the various strategy options, a companion analysis should be 

prepared that would identify: 

0 adjustments to current force levels in accordance with the President's 

provisional budget levels and the associattbd costs or savings; 

0 problems that may preclude attainment of' needed force levels or 

capabilities without mobilization (e.g., pel sonnel quality or quantity 

unattainable without conscription, and the adequacy of the industrial 

base to support force levels); 

0 unique regional considerations that ma) restrict our ability to employ 

military force (e.g., political or other potelltial disadvantages to the use of 

U.S. forces, maintainability of lines of supply, access to friendly ports of 

entry, etc.); and 

limits on deployment or mobilization that may restrict our ability to 

employ military forces in conflict (e.g., tht. availability of transport, the 

adequacy of the training base, etc.). 

17 
Our proposed process for strategy development does not diminish the value 

of force planning as currently provided in the Joint Strategic Planning Document (JSPD). The JSPD serves as the JCS contribution to the planning phase of 

DoD’s Planning, Programming, and Budgeting System, but it could be revised to 

provide a more meaningful overarching framework for strategy and force 

planning. The analytical value of the JSPD lies in its identification of force levels 

for global general war that could guide the tlevelopment of related peacetime, 

resource-constrained forces. Specifically, the J SPD planning force could be 

linked to a peacetime mobilization base for a “worst case” contingency of a glob

general war. The mobilization base derived from the JSPD planning force could 

be developed to achieve the shortest possible I ime to expand from mobilization 

base levels to planning force levels-consistent with the President’s fiscal 

guidance. Such a peacetime posture should bta a central consideration in 

developing the recommended national military strategy and strategy options 

provided to the President. In addition, forc(’s for support of regional unified 

commanders in pursuit of U.S. national security objectives in peacetime, as well 

as the more probable, less intense forms of conflict, should also be identified in 

the JSPD mobilization base planning force. 

An Improved Net Assessment 

As an element of the planning process wc propose, it would be necessary to 

make a more comprehensive effort to assess the capabilities of our forces to 

accomplish their missions in the light of projected military threats posed by 

potential adversaries. Where appropriate, Allied Forces should be included in 

this analysis. 

A net assessment of military capabilities, projected five years into the 

future, can help identify the risks associated Ivith alternative military strategies 

and force postures. It would be of major assislance to the Chairman, the 

Secretary of Defense, and the President in framing and selecting a defense 

budget level and force posture better tied to national security objectives and 

priorities. As an adjunct to the new strategy planning process, the net 

assessment could help identify existing or emcsrging problems and opportunities 

that need to be brought to the attention of the Secretary of Defense and the 

Chairman for further study in the development of strategy options. 

The expanded planning responsibilities 10 be assigned to the Chairman of 

the Joint Chiefs of Staff would require that hct prepare an independent, 

comprehensive military net assessment in order to evaluate the recommended 

national military strategy and any strategy options proposed. The Commission 

18 
has recommended that the Chairman prepare I his assessment for the Secretary 

of Defense with the assistance of the other menlbers of the JCS and in 

consultation with the Director of Central Intelligence. He should also draw 

upon the advice of the combatant commanders. 

Recommendations 

The Secretary of Defense, following receipt of the Presidential guidance 

described previously, should direct the Chairman of the Joint Chiefs of Staff 

(JCS), with the advice of the other members of the Joint Chiefs of Staff and the 

Commanders-in-Chief (CINCs) of the Unified and Specified Commands, to: 

0 Appraise the complete range of military threats to U.S. interests and 

objectives worldwide; 

0 Derive national military objectives and priorities from the national 

security objectives, major defense policies, and priorities received from 

the President; and 

0 Provide the Secretary of Defense a recommended national military 

strategy that: 

Best attains those national security objectives provided by the 

President, in accordance with his policies and priorities; 

Identifies the forces and capabilities necessary to execute the 

strategy during the five-year planning period; and 

Meets fiscal and other resource constraints directed by the 

President during the five-year planning period. 

At the direction of the Secretary of Defense, the Chairman also should 

develop strategy options to achieve the national security objectives. Such 

strategj options would: 

0 Frame explicit trade-offs among the Armed Forces; 

0 Reflect major defense policies and different operational concepts, in 

terms of different mixes of forces or different degrees of emphasis on 

modernization, readiness, or sustainability; 

0 Respond to each provisional budget level provided by the President; 

19 
0 Explore variations within a particular provisional budget level; and 

0 Highlight differences in capability between the recommended national 

military strategy, on the one hand, and feasible alternatives, on the 

other. 

At the direction of the Secretary of Defense, the Chairman of the Joint 

Chiefs of Staff, with the assistance of the other members of the JCS and the 

CINCs, and in consultation with the Director of Central Intelligence, should 

also prepare a military net assessment that would: 

0 Provide comparisons of the capabilities and effectiveness of U.S. 

military forces with those of forces of potential adversaries for the 

Chairman’s recommended national military strategy and other strategy 

options; 

0 Reflect the military contributions of Allied Forces where appropriate; 

0 Evaluate the risks of the Chairman’s recommended national military 

strategy and any strategy options that he develops for the Secretary of 

Defense and the President; and 

0 Cover the entire five-year planning period. 

The Secretary of Defense, following his review and analysis of the 

Chairman’s recommendations, should provide to the President: 

0 The Secretary’s recommended national military strategy and its 

corresponding five-year defense budget level, consistent with the 

President’s policy and fiscal guidance; 

0 Appropriate strategy options and corresponding five-year defense 

budget levels sufficient to provide the President a wide range of 

alternatives in choosing a national defense program; and 

0 A military net assessment of the recommended national military 

strategy and strategy options. 

20 
~~~ ~~ ~ ~ 

IV. The Congressional Defense Budget 

Process-A Need for Change 

T he recommendations discussed above, when implemented by the President 

and the Secretary of Defense, will go a long way toward making defense 

planning and budgeting within the Executive Branch more rational and stable. 

But this effort will fail to achieve the desired results if‘ Congress does not do its 

part to improve its role in the process. Realism in long-range planning and 

budgeting for defense within the Executive Branch must be met by a responsible 

exercise of congressional power in budget review and oversight. 

In defense budgeting, as in most other matters of’ national policy, the 

President proposes but Congress disposes. The national defense program 

depends upon steady, long-term vision if it is to meet our long-term security 

needs effectively. Congressional focus, however, is myopic and misdirected. 

Only the upcoming budget year gets real attention, and this attention is directed 

at the budget’s microscopic pieces, its line items. 

Problems inherent in Congress’ defense budget review manifest themselves 

in budget resolutions that reflect little or no consistency from year to year; in 

changes to thousands of line items within the defense budget that, taken 

together on this kind of scale, verge on randomness; and in defense 

appropriations that are invariably late inenactmelit. 

the Congress to adjust its plans from time to time. But the Commission believes 

that both the number and the magnitude of changes resulting from 

congressional review of the defense budget are excessive and harmful to the 

long-term defense of the country. 

and appropriation processes have become mired in jurisdictional disputes, 

leading to overlapping review of thousands of line items within the defense 

budget. A growing rivalry between the Armed Services Committees and the 

Defense Appropriations Subcommittees over the line-item makeup of the 

defense budget has played a major role in moving congressional review of the 

defense budget toward narrowly focused financial action on individual items 

and away from oversight based on operational collcepts and military 

effectiveness. During the review of the 1985 defellse budget, for example, 

Congress made changes to over 1,800 separate defense programs and directed 

DoD to conduct 458 studies ranging from the feasibility of selling lamb 

It is true that changing political and economic, circumstances may require 

Where national defense is concerned, today’s congressional authorization 

21 
products in commissaries to the status of retirement benefits for Philippine 

scouts. 

This kind of tinkering and financial fine-tuning has heightened defense 

program instability because of its wide reach and lack of broader operational 

focus. Congressional action on the 1985 budget reduced the President's request 

by $20.5 billion, but, of that amount, only $0.5 billion (or 2 percent) involved 

outright program cancellations or procurement terminations. The other 98 

percent of the reduction came from changes IO procurement rates and mixes, 

level-of-effort cuts, miscellaneous personnel t rims, and financing adjustments. 

phenomenon in which the Appropriations Committees have funded programs 

that the Armed Services Committees have not authorized. In fiscal year 1986, 

the DoD Appropriation Act included over 150 line items, valued at $5.7 billion, 

that were authorized at a lower level or were not authorized at all. As of this 

date, the fiscal year is more than half over but DoD cannot obligate funds nor 

conclude contract negotiations for almost $6 t)illion of programs while the 

disagreement continues between congressiond committees. 

Under these circumstances, the Secretar) of Defense and the Military 

Departments find themselves in the position of making final decisions in 

formulating a budget for the next fiscal year while Congress is still debating its 

own wide-ranging differences on the budget fbr the ongoing fiscal year. When 

Congress finally makes its appropriation decision, the Secretary and the Services 

are forced to adjust the proposed budget for the upcoming fiscal year, late in the 

budget-formulation process within the Executive Branch, in order to 

incorporate the impact of congressional changes. The timing and scope of these 

changes prevent the DoD from making coherent linkages among the three 

defense budgets that it manages at any one ti~ne-the budget being executed, 

the budget under review by Congress, and thtx hdget that DoD is developing 

for the upcoming fiscal year. 

the world must implement late congressional decisions after the fiscal year has 

started. They are confronted with numerous changes that alter and delay their 

program plans, schedules, and contract decisions. J'his instability, in turn, 

spreads outward to the defense industry, wllose investment and production 

plans must be hastily adjusted annually as a rclsult of late congressional 

appropriations. 

Finally, instability in defense budget planning has been further exacerbated 

as a result of the new Gramm-Rudman-Hollirlgs legislation. In March 1986, the 

sixth month of the fiscal year, DoD was forced to take a 4.9 percent reduction in 

each of almost 4,000 programs, projects, and dctivities, for a total cut of $13.6 

In addition, DoD now finds itself involvecl in a new congressional budgeting 

Meanwhile, defense managers and defense procurement personnel around 

22 
billion in budget authority and $5.2 billion in outlays. These across-the-board, 

automatic cuts allowed no analysis or managemc’nt judgment to be exercised 

about priorities or about their effect on defense programs and forces. The 

essence of budgeting is setting priorities. Our recommendations depend upon a 

rational choice of priorities by responsible defensct managers, as opposed to a 

mechanistic allocation of resources across all activities. We must assume that 

government will remain a place ofjudgment. 

Many of the problems described above affectlng congressional action result 

from major differences of opinion within Congress on the funds to be provided 

for defense in any one year. However, as this debate continues from year to 

year, congressional budget resolutions show very little consistency regarding 

national defense funds, and, as a result, their projections of defense budgets for 

future years have become unreliable measures of c.ongressiona1 intent. 

budget-formulation process begins in the Executive Branch to build budgets for 

the years covered by such projections. As the last guideposts of congressional 

intent before Executive Branch budget formulation, budget resolution 

projections play a central role in decisions on the levels for defense that are used 

for planning within DoD and that the President ultimately will propose to 

Congress. To the extent, then, that Congress has 1.eflected unrealistic levels for 

future defense budgets in its budget resolutions, lack of‘ realism will also affect 

the President’s budget. This document to a large degree each year mirrors the 

congressional budget resolution of the previous ycx. That is why congressional 

budget resolution projections should be made with great care, with full 

commitment to those projections from key Committees that review the defense 

budget. 

The Commission urges the leaders of Congress to develop ways to relate 

projections in budget resolutions to the five-year ljudget levels developed within 

the Executive Branch (as described in the previousections of this report) for 

provision, in turn, to Congress. We believe that a ~nuch-improved linkage 

between the new proposed process for defense planning and budgeting within 

the Executive Branch, and the current budget resolution process within 

Congress, is central to responsible decision-making on matters of national 

security. 

Another concern is the role budget resolutiorls play in later phases of the 

overall congressional process. The practice has Ileen for the authorizing and 

appropriations committees to treat Budget Committee targets as ceilings from 

which they could depart, rather than as congressional commitments. The 

steadiness that should mark long-term planning for- the nation’s defense has 

suffered as a result. 

Shortly after congressional budget resolution projections are made, the 

23 
The Commission is also concerned about t€le lack of cooperation in review 

of the defense budget that marks authorization and appropriation actions today 

in Congress. 

The Armed Services Committees need to become less concerned with 

attempting to control line items through authorization action and need to 

concentrate more on the task for which they are best suited, allocation of funds 

between and within major operational categoric s of‘ the defense budget. In the 

Commission’s view, the Armed Services Committees also should have an 

important role to play in ensuring that new weapon programs in fact contribute 

to military effectiveness within major operational categories. They should be 

the primary congressional agents for approval of acquisition programs entering 

full-scale development and high-rate productiorl as recommended by the 

Commission in its report on Defense Acquzsitzon and described later in this 

Chapter. 

The Armed Services Committees cannot, however, simply take on such 

roles unilaterally. The leadership of the authorizing and appropriations bodies 

that deal with the defense budget must agree on a division of labor that lessens 

considerably the overlap and consequent rivalr) that marks the process today. 

We agree completely with the observations made by the Senate Armed Services 

Committee, in an April 1986 report, on the nc.ed for congressional reform in 

providing for the nation’s defense: 

Congressional reform must extend beyond the confines of defense oversight. 

Ultimately, fundamental patterns of congressional behavior must change. 

Committee jurisdictions must be reasserted and tightened to minimize overlap 

and duplication. Redundant legislative phases of budgeting, authorizing, and 

appropriating must be consolidated. 

Procedural Reforms 

If leadership problems within Congress can be overcome, and stability of 

the defense budget and a more appropriate division of labor among committees 

can be achieved, procedural reforms can have further beneficial effect. The 

most important reform, in the Commission’s view, is adoption by Congress of 

biennial defense budgets tied to a five-year plan. 

24 
A. Biennial Budgeting and Five-Year Planning for 

Defense 

In our Interim Report, we recommended thal the President submit to 

Congress a two-year defense budget and the five-year plan on which it is based. 

Congress would be asked to approve a two-year Imdget based upon this plan. It 

would do so through a two-year authorization atld appropriation for national 

defense. We note that the 1986 Defense Authorrzation Act calls for the 

submission to Congress by the President of a two-year defense budget for fiscal 

years 1988 and 1989 in early 1987. DoD is now preparing such a budget. We 

applaud this initiative by the House and Senate Armed Services Committees, 

and we believe that, if Congress decides to adopthis new method of budgeting, 

it can lead to the two-year defense authorization and appropriation that we 

have recommended. We are mindful, however, that for some years the 

President has, at congressional direction, provided requests for two-year 

defense authorizations, but only the first year ol each of these requests has ever 

been acted upon. 

The Commission believes that a biennial budget process for defense, tied to 

a five-year defense plan, would promote stabilitv by providing additional time 

to do a better job-to think through military planning options, to evaluate 

results of current and prior-year execution of the defense budget, and to ensure 

that each phase of the cycle has the attention needed. A two-year cycle also 

would, in particular, allow DoD to pay more attention to programming, the 

second phase of the Planning, Programming, and Budgeting System (PPBS) 

where individual defense programs are put together, refined, and compared to 

each other to respond to defense needs. 

A new biennial defense programming process would need to befashioned 

to precede the process through which biennial tmdgets are formulated. Stability 

obtained from such two-year processes would provide many benefits 

throughout DoD not the least of which would be found at the operationalevel 

in the field, where installation and activity commanders and program managers 

turn budget decisions into action. 

Legislative Branches of government to spend one of the two years on a 

necessary, but generally ignored, evaluation process. It should help the Services 

to better manage their programs, and Congrcss to stick to its deadlines and 

schedules. Having spent a year reviewing ongoing activities, Congress should be 

able to begin earlier and move faster in the appropriation year. 

One of the major arguments against biennial budgeting is that it builds too 

much inflexibility into the system. National security objectives and priorities, 

A two-year defense budget cycle could also allow the Executive and 

-~ 

25 
however, ordinarily do not change appreciably from year to year, nor should 

military strategy or the military force structure change radically over a two-year 

period. In addition, the appropriate tools needed to make any changes 

required in the second year of budget executioll are already in existence. 

Current reprogramming, supplemental, and I)udget amendment procedures 

are more than adequate to address the need. Rc.programming thresholds and 

transfer limitations within program categories should be reviewed by both 

Congress and DoD in a biennial budget context, and additional fexibility should 

be provided if needed. Rescissions and deferrals are also techniques that can be 

used when necessary. 

Primarily, however, a two-year appropriation for defense would stop the 

yearlong chaos of budget-making that we now have, or at minimum, allow it to 

happen only every two years rather than annually. This would surely provide a 

greater degree of stability over a longer period of time. 

We applaud DoD support for two-year defense budgets and growing 

support within the Congress. We are particularly encouraged by Secretary 

Weinberger’s commitment to the concept. He e(:hoed the Commission’s 

sentiments in his letter transmitting the April 1 , 1986, Report on Two-Year 

Defense Budgeting to the Armed Services Committees and Appropriations 

Committees when he stated: 

. . . The resulting improved stability could tncrease the efficiency of defense 

operations. Such an approach could also ser\.e to simplify the currently lengthy 

and time consuming budget process. Both Congress and the Executive Branch 

would have significantly more time to focus on the resolution of policy issues 

and the establishment of priorities. Moreover, the adoption of biennial 

budgeting should reduce the need for Congress to fund our (defense) 

operations through limited and ineffective (hntinuing Resolution Authority 

procedures. . . . 

B. Milestone Authorization, Baselining, and Multi-Year 

Procurement 

To complement biennial budgeting, the Cornmission believes that milestone 

authorization, baselining, and multi-year procurement should be instituted and 

expanded by both DoD and Congress for all major defense programs. 

Milestone authorization would allow the i\rnled Services Committees to 

focus their review of major acquisition programs on two key program 

milestones, the beginning of full-scale engineering development and the start of 

26 
high-rate production. Programs advancing through these milestones in either 

the first or second year of a particular biennial authorization request would be 

identified to Congress by DoD, which would provide a program baseline for 

each identified program. A program baseline would describe the cost, schedule, 

and operational performance of the systems to be acquired during the 

production lifetime of the program, would be certified at the highest level of 

responsible officials within DoD, and would establish a contract between the 

Executive and Legislative Branches based on mutual expectations for the 

program. 

need to subject defense programs performing well, relative to an approved 

baseline previously established at a key milestone, to 1 he same level of scrutiny as 

programs arriving at key milestones. In fact, to the nlaximum possible extent, 

programs that proceed successfully through congressional authorization at the 

high-rate production milestone should be executed through multi-year 

procurement. Once multi-year procurement is initiated, changes to a program 

baseline, either through DoD action or through later congressional 

authorization or appropriation action, should be avoided because of the 

financial penalties involved. In the Commission’s view, milestone authorization, 

baselining, and multi-year procurement would promote the kind of stability 

and proven cost savings in budgeting for national defense that are central 

objectives of our recommendations. 

If such a process were in place, the Armed Services Committees would not 

C. Changing the Structure of the Defense Budget 

Finally, the Commission believes that the Congrc.ss, DoD, and the Office of 

Management and Budget must together begin the hard work necessary to 

reduce an overly detailed line-item review of the deftme budget and to bring a 

broader, operational perspective to the defense budget and its companion FiveYear Defense Program. 

crosswalk between the input (financial) side of the nation’s defense budget and 

the output (forces, weapon systems, manpower, etc.) de where defense 

programs are grouped according to the operational ~~urposes they serve. 

However, the relative lack of attention historically dit ected at operational 

concepts to guide defense spending has resulted in relatively poor structural 

development of the output side. While the basic foundation of an operationally 

oriented structure has been in place in the Five-Year Ilefense Program for some 

time, much more work must be done to build a new, and more adequate, 

budget structure for congressional biennial defense authorizations and 

appropriations. 

The Five-Year Defense Program has been constructed to provide a 

27 
For example, such a new budget structure might better show the 

contribution of the B-1 bomber to national defense by grouping the B-1 

program and other appropriate programs within a budget account titled 

“Modernization of Strategic Nuclear Forces” rat her than, as is now the case, a 

budget account called “Aircraft Procurement, Air Force.” A revised budget 

structure of this type would allow a better review of the different types of 

strategic nuclear systems, in relationship to eacll other and to overall national 

security objectives, than is now the case. 

introduced by aggregating, consolidating, and reorganizing thousands of line 

items into fewer budget activities within the Military Departments. For example, 

if all Army cargo and utility helicopters and their modifications, spares, and 

simulators were placed in a new, single, aggregilted activity, 39 line items could 

be reduced to 4. Similarly, 358 line items for trucks could be reduced to 1 1. This 

would permit more reasoned, practical, and balanced decisions to be made. 

In addition, it would allow for more management judgment to be 

Recommendations 

CONGRESS 

A joint effort among the Appropriations Committees, the Armed Services 

Committees, the Office of Management and Budget (OMB), and the 

Department of Defense (DoD) should be undertaken as soon as possible to 

work out the necessary agreements, concepts, categories, and procedures to 

implement a new biennial budget process for defense. Biennial budgeting for 

defense should be instituted in 1987 for the fiscal year 1988-89 defense 

budget. Congress should authorize and appropriate defense funding for those 

two years. The second year of this new biennial budgeting process should be 

used by both Congress and DoD to review program execution where 

appropriate. 

Congress should reduce the overlap, duplication, and redundancy among 

the many congressional committees and subcommittees now reviewing the 

defense budget. 

The leadership of both parties in the House and the Senate should review 

the congressional process leading up to annual budget resolutions with the 

intent of increasing stability in forecasts for defense budgets for future years. 

We cannot stress strongly enough that a responsible partnership in providing 

28 
for the national defense means agreement between Congress and the President 

on an overall level of a five-year defense program early in a new President’s 

term in office and adherence to this agreement during his Administration. 

The chairmen and ranking minority members of the Armed Services 

Committees and the Defense Appropriations Subcommittees should agree on 

a cooperative review of the defense budget that has the following features: 

Review by the Armed Services Committees of the defense budget in 

terms of operational concepts and categories (e.g., force structure, 

modernization, readiness, and sustainability, etc.); 

Review and authorization of individual programs by the Armed 

Services Committees that concentrate on new defense efforts at key 

milestones-specifically the beginning of full-scale development and 

the start of high-rate production-in terms of their contributions to 

major defense missions; and 

Review by the Appropriations Committees, using the new budget 

structured in terms of operational concepts and categories, to adjust the 

the President’s defense budget to congressional budget resolution 

levels through refinements based on information not available when 

the President’s budget was formulated months earlier. 

Congress should adhere to its own deadlines by accelerating the budget 

review process, so that final authorizations and appropriations are provided to 

DoD on time, and less use is made of continuing resolutions. 

Congress should review and make major reductions in the number of 

reports it asks DoD to prepare and should closely control requirements for 

new reports in the future. 

EXECUTIVE BRANCH 

The President should direct the Secretary of Defense and OMB to 

institute biennial budgeting for defense in 1987 for the fiscal year 1988-89 

defense budget and budgets thereafter. 

The Secretary of Defense should develop and submit to Congress defense 

budgets and five-year plans within an operationally oriented structure. He 

should work with the appropriate committees of Congress and with OMB to 

1 

9 

29 
establish the necessary mechanisms and procedures to ensure that a new 

budget format is established. 

The Secretary of Defense should institute a biennial programming 

process within DoD to complement the proposed biennial planning and 

budgeting processes. 

The Secretary of Defense should work with the Armed Services 

Committees to define procedures for milestone authorization of major defense 

programs. 

Baselining and multi-year procurement should be used as much as 

possible to reinforce milestone authorization. 

30 
V. Conclusion 

D efense of the nation demands that better links be forged among national 

security objectives, national military strategy, and defense budgets. 

The President must initiate the effort. He must challenge the Secretary of 

Defense, the Chairman of the Joint Chiefs of Staff, and the nation’s key military 

leaders to create a national military strategy that can become the basis of 

America’s protection into the next century. Only the President can define the 

terms and boundaries necessary to set such a broaci gauge effort in motion, and 

he must be confident that it will yield the proper result. 

Prepared with this kind of a national military strategy, the President can 

provide Congress a blueprint for national security. and a constructive 

partnership can be formed to carry it out-through a five-year national defense 

program that logically follows. This partnership will, however, require 

Congress to improve its methods and make them more responsive to the 

requirements of national defense. 

In the end, all responsible senior officials must exercise leadership if better 

methods are to take hold and yield a better national defense. We must depend 

upon dedicated and talented people to take the concepts we have presented and 

build upon them for the future. 

31 
THIS PAGE INTENTIONALLY LEFT BLANK
Chapter Two 

Military Organization 

and Command 
THIS PAGE INTENTIONALLY LEFT BLANK
T o accomplish meaningful, long-range deftnse planning, certain modifications are needed in our defense establishment.* 

'The President and the Secretary of' Def'ense require military advice that 

[letter itltegrates the individual views of the nation's combatant commanders 

and the Chiefs ofthe Services. 'Today, there is no one uniformed officer clearly 

responsible for providing such an integrated view, who can draw upon the best 

thillki~lg of, and act as an effective spokesman for, our senior military leadership. The current authority of the Chairman ol' the Joint Chiefs of Staff' is insufficient to enable him to perform effectively ill this capacity. The Chairman's 

advisory relation to the President and the Secretar), of' Defense, the Chairman's 

mandate over the Joint Staff and the Organization of the Joint Chief's of Staf'f, 

and the Chairman's place in the channel of conlrnunications between the Secretary of Defense and the (:ommanders-in-C:hief of' the Unified and Specif'ied 

(hmmands (CINCs), all must be strengthened lo this end. 

So, too, must the views of the CINCs be 111ore strongly and purposefully 

represented than they are at present within the c-oullcils of the Joint Chiefs and 

in weapons requirements decision-making. 1Zec ;IUS~ it is the responsihility of' 

the Chairman to integrate the sometimes corlflicti~lg advice of the Service 

(3iefs and the CINCs into a national strateg),. the necessity for impartiality 

anti objectivity in doing so argues for another \oiw in the Joint Chiefs of' Staff 

to represent the views of' the CINCs. For thesc. purposes, and to assist the 

(:hairman in his existing and additional I-es~~ollsil)ilities, we conclude that the 

position of' Vice C:hairman of the Joint (:hief's of' Staff' should be established. 

There is a11 important need to provide for- co~~ti~~uity of' advice to the kc:- 

retary of Defense and the President in the at)sulc.c of' the Chairman of' the 

Joint Chiefs of Staff. The current system, in 11 hich the rnernbers of' the Joint 

Chiefs of Staff' (J<:S) rotate quarterly as Acting (;llairnwl, has provided continuity better than earlier systems. It also has served to e11hance a needed joint 

perspective among the Service Chiefs and irm cxse their effectiveness in both 

their JCS and Service roles. 'I'he establishnlent of' ;I Vice (:hairman as a Inernber of the Joint Chiefs of Staff having special I.esponsiibilities for representing 

the interesis of the CINCs and reviewing weal)ons requirements would be an 

important innovation. While underscoring the importance of continuity, the 

*With certain important additions, this Chapter represents relevant findings and 

recommendations presented earlier in our Interim Report. 
Commission believes the procedures under cvhrc.11 an Acting (:hairman is clesignated should remain flexible. Under the Presiclerlt’s direction, the Secretarv of 

Defense should be permitted to adopt those p1.ocedures which are best suited 

to the particular circumstances and to revise thtm in accordance with changing 

needs. 

The Commission believes that the present authority of the Chairman of‘the 

Joint Chiefs of Staff to influence the quality of the personnel assigned by the 

Armed Services to the Joint Staff is adequate to assure proper support for him, 

and for the Joint Chiefs of Staff. We note thal the JCS corporately control all 

military personnel, and therefore are in the best position to provide the Chairman with the best possible staff. We do not believe that Congress can usefully 

legislate new rules for selecting and promoting Joint Staff officers. 

We find that improvements also are neeclcd in the several Unified (i.e., 

multi-Service) and Specified (i.e., single Scv-vit cb) (:onlnlancis into which our 

combat filrces are organized. 

The measure of’ command now accorded the. nation’s combatant co~nmanders is not always sufficient for our forces to perf‘orrn with high confidence 

of success and coherence of‘ effort. Unified (:onlmanders require broader authority than “operational command,” 21s now r~nderstoocl and pr;lcticed, in order to meet the heavy responsililities that thcir- Inissiorls plxe on them. 

In our Interim Report, we expressed the conviction that, were combatant 

commanders authorized and directed to do so, 1 hey could reduce significantly 

the numbers of headquarters subordinate to them and their components, as well 

as the numbers of personnel assigned to staff duties in these headquarters. We 

remain convinced that increased authority for each CINC should enable him so 

to rationalize his command structure. We therefbre urge that the Secretary of 

Defense elicit, through the JCS, specific recommendations to that end. 

The LJnified (:omrnand Plan divides I-esf~onsit>ilities among combatant 

commanders too arbitrarily on the basis of‘ geographical boundaries. Today, 

some threats overlap those boundaries and nltlst 1)c. dexlt with functionally. 

ments that e\vlved during World b‘ar I I 10 tlcal with high-intensitv corlflict 

across vast regions of the globe. However well thc. layers of the present command structure suit the contingency of gene~d ~var, they are not altvavs wellsuited to the regional crises, tensions, and collflic.ts that are comnlonpl;~c.e 

Moreover, the current command structul t‘ rcflects comrnand arrangetoday. 

Finally, loose coordination of strategic lifi of‘ rllilitary forces throughout 

the wo~-Id now constrains military effkctivewss ‘Illere are cternonstratecl nlar~agerial shortfalls in our ability to allocate :~\~ailal)le ;iir3 land, and sea transportation among n~my claimants. 
The specific changes recommended by the Commission are necessary to assure unified action by our Armed Forces. On April 24, 1986, in a Special Message to Congress (see Appendix D to this Fino1 R~port), the President endorsed 

our recommendations on military organization and command and requested 

early enactment of legislation required to implement them. As the culmination 

of a major legislative effort begun in the House of Representatives in 1982 and 

joined in the Senate by passage of the Barry (;oldwater Department of Defense 

Reorganization Act of 1986, we anticipate enactment of our basic recommendations by the end of 1986. 

Recommendations 

The Commission recommends the following reforms in federal law and 

DoD practices. 

Current law should be changed to designate the Chairman of the Joint 

Chiefs of Staff (JCS) as the principal uniformed military advisor to the President, the National Security Council, and the Secretary of Defense, representing his own views as well as the corporate views of the JCS. 

Current law should be changed to place the Joint Staff and the Organization of the Joint Chiefs of Staff under the exclusive direction of the Chairman, to perform such duties as he prescribes to support the JCS and to respond to the Secretary of Defense. The statutory limit on the number of 

officers on the Joint Staff should be removed to permit the Chairman a staff 

sufficient to discharge his responsibilities. 

The Secretary of Defense should direct that the commands to and reports 

by the Commanders-in-Chief of the Unified and Specified Commands 

(CINCs) should be channeled through the Chairman so that the Chairman 

may better incorporate the views of senior combatant commanders in his advice to the Secretary. 

The Service Chiefs should serve as members of the JCS. The position of 

a four-star Vice Chairman should be established by law as a sixth member of 

the JCS. The Vice Chairman should assist rhe Chairman by representing the 

interests of the CINCs, co-chairing the Joint Requirements and Management 

Board, and performing such other duties as the Chairman may prescribe. 

The Secretary of Defense, subject to the direction of the President, 

should determine the procedures under which an Acting Chairman is designated to serve in the absence of the Chairman of the JCS. Such procedures 
should remain flexible and responsive to changing circumstances. 

Subject to the review and approval of the Secretary of Defense, Unified 

Commanders should be given broader authority to structure subordinate 

commands, joint task forces, and support activities in a way that best supports their missions and results in a significant reduction in the size and 

numbers of military headquarters. 

The Unified Command Plan should be revised to assure increased flexibility to deal with situations that overlap the geographic boundaries of the 

current combatant commands and with changing world conditions. 

For contingencies short of general war, the Secretary of Defense, with 

the advice of the Chairman and the JCS, should have the flexibility to establish the shortest possible chains of command for each force deployed, consistent with proper supervision and support. ‘This would help the CINCs and 

the JCS perform better in situations ranging from peace to crisis to general 

war. 

The Secretary of Defense should establish a single unified command to 

integrate global air, land, and sea transportation, and should have flexibility 

to structure this organization as he sees fit. Legislation prohibiting such a 

command should be repealed. 

38 
Chapter Three 

Acquisition 

Organization 

and Procedures 
THIS PAGE INTENTIONALLY LEFT BLANK
1. Introduction 

T he President established the Blue Ribbon (:ommission on Defense 

Management in part because public confidence in the effectiveness of the 

defense acquisition system has been shaken by 24 spate of “horror stories”- 

overpriced spare parts, test deficiencies, and cost and schedule overruns. 

Unwelcome at any time, such stories are particularly unsettling when the 

Administration and Congress are seeking ways to deal with record budget 

deficits. A major task of this Commission has been to evaluate the defense 

acquisition system, to determine how it might bcs improved, and to recommend 

changes that can lead to the acquisition of military equipment with equal or 

greater performance but at lower cost and with less delay. For this purpose, the 

Commission formed an Acquisition Task Force.‘@ 

We analyzed the horror stories, as others have done, but concluded that a 

diagnosis based on recognized deficiencies could lead only to band-aid 

treatments for a system more fundamentally ill. Therefore, our basic 

methodology has been deliberately quite different. 

We compared the defense acquisition system with other systems, both 

government and commercial, that develop and produce equipment of 

comparable complexity, in order to find success stories that could provide a 

model on which reforms of the defense acquisition system could be based. 

Defense acquisition represents the largest and, in our judgment, the most 

important business enterprise in the world. It deserves to be managed with the 

highest standards. We therefore conducted a “se;uch for excellence” by

examining organizations that had been most successful in acquisition, in order 

to find a model of excellence for defense acquisition. 

Chances for meaningful improvement will come not from more regulation 

but only with major institutional change. During the last decade or so a new 

theory of management has evolved. It has been developed by a limited number 

of U.S. companies, and it has flourished in Japan. These new management 

*The findings and recommendations of this Chapter are substantially those presented 

earlier in A Formula for Action: A Report to the President on Delknse Acyutiition, submitted April 7, 

1986. Additional recommendations, first presented here, rt:late to rights in technical data and 

industrial mobilization. 

The work of‘the Acquisition Task Force was directed by William J. Perry. In addition to 

David Packard, its members included Louis W. Cabot, Cha1les.J. Pilliod,Jr., K. James Woolsey, 

and the late Ernest C. Arbuckle. 

41 
practices have resulted in much higher productlvity and much higher quality in 

the products being produced. They involve the participation of all of the people 

in the organization in deciding among themselves how the job can best be done. 

They involve, above all, trust in people. They involve the belief that people in 

an organization want to do a good job, and that they will-if given the 

opportunity-all contribute their knowledge, skill, and enthusiasm to work 

together to achieve the aims and goals of their organization. Supervision can be 

minimized, and detailed review of work can be greatly reduced. A real sense of 

teamwork can be established. Every group in an organization can become a 

center of excellence, and in this way the entire organization achieves a level of 

excellence in every aspect of its work. 

process, in the form of project teams that havt. developed and produced new 

weapons rapidly, efficiently, and with high quality performance. Unfortunately, 

this is not the way DoD typically operates. All too many people in DoD work in 

an environment of far too many laws, regulatlons, and detailed instructions 

about how to do their work. Far too many inspec.tors and auditors check their 

work, and there is a hierarchy of oversight in Car too many layers, requiring 

much wasteful reporting and paperwork. 

new management philosophy can replace the old. Instead of concentrating on 

the things that are being done wrong and trying to fix them with more laws, 

more regulations, and more inspectors, DoD should concentrate on those things 

that are done right and use them as models. 

Common sense must be made to prevail alike in the enactments of Congress 

and the operations of the Department. We must give acquisition personnel more 

authority to do theirjobs. We must make it possible for people to do the right 

thing the first time and allow them to use their- common sense. When this is 

done, layers of supervision can be eliminated, rtbporting can be minimized, and 

DoD can get by with far fewer people. Only then will productivity and quality 

become hallmarks of defense acquisition. 

Centers of excellence have evolved here ancl there in the acquisition 

The quest for excellence in defense managc’ment will be successful only if a 

42 
11. The Scope of the Defense Acquisition - 

System 

D efense acquisition is the largest business enterprise in the world. Annual 

purchases by the Department of Defense (1)ol)) total almost $1 70 

billion-more than the combined purchases of (;enera1 Motors, EXXON, and 

IBM. DoD’s research and development (R8cD) ex1)enciitures are more than 

fifteen times those of France, Germany, or the IJnited Kingdom, and eighty 

times those of Japan. Defense acquisition involves almost 15 million separate 

contract actions per year-or an average of 56,000 contract actions every 

working day. 

DoD makes only a small percentage of its equipment. It depends primarily 

on the nation’s industrial companies to develop I~S weapons and to 

manufacture everything from belt buckles to aircraft carriers. In general, these 

companies do not work solely on defense contracts. Most of the top 50 defense 

contractors also engage in substantial commercial production. Boeing, for 

example, supplies aircraft both to DoD and to commercial airlines. IBM 

supplies computers for military and commercial ‘ipplications. In this way, the 

technological base developed for commercial products can be effectively 

applied to nlilitary products, and vice versa. On 1 he other hand, this dual 

commercial-military product base greatly complic;ltes DoD’s task of regulating 

and auditing the technical and financial perform‘tnce of industry. 

DoD employs more than 165,000 people, both civilian and military, to 

manage this vast array of R&D, procurement, anti logistics programs. Nearly 

all of’ these people work for the Services, which direc-tly manage these 

programs subject to the oversight of a relatively snlall staff in the Office of the 

Secretary of Defense (OSD). Further oversight is provided by the Executive 

Office of the President, including the Office of Management and Budget, 

particularly in connection with the President’s defense budget. And the 

Congress, in exercising its constitutional responsibilitv to provide for our 

Armed Forces, authorizes and appropriates funds fbr each of more than 2,600 

specified procurement and K&D line items, and plays a major role in 

overseeing acquisition programs. 

take into account the complexity and scope of acquisition programs. A 

responsible prescription for change must address I he actions of everyone 

who-for better or worse-can influence these programs, from defense 

contractors and program managers to OSD officials and Members of Congress. 

A responsible analysis of problems in the defense acquisition system must 

43 
111. Problems With the Present Acquisition 

System 

AI of our analysis leads us unequivocally to the conclusion that the defense 

acquisition system has basic problems that must be corrected. These 

problems are deeply entrenched and have developed over several decades 

from an increasingly bureaucratic and overregulated process. As a result, all 

too many of our weapon systems cost too much, take too long to develop, and, 

by the time they are fielded, incorporate obsolete technology. 

that have been prominently reported by the media. Many of these cases were 

uncovered by DoD itself, which has a major tbffort underway to detect spare 

parts overpricing and to minimize such probletns in the future. By contrast, we 

have focused on the acquisition of major weapon systems, because improved 

efficiency there can lead to cost savings greater by orders of magnitude. We 

nonetheless also analyzed the spare parts cases to determine whether they are 

indicative of systemic problems and, if so, how these should be addressed. 

Although each of the cases we examined had its own peculiarities, we 

identified a number of problems that freque~ltly recurred: for example, 

government insistence on rigid custom specifications for products, despite the 

commercial availability of adequate alternative items costing much less; the 

ordering of spare parts so late in a program, after the close of the production 

line, that they must be expensively hand tooled; the use of unsuitable cost 

allocation procedures that grossly distort the price tags of inexpensive spare 

parts; the buying of spare parts in uneconomically small quantities and hence 

at higher prices; and the simple exercise of poor judgment by acquisition 

personnel. 

In general, we discovered, these problems were seldom the result of fraud 

or dishonesty. Rather they were symptomatic of other underlying problems 

that affect the entire acquisition system. Ironically, actions being prescribed in 

law and regulation to correct spare parts procurement tend to exacerbate these 

underlying problems by making acquisition procedures even more inflexible 

and by removing whatever motivation exists tor the exercise of individual 

judgment. This Chapter will concentrate on ways of improving the efficiency of 

the overall acquisition system. Removing burtbaucratic inefficiencies in our 

acquisition of major weapon systems also will realize significant improvements 

in our procurement of associated spare parts. 

Recent public attention has focused on cases of spare parts overpricing 

44 
Problems with the present defense acquisition system begin with the 

establishment of approved “military requirements” for a new weapon, a step 

that occurs before development starts. Two common methods exist for 

establishing the need for a new system-“user- pull” and “technology push.” 

Both methods are unsatisfactory. 

User pull defines the institutional process by which users (notably the 

Services) assess the adequacy of existing weapons to meet military needs, and 

state the characteristics of the next generatioil of’ equipment desired to 

overcome identified inadequacies. In general, this process does not adequately 

involve participants with a sophisticated knowledge of the cost and schedule 

implications of technical improvements requircd to satisfy these characteristics. 

Consequently, user pull often leads to goldplating-that is, the inclusion of‘ 

features that are desirable but whose cost far exceeds their real value. If users 

understood the likely impact of their requirerrlents on the schedule, quantity, 

and maintainability of the weapons they eventually received, they would have 

strong motivation for compromise. Generally, however, that compromise-a 

conscious trade-off between performance and cost-does not take place to an 

adequate degree. Implicitly, it is assumed that military requirements should be 

“pure,” and that any necessary trade-offs will take place later in the process. 

Alternatively, requirements often are established by technology push. A 

government or industry team conceives of a new or advanced technology. It 

then tries to persuade users to state requirements that will exploit the new 

technology. Most of the really significant imp~uvements in military 

technology-radar, jet engines, and the atomic. bomb, for example-have 

occurred by technology push rather than by an abstract statement of 

requirements. Because participants in this process tend to push technology for 

its own sake, however, this method is no less prone to result in goldplating than 

user pull. 

small team whose job is to define a weapon system to meet these requirements, 

and “market” the system within the government, in order to get funding 

authorized for its development. Such marketing takes place in a highly 

competitive environment, which is desirable because we want only the best 

ideas to survive and be funded. It is quite clea?, however, that this competitive 

environment for program approval does not encourage realistic estimates of 

cost and schedule. So, all too often, when a program finally receives budget 

approval, it embodies not only overstated requirements but also understated 

Once military requirements are defined, the next step is to assemble a 

costs. 

Funding having been approved, the DoD program team is then enlarged 

and given the task of preparing detailed specitlcations. Weapon system 

45 
specifications for a major program typically rlln to thousands of pages, not 

counting generic military specifications included I)v reference. System 

specifications effectively become a surrogate for overstated military 

requirements, which tend to fade from view. 

system specifications serve as a basis for defense contractors to prepare 

competitive proposals describing how they would meet the specifications, and 

at what cost to them and price to the government. The preparation of 

competitive proposals may very well expose twhrlical problems with the 

specifications, or reveal modifications that wol1ld be cost effective. The 

environment in which program competition t! pically takes place, however, 

encourages improvements within specifications. but discourages modifications 

that deviate from specifications. This effectivelv forecloses one principal 

factor-trade-offs between performance and ( ost-on which the competition 

should be based. The resulting competition, t).tsect instead principally on cost, 

all too often goes to the contractor whose bid is the most optimistic. 

In underbidding, contractors assume there will be an opportunity later in 

a program to negotiate performance trade-offs that make a low bid achievable, 

or to recover understated costs through engineer-ing change orders. Today, 

however, most production and many developnlent contracts are negotiated on 

a firm, fixed-price basis. For the government, the advantages of a fixed-price 

arrangement, particularly the incentives it cre,ltes for realistic bidding, are 

obvious. The disadvantages to the government, while more subtle, are 

nevertheless of real concern. Fixed-price conti-acts effectively can enshrine 

overstated requirements and understated cost5 in a legal arrangement that 

allows little or no flexibility for needed trade-offs between cost and 

performance. This contractual arrangement, illtended to protect the 

government, may cause both sides to lose. 

and launches the program. The DoD program manager sets out to accomplish 

the improbable task of managing his overspecitled and underfunded program 

to a successful conclusion. 

But what was merely improbable soon becmmes impossible. The program 

manager finds that, far from being the manager of the program, he is merely 

one of the participants who can influence it. An army of advocates for special 

interests descends on the program to ensure 1 hat it complies with various 

standards for military specifications, reliabilit) , maintainability, operability, 

small and minority business utilization, and competition, to name a few. Each 

of these advocates can demand that the program rnanager take or refrain from 

taking some action, but none of them has an\ responsibility for the ultimate 

cost, schedule, or performance of the prograln. 

DoD then invites industry to bid on the program. The overly detailed 

In the face of these daunting problems, IhI) selects a successful bidder 

46 
None of the purposes they advocate is undesirable in itself. In the 

aggregate, however, they leave the program manager no room to balance their 

many demands, some of which are in conflict with each other, and most of 

which are in conflict with the program's cost and schedule objectives. Even 

more importantly, they produce a diffusion of management responsibility, in 

which everyone is responsible, and 110 one is I csponsible. 

Meanwhile, throughout this process, various committees of Congress are 

involved. During the marketing phase, it is not enough for the program 

manager to sell the program to his Service leaders anti the various staffs in the 

Office of the Secretary of Defense. He also must sell the program to at least 

four committees and to numerous subcommittcm of' Congress, and then resell 

it for each fiscal year it is considered. In so doing, the program manager is 

either assisted or opposed by a variety of contractors, each advocating its own 

views of the program on Capitol Hill. While congressmen have an abstract 

interest in greater program effectiveness, they also have an intense pragmatic 

interest in their own constituencies. These two interests are frequently in 

conflict, as they exert pressure on specific programs through legislative 

oversight. 

All of these pressures, both internal and external to DoD, cause the 

program manager to spend most of his time briefing his program. In effect, he 

is reduced to being a supplicant for, rather than a manager of, his program. 

The resulting huckster psychology does not condition the program manager to 

search for possible inconsistencies between performance and schedule, on the 

one hand, and authorized funding, on the other. Predictably, there is a high 

incidence of cost overruns on major weapon systems programs. 

unreasonably long acquisition cycle-ten to fifteen Years for our major weapon 

systems. This is a central problem from which nwsf other acquisition problems 

stem: 

But a much more serious result of this management environment is an 

0 It leads to unnecessarily high costs of development. Time is money, and 

experience argues that a ten-year acquisition cycle is clearly more expensive 

than a five-year cycle. 

It leads to obsolete technology in our fielded equipment. We forfeit our 

five-year technological lead by the time it takes us to get our technology from 

the laboratory into the field. 

0 And it aggravates the very goldplating that is one of its causes. Users, 

knowing that the equipment to meet their requirements is fifteen years away, 

make extremely conservative threat estimates. Because long-term forecasts are 

uncertain at best, users tend to err on the side of overstating the threat. 

47 
This description of the acquisition system is stark, but it by no means 

exaggerates the environment of many, if not most, defense programs. C" men 

this pernicious set of underlying problems, it is a tribute to the dedication of 

many professionals in the system, both in and out of DoD, that more programs 

do not end up in serious trouble. 

48 
IV. An Acquisition Model To Emulate 

P roblems attendant to defense acquisition are not new, nor are such 

problems unique to DoD. Rather, they are typical of the way in which large 

bureaucracies, particularly government bureaucracies, manage large, complex 

projects. With this in mind, we compared how other large institutions have 

managed programs of similar complexity-that is, multi-year, multi-billion 

dollar programs incorporating state-of-the-art technology. 

Two recent efforts have been made to draw such a comparison (see 

Appendix F). Notably, average cost growth in nlajor defense programs has 

been found to be less than that experienced ty many comparable civil 

programs, including highway projects, water ~)rojects, public buildings, and 

large processing plants. The good news from these studies is that DoD is no 

worse than other large bureaucratic organizatlons in managing major 

programs. 

This leaves unanswered, however, what le\rel of excellence can be achieved 

in defense programs. To answer this question, a landmark study was 

undertaken by the Defense Science Board (DSB) last year. The DSB compared 

typical DoD development programs with succthssful programs from private 

industry. It used as case studies the development of the IBM 360 computer, 

the Boeing 767 transport, the AT8cT telephone switch, and the Hughes 

communication satellite. Each of these programs compares in complexity and 

size to a major weapon system development, )et each took only about half as 

long to develop and cost concomitantly less. ‘I‘hese commercial programs 

clearly represent the models of excellence we are seeking, but it is not obvious 

that DoD, or any large bureaucratic organizatlon, can follow successfully the 

management procedures used in private industry. 

DoD programs that were developed under spctcial streamlined proceduresthe Polaris missile, the Minuteman missile, the air-launched cruise missile 

(ALCM), and several highly classified projects. We found that, in these 

programs, DoD achieved the accelerated schedules of the successful 

commercial programs. 

It is clear that major savings are possible 111 the development of weapon 

systems if DoD broadly emulates the acquisition procedures used in 

outstanding commercial programs. In a few programs, DoD has demonstrated 

that this can be done. The challenge is to extend the correct management 

To address that question, the Acquisition Task Force examined several 

49 
techniques to all major defense acquisitions, and more widely realize the 

attendant benefits in schedule and costs. 

management features that they had in common, and that could be 

incorporated in the defense acquisition system. We identified six underlying 

features that typified the most successful comlnercial programs: 

responsibility for his program, and a short, unambiguous chain of command to 

his chief executive officer (CEO), group general manager, or some comparable 

decision-maker. Corporate interest groups, wishing to influence program 

actions, must persuade the responsible program manager, who may accept or 

reject their proposals. Major unresolved issues are referred to the CEO, who 

has the clear authority to resolve any conflicts. 

2. Stability. At the outset of a commercial program, a program manager 

enters into a fundamental agreement or “contract” with his CEO on specifics of 

performance, schedule, and cost. So long as a program manager lives by this 

contract, his CEO provides strong management support throughout the life of 

the program. This gives a program manager maximum incentive to make 

realistic estimates, and maximum support in achieving them. In turn, a CEO 

does not authorize full-scale development for a program until his board of 

directors is solidly behind it, prepared to fund the program fully and let the 

CEO run it within the agreed-to funding. 

3. f imited reporting requirements. A commercial program manager reports 

only to his CEO. Typically, he does so on a “management-by-exception” basis, 

focusing on deviations from plan. 

4. Small, high-quality staffs. Generally, commercial program management 

staffs are much smaller than in typical defense programs, but personnel are 

hand-selected by the program manager and are of very high quality. Program 

staff spend their time managing the program, not selling it or defending it. 

5. Communicafions with users. A cornmerckd program manager establishes 

a dialogue with the customer, or user, at the conception of the program when 

the initial trade-offs are made, and maintains that communication throughout 

the program. Generally, when developmental problems arise, performance 

trade-offs are made-with the user’s concurrence-in order to protect cost and 

schedule. As a result, a program manager is nwtivated to seek out and address 

problems, rather than hide them. 

6. Prototyping and testing. In commercial programs, a system (or critical 

subsystem) involving unproven technology is realized in prototype hardware 

and tested under simulated operational conditions before final design approval 

or authorization for production. In many cases, a program manager establishes 

To this end, we analyzed a number of successful programs to identify 

1. Clear command channels. A commercial program manager has clear 

50 
a “red team,” or devil‘s advocate, within the program office to seek out 

pitfalls-particularly those that might arise from operational problems, or from 

an unexpected response by a competitor. Prototyping, early operational 

testing, and red teaming are used in concert for the timely identification and 

correction of problems unforeseen at a program’s start. 

differs from this commercial model in almost every respect. Yet a number of 

successful DoD programs have incorporated some or all of these management 

features to a greater or lesser degree. We therefore concentrated our efforts 

on deriving a formula for action-steps by whic ti defense acquisition can COITI~ 

to emulate this model to the maximum extent practical. 

It is clear from our earlier description that defense acquisition typically 

51 
V. A Formula for Action 

hile we would model defense acquisition after the practices of the best 

industrial companies, we recognize the Ilnique problems DoD faces. 

Management of the acquisition of military equipment requires a unique blend 

of flexibility and judgment. The contributions of innovative scientists and 

engineers, necessary for equipment to achieve maximum performance, must be 

matched by those of military personnel who will use and maintain the 

equipment. Overlaying these complexities is the need for an informed tradeoff between quantity and quality. At some point, more weapons of lower 

performance can overcome fewer weapons of higher performance. Hence it is 

necessary to achieve a critical balance between high military capability and low 

life cycle cost. In these and other respects, defense acquisition is one of the 

most difficult management jobs. 

improvements in defense acquisition by emulating the model of the most 

successful industrial companies. Surely this will not be easy, because present 

procedures are deeply entrenched. Acquisition problems have been with us for 

several decades, and are becoming more intra table with the growing 

adversarial relationship between government and the defense industry, and 

the increasing tendency of Congress to legislate management solutions. In 

frustration, many have come to accept the ten-to-fifteen-year acquisition cycle 

as normal, or even inevitable. 

We believe that it is possible to cut this cycle in half. This will require 

radical reform of acquisition organization and procedures. It will require 

concerted action by the Executive Branch and Congress, and the full support 

of defense industry. Specifically, we recommend that the Administration and 

Congress join forces to implement the following changes in the defense 

acquisition system. 

Despite the difficulties, we believe it is possible to make major 

A. Streamline Acquisition Organization and 

Procedures 

As we noted in,our Interim Report, federal law governing acquisition has become steadily more complex, the acquisition system more bureaucratic, and 

acquisition management more encumbered anct unproductive. In the absence 

of a single, senior DoD official working full tirne to supervise the overall 

52 
acquisition system, policy responsibility has become fragmented. As a result, 

the Services have tended to assume policy responsibilities and to exercise them 

at times without necessary coordination or uniformity. Worse still, authority for 

executing acquisition programs-and accountability for their results-has 

become vastly diluted. 

For these reasons, it is fundamental that we establish unambiguous 

authority for overall acquisition policy, clear ;iccountability for acquisition 

execution, and plain lines of command for those with program management 

responsibilities. It is also imperative that we streamline acquisition procedures. 

This can be facilitated by five related action\: 

1. We strongly recommend creation by statute of the new position of 

Under Secretary of Defense (Acquisition) and authorization of an additional 

Level I1 appointment in the Office of the Secretary of Defense (OSD). 

This new Under Secretary should have t’ull-time responsibilitv for 

managing the defense acquisition system. He should be a Level I1 Presidential 

appointee and should have a solid industrial background in the management 

of complex technical programs. The new LJllder Secretary should be the 

Defense Acquisition Executive. As such, he should supervise the performance 

of the entire acquisition system and set over,d policy for R&D, procurement, 

logistics, and testing. He should have the responsibility to determine that new 

programs are thoroughly researched, that military requirements are verified, 

and that realistic cost estimates are made before the start of full-scale 

development. (In general, we believe, cost estimates should include the cost of 

operating and maintaining a system through its life.) He should assure that an 

appropriate type of procurement is employed, and that adequate operational 

testing is done before the start of high-rate production. He also should be 

responsible for determining the continuing adequacy of the defense industrial 

base. 

bilities within OSD. Reporting to the new Under Secretary should be a 

Director of Kesearch and Engineering*; an i\ssistant Secretary of Defense for 

Production and Logistics*; the Assistant Secretary of Defense for Command, 

Control, Communications, and Intelligence; the Director of Operational Test 

and Evaluation; and such other offices and itgencies as the Secretary of 

Defense may designate. The Under Secretary should be responsible to the 

Secretary of Defense for balancing the sonlc.times conflicting views and 

interests of these various offices. He should establish overall acquisition policy, 

Appendix G sets out an illustrative reorgmization of acquisition responsi- 

*We use these new titles to represent a reorganimtion of acquisition responsibilities for 

officials reporting to the new Under Secretary. 

53 
as well as contract audit policy; should promulgate and issue appropriate 

directives and regulations; and, except for criminal investigations, should 

supervise oversight of defense contractors. Fin,llly, he should prepare annual 

and other reports to Congress on major issues of acquisition policy and on 

acquisition programs. 

2. The Army, Navy, and Air Force should each establish a comparable 

senior position filled by a top-level civilian Presidential appointee. 

The Commission considered recommendal ions to consolidate all defense 

acquisition activities under the Defense Acquisrrion Executive, but concluded 

that such centralization would not serve the cause of reducing the bureaucracv, 

because it would tend to separate further the acquisition staff from the military 

user. We believe that it is important to maintain the Services’ traditional role in 

managing new weapon programs. 

Accordingly, we recommend that each of’ [he Military Departments 

establish a Service Acquisition Executive selectcd by the Service Secretary in 

consultation with the Defense Acquisition Exec utive. The Service Acquisitior~ 

Executive should be a top-level civilian Presidential appointee, of rank 

equivalent to a Service Under Secretary. He should be responsible for 

administering Service acquisition programs uncler policy guidance from the 

Defense Acquisition Executive; accordingly, he should have substantial 

experience in acquisition and should devote full time to his acquisition 

responsibilities. For major programs, the Defellse Acquisition Executive and 

his Service counterpart should function respeclively like chief executive 

officers of a corporation and a principal corporate subsidiary. ’They should 

resolve major issues anti conflicts as they arise, ;lnd represent programs before 

most senior decision-makers (here, the Secretar! of’ Ikfense, the President, and 

Congress, rather than a board of directors). 

3. Each Service Acquisition Executive should appoint a number of 

Program Executive Officers. 

Each Service Acquisition Executive should appoint a number of Program 

Executive Officers (PEO) who, like group general managers in industry, should 

be responsible for a reasonable and defined number- of acquisition programs. 

Program managers for these programs should bt: responsible directly to their 

respective PEO and, on program matters, report only to him. In other words, 

every major program should be set up as a center of’excellence and managed 

with modern techniques. The Defense Acquisition Executive should insure that 

no additional layers are inserted into this program chain of command. 

single, greatly simplified statute applicable government-wide. 

4. Federal laws governing procurement should be recodified into a 

A streamlined organization for defense acqtlisition is not enough. It must 

54 
be matched by streamlined procedures. Over the years, Congress and DoD have 

tried to dictate management improvements ill the form of ever more detailed 

and extensive laws or regulations. As a result the legal regime for defense 

acquisition is today impossibly cumbersome. For example, we have identified 

394 different regulatory requirements in the Federal Acquisition Regulation 

(FAR) and the DoD FAR supplement that arc. pegged to some 62 different 

dollar thresholds, ranging from as little as $; 15 to as much as $100 million or 

more. In our judgment, there can be far fewttr of’ these requirements, and those 

that are retained can apply at far fewer dollal. thresholds. 

The sheer weight of such requirements oftetl makes well-conceived reform 

efforts unavailing. At operating levels within DoD, it is now virtually impossible 

to assimilate new legislative or regulatory refinements promptly or effectively. 

For these reasons, we recommend that Congress work with the Administration 

to recodify federal laws governing procuremcbnt in a single, consistent, and 

greatly simplified procurement statute. 

5. DoD should substantially reduce the number of acquisition personnel. 

The fundamental intent of the Commission’s recommendations is to 

simplify the acquisition system by consolidating policy and oversight, reducing 

reporting chains, eliminating duplicative func,tions and excessive regulations, 

and establishing an environment in which program managers and their staffs 

can operate as centers of excellence. This should allow for a substantial 

reduction in the total number of personnel in the defense acquisition system, to 

levels that more nearly compare with commercial acquisition counterparts. 

Eliminating a layer of management by moving the functions and people of that 

layer to some other layer clearly will not suffic,e. 

B. Use Technology to Reduce Cost 

We recommend a high priority on building and testing prototype 

systems to demonstrate that new technology can substantially improve 

military capability, and to provide a basis for realistic cost estimates prior to 

a full-scale development decision. Operational testing should begin early in 

advanced development, using prototype hardware. The early phase of R&D 

should employ extensive informal competition and use streamlined 

procurement processes. To promote innov;rtion, the Defense Advanced 

Research Projects Agency should engage in prototyping and other advanced 

development work on joint programs and in areas not adequately emphasized 

by the Services. 

Fully exploiting our technological leadership is critical to the national 

security. The Soviet Union has twice as many personnel in its armed forces, 

55 
and produces military equipment in far grealer quantities than the United 

States. We depend on our technological advantage to offset this quantitative 

disadvantage. But our technology can be exploited in two quite different ways: 

to reduce cost (so that we can better competc- in quantity), or to increase 

performance (so that we can compensate for our smaller quantity). 

We believe that DoD should place a much greater emphasis on using 

technology to reduce cost-both directly by rcsducing unit acquisition cost and 

indirectly by improving the reliability, operability, and maintainability of 

military equipment. Cost reduction has been rl primary motivation in the 

introduction of new technology to commercial products. This emphasis has led 

to a tenfold reduction in the cost of computer products during the past decade. 

DoD should give a similar high priority to cost reductions by exerting greater 

discipline in the setting of performance requirements for new platforms, and 

by increasing the use of technology to extend she lifk of existing platforms. We 

could, for example, extend the effective life of most of our existing aircraft ten 

to twenty years by replacing their electromecllanical subsystems with modern 

microelectronics. This would reduce the cost of' operating and maintaining our 

aircraft, and at the same time improve their perfi)rmance. 

In some of our new weapon systems-fighter aircraft, for example-the 

need for maximum performance will be suffi(ierltly conlpelling to justify the 

introduction of state-of-the-art technology. But this is not the case for all new 

systems. A weapon system should be predicatcd on state-of-the-art technology 

only when the benefits of the new technology offset the concomitant risks. This 

principle, easy to state, is hard to apply because of' the difficulty in getting 

reliable information with which to make the crade-off of risks and benefits. 

The only consistently reliable means of getting such information is by 

building prototypes that embody the new teclrnology. Accordingly, we 

recommend that such prototyping, either at the system or critical subsystem 

level, be done as a matter of course for all malor weapon systems. Operational 

tests should be combined with developmental '[ests of the prototype to uncover 

operational as well as technical deficiencies 1.x.fi)r-e a decision is made to 

proceed with full-scale development. 

those of approved production programs, in ot-der to complete the entire 

prototyping cycle in two or three years. Cont~xting should be streamlined to 

speed up the process of evaluating diverse new ideas. In the advanced 

technology phase of a program, competition should play a critical role, but the 

emphasis should be on an informal competition of' ideas and technologies, 

rather than a formal competition of cost. At Ihis stage, a formal competition 

based on detailed specifications not only is ineff'ective, but also introduces 

'The early phase of K8cD should follow pwcedures quite different from 

56 
substantial delay. In Fact, recent emphasis on cost competition has stretched out 

the time required to let some R&D contracts t'rorn a few months to as much as 

a year. 

In general, prototyping and testing in the early stage of R8cD should be 

done by the Service that would be the primary user of the resulting system. In 

order to promote the use of prototyping, however, we recommend expanding 

the role of the Defense Advanced Research Projects Agency (DAKPA). 

high-risk, high-payoff technologies. DAKPA should have the additional 

mission of stimulating a greater emphasis on prototyping in defense systems. It 

should do this by actually conducting protot\rpe projects that embody 

technology that might be incorporated in joint programs, or in selected Service 

programs. On request, it also should assist tlte Services in their own 

prototyping programs. The common objectike of all of these prototyping 

programs should be to determine to what extent a given new technology can 

improve military capability, and to provide a basis for making realistic cost 

estimates prior to a decision on full-scale devcblopment. In short,, the prototype 

program should allow us to fly-and know how much it will cost-before we 

buy. 

At present, DARPA conducts research and exploratory development in 

C. Balance Cost and Performance 

A restructured Joint Requirements and Management Board (JRMB), 

cochaired by the Under Secretary of Defense (Acquisition) and the Vice 

Chairman of the Joint Chiefs of Staff, should play an active and important 

role in all joint programs and in all major Service programs. The JRMB 

should define weapon requirements for development, and provide thereby an 

early trade-off between cost and performance. 

Full-scale development of a new weapon system is the single most critical 

step in the acquisition process. At this point, a number of fundamental 

decisions must be made-whether to undertake a new development or adapt 

an existing system, how far to push the new rckchnology being incorporated in 

the system, what cost and schedule to authorize, and what the management 

structure will be. Misjudgment about any of these items can start a program off 

on a course that dooms it to failure. Currenth., this critical decision is made by 

the Secretary of Defense, acting on advice from the Defense Systems 

Acquisition Review Council (DSARC), after the DSARC has made a detailed 

review of whether the proposed system will nleet the stated user requirements 

and whether the cost and schedule estimates are credible. The recommended 

new emphasis on prototyping will contribute materially to improving the 

57 
judgments about cost and schedule estimates. But the DSARC process, while 

adequate to determine whether the proposed specifications will meet the stated 

user requirements, lacks a viable mechanism f.or chccllrnging those requirements. 

trade-off between user requirements, on the one hand, and schedule and cost, 

on the other. A delicate balance is required in forrnulating system specifications 

that allow for a real advance in military capa1)ility but avoid goldplating. 

Generally, users do not have sufficient technicd knowledge and program 

experience, and acquisition teams do not haw. sufficient experience with or 

insight into operational problems, to strike this critical balance. It requires a 

blend of diverse backgrounds and perspectives that, because the pressures for 

goldplating can be so great, must be achieved at a very high level in DoD. 

The DSARC is not the proper forum for effecting this balance. It has had 

very little success, for example, in stimulating the use of nondevelopmental 

items as an alternative to developing unique ~rlilitary products. Any time the 

military needs new trucks, tractors, radios, computers, and transpdrt aircraft, 

for example, it should be the rule rather than the exception that LhD adapts 

products already developed by industry or by the armed forces of an allied 

nation. Much greater reliance on such items (ould realize major savings of 

money and time, but experience indicates that a decision to use nondevelopmental items must come from a high level in DoD, and must reflect 

operational judgment as well as technical sopllistication. 

We rechrnmend, therefore, that the JKMH be restructured to make such 

trade-offs and then to decide whether to initi‘tte full-scale development. The 

JRMB should have this authority for all joint programs and appropriate 

Service programs. It should evaluate major tr.tde-offs proposed as a program 

progresses. Its determination, in effect, shoultl suhstitute for the decision now 

made by the DSAKC at what is called Milestone 11. The JKMB should be 

cochaired by the Under Secretary of Defense (Acquisition) and the Vice 

Chairman of the Joint Chiefs of Staff. 

‘Thus, the JKMB should be responsible for two decisions commonly made 

in industry, but not now an explicit part of DoII’s decision-making process. 

One of these is the “affordability” decision, anrl the other is the “make-or-buy” 

decision. 

The affordability decision requires that a 5ubjectivejudgment be made on 

how much a new military capability is worth. If a new weapon system c;m be 

developed and produced at that target cost, it may be authorized for 

development; otherwise, ways should be ~OLIJ~~ to extend the life of the 

existing system. Determining a target cost is dif‘f’icult, to be sure, but CEOs in 

industry must make comparably difficult deci.;ions on which their companies’ 

survival depends. 

Fundamental to the ultimate success of a new program is an informed 

58 
The make-or-buy decision requires that the JRMB assess the need for a 

unique development program, arld determitle if‘ it is possible instead to buy or 

adapt an existing commercial or military system. At present, DoD passes up 

many valid opportunities for adapting existing svstems, opportunities that 

could improve military capability more qui( kly and at reduced cost. 

D. Stabilize Programs 

Program stability must be enhanced in two fundamental ways. First, DoD 

should fully institutionalize “baselining” for major weapon systems at the 

initiation of full-scale engineering development. Second, DoD and Congress 

should expand the use of multi-year procurement for high-priority systems. 

In connection with the decision to begill full-scale development of’ a major 

new program, the program manager shoult t prepare a brief baseline 

agreement describing functional specifications, cost, schedule, and other 

factors critical to the program’s success. This haseline agreement should be 

submitted, through the responsible l’rogranl Executive Officer and the Service 

Acquisition Executive, for approval bv thc. Defense Acquisition Executive. 

full authority to execute the program. He should be fully committed to abide 

by the program’s specified baseline and, so long as he does so, the Defense and 

Service Acquisition Executives should support his program and permit him to 

manage it. This arrangement would provide much-needed program stability, 

which could be enhanced significantly if the program were approved for rnultiyear funding. We recommend that Congre,is approve multi-year funding for 

the development arld low-rate production of’ all major programs approved for 

full-scale development by the JRMB. In this way, Congress could join in the 

baseline agreement with the program manager, enhance program stability, and 

promote lower unit prices. 

A program manager should agree to a baseline for all phases of‘ his 

program. For the Acquisition Executives, however, the agreement should 

extend only to the first two phases of a program, full-scale development and 

low-rate production. Before a program could enter its third phase, high-rate 

production, it must be subjected to developmental and operational testing. 

Operational tests are particularly critical, alld should continue through fullscale development. The first units that coltle of‘f a low-rate production line 

should be subjected to intensive operational testing. Low-rate production 

should continue during testing, but a prog1-am should not be approved for 

high-rate production until the results of these tests are evaluated. 

The JKMB should then reconsider the program at its second major 

milestone-whether to authorize high-rate production, at what level of 

Within the tertns of this agreement, tht. program manager should have 

59 
funding, and on what schedule. At this stagc,, available test results should 

provide a realistic portrait of the weapon’s probable performance under 

operational conditions, current intelligence data should yield a realistic threat 

estimate, and low-rate production experience should provide a realistic 

estimate of production costs. Thus, the JRMB would possess the necessary data 

to make an informed judgment on high-rate production. 

If the JRMB so determines, a program Inanager could proceed in 

accordance with the balance of his baseline agreement. Congress would be 

asked to authorize multi-year funding for the production phase of the 

program. 

E. Expand the Use of Commercial Products 

Rather than relying on excessively rigid military specifications, DoD 

should make greater use of components, systems, and services available “offthe-shelf.” It should develop new or custom-made items only when it has 

been established that those readily available are clearly inadequate to meet 

military requirements. 

No matter how DoD improves its organization or procedures, the defense 

acquisition system is unlikely to manufacture products as cheaply as the 

commercial marketplace. Dol) cannot duplicate the economies of scale possible 

in products serving a mass market, nor the power of the free market system to 

select and perpetuate the most innovative and efficient producers. Products 

developed uniquely for military use and to military specifications generally cost 

substantially more than their commercial counterparts. DoD program 

managers accordingly should make maximum use of commercial products and 

devices in their programs. 

A case in point is the integrated circuit. or microchip-an electronic device 

used pervasively in military equipment today. This Year DoD will buy almost $2 

billion worth of microchips, most of them manufa&ured to military 

specifications. The unit cost of a military mic.rochip typically is three to ten 

times that of its commercial counterpart. This is a result of the extensive testing 

and documentation DoD requires and of sm;dler production runs. (Dol> buys 

less than ten percent of the microchips mad(. in the U.S.) Moreover, the 

process of procuring microchips made to military specifications involves 

substantial delay. As a consequence, military microchips typically lag a 

generation (three to five years) behind commercial microchips. 

When military specifications for microchips were first established, they 

assured a high standard of quality and relialtilitv that was worth a premium 

price. The need for quality and reliability in rnilitary equipment is as great as 

60 
ever. In the last few years, however, industrial consumers of microchips have 

come to demand equivalent standards, and manufacturing processes anti 

statistical methods of quality control have been greatly improved. It is now 

possible for DoD program managers to buy thtb bulk of their microchips from 

commercial lines with adequate quality and reliability, and thus to get the latest 

technology at a substantially lower cost. The Electronic Systems Division, 

responsible in the Air Force for the quality of‘ electronic devices, recently began 

revising its procedures to achieve these objectivtrs. We recommend that the Air 

Force accelerate its efforts and that the &her Services follow its lead. 

This same principle-the expanded use of c.ommercia1 items-can apply to 

a great variety of products and services bought 11). DoD. ‘These range from 

personal computers, computer software, and professional services, to a host of 

non-technical products such as bath towels and steak sauce. 

We recommend that the Defense Acquisition Executive take steps to assure 

a major increase in the use of commercial products, as opposed to those made 

to military specifications. He should direct that program managers get a waiver 

before using a product made to military specifications, if there is an available 

Commercial counterpart. When a “make-or-bu\~” decision must be made, the 

presumption should be to buy. This would in&rt present procedures, biasing 

the system in favor of commercial products and services, but permitting the use 

of items made to military specifications wheneLer a program manager believes 

it necessary to do so. 

In addition, we recommend that the DOL) Supplement to the Federal 

Acquisition Regulation be changed to encourage streamlining military 

specifications themselves. Applying full militarv specifications, far from being 

ideal, can be wasteful. A program manager should strive to invoke neither 

minimum nor maximum, but only relevant, requirements; and he should think 

in terms of optimization rather than deviations and waivers. 

Thus, DoD should reduce its use of military specifications when they are 

not needed, and should take steps to improve the utility of military 

specifications when they are needed. ?‘his will require a serious effort to 

harmonize military specifications with the various commercially used 

specifications. For example, required military clrawings for integrated circuits 

could incorporate a manufacturer’s standard design specifications, test 

methods, and test programs. More generally, lnilitary specifications could be 

based on industry standards, such as those promulgated by the American 

National Standards Institute and the America11 Society for Testing and 

Materials. This would provide the technical urlder-pinning for DoD to make 

substantially greater use of commercial devices anti products, and thereby take 

advantage of the much lower costs that result from larger production runs. 

61 
One indirect benefit of buying commercial products is that the price is 

determined by market forces. This should relieve DoD of the administrative 

burden and cost of verifying a producer's overhead costs. For DoD to re a 1' 1ze 

the full benefit of commercial buying, it should let competitive market forces 

provide a check on price and direct its own attention to validating quality. 

A more detailed explanation of current issues concerning the expanded use 

of commercial products is contained in Apperldix H. 

F. Increase the Use of Competition 

Federal law and DoD regulations should provide for substantially 

increased use of commercial-style competition, emphasizing quality and 

established performance as well as price. 

can still use commercial buying practices to real advantage. Foremost among 

these practices is competition, which should t)e used aggressively in the buying 

of systems, products, and professional services. DoD clearly understands the 

need for such competition, which was articulated in the 1981 Carlucci 

Initiatives. Although DoD has made major efforts in this direction, much more 

can be done. It is particularly important to focus on achieving more effective 

competition, modeled after the competitive 1)rocurement techniques used in 

industry. 

related objectives: attracting the best qualified suppliers, validating product 

performance and quality, and securing the best price. Price is, of course, as 

important a factor in commercial procurement as it is in DoD procurement. 

But it is only one of several equally important factors. Price should not be the 

sole determinant, especially for procurement of' complex systems and services. 

Defense procurement tends to concentrate heavily on selecting the lowest price 

offeror, but all too often poorly serves or even ignores other important 

objectives. 

In validating product quality, for example, DoL) places too much emphasis 

on specific details of how the manufacturing 1)roc:ess is to be done and too little 

on modern techniques of quality control. lrl(lustry makes extensive use of 

statistical sampling, and will accept or reject :~II order on that basis. Typically, 

an industrial company will keep lists of qualit'iect suppliers that have 

maintained historically high standards of product quality and reliability. As 

long as these standards are maintained, industrial buyers do not require 

exhaustive inspection, and thereby save experlse on both sides. Suppliers are 

highly motivated to get-and stay-on lists of qualified suppliers by 

Even when commercial products are nor suitable for DoD's purposes, it 

Commercial procurement competition simultaneously pursues several 
consistently exceeding quality control stantlards. 

Moreover, because competition is not a one-way street for the buyer, 

defense procurement practices must be le!?s cumbersome if’ DoI) is to attract 

the best suppliers. Procurenlent officers must he allowed and encouraged to 

solicit bids through purchase descriptions that are stated as functional 

performance characteristics rather than through detailed design and “how-to” 

specifications; to limit bids to qualified sul)pliers; to give preference to 

suppliers that have demonstrated the qualitv and reliability of their products; 

and to recognize value (quality and price) I&xj on products’ cornmercia~ 

acceptance in the marketplace. These pra tiws ha\^ been found to yield 

effective competition in the comnlercial f’ic.ld, and their use in defense 

acquisition could provide better military ec1uipment at no increase in cost. 

Although Congress has ardently advoc.att.d increasing competition, some 

provisions of recent legislation in fact work ar cross purpose to that objective. 

For example, burdening suppliers of off-the-shelf catalog items to identify all 

component parts and their producers, or 10 submit detailed pricing 

certifications, inhibits qualified companies t’rorn competing for government 

contracts. Regulatory implementation-fol example, Don’s efforts to require 

contractors to release rights in technical &ita on their products-has a similar 

effect. 

legislation-notably the Competition in Contracting Act’s (CICA) requirement 

of “full and open competition,” which S~IIIC’ have interpreted to mean that the 

government must buy from the lowest offi.ror.. (:ICA sought to make it clear 

that the award of a contract through colnpetilive negotiation is a method of 

procurement no less acceptable than an a\vard using formal advertising or 

sealed bids, and thus to recognize that co~~~pt‘tition entails more than just an 

assessment of lowest price. This goal has bcen obscured by the notion that full 

anti open competition precludes the govel nrnent from establishing 

qualification criteria, and forces the award of’ a contract based on price without 

regard, for example, to technical expertist. OJ’ life cycle costs. ‘I‘his reinforces 

DoD’s proclivity for writing detailed military specifications rather than 

functional product descriptions-in this contt‘xt, irl order to insure that all 

bidders offer identical items. At the same tllne, however, these narrow product 

specifications preclude the acquisition of Itlosr commercial products and, in 

effect, DoD’s doing business with many qualif‘ietl suppliers. Thus, the full 

potential of CICA is not being realized bec:ause of a focus on the quantity 

rather than the quality of competition. 

effective competition, using as a model the competitive buying practices of 

A further problem stems from confusion regarding the intent of recent 

In sum, we believe that DoD should greatly increase its use of truly 

63 
major corporations and their suppliers. We recommend the elimination of 

those legal and regulatory provisions that are at variance with full 

establishment of commercial competitive pr,lctices. 

G. Clarify the Need for Technical Data Rights 

DoD must recognize the delicate and necessary balance between the 

government’s requirement for technical data and the benefit to the nation that 

comes from protecting the private sector’s proprietary rights. That balance 

must be struck so as to foster technological innovation and private investment 

which is so important in developing products vital to our defense. DoD 

should adopt a technical data rights policy that reflects the following 

principles: 

0 If a product has been developed with private funds, the government 

should not demand, as a precondition for buying that product, 

unlimited data rights (except as necessary for installation, operation, 

and maintenance), even if the government provides the only market. 

Should the government plan later to seek additional (competitive) 

sources, the required data rights should be obtained through the least 

obtrusive means (e.g., directed licensing) rather than through the 

pursuit of unlimited rights. 

If a product is to be developed with mixed private and government 

funding, the government’s rights to the data should be defined during 

contract negotiations. Significant private funding should entitle the 

contractor to retain ownership of the data, subject to a license to the 

government on a royalty-free or fair royalty basis. 

0 If a product is developed entirely with government funds, the 

government normally acquires all the rights in the resulting data. To 

foster innovation, however, the government should permit the rights to 

reside in the contractor, subject to a royalty-free license, if the data are 

not needed for dissemination, publication, or competition. 

DoD is a major developer and user of high technology, most of which comes 

from government contractors. DoD can use its unique position to enhance 

U.S. industry’s worldwide technological position; or unwittingly, through the 

pursuit of other shorter term goals, to reduce incentives for developing new 

technology; or, even worse, make commercially valuable technology available to 

64 
international competitors. It is in our national interest to encourage innovation 

in the U.S.; and we should heed the words of‘ Abraham Lincoln: “The patent 

system added the fuel of interest to the fire of genius.” 

In order to operate and maintain the systems it acquires, DoD must have 

certain rights to use internally technical data pertaining to products developed 

by its contractors. DoD’s suppliers fully understand this need. Recently, 

however, these suppliers have become alarmed by DoD’s increasingly vigorous 

pursuit of unlimited rights in technical data to be used in fostering competition. 

DoD’s search for technical data needed to obtain competition is reflected in 

the Department’s new rights-in-data regulatiolls and in its contracting actions. 

This search has been intensified as a result of unfavorable publicity, as well as 

recent legislative initiatives regarding competitlve procurement practices in both 

DoD and the civil agencies. The two principal statutes resulting from these 

initiatives are broad and are thus susceptible to varying interpretation, 

particularly where the statutes use different words to address the same point. 

But DoD’s approach to these problems is shaped less by statute than by its own 

policies. Because no concrete, plainly stated government-wide rights-in-data 

policy has been adopted or insisted upon, the Department (and each of the 

Services within DoD) has been left to develop an individual approach. 

An authoritative statement of government-wide policy on balancing the 

interest of the parties in technical data is required. This in turn must be followed 

by specific implementing guidance in the Federal Acquisition Regulation (FAR), 

supplemented as necessary in the DoD FAR Supplement (DFAKS). This 

guidance must embody uniform concepts and definitions to overcome the 

confusion and disagreement that now prevail among the separate components 

of DoD and among the departments and agencies of‘ the executive branch. 

The technical data rights regulations as now proposed need much work if 

they are to be fully responsive to the statutes, clear and consistent enough to be 

followed, and equitable. In this regard, DoD’s rights-in-technical-data contract 

clause should be simplified and made more prt:cise and workable. 

procurement regulations touching on technical data, improvements are needed 

in the areas of commercial product data, software (which should have special 

treatment), and technical data management. A detailed analysis of the technical 

data rights issue is contained in Appendix I. 

In addition to refinement of the statutes arid basic reworking of the 

H. Enhance the Quality of Acquisition Personnel 

DoD must be able to attract and retain the caliber of people necessary for 

1 a quality acquisition program. Significant improvements should be made in 

the senior-level appointment system. The Secretary of Defense should have 

t 

65 
increased authority to establish flexible personnel management policies 

necessary to improve defense acquisition. An alternate personnel 

management system should be established to include senior acquisition 

personnel and contracting officers as well as scientists and engineers. 

Federal regulations should establish business-related education and 

experience criteria for civilian contracting personnel, which will provide a 

basis for the professionalization of their career paths. Federal law should 

permit expanded opportunities for the education and training of all civilian 

acquisition personnel. 

Our study convinces us that lasting progress in the performance of the 

acquisition system demands dramatic impro\ ements in our management of 

acquisition personnel at all levels within IhI). 

A pivotal recommendation of the Comnlission is the establishment of the 

position of Under Secretary of Defense (Accluisition) and comparable Service 

positions, all to be filled by leaders with out.;tanding business management 

credentials. Recruiting the most capable executives for jobs of such importance 

to the nation is extremely difficult, however, in the face of current disincentives 

to entering public service. A recent report of' the Presidential Appointee 

Project of the National Academy of Public Adnlinistration* analyzes this 

problem and details twenty-three separate rec.ornrrlendations for improving the 

recruitment of senior-level Executive Brancll p-sonnel. These include, for 

example, specific suggestions for simplifying financial disclosure reports and 

for allowing Presidential appointees to defer capital gains taxes incurred by 

divesting assets to comply with conflict-of-intcrest provisions. Such steps would 

improve the government's ability to attract atld retain the highly qualified 

people needed for effective senior managenlent of' defense acquisition. We 

strongly support these proposals. 

management and better line personnel. 'r'he defense acquisition work force 

mingles civilian and military expertise in numerous disciplines for management 

and staffing of the world's largest procurement organization. Each year billions 

of dollars are spent more or less efficiently, t,ased on the competence and 

experience of these personnel. Yet, comparecl to its industry counterparts, this 

workforce is undertrained, underpaid, and inexperienced. Whatever other 

changes may be made, it is vitally important to enhance the quality of the 

defense acquisition workforce-both by attracting qualified new personnel and 

Comparable improvements also are required for effective middle 

*Leadership In Jeopardy: The Fraying of' the Prcde)lti(d Af)f)ointmmts System (Final Keport of' 

the Presidential Appointee Project); November 1985. 

66 
by improving the training and motivation of current personnel." 

study to evaluate the capabilities of DoD program rnanagers and contracting 

officers. The results of GAO's study' confirnl the central importance of' 

improving the quality of training for these two critical acquisition specialties. 

management has improved significantly of late. Military officers manage over 

90 percent of DoD's roughly 240 program offices. 'I'heir ranks range from 0-5 

(lieutenant colonel/commander) to 0-8 (major general/rear admiral). Each of 

the Services has established a well-defined acquisition career program for its 

officers. These include the Army's Materiel ,\cquisition Management (MAM) 

program, the Navy's Materiel Professional (MP) programs, and detailed career 

planning regulations for Air Force technical personnel and program managers. 

We strongly support these measures. We also support recent legislation that 

has further defined career paths for all program managers. In 1984, Congress 

established a minimum four-year tenure for program management 

assignments. The 1986 Authorization Act prcwribed requisite qualifications 

and training, including at least eight years of' acquisition-related experience 

and appropriate instruction at the Defense Svstcms Management College (or 

equivalent training). 

By contrast, much more remains to be done concerning civilian acquisition 

personnel generally. Civilians frequently cite the rigid pay grades and 

seniority-based promotion standards of the federal civil service as disincentives 

to continued employment. Higher pay and better opportunities in private 

industry lure the best college graduates and the brightest trainees away from 

government, particularly in such highly competitive fields as science, 

engineering, and contracting. One extremely Important means to improve the 

acquisition workforce is to establish an alternar ive personnel management 

The General Accounting Office (GAO) has heen engaged in an important 

The caliber of uniformed military persolinel engaged in program 

*To this end, the Assistant Secretary of Defense tor Acquisition and Logistics recently 

proposed creating a single Defense Acquisition Chrp, modeled after the State Ilepartment's 

Foreign Service. See Don Acquisition Improvemen--7'h Ch(lllengPCrPS Ahead, Perspectives of' the 

Assistant Secretary of Defense for Acquisition anti L20pictics: White Paper No. 2-Revitalization 

of the LIoD Acquisition and Logistics Workforce (No\ . 5, 1985). We studied this proposal 

caref'ully, and support many of its specific features. liecause it would have the undersirable 

result of putting too much distance between acquisition programs anti users, however, we do 

not support the proposal in its full form. 

$See U.S. General Accounting Office, DoD Acquicitiorl: Cupabilitirs of KPY Dol> Personnrl in 

System Acquisition (GAOiNSIAD-86-45). 

67 
system permitting greater flexibility with respect to the status, pay, and 

qualifications of civilian employees. 

We reviewed the results of the Navy’s so-called China Lake personnel 

project, in which recruitment and retention of key civilians were correlated 

with pay, incentives, and advancement based on performance. ‘The China Lake 

experiment, which is outlined briefly in Appendix J, served to increase the 

retention of engineers and scientists, improve supervisor-employee 

relationships, and dramatically reduce managenlent paperwork. Legislation is 

now pending to implement such a system for all federal scientists anti 

engineers. ‘The China Lake personnel system has produced significant benefits. 

It merits expansion. We therefore recommend that federal law permit the 

Secretary of Defense to include other critical acquisition personnel in such a 

system, and facilitate greater professionalisnl arnong civilian acquisition 

employees through government sponsorship of‘ graduate instruction in 

acquisition management. 

role. More than 24,000 members of DoD’s accluisition workforce specialize in 

the award and administration of contracts. Eighty-five percent of these contract 

specialists are civilians. Contract specialists niust Inaster the extensive, cornplex 

body of knowledge encompassing materials and operations management, 

contract law, cost analysis, negotiation techniques, and industrial marketing. 

Yet, the Office of Personnel Management designates the Contract Specialist 

personnel series (GS 1 102) as an administrative and not a professional series 

under Civil Service ‘Title VIII. This administrative designation prohibits the 

establishment of any business education requirement for contract specialists. As 

a result, only half of DoD’s contract specialisrs have college degrees, which may 

or may not be business-related. We recomrrlencl establishing a minimurn 

education and/or experience requirement ti )I‘ the Contract Specialist series. 

Such a requirement, similar to that now est.111lished for the Accounting 

personnel series, would mandate an entry-ltbvel criterion of twenty-four 

semester hours in business-related courses or equivalent experience. 

Independently, DoD should enhance the professional status of contract 

specialists by increasing the number of outside hires, conducting on-campus 

recruitment, mandating the use of written rests for in-service placement and 

promotion, and establishing upward mobililv programs for purchasing agents 

(GS 1 105) and procurement clerks (GS 1 lOtj). DoD already has established 

acquisition training programs at five major f‘acilities, and requires that all 

civilian contract specialists complete an averagt. of’ six-hundred hours of‘ 

mandatory training. According to a 1984 rc’port of the DoD Inspector 

Among acquisition personnel, contract specialists have an especially critical 

68 
General,* however, approximately two-thirds of all DoD contract specialists 

had not completed this training. In a recent report, the Executive Committee 

on Federal Procurement Reform' also recognized the inadequate training 

given contract specialists. 

Insufficient management attention and financial resources are serious 

impediments to adequate training of' contract specialists and, for that matter, 

all acquisition personnel. Such training-like that provided generally in DoD 

intern programs-should be centrally managed and funded. This is necessary 

to improve the utilization of teaching faculty, to enforce compliance with 

mandatory training requirements, and to coordinate overall acquisition 

training policies. 

Training, promotion opportunities, acquis~tion regulations, education 

levels, and public perceptions were among the many issues addressed in the 

Commission-sponsored 1986 Suruey of Department of Defense Acquisition Workforce. 

The Commission conducted its survey to deterrnin'e the opinions and 

perceptions of those who must translate proccbdures and policy into contract 

decisions and to learn from the workers themselves how toattract, motivate, and 

retain a team of excellence. The study, which is summarized in Appendix K, 

focuses on contract specialists, with a matched sample of other acquisition team 

members responding for comparison. 

recommendations-clarifying regulations, streamlining organization, enhancing 

education and training, building a personnel system based on performance, and 

designing a compensation system sufficiently flexible to attract and retain the 

best available team players. 

This survey provides powerful support for many key Commission 

Key findings of the survey are: 

0 DoD's acquisition team members say they operate under inefficient, 

confusing regulations which often are inconsistent with sound business 

practices. 

0 In evaluating the relative competence of' their fellow DoD team players, 

contract specialists, in every case, express greater confidence in the 

capabilites of defense industry personnel. 

*Office of the Inspector General, DoD, Heport on /he Audit of Department of Defense 

Procurement Training, No. 84-047 (Feb. 14, 1984). 

?Executive Committee on Federal Procurement Kcforrn 'Task Group No. 6, Guidance on 

Ctnblashing Procurement Ca,reer Management Pro<grarns, V, d. I (May 1985). 

69 
0 Members of headquarters staff are ratcd as least likely to provide needed 

support to other team members. 

0 Nearly one-third of the respondents feel that their supervisors do not 

really know whether or not jobs are performed well. Another 30 percent 

feel their formal evaluations do not acc urately reflect performance. 

0 Civilians, who form the majority of the work force, name pay and 

benefits as their most valued work reward and overwhelmingly believe 

private sector compensation for similar work to be much greater. 

0 A majority of the respondents say that important resources such as time, 

office space and equipment, and clerlcal support are lacking to such a 

degree that professional effectiveness is significantly hampered. 

In spite of such difficulties, these acquisition workers describe themselves as 

possessing a healthy self-respect, taking great pride in meeting the challenges of 

defense acquisition, and using their talents to serve their country. They want to 

provide quality defense products and services to the American military. They 

take seriously their moral responsibilities to the taxpayers, saying that the nature 

of defense contracting requires higher ethical standards than does normal 

business practice. 

The wealth of data produced by the surcey has immense potential for use 

by management to improve both efficiency arid effectiveness of the acquisition 

process. The Commission commends the survey and its data base to the new 

Under Secretary for Acquisition, with a strong recommendation to make 

maximum use of them as management tools in striving for excellence. 

1. Improve the Capability for Industrial Mobilization 

We recommend that the President, through the National Security Council, 

establish a comprehensive and effective national industrial responsiveness 

policy to support the full spectrum of potential emergencies. The Secretary of 

Defense, with advice from the Joint Chiefs of Staff, should respond with a 

general statement of surge mobilization requirements for basic wartime 

defense industries, and logistic needs to support those industries and the 

essential economy. The DoD and Service Acquisition Executives should 

consider this mobilization guidance in formulating their acquisition policy, 

and program managers should incorporate industrial surge and mobilization 

considerations in program execution. 

70 
Historically, the United States has not worried much during peacetime 

about industrial mobilization. All the major wars fought in this century have 

allowed ample time for unhindered industrial buildup after the beginning of 

hostilities. At this time there is no effective national policy on industrial 

mobilization even though the missions of various agencies include 

responsibilities in these areas. 

The DoD’s own industrial facilities (e.g. arsenals, shipyards, and 

manufacturing equipment) are aging. United States industry is becoming 

increasingly dependent on foreign sources for llot only strategic raw materials 

but subassemblies and manufactured components. American industry 

essentially does no mobilization planning. With a few exceptions, contractors are 

not given firm requirements upon which to base their planning; and in any case, 

the preparation of such plans is not funded by DoD. 

Our concepts of stockpiling-historically done at the raw-materials level 

and driven by domestic politics-need modernimtion. Components and 

structures that can make a difference in the early period of a crisis should be 

stockpile candidates-not solely ores (that require a year or more to move 

through the economy). 

In mobilizing industry to meet crisis and wartime needs, time, not money, is 

the major constraint. DoD can no longer assume that American industry will be 

able to respond automatically to production surge requirements. Additionally, 

dependence on foreign sources is becoming common for economic reasons. 

This can have serious consequences for maintenance ofur technology base for 

the next generation of weapons and equipment. 

Finally, DoD’s procurement practices lead to significant disincentives for 

U.S. manufacturers to modernize their production processes, and thus impact 

both peacetime efficiency as well as crisis responsiveness. 

sustainability of United States forces. Up to now, planning for surge and 

industrial mobilization has been an ad hoc affair, largely the result of individual 

initiatives rather than done on a regular basis or in response to a shift in the 

threat, US. national strategy, or world economic- conditions. Industrial 

preparedness typically loses out in the competition for DoD funds. The problem 

has been studied, reviewed, and analyzed by many-with documented findings. 

There is a need now for selective and prudent investments to obtain real 

improvement in industrial base responsiveness. 

Production surge capability is essential for improved readiness and 

71 
THIS PAGE INTENTIONALLY LEFT BLANK
Chapter Four 

Government-Industry 

Accountability 
THIS PAGE INTENTIONALLY LEFT BLANK
I. Introduction 

0 ur study of defense management compels us to corlclude that nothing 

merits greater concern than the increasingly trout)led relationship between 

the defense industry and government. We have, ther-efore, given highest 

priority to development of recommendations whit.h, if’implernented, will r-esult 

in a more satisfactory working relationship hetwet’ll go\!ernrnent and that 

industry. In our Interivn Report, we made six broad rcc.olllrnen~lations directed 

toward improving that relationship. It1 this con( Iusioll of’our work, we of’fkr 

more detailed observations that will treat the 111o1-c~ troul)lesome aspects of 

government-industry accountability. 

procurement of needed military equipment. The \,isor of’ industry is 

indispensable to the successful defense of Americ,r mlcl the security of our 

people. 

60,000 prime contractors and hundreds of thc;usarlds of other suppliers and 

subcontractors.’ In 1985, the Department placed (x)ntracts worth appr-oxirnately 

$164 billion, seventy percent of which went to a group of 100 contractors. 

Twenty-five contractors did business of $1 billion or tnore, 147 did $100 million 

or more, and almost 6,000 did $1 million or mort . 

Acquisition of the tools of defense is an ilnmcwsc ;md complex enterprise. 

The Commission believes that DoD reliance 011 priv~te industry has not been 

misplaced. The success of this enterprise, however, is now clouded by repeated 

allegations of fraudulent industry activity. With notal)le results, DoD has 

devoted increased attention and resources to dett.cting md preventing ~~nlawf‘ul 

practices affecting defense contracts.2 Rut a plet hor-a of departmental auditors 

From its earliest days, the United States has rclied on private industry for 

The Department of Defense (DoD) annually c.onducts business with sotne 

75 
and other overseers-and the burgeoning directives pertaining to procurement 

-also have tended to establish a dysfunct.iotla1 and adversarial relationship 

between DoD and its contractors. 

Widely publicized investigations and prosccutions of large defense 

contractors have fostered an impression of wiciespread lawlessness, fueling 

popular mistrust of the integrity of defense industry. A national public opinion 

survey, conducted for the Commission inJanuary 1986, revealed that many 

Americans believe defense contractors custonmrily place profits above legal and 

ethical responsibilities. The following specifrc conclusions can be drawn from 

this ~urvey:~ 

0 Americans consider waste and fraud irr defense spending a very serious 

national problem and one of major proportions. On average, the public 

believes almost halfthe defense budget is lost to waste and f’raud. 

0 Americans believe that fraud (illegal activity) accounts for as much loss in 

defense dollars as waste (poor managetnent). 

0 While anyone involved in defense procurement is thought likely to 

commit fraudulent and dishonest acts, defense contractors are widely 

perceived to be especially culpable for fl-aut! in defense spending. 

0 In overwhelming numbers, Americans support imposition of the severest 

penalties for illegal actions by contractors-including more criminal 

indictments--as a promising means to reduce waste and fraud. 

0 Nine in ten Americans believe that the goal of reduced fraud and waste 

also could be served through development and enforcement of strict 

codes of conduct. Americans are almost evenly divided, however, on 

whether defense contractors can be expvcted to live up to codes they 

develop for themselves. 

%The survey - U.S. National Survey: Public Attitudes on Defense Management (Jan. 1986) - was 

designed to provide the Commission information about American public opinion on a broad 

range of defense management issues. These included, Jmong others, the seriousness and causes 

of waste and fraud in defense spending, as well as posstble solutions for these problems. The 

survey was performed by Market Opinion Research, M hose compilation and analysis of survey 

results are included as Appendix L to this Final Report. 

76 
0 Four in five Americans think that clefcnse contractors should feel an 

obligation, when doing business with l)oll, to observe ethical st;mdards 

higher than those observed in their nornl;ll business practices. 

The depth of public mistrust of defensc, contracting is deeply disquieting 

for a number of reasons. First, the public is ;Ilrrlost certainly mistaken about the 

extent of corruption in industry and waste ill the Department. While fraud 

constitutes a serious problem, it is not as extc'nsive or costly as marly Arrlericans 

believe. The nation's defense programs lose far more to inefficieIlcy than to 

dishonesty. 

Second, a lack of confidence in defense cotlt txtors may affect public 

support for important defense programs, x~d thus weaken our national 

security. Restoring public confidence in our acquisition system is essential if' we 

are to ensure our defense. 

Third, the current popular impression of' runaway fraud and waste 

undermines crucial support for implernentillg p~-ecisely those management 

reforms that would increase efficiency. These illclude executive and 

congressional support for sensible new longer-term planning and budgeting 

procedures, recommended by the Commission, to eliminate major hut hidden 

costs that instability imposes on our overall clefense ef'fort. 

atmosphere will harm our industrial base. 11 is important that innovative 

companies find it desirable to contract wittl DoD. In current circumstances, 

important companies could decide to forego this opportunity. 

Finally, it is significant that private busillesses bear the brunt of public 

indignation over waste and fraud in our defense programs. With most 

Americans, we believe that those who corlt ract in the defense of'our country 

must perform at a higher level than business as usual. It stands repeating, from 

our Interim Report, that: 

Fourth, the Commission is concerned tllat the current adversarial 

management and employees of companies that contract with the Def'ense 

Department assume unique and compelling obligations to the people of 

our Armed Forces, the American taxpaver. mcl our nation. 'I'hey must 

apply (and be perceived as applying) tlre highest standards of business 

ethics and conduct. 

By this measure, the national opinion surl'ey represents a striking vote of no 

confidence in defense contractors generally. 

Though government oversight is critically important to the acquisition 

process, no conceivable number of additional federal auditors, inspectors, 

investigators, and prosecutors can police it t'ully, rnuch less make it work more 

77 
effectively. Nor have criminal sanctions historicdly proved to be a reliable tool 

for ensuring contractor compliance.’ We conclude there is a particular urgency 

in dealing affirmatively with contractor practices. 

To this end, leaders in the defense industry recently have committed 

themselves to an initiative, consistent with reconlmendations of our Interim 

Report on Government-Industry Accountability, that promises collective and 

highly constructive action. This noteworthy effort is embodied in a document 

signed to date by at least 32 major defense contractors who pledge to adopt and 

to implement a set of principles of‘ business ethic.s and conduct that 

acknowledge and address their corporate respo~lsiibilit ies under federal 

procurement laws and to the p~blic.~ All signatories pledge to: 

0 have and adhere to written codes of conduct: 

train their employees in such codes; 

encourage employees to report violations of- such codes, without fear of 

retribution: 

0 monitor compliance with laws incident to ciefknse procurement; 

adopt procedures for voluntary disclosure of‘ violations and for necessary 

corrective action; 

share with other firms their methods for ;tnd experience in implementing 

such principles, through annual partkiption in at1 industry-wide “Best 

Practices Forum”; and 

have outside or non-employee members of‘ their boards of directors 

review compliance. 

4Prosecutorial resources are limited. Evidence of critl1in;tl conduct is often insufficient f’or 

proof beyond reasonable doubt. Some cases lack proseclltive merit or,jurv appeal. In others, 

criminal sanctions are deemed less appropriate than atinlitlistl-~ttive remedies. Still other cases 

involve little or no financial loss to the federal povemrnc-nt. For these and other reasons, the 

Department ofJustice declines to prosecute approximately six in ten possible fraud cases 

referred to it by federal agencies. See U.S. General Acxounting Of‘fice, Frclud in (hwtlmotlt 

Programs: How Extensive Is It? tiow Cnn It He Controlled? (;AO/AFMI)-81-57, at 28-30 (May 7, 

198 1). 

5See Defense Industry Initiatives on Business Ethics and Conduct (June 1986), included as 

Appendix M to this Final Report. 

78 
To lend additional force and credibility to their initiative, these contractors 

further propose that a respected organization, independent of both the 

government and defense industry, be commissloned to report annually the 

results of a survey assessing compliance with the above principles. 

Such a commitment by its leaders would bt. an impressive undertaking for 

any industrial group, and it is particularly app~ opriate for defense cont.ractors. 

We hope many other firms will make this pledgc of'self-governance and share in 

an initiative voluntarily begun and freelyjoinetl hy defense contractors 

themselves. At least one major industry associalion is, we understand, 

considering making adherence to these principles ;I c.ondition of membership. 

We are convinced that significant irnprovelllcllts in corporate selfgovernance can redress shortcomings in the procurement system and create a 

more productive working relationship between government and industry. 

Corporate managers must take bold and constructive steps that will ensure the 

integrity of their own contract performance. Systems that ensure conlpliance 

with pertinent regulations and contract requit.ements must be put in place so 

that violations do not occur. When they do occ~lr, contractors have 

responsibilities not only to take immediate cot-rec.ti\.e action but also to make 

disclosures to DoD. 

Requirements of diligence imposed on contractor m;magernent are 

unquestionably stringent but are not more strillgent than the public has a right 

to expect of those who hold positions of autholity with businesses on which the 

national security depends. Contractor effort to impro\,e performance should 

not be impeded by DoD action; instead DoD sllould foster ef'fective contractor 

self-governance. It is in this context that we of'f'er the recomrnendatiorls that 

follow. 

We do not underestimate this task-it is enorrrlous and demanding. 

79 
II. Industry Accountability: Contractor 

Self-Governance 

I n our view major improvements in contractor- self’-governance are essential. 

Contracting with DoD is markedly differelit from other commercial 

contracting activity. Defense contractors must observe various unique and 

complex contractual, regulatory, and statuto1 vrequirements in bidding for, 

performing, and warranting fixed-price and cost-type contracts. A distinct hody 

of contract principles has evolved in the defensc. contracting field. 

Recent cases have involved violations of specific contractual and regulatory 

provisions. Many of these violations have resulted from nlanagement f‘ailure to 

establish internal controls to assure compliance with unique DoD requirements. 

Contractors historically relied on DoD auditors to itlcntify instances where 

standards were not followed, and contractor fallure to establish internal controls 

has developed in this regulated environment. Also in this environment, 

contractor defaults were largely resolved contractually rather than through 

criminal or civil actions. 

responsible government will aggressively enf0rc.e compliance. Contractors will 

be required to do much more than they ha\.e clone in the past to comply with 

contractual, regulatory, and statutory standards atld to provide adequate 

supervision and instruction for employees. -1.0 (to so will necessitate their putting 

in place broad and effective systems of interIlal control. The effectiveness of 

such systems depends upon a host of factors, irtcluding: 

Today, defense contractors should be aware that a concerned and 

0 good organizational structure, providing for proper delegation of 

authority and differentiation of responsihilities; 

0 clear policies and procedures, well adapted to business objectives and to 

specific tasks and functions; 

training of and communication with em1)lo)ees at all perf-ormarm levels; 

and 

0 ongoing arrangements to monitor compliance with, and to evaluate the 

continuing efficacy of, internal control. 

80 
The requirements of defense contracting establish an especially high 

standard against which the adequacy of systems c~f contractor internal control 

must be measured. It is not prudent or possiblc to detail specific systems of 

control adequate to the needs of every defense contractor. This must be 

determined in light of each contractor's circumstmces, including its size, 

operating habits, nature of business, range of products and services, and 

geographica1,dispersion of operations. Contractors should undertake careful 

review of the adequacy of their specific internal control systems, evaluate 

potential improvements, and determine what steps will provide greater 

assurance of compliance with contracting requircments. 

could be greatly improved in at least three fundatnental areas: 

Information developed by the Commission illdic~tes that corporate controls 

0 development of codes of conduct addressitlg problems and procedures 

incident to defense procurement; 

promulgation and enforcement of more ef'fkctive internal control systems 

to ensure compliance with those codes and the establishnlent of internal 

auditing capacity to monitor, among othel things, compliance with codes 

and the efficacy of the control systems; ant 1 

establishment of a more effective oversight of' the entire process by an 

independent committee, such as an outsidc audit committee of the board 

of directors. 

A. Contractor Standards of Conduct 

Defense contractors must promulgate and enforce codes of conduct that 

address their unique problems. 

which a contractor's goals and its administrative atld accounting controls become 

understood and functional. A well-drafted code i.; 11lot-e than a mere ditection to 

employees on what is and what is not permissible conduct, although that is 

certainly a major function of the code. It can provide ;I conceptual f'ramework 

for both management and employees to understand how company policy 

interrelates with other applicable policies. It can artic.ulate principles 011 the basis 

of which decisions should be made when governlnent regulations fail to address 

issues specifically. In the broad sense, a code of'( onduct should be designed to 

Written standards of conduct are necessary IO establish an environment in 

81 
preserve or enhance a contractor's reputation for integrity. In our Znteriwl Report 

we recommended: 

Defense contractors must promulgate ant1 Lkjlantly enforce codes of 

ethics that address the unique problems anct procedures incident to 

defense procurement. They musl also tievcllop and implement inlernal 

controls to monitor these codes of ethics an( 1 sensitive aspects of contract 

compliance. 

This recommendation was based, in part. on a study undertaken for the 

Commission by the Ethics Resource Center, In(.." 111 surveying the practices of a 

representative sampling of major defense contractors, the Center inquired 

about the: 

0 processes for establishing, and the form and content of, corporate 

policies and procedures for ensuring etllical conduct in dealings with the 

federal government and with subc(~ntr-ac.tol.s, suppliers, and others; 

0 means contractors use for conmlunicatirlg t twse policies and procedures; 

0 internal systems contractors use for mo1litoring and enforcing their 

policies and procedures; and 

0 internal contractor systems for adjudicating and punishing violations. 

The Center's survey documents more widt,spread adoption of business 

codes of conduct among defense firms than among American companies 

generally, and suggests relatively greater apprc.c.iatior1 by contractors of the risks 

of unethical conduct and the value of explicit stantiards of behavior. The survey 

also indicates, however, that contractors' codcs often fail to address areas in 

government contracting where the incidence of' misconduct is highest. For 

example, matters such as cost allocation, quality control, bidding and billing 

practices, defective pricing, materials suhstitlltion, contract negotiation, the 

monitoring of contract compliance, and the hiring of' former Defense 

Department personnel were explicitly addressed in only a third of the codes of 

those defense contractors surveyed. 

6Ethics Resource Center, Inc., a non-profit organization located in Washington, D.C., has 

done extensive study of issues involved in ethical corporate governance. The results of its work 

for the Commission are set forth in a Final Report and Kvcomnwndations on Voluntary Corporate 

Policies, Practices, and Procedures Relating to Ethical Buyine.s.> Conduct (Feb. 18, 1 YS6), which is 

included as Appendix N to this Final Report of the Comnlission. 

82 
There are also inadequacies in the communication and enforcement of 

standards of conduct. For example, only half the contractors with written codes 

indicated that they distribute copies to all employet:s, and many reported that 

distribution was limited to only senior management. Only half the codes 

specified procedures for employees to follow in rqwrting possible misconduct, 

and barely one in five provided procedures for pr(3tecting employees who bring 

unethical practices to light. Finally, although trends indicate an increasing 

attention by upper management to business ethics ~ssues, the survey documents 

the need for much better mechanisms at highest corporate levels to monitor 

and enforce compliance. Too often industry regarcts promulgation of a code of 

conduct as the end product and does not aggressivcxly pursue its enforcement,. 

The Commission makes the following specific recommendations 

regarding codes of conduct for defense contractors: 

1. Each contractor should review its internal policies and procedures to 

determine whether, if followed, they are sufficient to ensure performance that 

complies with the special requirements of government contracting. 

Contractors should adopt-or revise, if they have adopted-written standards 

of ethical business conduct to assure that they reasonably address, among 

other matters, the special requirements of defense contracting. Such standards 

of conduct should include: 

a. procedures for employees to report apparent misconduct directly 

to senior management or, where appropriate, to a member of the committee of 

outside directors-ideally the audit committee-that has responsibility for 

oversight of ethical business conduct; and 

apparent misconduct. 

b. procedures for protecting employees who report instances of 

2. To ensure utmost propriety in their relations with government 

personnel, contractor standards of ethical business conduct should seek to 

foster compliance by employees of DoD with ethical requirements incident to 

federal service. To this end, contractor codes should address real or apparent 

conflicts of interest that might arise in conducting negotiations for future 

employment with employees of DoD and in hiring or assigning 

responsibilities to former DoD officials. Codes should include, for example, 

existing statutory reporting requirements that may be applicable to former 

DoD officials in a contractor’s employ. 

83 
3. Each contractor must develop instructional systems to ensure that its 

internal policies and procedures are clearly articulated and understood by all 

corporate personnel. It should distribute copies of its standards of ethical 

business conduct to all employees at least annually and to new employees 

when hired. Review of standards and typical business situations that require 

ethical judgments should be a regular part of an employee's work experience 

and performance evaluations. 

4. Contractors must establish systems to monitor compliance with 

corporate standards of conduct and to evaluate the continuing efficacy of their 

internal controls, including: 

adjustments) and procedural structures that ensure that contractor personnel 

receive appropriate supervision; and 

compliance with their established policies and procedures. 

a. organizational arrangements (and, as necessary, subsequent 

b. development of appropriate internal controls to ensure 

5. Each major contractor should vest its independent audit committeconsisting entirely of nonemployee members of its board of directors-with 

responsibility to oversee corporate systems for monitoring and enforcing 

compliance with corporate standards of conduct. Where it is not feasible to 

establish such a committee, as where the contractor is not a corporation, a 

suitable alternative mechanism should be developed. To advise and assist it in 

the exercise of its oversight function, the committee should be entitled to 

retain independent legal counsel, outside auditors, or other expert advisers at 

corporate expense. Outside auditors, reporting directly to the audit 

committee or an alternative mechanism, should periodically evaluate and 

report whether contractor systems of internal controls provide reasonable 

assurance that the contractor is complying with federal procurement laws and 

regulations generally, and with corporate standards ofconduct in particular. 

The Commission believes that .sulf-govern,mce is the most prmnising 

mechanism to foster improved contract complianc~. It follows that each 

contractor must individually initiate, develol), implement, and enforce those 

elements of corporate governance that are crir ical to contract compliance, 

including a proper code of conduct. The extellt of'each contractor's efforts in 

doing so will reflect the level of reputation f'ot integrity it intends to set for itself. 

84 
B. Contractor Internal Auditing 

Contractors must develop and implement internal controls to ensure 

compliance with corporate standards of conduct and the requirements of 

defense contracting. 

whether the controls they have put in place are effective. Internal auditing will 

help ensure contractor compliance with internd procedures, standards of‘ 

conduct, and contractual requirements. An intc*rnal audit organization, to serve 

these purposes, must be staffed with competent personnel able to operate with 

the requisite degree of independence and candor. 

Use of internal auditing to review adherence to procurement requirements 

involves a significant broadening of the traditional application of this 

monitoring device. In developing new auditing processes to review these issues, 

contractors must consider which areas are most sensitive and in need of audit 

review, as well as which auditing devices will be most cost-effective and efficient. 

Recommendations in our Interim Report ent.ouraging increased selfgovernance were based, in part, on an internet] audit study completed for the 

Commission by the certified public accounting tirnl of‘ Peat, Marwick, Mitchell 8c 

Co.’ Over 2 10 business units-aggregating a1)proximately $90 billion in DoD 

fiscal year 1985 outlays for negotiated contracts-participated in the survey. 

The survey was designed to ascertain, among other things, the following: 

Contractors must also establish an internal audit capacity to monitor 

0 the extent to which internal auditing, in addition to its traditional 

applications, has been utilized to monitor defense contract compliance; 

0 the scope and coverage of such expanded auditing efforts; 

0 the effectiveness and usefulness of such internal auditing; and 

0 the extent to which, in view of recent de~reloprnents, contractors intend to

expand their internal audit capability o1 correrage. 

’Peat, Marwick’s Report on Survey of Defense Contractors’ Internal Audit Processes (Feb. 1986) is 

included as Appendix 0 to this Final Report of the Commission. For survey purposes, “internal 

auditing” was considered to include any regular, cyclical. or special examination conducted by or 

on behalf of a company’s management to assess the extent of compliance with the company’s 

established policies, procedures, and systems of internal controls. This excluded normal 

supervisory efforts as well as financial audits performed by a company’s independent 

accountants. 

85 
The survey indicates that most contractors have internal audit functions of 

some kind and that many companies recently 11ac.t. expanded internal auditing 

to cover more aspects of their government cont ract operations. But it also 

provides compelling evidence of a need for det'ense industry generally to 

upgrade the capabilities and broaden the mission of' its internal auditors. 

Among other important results of the survey are the following: 

Znternal Auditing Capacity. Over one-quarter of' the business units surveyed 

had no formal internal audit function; over two-thirds had no such function at 

their operating levels. Seven in ten indicated th,it they rely for audit coverage, in 

whole or in part, on the work of independent ,Iccourltants and on government 

auditors. Given the added degree of effort needed to monitor government 

contract work, internal audit staffs are too srnall: 58 percent ofthe business units 

surveyed had fewer than 10 internal auditors, ;inti almost two-thirds reported 

that their internal audit staffs do not complete a f.ul1 cycle of auditable areas 

within a three-year period. 

Scope of Internal Auditing. To serve the purpose of improving compliance 

with federal procurement laws, internal auditiI1g must address a variety of' 

practices specific to government contracts. Ef tective audits of such practices 

require more penetrating evaluations perforn~rd more frequently than do 

traditional financial audits. The survey sholvs that, despite recent efforts by 

contractors to broaden internal auditing efforts, sensitive issues of contract 

compliance are not reviewed adequately. Thew include key areas of labor cost 

distribution and controls, material management, estimating practices, cost 

allowability, accuracy of costing and reporting, mcl contract administration. 

generally have a satisfactory professional background. They need substantially 

more formal training, however, in areas critical to compliance with federal 

procurement law, including Cost Accounting Standards, Federal Acquisition 

Regulation, Truth in Negotiations Act, and fraud detection. Approximately a 

quarter of the units surveyed provide training III none of' these areas, anti less 

than a quarter provide training in all ofthern. 

independence and objectivity.8 By this measure, the basic design of contractors' 

internal audit programs appears to be good. rIlle sun'ey nonetheless indicates 

Competence of Internal Audit Stajj: Internal audit staffs-where they existEffectiveness of Intrmal Auditing. Internal auditors must operate with 

The independence of internal auditors depends in part upon the organizational levels to 

which they communicate results of their work anti to wh1ct1 the). report administ~-atively. 'l'hrse 

are indicative of internal auditors' ability to act indepcndcxntlv of individuals responsil)le for the 

functions being audited. 'l'he objectivity of internal autiltors may 1,ejudged from findings and 

recommendations made in their reports. the frankness of ~vt~ictl c;tn depend in in1port;lnt part 

86 
several areas of concern. Audit design may be inadequate because its scope is 

determined largely by management requests. Management may not in all cases 

be assuming proper responsibility or taking necc.ssary action for follow-up on 

problems identified through internal auditing. Moreover, the wide availability to 

government personnel of internal audit repol t s arid supporting work papers 

may not be conducive to auditors’ candor and objectivity concerning the 

performance of the individuals responsible for I ]le f’unctions being audited. 

We conclude that defense contractors have failed to take advantage of 

assistance that internal auditors may provide to marlagement responsible for the 

design and function of systems of internal contr oI of‘ government contracting. 

Identifying important elements of such systems ,tnd remedying their weaknesses 

and deficiencies should be matters of the highest priority to all defense 

contractors. This demands ongoing study and e\duation of a sort that cannot be 

provided by either a company’s outside auditors or hy government auditors.9 

Defense contractors must individually develop and implement better 

systems of internal controls to ensure compliance with contractual 

commitments and procurement standards. To assist in this effort and to 

monitor its success, we recommend contractors take the following steps: 

1. Establish internal auditing of compliance with government contracting 

procedures, corporate standards of conduct, and other requirements. Such 

auditing should review actual compliance as well as the effectiveness of 

internal control systems. 

2. Design systems of internal control to ensure that they cover, among 

a7 
other things, compliance with the contractor’s standards of ethical business 

conduct. 

3. Establish internal audit staffs sufficient in numbers, professional 

background, and training to the volume, nature, and complexity of the 

company’s government contracts business. 

4. Establish sufficient direct reporting channels from internal auditors to 

the independent audit committee of the contractor’s board of directors to 

assure the independence and objectivity of the audit function. Auditors 

should not report to any management official with direct responsibility for the 

systems, practices, or transactions that are the subject of an audit. Such 

structure assures frank reporting of and prompt action on internal audit 

results. To encourage and preserve the vitality of such an internal auditing 

and reporting process, DoD should develop appropriate guidelines heavily 

circumscribing the use of investigative subpoenas to compel disclosure of 

contractor internal auditing materials. 

Major contractor improvements in recomnlcndetl self-governance will, no 

doubt, require considerable effort over several vears. Making these 

improvements will also require greater involvc~ment by contractors’ boards of 

directors and top management. The importancc~ (It. the executive leadership role 

in achieving a proper control environment cannot be overemphasized. ‘I’he 

necessary initiatives must be instituted by indllstl.)., not government. Defense 

contractors must take the steps described abo\.c or run the risk of action by 

government, in response to public expectations, that may be both excessive and 

unavailing. We share the concerns of the Ethics Kesource Center that: 

intensive federal regulation has not only increased costs and lead-time, 

but may have actually decreased the sense of’ individual and corporate 

responsibility for the quality of products ant1 services delivered to the 

federal government. The standard of ethical business conduct seems LO 

have become regulatory compliance, rat her than responsible decision 

making. In areas where these are not coincicler~tal or where regulations 

do not dictate conduct, the management conscience may fail. The sense 

of moral agency and ethical responsibility ~na? he overridden by the 

“gamesmanship” attitude fostered by regulatory ,Idver-sarialisln. 

Whatever actions the present Administration or the Congress may take to 

improve the effectiveness of federal regulations mcl oversight activities, 

serious attention must be paid to the inhercwt limitations and possible 

88 
counter-productivity of an approach that is almost entirely a matter of 

external policing.1° 

The process by which a contractor recognizes and distinguishes 

responsibility for compliance from a mere facade of compliance is 

self-governance, and essential elements of that process are implementation and 

enforcement of proper codes of conduct and internal auditing systems. 

Vigorous programs of the sort recommended hold far greater potential for 

ensuring the integrity of defense contracting than does increased government 

oversight. Successful self-policing by defense ( ontractors has the considerable 

advantage of making such oversight more efficient and effective. For very 

practical reasons, therefore, government mus1 exert its authority to oversee the 

defense acquisition process in ways calculated to hasten the progress of 

responsible companies toward improved self-governance. Our study of DoD 

practices-with respect to administering its owm standards of ethical conduct, 

coordinating its own auditing and oversight efforts, and employing the range of 

possible sanctions against contractor miscontiuct-suggests various areas for 

improvement. These we address below. 

1 

p 'Osee Ethics Resource Center, Final Report and Recommendations, Appendix N. 

b, 

c 

L 

a9 
111. Government Accountability: DoD 

Auditing and Oversight, Standards of 

Conduct, and Enforcement 

T o ensure accountability for its own operations and programs, the federal 

government has systems of administrative ,111~1 accounting control that are 

analogous to those in the private sector. Theit- ct'l'ectiveness is dependent on 

comparable factors such as organization, po1icic.s and procedures, and 

personnel. Our study persuades us that, mucll ;IS Lvitll defense industry, Dol) 

must exert substantially better internal control ti' it is to iInpto\.e the 

effectiveness of its programs for contract auditing and oversight, employee 

standards of conduct, and civil and administratlve enforcement. 

A. Department of Defense Auditing and Oversight 

Oversight of defense contractors must be better coordinated among DoD 

agencies and Congress. Guidelines must be developed to remove undesirable 

duplication of official effort and, when appropriate, to encourage sharing of 

contractor data by audit agencies. The new Under Secretary of Defense 

(Acquisition) should establish appropriate overall contract audit policy. 

As stated in our Interim Rrport, there is a11 ullq1lestioned need for broad and 

effective administrative oversight of defense aa~uisition. DoD monitors the 

performance of defense contractors and the irltcbgritv of contractor compliance 

by a number of processes, including investigations, inspections, and specialpurpose reviews conducted by personnel of: 

0 the Defense Contract Administration Services (DCAS) of the Defense 

Logistics Agency (DLA); 

0 the Services' respective plant representative offices (PRO), audit agencies, 

investigative services, and inspectors gencral; 

0 the Defense Contract Audit Agency (DCc\,4); 

0 the Defense Criminal Investigative Servicx; 

90 
0 the DOL) Office of the Inspector General (OIG); and 

0 DoD's many procurement and contract nlarlagement organizations. 

Overseeing these efforts are the General Atwunting Office (GAO), 

committees and subcornrnittees of Congress, an(l congressional staff. 

The oversight apparatus within DoD has e\ olved over time. As various 

organizations and activities have been establishetl, their jurisdictions, functions, 

and responsibilities have emerged, often without clear delineation. Today, a 

distinction may be drawn between criminal investigative ;md internal auditing 

responsibility-largely consolidated under the, OI(~-and procurement and 

contract administrative responsibility-traditi~Il~~ll~, exercised by the IICAS and 

cognizant Service PKO with the advice and assislarl'ce of' DCAA auditors. 

Proper coordination and econonly of oversight c.f'fi)r-t ha\re proven particularly 

difficult to achieve in view of the multiplicity of' 1)ol) organizations involved. 

At the outset of our work we were aware of concerns that control over DoD 

contract oversight efforts had degenerated. Most notably, the Senate Armed 

Services Committee has expressed the view that contract auditing requires 

sound overall coordination to promote efficiency and minimize duplication of 

effort." In December 1985, the OIG reported the results of a survey conducted 

by that office to determine whether effective coordination exists among various 

DoD organizations involved in the oversight of c-ontractor operations in order 

to avoid unnecessary duplicative efforts." Thc survey examined 25 separate 

DoD reviews conducted in 1984 at two major contractor locations. Fourteen of 

these 25 oversight exercises-involving altogether some 13 different DoD 

organizations, the GAO, and a prime contractor-were found to involve 

elements of needless duplication. The Inspector General concluded, "Unless 

specific actions are taken to address the problenls of coordination, unnecessary 

duplicative reviews (of this sort) are likely to corltinue." 

Our own work confirms the Inspector Gent:ral's conclusion. It also 

underscores the enormity of the problem. 

In December 1983, we engaged the certified public accounting firm of' 

Arthur Andersen & Co. to study DoD contract auditing and oversight, including 

91 
its overall design and any duplication of effort,’“ Arthur Andersen 8c Co. 

reviewed pertinent laws and regulations, conslilted with responsible DoD 

officials, and made nationwide field visits to asclertain the recent experience of 

some 15 major defense contractors that together do substantial work for each of 

the Services and for the DLA. Figure 1 reflects the principal findings and 

recommendations that emerged from this study. It is noteworthy that Arthur 

Andersen 8c Co. and the OIG found identical problems of a systemic nature 

among DoD contract oversight organizations: 

0 Their efforts lack advance planning ant1 coordination. 

0 Their respective responsibilities are ill-(lefiI1ed. 

0 They are unwilling to rely on each other’s work. 

0 They are reluctant to share information. 

Arthur Andersen 8c Co. concluded that “duplication in the oversight 

process is extensive. Changes are clearly required to enhance efficiency and 

reduce costs to both contractors and the gover~ment.” (Emphasis added.) 

In our view, necessary changes are not likt.ly to be accomplished, however, 

without first consolidating the authority to make ;m<l implement contract audit 

policy in a senior DoD official. 

For these purposes, we recommend the following: 

1. Among his other responsibilities, the new Under Secretary of Defense 

(Acquisition) should: 

particularly policy for audits conducted in support of procurement and 

contract administration; 

b. except for criminal investigations and DoD internal audits, 

supervise establishment of policy for all DoD oversight of defense contractors, 

including oversight performed by procurement and contract management 

organizations; and 

a. oversee DoD-wide establishment of contract audit policy, 

c. recognize established GAO and professional auditing standards. 

lSThe full report of Arthur Andersen & Co.’s work - Study of Government Audit and Other 

Oversight Activities Relating to Defense Contractors (Feb. 25, 1986) - is included as Appendix P to 

this Final Report. 

92 
Figure I 

ARTHUR ANDERSEN & CO. 

STUDY OF GOVERNMENT OVERSIGHT ACTIVITIES 

PRINCIPAL PROBLEMS IDENTIFIED 

PERVASIVE LACK OF COORDINATION INDISCRIMINATE APPROACH BY DoD 

AMONG DoD ORGANIZATIONS 0Rc;ANIZATIONS 

* Reluctant to rely on each other’s work * Nature, timing, and extent of audit and 

* Unwilling to share information oversight shows inadequate attention to 

* Deficient in advance planning -contractors’ past performance 

* Inconsistent in interpreting -results of prior and ongoing reviews 

-contract and other requirements -relative costs and benefits 

-results of audits and reviews 

defined CONTRACTING OFFICERS (ACOs) 

* Respective responsibilities poorly ERODING AUTHORITY OF ADMINISTRATIVE 

-e.g., increased DCAA involvement in * 

non-financial areas 

* Not observing DoD regulations designed 

to ensure coordination of audit and * 

oversight 

* Organizations possess no centralized * 

coordinating authority 

DoD Directive 7640.2 (Dec. 29, 1982) 

limits ACO authority to resolve audit 

recommendations 

ACO no longer functioning as 

government’s “team leader” 

Indecision, delays, unnecessary and 

costly disputes 

RECOMMENDATIONS AND COMMENTS 

REAFFIRM AUTHORITY OF ACO 

* To function as DoD’s team leader in all 

* Responsible for 

dealings with contractor 

-determining final overhead rates 

-coordinating all DoD auditing and 

other oversight at contractor location 

* Supported by DCAA in advisory capacity 

-reevaluate DoD Directive 7640.2 

REEVALUATE AND CLARIFY RESPECTIVE 

AUDIT AND OVERSIGHT RESPONSIBILITIES 

* For example, those of contract 

administrative organizations versus 

DCAA in the areas of 

--operational auditing 

-compensation and insurance reviews 

organization, and control 

* More generally, to improve planning, 

IMPROVE DAY-TO-DAY WORKING 

RELATIONSHIPS 

* Organizations should rely on each 

* Share data base of contractor information 

other’s work 

ADHERE TO REGULATORY PRINCIPLES THAT 

PROMOTE EFFICIENCY 

* Audit and oversight plans should reflect 

appropriate consideration of 

-contractors’ past performance 

-effectiveness of their internal control 

-results of prior and ongoing reviews 

-relative costs and benefits 

systems 
2. To optimize the use of available oversight resources by eliminating 

undesirable duplication of official effort, contract audit policy should be 

designed to: 

DoD oversight organizations; 

organizations to share contractor data and otherwise to rely more extensively 

upon each other’s work; and 

c. improve audit strategies for the conduct, scope, and frequency of 

contract auditing. These strategies should reflect due consideration for 

contractors’ past performance, the proven effectiveness of their internal 

control systems, the results of prior and ongoing reviews conducted by DoD 

organizations and by contractors themselves, and relative costs and benefits. 

a. delineate clearly respective responsibilities and jurisdictions of 

b. develop guidelines and mechanisms for DoD oversight 

B. Department of Defense Standards of Conduct 

DoD should vigorously administer current ethics regulations for military 

and civilian personnel to assure that its employees comply with the same high 

standards expected of contractor personnel. This effort should include 

development of specific ethics guidance and specialized training programs 

concerning matters of particular concern to DoD acquisition personnel, 

including post-government relationships with defense contractors. 

personal interest and public duty of current ant1 fi>rrner uniformed personnel 

and civilian employees of DoD. These laws and regulations: 

An extensive body of law and regulation exists to prevent conHicts between 

impose financial disclosure reporting ohllgatiorls on tlroad categories of 

DoD personnel, including extremely detailed reporting by the most 

senior officials; 

describe standards of behavior for all Dol) persomel, including the 

general requirement that they avoid an\’ (.it-cumstance, whether or not 

expressly prohibited, that might create the “appearance” of impropriety; 

broadly penalize conduct by DoD or othc.1- tkderal employees that could 

involve personal enrichment in connection with ongoing official duty, 

including bribes and gratuities, the so-called private supplementation of 

federal salaries, representation of‘ private parties in matters of f‘ederal 

concern, and official acts that affect pel sod or family finances or the 

financial interests of a prospective privatt. etllployer; and 

94 
0 restrict in various ways what former f(de~-al employees generally, and 

DoD personnel specifically, may do upon leaving government service. 

Figure 2 summarizes current post-ern~~lovnle~lt ctisqualifications and 

certain related statutory provisions. 

Standards thus established for the cor1011ct of'current and former DoD 

acquisition personnel seek to maintain an envir~ontnent in which Doll's internal 

fiscal and managerial controls can work. Like codes of conduct adopted by 

private contractors, they help protect the integrity and promote the efficiency of 

the contracting process, minimize conflicts of'i~lterest, and assure thc putdic that 

defense contracting is managed effectively ant1 tlollestly. 

The Commission conducted a car-ef'ul re\'~tw of' the xiequacy of DoLI's 

ethics programs for nditary and civilian acqui4tiorl personnel. l4 Several facts 

prompted this review. In defense acquisition, .IS throughout the governrnent, 

there is a substantial incidence of federal employee involvernent in reported 

cases of fraud and other unlawful conduct. hl;tnv cases have involved bribery or 

other criminal activity by relatively low-level p~~rctlasing officials at military 

procurement facilities, and others have involvcd gratuities for senior personnel. 

Such official misconduct in the acquisition systvrn is (loubly destructive: it 

subverts operations of DoD and defense industry, and corrodes public 

confidence in governrnent anti business get1er~dIy. It is critical in defense 

management to establish and maintain an en\.irot~ment where official s~andards 

of conduct are well understood, broadly obser\.,ed. and vigorously enforced. We 

believe that significant improvements are require(!. 

industry-DoD's published conduct regulatiot1s do not provide timely or 

effective guidance to personnel engaged in thc. acquisition process. 1)oD 

Directive 5500.7, Standards of' Contluct, has riot been updated since 1977 or 

revised to reflect such subsequent legal de\wlop~ncnts as passage of' the Ethics in 

Government Act of' 1978. E\.en in its current \ersiotl, Directive 5500.7 provides 

only general ethical guidance to personnel mtl components throughout DoI). 

No comparable directive provides more specif tc guiclance to all of IIoD's 

acquisition personnel. 

Nor does any system exist to ensure that all Dol) acquisition personnel 

receive, on a periodic basis, a prescribed minirtlu111 of'ethics training specifically 

Our study indicates, for example, that-mr~cll as is the case with the defense 

140~r public meeting of May .i, 1986, was devoted excll1sively to testimony on this sul?ject. 

As part of our review of relevant laws and administrative pr;l(:tices, we received an extensive 

briefing and detailed conclusions and 1-ecornmendations fro111 the Office of the Inspector 

General. 
related to the acquisition function. Just as artlong defense contractors, 

considerable disparity exists in the efforts that DoD acquisition organizations 

expend in this area. An effective program ot‘ instruction and compliance 

concerning ethics matters, including post-employment disqualifications and 

reporting, should be established and implenlented. To do so will require 

sustained leadership throughout DoD and ;I commitment of greater personnel 

and administrative resources.15 

In our Interim Rrport, we thus expressed the general view that the important 

challenge for defense management lies in inlproving compliance with existing 

ethical standards, not in defining new or more stringent standards. We 

nonetheless also have reviewed the substarlce of current laws and regulations 

from two distinct points of view: first, for their effect on recruitment of capable 

senior-level personnel to run the acquisition system; and second, for their 

adequacy to protect the integrity of that system from perceived dangers posed 

by the so-called revolving door phenomeno~l. The “revolving door” refers, in 

this context, to the movement of a DoD acquisition employee into ;I position with 

a private company for whose government contracts he has or had sonlt‘ official 

responsibility. 

Both our Interim Report and our Report or1 Lkf.frnsr Acqui.sition emphasize the 

importance of improving the government’s .thility to attract and retain the 

highly qualified people needed for effecti1.e senior management of defense 

acquisition. We agree with the Presidential Appointee Project of the National 

Academy of Public Administration that ethic.s regulations: 

have assumed a very important role in rhe appointment process. Their 

impact is mixed. In some ways, these laus have brought genuine benefits 

to the American people by eliminating blatant potential conflicts of 

interest and enhancing opportunities f’or- the identification and prosecution of those who would violate the public. trust. 011 the other hatld, these 

changes have been costly: costly to thu ~o~l/l~~~ltt~~llt’,\ uhility to vucruit prusiduntial appointees, costly to the relations betwreetl the news media and public 

15At the Commission’s May 5, 1986, meeting, DoD’s General Counsel reviewed plans, 

pursuant to the President’s April 1986 directive, for improved administration of current ethics 

regulations for DoD personnel, as recommended in our lntvrirn Rrport. We support this effort. It 

should, we believe, focus in important part on the necd for specialized guidance and training of 

DoD acquisition personnel. It should also seek to establish better mutual understanding 

between, and promote complementary efforts to atldress the respective ethical concerns of, 

government and industry. 

96 
officials, and costly in financial sacrifices lo a number of' honest and 

dedicated public officials.16 

Our examination of the substance of currrant ethics regulations underscores 

an important truth: ethical standards are only as easy to observe, administer, 

and enforce as they are certain in scope, simp](, in concept, and clear in 

application. Undue complexity and vagueness-for example, that we believe 

characterizes current financial disclosure reporting requirements-serve no 

legitimate public purpose. Either can transform ethical standards from matters 

of principle to mere traps for the unwary, anti put at risk the reputation of 

anyone who enters or leaves a responsible posit ion in government. 

employees and retired military officers may or nay not do once they have left 

government. Actions of officials still in federal service have been restricted to 

exclude matters in which they, or prospective private employers with whom they 

are negotiating, have a financial interest. 'I'hese statutes should be enforced 

more vigorously, and their import made clear 10 DoD employees far more 

effectively, than is now done. 

Figure 2 also outlines the one current criminal statute, Public Law 99-145, 

concerning for whom defense acquisition officials may work after they have left 

DoD. This new provision, and comparable measures now pending in Congress, 

significantly depart from prior law in attenlptillg to define as criminal conduct 

certain post-government employment pu se. 'I'hey do so on a highly selective 

basis-applying only to personnel involved in the acquisition process, and only 

to such personnel as are employed by DoD. More significantly, they pose serious 

problems of definition, never satisfactorily resolved irl statutory form, 

concerning precisely which DoD personnel should be covered and precisely 

what sort of exposure to a contractor should lead to the employment 

prohibition. In practice, these definitions are very difficult to work out sensibly 

and fairly. This is reflected in the confusion concerning the applicability of 

Congress' one current venture into restricting post-government employment per 

se, Public Law 99-145. The highly uncertain impact of' these new anti proposed 

statutes, and the understandable desire of law-,tbicling individuals to avoid even 

the remote chance of a criminal violation, may well prompt talented people not 

to work for DoD in the first place or to leave orlce such restrictions appear 

imminent. 

Figure 2 outlines established criminal statutory restrictions on what federal 

'6Leadership in Jeopardy: The Fraying of the Presidentid .4~pointmunt.s .System (Final Keport of' the 

Presidential Appointee Project), November 1985, at 13 (c.mphasis added). 

97 
Figure 2 

DISQUALIFICATIONS AND CERTAIN RELATED PROVISIONS 

THE REVOLVING DOOR: CURRENT POST-EMPLOYMENT 

STA TU TE 

18 U.S.C. 207W 

18 U.S.C. 207(b)(i) 

18 U.S.C. 207(b)(ii) 

18 U.S.C. 207(c) 

18 U.S.C. 208 

18 U.S.C. 281 

18 U.S.C. 283 

37 U.S.C. 801 

10 U.S.C. 2397 

10 U.S.C. 2397a 

P.L. 99-1 45, 

99 Stat. 693 

PRO VISIONS 

Permanently bans representation to the government of any person on my 

”particular matter involving a specilic party” in which a former Executive 

Branch employee “participatecj personally and substantially” while in 

government.* 

Bans for two years representatic~n to the government of any person on any 

particular matter over which former Executive Branch employee 

exercised ”official responsibilitv” while in government.* 

Bans for two years representation by a former ”senior employee” of 

Executive Branch, through his ,’personal presence at any formal or 

informal appearance” before the. government, of any person on any 

particular matter in which suck, former employee personally and 

substantially participated whik in government.’ 

Bans for one year representation by a former “senior employee” of 

Executive Branch of any person to his former agency on any particular 

matter before or of substantial rnterest to that agency.* 

Prohibits an employee of Execiitive Branch from participating ”personally 

and substantially” as such in ally “particular matter” in which any person 

with whom he is “negotiating’ or has any “arrangement“ concerning 

post-government employment has J financial interest.* 

Prohibits retired military officers from representing any person in the sale 

of anything to the government through their former department.* 

Bans for two years following rrstirement participation by military officers 

in prosecution of claims againd thc United States involving their former 

department. * 

Prohibits payment of compensation to military officers engaged, within 

three years after retirement, ”in selling, or contracting or negotiating to 

sell, supplies or war materials’ to [>OD or other agencies. 

Requires reporting by certain military personnel and civilian officials of 

DoD of employment by defense contractors occurring within two years 

prior or subsequent to governrnent service.t 

Requires reporting by militar:, personnel and civilian officials having 

procurement responsibilities ill DoD of “contacts” regarding postgovernment employment opportunities with certain defense contract0rs.t 

Prohibits a “Presidential appointee” who acts as a “primary government 

representative” in the “negoti;ltion” or “settlement” of a contract with a 

defense contractor to accept, within two years thereafter, employment 

from that contractor.* 

*Violation punishable by fine and/or imprisonment. 

tviolation subject to administrative penalty in amount up to $1 0,000. 

98 
While mindful of the critical need to recruit and retain capable acquisition 

personnel, we do not minimize the importance of' upholding the real and 

apparent integrity of the acquisition process. ()ut- recommendations seek to 

achieve vigorous enforcement of ethical requiretncxts and steadfast attention to 

ethics programs and training by government mcl industry alike. We believe that 

our recommendations, if fully implemented, would go much further toward 

improving the ethical environment of defense acquisition than would any 

legislative proposal. Had such administrative ef'f'l)rts txen undertaken by DoD 

heretofore, the adequacy of the existing legislative scheme would be far more 

evident. 

Public Law 99- 145, and the additional revol\,ing-door restrictions now 

proposed, in part reflect a legitimate dissatisfaction with individual enforcement 

of existing DoD standards of conduct. They also reflect a widespread concern 

that opportunities for post-government employrnent with defense contractors 

may seem to tempt acquisition officials to favo~ improperly those contractors 

over whose affairs they exercise authority. We do not dismiss this concern. 

Acquisition officials must scrupulously avoid an\' action that might create even 

the appearance of giving preferential treatment to any contractor or losing 

complete independence or impartiality of action Existing standards of' conduct 

demand nothing less. The real challenge, we believe, is to establish and maintain 

an ethical environment for defense acquisition t11at applies this principle across 

the board. This will not be accomplished througll piecemeal legislation that 

subjects special classes of government employees to imprecise standards, 

unpredictable restrictions on future conduct, anc 1 harsh criminal penalties. 

Instead, the revolving-door concern must tx. addressed where it originates, 

in the relations of DoD and the defense industry. (hmplementary efforts must 

be undertaken by DoD and defense industry to tlefine appropriate and highly 

specific limitations in the area of post-governmellt ernployment relationships. 

These limitations should not be legislated but instead should be articulated 

through complementary prohibitions in both government and industry 

standards of conduct, for the clear guidance of putative employers (i.e., 

contractors) and employees (i.e., former DoD ofticials) alike. This exercise 

would reinforce a healthy, ongoing clialogue t)et\veerl industry and government. 

Appropriate voluntary disqualifications by pri\ul e employers and prospective 

employees could and should become an acceptecl aspect of'the of'ficial and 

professional responsibilities assumed by those who work in anti contract with 

DoD. Were statutory requirements to report em1)Ioyment with defense 

contractors properly observed and administered, DoD, industry, and the public 

could monitor the success of the approach we re( onltnencl. In ttlis way, Dol) and 

defense industry could assume leadership roles lor rhe public and priwte 

99 
sectors, and set a standard that others-notably Congress and other Executive 

departments-should emulate. 

For these purposes, we recommend the following: 

1. DoD standards of conduct directives should be developed and 

periodically reviewed and updated, to provide clear, complete, and timely 

guidance: 

a. to all components and employees, on ethical issues and standards 

of general concern and applicability within DoD; and 

b. to all acquisition organizations and personnel, on ethical issues and 

standards of particular concern to DoD acquisition process. 

2. The acquisition standards of conduct directive should address, among 

other matters, specific conflict-of-interest and other concerns that arise in the 

course of official dealings, employment negotiations, and post-government 

employment relationships with defense contractors. With respect to the last 

category, the Secretary of Defense should develop norms concerning the 

specific personnel classification, type of official responsibility, level of 

individual discretion or authority, and nature of personal contact that, taken 

together, should disqualify a former acquisition official from employment 

with a given contractor for a specified period after government service. These 

recommended norms, observance of which should be monitored through 

existing statutory reporting requirements, would establish minimum 

standards to guide both acquisition officials and defense industry.* 

*Comment by Herbert Stein: 

“revolving door,” I wish to add the following comment: 

enables them to affect substantially the interests of‘ particular contracting 

companies should not be employed by those companies for a period, such as two 

years, after leaving the Department, except inspecial cases where the national 

security clearly dictates otherwise. This principle is not now adequately 

recognized in the standards of proper conduc,t in the Department or among 

defense contractors. For the Department, the Secretary should clearly state the 

principle, define the categories of officials to which it applies and identify the 

individual officers and their contractor-relatior Iships covered. Undoubtedly the 

line between covered and uncovered relationships will be difficult to draw, but 

Although I do not disagree with what the ( ; onmission says about the 

Department of Defense officials whose position in the acquisition process 

100 
3. DoD should vigorously administer and enforce ethics requirements for 

all employees, and commit necessary personnel and administrative resources 

to ensure that relevant standards of conduct are effectively communicated, 

well understood, and carefully observed. This is especially important for all 

acquisition personnel, to whom copies of relevant standards should be 

distributed at least annually. Review of such standards should be an important 

part of all regular orientation programs for new acquisition employees, 

internal training and development programs, and performance evaluations. 

C. Civil and Administrative Enforcement 

Suspension and debarment should be applied only to protect the public 

interest where a contractor is found to lack “present responsibility” to 

contract with the federal government. The Federal Acquisition Regulation 

should be amended to provide more precise criteria for applying these 

sanctions and, in particular, determining present responsibility. 

governing defense acquisition still more effective. 

governance subjects a defense contractor to a variety of governmental 

enforcement remedies. Thus, the government nlay seek relief against a 

contractor for breach of contract and, even in tlre absence of technical breaches, 

criminal and civil sanctions for contractor and contractor-employee misconduct. 

Our Interim Report recommended “continued, aggressive enforcement of 

federal civil and criminal law governing defense acquisition.” This was 

predicated on the view that such enforcement “punishes and deters misconduct 

by the few, vindicates the vast majority who deal with the government lawfully, 

Specific measures should be taken to make civil enforcement of laws 

Failure to establish internal disciplines necessary to responsible selfComment cont’d. 

it will be better to draw the line imperfectly than either to ignore the revolving 

door problem or to leave officials and contractors in a state of uncertainty. 

Contractors’ codes of conduct should include a I)ar to employment that violates 

this principle. 

defined both officials and contractors will voluntarily abide by them. In line with 

the Commission’s desire to foster an atmospherct of trust among the 

Department, contractors and the public, Iwould much prefer to see the 

problem handled in this voluntary way. But if experience shows that reliance on 

voluntary observance of the principle is inadequate, legislative remedies should 

be considered. 

I believe that if the standards of permissible employment are clearly 

101 
and recoups losses to the Treasury.” In this section we discuss noncriminal 

sanctions by which the government can protect its interests. 

Unlike criminal or other punitive measures, suspension and debarment are 

sanctions intended to ensure that DoD may “solicit offers from, award contracts 

to, and consent to subcontracts with responsible umt?-acton only.”17 The Federal 

Acquisition Regulation sets forth specific circumstances in which suspension 

(disqualification pending the completion of investigation or legal proceedings) 

or debarment (disqualification for a specific period of time) may be applied.lH 

Imposed in appropriate circumstances, these sarlctions seek to serve “a public 

interest for the Government’s protection” rathc.t than to provide for increased 

punishment for wrongdoing.1g 

DoD not contract with those lacking present responsibility, they nevertheless are 

severe remedies that should be applied only in accordance with their stated 

purpose and legal standards. Members of the dc.fense contracting industry claim 

that neither the purpose nor the standards have been observed, and that the 

threat of imposition of the sanctions has become the government’s primary 

negotiating weapon in criminal prosecutions to force contractors to enter guilty 

pleas to avoid suspension or debarment.2n There is concern that DoD has 

improperly concluded that the fact of‘a criminal indictment of a contractor or a 

management employee is an “automatic” ground for suspension, without 

sufficient regard for corrective actions already taken.21 Such claimed abuses are 

said not only to constitute arbitrary denials of protected personal and property 

While suspension and debarment are indispensable tools in assuring that 

I’Federal Acquisition Regulation (hereinafter FAR) ?“ 9.402(a) (emphasis added). 

18FAR §$ 9.406-1, 9.407-1(b). Following imposition of the sanction, ;I contractor and its 

subcontractors may continue to perform work on ongoinq contracts, but the contractor is 

rendered ineligible for future awards during the periodf suspension or debarment. 

19FAR 3 9.402(b). 

*orhere is little doubt that suspension or ctebarment, wlwrher properly or improperly 

imposed, can be devastating to a contractor wholly or he,~vily engaged inthe defense industry. 

While such contractors may suffer but survive heavy civil and c-riminal penalties, they may not 

survive a lengthy suspension or debarment. Not intended ant1 not imposed as punitive 

measures, suspension or debarment may nevertheless be the most severe sanction confronting a 

wayward contractor. 

2LIt is generally conceded by suspending/debarrirlg authorities that suspension occurs upon 

issuance of an indictment, and that the contractor is therc.after af‘forded opportunity to show 

cause why the suspension should not be terminated. Any one of‘the three Military Services and 

the Defense Logistics Agency (DLA) may suspend or ciehar :I cx)ntractor, and the other Services 

and the DLA will honor the sanction. 

102 
rights, but also to eliminate as the criteria for sllspension, the measure of a 

contractor’s “present” responsibility.22 

attitude of mutual mistrust between DoD and the defense industry more in 

evidence than in DoD’s exercise of its powers of‘ suspension and debarment. 

In recent years there has been a marked i~~crease in the number of actions 

taken to suspend or debar individual or corporate contractors from entering 

into new contracts with DoD. In 1975 there were 57 suspensions and 

debarments by DoD; in 1980 there were 78. In I985 there were 652 suspensions 

and debarments, a greater than eightfold increase in just five years. This 

increase is due in part to a more determined altd aggressive enforcement stance 

by DoD and a greater willingness to apply the sanctions. 

Today’s problems can be addressed by developing a sounder basis for both 

government and industry to carry out their respective functions. By working 

together with more cooperation and dedication to performance and less 

mistrust and suspicion, a renewed commitment to excellence can be made. 

Whatever the merit of defense industry claims, it is clear that nowhere is the 

1. Circumstances in Which a Contractor May Be Suspended or 

Debarred 

a. Current Rules for Suspension 

Suspension of a contractor is in the nature of a preliminary remedy 

available to the government before full development of the facts. It should be 

imposed “on the basis of adequate evidence . . . when it has been determined 

that immediate action is necessary to protect the government’s intere~t.”‘~ 

Adequate evidence is defined as “information sufficient to support the 

reasonable belief that a particular act or omission has 

22While contractor conduct thatjustifies a criminal irlciictment may be przma facie evidence of 

irresponsibility, such conduct often precedes an indictmcmt in the contracting industry by two or 

more years. The bare fact of an indictment may thus he ;In improper measure of the contractor’s 

“present responsibility” should suspension occur at the time of indictment. During the period 

following the misconduct alleged in the indictment, the contractor may have replaced employees 

guilty of wrongdoing, corrected faulty systems, made restitution, better communicated and 

implemented a corporate code of conduct, improved internal auditing practices, and otherwise 

taken actions demonstrating its current responsibility. An “automatic” suspension does not 

afford opportunity for such proof, and may defeat incelltives for implementing more 

responsible self-governance. 

23FAR 5 9.407- 1 (b). 

24FAR 5 9.403. 

103 
The Federal Acquisition Regulation sets forth particular conditions in 

which suspension may be applied. A contractor may be suspended, for example, 

upon “adequate evidence” of the commission of a fraud or criminal offense in 

the procurement process, the violation of federal or state antitrust statutes, the 

commission of various other criminal offenses, and the commission of any other 

offense showing “lack of business integrity or business honesty” that “directly 

affects” the contractor’s present responsibility. Indictment for any of these 

delineated actions constitutes adequate evidence for suspension. A contractor 

may also be suspended for any other cause that shows an absence of‘present 

re~ponsibility.~~ 

b. Current Rules for Debarment 

Regulations governing debarment provide that the responsible official 

“may debar” a contractor if it has been convicted for any offense listed above 

that may provide a basis for suspension. The regulations further state that the 

existence of one of the described causes does not require debarment. “[Tlhe 

seriousness of the contractor’s acts or omissions and any mitigating factors 

should be considered in making any debarment 

25FAR 5 9.407-2, Causes for Suspension, provides: 

(a) The suspending official may suspend a contractor suspected, upon adequate evidence, 

(1) Commission of a fraud or a criminal offense 111 connection with (i) obtaining, (ii) 

(2) Violation of Federal or State antitrust statutes I elating to the submission of offers; 

(3) Commission of embezzlement, theft, forgery, hibery, falsification or destruction of 

(4) Commission of any other offense indicating a Ix-k of business integrity or business 

ofattempting to obtain, or (iii) performing a public contract or subcontract; 

records, making false statements, or receiving stolen pr1)perty; or 

honesty that seriously and directly affects the present rcymnsibility of Government 

contractor or subcontractor. 

(b) Indictment for any of the causes in paragraph (a) above constitutes adequate evidence 

(c) The suspending official may upon adequate evidenc.e also suspend a contractor for any 

for suspension. 

other cause of so serious or compelling a nature that it affects the present responsibility of a 

Government contractor or subcontractor. 

e6FAR 0 9.406- 1 (a). 

1 04 
2. Improvements in Regulations Governing Conditions Under Which a 

Contractor May Be Suspended or Debarred 

Existing regulations can be improved in crucial respects by providing 

criteria for government officials making present responsibility determinations. 

a. Determination of Present Responsibility 

The requirement that all suspension/debarment decisions be based on a 

present responsibility determination should be more clearly set forth by 

amendment of particular provisions of the Federal Acquisition Regulation. 

Such amended provisions should include an explicit requirement that 

suspension and debarment must be related to a 1;tck of present responsibility 

before either sanction is applied. For example, adequate evidence of the 

occurrence of a criminal offense by a contractor or its employee should not 

necessarily result in suspension. Nor should conviction for a prior offense be the 

sole predicate for debarment. Basis for imposition of suspension or debarment 

is lacking unless the suspending or debarring authority determines that 

conditions causing the criminal misconduct are pre~wnt problems within the 

company. Provisions referred to above setting forth particular conditions in 

which a contractor may be suspended or debarred should be amended to clarify 

that such a condition is a sufficient basis only if it cat1 be linked to a lack of 

contractor present respon~ibility.~’ 

b. Criteria for Present Responsibility 

Administration of suspension/debarment would also be improved if 

regulations were amended to include specific criteria to be considered in 

determining whether a contractor is“presently responsible.” Such criteria are 

not now set forth in the regulations. The following are recommended for 

consideration as proper criteria: 

27The cited regulatory provision (FAR 9.407-2(b)), statlng that indictment for any of the 

listed causes “constitutes adequate evidence of suspension,” is particularly troublesome. C’ liven 

the time-consuming nature of litigation, indictments are invariably based on prior misconduct. 

The events causing an indictment generally precede an indictment by one or more years. Thus, 

where an agency suspends a contractor on the sole basis of an indictment, it applies this sanction 

without regard to the requirement that suspension should be predicated on lack of present 

responsibility. Such administrative action involves an abdication of the suspending authority’s 

obligation under current law. This provision of the Federal Acquisition Regulation - stating 

that indictment constitutes adequate evidence - should be rrexamined. 

105 
0 The nature of integrity programs, if any, currently being implemented by 

the contractor. The debarring/suspending authority should be 

particularly interested in the extent of thcl contractor’s affirmative efforts 

to implement ethical standards of conduc t that address contract 

performance and systems of internal conl rols to monitor compliance with 

those standards. 

0 The contractor’s reputation for probity on recent procurements with 

DoD and other federal agencies. 

The reputation of the contractor’s management and directors in recent 

circumstances as persons of good character and integrity. 

0 The extent to which misconduct is symptomatic of basic systemic 

problems within the corporation as opposed to isolated, aberrational 

corporate behavior. 

0 The nature and extent of voluntary disclosure and cooperation offered 

by the contractor in identifying and investigating the misconduct. 

0 The sufficiency of remedial measures taken to eliminate the causes of the 

misconduct. 

c. Determination of Public Interest 

Before suspending or debarring a contractor the responsible official must 

determine, in addition to present responsibility, whether such action serves the 

“public interest.” To an extent, considerationf public interest is subsumed in 

the determination whether the contractor is currently responsible. Some factors 

affecting public interest are, however, distinct from those affecting present 

responsibility and should be considered separately. Except where a contractor’s 

misconduct endangers life or property, in which case the government’s interest 

is clearly indicated, the Federal Acquisition Regulation should be amended to 

mandate review of the effect a proposed suspensioddebarment might have on 

the ability of DoD and other government agencies to obtain needed goods or 

services. . 

In making the public interest determination, the suspending or debarring 

agency should consult with agencies both within and outside DoD. The decision 

that suspension or debarment will serve the public interest requires a careful 

106 
balancing of public needs against any potential harm that might occur from 

continued dealings with the contractor. 

d. Cursory Suspension of Contractors 

The current practice of “automatic” suspension of contractors following 

indictment on contract fraud should be reconsidercd by DoD with a view that it 

be more discriminating and take into account all cir currlstances of a particular 

situation. In our Interim Rrport we stated, “Suspension and Debarment should 

not be imposed solely as a result of an indictment or conviction predicated upon 

former (not ongoing) conduct . . . .” 

A device that has been used by a military department in lieu of “automatic” 

suspension is the so-called “shock and alarm” letter. Such a letter brings sharply 

to the attention of the executive of a defense firm PIoD’s cause for concern of 

wrongdoing, and the executive is urged to take inlmediate corrective action. 

What distinguishes the “shock and alarm” techniquc: is that it does not carry with 

it the formal and immediate sanction of suspension. It provides the contractor 

an opportunity to put is own house in order beforc suspension becomes 

imperative. 

e. Scope of Suspension or Debarment Orders 

Once a determination is made to suspend or dctjar a contractor, the Military 

Service or DLA must determine the appropriate scope of the order. The 

government may elect to suspend or debar a partictllar division or similar 

organizational component of the contractor, a nurnt,er of‘ divisions or 

organizational components, or the entire corporate structure of which the 

contractor is a part. 

An overly broad suspension or debarment of a contractor involved in 

numerous procurements can deny DoD important sources of supply and cause 

economic and commercial harm to the contractor. On the other hand, an 

inappropriately narrow application of these sancl ions can lead to continued 

government dealings with irresponsible parties. 

Current regulations give the responsible agency wide authority to tailor the 

scope of a suspension or debarment order without providing guidance about 

how the agency should exercise its discretion. Suspension applies to “all divisions 

or other organizational elements of the contractor, unless the suspension 

decision is limited by its terms to specific divisions, organizational elements or 
commodities.”28 Similarly, “debarment constitutes debarment of all divisions or 

other organizational elements of the contractor, unless the debarment decision 

is limited by its terms to specific divisions, orgarlizational elements or 

comm~dities.”~~ 

Given the significance and difficulty of these determinations, responsible 

officials should have more specific guidance in (,onsidering the scope of possible 

suspension or debarment actions. The Federal ;4cquisition Regulation should 

mandate review of the following criteria: 

0 the extent to which the misconduct was confined to a particular 

organizational unit and the autonomy of that unit; 

0 the extent of knowledge corporate management and directors had of the 

relevant misconduct; 

0 the extent to which sanctions must be im1)osed to provide minimum 

protection of the public interest; and 

0 other effects that could occur if organizational units other than that 

within which the misconduct occurred arc suspended or debarred. 

Suspending and debarring authorities should craft application of these 

sanctions as narrowly as possible to exclude onlv those organizational units that 

threaten the integrity of the procurement procc’ss. 

f. Independence of Determinations 

The government, because of broad discretionary powers entailed in 

declaring contractors ineligible for awards, carries a heavy burden. It must 

affirmatively seek to avoid arbitrary action. Dol) should ensure that 

opportunities for abuse are reduced by insulating decisionmakers in the 

suspension and debarment process from untoward pressure from within or 

without DoD. Present policies do not provide sufficient insulation for officials 

involved in the process. 

2sFAR 9 9.407-1(~). 

29FAR 9 9.406-1(b). 

108 
g. Procedures Guiding Suspension and Debarment Within Components oj‘DoD 

Under current regulations, the several suspending and debarring 

authorities are given discretion to “establish procedures” governing suspension 

and debarment “decision-making” processes.30 This discretion has resulted in 

each of the authorized agencies developing different and somewhat inconsistent 

procedures. The Inspector General made the following pertinent observations: 

Each suspension/debarment authority within DoD has developed its own 

method of processing suspension and debarment determinations and 

implementing suspension and debarment procedurcs regarding the provision of notice to contractors and the conduct of‘ hearing procedures. 

For example, if a contractor requests and is provided a hearing on a 

debarment matter in DLA, the General Counsel, as the suspension/debarment authority, conducts the hearings. Argument and testimony is 

directly presented to the suspensioddebarment autllority, who can assess 

the credibility of witnesses and can examine all evidence. In the Air Force, 

suspension and debarment hearings are held beforc. the Debarment and 

Suspension Review Board, which in turn makes recomrnendations to the 

suspensioddebarment authority.g’ 

Given the severity of suspension and debarment, the Commission believes 

that uniform procedures should guide the review and decision-making process 

in each of the agencies. It is, for example very important that debarring officials 

in each agency should be of a similar stature and that hearing procedures 

should be comparable. In the absence of uniformity, inconsistent and unfair 

results may follow. The Secretary of Defense should ensure that uniform 

policies govern each agency’s decision-making process and the Federal 

Acquisition Regulation should be amended to so requlr-e. 

h. Alternative Civil Remedies 

The government should expand its use of and more aggressively pursue 

civil remedies. To make civil enforcement more effective, our Interim Report 

recommended specific measures that included the passage of Administration 

’‘FAR §§ 9.406-3(b)( l), 9.407-3(b)( 1). 

”Office of the Inspector General, DoD, Review of Suspension md Debarment Activities within the 

Department of Defense, at 86-87 (May 1984). 

109 
proposals to amend the Civil False Claims Act dnd to establish administrative 

adjudication of small civil false claims cases. 

suspension/debarment - in particular instances when the propriety of 

imposition of suspension is questionable - gi\ e greater consideration to civil 

sanctions as a complete remedy. For such an alternative to be effective, DoD 

must have ayailable to it expanded civil remedies for recovery of assets. 

Expansion of traditional civil money judgments is a much needed resource, and 

by endorsing legislation still pending in the Congress - i.e., the Program Fraud 

Civil Remedies Act - the Commission has sought to encourage the grant of 

sweeping new administrative powers to levy fines more effectively against 

individuals and corporations engaged in wrongcloing of a lesser nature. 

It is suggested that those officials charged u ith administration of 

3. Voluntary Disclosure of Irregularities 

Contractors have a legal and moral obligation to report to government 

authorities misconduct discovered in the process of self-review. 'The 

Departments of Defense and Justice should jointly initiate a program 

encouraging the voluntary disclosure of irregularities by contractors. Such 

a program, if successful, could afford the goverllment timely notice of' 

improprieties that otherwise might not be availalde, and provide details of 

known wrongdoing without the expense and cotnpulsion of'an adversarial 

investigation. 

A voluntary disclosure program will be effecxive if' there are inducements 

that assure skeptical contractors they will not suffer greater sanctions by coming 

forward. Private companies that fail to disclose should not be rewarded by the 

fortuitous inability of government investigators to make a timely discovery of an 

irregularity. Nor should contractors benefit that come forward only under 

compulsion of imminent discovery. 

include: 

Guidelines considered by DoD in a voluntary disclosure program should 

0 The timing of the disclosure with respect to the contractor's initial 

awareness of the irregularity and the proximity of government oversight 

action. 

0 The completeness, accuracy, and truthfulness of the disclosure, as well as 

other factors supporting voluntariness. 

0 Management levels at which the wrongdoing occurred and at which the 

decision to disclose was made. 

110 
0 Whether internal corporate procedures or standards of conduct covered 

the conduct of those involved in the wrongdoing and in the disclosure 

decision. 

0 Whether there were in place internal auditing systems that, when 

properly implemented, addressed the irregularity. 

For these purposes, we recommend the following: 

1. The Federal Acquisition Regulation should be amended: 

a. to state more clearly that a contractor may not be suspended or 

debarred except when it is established that the contractor is not “presently 

responsible,” and that suspension or debarment is in the “public interest”; and 

b. to set out criteria to be considered in determining present 

responsibility and public interest. 

2. The Department of Defense should reconsider: 

a. “automatic” suspensions of contractors following indictment on 

charges of contract fraud; 

b. suspending and debarring the whole of a contractor organization 

based on wrongdoing of a component part; 

c. insulating its suspendingldebarring officials from untoward 

pressures; and 

d. establishing uniform procedures to guide the review and 

decision-making process in each agency exercising suspension/debarment 

authority. 

3. DoD should give serious consideration to: 

a. greater use of broadened civil remedies in lieu of suspension, 

b. implementation of a voluntary disclosure program, and incentives 

when suspension is not mandated; and 

for making such disclosures. 

4. Specific measures should be taken to make civil enforcement of laws 

governing defense acquisition still more effective. These include passage of 

Administration proposals to amend the Civil False Claims Act and to establish 

administrative adjudication of small, civil false claims cases. In appropriate 

circumstances, officials charged with administration of suspension/ 

debarment should consider application of civil monetary sanctions as a 

complete remedy. 

111 
THIS PAGE INTENTIONALLY LEFT BLANK
PRESIDENT'S BLUE RIBBON COMMISSION 

ON DEFENSE MANAGEMENT 

David Packard, Chairman 

Robert H. Barrow 

ilLe.2L) 

Nicholas F. Brady 

Louis W. Cabot I 

Frank C. Carlucci 

William P. Clark 

Barber B. Con'able, Jr. 

Paul F. Gorman 

I 

Carla A. Hills 

I 

James L. Holloway, 

Charles j. Pilliod, jr, 

Ill 

Brent Scowcroft 1 

Herbert Stein 

I (L+ 

R. James Woolsey 

Ernest C. Arbuckle, ln Memoriam 

113 
THIS PAGE INTENTIONALLY LEFT BLANK
PRESIDENT’S BLUE RIBBON COMMISSION 

ON DEFENSE MANAGEMENT 

Staff 

Rhett B. Dawson, Director 

Paul S. Stevens, Deputy Director and General Counsel 

Robin Deck, Counselor for Legislative Affairs 

Rebecca D. Paulk, Executive Secretary 

Madeline C. Aldrich, Executive Assistant to the Chairman 

Penny Chanin, Executive Assistant to the Director 

Toney Stricklin, Staff Coordinator and Executive Assistant to the Director 

PROFESSIONAL AND TECHNICAL STAFF 

Richard C. Morris Phillip L. Harrlngton 

James G. Ling James J. Lindenfelser 

Robert Steve Dotson John T. Kavan,lugh 

Andrew Hamilton Robert T. Marlow 

Mary F. Nugent Michelle S. Kalkowski 

Jeanne Briguglio Donna N. Rivtllli 

SENIOR CONSULTANTS PUBLICAFFAIRS 

Vincent Puritan0 Herbert E. Hetu, Counselor 

Jacques S. Gansler Alexis B. Allen 

John C. Beckett 

ADMINISTRATIVE STAFF 

Peter R. O’Connor, Administrative Deputy 

Juanita Berry Rosemary Mc(:arthy 

Esther F. Evans Miles E. Rounlree 

Stephanie D. Johnson Patricia Stith 

David M. Hochbrueckner Ray S. Thompt*on, Jr 

Mary Hill lrvin A. Tull 

TECHNICAL ADVISERS TO THE ACQUISITION TASK FORCE 

E. Oran Brigham Walter M. Locke 

Dale W. Church Bill B. May 

Paul G. Kaminski Barry H. Whelm 

Roger Lewis 

115