Holding the Edge: Maintaining the Defense

Technology Base

April 1989

NTIS order #PB89-196604
Recommended Citation:

U.S. Congress, Office of Technology Assessment, Holding the Edge: Maintaining the

Defense Technology Base, OTA-ISC-420 (Washington, DC: U.S. Government Printing

Office, April 1989).

Library of Congress Catalog Card Number 89-600711

For sale by the Superintendent of Documents

U.S. Government Printing Office, Washington, DC 20402-9325

(order form can be found in the back of this repent)
Foreword

Technological superiority has been a cornerstone of United States security and industry

since World War II. That cornerstone is not crumbling, but over the past decade it has

weathered significantly. Foreign companies have made deep inroads into high-technology

markets that had been more or less the exclusive domain of U.S. industry. In addition to

causing economic problems, this has fostered dependence on foreign sources for defense

equipment at a time when the technology in defense systems comes increasingly from the

civilian sector. At the same time, the Department of Defense reports that Soviet defense

technology is catching up with ours, and sophisticated Western military equipment is routinely

sold to third world nations.

These trends-and others-have prompted the Senate Committee on Armed Services to

ask what needs to be done to maintain the base of high technology on which U.S. national

security depends. This report, the second of OTA’s assessment “Maintaining the Defense

Technology Base,” looks into that question in some depth. An earlier report, The Defense

Technology Base: Introduction and Overview (OTA-ISC-374, March 1988), provided a broad

view of the defense technology base and the concerns regarding its health.

This report develops some of the ideas introduced in the first report. It examines the

management of DoD technology base programs and laboratories. It also analyzes the process

through which technology is introduced into defense systems, in order to understand why it

takes so long and what might be done to speed the process up. Finally, this report examines

the exploitation of civilian commercial sector technology for defense needs. It concentrates

on the dual questions of expediting military access to civilian technology and keeping the

necessary base of technology alive and well in the United States. Volume 2 of this report

contains extensive appendices and will be published in the summer of 1989.

The help and cooperation of the Army, Navy, Air Force, the Office of the Secretary of

Defense, the Department of Energy, NASA, and the National Institute of Standards and

Technology are gratefully acknowledged.

JOHN

Director
Defense Technology Base Advisory Panel

Michael R. Bonsignore

President

Honeywell International

William Carey

Consultant to the President

Carnegie Corp. of New York

Thomas E. Cooper

Vice President

Aerospace Technology

General Electric

John Deutch

Provost

Massachusetts Institute of Technology

Walter B. Laberge, Chair

Vice President of Corporate Development

Lockheed Corp.

Robert Fossum

Dean

School of Engineering and Applied Sciences

Southern Methodist University

Jacques Gansler

Senior Vice President

The Analytic Sciences Corp.

B.R. Inman

Admiral, USN (retired)

Chairman and Chief Executive Officer

Westmark Systems, Inc.

Paul Kaminski

President

H&Q Technology Partners, Inc.

Lawrence Korb

Director

The Center for Public Policy

Brookings Institution

George Kozmetsky

Executive Associate—Economic Affairs

University of Texas System

University of Texas, Austin

Ray L. Leadabrand

President

Leadabrand & Assoc.

Jan Lodal

President

INTELUS

Edward C. Meyer

General, USA (retired)

Robert R. Monroe

Vice Admiral, USN (retired)

Senior Vice President & Manager, Defense & Space

Bechtel National, Inc.

William J. Perry (ex officio)

Managing Partner

H&Q Technology Partners, Inc.

Richard Pew

Principal Scientist

BBN Laboratories, Inc.

Herman Postma

Senior Vice President

Martin Marietta Energy Systems, Inc.

Judith Reppy

Associate Director

Cornell Peace Studies Program

Richard Samuels

Professor

Department of Political Science

Massachusetts Institute of Technology

John P. Shebell

Manager, RAMP Engineering

Customer Service Systems Engineering

Digital Equipment Corp.

Michael Thompson

Executive Director

Integrated Circuit Design Division

AT&T Bell Laboratories

S.L. Zeiberg

Vice President Technical Operations

Martin Marietta Electronics and Missiles Group

NOTE: OTA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by the advisory panel members.

The panel does not, however, necessarily approve, disapprove, or endorse this report. OTA assumes full responsibility for the

report and the accuracy of its contents.

iv
OTA Project Staff-Defense Technology Base

Lionel S. Johns, Assistant Director, OTA

Energy, Materials, and International Security Division

Peter Sharfman, International Security and Commerce Program Manager (through February 1989)

Alan Shaw, International Security and Commerce Program Manager (from March 1989)

Alan Shaw, Project Director

William W. Keller

Gerald L. Epstein

Laurie Evans Gavrinl

Christine Condon2

Congressional Research Service Contributor

Michael E. Davey

Administrative Staff

Jannie Home (through November 1988)

Cecile Parker

Jackie Robinson

Louise Staley

Contractors

P. Robert Calaway

Arnold Levine

MIT/Japan Science and Technology Program

1~ ~~~lgment from (YIA’s Energy and Materials ~of?am,

2~~sslgmentfrom the Department of Defense.
Workshop on the Relationship Between Military & Civilian Fiber Optics

John R. Whinnery, Chair

University Professor Emeritus

Department of Electrical Engineering and Computer Sciences

University of California, Berkeley

James H. Davis

Director, Fiber Optics Program Office

Naval Sea Systems Command

Brian Hendrickson

Chief

Electro-Optics Technology Branch

U.S. Air Force

Raymond E. Jaeger

President and CEO

SpecTran Corp.

Donald B. Keck

Director

Applied Physics Research&Development Laboratories

Coming Glass Works

Tingye Li

Department Head

Light Wave Systems Research Department

AT&T Bell Laboratories

John W. Lyons

Director

National Engineering Laboratory

National Institute of Standards and Technology

Alan McAdams

Professor

Johnson Graduate School of Management

Cornell University

William C. McCorkle

Technical Director

U.S. Army Missile Command-Redstone Arsenal

Kenneth Nill

Executive Vice President

Lasertron

Paul Polishuk

President and Chairman

Information Gatekeepers Group of Companies

Jan H. Suwinski

Senior Vice President and General Manager

Telecommunications

Corning Glass Works

Robert W. Tarwater

Light Guide Fiber & Cable Manager

AT&T Network Systems

Victor R. Basili

Professor

Department of Computer Sciences

University of Maryland, College Park

Elaine Bond

Senior Vice President

The Chase Manhattan Bank

Mike Devlin

Executive Vice President

Rational

Barry Boehm

Chief Scientist

TRW. Inc.

Workshop on the Relationship Between Military & Civilian Software

Larry E. Druffel, Chair

Director

Software Engineering Institute

Carnegie-Mellon University

Jeffrey M. Heller

Senior Vice President

Electronic Data Systems

Dana P. Lajoie

Technical Director

Government Systems Group

Digital Equipment Corp.

John A. Lytle

Director of Technical Development

Planning Research Corp.

Allan L. Scherr

Vice President, Development & Integration

Applications Systems Division

IBM
Mike Weidemer David M. Weiss Deputy Director

Mission Critical Computer Engineering Principal Member-Technical Staff

Air Force Systems Command Software Productivity Consortium

Workshop on the Relationship Between Military & Civilian PMCs

Dick J. Wilkins, Chair

Director

Center for Composite Materials

University of Delaware, Newark

Ric Abbott

Principal Engineer

Advanced Composites Project

Beech Aircraft Corp.

James N. Burns

Vice President of Marketing

Hercules, Inc.

Samuel J. Dastin

Director, Advanced Materials

Grumman Aircraft Systems

Bernard M. Halpin, Jr.

Manager, Composites Development Branch

Materials Technology Laboratory

U.S. Army Laboratory Command

James J. Kelly

Program Area Manager

Materials

Office of Naval Technology

Robert Manildi

Manager, Advanced Composites

Hexcel Corp.

Michael J. Michno

Director of Technology

Advanced Composites

Amoco

Performance Products

Alan G. Miller

Unit Chief, Chemical Technology

Boeing Commercial Aircraft

Thomas F. O’Brien

Segment Manager

Advanced Composites Division

Dupont Co.

Frances Rensvold

Physical Science Administrator

Aero Mechanics Technology, Andrews Air Force Base

Douglas C. Ruhmann

Chief Design Engineer

Manager, Materials & Processes

McDonnell Douglas Astronautics Co.

Nick Spenser

Sales Manager

Composites Materials

CIBA-GEIGY

NOTE: OTA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by the participants in the

workshops. The workshop participants do not, however, necessarily approve, disapprove, or endorse this report. OTA assumes

full responsibility for the report and the accuracy of its contents.

vii
Contents

Chanter Page

l. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2. Options for Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. . $ . . . . . . . . . . . . . . . . . .

3. Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4. Planning and Funding DoD Technology Base Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5. The Management of Defense Department Laboratories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6. Exploiting Other Management Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3

9

19

41

63

89

7. Implications for the Defense Technology Base: Options for Congress . ...................111

8. Lab to Field: Why Soling? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......129

9. Civilian Technology and Military Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ......161
Acronyms

AAAS

AATR

AEC

AMC

ANSI

APL

ASD

AT&T

ATD

ATR

ATTD

BTI

CDP

CERN

CEST

CINCs

COBOL

COCO

COE

COTS

CSIS

D-RAM

DARPA

DCS(T&P)

DCSPER

—American Association for the Advancement of Science

—Aided Automatic Target Recognition

—Atomic Energy Commission

—Army Materiel Command

—American National Standards Institute

—Applied Physics Laboratory

—Aeronautical Systems Division (Air

Force Systems Command)

—American Telephone and Telegraph

—Advanced Technology Demonstration

—Automatic Target Recognition

—Advanced Technology Transition Demonstration

—Balanced Technology Initiative

—Chief of Defense Procurement (U. K.)

—Controller, Establishments, Research,

and Nuclear

—Centre for the Exploitation of Science and Technology

—Commanders in Chief (of Unified

and Special Commands)

—Common Business-oriented (programming) Language

-contractor-owned, contractor-operated

—Corps of Engineers

—Commercial Off-the-Shelf

—Center for Strategic and International Studies

-dynamic random access memory

—Defense Advanced Research Projects Agency

—Deputy Chief of Staff for Technology and Plans

—Deputy Chief of Staff for Personnel

DDDR&E(R&AT) —Deputy Director of Defense Research and Engineering for Research

and Advanced Technology

DDR&E —Director of Defense Research and

Engineering

DFG —German Research Society

DG —Defense Guidance

DGA —Delegation Generale pour l’Armement (France)

DoD —Department of Defense

DOE —Department of Energy

DRB —Defense Resources Board

DSB —Defense Science Board

EC —European Community

EN —Engineering Directorate (of ASD)

FAR

FOG-M

FSX

GAO

GNP

GOCO

GS

IDA

IEPG

ILIR

IRST

ISDN

ISO

ISTO

ITT

JCS

JDA

JRC

JSEP

JSPD

KDD

LABCOM

LAMPF

LAN

LHX

MADOM

MIL-STD

MITI

MMIC

MoD

NASA

NDI

NIF

NIST

NOSC

NRL

NSF

NSIA

NIT

NWC

O&S

ODDR&E

—Federal Acquisitions Regulations

—Fiber Optic Guided Missile

—Fighter Support Experimental

—General Accounting Office

—gross national product

—government-owned,-contractor-operated

—General Schedule

—Institute for Defense Analyses

—Independent European Program Group

—In-house Independent Laboratory Research

—Infrared Search and Track

—Integrated Services Digital Network

—International Standards Organization

—Innovative Science and Technology

Office

—International Telephone and Telegraph

—Joint Chiefs of Staff

—Japan Defense Agency

—Joint Research Centers (European

Community)

—Joint Services Electronics program

—Joint Strategic Planning Document

—Kokusai Denshin Denwa (Japan)

—Laboratory Command

—Los Alamos Meson Physics Facility

—local area network

—Light Helicopter Experimental

—Magneto-acoustic Detection of Mines

—Military Standard

—Ministry of International Trade and

Industry (Japan)

—Monolithic Microwave Integrated

Circuit

—Ministry of Defense (U. K.)

—National Aeronautics and Space Administration

—non-developmental items

—Naval Industrial Fund

—National Institute of Standards and

Technology

—Naval Ocean Systems Center

—Naval Research Laboratory

—National Science Foundation

—National Security Industrial Association

—Nippon Telephone and Telegraph

(Japan)

—Naval Weapons Center

—Operations and Support

—Office of the Director of Defense

Research and Engineering
OECD

OMB

OPM

OSD

OSTP

OTA

PC

PE

PEO

PI

PMC

PPBS

R&AT

R&D

R&LM

RD&E

RDT&E

-Organization for Economic Cooperation and Development

-Office of Management and Budget

-Office of Personnel Management

—Office of the Secretary of Defense

-Office of Science and Technology

Policy

—Office of Technology Assessment

—personal computer

—Program Element

—Program Executive Officer

—Principal Investigator

—polymer matrix composite

—Program Planning and Budgeting

System

—Research and Advanced Technology

—research and development

—Research and Laboratory Management

—Research, Development, and Evaluation

—Research, Development, Testing, and

Evaluation

S&T

SDI

SDIO

SES

STAR

STARS

TCP

TOA

TRDI

TSG

UAV

URC

URI

USD(A)

USD(R&E)

—science and technology

—Strategic Defense Initiative

—Strategic Defense Initiative Organization

—Senior Executive Service

—Strategic Technologies for the Army

—Software Technology for Adaptable

Reliable Systems

—Technology Coordinating Panel

—Total Obligational Authority

—Technical Research and Development Institute (Japan)

—The Surgeon General

—Unmanned Airborne Vehicle

—University Research Centre (U. K.)

—University Research Initiatives

—Under Secretary of Defense for Acquisition

—Under Secretary of Defense for Research and Engineering

x
Chapter 1

Introduction
Chapter 1

Introduction

Not long ago, the United States was the

undisputed technological leader of the world.

U.S. military equipment was meaningfully and

undeniably more sophisticated than that of the

Soviet Union, and our allies sought American

technology for their own defense efforts.

American companies developed and sold hightechnology products to a world that could not

produce them competitively. Defense-related

developments led American technology and

often ‘‘spun-off” into the civilian sector, creating products and whole industries. This reinforced a U.S. defense posture based on using

technological superiority to offset whatever

advantages the Soviet Union and other potential

adversaries might have.

As we approach the 21st century, much has

changed. The model of U.S. technology leading

the world, with defense technology leading the

United States, still retains some validity. But it

is a diminishingly accurate image of reality.

Soviet defense technology increasingly approaches

our own, and sophisticated weapons appear in

the hands of third world nations not long after

their introduction into Western and Soviet

arsenals. At the same time, the U.S. military has

been plagued with complex systems that do not

work as expected, work only after expensive

fixes, or simply do not work. Most are highpriced and take a long time to develop. Increasingly, leading edge technology comes from an

internationalized, civilian-oriented economy, which

puts a premium on exploiting technology as well

as developing it.

As a result, the Nation faces a complex set of

interrelated problems that bear on its ability to

continue to develop and manufacture in sufficient quantity the technologically advanced

materiel on which we base our national security

posture. There are specific concerns about:

1) the continued ability of the Department of

Defense (DoD) and its contractors to develop

the technologies it needs; 2) the ability of DoD

and the defense industries to turn these technologies into useful, affordable products in a

timely fashion; and 3) the ability of DoD to

exploit the technology that is being developed

worldwide in the private civil sector.

Concern over the availability of the latest

technology for defense applications, and the

ability of U.S. industry to engineer and produce

equipment based on that technology rapidly and

affordably, led the Senate Armed Services

Committee to request that OTA undertake an

assessment of the defense technology base. This

is the second report of that assessment. The

previous report, The Defense Technology Base:

Introduction and Overview,1 described what the

defense technology base is and presented the

major problems facing the Nation. This report

looks in depth into some of the issues raised in

the previous report. It identifies strengths and

weaknesses of the U.S. defense technology base

and analyzes options for enhancing the strengths

and remedying the weaknesses.

The summary of this report (ch. 3) is divided

into three sections. The first addresses the

strategic management of DoD technology base

programs. It examines the system by which the

goals of the technology base programs are

identified as well as the methods used to allocate

resources in order to reach those goals. The

emphasis there is on the role played by the

Office of the Secretary of Defense (OSD) in

guiding and coordinating the efforts of the

Army, Navy, Air Force, and other DoD elements. It also addresses the management of the

laboratories run by the three Services. These

issues are explored in greater detail in chapters

4 through 7. The second section of the summary

Iu.s. co~~~~s, Office of Techn~lou A~%~~ent, T~ D~f~~~ T~chnolo~ Base: /ntroduc.tion ad overvie~ special Report, OTA-lSC-3TQ

(Washington, DC: U.S. Government Printing Office, March 1988).

-3-
4 ● Holding the Edge: Maintaining the Defense Technology Base

analyzes delays in getting technology into the

field (see ch. 8 for supporting details). The final

section is concerned with ‘‘dual use” technology, i.e., technology used in both the civilian

and defense sectors (see ch. 9). Volume 2 of this

report contains detailed supporting material on

selected topics for those wishing to explore

them in greater detail.

The remainder of this chapter provides a brief

background on the topics of the report: management of defense technology base programs

and facilities; technology transition; and dualuse technology. Those familiar with these subjects may wish to skip directly to chapter 2,

which presents issues and options for Congress.

A large part of the technology that ultimately

winds up in weapons and other defense systems

is either developed or directly sponsored by

DoD. This is particularly true of technology that

is altogether new, makes a major difference in

the performance of defense equipment, and is of

little interest to commercial industry. How DoD

runs its technology base programs is therefore of

major importance. In recent years DoD has

spent roughly $9 billion per year on its technology base programs: research (budget category

6.1), exploratory development (6.2), and advanced technology demonstration (6.3A).

Roughly 40 percent of this is spent by the three

Service departments (Army, Navy, and Air

Force). Another 14 percent is controlled by the

Defense Advanced Research Projects Agency

(DARPA, formerly ARPA). Another 39 percent

finances the Strategic Defense Initiative Organization (SDIO).2 Although all of SDIO’s funds

are allocated in the 6.3A budget category,

according to SDIO only about 15 to 20 percent

is actually spent on technology base activities.

The three Services run their technology base

programs and their R&D institutions differently. 3 Some of this is the result of recent

planning, while much of it results from organizational ‘cultures” developed over many years.

The Army’s effort emphasizes decentralization.

The Army runs some relatively small research

laboratories which focus on selected topics,

while larger research, development, and engineering centers are closely tied to “buying

commands.”4 The Navy stresses in-house research and development both in the Naval

Research Laboratory, a broad-based corporate

lab that serves and underpins the Navy’s entire

technology effort, and in full-spectrum research

and development (R&D) centers that nurture

ideas from basic research through preproduction stages. These centers have traditional ties to the equipment needs of various

functional parts of the operational Navy, but are

not formally tied to specific buying commands.

The Air Force, which contracts out more of its

R&D effort than either of the other Services,

centralizes its efforts within the Air Force

Systems Command. Its technology base programs are seen as a link between buying

commands (the divisions of Systems Command) and the defense industry. The basic

theme is to buy technology and make sure it gets

to industry. The Air Force has recently adopted

the position that technology base programs

should be a ‘‘corporate investment” funded at

some fixed fraction of the budget. The Air Force

puts a greater emphasis on R&D-related career

paths than do the other Services.

With such diversity (including that added by

DARPA, the other defense agencies and SDIO),

if the program is to have overall planning and

coordination—and not everyone agrees that it

should—leadership almost has to come from the

Office of the Secretary of Defense.

z~er defense agencies account for approximately 7 percent of DoD technology base program funding. (See fcxxnote 1, P. 19 of tiis repofl.)

3A]] ~ree, ho~evcr, Orient their pro~ms heavi]y [oWard c~ent product areas. Nontra~itiona] ideas do not fit well into the SySteItL

4A buying c~mmand is one of a nm~r of Orgmizations wi~in the Armed Services responsible for developing and buying miiitary equipment and

systems.
Chapter l-introduction ● 5

Actual R&D is performed primarily by

industry, universities, and the laboratories run

by the Services.5 In most cases laboratory is a

misnomer, although a convenient shorthand.

These latter institutions, as a group, perform

technology base work in addition to advanced

and even full-scale development. They also

provide other functions to DoD. Their efforts are

generally divided among performing in-house

work, contracting out work (and monitoring

contractors’ efforts), and providing technical

advice to program managers and buying commands (a function often referred to as being

‘‘smart buyers”). It is very difficult to describe

a typical DoD lab because they differ in size, in

the mix of these functions, and in a number of

other basic elements. However, what they all

have in common is that they are owned and run

by the government, staffed by government

employees, and subject to a large number of

laws and regulations. There has been a continuing and, in recent years, rising concern that they

are inefficient, ineffective, self-serving and

duplicative of industry work, and increasingly

hampered in doing their jobs by the conditions

of being part of the government.

DoD has some important unique characteristics, but it is not the only large organization that

relies heavily on new technology nor the only

establishment that runs R&D programs and

facilities. Large corporations and the governments of other nations do the same. Their

specific goals may not be the same: DoD buys

defense equipment to meet a threat, corporations

seek to develop and market products in a

competitive market, and other nations seek to

enhance their economic positions as well as their

security. But all share the general goal of

marshaling technology assets to achieve some

purpose. To some extent, these other entities

provide some of the background against which

DoD must plan and execute its programs (certainly the evolution of the threat is another). But

they also provide potential models of management techniques that might be useful to DoD in

solving its management problems.

The technology base programs and laboratories produce technology, but that technology is

of no use unless it makes its way into fielded

systems that the military can use. There is great

concern that it simply takes too long to get new

technology into the field. Systems take upwards

of 10 years to develop and produce, and when

they finally become operational, they often

embody technology that is viewed as obsolete,

either because better technology exists in the

labs or in industry, or because consumers can

purchase better technology at their neighborhood stores. In the previous report, OTA found

that delays are not a technology base problem:

they occur after the technology is developed.

However, delays are a major obstacle to keeping

our technological lead in fielded equipment.

While a majority of the most visible technology in defense systems comes from DoD and

companies that contract with it, a significant part

comes from the “nondefense” sector. Mundane

technology—like bolts—has often come from

industries that sell to both military and civilian

customers. And at the subcomponent level,

much also comes from the civilian side. Increasingly, these “dual-use industries” are sources

of advanced technology, sources from which

DoD should be able to draw (and in some cases

must draw, because the technology is ahead of

what the defense world is building). Increasingly, leading-edge technology is developed in

the civilian sector and then finds its way into

defense applications. But government rules that

make doing business with the government

different from selling in the commercial sector

create significant barriers to companies moving

into government work. Some of these companies are heavily involved in defense work, while

others now do little or no business in the defense

5Work is a]w done by o~er government laboratories (e.g., the Department of Energy national labs and NASA labs) and VariOUS private Profit-making

and non-profit organizations.
6 ● Holding the Edge: Maintaining the Defense Technology Base

sector. Moreover, dual-use industries are becoming increasingly internationalized, raising

issues of the competitiveness of U.S. firms in the

world market and dependence on foreign suppliers in defense procurement.

DoD has become less able to drive the

direction of technology. While some areas are

pursued primarily for defense applications, others are molded by the consumer market. Large

commercial markets generate enormous amounts

of capital that fuel research and development.

That R&D is primarily directed toward applications and products with large potential commercial payoffs. The relatively small amount of

business represented by sales for defense applications is in many cases not significant enough

to swing the direction of development. There are

still many important areas of development that

are primarily, or exclusively, defense-oriented.

But the pattern of technology originating in the

defense sector and “spinning off” into the

commercial sector is being replaced by parallel

development and, to use the Japanese term,

‘‘spin on” of commercial technology to military

applications. Faced with this situation, DoD can

buy cutting-edge technology developed in the

civilian sector, or it can spend large amounts of

money to keep a comparable leading edge

resident in-house or with defense contractors.

As a consequence, DoD finds itself (or its

contractors) having to buy from companies that

do not need its business. Large aerospace

companies have to play by DoD’s rules: defense

is their only business, or at least an overwhelming component of their business. But

small, leading-edge technology companies can

make much more money in the private sector

without the trouble of playing by government

rules. They can opt out of doing defense work.

This report examines dual-use industries

through the mechanism of case studies, concentrating on three industries: advanced composites, fiber optics, and software. These present

different perspectives. The advanced composites

industry is heavily involved in defense business,

but U.S. companies may see their commercial

base erode as international competition heats up.

Moreover, many of the major companies are

international or integrated with foreign firms.

U.S. fiber optics producers now sell very little

for defense applications. But DoD has important

uses for their products. Government buying

practices form major barriers to these companies

doing business in the defense market, and they

are beginning to face stiff competition in the

civilian market from foreign competitors. Finally, the software industry is one that straddles

both worlds, and moves very rapidly. Software

is at the heart of most new defense systems,

particularly command, control, communications,

and battle management systems.

All of these topics have been the subject of

numerous studies, which have produced conflicting conclusions. This report pulls together

much of that work, along with original research

and analysis. Moreover, while DoD management

and industrial/trade issues have been the subject

of legislation and proposed legislation, the

problems are not yet solved. The next chapter

discusses the major issues before Congress.
Chapter 2

Options for Congress
Chapter 2

Options for Congress

The U.S. defense effort rests on a strong, broad,

dynamic base of research and development. Government and private institutions, and civil and military

establishments all contribute. But this defense technology base is also characterized by:

●

●

●

a heavy burden of government rules, regulations, safeguards, and procedures that stifle

the ability of the Department of Defense (DoD)

to develop and exploit technology;

the lack of an effective system for high-level

planning and coordination; and

the lack of a clear government policy and

coherent strategy for dealing effectively with

dynamic trends in the international hightechnology economy.

To those who have followed defense industry,

technology, and procurement, none of this will come

as a surprise. These problems—and more—have

been noted and studied for at least three decades. But

despite repeated attempts to fix it, the system has

remained resistant to major improvements. Indeed,

the major problems have continued to worsen,

although probably more slowly than if no measures

had been taken.

The U.S. is not faced with a defense technology

base that is in deep crisis. The Services and other

defense activities fund a great diversity of research

and development, run a large number of laboratories

that do credible—and often outstanding-work, and

successfully exploit that technology and technology

developed elsewhere. But the process has a number

of serious shortcomings that may be amenable to

significant improvement. Moreover, important recent trends threaten to intensify these shortcomings

and magnify their importance. U.S. leadership in

high-technology industries that are vital to defense

is eroding in the face of strong international competition. Budget restrictions predicted both by Congress and by the Administration will reduce funding

for technology base activities at a time when the

costs of research and development are increasing.

And DoD’s ability to compete successfully for key

technical and managerial personnel is declining.

On top of all this, a heavy burden of rules and

regulations impedes the development and exploitation

of technology and the successful transition of

developments into fielded systems. The accumulated actions of past Congresses are a major contributor to the difficulties. Laws passed for a variety

of good reasons, taken together, bog the system

down. Lack of clear policy on the part of both

Congress and the executive branch impedes the

solving of important problems.

Virtually all the easy solutions have been tried. It

is unlikely that any fruitful but painless approaches

remain. Congress and the executive branch will have

to face some hard choices. These include altering

institutional arrangements that—despite their deficiencies—have become comfortable, and sacrificing

existing goals in order to achieve more efficient

development and exploitation of technology.

Based on the analysis in this report, OTA has

identified seven basic issues that profoundly affect

the welfare of the defense technology base. These

are not specific action items, but rather broad agenda

items that warrant congressional attention. For each

of these there are many different choices as to what

individual policy directions to take, and within

those, a myriad of measures (and choices among

measures) for implementation. Implementation is

clearly important, for without any sense of how to

implement a policy, it remains simply an abstraction. There are options that can be implemented only

through legislation, because today the law forbids

them or provides no way to make them happen. And

there are options that can be implemented without

changing the law—through executive action or

changes in DoD’s internal regulations. Congress can

have a hand in effecting these sorts of changes by

making its wishes known or by using its considerable powers of persuasion.

Chapters 7, 8, and 9 discuss various specific

policy options.

ISSUE 1: Reforming the Defense Acquisition

System

The defense acquisition system is a major contributor to the long delays in getting new technology into

the field and erects formidable barriers to exploiting

technology developed in the civilian sector. While
10 ● Holding the Edge: Maintaining the Defense Technology Base

Congress did not intend the system to be slow,

cumbersome, and inefficient, laws passed to foster

goals other than efficient procurement have made it

so.

The system has weathered many attempts at

reform because its problems are rooted in several

basic causes. It is dictated in part by our basic system

of government which demands checks and balances

on the expenditures of large amounts of public

funds, provides for a tug and pull between the

interests of the executive branch and those of

Congress, and permits both branches to reevaluate

programs yearly in light of changing factors and

interests. But much of the problem can be traced to

laws that Congress has enacted to curb abuses and to

foster goals other than efficient procurement of

defense equipment. Laws and regulations have been

added to ensure:

●

●

●

●

●

●

●

●

●

●

●

❵

●

•

civilian control over military procurement,

Administration control over Service activities,

congressional control,

protection of congressional constituent interests,

environmental protection,

fairness,

competition,

accountability,

honesty,

controllable business practices,

minority interests,

small business interests,

protection against conflicts of interest, and

prevention of large profits at taxpayer expense.

These many ends often conflict with each other

and with the objective of quick and efficient

procurement, which leads to compromises that can

satisfy few, if any, completely. Thus, the consequences of achieving these other objectives have

included high costs, long procurement times, inefficient production, and restricted access to technology.

To promote these and other goals, the government has developed business practices and criteria

that differ markedly from those of the civilian

market. Buyer and seller have an adversary relationship; accountability is stressed over efficiency and

price; and the government insists on visibility into

how its contractors conduct their business. Government imposes restrictions on profits, trade secrets,

and accounting procedures that are at variance with

typical commercial practices. This discourages many

innovative companies from seeking defense business.

History provides little hope that a few clever,

relatively painless moves will be sufficient to make

the system significantly more efficient while satisfying other goals. If Congress is serious about

making the system work better, it will have to

face some hard choices. One choice is to give

efficient procurement greater emphasis over other

goals. This would most likely mean that the system

would become less fair, less competitive, less

accountable, less responsive to minority and small

business interests, etc. Another option would be for

Congress to give up some of the power it has over

major defense programs, or to curtail sharply some

of the many centers of power within the executive

branch. This would not necessarily make any

particular program run better-two layers of management could be just as ineffective as 20-but it would

remove major impediments. Instituting multi-year

budgeting, which could also make programs run

more quickly and smoothly, would likewise require

both Congress and the executive branch to give up

some power. Finally, Congress could loosen up the

rules under which DoD conducts business, allowing

business practices to move closer to those of the

private sector. But inherent differences between

government and private operations will always

remain. For example, the government is accountable

for the expenditure of public funds and is very

sensitive to allegations of misuse. Where a business

would be willing to absorb some pilfering if it were

exceeded by the cost of prevention, the government

is usually willing to spend whatever is necessary to

prevent fraud.

Few such moves would come for free. For

example, relaxing accountability rules could make it

easier for companies to cheat the government. It may

well be that, weighing all these factors together,

Congress will decide that the current balance among

all these interests is proper, and that inefficient

defense procurement is an acceptable cost. While

concerns for efficient procurement will push in the

direction of loosening up the system, a need to

respond to a recent history of procurement scandals,

failed programs, and high-cost low-quality equipment will likely push in the opposite direction.
Chapter 2-Options for Congress ● 11

ISSUE 2: Independent Research and Development

(IR&D) Recovery

Current law permits companies having contracts

with DoD to bill to the government, as a cost of

doing business, part of the cost of their internally

generated R&D program. Industry generally believes that current rates of recovery are inadequate.

Some think recovery rates are too high. DoD cannot

seem to present a coherent position. IR&D recovery

is not treated in this assessment, but it is very likely

to be on the congressional agenda. Interested readers

are referred to OTA’s previous report The Defense

Technology Base: Introduction and Overview.1

ISSUE 3: Reforming the DoD Laboratory System

As a whole, the DoD laboratory system performs

its function of supporting defense procurement. As

a group, laboratory managers are capable and

experienced and provide much of the corporate

memory for technology base activities. But the

system is vast, complicated, and uneven in performance. The structure of the system as a whole—the

number, types, sizes, orientations, and institutional

connections of the labs—may be restricting their

utility and effectiveness. Moreover, the management

system under which these government owned and

operated facilities are run is rendering it increasingly

difficult for them to function effectively. A long list

of rules impedes their daily operations and makes

them increasingly unable to compete for highly

qualified scientists and engineers. In general, Congress can choose to:

● reform the system itself,

. order DoD to reform it according to congressional guidelines, or

. leave the job to DoD.

Whatever course Congress chooses, it is unlikely

that the correct approach will be either simple or

obvious.

There are three basic approaches to reforming lab

management. The least disruptive would be to alter,

within the current civil service system, the rules

under which they operate. This could include:

. extending the principal features of the NOSC/

China Lake personnel experiment to other labs,

. permitting the labs expedited procurement

procedures for scientific equipment and services, and

. providing multi-year funding.

Alternatively, Congress could decide that R&D is

inherently different from other government activities, and that the labs should be allowed to operate

differently from the rest of DoD. This might include

permitting salaries for scientists and engineers to

rise above current civil service ceilings and allowing

the labs to build and modernize facilities by going

outside the military construction process. The most

radical approach would be to convert some or all of

these facilities to government-owned, contractoroperated (GOCO) facilities, like the Energy Department National Laboratories. Conversion to GOCO

could solve some of these problems, but would be no

panacea.

Congress should also seriously consider altering

the overall structure of the laboratory system. This

could include closing some labs, consolidating

others, shifting the internal make-up and missions of

some, and creating new ones. Corporate research

labs, like the Naval Research Laboratory, might be

established for all the Services; or the in-house

capabilities of many labs could be greatly improved.

In the process, the system should get simpler, not

more complicated. Greater integration of DoD labs

with other government labs—reform of the overall

government lab system—might also be considered.

This could include forming research centers ‘to

spearhead major thrusts into areas of particular

significance for both defense and commercial needs.

These would be drastic steps requiring careful,

detailed study and assessment of the individual labs

before implementation. If done correctly, they could

lead to greatly improved benefits from DoD R&D

expenditures. If done carelessly, they could be

counterproductive. At the heart of the process would

be devising a system for evaluating the performance

of the laboratories and their component parts. This

ought to include the quality of work as well as its

relevance to both identified Service needs and

potential future advances.

Restructuring the lab system may be a necessary response to budget pressures that reduce funds

IRelea~d Nfmch ICJM, repo~ No. (JTA.ISC-3’74. .&ailable from the U.S. Government Printing Office, washin~on, Dc.
12 ● Holding the Edge: Maintaining the Defense Technology Base

available to run them. Significant reductions could

be accommodated by reducing all efforts proportionately, but this would reduce good work as well as

bad. Other approaches are closing the least productive and useful labs or effecting a more extreme

restructuring of the entire system to maximize

performance and utility at a lower overall level of

effort.

ISSUE 4: Reforming Strategic Planning of

Research and Development Programs

Unlike many governments and large corporations,

the Department of Defense does not have a central

headquarters-level system for planning and coordinating its technology base programs. Planning is

carried out by the Services, the defense agencies, and

the Strategic Defense Initiative Organization (SDIO);

coordination among similar projects is done at the

laboratory level. This lack of central focus is

repeated both higher up the chain-at the overall

national level—and within the individual Services.2

This is not necessarily bad, If centralization stifles

unplanned innovation and healthy competition, fails

to support Service needs, or results in decisionmaking by the uninformed, then it is counterproductive.

However, lack of overall planning can lead to

wasteful duplication of efforts, lack of critical mass

to solve common problems, fractionated efforts, and

inattention to areas that are on no component

organization’s agenda. It also risks failing to identify

areas of common or overarching significance. If

there is to be strategic planning and central coordination, it will have to be done by the Office of the

Secretary of Defense (OSD). Congress should decide whether-m many DoD studies have advocated—

OSD ought to be given greater power (or encouraged

to exercise the power the law already gives it) to

plan, coordinate, and oversee technology base programs; or whether Service dominance should be

supported and reinforced. More forcefully, Congress

could order OSD to develop a strategic planning

process to lead to a coordinated, department-wide

technology base investment strategy.

As currently organized, OSD oversees Service

technology base programs at one organizational

level, DARPA at a second, and SDIO only at the

highest level. This inhibits real coordination. Moreover, it leads to the lack of a high-level advocate

within OSD exclusively for technology base programs, lowering the status of technology base

programs within both DoD and Congress.

Strategic planning and program coordination are

different from central management. The former

refers to a strategic OSD planning function providing the ability to orchestrate the entire program.

OSD could perform this planning role from a broad

perspective over all the technology base activities

that the individual Services do not have, but it would

lack the detailed information and insight into the

workings of specific programs necessary to manage

them effectively. Planning and coordinating programs and then letting the extensive Service R&D

organizations manage them is different from aggregating similar programs and managing them from

OSD.

Congress could also define more clearly what its

own role is. It seems unlikely that Congress can

provide direction to the thousands of individual

projects. Congress could actively involve itself in

the strategic planning process or confine its activities to demanding that OSD produce and defend a

strategic R&D plan.

ISSUE 5: Reforming Government Personnel

Practices

Recruiting and retaining qualified scientists and

engineers is a major problem for DoD laboratories.

In the current sellers’ market, government salaries

and benefits for technically trained personnel are not

generally competitive with either industry or universities. Many DoD labs have given up trying to recruit

the best and the brightest. Loosening up the rigid

civil service salary structure is a principal component of ideas to reform lab management, and being

able to pay competitively-above civil service

ceilings—is a major incentive for converting labs to

GOCO status. Federal pay raises, if they are enacted

and applied in any significant way to scientists and

engineers, could substantially help the situation;

alternatively, Congress could consider a separate

pay scale for scientists and engineers more in line

with industry and academia. This may not be a

permanent problem, since the market for scientists

Z’rhe Services seem to exercise more influence over their components than OSD does over tie Services.
Chapter 2-Options for Congress ● 13

and engineers tends to be cyclic. But until such time

as it turns around, defense technology base efforts

are being hurt by a system that cannot adjust to the

market. It is also possible that this time the market

will not turn around, that the current expansion in

high-technology industry-coupled with demographic

trends-will keep the supply short for along time to

come. Congress may also want to consider efforts to

increase the number of students in technical disciplines. Defense efforts are particularly hard hit by

shortages because they mostly require U.S. citizens

and can take little advantage of the large number of

foreign graduate students in U.S. universities.3

Some observers see similar problems in attracting

good managers of acquisition and technology base

programs. People with the requisite skills and

knowledge can command greater salaries in industry, and are reluctant to work for DoD. “Revolving

door” rules are also a disincentive to government

service. Congress may wish to consider reviewing

salary levels. It may also be worthwhile for Congress

to gain deeper insights into the inhibitory effects of

other employment restrictions and reconsider them

in this light.

ISSUE 6: Fostering Greater Coordination

Between Defense and Civil Research and

Development

National defense benefits from a vibrant civilian

technology base. Civilian research provides another

large source of technology that finds its way into

defense systems, and effective civilian R&D underpins a strong economy that provides greater revenues for defense efforts. The ability of the military

to achieve and maintain leading-edge technology

will, in many cases, depend on the health of

corresponding civilian industries. In a very general

sense, economic security is a major component of

national security; the ability of the United States to

compete economically is intertwined with its ability

to compete militarily.

The U.S. defense and civil sectors are not isolated

from each other, but they are far from closely

coupled. Two relatively separate sectors have evolved—

one military and the other commercial. The diffusion

of civilian technology into defense systems is

hampered, as is the availability for commercial

purposes of technology developed in the military

sector. Some of this is unavoidable: security often

demands that some technology be kept under wraps.

But much is the result of government business rules

that erect barriers to commercial companies selling

to DoD and of a weak, high-level technology policy

apparatus.

Other industrialized nations—particularly in

Western Europe and Japan-construct their technology efforts with a greater emphasis on economic

development over military development than does

the United States. They are increasingly demanding

that military technology support commercial development whenever possible. In Japan, almost all technology is developed for commercial purposes, and

some of it is then exploited for military uses. What

is appropriate for these other nations is not necessarily good for the United States, since neither Japan

nor any Western European nation aspires to be a

superpower. However, these are the nations with

which the United States is competing economically.

We maybe able to benefit from making both military

and civilian R&D do double duty.

There are several things Congress could do to

foster greater symbiosis of civil and military technology. Steps could be taken to expand the availability for commercial exploitation of the vast amount of

R&D done in DoD laboratories and under contract

to DoD. Tying the Defense laboratories more closely

to those of other agencies—for example by fostering

exchanges of personnel or forming major research

centers for dual-use technology-could benefit both

military and civilian developments. Both the development of technology and its transition into engineering could be helped by movement of technical

personnel between government and industry.

The acquisition system could be reformed to

make it easier for DoD to do business with innovative companies in the commercial high-technology

industries. Government regulations on profits, data

3The ~ue~tion of ~tentl~ shofifalls in the fut~e supply of Scientists and engin~rs is addres~d in U.S. Congress, Office of Technology Assessment,

Educating Scientists and Engineers: Crude School b Crud School, OTA-SET-377 (Washington, DC: U.S. Government Printing Office, June 1988);

and U.S. Congress, Office of Technology Assessment, Higher Educarion jbr Scientists and Engineer#ackground Puper, OTA-BP-SET-52

(Washington, DC: U.S. Government Printing Office, March 1989).
14 ● Holding the Edge: Maintaining the Defense Technology Base

rights, and accounting procedures all discourage

these companies from seeking defense business.

Congress may find it worthwhile to reconsider

current mechanisms for setting technology policies

at the highest levels of government. In particular, it

may wish to provide for a high-level organization

that would oversee and coordinate major governmentsponsored R&D programs.

ISSUE 7: Dealing With International Trends in

High-Technology Industry

The United States is failing to maintain a competitive commercial base for some technologies that are

important for defense procurement. Long standing

industrial and trade policies may have to be reformed

if the United States is to maintain the industrial

capacity necessary to support essential dual-use

technologies.

Both Congress and DoD have been concerned

about the movement of high-technology industries

offshore. This has spawned several responses, including attempts to legislate that DoD buy almost

exclusively from domestic suppliers. This approach

would probably minimize foreign content in U.S.

defense systems, but it attacks the symptom rather

than the cause. It would have little effect on the

ability of U.S. companies to compete effectively in

the international marketplace-a key to having

healthy, leading-edge companies here for DoD to

buy from.

Having dual-use companies in the United States

and available to DoD requires that they be sufficiently competitive on the world market to stay in

business. Defense business alone is not usually big

enough to keep them afloat. And creating captive

companies that exist only on assured DoD business

will almost certainly guarantee that technology falls

behind the state of the art. Furthermore, cutting

ourselves off from foreign technology will mean

depriving our defense efforts of important technology that is not available here but possibly is

available to the Soviets on the open market.

The United States will have to deal with two

fundamental phenomena. First, high technology is a

worldwide enterprise. The United States no longer

has a monopoly on it. We can change our position

relative to the rest of the world, but it is extremely

unlikely that we will regain the dominant position

the United States once enjoyed. Second, individual

companies and entire industries are becoming internationalized. It is becoming increasingly difficult (if

not impossible) to define what an American company is. Plants in the United States are owned by

foreign nationals or foreign-based corporations. And

U.S. companies open plants in other nations. Moreover, international partnerships lead to foreign

interests in U.S. ventures and partial U.S. ownership

of foreign factories. Protecting U.S. interests and

ensuring U.S. sources of supply are therefore not

simple matters. This is complicated by the measures

that other nations take to protect their companies and

their home markets.

The United States has yet to begin to formulate

a policy to deal with this situation, both with regard

to defense procurement and as it relates to the future

of the U.S. economy as a whole. Congress will be

faced with decisions on how dependent on foreign

sources DoD can be, which high-technology industries must be kept viable in the United States, how to

maintain those industries, and how to protect U.S.

defense needs as companies become internationalized.

Congress will have to formulate policy with regard

to foreign ownership of U.S. plants and foreign

siting of U.S.-owned facilities-or encourage the

Administration to do so.

The solution is almost certain to be found among

the choices that lie between the two extremes of

buying defense components only from U.S.-based

and owned suppliers, and buying solely on the basis

of getting the best deal. The former is likely to be

incompatible with staying on the leading edge of

technology, and the latter may well reduce the U.S.

base of technology and manufacturing to a level that

is insufficient in time of crisis if not in peacetime.

These intermediate choices include buying from:

● U.S.-based foreign-owned companies,

. U.S.-owned companies regardless of location,

and

. nearby sources (i.e., Canada or Mexico) regardless of ownership.

In formulating policy, the Nation will have to

decide how important foreign ownership is and to

what degree domestic siting of development and

manufacture is necessary. That policy will have to

take into account factors such as: international
Chapter 2-Options for Congress ● 15

patterns of trade, manufacturing, and corporate

ownership; the costs and opportunities of maintaining domestic capabilities; existing relations with

other nations; and the effects of policy choices on

foreign relations. It is one thing to be interdependent

with an allied nation, and quite another, as the oil

shocks of the 1970s demonstrated, to be dependent

on just any nation. Every nation ultimately presents

a different case, but the spectrum ranges from

Canada-which is adjacent, a NATO ally, and

defined as part of the North American industrial

base—through our European NATO partners, Japan,

other European trading partners, and ultimately to

nations with which our ties are very uncertain.

The intricacies of formulating policy are illustrated by the problems of trade in defense equipment

with our NATO allies. The United States is pursuing

multinational cooperation and integration of defenserelated development programs through vehicles

such as the Nunn Amendment, both for politicalmilitary reasons and to promote sales for U.S.

defense firms. But these actions will also lead to

greater competition from European defense companies in the United States and abroad. Access to

European technology will be offset by the diffusion

of U.S. technology.

Policy decisions regarding foreign dependence

for defense needs fall into the jurisdictions of DoD

and the Armed Services Committees. But the

broader issue of how the United States should deal

with the international economic situation in order to

achieve these and other goals will involve a much

more diverse cast of players. Congress will have to

decide both how it will approach the problem in a

manageable way, and what restructuring might be

necessary within the executive branch.
Chapter 3

Summary
CONTENTS

MANAGEMENT OF PROGRAMS AND FACILITIES . . . . . . . . .

Department of Defense Technology Base Programs . . . . . . . . . . .

Department of Defense Laboratories . . . . . . . . . . . . . . . . . . . . . . . . .

Other Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

GETTING TECHNOLOGY INTO THE FIELD . . . . . . . . . . . . . . . .

. . . . . . . . . . . .....* 1 9

.... .

. . . . . . .

.... .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

. . . . . . .

● ✎ ✎ ✎ ✎ ✎ ✎ ✎ ✎ ✎ ✎ ✎ ✎

1

. . . . . . . . . . . . . 2

. . . . . . . . . . . . . 26

. . . . . . . . . . . . . 2

...*,.. . . . . . . 2

. . . . . ..... . 3

. . . . . . . . . . . . . 3

. . . . . . . . . . . . . 33

..... ... . 33

Technology Insertion . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Acquisition . . . . . . . . . . . . . . . . . .+ . . . . . . . . . . . . . . . . . . .

Affordability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . .,.,

. . . . . . . . . .

. . . . . . . . . .

DUAL-USE INDUSTRIES .+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Barriers Between Civilian and Military Industry . . . .

International Competitiveness and the Health ofU.S,

Internationalization of Industries . . . . . . . . . . . . . . . . . .

Formulating

. . . . . . . . . .

Industries

. . . . . . . . . .

Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Figure

of Oversight .... . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . .

. . . . . . . . . . . . . . . . .
Chapter 3

Summary

MANAGEMENT OF PROGRAMS

AND FACILITIES

The system used by the Department of Defense

(DoD) to run its technology base programs is

dominated by two major characteristics that are

practically unique among large technology-based

organizations. First, the system is inherently decentralized, with planning and management dominated by

a bottom-up approach. Second, it relies heavily

(although not exclusively) on a large, diverse group

of government owned and operated laboratories

devoted to defense research.

Planning of technology base programs is done

primarily by the Army, Navy, Air Force, DARPA

(Defense Advanced Research Projects Agency) and

the other defense agencies, and SDIO (the Strategic

Defense Initiative Organization).* The Office of the

Secretary of Defense (OSD) primarily serves as a

monitor and data collector, deferring to these component organizations on matters of program direction. OSD collects budget requests and passes them

to Congress; after the funding is approved, the

component organizations run their own programs.

Within OSD there is a hierarchy of oversight that

inhibits rational integration of programs: the Services report atone level, DARPA reports one level up,

and SDIO reports only to the Secretary of Defense.

While not unique in running its programs this way,

DoD follows a minority path. Most organizations

exert much more top-down coordination and control

over planning and management of technology programs.

The labs owned and run by DoD have two general

shortcomings. First, most are not strictly laboratories and lack the multidisciplinary pool of talent

necessary to be effective in developing a broad range

of modem technology. Although they interact, they

are generally independent of each other. Developing

technology is not the only (or even the primary)

mission of most of these labs, but access to that

capability underlies the ability to perform other

missions. Second, the government-owned, governmentoperated (GOGO) management arrangement has

created many problems that impair the ability of the

labs to function effectively. Other organizations

structure their lab systems and lab management

differently.

Worldwide, there are three major trends in the

planning, management, and performance of technology development: top-down planning; centralized

management; and collaboration. Moreover, among

the governments of other industrialized nations there

is a movement away from concentration on defense

research and toward emphasizing civilian research

that can be exploited for both economic and defense

gains, as well as a movement away from government

ownership of laboratories.

Department of Defense

Technology Base Programs

The Department of Defense does not have a

centralized system for strategic planning of technology base programs. It has a federated system in

which the central authority-the Office of the Under

Secretary of Defense for Acquisition-plays an

advisory and coordination role, but either lacks or

fails to exercise the power to make major decisions.

Those decisions are made by the component organizations—the Services, DARPA, and SDIO. The

planning process is both top-down and bottom-up,

but it is clearly dominated by the bottom-up

approach: most real decisions are made within the

component organizations. OSD provides general

guidance and reviews Service programs, but does

not exercise any strong role in molding them.

Attempts by OSD to mold programs (usually to keep

to budget ceilings) are often viewed by the Services

as uninformed, capricious, and arbitrary. This arrangement generally results in OSD not being able

to guide or coordinate the technology base programs. However, OSD has in the past provided

IIn fiscat yew 1989 fie three Services together will spend 40,2% of the technology base funding (6.1 PIUS 6,2 phIS 6.3A). SDIO will spend 39.370;

DARPA will get 13.8%; and the remaining 6.7% will be spent by the other defense agencies—the Defense Nuclear Agency, the Defense Communication

Agency, the Defense Mapping Agency, the Defense Intelligence Agency, tie Defense Lmgistics Agency, and the National Security Agency. Among the

agencies, DARPA occupies a special place because of its role as a source of R&D to complement Service programs. Efforts of the other agencies tend

to be more specialized.

–19–
20 . Holding the Edge: Maintaining the Defense Technology Base

leadership for some special cross-Service programs,

such as VHSIC, MMIC, SEI, and STARS.*

This system is not necessarily bad, but it seems

to be ineffective in producing a coherent technology

base program. Those who believe OSD ought to

provide strong leadership find the current system

disappointing. To those who believe that OSD ought

not to be controlling technology planning, it is the

proper approach, even if OSD occasionally weighs

in too heavily and disrupts programs. They believe

that the users of technology—the Services-ought

to plan and control its development, that giving too

much power to OSD risks losing Service support for

technology base programs, and that the Services are

better able than OSD staff to preserve technology

base funding.

Central planning and central management are two

separate but related issues. Without top-down planning a program lacks, as DoD’s currently does, a

broad consistency of purpose and coordination to

ensure that important areas are not left unaddressed,

and that healthy competition among competing

developments does not become wasteful duplication. Central management can help ensure that the

results of central planning are carried out, but it can

also result in control of programs by those least able

to understand them.

Organizationally, the problems arise from two

sources. First, OSD lacks either the ability or the will

to exercise power over the Services. And second,

there is no one individual or office that serves as a

focal point and coordination center for the technology base programs of all the component organizations. This results in diffusing the power to plan and

coordinate, and precludes establishing a high-level

advocate for technology base programs who is free

of competing interests. The Goldwater-Nichols reorganization changed the players and their titles, but

did not correct these basic problems.

Within OSD, all technology base programs with

the exception of SDI are the responsibility of the

Undersecretary of Defense for Acquisition. This is

shown schematically in figure 1. But the technology

base is only one small part of what he is responsible

for—he also oversees the rest of research, development, test, and evaluation (RDT&E) as well as all of

procurement. DARPA reports directly to the Director of Defense Research and Engineering (DDR&E)

for oversight, but oversight for the Army, Navy, and

Air Force programs rests one level farther down the

chain with the Deputy DDR&E for Research and

Advanced Technology. The DDDR&E(R&AT) is

the highest ranking official with responsibility only

for technology base programs, but he only has

responsibility for less than half the technology base.

Thus, the Service programs are coordinated at the

DDDR&E(R&AT) level, but they are coordinated

with DARPA’s program one level higher up the

chain, and balanced with SDI only at the highest

level. This produces a hierarchy of influence among

these component organizations and a mismatch that

makes it difficult to balance their demands.3 Moreover, no one with the power to oversee the entire

technology base program can be an advocate for it

unencumbered by other, possibly conflicting, responsibilities.

Overall goals for technology base programs are

supposed to be specified in the annual Defense

Guidance document. But in reality, the Defense

Guidance devotes little space to the technology base,

providing only very general guidance that can be

used to justify just about anything the Services,

DARPA, and SDIO want to do. The result is that

these component organizations plan more or less

independently, based on internally generated criteria, and link their plans to the general language of the

Defense Guidance. The OSD review of Service

plans is predominantly a data-gathering exercise

with little real power exerted from OSD. And real

coordination is hampered because DARPA and

SDIO programs (which together account for over

half of the funding) are considered only at higher

levels. Thus the Services and agencies dominate the

planning process.4

2vew High Speed Integrated Circuits; Monoli~ic Microwave Integrated Circuits; Software Engineering Institute; Software Wchnology for

Adaptable, Reliable Systems.

3M~ufacturing techn~]ogy Progms, vi~ to ensuring producibility of items, are accorded a generally lower level of oversight ~d advocacy ~an

product technology programs.

4’Top level Plming is typic~ly not doneWitiin the services either; ideas come up from lower levels. However, in recent years the Services have b~n

conducting high level studies of their future technology needs: Air Force Forecast 11; Navy 21; and Strategic lkchnology for the Army. The Air Force

had been planning some of its technology base program around the results of Forecast 11.
Chapter Summary ● 2 1

Figure 1—A Hierarchy of Oversight

Off Ice of Tech no I o g y

t h e Bas e

Secretary of Defens e Pro grams

Secret a r y St r ate g i c

Defens e

Defens e Initiativ e

Organizatio n

. . .

Director , Defens e

Defense Research Advanced Researc h

and Engineerin g

Projects Agenc y

Deputy Director,

Defense Researc h

and Engineerin g

f or

Research an d

Advanced Tech no I o g y

SOURCE: Office of Technology Assessment, 1989.

Arm y Nav y Air Force

It is not the case that the Services do not talk to

each other or to DARPA or SDIO. There is

considerable coordination among projects having

similar technical foci, but this occurs at the project

level and not at the overall program level. There is

much technical interchange but little programmatic

coordination. OSD could exert strong influence at

this level through its technology reviews, but it only

conducts a few such reviews each year.

Because no single individual or office has

responsibility for all technology base activities

and only for the technology base, it is difficult to

have a strong and consistent advocate for technology base both within the DoD bureaucracy

and in relations with Congress and the Office of

Management and Budget (OMB). (This problem is

mirrored within the Services with similar results.)

Nevertheless, OSD personnel spend a large part of

their time defending technology base programs or

answering congressional mail, leaving little time

available to evaluate technology base programs. It is

not surprising, therefore, that OSD and the Services

do not have a systematic DoD-wide approach to

evaluating technology base activities. Evaluating

last year’s programs is a key to planning next year’s.

If OSD personnel do not have the time to evaluate

last year’s programs, they lack a solid basis on which

to judge Service plans for next year.

The structure of the bureaucracy is not the only

contributor. The relationships among institutions

within DoD also play a major role. The Services and

DARPA have traditionally had the upper hand with

OSD. SDIO was designed to be able to proceed

without interference from OSD or the Services.

Typically, this sort of “pecking order” will persist

in the absence of positive actions to change it.

Personnel is another factor. Although OTA has

encountered OSD staff who are competent, dedicated, and overworked, there is a consensus among

experts that, like the labs, OSD suffers from

restrictions that limit its ability to get and keep the

best people. While experts are divided as to how to
22 ● Holding the Edge: Maintaining the Defense Technology Base

solve the problem, most agree that paying more and

decreasing career restrictions would help. Some

believe that the problems would be best solved by

vesting power in a professional staff with long

tenure, removing it from the hands of political

appointees and other “short timers. ” Others think

that only a constant infusion of “new blood” will

help: rearranging the system so that very capable

managers could take such jobs for a fixed term (e.g.,

4 years) and then return to industry.

Department of Defense Laboratories

Reports on the shortcomings of DoD laboratories

go back at least 30 years. The mind-numbing array

of specific issues that these earlier reports have

raised can be captured by two fundamental questions:

. Does the DoD have the type and quality of

laboratories it needs?

. Are the management arrangements under which

these laboratories are run inhibiting their ability

to perform as needed?

Type and Quality of Laboratories

To be precise, DoD has no laboratories. The

Army, Navy, and Air Force departments own and

operate a large number of research, development,

and engineering (RD&E) centers, none of which are

laboratories in the pure sense, i.e., institutions solely

for conducting research. These centers perform a

variety of functions ranging from research through

full-scale development to occasional limited-scale

manufacture of military equipment items. The mix

of activities varies from center to center, with

some—such as the Naval Research Laboratory and

the Army’s Harry Diamond Laboratory-being

more heavily oriented toward research than others.

As a shorthand, the term “defense laboratories” is

used to refer to these government owned and

operated RD&E centers.5

The structures of the defense laboratories-how

big they are, what kind of work they do, etc.—have

evolved historically, based in part on the different

procurement systems of the three Services and the

roles each has seen for its laboratories. These

structures are quite different among the labs. However, the management arrangements and modes of

operation—which are similar across all of them—

are a consequence primarily of law and also of DoD

and Service regulations.

Comparing the defense laboratories to other

government R&D institutions is difficult because

DoD’s role as a large purchasing agency makes it

almost unique within the government. NASA is

perhaps the closest analog because it too purchases

products of technology, but it also builds things and

conducts research and space exploration. The national laboratories that support the Department of

Energy (DOE) build nuclear weapons and pursue a

broad base of research for the furtherance of science.

Industry, which also runs laboratories, ultimately

builds things.

Comparing DoD labs among themselves is also

difficult because no two are really alike. They differ

in three distinct dimensions: the subject areas they

focus on; the mix among categories of work (6.1,

6.2, etc.); and the weighting of their missions among

a number of basic tasks. In addition to conducting

research and development, these tasks include:

●

●

●

●

●

●

buying R&D from contractors and monitoring

the contracts;

advising program offices on responding to

proposals from industry to do development and

production work (i.e., acting as “smart buyers”

of technology);

providing a base of technical expertise and

know-how that can be drawn upon to solve

problems as they arise or to follow new areas of

technology;

training young officers in science and engineering;

solving technology-based problems (or equipmentbased problems) encountered by field commands; and

designing and producing very small numbers of

special purpose items ‘needed by field commands.

They also differ in size, source of funding, and the

orientations and “cultures” of the organizations

they primarily work for.

5DOD is ~so supported by con~actor owned and operated laboratories such as the John Hopkins University Applied Physics Lab d the MIT Lincoln

Lab, and by national laboratories operated by contractors for DOE. For more information on the institutions that support the defense technology base

see: The Defense Technology Base: Inrmduction and Overview, OTA-ISC-374 (Washington, DC: U.S. Government Printing Office, March 1988).
Chapter 3-Summary ● 23

All of these differences make objective evaluations and comparative ratings of these institutions

very difficult to perform. Most evaluations and

comparisons appear to be subjective ones, even

when performed by highly qualified individuals. For

example, Service labs are frequently criticized for

not doing top-flight science, especially when compared to national laboratories or major university

laboratories; but performing scientific research is

not the major mission of these facilities.

Nevertheless, there is a common thread among all

the tasks the labs perform: they all require the

laboratory to be a center of technical expertise. Most

don’t require the staff to be conducting research and

contributing to the advancement of science or

technology, but all benefit from a staff that has

hands-on expertise: a staff member who is contributing to the leading edge is closer to it than one who

is simply reading about it, and is more likely to get

a seat at the table when the real experts meet.

There are three basic approaches to providing the

research core of an R&D facility. The first is to build

a large, diverse, multiprogram laboratory with a staff

that does research in a broad range of disciplines.

The DOE national laboratories fit this description, as

do the corporate research centers of several very

large corporations such as IBM, AT&T, and General

Motors. These labs push forward the frontiers,

provide a large pool of talent that can be directed and

redirected to solve problems or follow new areas of

technology, and provide a base of knowledge from

which other labs can draw for more narrow applications. Staffs typically number well over 1,000 and

are heavily weighted toward advanced degrees. The

Naval Research Lab is the only DoD lab that fits this

mold.

A second approach is to build labs with staffs of

a few hundred that concentrate their efforts in one or

a few areas. Several Army laboratories-Night

Vision, Harry Diamond, Electronic Technology &

Devices, etc.—are structured this way. These facilities can have programs that are at least as good as

those of the multiprogram laboratories in a few

selected areas. However, this focus is bought at the

cost of loss of breadth and flexibility to respond to

a broad range of problems. Moreover, as modem

technology becomes more complex, even a single

area of concentration can rest on a broad base of

underlying disciplines. Size can constrain these

laboratories from effectively pursuing their few

areas of concentration and from shifting their focus.

This problem of lack of critical mass is even more

pronounced in the third type, the model followed by

most Defense labs: a medium to large RD&E center

with small cells of expertise embedded in it. These

labs do not have in-house research as a focus, but as

a supporting function. Hence the cells of expertise,

however skillful and productive, tend to be narrow

and thin: in some cases the departure of one or two

key individuals could destroy that expertise.

In detail, the Army, Navy, and Air Force run their

RD&E centers differently. But in general they all

function the same way: technology generated inhouse, in other Service labs, externally under

contract, and any other place the staff has access to,

is assimilated with the aim of transitioning it into the

procurement system. The accumulated base of

knowledge is used to advise the procurement officers regarding the technical qualities of various

proposals to develop and build systems.

The central question is whether this system

has been, and is really capable of, delivering the

goods. Does the technology transit into and out of

RD&E centers, and are the staffs up to the job? This

is a very complex question requiring an intensive

investigation, but it is absolutely key.

If the answer is “yes,” Congress ought to stop

worrying about the labs and let them get on with

their work. Steps might be taken to make their jobs

easier by easing management burdens. However,

even if the labs are judged to be doing a good job,

budget constraints may make it necessary to consider restructuring.

If the answer is “no,” there area number of steps

that might be taken to fix things. These range from

taking steps to ease management problems (which

will be discussed below) to drastic reorganization of

the entire system. Some involve centralizing, consolidating, closing, and moving institutions. However, such steps have far-reaching consequences

and can be nearly irreversible. They ought to be

taken only after much deliberation. One approach

would have each RD&E center include or be closely

associated with a large multipurpose laboratory, the

small cells of expertise being replaced by a large,

diverse pool of technical talent. Clearly, doing so for

95-677 - 89 - 2
24 ● Holding the Edge: Maintaining the Defense Technology Base

each RD&E center would be prohibitively expensive. An alternative approach would be to provide

each Service, or DoD as a whole, with a central

corporate lab and tie the RD&E centers closely to it.

The Naval Research Lab might be a model. Smaller

labs of more limited scope are a second choice, but

because they are inherently less flexible than multiprogram labs, arrangements would have to be made

either to shift their focus or close them down as the

areas of technological interest shift. As an alternative to building up the research bases within the

Services, greater use might be made of DOE national

labs as technology bases for the Services. Consolidating facilities either within each Service or across

Service lines under OSD could offset the cost of

expanding the underlying labs. But this runs the risk

of cutting the links of the RD&E centers to their

parent buying commands and further restricting the

transition of technology into the procurement system. Unless handled carefully, it could also sever the

very important links of the labs to the field commands.

Management Structure of Laboratories

The problems that plague the Services’ governmentowned, government-operated laboratories (GOGOs)

and the causes thereof have been extensively documented. They are inherent in the laws and regulations that govern the operations of these labs. While

these laws and regulations have not changed greatly

over decades, the trend within the last few years has

been for their application to become more onerous,

making the government labs less attractive places to

work at a time when the market for technical talent

has become much more competitive.

The difficulties fall into three related categories:

problems in recruitment and retention; difficulties in

conducting the day-to-day business transactions

necessary to get the work done; and long delays in

updating buildings and major equipment. The latter

two are problems in their own right as well as

contributors to personnel difficulties. Effective management is also impeded by funding that is often

unpredictable and fluctuates from year to year.

Even premier laboratories, like the Naval Research Lab, are having difficulty attracting the best

and the brightest. Many of the RD&E centers have

all but given up trying: they now recruit from a small

circle of mostly local schools and hope to “grow”

their own in-house expertise. OTA’s observations

support the points made in earlier studies:

. most of the labs have difficulty hiring and

retaining highly qualified personnel;

. the government is at a major disadvantage in

competing with industry and academia; and

● the system makes it difficult to reward good

performers, penalize the poor performers, or tie

salary closely to performance.

The “NOSC/China Lake Experiment,” in which

the Navy loosened the salary structure for scientists

and engineers at the Naval Ocean Systems Center

and the Naval Weapons Center at China Lake,

helped with recruiting and retention in the entry and

midlevels. Similar novel approaches including salary structure and educational opportunities are under

consideration by the Services. But since these do not

raise the ceiling on salaries; they do little to solve the

problem of attracting and retaining key senior

people. Losing senior researchers is a double liability: exceptional senior people do exceptional work,

and they also attract younger people, many of whom

will accept otherwise less attractive work conditions

in order to work with someone special.

Interesting work helps to attract and retain

people. Good people stay if the work is challenging,

if discretionary funding is available to allow them to

“follow their noses,” and if they have an opportunity to pursue a technical career without being

sidetracked into management. But increasingly,

technical people in Service labs can only get ahead

if they become managers, and in those management

jobs they spend an increasing amount of their time

in administrative tasks and insulating their benchlevel people from bureaucratic “paperwork” imposed from above.

At most DoD labs the Tehnical Director has

little or no control over the most important support

elements of his organization—the personnel office,

the general counsel, the procurement office, etc., all

of which report to parent commands. And construction of new facilities is handled out of military

construction (MILCON) accounts for which the labs

usually fight a difficult, and often losing, competition with a long list of other claimants. This results

in obsolete facilities.
Chapter 3--Summary • 25

The Defense Science Board has recommended

changing the laws and regulations that are causing

the problems, loosening up the system to enable the

Defense labs to compete more effectively. While

this might be helpful, it would require a long list of

changes in both legislation and government regulations. This involved agenda could be very difficult

to complete. However, a congressional decision to

treat the laboratories differently from other government offices might facilitate the changes.

An alternative would be to convert the labs to

government-owned, contractor-operated (GOCO),

or even to contractor owned and operated (COCO)

facilities. This would seem an easy way out of the

morass of government red tape. GOCOs do have

greater management flexibility in personnel management, but the evidence for greater flexibility is

ambiguous in areas other than personnel. GOCOs

can pay higher salaries, can hire and fire more easily,

and have much greater flexibility in rewarding good

work and shifting personnel. They also display

greater flexibility in shifting the focus of their work,

and have some advantages-although not so dramatic—

over GOGOs in their ability to purchase equipment

and facilities.

DOE GOCOs appear to show a greater aggressiveness in seeking out and developing technology.

And, at least in the design and manufacture of

nuclear weapons, transition of technology into

applications is more direct than it typically is in

DoD. But this is not necessarily a consequence of

their being GOCOs. Size, fill-spectrum stance, and

research-oriented culture are all contributors. So is

the relationship that has evolved between DOE and

its labs: the missions of the labs have been construed

in a very broad way, facilitating changes in program

directions as technology evolves.

While there are some real advantages to converting to contractor operation, there are some important

offsetting factors. No government-funded institution

can escape oversight merely by converting to

contractor operation. Funds derive from congressional appropriations, and Congress holds senior

officials of sponsoring agencies accountable for

their use. Thus, the tendency is for the government

to impose on its contractor laboratories many of the

same rules and regulations it lives under. Consequently, with time GOCO labs tend to become more

like government-operated laboratories. Government

rules under which the sponsoring agencies operate

tend to be passed down to the contractors, so the

GOCOs are not free of the majority of government

impediments. Government policy appears to be that

even though government regulations do not apply to

GOCOs, GOCO practices ought to be consistent

with them. OTA found that the perception of “red

tape” and the burden of bureaucratic paperwork

reaching down almost to the bench level was no

different at GOGOs, GOCOs, and COCOS.

Although there have been many studies of

government labs since the 1962 Bell Report, none

have questioned its finding that there are “certain

functions which should under no circumstances be

contracted out. The management and control of the

Federal research and development effort must be

firmly in the hands of full-time government officials

clearly responsible to the President and Congress."6

There are some functions that are inherently governmental: passing them off to contractors would raise

major questions. For example, being a smart buyer

and advising a program office on the technical merits

of proposals is probably not a responsibility that

ought ultimately to be entrusted to a contractor,

although today contractors are part of that process.

One advantage of government labs—and a major

function—is that they can respond immediately to

problems that emerge in the field. Staff can be

ordered to stop whatever they are doing and turn

their attention to the problem at hand. This would be

more difficult for contractors to do, unless the

contract had been carefully crafted to allow for the

contingency. 7 At several contractor operated facilities OTA was told that response times would have to

be measured in months, if not years.

While all DoD labs could benefit from fewer

restrictions, not all are equal candidates for conversion to GOCO status. Those that conduct in-house

R&D would be better candidates than those that

function primarily as “smart buyers.” Similarly,

those that cannot solve their management problems

6Report t. the President on Govermnt co~ractingfor Research and Development, reprinted in W.R. Nelson (cd.). The politics ofsclence (New’

York, NY: Oxford University Press, 1968), p. 200.

TFor ex~ple, level of effort support COntrXtS.
26 ● Holding the Edge: Maintaining the Defense Technology Base

within the government system would be more likely

candidates for conversion than those whose managers believe they can.

Other Approaches

After examining a number of approaches used by

other organizations to manage technology programs,

some basic themes emerge that may be applicable to

DoD management of its technology base programs

and laboratories. First, in most governments and

companies, R&D policy is approved at the upper

levels of management and promulgated throughout

the organization. Second, centralized control over

research projects is the rule. It is supported by

frequent reviews and combined with a readiness to

cut losses when projects do not pan out and to buy

technology outside the organization if that appears

to be a more economic approach. Third, both public

and private organizations are moving toward collaboration as a means of affording research of the

magnitude dictated by modem technology. Finally,

on a broader note, the Europeans appear to be

moving toward the Japanese point of view that

technology efforts ought to be focused on enhancing

the economy: a strong high-tech economy will

produce both more money available for defense and

‘‘spin-on” of technology for defense purposes.

For at least two decades the Europeans have been

worried about their economic positions, particularly

relative to the United States. But the emergence of

Japan and other Asian nations as economic powers

has greatly intensified their concerns. This has

spurred efforts to integrate the European Community (EC), notably the movement to a “single

Europe” in 1992. Moreover, as their fears of

economic problems have increased, their anxiety

over Soviet military power has receded. Hence the

mood is to reduce the drain on the economy of

defense oriented R&D, while increasing substantially research oriented toward civilian products.

The Europeans are looking for ways to make defense

R&D support civil production; defense labs are

increasingly viewed as national assets that can be

used to help make civilian industries productive.

The trend appears to be to do research and exploratory development (the equivalent of 6.1 and 6.2)

predominantly in civilian-oriented labs. Only in the

advanced development stage would the work take on

a more military-oriented cast. The prevailing philosophy appears to be that science and technology

policy should be integrated whenever possible with

economic and industrial policies. In this regard, the

Europeans are moving away from the U.S. model

and toward the Japanese model.

It is tempting to take the attitude that if our system

has significant shortcomings we ought to adopt

someone else’s. But this approach is fraught with

peril. While there are important lessons to be

learned-and these general themes appear to be

worth considering-it is not necessarily true that

DoD can simply adopt some other system as its own.

All organizations are different, and they do not all

see themselves as solving the same problems.

Management approaches tend to be rooted in corporate ‘‘culture” at least as much as they are the result

of dispassionate analysis. It is somewhat dangerous

to adopt the attitude that what works for some other

organization ought to work for DoD, For example,

the sheer scope and size of DoD’s technology base

activities dwarfs nearly every other organization

examined, and might even rival the aggregate of

them. Furthermore, it is not clear that other organizations are significantly more successful than DoD is

in developing and nurturing technology and using it

to good effect. The success story everyone immediately turns to is Japan. But Americans are not, and

do not behave like, Japanese. And the Japanese seek

to use technology somewhat differently than does

DoD.

Planning and Priorities

In contrast to DoD, in which a laissez-faire

approach and “bottom-up” planning predominates,

most Western European governments set national

civil and military R&D objectives from the top.

Working through central committees or advisory

panels, cabinet-level officials set priorities and

ensure that the goals are translated into specific

programs in either government or private laboratories. The technical experts are usually left free to

determine the composition of the specific programs,

but they must be able to justify program relevance to

higher authorities. In addition, the European Community is exerting an increasing top-down influence

on the member nations’ research programs. Exploiting allies’ work and avoiding duplication of effort is

a growing theme. The Japanese approach is perhaps

less formal, emphasizing government/industry con-
Chapter 3-Summary ● 27

sensus building and the role of industry, but ultimately major decisions are made by a central body.

Industry generally follows a somewhat similar

centralized approach. Major corporations typically

have central procedures for establishing business

objectives, including identifying the key technologies that are expected to contribute. Once these

selections are made, the component companies are

free to decide how to pursue them. But corporate

oversight typically remains continuous and close.

There has been strong criticism that U.S. defense

R&D focuses too much on the near term, both in

government and in the private sector. European

companies are even more likely than U.S. companies

to spend their R&D money for near-term applications. This trend has become more pronounced

recently in both Europe and the United States as

technology base expenditures have declined as a

proportion of defense spending. In contrast, however, budgets for long-term research-particularly

civil research-are increasing for many European

countries and for the EC. This is tied to a perceived

linkage between R&D, economic competitiveness,

and prosperity. Governments are seeking to improve

their industries’ competitive positions by making

civil research the driver and blurring the distinction

between civil and military R&D. The Europeans’

short-term focus and declining funding in defense

research appears to be offset by a longer term focus

and more generous funding for civil research. In

Japan, the government role is greatest in long-term

developments for which the risks are high and the

payoffs not evident.

Growing fear of Japanese and U.S. industrial

competition has fostered European interest in largescale, centrally directed technological initiatives.

These have been largely multinational in nature,

such as ESPRIT, EUREKA, RACE, and BRITE,8

although there have been single nation programs

such as the U.K. Alvey program. These are modeled,

in part, after a succession of U.S. initiatives—

beginning with the Manhattan project—that, while

not always successful, propelled technology forward. Large collaborative efforts are also employed

by the Japanese, but their efforts tend to have more

industry funding and less government money.

A similar approach currently in favor in Europe

and to an increasing extent within U.S. industry is to

employ special research teams, or “centers of

excellence,” often in collaboration with universities

or potential competitors. These groups concentrate

on technologies where a large critical mass of

personnel and other resources, or interdisciplinary

research, is considered essential. U.S. examples are

SEMATECH, the Electric Power Research Institute,

Semiconductor Research Cooperative, and the Microelectronics and Computer Technology Corp.

Management and Control

European governments not only plan their R&D

programs centrally, they also manage the execution

of those programs centrally. Large companies also

tend to keep tight central control. In both cases, the

trend is also toward centralized control of laboratories in an attempt to establish the optimum balance

between generic research and product-oriented (or

mission-oriented) research.

DoD’s laboratory system is basically missionoriented, with most laboratories dedicated to specific warfare specialties. Mission focus provides a

closer link between technology and military applications, but it also encourages duplication in facilities,

resources, and projects. European labs and programs

are increasingly organized along technology, not

mission lines. In France, Germany, and the United

Kingdom the defense research activites are planned,

organized, and managed by central authorities independent of service requirements and development

activities. Centrally managed civil research programs are generally oriented around generic technologies. Similarly, EC programs are directed toward enabling technologies, with applications left to

industry.

DoD’s extensive network of government owned

and operated laboratories is unique among Western

defense establishments. With the exception of the

United Kingdom, European governments own few,

if any defense labs, and the British are in the midst

of drastically consolidating their laboratory system.

However, there are many more European governmentowned and government-sponsored laboratories doing

civil research.

8EWoWm Strategic ~o~m for Re~mch in Information Technology (ESPRIT); European Research Coordinating Agency (EUREKA); Research

and Development in Advanced Communications for Europe (RACE); Basic Research into Industry Tmhnology for Europe (BRITE).
28 . Holding the Edge: Maintaining the Defense Technology Base

Industry is generally moving in two directions.

Most R&D is being moved out to the component

companies. Some corporate research centers are

being pruned back or even closed. As money gets

tight, it is easy to view corporate research centers as

expensive luxuries-’’money Sinks ’’-racier than

as investments. But at the same time corporations are

establishing corporate level centers of excellence in

key technologies (or forming collaborative efforts in

them). Technology is transferred to the product

divisions, at least in part, by assigning personnel

from the product divisions to temporary jobs in the

central facilities and then moving them back to use

and disseminate the technology they studied and

helped develop. Industry is also moving in the

direction of collaborative research, sharing the

escalating costs of modem technology. This research is of necessity technology oriented, not

mission oriented.

Collaboration, Coordination, and

Technology Transfer

Collaboration in research is now a way of life.

High costs and worldwide competitive pressures are

forcing governments and industries to pool their

resources. Collaborative projects play a central role

in Japanese R&D. European governments and industries explored cooperative research in the 1970s

and early 1980s, but in the mid 1980s growing

concern that they were falling behind the United

States and Japan led to a series of serious collaborative measures. Moreover, the European members of

NATO, after more than 20 years of ad hoc collaboration on defense and other aerospace projects, are

now working on establishing a coherent, systematic

program of collaboration, Breaking down the longstanding barriers that have isolated European companies from each other and fragmented markets is an

explicit objective of recent high-technology collaborative initiatives. In addition, European companies

see that they each have to draw on a broader base of

technology than was necessary in the past. Recognition that Germany’s strong position in world trade is

due, at least in part, to a collegial, collaborative

relationship between industry, academia, and government also helped spur interest in collaboration.

U.S. companies are not only engaging in collaborative programs at home, they are also joining with

European (and Japanese) companies in various

ventures.

Applications: Transitioning Technology

From Lab to Products

DoD has been criticized both for leaving technology in the lab too long, resulting in obsolete

weapons, and for rushing it prematurely into production—which creates unreliable products. Neither

allegation is without foundation. Technology transition is one of the most difficult problems of

development. European governments and industries

appear to be no better at technology transition than

DoD is. Japan appears to have a unique success at

transitioning technology rapidly and effectively

from the lab into production. The Europeans appear

to be studying and beginning to apply the Japanese

experience. Teams of researchers, designers, engineers, manufacturing specialists, and even marketers

are being brought together early in the life of a

product in order to perform in parallel what usually

gets done sequentially. The parallel development of

process (manufacturing) technology and product

technology is considered a particularly important

factor.

Examples of the close relationship that is essential

between research staff and those who develop

specifications exist in all successful companies; but

in large and diverse government organizations the

liaison and communication that is required may be

jeopardized by interdepartmental rivalries and parochialism which only strong management and direction can dispel. In DoD, requirements for new

systems are set by the Service buying commands,

and development is done by industry. These are

obliged by law to stay at arms length; the government labs provide the primary link between them—

and the labs are not always successful.

GETTING TECHNOLOGY

INTO THE FIELD

Government officials and others have expressed

concern and frustration over the age of technology in

fielded U.S. systems, particularly those just beginning to roll off assembly lines. Comparisons usually

take two forms. First, government and industry

researchers have laboratory developments that are

clearly superior to what is going into the field.
Chapter .3-Summary ● 29

Second, dual-use technology in defense systems

often lags significantly behind what is available in

the consumer markets, and by the time a system has

been in the field for 5 to 10 years it can seem

outdated compared to what Ford or Radio Shack is

selling.

Technology in production will always lag behind

technology in the lab. Taking developments off the

bench, engineering them into real systems, and

getting those systems into production is a timeconsuming process for military and civilian manufacturers, as well as for movie producers, think

tanks, book publishers, and many other enterprises.

Indeed, very little legislation moves instantaneously

from brain storm to law. Major military systems are

generally much more complicated than civilian

products, and hence the product cycles are much

longer.9 In addition, the process of getting approval

to begin a military project is generally considerably

longer than the equivalent process in the consumer

sector. Furthermore, military systems have long

lives, and dealing with frequent updates is a logistical nightmare, so it is not surprising that changes

occur much less frequently than the typical yearly

changes in consumer products. It appears to make

sense to change the current model Toyota because of

a relatively small change in engine technology.

(Indeed, it helps sales to tell consumers that this

year’s model is “all new” and “innovative,” and

technology is often changed just to enhance marketing.) But it makes absolutely no sense to rebuild the

entire fleet of tanks every year to take similar

changes into account. The problems of maintaining

different equipment types in the field mean that

decisions to update part of the total inventory, while

often made, are not taken lightly. Finally, DoD is not

in the business of developing and fielding technology for technology’s sake; its job is to get better

capabilities into the field in a reasonable time at a

reasonable cost. Up to a point, it is not unreasonable

to argue that new technology ought to buy its way

onto a system.

Military-specific technology is usually the pacing

technology for entire systems, determining the

schedule for getting the system into the field and

controlling the rate at which the dual-use technologies in the system get fielded. The entire acquisition

system is geared to the pace set by these military

technologies. It is often the case that after a system

design is frozen, the commercial counterparts of

technology embedded in it continue to move forward, sometimes dramatically, resulting in several

generations of products before the military system is

produced. This produces military systems that are

not as advanced as some commercial products; but

if responding to rapid changes in dual-use technology were to prevent freezing the design of a system

long enough to get it into production, none of the

technology would ever get produced.

Thus, while it can be misleading to compare

fielded military technology to laboratory technology

or selected consumer technology, it is important to

ask whether new technology can get more quickly

and more effectively into the field. (It is also

legitimate to ask why the military cannot have the

same products—like radios, CRT displays, trucks,

and clothing—that consumers can go out and buy.)

The problem of getting new technology into the

field is not that the United States is unable to develop

new technologies with military relevance. It is rather

a problem of the transition of that technology into

engineering, the time needed to begin manufacture,

and the rate at which new systems are built. It can be

improved in three general areas: improving the

insertion of new technology into acquisition programs (i.e., the transition from technology base to

engineering and production); improving the acquisition process that engineers and produces systems;

and improving the affordability of systems so that

they can be bought more rapidly.

Technology Insertion

The technology development and system acquisition processes are largely (but certainly not completely) separate. Technology base work takes place

in a variety of institutions, including some companies that ultimately build systems. Engineering and

production are done in private companies (not

always the same ones that did the technology base

work) under the supervision of DoD program

managers. This causes a major bottleneck at the

point at which technology moves from technology

base to acquisition. Several mechanisms exist to

bridge this gap: general technical interchanges

gIn commerci~ products, complexity is usually the enemy, something to be managed caefully.

.
30 ● Holding the Edge: Maintaining the Defense Technology Base

between Service lab people and industry; IR&D and

contract research that involve some companies in a

development; involvement of lab people with the

program offices (part of the “smart buyer role”);

and formalized Service transition programs.

Many studies of the transition issue seem to agree

that nonsystem-specific prototyping, pursued with

6.3A funds, presents the greatest opportunity to

improve technology insertion. It has the potential to

solve two problems. By demonstrating feasibility,

these advanced technology demonstrations help

reduce the high risk carried by some technical

developments. And they help correct overoptimism

by demonstrating the limitations in the current state

of the art. Overoptimism leads to promising too

much, which in turn leads to disappointing systems

and to lengthy and costly redesign efforts. The new

emphasis within DARPA on prototyping is apparently an attempt to ease the transition into system

design of technology developed under DARPA

programs. DARPA has always been the focus of

technology that does not fit neatly into what the

Services want to do. However, if the Services do not

take DARPA seriously, it is not at all clear that

DARPA’s prototyping effort will have any use.

Acquisition

In searching for the causes of delays, the acquisition process has been the primary candidate, Even

when the system is working smoothly it seems to

take a long time to move programs through; but it

usually is not working smoothly. And when it bogs

down, delays lead to further delays through escalating costs, compensatory stretch outs, and timeconsuming attempts to fix any particular program’s

specific problems. While the consensus is that the

system is in trouble, it has weathered study after

study without apparent improvement,

Several studies have found that acquisition (advanced development, full-scale development, and

production) takes longer than it used to. But the data

are not all that clear: there is certainly no obvious

trend toward rapidly increasing times. It does take

longer in the 1980s than it did in the 1950s or 1960s,

but there is not enough data to discern clear trends

over the past decade. Studies of fighter aircraft

procurement, the most-studied system type, conclude that whatever increases have occurred are in

the front-end decision process and in production, not

in full-scale engineering development. Data on other

systems are less conclusive.

It is generally held that commercial industry

completes programs more rapidly than does DoD,

but there are significant differences between government and industry that make it possible for industry

to avoid many of the basic problems that plague

DoD acquisition. These basic problems are “built

into the system,” they are consequences of the

characteristics of U.S. Government. For example,

canceling a program that has grown too much in cost

or schedule to be profitable is easier than canceling

one that, despite schedule slippages and cost overruns, is judged essential for national security.

But enhancing national security is not the

Nation’s only goal. Goals like fairness, environmental protection, equal opportunity, jobs, and

competition all figure into how both Congress and

the Administration judge defense procurement programs. DoD itself has goals it must pursue in

addition to managing programs efficiently: maintaining the defense industrial base, ensuring that the

most efficient producer does not drive the others out

of business (contrary to what industry would do),

etc. Government is not solely concerned that a

program provide the best capability at the lowest

cost most quickly. Moreover, the political process in

both branches of government-the tug and pull over

resources and goals-introduces uncertainty into

programs, even when Congress and high-level

executive offices do not micromanage programs.

The structure of the DoD acquisition system is

much more cumbersome than that of private sector

companies. That structure is, in part, determined by

government’s size and unique role. DoD program

managers are accountable to five or six layers of

bureaucracy up to the Secretary of Defense. These

layers typically have extensive horizontal structure,

so the program manager (PM) has to satisfy a large

number of people, many of whom have power over

his or her program but no responsibility for it. To

complicate matters further, the PM reports up one

chain for oversight of the program, and up another

for the planning, programming, and budgeting

system which is responsible for determining the

funding for the program. But this involvement of the

OSD bureaucracy, as well as that of OMB and
Chapter .%-Summary . 31

Congress, is part of the checks and balances on the

expenditures of billions of dollars.

While industry shares many of DoD’s problems,

it has a very strong incentive to manage successfully: failure could mean bankruptcy. In many

instances industry works under a simpler system

involving a direct link between the program manager

and a high company official having the authority to

make decisions, settle disputes, and insulate the PM

from external pressures. The PM has responsibility

for the program: if it fails it is his fault and his job

may be at stake. The DoD PM typically has to obtain

several levels of approval for any action; there are

many people who, in trying to ensure that the PM

does not fail spectacularly, will also prevent him or

her from succeeding spectacularly.

Several factors are major contributors to delays in

programs: the sequential processes of requirements

generation, resource allocation, and system selection; program variability (or instability) caused by

many players making changes; bureaucratic paralysis; inappropriate organization for defense procurement; and the quality and incentive structure for

procurement personnel. Underlying these are the

basic structure of the government, the nature of the

bureaucracy, the organization of the DoD procurement system, and the conservative risk-averse nature

of government organizations.

Requirements generation and resource allocation

involve the Services, OSD, OMB, and ultimately

Congress. They are highly political, which often

leads to overpromising in order to get program

approval. Overpromising leads to cost growth and

schedule slippage. But the system makes it easier to

readjust the program to these realities rather than to

go back and question the requirements that produced

them in the first place.

Constant changes in defense acquisition programs are commonplace, leading to cost increases

and schedule slippages. Variability results from the

requirements process, the risks inherent in new

technology, the political/budgetary process, and

personnel turnover. While the disruptions caused by

these factors can be somewhat controlled, the

underlying causes cannot be eliminated.

Baselining-a form of contract between program

managers and their Services-was developed to

limit changes in programs. But making baselining

work requires giving program managers more authority over their programs than they now have. Neither

program managers nor Services can control budgets

or other changes and conditions imposed by OSD,

OMB, and Congress. Moreover, external factors that

affect a program-like threat, doctrine, and resources—

will cause changes in the program no matter how

well it is managed.

However, Congress, OSD, and OMB can decide

to limit their direct involvement in a program (or

Congress can decide for the others). But, at least in

the case of Congress, this would involve giving up

power which it jealously guards. Congress has

already agreed, in principle, to relax oversight for a

few major acquisition programs, which would require reauthorization only at significant milestones

rather than annually. As yet, none of these milestone

authorizations have been submitted to, or approved

by, Congress. Not all members are likely to agree

that efficient functioning of defense acquisition

programs is more important than other issues they

are concerned with, including the (possibly shifting)

interests of their constituents. The budget process

specified by the 1974 Budget and Impoundment

Control Act and public Law 99-177 (Gramm-RudmanHollings) increases Congress’ incentives to keep

control of as many budget items as possible so that

it can engineer the budget levels it agrees to.

Perhaps the most discussed problem is the bureaucratic burden individuals and companies must struggle through in order to do their jobs. A 1977 Defense

Science Board (DSB) panel concluded that increases

in acquisition times are all bureaucratic: ‘it does not

take any longer to do something, it just takes longer

to obtain the necessary approvals and acquire

funding . . . .“ The program manager’s job has

become increasingly complicated, accompanied by

lengthening time to complete contracting actions

and increased regulation, oversight, and auditing of

contractors. The overall perception is that of increasing regulatory and bureaucratic burden, but studies

have found the picture to be unclear. While some

indicators of burden have been clearly increasing,

others have remained the same or declined. Moreover, measuring the effects of regulatory and bureaucratic activity is even more difficult than measuring

the activity itself. For example, estimates of the
32 ● Holding the Edge: Maintaining the Defense Technology Base

added costs due to regulations and bureaucracy

range from 5 to 200 percent!

This “red tape” is unambiguously greater in

government than it is in private industry. What in

industry can be a straightforward, one-step, project

initiation process involving the manager and a high

corporate officer is in DoD a two-step process

involving the PM, a committee within DoD,10 and

Congress. Both the DSB and the Packard Commission recommended bringing the system closer to an

industrial model in this regard, and the GoldwaterNichols Act tried to implement that.

Since the bureaucratic burden arises in part from

government attempts to have programs satisfy goals

other than getting the job done most efficiently,

solutions can be of two types: those that try to

streamline the system without changing its mix of

goals; and those that seek to change the balance

among goals, particularly the balance between

having an efficient and successful program and

satisfying all the other government goals. One

suggested solution is to review all the regulations to

determine whether each is still necessary and

whether the aggregate could be streamlined somehow, a daunting task in its own right. Another

suggestion is to shift the burden of proof from the

PM to those who would slow down the project,

making the PM innocent until proven guilty. For

example, a competition advocate would have to

show that the program was insufficiently competitive or that taking measures to enhance competition

was important enough under the circumstances to

warrant tampering with the program. But some

higher authority would have to be responsible for

balancing these claims against the interests of the

PM who would always be served by ignoring them.

Some DoD programs do better than most:

“black” programs (so it is said), and other special

high-priority programs. This success is due in part to

their high-priority which affords them high-level

attention. Clearly, all DoD programs could not be

treated that way or the system would overload.

These programs also get special exemptions from

various regulations, Granting similar exemptions to

all programs would nullify the regulations, defeating

the purposes for which they exist.

There has been widespread concern about the

process that produces PMs and their chief assistants.

These people are either military officers or civil

servants. In 1986 the average tenure of PMs was

about 2 years. This makes it difficult to give them

real power over programs that run many times that

long, and creates incentives for them to sacrifice

long-term performance in order to look good on their

watch. The military personnel usually, but not

always, rotate rapidly in and out of the jobs in 2 to

3 years. They do not always have prior experience or

relevant training. Many of the civil servants do not

rotate, and ‘‘remain for so long that they resist

innovation and change. ” 11

Affordability

One of the major contributors to delays in getting

new technology into the field is the cost of modem

development and procurement programs and the

resultant program stretchouts and low buy rates.

Almost all important systems cost enough to get

close scrutiny by OSD and Congress. The battles are

fought each year. The result is often that the funding

requested by the program is reduced (in some cases

dramatically), which slows the development pace

and slips the date at which production is initiated.

Once the program is in production, DoD’s tendency is to reduce the funding below what had been

projected, in order to keep as many programs alive

as possible. This leads to buying fewer of any

particular item per year, which has two major

consequences. First, obviously the slower the rate at

which a system is bought the longer it will take to get

the capability into the field. It may not delay Initial

Operating Capability, but it will certainly delay the

date at which a significant capability is fielded.

Second, providing insufficient funds to procure at

planned rates raises the unit costs, which further

decreases the number that can be bought per year.

l~he Defense Acquisition Board, and perhaps ofiers.

t ]J. Ron~d Fox ad J~e~ L, Field, The Defe~e~a~ge~ntc~//en8e: weap~nsAcquisition (Boston, MA: H~~d Business School PRSS, 1988),

p. 312.
Chapter 3-Summary ● 33

DUAL-USE INDUSTRIES

Most of the technology that is engineered into

defense systems is still developed in the “defense

world” of DoD’s laboratories and contractors. This

is particularly true of the exotic technologies that are

the centerpieces of advanced designs. But increasingly, building those systems depends on developments that take place in the civilian sector, a civilian

sector that is driven by the international marketplace. This was dramatically illustrated by events

during the first week of November 1988. A company

called Avtex, which manufactured rayon fibers for

the apparel industry, announced that it was shutting

its doors in response to foreign competition in the

clothing business. This sent shock-waves through

DoD and NASA when it was discovered that Avtex

was the only producer of fibers that were critical to

the production of missiles and rockets. While other

sources could be qualified, and other fibers might be

found to substitute for the rayon that Avtex made,

that process would take longer than the period of

time the available supply of rayon would support

production. Negotiations were soon completed to

keep Avtex open.

High-technology industries are becoming increasingly internationalized: foreign companies and

multinationals are technology drivers. Large international markets generate huge amounts of capital

that fuel research and development into new products and underlying technologies. The defense

components of these markets are often small, giving

DoD little or no leverage over the directions

developments will take. DoD has to choose between

playing a follower role, or spending large amounts

of money to keep a competitive leading edge

capability in defense laboratories and industries. But

because of the cost of developing modem technology, it seems unlikely that DoD can afford to

develop all the technology it needs in parallel with

the civilian sector. Dependence on the private sector

is not all bad: commercial development of technology is a basic strength of the industrialized, noncommunist world. Failure to exploit developments

in the civilian sector would be throwing away a

major advantage over the Soviets. But relying on the

private sector means that defense development and

production will depend increasingly on the health of

the civilian sector and on the ability of DoD and its

contractors to gain access to the products of the

civilian sector. Thus DoD faces two challenges:

maintaining access to the technology developed in

the commercial sector, and coping with the international nature of that sector.

DoD and Congress face three generic problems.

The first is keeping dual-use companies interested in

doing defense work. Some are leaving the defense

business. Others have technology that DoD could

use, but are reluctant to get into the defense business.

These attitudes are based primarily on perceptions of

the difficulties of doing business with the government, and the problems of doing business in both

sectors simultaneously. Second, high-technology

industries are moving offshore due to foreign

competition. Some have almost vanished, others are

on the way. Furthermore, it seems likely that in the

future some new technology-based industries will

develop in other nations and never take root here.

Careful balance will be necessary to nurture U.S.

industries while maintaining access to foreign technology. Congress will have to consider U.S. trade

and industry policy carefully. Third, entire industries, individual companies, and the many-stepped

trails that lead from raw materials to finished

components cross many national borders. In many

cases, it is nearly impossible to determine what a

U.S. company is, while in others it is difficult to

separate U.S. companies from their foreign partners.

Congress will have to come to grips with the

meaning of foreign ownership and foreign siting for

the availability of technology, as well as with how

dependent the United States can afford to be on

foreign sources. These international relationships

will complicate attempts to protect U.S. supply

sources.

Barriers Between Civilian and

Military Industry

Since World War II, the U.S. economy has

evolved relatively separate military and commercial

sectors. They have different business practices, one

dictated by government regulations and procurement practices and the other flowing from the

marketplace. In recent years the international market has had a considerable effect on shaping the

latter.
34 ● Holding the Edge: Maintaining the Defense Technology Base

Government practices have made it increasingly

difficult for DoD to obtain state-of-the-art technology in areas where civilian industries are leading,

making defense business unattractive to innovative

companies and contributing to traditional suppliers

leaving the defense business. Many firms that are not

heavily involved in defense business are reluctant to

deal with the government because they consider it to

be a bad customer. Moreover, many do not need

DoD’s business and can simply opt out. The barriers

are not technological, but legal, institutional, and

administrative. Some are the direct result of legislation, others flow from DoD regulations, including

overly cautious interpretations of laws. Some commercial firms cite excessive regulation, burdensome

auditing and reporting requirements, compromise of

trade secrets, and loss of data rights. Large defense

companies have similar complaints, but have adjusted to working under these conditions. But for

smaller companies, getting into the defense business

means heavy investment and reorientation of business practices.

A company can organize to do business in either

sector, but can rarely do both under one administrative roof. Companies that do business in both sectors

typically have separate divisions that are organized

differently and almost never share staff, production

and research facilities, data, and accounting procedures. These differences are profound. In large

aerospace companies the commercial side responds

to market conditions, whereas the military side

responds to Service programs, government regulations, and the Federal budget. Their planning is

“slaved” to the Federal planning and budgeting

cycle. Corporate structures and rules tend to mirror

those of DoD and tend to pass government encumbrances down to lower level suppliers. Companies

doing government contract work have to keep their

books in formats that are compatible with government auditing rules and procedures.

Following these and other government rules adds

to the costs of doing business, costs that can

legitimately be passed on to the government customer. Tighter control of the defense business

ultimately translates into higher costs to DoD. The

United States is apparently willing to bear this

increased cost as the price of other benefits-for

example, knowledge that the government is trying to

keep the process honest. However, imposing the

same rules on dual-use industries has other, fartherreaching effects. It makes them reluctant to do

business with DoD and encumbers their products

with additional costs that may adversely affect their

international competitive positions. When dealing in

both sectors, companies can accept either the higher

cost of following government business procedures,

or the higher costs of maintaining two separate

business practices-one for government business

and one for other business. With some exceptions,

DoD product specifications are also seen as encumbrances; characteristics that are of no value in the

commercial marketplace are engineered into the

products for sale to DoD.

Government contracts regulate profits, creating a

business environment very different from that in

which most high-technology companies deal. These

companies are used to investing heavily in R&D,

recovering their investments through large profits,

and then reinvesting in the next generation of

product. Moreover, their customers see only the

product, whereas DoD insists on knowing how the

product was made. Defense contractors get by on

small profits, in part because much of their R&D

costs are covered either by contract or IR&D

recovery. But dual-use companies qualify for little if

any IR&D recovery and are reluctant to do contract

R&D. The government owns the rights to data

generated by contract R&D so that it can keep the

subsequent phases of a project competitive by

making a data package available to all bidders. But

companies that live by their innovation in the

commercial market see this process as offering their

trade secrets to the competition. DoD procedures

provide the winner of a development contract poor

profit margins, no guarantee of a continuing relationship with DoD, and little incentive to innovate

and provide a superior product.

Some industries, like advanced composites, are

currently so closely tied to the defense business that

they are apparently willing to live with these

problems. But they worry that their competitive

position may be damaged as the commercial market

develops. At the other extreme, the companies that

produce fiber optics are reluctant to get involved in

a defense market they see as always being a small

part of their business: they do not necessarily see the

potential payoff as worth the aggravation.
Chapter 3-Summary . 35

While the small amount of military fiber optics

business might be seen as evidence that the industry

is not really important to defense, some within the

DoD see it as a critical new technology for future

systems, one in which defense could gain tremendously just by exploiting what has been and is being

developed in the commercial sector. But DoD has

been generally slow in adopting fiber optic technology. Program managers have much to lose by

inserting risky new technologies which may delay

schedules and increase costs, but little to gain

because the advantages of the substitution will

usually become apparent only on someone else’s

watch.

In the software industry, the divergence between

government and commercial practices has been

enough to produce separate defense and commercial

businesses that often do not share technology. The

procedures, policies, and management of large-scale

systems in the military and civilian sectors diverge

starting with requirements definition, continuing in

the development or acquisition of software, and

throughout the entire life cycle of the software. This

restricts the flow of leading-edge technology from

defense into the commercial sector and reduces DoD

access to readily available commercial products.

Most of the differences can be attributed to the

policies, regulations, standards, and directives mandated by DoD. DoD software requirements are more

rigid than their commercial counterparts. Defense

systems tend to be overwhelmingly custom built,

while commercial systems will use as much off-theshelf technology as possible. Software companies

are particularly concerned about data rights, which

they see as critical to competitiveness. Companies

are reluctant to deal under DoD restrictions; in their

eyes the government would be taking and possibly

giving to their competitors the very basis of their

business.

International Competitiveness and the

Health of U.S. Industries

The Department of Defense has been concerned

for some time about the implications for defense of

deteriorating competitive positions of U.S. manufacturing companies in the international market.12

The government is also concerned from a wider

perspective that this trend is weakening and undermining the U.S. economy. DoD shares the concern

that a weakening economy and a drain of resources

into purchases of foreign goods will reduce money

available to produce defense equipment, but its

primary concern is the continuing availability of

necessary items and technology.

The government does not as yet have a policy

regarding dependence on foreign sources for defense

material and technology, let alone a game plan for

implementing such a policy. The Undersecretary of

Defense for Acquisition has recommended a plan to

bolster defense-related manufacturing in the United

States. 13 The report detailing that plan does not make

a statement on how much foreign dependence is

tolerable, although it does imply that some is

unavoidable.

The complexity of the problem is illustrated by

the issue of cooperative development and production of defense equipment with the European NATO

Allies. It has been long-standing U.S. policy to

encourage multinational procurement of similar

defense equipment to foster commonality, to get the

best equipment into the forces of all the Allies, to

save money, and recently, to exploit a broad

multinational technology base. In recent years the

Defense Department has made great progress in

generating international memoranda of understanding for joint development, with the help of initiatives

like the Nunn Amendment. But as the Europeans

have become more interested in cooperative developments, they have also sought a greater share in

generating the technology and a larger market share

for their defense industries. Interest by U.S. compa12For ~xmplcs, we Defense Science Botid) “Report of the Defense Science Board Task Force on Defense Semiconductor Dependency,” prepmed

for the Office of the Under Secretary of Defense for Acquisition, February 1987; Report to the Secretary of Defense by the Under Secretary for

Acquisition, “Bolstering Defense Industrial Competitiveness: Preserving Our Heritage, the Industrial Base, Securing Our Future” (Washington, DC:

Department of Defense, 1988); and Martin Libicki, Industrial Strength Defense: A Disquisition on Manufacturing, Surge, and War (Washington, DC:

National Defense University, 1986). See also, U.S. Congress, Office of Technology Assessment, Paying the Bill: Manufacturing and Americans Trade

Deficit, OTA-ITE-390 (Sprin#ield, VA: National Technical Information Service, June 1988).

13&x “Bo]st@ng Defense Industrial Competitiveness, ” Op. cit., fOOtnOtC 12.
36 ● Holding the Edge: Maintaining the Defense Technology Base

nies in joint ventures with Europeans has been

spurred, in part, by fears that several trends in

European thinking could sharply curtail their sales in

Europe. Thus, the cooperative programs are a

two-edged sword helping U.S. sales in Europe while

stimulating European sales to the United States; and

helping U.S. defense policy in general, while both

helping and hindering the maintenance of the U.S.

defense industrial technology base. Crafting a workable policy will be a tricky job.

There are three basic policy choices:

●

●

●

demand that anything that goes into defense

equipment be built in the U.S. from U. S.-

sourced components, taking whatever measures are necessary to ensure that all the

necessary industries are alive and well in the

United States;

let the market dictate which industries will be

healthy in the United States and look only for

the best deals wherever they can be found

worldwide; or

choose some industries that have to be located

in the United States, take appropriate measures

to ensure that, and let the rest go with the

market.

The first and third require some sort of intervention in the international economy, either supporting the international competitiveness of U.S. companies or protecting, supporting, and subsidizing U.S.

companies that cannot otherwise survive. Another

approach is to design nothing into U.S. defense

systems that cannot be domestically sourced. But

this cuts off a great deal of modern technology, a

Western strength. In making these choices, the

United States will have to decide how dependent we

can afford to be, and how much independence we are

willing to pay for. If the United States demands

self-sufficiency without taking measures to keep

U.S. companies alive and competitive, the list of

technologies available for defense systems is likely

to decrease as time goes on.

It will be necessary to decide how to treat

dependence on various nations. There are significant

differences in being dependent on Canada (already

defined as part of the North American industrial

base), Britain, our other NATO allies, Mexico,

Japan, Korea, etc. U.S. and Canadian companies are

closely intertwined. Despite the recent controversy

over the trade agreement and other arguments, we

are each other’s largest trading partners. Canada is

also a NATO ally with a common security interest.

The chances of being cut off from Canadian sources

either by policy or by hostile act are minimal. We are

also close to our European Allies; much of our

defense equipment is bought to defend them. But we

are separated from Europe by an ocean, and they

have not always supported U.S. military actions.

Other nations are much less tightly tied to the United

States.

The high-technology economy is an international

one and responds to international market forces.

These forces are likely to continue to move industries offshore despite U.S. efforts to will (or legislate) them to stay. In the vast majority of cases,

defense business is far too small to provide the

necessary clout, particularly when faced with other

nations that manipulate their civilian markets to

keep their companies healthy. Competition comes

from Japan, the smaller Asian nations—Korea,

Taiwan, Singapore, etc—and Western Europe. The

Europeans are taking dramatic steps to improve their

international competitive position, particularly in

high technology industries. These include the economic integration of the EC in 1992, and the funding

and encouragement of large cooperative R&D projects.

Although all industries are different, the plight of

the fiber optics industry is illustrative. While healthy

in the United States, it faces increasingly stiff

competition at home and continuing difficulties

abroad stemming from limited access to foreign

markets. Both the Europeans and the Japanese are

making major pushes in fiber optics and photonics

in general. U.S. technology and production costs are

at least competitive. But while U.S. producers have

been largely excluded from some important foreign

markets, the U.S. market remains open to foreign

vendors. Japanese companies can sell in foreign

markets at low prices because their government has

discouraged foreign competition in Japan where

prices are kept artificially high. The closed domestic

market supports overseas competitiveness.

The U.S. software industry faces a different sort of

challenge. It is currently strong and competitive, but

the rapid growth in worldwide demand for software
Chapter 3-Summary .37

threatens to outstrip the capacity of U.S. firms to

meet it, leaving a large opening for foreign firms to

penetrate the market. Japan, France, the United

Kingdom, Korea, Singapore, Taiwan, and India have

the capacity to penetrate the global market. And

many of these nations have trade policies that either

discourage sales by U.S. companies or fail to protect

the intellectual property rights of those companies:

“pirated” software is becoming a major problem.

Moreover, the Japanese are making rapid strides in

turning software design from art to manufacture,

building software factories to increase productivity

dramatically.

Internationalization of Industries

Efforts to protect and nurture U.S. companies will

be complicated by trends toward internationalization in high-technology industries. Examples are

found in the advanced composites industry in which

many of the firms that appear to be American—

because they have American names or U.S. facilities—

are actually owned by foreign companies and in the

fiber optics business where international joint ventures are used to get into otherwise closed markets.

International ownership, vertical and horizontal

integration, and international siting make it difficult

to define in any convincing way what an American

company is. Moreover, the sequence of steps that

leads to a final product often crosses international

boundaries many times and shifts as prices and

availability of components shifts. Is a Pontiac built

in Korea any more or less an American product than

a Honda made in the United States or a Chevrolet/

Toyota assembled in California from U.S. and

Japanese parts?

Difficulties in identifying U.S. companies will

produce difficulties in writing legislation to protect

them or establishing DoD policy to encourage the

growth of important domestic industries. Foreign

plants owned by U.S companies, U.S. plants owned

by foreign companies, joint ownership, and joint

ventures all offer different sets of problems.

Formulating Policy

These trends toward internationalization will

complicate difficult issues that Congress and the

Administration are already facing. Paramount among

these is to decide whether the U.S. Government will

play a major role in encouraging and supporting U.S.

commercial business and industry, or whether—

almost unique among the governments of major

nations—it will continue to remain more or less

aloof, confining its activities to a few international

trade negotiations. Other governments encourage

the development of commercial technology and

associated industry, help to foster a domestic situation conducive to growth, and support aggressive

overseas marketing.

Having decided government’s role, the next issue

would be to define goals. These might include:

●

●

●

●

keeping key nondefense manufacture and development in the United States,

keeping manufacture and development in the

hands of U.S.-based (or U.S.-owned) companies;

preserving some portion of the U.S. market for

U.S.-based (or U.S.-owned) companies; and

gaining access to foreign markets for U.S.

firms.

Defining such goals will entail arriving at a working

definition of a U.S. company, or at least of how

location and ownership affect U.S. national security

interests.

It would be necessary to decide how large a role

defense needs would play in deciding which industries are in need of government attention. This

decision would have to balance the problems of

foreign dependence against the risk of diminished

access to foreign technology and manufacture. It

would also have to consider how much the United

States is willing to pay to buy domestically that

which may be available at a lower price elsewhere.

The lessons of “low-priced oil” from the Persian

Gulf are instructive here. Determining the acceptable degree of offshore dependence for defense

equipment will necessitate deciding the level of

componentry which DoD would have to specify as

coming from domestic sources. For example, is it

sufficient to require that systems or subsystems be

domestically sourced, or does DoD have to assure

that some or all of the components are made in the

U. S. A.? This decision would dictate the level at

which DoD would need visibility into the manufacturing process and have to keep a data base on

suppliers.
38 ● Holding the Edge: Maintaining the Defense Technology Base

Whatever the goals are, Congress will have to

decide what levers can be pulled to make those

attainable. In most cases, simply controlling defense

procurement will not be enough to influence the

industry: it may ultimately lead to an inefficient,

backward, protected industry that is incapable of

competing on the world market. Such an industry

might only be capable of providing DoD with

obsolete technology or overpriced products. The

government has the option of getting more deeply

involved in stimulating the development of technology for commercial ends, including making government R&D facilities more available and providing

greater incentives for corporate investment. Yet

another option is to formulate a strategy—as Japan

and other nations have—for controlling access to

critical U.S. commercial markets in order to preserve

and support domestic industrial capabilities. A third

policy lever that can be manipulated, but not totally

controlled, is the cost and availability of capital for

conducting R&D. Major technological developments are capital intensive, with costs measured in

the hundreds of millions to billions of dollars.

European and Japanese companies pay less to

borrow money than do U.S. companies—far less in

the case of the Japanese. This allows them to carry

on more projects simultaneously, and to sell the

resultant products at lower prices than those of their

U.S. competitors, putting U.S. companies at a

competitive disadvantage.
Chapter 4

Planning and Funding DoD

Technology Base Programs
CONTENTS

Page

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . + . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

HOW THE DEFENSE DEPARTMENT MAKES AND IMPLEMENTS

TECHNOLOGY POLICY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

OSD’s TECHNOLOGY BASE OVERSIGHT ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . . 44

Developing a Technology Base Investment Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . ..., 44

Establishing Research Priorities and Direction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Coordination of Technology Base Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Acting as a Strong Advocate for DoD’s Science and Technology Programs . . . . . . . . . 48

Promoting Cooperation Among the Services and DARPA . . . . . . . . . . . . . . . . . . . . . . . . . 49

Evaluating the Goals of the Technology Base Programs ... . ..... .......... . 51

Evaluating Research Activities . . . . . . . . . . . . . . . + . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

ORGANIZATION OF OSD FOR OVERSIGHT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Managing Technology Base Activities at DARPA and SDIO . . . . . . . . +....... . . . . . . 52

Recruiting and Retaining Scientific Personnel . .... ..+. . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

DoD SUPPORT OF ITS TECHNOLOGY BASE PROGRAMS . . . . . . . . . . . . . . . . . . . . . . 56

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Figures

Figure Page

2. Management of the Department of Defense Technology Base Program . . . . . . . . . . . . . 43

3. Comparison of RDT&E and Technology Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Tables

Table Page

1. Department of Defense Funding of Technology Base Programs, Fiscal Year 1989 . . . 42

2. DoD Technology Base Funding, Fiscal Years 1984 Through 1989 . . . . . . . . . . . . . . . . . . 49

3. Individual Service Funding for Research (6.1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +. . . . . 49

4. DoD Technology Base Funding Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Chapter 4

Planning and Funding DoD Technology Base Programs

INTRODUCTION

In today’s technology-intensive environment-in

both the military and commercial context—the

ability of an organization to compete and win is

highly dependent on its ability to discover, develop,

and apply advances in science and technology to its

systems and products. Success in that endeavor

depends, in turn, on the ability of the organization to

plan its technology investment strategy, marshal the

resources to support it, and build and sustain a

technology base vital enough to produce the needed

advances.

The development and management of the technology base underlying defense systems is an

exceedingly complex enterprise. It is as multifarious—

and as important to national interests—as the

capabilities and performance of the defense systems

themselves. This chapter examines the Department

of Defense (DoD) system for managing its technology base programs. It reviews how the Office of the

Secretary of Defense (OSD)-particularly the Office of the Director of Defense Research and

Engineering (ODDR&E)--carries out its technology base oversight responsibilities. The purpose of

this chapter is to evaluate the ability of the

present OSD technology base management system to do its job, and not to judge the performance of any Administration or individual DoD

officers. It focuses on oversight activities such as

strategic planning and coordination of technology base programs-that is, on the role of OSD in

planning the programs of the Services, defense

agencies, and the Strategic Defense Initiative

Organization (SDIO), and forming them into a

coherent whole—and not on the management of

specific technology base program elements (PEs).

These oversight responsibilities include: 1)

developing an overall technology base investment

strategy; 2) setting research priorities and directions;

3) reviewing and evaluating the technology base

program goals; 4) coordinating the numerous research activities that make up DoD’s technology

base programs; 5) acting as an advocate for the

technology base programs; and 6) evaluating the

outcomes and effectiveness of DoD-sponsored technology base activities.

The next section of this chapter briefly describes

the activities that comprise DoD’s technology base

programs and how OSD, the three Services, the

Defense Advanced Research Projects Agency (DARPA),

and the SDIO2 are organized to manage and implement their technology base programs. The following

section then reviews how OSD, the three Services,

and DARPA fulfill their respective technology base

management responsibilities.

The second major portion of the chapter examines

issues associated with the way in which OSD is

organized to carry out its technology base oversight

activities. The chapter concludes with a discussion

of the support within DoD for its technology base

programs, including an analysis of past and current

technology base funding trends.

HOW THE DEFENSE

DEPARTMENT MAKES AND

IMPLEMENTS TECHNOLOGY

POLICY

Although the Department of Defense will invest

less than 4 percent of its entire budget in technology

base activities in fiscal year 1989 (see table 1 ), many

observers inside and outside the Pentagon consider

DoD’s technology base programs to be a crucial

investment in the Nation’s overall security. The

military’s technology base programs represent a

wide spectrum of ‘‘front-end” technology development, beginning with a broad base of basic research

support and extending through the demonstration of

technology that might be applied in future defense

systems. The scope of DoD’s technology base

I For ~ more detailed discussion of how OSD and the Services organize their respective technology base programs, see the Mach 1988 OTA rePofi

entitled The Defense Technology Base. Introduction and Overview-+ .$pe~ial Report, OTA-ISC-374 (Washington, DC: U.S. Government Printing

office).

zFor fuflher infomatlon on the SD] program, see Library of Congress, Congressional Rc*~ch se~i~e, ‘‘The Strategic Defense Initiative: Program

Description and Major Issues,” CRS Report No. 86-8 SPR, 1986.

-41 –
42 ● Holding the Edge: Maintaining the Defense Technology Base

Table l—Department of Defense Funding of Technology Base Programs, Fiscal Year 1989

(in millions of dollars)a

Category

Army Navy Air Force DARPA

Research (6.1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $173 $355 $196 $88 $956

Exploratory Development (6.2) . . . . . . . . . . . . . . . . . . . . . . . . . . $561 $431 $574 $624 $2,522

Advanced Exploratory Development (6.3A) . . . . . . . . . . . . . . . . $422 $193 $764 $557 $2,099

Service or agency total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,156 $979 $1,534 $1,269 $5,577

Strategic Defense Initiative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,606

Total DoD technology base programs . . . . . . . . . . . . . . . $9,183

appropriated,

b~tegov totals al= i~lude ~nding for tie Ower defense agencies and UniWQIY Research Initiatives IW-Irm.

SOURCE: Office of the Secrwary of Defense.

programs includes such diverse concerns as meteorology technology and the technologies for autonomous guided missiles capable of differentiating

among various targets.

DoD organizes its technology base programs into

three budgetary categories: research (funded under

category 6.1); exploratory development, the practical application of that research (budget category

6.2); and advanced exploratory development, which

primarily consists of the building of prototypes to

demonstrate the feasibility of applying a particular

technology to a weapon system (budget category

6.3A). Work funded under the remainder of the

Department’s budget for research, development,

test, and evaluation (RDT&E), representing about

80 percent of the RDT&E budget, is not considered

to be part of the technology base.3

DoD’s complex technology base program is

planned, organized, and implemented by the three

Services (Army, Navy, and Air Force), DARPA, the

other defense agencies, and the SDIO, with the

oversight and guidance of the OSD. The largest

portion of the technology base program is conducted

outside DoD by industry (50 percent) and universities (20 percent), with DoD in-house laboratories

conducting the remaining 30 percent.

In the last three years, each of the three Services

and OSD have reorganized the management of their

technology base programs. As a result of the

Goldwater-Nichols Act, the position of Under Secretary of Defense for Acquisition [USD(A)] was

established and given responsibilities for all RDT&E

activities except for those of the SDIO. The Director

of SDIO reports directly to the Secretary of Defense

(see figure 2). The Goldwater-Nichols Act also

reestablished the DDR&E as the primary individual

responsible for DoD’s technology base activities.

The DDR&E is responsible for assuring the appropriate emphasis and balance for DoD’s entire

technology base program, except for SDIO.

Once the Services-the Army, Navy, and Air

Force—have formulated their technology base programs, the Deputy DDR&E for Research and

Advanced Technology [DDDR&E(R&AT)] has the

task of ensuring that their proposals have responded

to OSD guidance. The Deputy for R&AT serves as

‘‘the corporate guardian” of the technology base

programs, ensuring that the Services’ programs are

well balanced, with little duplication of effort, while

attempting to meet the current and future scientific

and technological needs of DoD. The Services’

technology base programs are coordinated with

DARPA’s programs at the next level, the DDR&E.

Finally, conflicts among these four programs and

SDIO are adjudicated only at the highest level, the

Secretary of Defense.

Each of the Services conducts an extensive

annual top-down, bottom-up planning exercise.

From the top, the Services receive OSD’s annual

Defense Guidance document, which provides them

with guidance on developing their overall RDT&E

programs. Planning begins with a review and

SDOD typlca]]y considers 6.1 and 6.2 as its “technology base PrWams~ “ with 6.1 through 6.3A normally referred to as its “science and technology

programs. ” However, in recent years these distinctions have become blurred in everyday usage. This report uses both terms to refer to budget categories

6.1, 6.2, and 6.3A.
Chapter 4-Planning and Funding DoD Technology Base Programs ● 43

Figure 2—Management of the Department of Defense Technology Base Program

Secretary of Defense

Director,

Strategic Defense

I n I t i a t i ve

Organ i zat i on

Under Secretary

of Defense,

Ac q u is i t Ion

USD( A)

I

Director, Defense

Research and +

Engineer i ng

[DDR&E]

I I

SOURCE: Office of Technology Assessment, 1989.

evaluation of the previous year’s research activities.

When this review is completed, the Services then

decide which activities to continue, which to transition from 6.1 into 6.2 or from 6.2 into 6.3A

programs, which to move beyond 6.3A, and which

activities to end.4

Each of the three Services operates and manages

its technology base activities differently. Compared

to the other two, the Army employs a less centralized

approach, relying on major field commands-the

Army Materiel Command (AMC), the Corps of

Engineers (COE), and the Surgeon General (TSG)—

as well as the Deputy Chief of Staff for Personnel

(DCSPER), to help develop and implement its

technology base investment strategy. Compared to

those of the Navy and Air Force, the Army’s

technology base headquarters staff is quite small.

The Deputy for Technology and Assessment (DT&A)

is considered to be the Army’s Program Executive

Officer (PEO) for the technology base programs.

The DT&A is responsible for coordinating the

technology base programs of AMC, COE, TSG, and

the DCS for Personnel. The Army’s Laboratory

qTransitions may actu~ly OCCU at times from 6.1 or 6.2 to 6.3, 6.4 Or even directly to operational systems.
44 ● Holding the Edge: Maintaining the Defense Technology Base

Command (LABCOM) is responsible for overseeing

and managing 75 percent of the Army’s technology

base program, including its eight laboratories, seven

research, development, and evaluation (RD&E)

centers, and the Army Research Office. The commanding officer of LABCOM reports to the commander of AMC.

Of the three Services, the Navy has placed its

technology base management institutions at the

farthest remove from its procurement institutions.

But relevance to Navy needs still remains a powerful

factor in selecting projects, especially in 6.2 and

6.3A. Further, unlike the other Services, the Navy

performs the majority (60 percent) of its technology

base programs in-house. Many of the Navy laboratories are capable of performing the entire spectrum of

RDT&E activities. The Navy supports the oldest and

largest of the Services’ research programs, along

with the smallest program in advanced technology

demonstration. The Navy claims to be rebuilding its

advanced exploratory development program, which,

unlike the other Services, it does not manage in the

same office as its 6.1 and 6.2 programs.

As of November 1, 1987, the Deputy Chief of

Staff for Technology and Plans (DCS T&P), Air

Force Systems Command, was established to oversee the entire Air Force technology base program.

The DCS T&P is also the PEO for, and the single

manager of, the Air Force’s technology base program. The Air Force Chief of Staff has designated

the technology base program as a‘ ‘corporate investment” to help raise its visibility and to provide a

long-term, stable funding base for the program. The

Air Force operates the largest extramural technology

base program of the three Services. Its technology

base activities are more centralized than are those of

the other Services. The Air Force places special

emphasis on technology insertion: It has the largest

advanced exploratory development program; and its

laboratories are more closely linked to its five major

systems divisions than those of the other Services

are to theirs.

The role of DARPA appears to be changing with

the recent establishment of its Prototyping Office,

DARPA was originally established to support highrisk, long-range research. It does not operate laboratories or conduct in-house research. Consequently,

the majority of DARPA’s budget is contracted

through the three Services to industry (75 to 80

percent) and universities (20 percent), with only a

small fraction of DARPA’s technology base activities actually conducted by the military. There is

some concern that allowing DARPA to enter the

domain of hardware development and prototype

testing might compromise its support of long-range,

high-risk research.

The SDIO program is centrally managed, with its

director reporting to the Secretary of Defense.

Although the entire SDIO budget is funded under

6.3A, DoD estimates that approximately 15 to 20

percent of the SDI budget is spent on research and

exploratory development. The majority of SDI

projects are executed through the Services with

some additional efforts through other executive

agencies, including DARPA, the Defense Nuclear

Agency, the Department of Energy, and the National

Aeronautics and Space Administration.5

OSD’S TECHNOLOGY BASE

OVERSIGHT ACTIVITIES

The DoD technology base programs play a crucial

role in the military’s ability to develop technology

and apply it rapidly to meeting the Nation’s security

needs. DoD reports that its science and technology

capabilities continue to improve, but the technological lead over potential adversaries is shrinking. One

way for DoD to counter this adverse trend is to make

sure that its technology base programs are planned,

managed, and executed as effectively as possible.

Developing a Technology Base

Investment Strategy

DoD does not have an overall, coordinated

technology base investment strategy or plan to

establish science and technology (S&T) priorities.

According to a recent report by the Institute for

sThis C]laptcr does not exmlne [he rese~ch activities of several smaller agencws within DoD which account for less tb 2 percent of RDT&E. ~ose

agencies include: the Defense Mapping Agency; National Sccuriiy Agency; Defense Nuclear Agency; Defense Support Project Office; Defense

Comn]unications Agency; Defense Intelligence Agency; Defense Logistics Agency; and the Uniformed Services University.
Chapter 4-Planning and Funding DoD Technology Base Programs ● 45

Defense Analyses (IDA),6 a significant amount of

long-range planning is taking place in the Services,

the research and development (R&D) centers, and

DARPA, but “these efforts are, at the moment,

pursued independently within each of the Services

and, to some degree, independently at the R&D

center (laboratory) level.”7

Many observers within the military believe that

technology base planning should remain decentralized.8 The Services assert that they have a much

better understanding of their respective combat

needs than does OSD. As a result, the Services-not

OSD-possess the knowledge and technical skills

necessary to establish a rational technology base

investment strategy to meet future combat needs.

Many analysts believe that any attempt to centralize

planning for the technology base programs within

USD(A) would be unsuccessful. Representatives of

the Services and DARPA argue that OSD’s primary

role should be as advocate, reviewer, and coordinator for DoD’s technology base programs, In this

view, USD(A) should make sure that the technology

base is clearly understood within OSD, that Service

and DARPA programs are reviewed for adequacy,

and that unwarranted program duplication between

the Services is avoided. Advocates of this view also

hold that OSD is less able to defend the technology

base budget than are the Services, and greater OSD

involvement would result in less Service support of

the technology base.

On the other hand, the report of the IDA task force

does not endorse these beliefs. The task force

recommended that OSD adopt a strategic planning

process to “tie together the investment strategies as

they currently exist in the Services and Agencies. ”9

This strategic planning activity would involve OSD

working with the Services, the defense agencies, and

SDIO in order to establish technology base goals and

priorities. It does not imply the creation of an OSD

“planning czar” who establishes goals and objectives for all of DoD’s technology base programs.

The IDA report notes that strategic planning, in any

organization, will not succeed if it fails to involve an

adequate number of the right people. In this approach, once a coordinated technology base investment strategy has been developed, the actual planning and execution of the various programs could

continue in the current decentralized fashion, As in

the past, the Services and DARPA would be

responsible for organizing and executing their technology base programs. However, the DDR&E would

be in a position to evaluate each agency’s program,

based on how well it responded to the priorities

established during the strategic planning process.

The Services and DARPA assert that the

annual Defense Guidance document-supplemented

with additional Service requirements documentationprovides adequate planning guidance to develop

their respective technology base investment strategies. However, many other observers criticize the

Defense Guidance on the ground that it is developed

through a fragmented process which fails to produce

a coherent, well-coordinated U.S. defense posture.

The document is prepared by the UnderSecretary of

Defense for Policy, based on Administration guidance and inputs from the Joint Chiefs of Staff, the

Unified and Specified Commands (CINCs),10 the

Service Secretaries, other OSD Staff (including the

DDR&E), and other relevant sources. Once the

Guidance is approved and published, the Services

use it to build their respective programs, including

their science and technology programs. There are

6Task Force Report, ‘‘The Improved Coordination of DoD Science and Technology Programs” (Alexandria, VA: Institute for Defense Analyses, July

1988). At the request of the DDR&E, IDA assembled a [ask force consisting of numerous S&T managers from the Services and OSD to examine

approaches for improving coordination of DOD’s technology base programs.

7The Semices have conducted impressive technological forecasting activities, including the Air Force’s Forecast 11 study, the Navy’s 21 study. and

the Army’s proposed Strategic Technologies for the Army (STAR) study. Such studies have been used to establish S&T priorities in the Services.

However, as the IDA Task Force indicated, these activities arc primarily pursued independently within each Service.

glnstltute for Defcn~ Analyses, op. cit., footnote 6 p. ~.

9Summq Repon ~d Recommendations of the DA Task F~rcc on ]mproved ~’oordinatioll of the DOD Science and ‘kchnoIogy %OgTafnS

(Alexandria, VA: Institute for Defense Analyses, July 1988), p. 11-2.

10A ~ified ~ommmd, Composed of Slwlficm[ forces from two or more sc~i~cs, has a broad, continuing mission (usually geographically based). A

specified command, composed primarily of forces from one Service, has a functional mission. The eight unified commands are Europe, Pacific, Atlantic,

Southern, Central, Special Opertitions, Transportation, and Space. The spcclficd commands arc the Strategic Air Command, Acrospacc Defense

Command, and Military Aidi ft Command. The names of the commands designate their primary geographic or functional area of” responsibility. Central

Command, created in 1983, is conccmed with the Persian Gulf’ region.
46 ● Holding the Edge: Maintaining the Defense Technology Base

also various inter-Service requirements documents

that help to gear technology to future defense needs.

Nevertheless, the current 120-page document

provides only one page of guidance for the

DoD-wide technology base programs. More could

help generate a stronger technology base program.

Such broad guidance allows the Services and

DARPA to justify technology base programs that

they view as being in their individual best interests,

but which may or may not meet the overall future

science and technology needs of the Department of

Defense as a whole.

In the absence of a centralized S&T investment

strategy, it is extremely difficult for the DDR&E to

assess the technology base programs of the Services

and DARPA, other than for technical merit. The

1983 Grace report indicated that planning which

permits the bottom-up approach to predominate—

the current situation-often results in duplication of

effort, and ineffective coordination of science and

technology programs.

11 OSD's technology base

investment review is primarily an information gathering function. When the Services present their

annual technology base investment strategy to the

DDDR&E(R&AT), no formal written feedback is

provided, although there are usually verbal comments. Until this year, each of the Service’s programs was reviewed separately, making crossService comparisons difficult. The Defense agencies

(primarily DARPA) are not required to participate in

this process, although they usually do to a limited

extent.

Under current conditions, OSD cannot ensure

that DoD’s technology base programs are well

balanced, properly coordinated, and capable of

meeting the current and future science and technology needs of DoD. On the other hand, it is clear that

OSD would be unable to conduct an effective

technology base investment strategy without the

close cooperation and goodwill of the Services and

DARPA. Because the Services currently dominate

the planning process, and act independently of one

another, any effort to consolidate this function in

OSD could cause dislocation and disruption of

existing technology base program management.

Establishing Research Priorities

and Direction

The dominant position of the Services in determining technology base initiatives arises from, and

contributes to, the lack of an overall technology base

investment strategy. The Services have filled a

power vacuum and now protect their power. Instead

of working with OSD to establish priorities based on

overall defense needs, the Services allocate resources based on their own views of their individual

needs. A 1981 Defense Science Board study recommended that a DoD R&D investment strategy linked

to future combat needs be utilized in technology

base planning “. . . so that technologies funded

through the allocation processes would be more

explicitly and consistently related to future operational needs. ” *2

In the absence of broad strategic guidance,

individual Service goals tend to supplant more

general strategic ones. As the primary civilian

component within DoD, the Office of the Secretary

of Defense is supposed to act as a counterbalancing

force to the Services, working objectively with the

Services and DARPA to develop an overall technology base strategy in the best interest of DoD as a

whole. In principle, once the strategy is articulated,

the Services and DARPA develop science and

technology goals to achieve that strategy.

The implications of inadequate OSD guidance

can be significant with regard to the types of

technological priorities the Services are willing to

support. For example, according to Samuel P.

Huntington,13 the Services are extremely reluctant to

support “orphan” functions that are not central to a

Service’s own definition of its mission or fighting

doctrine. This can present great difficulties for

setting well-balanced science and technology priorities, since modern technology has provided capabilities that may not coincide with traditional ap11‘~esjdent’s Private Sector Survey on cost Control, ” report of the Task Force cm Research and Development, Executive Office of the President,

Dec. 8, 1983, p. 30.

l’lJ.s. Dep~ment of Defense, office of tie DDR&E, “Report of tie Defense Science Board, 1981 Summer Study panel on tie Technology B~”

(Springfield, VA: National Technical Information Service, November 1981), p. i-2.

13 SmucI P. Huntington, ‘‘Organization and Strategy, “ in Reorganizing America’s Defense (Washington, DC: Pergamon Press, 1985), p. 236.
Chapter 4-Planning and Funding DoD Technology Base Programs ● 47

preaches to mission accomplishment or to the

accepted division of mission responsibility.

The Services are often reluctant to support

technology base initiatives that challenge their

current mission or fighting doctrine, and because

they dominate the technology base planning

process, they are in a position to discourage such

initiatives.

Coordination of Technology Base Programs

DoD lacks a strong and focused coordinating

capability for its science and technology programs.

Although DoD has over 200 tri-Service and interagency coordinating groups, in general they have not

been effective at providing high level coordination

across the DoD-wide technology base programs.

(However, some, such as the Joint Service Electronics Program [JSEP], have produced impressive

results.) Coordination efforts are further hampered

because a significant portion of DoD’s science and

technology programs are not under the direct purview of the DDDR&E(R&AT).

In its task force report on improved coordination

of DoD S&T programs, the Institute for Defense

Analyses concluded that it is necessary to differentiate between “technical interchange” and “programmatic coordination, ” The IDA study concluded that currently there is much technical interchange among the Services, but very little programmatic coordination is aimed at identifying scientific

or technological gaps and overlaps. The IDA study

states that, without proper coordination, it is difficult

to ensure that the total DoD S&T program is

properly addressing the overall science and technology needs of DoD.14

OSD uses annual science and technology reviews

to help evaluate and improve the coordination of its

technology base programs. These reviews are designed to examine a particular technology base

program element (PE)15 (e.g., avionics) and the

projects in that element. However, such reviews are

not always effective. Due to manpower constraints,

OSD can only conduct a limited number of S&T

reviews each year. Further, since there is no uniform

OSD-wide format for conducting the reviews, the

methodology and thoroughness vary greatly. With

over 200 coordinating groups producing a hodgepodge of different reports, it is very difficult for OSD

to determine whether the resources of its technology

base program are being allocated wisely.

The IDA task force made three major recommendations for strengthening science and technology

coordination. The first is to establish a DoD-wide

S&T Coordinating Group responsible for establishing 17 Technology Coordinating Panels (TCPs) for

the entire S&T program. Membership of the TCPs

would consist of senior R&D managers from the

Services, the agencies including DARPA, and SDIO.

The TCP panel members would be kept up to date

on the status of a particular technology, the justification for specific programs in which a technology is

used, and why the users’ needs necessitate the

pursuit of that technology. The purpose of the TCP

panels would be to reduce unwarranted technology

duplication, ensure that resources in a particular

technology area are well balanced, identify potential

technology gaps, and identify critical long-lead-time

technologies in a series of annual reports.

The second major recommendation is that OSD,

the Services, the agencies, and SDIO develop a

DoD-wide format for the annual TCP reports. DoD

currently has no formal S&T reporting process for its

200 coordinating groups. If these 17 TCP groups are

to be effective, IDA believes, they should produce

consistent reports that outline important technology

activities across all of DoD’s S&T activities,

The third, and final, recommendation is to absorb

and disband those existing coordinating groups that

are not needed to support the work of the TCPs. IDA

points out that each of the 17 TCPs would have

under it a number of (existing) technology coordinating subgroups. For example, the TCP for Ships

and Submarines would have three subgroups: Hulls,

Hydrodynamics, and Machining. Each of the subgroups would be required to contribute to the TCP’s

annual report. Those not needed for this process

would be disbanded.

l’llnslitute for Defense Analyses, op. cit., footnote 6, P. 3.

ISThc pE is the basic bui]ding block in DCID’S program planning and budgeting systcm (PPBS). There arc approximately 180 PEs in DoD’s entire

technology base program, with each PE consisting of all costs associated with a research activity or weapon system.
48 . Holding the Edge: Maintaining the Defense Technology Base

Although these recommendations might help to

improve technology base coordination, getting them

accepted and implemented within DoD may prove to

be difficult. Each of the recommendations would

have to be approved by the DDR&E as well as the

USD(A) and then implemented by the Services and

the defense agencies. This is a process which in the

past has proven to be very difficult. For example,

although DARPA was invited to participate in the

IDA study, no DARPA representatives attended the

meetings of the task force or participated in writing

the final report.

Distrust and misunderstandings among OSD, the

Services, and DARPA are a major impediment to

improving S&T coordination. Efforts by OSD to

improve cooperation or coordination can be interpreted as an attempt to tell the Services and DARPA

how to manage their science and technology programs. Some OSD representatives believe that the

Services will pursue an independent path when

possible. Accordingly, improved coordination among

OSD, the Services, DARPA, and SDIO will be

difficult to achieve.

Acting as a Strong Advocate for DoD’s

Science and Technology Programs

OSD currently lacks a strong defender of its

technology base programs. A strong advocate would

have two primary responsibilities: 1) presenting a

comprehensive review and defense of DoD-wide

technology base programs to Congress; and 2)

acting as a strong proponent for the S&T programs

within the DoD.

The IDA task force concluded that there is no

single individual within OSD who is responsible for

presenting and defending technology base programs

before Congress or within DoD. The task force

indicated that the USD(A) should provide highvisibility advocacy for the S&T programs and

develop a coherent DoD-wide position statement on

the technology base programs.16

The lack of an effective S&T advocate within

OSD has contributed to the erroneous perception, in

Congress and even within DoD, that the technology

base programs have shared in the rapid growth of the

RDT&E account. Between fiscal years 1984 and

1989, funding for DoD’s RDT&E programs increased 20 percent in constant dollars (see table 2).

During the same period, however, research (6.1 ) and

exploratory development (6.2) funding declined 3

percent and 6 percent, respectively, in constant

dollars. Between fiscal years 1984 and 1989, almost

all of the growth in DoD’s S&T programs can be

attributed to SDI. When the SDI figures are included

in DoD’s S&T activities, they present a distorted

impression of budgetary growth in the S&T programs. The DDR&E testified before Congress that

the rapid growth of the SDI budget has strengthened

the technology base programs of DoD. By contrast,

IDA task force members expressed the belief that

most SDI efforts have been of little use to the rest of

DoD’s S&T programs.

In recent years, OSD has been unable to present

a comprehensive review of its technology base

programs to Congress in a compelling way. For

example, in DoD’s fiscal year 1987 RDT&E report

to Congress (the last year DoD produced such a

report), all the major RDT&E goals were focused on

short-term objectives. The report did not make

adequate distinctions between technology base activities on one hand and development, testing, and

evaluation activities on the other. OSD failed to

connect technology base advancements with the

development of current and future weapon systems.

Finally, the report provided no information on how

funding trends for technology base programs compared with the overall growth in RDT&E funding.

In some cases, OSD officials have not been able

to prevent the Services from shifting funds away

from their own S&T programs in order to support

more immediate concerns such as procurement, or to

prevent OSD from cutting technology base programs. This is clear in budget reviews, and was

demonstrated recently when the Army cut funding

for its research program by almost one-third and

cancelled its In-House Laboratory Independent Research (ILIR) program.

As illustrated by table 3, the Army-like the other

Services-supported consistent increases in its research program beginning in fiscal year 1980.

However, in fiscal year 1987, when DoD faced

budget constraints, the Army cut its research prolbInstitute for Defense Analyses, op. cit., footnote 6, P. ~.
Chapter 4-Planning and Funding DoD Technology Base Programs ● 49

Table 2—DoD Technology Base Funding, Fiscal Years 1984 Through 1989 (millions of 1982$)

% Change

(constant $)

1984 1985 1986 1987 1988 1989 1984-1989

Basic Research (6.1 )a 

. . . . . . . . . . . . . . . . . . . . . . . . 778 760 831 756 740 755 - 3

Exploratory Development (6.2) . . . . . . . . . . . . . . . . 2,051 2,032 1,984 1,985 1,924 1,928 - 6

Advanced Technology Development Without SDI . 1,261 1,175 1,223 1,433 1,438 1,408b

12

SDI office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,109C

1,243 2,318 3,156 2,957 2,849 157d

Total Technology Base With SDI . . . . . . . . . . . . . . . 5,199 5,210 6,356 7,330 7,059 7,191 38

Total Technology Base Without SDI . . . . . . . . . . . . 4,090 3,967 4,038 4,174 4,102 4,342 6

Total RDT&E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,829 27,371 29,322 30,464 30,568 29,663 19

‘This category does not mcludehmding Iortha University Research lnihatives(URl) Program.

~Thls figure does not include the transfer of $250 million ofOSD-managed projects to13ARfW.

Ckcordmg to DoD, altfwugh SDIO was allocated $49 million to begin Its research actwitles, the three Services plus DARPA were akeadv conducting about $1.2 billion in SD1-related

research-in fiscal year l&34 (in 1984$). dReflectS $1 ,25cJ million of SD1-related work in fiscal War 1984.

SOURCE: office of the Secretary of Defense.

Table 3-individual Service Funding for

Research (6.1) (in millions of dollars)

Air

Year Army Navy Force

1980 . . . . . . . . . . . . . . . . . . . . . . . . 130.7 214.9 119.2

1981 . . . . . . . . . . . . . . . . . . . . . . . . 144.4 241.4 126.6

1982 . . . . . . . . . . . . . . . . . . . . . . . . 179.2 276.5 147.4

1983 . . . . . . . . . . . . . . . . . . . . . . . . 206.2 307.6 166.4

1984 . . . . . . . . . . . . . . . . . . . . . . . . 216.5 320.6 191.4

1985 . . . . . . . . . . . . . . . . . . . . . . . . 231.5 341.2 201.3

1986 . . . . . . . . . . . . . . . . . . . . . . . . 250.3 342.3 210.2

1987 . . . . . . . . . . . . . . . . . . . . . . . . 219.5 354.3 223.3

1988 . . . . . . . . . . . . . . . . . . . . . . . . 168.9 342.1 197.7

1989 . . . . . . . . . . . . . . . . . . . . . . . . 172.7 355.3 196.4

SOURCE: office of the Secretary of Defense.

gram by 12 percent and cancelled its ILIR program

for fiscal year 1988. In fiscal year 1987, ILIR

comprised about 7 percent of the Army’s research

budget, or $16 million, spread among its 31 laboratories on a competitive basis.

The ILIR programs serve a number of important

purposes for Service laboratories. Because they are

a principal main source of discretionary research

funds, the Service ILIR programs help the labs

maintain an atmosphere of creativity and research

excellence, enhance their S&T base, provide seed

money that can lead to new research efforts, and

assist the laboratory directors in hiring new Ph.D.s.

In its 1987 summer study on technology base

management the DSB stated that ‘‘a successful

laboratory requires discretionary basic research

funding for its long term vitality. ” The DSB went on

to recommend that “at least 5 percent, and up to 10

percent, of the annual funding of Federal laboratories” should consist of ILIR funds.17

In meetings with OSD the Army reassured the

DDDR&E(R&AT) that funding for the research

program would be restored as soon as possible.

However, in fiscal year 1988, the Army cuts its

research program an additional 23 percent, and

canceled the ILIR program. After several meetings

with top Army RDT&E officials, the DDDR&E

decided not to raise the 6.1 funding issue to the

DDR&E level.

Promoting Cooperation Among

the Services and DARPA

There is a long history of inter-Service rivalry

and difficulty in cooperation between the Services and OSD. Further, cooperation between the

Services and DARPA is hindered because DARPA

reports to the DDR&E while the Service S&T

representatives report to the DDDR&E(R&AT).

Starting with the National Security Act of 1947,

Congress has taken a number of steps to strengthen

OSD as a centralizing and coordinating body. Many

analysts believe that these efforts have generally

ITU.S. ~p~ent of Defense, Office of tic DDR&E, Report of the Defense Science Board, 1987 Summer Study on Twhnolo~y Base Management”

(Springfield, VA: National ‘lk.chnical Information Service, December 1987), p. 15.
50 . Holding the Edge: Maintaining the Defense Technology Base

been unsuccessful.18 It is probably too early to tell if

the recent Goldwater-Nichols Act will be successful

in improving OSD centralization and coordination

capacity.

Inter-Service rivalry is not necessarily all bad. In

his book Bureaucracy and Representative Government, William Niskanen states that ‘‘competition

among bureaus promotes efficiency by reducing the

cost of certain services. ” Niskanen points out that

redundancy can guard against catastrophic failure of

one or more programs. 

19

Certainly there are advantages in using competitive approaches. However, there are limits to the

extent to which competition can contribute to the

success of the DoD S&T program. In an environment where the rapid development and deployment

of a technology often is important, excessive competition usually results in poor coordination, which

slows the introduction of new S&T capabilities.

Representatives from OSD and the Services have

stated to OTA staff that inter-Service rivalry often

has played a major role in delaying the development

of important technologies (such as remotely piloted

vehicles).

There have been instances in which OSD, the

Services, and DARPA have been able to overcome

some of these difficulties. One example is the recent

establishment of the Balanced Technology Initiative

(BTI). Established by Congress in fiscal year 1987,

the BTI is intended to develop new technologies to

‘‘substantially advance our conventional defense

capabilities. ” The National Defense Authorization

Act for fiscal year 1987 indicated that BTI funds

were to be used to ‘‘expand research on innovative

concepts and methods of enhancing conventional

defense capabilities,” and to promote “restoration

of the conventional defense technology base. ”20

Responsibility for planning, development, and oversight of the BTI program was assigned to the

DDR&E. The makeup of the BTI planning team,

chaired by a representative from the office of the

DDDR&E(R&AT), was unusual because it included

the Services, DARPA, SDIO, and four other OSD

organizations: Tactical Warfare Programs, Strategic

and Theater Nuclear Forces, International Programs

and Technology, and the Undersecretary of Defense

for Policy. Funding for the program was appropriated by Congress to OSD to be divided among the

Services, SDIO and DARPA.

Despite initial skepticism by the Services and

DARPA, the BTI program appears to enjoy strong,

although not universal, DoD and congressional

support. One reason might be that OSD did not

develop program guidelines on its own and then ask

the Services and DARPA to forward proposals based

on those guidelines. Rather, OSD made a deliberate

decision to include all of the interested parties in the

process of developing the BTI guidelines. All of the

participants played a role in the development of its

overall goals, and knew that project selection was

tied to the ultimate goals of the program rather than

just technological competence.21 OSD officials tried

to take advantage of European technological knowledge and capabilities during the initial planning

stages. The BTI planning team was also successful

in designing broad project implementation and

evaluation procedures. Finally, the BTI report to

Congress tied each of the programs to a crucial

component of the air-land and maritime strategy, not

to a program funding element; essentially, the BTI

planning team tied each project to a component of

the conventional warfare doctrine.

It is still too early to evaluate the success of the

BTI. Like other congressionally mandated programs, the BTI was greeted with skepticism in the

Services and OSD because congressional interest

and funding support for such special initiatives often

‘

8 Daniel J. Kaufman, “National Security: Organizing the Armed Forces, ” Armed Forces & Society, Mar. 16, 1988, p. 15.

lgwilli~ Niskanen, Bureaucracy and Representative Government (Chicago, IL: Aldinet Athefiom 1971).

2ORo&fi C. ~ncm, DDR&E, Department Of Defense ,Ttatement on the Balanced Technology Initiative, presented before tie committee on ‘reed

Services, U. S. Senate, Apr. 11, 1988, p. 2.

zlGuldellnes for selection included the followlng: 1) proJec[s had 10 bc consistent with the stated intent of Confless. 2) Emphasis had to be on

technology aeas that address recognized conventional force needs (e.g., chemical, biological defense, and nuclear programs were generally excluded).

3) Projects should offer both short- and long-term potential for enhancing conventional force needs. Preference would be given to ongoing work that

offered a high payoff in military effectiveness, with Iimitcd additional funding. 4) SDIO suggestions should be presented as technological spinoff

opportunities with relevance to conventional defense needs (e.g., hypervelccity guns and projectiles, high-power microwaves, and advanced seekers and

sensors). 5) A certain number of projects had to involve joint programs, such as Services/DARPA, multi-Service, or international cooperation.
Chapter 4-Planning and Funding DoD Technology Base Programs .51

have been fleeting. 22 Nevertheless, rather than developing program guidelines and objectives independently, OSD appears to have tempered this skepticism

by creating an environment in which all interested

parties are willing to cooperate in the development

and implementation of the BTI program.

Evaluating the Goals of the

Technology Base Programs

OSD and the Services have not developed a

systematic, DoD-wide approach for determining

the extent to which technology base programs

actually satisfy goals set by OSD. OSD officials

and Service representatives typically describe two

goals of the S&T programs: maintaining technological superiority over the Soviet Union, and being a

smart buyer of technology and technological expertise. Other technology base goals, such as reducing

complexity and cost, improving productivity of the

industrial base, sponsoring the highest-quality S&T

work, and enhancing return on investment, receive

comparatively little emphasis.

Moreover, although there is seemingly a general

consensus on what it means to keep ahead of the

Soviet Union, there appears to be much less agreement regarding what it means to be a‘ ‘smart buyer. ”

OSD and the Services appear to have no systematic

way of determining whether they are smarter buyers

of technology and weapon systems today than they

were, say, 10 years ago. It appears that OSD and the

Services take it “on faith” that a sustained effort in

various S&T activities provides them with the

ability to make intelligent investments in S&T and

weapon systems development.

Evaluating Research Activities

When OTA asked OSD representatives how they

spent their time, the responses focused on three

things. First, most of the respondents said they spend

too much time on the long process of reviewing and

defending their programmatic budgets. Second,

OSD personnel spend time responding to DoD

internal requests. These requests include technical

questions, providing information for the DoD Inspector General, responding to General Accounting

Office audits, or trying to prevent one of the Services

from shifting funds away from an S&T program.

Third, the respondents indicated that they spend

more and more of their time trying to satisfy

congressional requests. According to a recent article,

in 1970 Congress requested 31 reports or studies

from OSD. By 1985 that number had climbed to 458.

Concomitantly, legal provisions detailing how DoD

is to carry out certain aspects of its responsibilities

have increased from 64 to 213, while annual

congressionally mandated actions requiring specific

DoD compliance increased from 18 to 202.23 OSD

representatives gave the impression that they were

drowning in a sea of internal and external accountability and bureaucratic red tape.

Many respondents indicated that they spent only

a small portion of their time performing duties that

require science and technology skills. It appears that

too many OSD-as well as Service-R&D managers are required to spend an inordinate amount of

time defending their budgets, responding to DoD

bureaucratic red tape, or answering an ever-growing

number of congressional inquiries, leaving little

time to evaluate R&D activities.

ORGANIZATION OF OSD

FOR OVERSIGHT

DoD’s current organizational arrangement for

managing S&T activities contributes to the difficulties OSD encounters in shaping a coherent technology base strategy, and to the problems described

above.

As a result of the Goldwater-Nichols Act, DoD

has reorganized the management of its RDT&E

activities. The Act abolished the office of Under

Secretary of Defense for Research and Engineering

and replaced it with the USD(A). The legislation

also re-created the Office of the DDR&E, which

reports to the USD(A). (See figure 2.)

The USD(A) has oversight responsibility for all

of DoD’s technology base programs, except those of

SDIO, That oversight responsibility is delegated to

ZzThe SeWices we generally satisfi~ with the conventional programs the BTI is currently supporting. However, Congress did nol Provide anY

additional funding for the BTI in fiscal year 1990. Consequently, OSD will fund the BTI program by taxing other conventional technology base efforts

of the Services. The Services argue that OSD’S action in this instance has greatly compromised the original intent of the BTI program,

zsKaufman, op. cit., footnote 18, P. 5.
52 ● Holding the Edge: Maintaining the Defense Technology Base

the DDR&E, who in turn delegates oversight of the

Services’ programs to the DDDRE(R&AT). The

director of DARPA is supposed to work closely with

the DDDR&E(R&AT), but reports directly to the

DDR&E.

The current DoD RDT&E organizational structure raises a number of concerns. The first centers on

the primary responsibilities of the USD(A). The

Packard Commission stated that it was crucial for

the new USD(A) to have full-time responsibility for

managing the defense acquisition system, setting

R&D policy, and supervising the performance of the

entire process including procurement, logistics, and

testing. The Under Secretary is also responsible for

developing contract audit policy, supervising the

oversight of defense contractors, and preparing

annual reports to Congress on major issues of

acquisition policy and program implementation.

With the procurement budget many times larger than

the tech base budget, members of the defense R&D

community are afraid that their concerns will take a

back seat to the USD(A)’s broad menu of acquisition

responsibilities.

Some OSD and Service representatives believe

that it is too early to tell whether the technology base

programs will suffer as a result of the reorganization.

However, other DoD officials contend that S&T

programs have already experienced some setbacks.

They note, for example, that the USD(A) recently

removed the office responsible for international

R&D cooperative programs from the DDR&E’s

office. The newly created Deputy Under Secretary of

Defense for International Programs and Technology

is still responsible for cooperative foreign R&D

programs but now reports directly to the USD(A).

However, according to the 1986 Nunn Amendment,

by 1994, 10 percent of the RDT&E programs are to

have foreign involvement. Representatives of the

office of the DDR&E believe that they should have

oversight responsibilities for those programs. Currently there are about 20 foreign S&T cooperative

projects.

A second organizational problem concerns the

reestablishment of the DDR&E. The DDR&E was

originally established as part of the 1958 Department of Defense reorganization Act. The DDR&E

was given greater responsibilities in 1977, and

elevated to the Under Secretary of Defense for

Research and Engineering [USD(R&E)] as part of

Secretary of Defense Harold Brown’s management

reforms.

Some DoD officials contend that the reestablishment of the DDR&E as subordinate to the USD(A)

might be interpreted as a lowering of status for R&D,

since the DDR&E no longer has direct access to the

Secretary of Defense. Various OSD representatives

have argued that if science and technology are the

cornerstone of the military’s defense capabilities,

then S&T programs should have direct access to the

Secretary’s office. They fear that, without such

direct access, important S&T issues such as cooperative foreign R&D programs will get lost in the

acquisition shuffle. Others, however, assert that only

technology that gets fielded in military systems has

any value for defense, and that the DDR&E is

appropriately placed under the USD(A). They claim

that the reestablishment of the DDR&E will not

present a problem if the USD(A) strongly supports

the S&T programs.

Managing Technology Base Activities

at DARPA and SDIO

The Role of DARPA

A third concern is the role that DARPA and SDIO

play in supporting DoD’s technology base programs. DARPA was established in 1958, partly as a

result of the launching of the initial Sputnik satellites. The President and Congress also recognized

that DoD needed an organization that could “take

the long view” regarding the development of

high-risk technology. DARPA was thus setup to be

DoD’s ‘‘corporate” research organization, reporting

to the highest level, and capable of working at the

cutting edge of technology. DARPA’s organization

allows it to explore innovative applications of new

technologies where the risk and potential payoff are

both high, and where success might provide new

military options or applications-or revise traditional roles and missions. In theory, since DARPA

has no operational military missions, it should be

able to maintain objectivity in pursuit of research

ideas that hold promise for important technology

advancement for all of the Services,

DARPA executes its programs mainly through

contracts with industry, universities, nonprofit organizations, and Government laboratories. DARPA
Chapter 4-Planning and Funding DoD Technology Base Programs ● 53

now has a limited in-house contracting capability,

but most of its contracts are still managed by the

Services.

Although DARPA was originally established as

a small agency to promote the rapid diffusion of new

and creative ideas, in the past two years DARPA’s

budget has ballooned to over $1 billion, sponsoring

almost 25 percent of the military’s S&T work.24

Further, in 1986 DoD announced that DARPA’s role

as a developer of technology would include prototyping.

The recent rapid growth in DARPA’s budget and

its additional prototyping responsibilities have

raised several concerns within the defense community. First, OSD and Service representatives have

had problems coordinating technology base activities with DARPA. They contend that part of the

problem is DARPA’s independence and its separate

reporting chain within OSD. All three Services have

complained that DARPA seldom involves them in

its initial planning activities for joint DARPA/

Service projects. The Services note that DARPA

often chooses not to participate in important technology base activities. Many experts believe that efforts

to improve DoD-wide technology base planning and

coordination would require full participation by

DARPA.

A second concern revolves around the changing

nature of DARPA’s technology base activities. Of

the $1,270 million DARPA budget for fiscal year

1989, only $88 million is for basic research. There

is growing concern, inside and outside DoD, that

DARPA may be supporting too much applied

research and technology demonstration activities

rather than longer-term, high-risk basic research. In

testimony before the House Science and Technology

Committee’s Task Force on Science Policy, Norman

R. Augustine, a member of the DSB and then the

executive vice president of Martin Marietta corporation, stated that:

In decades past, the effort of the [Defense]

Advanced Research Projects Agency was focused

upon advancing basic research and applied research.

Over the years since its inception, however, the

funds allowed to DARPA have been, to an increasing

degree, used for prototype demonstrations-a very

worthwhile undertaking in its own right but nevertheless still a major drain on the basic research

resources originally intended at the time DARPA

was established.25

The changing nature of DARPA’s technology

base work leads to a third organizational issue:

DARPA’s alleged past difficulties in transferring

technology to the Services. DARPA is not the only

organization, public or private, to struggle with

technology transfer problems, and over its 30-year

history DARPA has had a very impressive record of

successfully transferring such technologies as

stealth, directed energy, and some types of lasers to

the Services. Nevertheless, many OSD and Service

representatives strongly criticized DARPA’s current

technology transfer activities, particularly with regard to prototyping and technology demonstration

programs. This has taken on particular importance in

recent years, as Congress has turned to DARPA to

address Service-related advanced technological problems in such areas as anti-submarine warfare,

anti-armor applications, and lighter-than-air technology.

Two recent studies seem to reinforce the OSD and

Service technology transfer concerns. In 1985, at

DARPA’s request, both the National Security Industrial Association (NSIA) and the Technology Transfer Center at George Mason University conducted

studies of the particular technology transfer process

associated with DARPA’s large technology demonstration programs. Both of these studies concluded

that DARPA’s technology transfer activities rely too

much on individual initiatives, resulting in a very

weak and haphazard approach to the technology

transfer process. The NSIA study noted that “DARPA

is often too insensitive or unaware regarding the

needs and problems of the Services. ” The NSIA

240sD e5timates~at for fISCaI year 1$)89 DARPA’s budget will be about $1,270 million. Of that amount, $250 million will consist of work transferred

out of OSD to DARPA. These projects include the SEMATECH initiative, the Monolithic Microwave Integrated Circuit (MMIC) program, the Software

Technology for Adaptable Reliable Systems (STARS), and several other programs. The OSD projects will be primarily managed by OSD personnel who

have been transferred to DARPA from the disbanded Computer and Electronics lkchnology Directorate in OSD. The remaining $1,000 million

(approximately) consists of about $700 million requested by DARPA and a total of about $300 million added on by Congress,

25Nomm R. Au~stinc, M~in Marietta COrp., testimony at hearings ~efl>re tie HOUSC Committm on science and T&hnology, Task Force on Science

Policy, Oct. 23, 1985, pp. 3-4.
54 ● Holding the Edge: Maintaining the Defense Technology Base

panel indicated that an “increase in the awareness

and sensitivity to the Services needs need not

compromise DARPA’s essential free thinking. ”26

Both studies recommended that DARPA develop

a written Agency-wide technology transfer plan for

all technology demonstration activities. Among

other things, this plan should require all program

managers to work closely with the appropriate

Service when undertaking a technology demonstration project. Both studies recommended that DARPA

make available to all Program Managers a central

historical database of successful and unsuccessful

technology transfer strategies based on actual program experience. The studies pointed out that given

the short tenure of DARPA professional staff (about

3 to 4 years), a written plan and central database

would help improve the long-term continuity of

DARPA’s technology demonstration programs.

Despite these strong recommendations, DARPA

has not yet developed a formal technology transfer

plan. OSD and the Service representatives assert that

if DARPA continues to pursue its technology

transfer activities as it has in the past, many good

technological opportunities could be wasted. However, this problem is not unique to DARPA; OTA

has not found any formalized written technology

transfer procedures developed by OSD and the

Services.

The Role of SDIO

The Strategic Defense Initiative Organization

(SDIO) was established as a separate agency of the

Department of Defense in 1984, with the director

reporting to the Secretary of Defense. The SDIO’s

mission is to ‘‘provide the technological basis for art

informed decision regarding feasibility of eliminating the threat posed by ballistic missiles and

increasing the contribution of defensive systems to

U.S. and allied security. ”27

As indicated in table 3, the SDIO budget has

grown rapidly over the past 5 years. Although the

entire SDIO budget is contained within the 6.3A

budget category, not all SDI activities are advanced

technology demonstration efforts. For example,

SDIO’s Innovative Science and Technology Office

(ISTO) has the mission of establishing the feasibility

of revolutionary concepts with the potential for

application to specific SDI technological needs.

Like DARPA, the ISTO executes its research

contracts through the Services. The ISTO estimates

that in fiscal year 1988 and fiscal year 1989 it will

support $100 million in SDI-related research.

SDIO also supports exploratory development

(otherwise funded under category 6.2). Because

there is no separate office that manages such work,

it is very difficult to determine how much exploratory development SDIO is currently funding. OTA

asked SDIO if it could determine the dollar amount

of research and exploratory development projects it

supports on an annual basis. According to the SDIO

comptroller, SDIO does not fund any true research

activities. 28 SDIO's research efforts do not match

DoD’s accepted definition of research. However, the

director of ISTO indicated that 80 percent of the

projects his office supports do qualify as research.

OSD and Service representatives agree that ISTO

sponsors short-term research programs, with heavy

emphasis on solving specific SDIO challenges.

The comptroller maintains that all of ISTO’s

efforts really fall under the definition of exploratory

development. The report concludes that approximately 20 percent of the SDIO budget is devoted to

exploratory development work.

SDIO is funding about $700 million of exploratory development work with no formal coordinating ties to the three Services and DARPA.

Presently, the only coordinating activities occur

informally, as the individual Services and DARPA

manage SDIO’s exploratory development contracts.

OSD and Service representatives have stated that

SDIO should participate in OSD’s technology base

investment strategy activities. Taken together, the

current organizational arrangement and the mission

of the SDIO program make such participation

unlikely. According to the Air Force, however,

SDIO projects conducted in Air Force laboratories

LbNational security Industrial Association, “DARPA’s Technology Transfer Policy,” December 1985, p. 7.

zTGcra]d Yonas, Acting Deputy D1re~tor and Chief Sclen(lst of SDIO, “The Stra[egic Defense initiative Science in the Mission Agencies & Federal

Laboratories,” testimony at hearings before the House Committee on Science and Technology, Science Policy Task Force, Oct. 23, 1985, p. 543.

18Thc Conlpuoller of SD1O provided OTA with a written estimate of how, milch technology base work SDI() is current]y supporting, by Ciltf2gO~.
Chapter 4--Planning and Funding DoD Technology Base Programs .55

differ from DARPA projects because they are well

integrated into the laboratory program. Such coordination and integration usually occurs at the laboratory (or lab division) level.

Recruiting and Retaining

Scientific Personnel

According to OSD and Service representatives,

DoD is often unable to recruit the very best

scientific, technical, and managerial talent. Because of growing salary disparities between the

government and the private sector, OSD is losing

many top level S&T managers.

The late Philip Handler, former president of the

National Academy of Sciences, once pointed out

that in science the best is vastly more important than

the next best. Both the 1983 Packard Report and the

1987 DSB report concluded that OSD and the

Services face serious disadvantages in hiring and

retaining top S&T personnel for three primary

reasons: inadequate civil service compensation,

‘‘revolving door” restrictions, and a lowering of

status associated with Federal employment.

A recent unpublished Navy study found that since

the early 1980s, the disparity between Federal

salaries and salaries in industry and academia has

greatly expanded. For example, the average compensation for S&T managers in the upper 10 percent

of the private sector was $40,000 to $50,000 higher

than for their Government counterparts. Another

internal Navy survey of university principle investigators (PIs) found that, for the first time, the majority

of PIs’ salaries were higher than government salaries. Some 60 percent of university PIs are paid

salaries that exceed the Federal pay cap, with

approximately one-third of them exceeding $90,000.

This problem is likely to become more pressing

in the future. Changing demographics will produce

a work force with greater ethnic diversity and more

women. Minorities and women have not contributed

in substantial numbers to science and engineering in

the past. The challenge will be to expand the

participation of women and minorities in science

and engineering college programs and graduate

schools and, ultimately, to offer them rewarding

careers working in defense technology base and

related program areas.29

Salary disparity has also contributed to a high

level of turnover among top-level OSD political

appointees. For example, between 1981 and 1988

there were three different USD(R&E) officials, and

five individuals have held the position that is now

DDDR&E(R&AT). An internal OSD study indicated that the overall quality of its S&T political

appointees was very inconsistent.

Pre-employment and post-employment personnel

restrictions also mitigate against recruiting first-rate

political appointees. Such officials are required to

divest themselves of any financial interest in any

company conducting business with DoD. This

requirement can result in serious tax consequences

for the political appointee. Further, many prospective employees resent the prospect of filing an

annual financial disclosure statement.

The main postemployment restriction concerns

the recently amended “revolving door” legislation.

The revised law restricts the kinds of services former

military officers and DoD employees may perform

for a future employer that does business with the

Defense Department. Among other things, this law

imposes a‘‘2-yearban on certain former Department

of Defense personnel receiving compensation of

more than $250 from defense contractors (who have

contracts in excess of $10 million with the government) if the former officers or employees had

official procurement duties relating to that contractor during the 2-year period prior to separation from

government service. ”30

According to OSD and Service representatives,

the revolving door legislation has significantly

limited DoD’s ability to hire top-level S&T managers from the private sector who have had experience

working in the defense arena. Compared with their

predecessors, many top-level S&T managers now

Z9U.S. Congess, Ofiicc of Technology Assessment, Educating SLienti,st.s and Engineers: Grade School to Grad School (Washington, DC: U.S.

Govemmcnt Printing Office, June 1988); and U.S. Congress, Officeof’Technology Assessment, Higher EducationforScienti.!ts and EnguzeerQackground

Paper, OTA-BP-SET-52 (Washington, DC: U.S. Government Printing Office, March 1989).

~~Jack Maskel], Library of Congress, Congressional Research SCWiCC, ‘‘Post Employ rncnt ‘Revolving Door’ Restrictions on Department of Defense

Personnel,” July 5, 1988, p. 3.
56 ● Holding the Edge: Maintaining the Defense Technology Base

come to DoD with little or no defense experience.

This situation has contributed to the increasing

period of time it takes new DoD S&T managers to

understand the complexities of the overall defense

environment.

DoD SUPPORT OF ITS

TECHNOLOGY BASE PROGRAMS

In 1953, President Eisenhower said that, despite

the establishment of the National Science Foundation, Federal agencies such as DoD would have to

continue performing and supporting basic research

closely related to their missions. Since then DoD

officials have asserted that basic research provides

information on natural phenomena that DoD could

use in the development of modem weapons.

In 1963 Harold Brown, then DDR&E and

subsequently Secretary of Defense, said that ‘‘as the

largest user of scientific and technical information in

the Federal Government, DoD had an obligation to

replenish this information. ” Brown went on to say

that DoD has to support a broad range of research

that may or may not be directly related to its

mission. 31 DoD representatives contend that in an

era of rapid technological change and growing

Soviet S&T competence, DoD support for a strong

and diverse technology base program is imperative.

Despite these strong statements of support,

funding for DoD’s S&T programs has been inconsistent over the past 20 years. As table 4 indicates,

beginning in 1970, funding for research (in constant

dollars) began to decline and did not exceed its 1970

level of support until 1986. Moreover, since the peak

year of 1986, funding for research has declined more

than 4 percent in constant dollars.

Similarly, support for exploratory development

declined until the late 1970s. Then it rebounded,

nearly returning to its 1970 level by 1983—in

constant dollars, Between 1984 and 1989, however,

support for exploratory development again fell by

almost 10 percent.

By almost any measure—total constant dollars,

fraction of DoD budget, fraction of RDT&E budget—

the level of DoD support for its research and

exploratory development programs has decreased

over the past 20 years. In the mid-1960s, research

and exploratory development represented 25 percent

of the total RDT&E budget. By 1989 it had shrunk

to less than 9 percent. Between 1970 and 1988, 6.1

and 6.2 funding declined as a percent of DoD’s total

obligational authority (TOA), from 1.79 percent to

1.27 percent. Further, as table 4 shows, since 1983

DoD has moved its resources from research and

exploratory development programs to advanced

technology development (ATD) programs.

Between 1984 and 1989, constant dollar funding

for 6.1 and 6.2 programs declined 3 percent and 6

percent, respectively (see table 2). During the same

period, funding for advanced technology development (ATD) exclusive of SDI increased 12 percent,

while support for the SDI program rose 157 percent,32

The recent rapid growth of both ATD and SDI

programs has taken its toll on the basic research and

exploratory development programs. OSD and Service representatives have indicated that DoD is

putting greater emphasis on ATD activities to

improve the transfer of new technology to weapon

systems. For example, in 1984 DoD reduced funding

for its exploratory development program by $300

million while increasing ATD by $500 million.

According to OSD personnel, the switch in funding

was nothing more than an accounting change: a

review of the programs supported under exploratory

development revealed that a good portion of the

work should have been classified as ATD.

In testimony before the House Armed Services

Committee, the DDR&E, Dr. Robert Duncan, said

that the growth in the ATD program and the SDI

program has offset the losses in research and

exploratory development. However various OSD

and Service representatives contest this statement,

insisting that those technology base activities which

SDI currently supports are aimed exclusively at

solving SDI-related problems. Consequently, potential benefits flowing from SDI into technology base

programs will be long term, and probably more

~lRa]ph Smders (cd.), “Re~~ch: Meting of the Term,” in [)efemre Research and Development (Washington, DC: Industial college of tie A~cd

Forces, 1968), p. 73. ‘

s2This calculation is based on DoD info~ation that the three Scrviccs and DARPA were supporting about $1.2 billion in SDI-related resemch in 1984.
Chapter 4-Planning and Funding DoD Technology Base Programs ● 57

Table 4-DoD Technology Baae Funding Trends (millions of 1982$)

Advanced

Exploratory Technology Total Total

Research Development Development without with

Year (6.1) (6.2) (6.3A) SDIOb SDI SDI

1970 . . . . . . . . . . . .

1971 . . . . . . . . . . . .

1972 . . . . . . . . . . . .

1973 . . . . . . . . . . . .

1974 . . . . . . . . . . . .

1975 . . . . . . . . . . . .

1976 . . . . . . . . . . . .

1977 . . . . . . . . . . . .

1978 . . . . . . . . . . . .

1979 . . . . . . . . . . . .

1980 . . . . . . . . . . . .

1981 . . . . . . . . . . . .

1982 . . . . . . . . . . . .

1983 . . . . . . . . . . . .

1984 . . . . . . . . . . . .

1985 . . . . . . . . . . . .

1986 . . . . . . . . . . . .

1987 . . . . . . . . . . . .

1988 . . . . . . . . . . . .

1989 . . . . . . . . . . . .

779

728

712

629

579

530

528

556

576

608

653

660

697

754

778

760

831

756

740

755

2,418

2,238

2,414

2,306

2,126

1,923

1,902

1,947

1,937

1,972

2,021

2,134

2,233

2,357

2,051

2,032

1,984

1,985

1,924

1,928

—

—

—

—

567

631

677

734

697

725

676

600

738

792

1,261

1,175

1,223

1,433

1,438

1,658

—

—

—

—

1,109

1,243

2,318

3,156

2,957

2,849

3,197

2,966

3,126

2,935

3,273

3,084

3,107

3,237

3,210

3,306

3,350

3,393

3,668

3,903

4,090

3,967

4,038

4,174

4,102

4,342

—

—

—

—

—

—

—

—

—

—

—

—

—

—

5,199

5,210

6,356

7,330

7,059

7,191

aThe6.3Acategory wasestablishedin 1974.

bEstablishedm 1984.

SOURCE: Office oftheSecrWary ofoefense.

expensive than if they had been supported directly

through S&T activities.

The IDA task force stated the consequences

bluntly:

If the decline in resources devoted to science and

technology is not reversed, the impact on the related

technological capabilities of U.S. weaponry and

forces maybe compromised so much that we will

need to rethink our basic strategy of using qualitatively superior weapons to offset numerical disadvantages. 33

While DoD’s RDT&E program has experienced

significant growth in the 1980s (see figure 3) the

S&T portion of the budget has not shared in that

expansion. Between 1980 and 1989 the RDT&E

budget increased 90 percent in constant dollars,

while the S&T programs (excluding SDI) increased

only 16 percent.

According to OSD and Service representatives,

two primary reasons explain this relatively small

increase. First, technology base programs do not

enjoy strong support at the highest levels within the

military. Similar findings were reported by the IDA

task force, and the DSB in its 1987 summer study of

DoD S&T programs. In its report the DSB stated:

Where once OSD exerted a centralized point of

unified leadership and budgetary authority and

control for the 6.1 program, the Study Group is

concerned that this leadership is fragmented by

delegation to the Services and agencies; the 6.1

program has, in effect, been relegated to a position

of second or third order of importance and lacks top

management attention. Stated bluntly, DoD “corporate management” has essentially abrogated some of

its responsibility for long range vitality and competitiveness.34

OSD and Service representatives believe that

military leaders do not appreciate the role that past

S&T accomplishments have played in providing

technologically superior weapons. Top Pentagon

leaders are often willing to sacrifice 6.1 and 6.2

qqlnsti[utc for Defense Analyses, op. cit., fOOtnOte 6, P. 4.

34U.S. Dep~ment of Defense, op. cit., fOOtIIOte 17, p. 13.
58 . Holding the Edge: Maintaining the Defense Technology Base

Figure 3-Comparison of RDT&E and

Technology Base

Billions 1982$

35

3 0 -

2 5 -

2 0 :

15-

10-

5 -

0 ( I 1 1 1 1 1 I [ I I I I 1 1

1970 75 8 0 8 5

Year

— Technology base

— Total RDT&/3E

— Tech. base & S D I

SOURCE: Data provided by the Office of the Secretary of Defense,

activities in order to protect budgets for immediate

and visible needs, such as tanks and planes. The

consequences of reducing the force structure, terminating weapon systems, or delaying procurement are

much more visible than a particular research program which may not bear fruit for 10 to 15 years, if

ever. Unfortunately, this attitude has not served the

technology base programs well in times of tight

budgets. It has resulted in military leaders ‘raiding”

S&T programs to help pay for downstream system

development programs. As was noted earlier, the

recent growth in the ATD budget to improve DoD’s

near-term technology transfer concerns has come at

the expense of the research and exploratory development,

Focusing on near-term defense needs in resolving

budgetary conflicts tends to bias the subject matter

of DoD research. There is considerable agreement

within OSD and the Services that much of DoD’s

research program is aimed at meeting the short-term

needs of the military, and that it is easier to obtain

top-level support for research activities that can be

related to specific military needs. This is a point of

contention. Many of those actively involved in the

S&T programs believe that this is a misuse of

research funds. They contend that it is unwise to

direct the research program toward the solution of

near term problems because military utility can

come from all areas of science and engineering. By

this logic, it is in DoD’s best interest to be involved

in a wide range of research problems, to follow their

progress carefully, and to apply long term scientific

reserch to present and future needs.35

A recent internal OSD evaluation of DoD’s

research programs concluded that many of its

research projects in such fields as mathematics,

chemistry, computer sciences, and physics were

‘‘too well connected to current military needs. ” The

OSD review instructed Service 6.1 managers that

“you should be reaping the fruits of seeds sown by

your predecessors, and you should be sowing the

seeds which will bear fruit for your successors

several times removed. ”

This very same concern was discussed in the

DSB’s 1987 summer study on the technology base.

The DSB report concluded, “The need for shortterm results and immediate ‘relevancy’ has become

the governing criterion in framing a program. We

have experienced a ‘research menu squeeze’ in

which the most popular programs, justifiable in

terms of clearly perceived near-term military relevancy, survive the cut.”36 The DSB report urged the

Services to pursue more research activities with

longer term objectives. On the other hand, some

argue that basic research is funded within DoD

precisely because the Defense Department can give

it a focus that makes it relevant to military needs.

CONCLUSION

There is a serious question as to whether OSD is

currently fulfilling its technology base oversight

responsibilities in a satisfactory way. There is

general agreement, inside and outside of the Pentagon, that OSD has not developed an overall technology base investment strategy. Many within the

Services contend that, for a number of reasons, OSD

should not attempt to develop a coordinated technology base investment strategy, and that the current

decentralized system is probably better. But others

assert that such a large technology base program,

with important national security implications, ought

35 George Gamota, ‘‘How Much Does the Defense Department Advance Science?” in proceedings of an American Association for the Advancement

of Science (AAAS) symposium, Naval Research Center, Washington, DC, Jan. 8, 1980 (published Sept. 24, 1980), p. 4.

3SU.S. Dep~ment of Defense, op. cit., footnote 17, p. 12.
Chapter 4-Planning and Funding DoD Technology Base Programs . 59

to possess some overall central leadership and

guidance.

Implementing an OSD-guided investment strategy would not be a panacea for all the challenges

confronting DoD’s technology base programs. A

coordinated investment strategy could: 1) help

create a process for making OSD-directed strategic

decisions, 2) allow OSD and the different agencies

to focus on the outputs of the S&T programs and not

just the inputs, and 3) enhance the understanding of

DoD technology base programs.

A coherent technology base investment strategy

would assist Congress in its review of defense S&T

programs. In the absence of a clearly articulated

technology base strategy, Congress is forced to

focus its review on numerous individual program

elements. A technology base strategy that included

a rational list of priorities would enable Congress to

take a broader view of the Pentagon’s S&T programs. Congress might then focus its attention on

the extent to which DoD’s proposed technology base

program satisfies its overall strategy and stated

priorities.

Despite the Goldwater-Nichols Act, OSD’s

current organizational arrangement presents problems for coordinating the different technology base

programs. Without the full participation of DARPA

and SDIO, a coherent technology base program will

be very difficult to achieve.

Clearly there is no magic formula for DoD to use

in determining the ‘‘right” level of support for its

technology base programs. After numerous discussions with individuals outside and inside the defense

community, OTA has identified several criteria that

might usefully be applied to evaluating the overall

strength of DoD’s science and technology programs.

First, it is essential for an organization to

maintain strong support for a broadly based science

and technology program, Top corporate managers,

responsible for maintaining the overall health of

their science and technology programs, must have a

deep understanding of how a strong technology base

program can help an organization attain both its

short and long term S&T goals. DoD’s technology

base programs do not enjoy consistent high-level

support within OSD and the Services. An organization’s research program should be strong and diverse

enough to attack any problem related to the organization’s mission. As the director of research for a

large industrial corporation told OTA, he wants his

S&T people to be “swimming in a sea” of

company-t-elated research problems.

Second, individuals responsible for managing

S&T programs need a clear mission statement that

guides the overall makeup of the S&T programs.

The mission should be developed by a critical

number of people throughout the organization and

understood by all. DoD asserts that the primary

mission of its S&T programs is to offset the

numerical advantages and growing technological

sophistication of Soviet forces. But recent studies

criticize DoD for focusing too strongly on the Soviet

Union, arguing that the military must be prepared to

engage in a number of different combat arenas.37

There is little agreement within OSD and the

Services on how the technology base programs

should be structured to meet the diverse security

challenges that will confront DoD in the future.

Third, a strong S&T organization must be able to

recruit, hire, and invest in the very best S&T talent.

These new people should be exposed to a strong

orientation program that helps them understand how

their work will contribute to attaining the overall

S&T mission. In order to conduct a vital S&T

program, DoD must achieve the ability to recruit and

retain top flight scientists and engineers,

Fourth, many researchers, both inside and outside

the Pentagon, contend that DoD needs to maintain

greater funding stability for its technology base

programs. This is especially true for the early stages

of research activities.38DoD's research and exploratory development programs have suffered since the

establishment of SDI. Over the last six fiscal years

(1984-89), DoD has been the only major Federal

R&D sponsor to experience a funding decline, in

constant dollars, for basic research. A continuation

37scc, for Cxmple, Fred C, lkle and AlbtwI Wohlstetter, ‘‘Discriminate Deterrence,” Report of The Commission On Integrated brig-Term Strategy,

Jan. 11, 1988.

SW.S. Dep~men[ of Defense, op. cit., footnote 17. P. 11.
60 ● Holding the Edge: Maintaining the Defense Technology Base

of these trends could jeopardize a pillar of U.S.

defense strategy.

The director of research at a Department of

Energy (DOE) laboratory speaks of “recovery

research. ” When an organization fails to support a

broadly based research program, it often experiences

difficulty with new products as they move into

development. Consequently, in order to correct such

problems, the organization is forced to engage in

recovery research, which is costly and timeconsuming. The DOE official stated that the more an

organization has to perform recovery research, the

greater the probability that its S&T programs are not

receiving enough support. An OSD official told

OTA that he believes that DoD has to support too

much recovery research.

Finally, a strong S&T program must be closely

coupled to the developers and ultimate users of

technology. This is an important avenue of communication for managers to ensure that their S&T

programs are solving the right problems, Some

Service officials complain that technology base

people are not always consulted when new weapon

specifications are developed. For example, Army

S&T representatives told OTA that they were not

consulted when the Light Helicopter Experimental

program specified an automatic target recognition

capability (ATR). According to these officials, they

knew that an ATR capability was (and still is) not

feasible. The Army now refers to this concept as

aided automatic targeting recognition (AATR).
Chapter 5

The Management of Defense

Department Laboratories
CONTENTS

Page INTRODUCTION ....... + . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 GOVERNMENT-OWNED, GOVERNMENT-OPERATED LABORATORIES . . . . . . . . 64 . . . . . . . . . . . . . .

Justifications for In-house Work . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .., ., .. ... 64

Personnel Management. ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Laboratory Management Issues: Funding. .. .. ... ... 72

GOVERNMENT-OWNED, CIBTRACTOR-OPERATED FACILITIES:

AN ALTERNATIVE MODEL . . . . . . . . .... . . . . . . . . . . . . . . . . . . . . . . . . . 74

.,...,. . . . . . . . . ,,. 74 The GOCO Relationship at the Department of Energy: Contractual Arrangements . . . 75 . . . . . . . . . . . .

The GOCO Relationship at the Department of Energy: Complying With

Federal Norms . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . .. . . . . . .

. . . . . . . . . . . . . . . . . . 76

78 SUMMARY AND CONCLUSIONS .. .. .. .. .. .. .. .. .. ... ..... : 80
Chapter 5

The Management of Defense Department Laboratories

INTRODUCTION

Three problems—personnel, funding, and size—

hinder virtually all of the laboratories operated by

Department of Defense (DoD) employees in performing inherently governmental functions, acting

as smart buyers, and incubating new concepts. The

government’s personnel system is too rigid because

it makes it difficult for laboratories to compete with

the private sector for professional staff, because pay

scales are inflexible, and because of the obstacles it

sets to rewarding performance. The laboratories find

it difficult to get funds as and when they need them:

They must spend their funds within the 12-month

budgetary cycle, and they have limited authority to

move money between accounts, approve start-ups,

and target discretionary money to building their

technology base. Finally, most labs often cannot

deploy a critical mass of scientists and engineers into

new areas that may be vital to the lab’s mission.

Alternative models to the government-owned,

government-operated laboratory exist, for example

the facilities operated under contract to the Department of Energy (DOE). Such models have certain

common features. They operate under the contractor’s own management systems. Their personnel

systems enable them to compete on almost equal

terms with universities and industry for scientists

and engineers. Their funds are often available until

spent. And they have the size and depth of expertise

to work in the various disciplines needed for

technology development.

The question that DoD and its technical managers

confront is whether to continue the current system or

to restructure the laboratories. As grave as the labs’

problems are, conversion to government-owned,

contractor-operated facilities (GOCO) may not be

the answer. A conversion to GOCO could improve

the laboratory’s operations in the short term, while

leaving its basic problems unchanged. No institutional approach can be divorced from the ends the

institution is supposed to serve. The military Services must first decide what purposes their laboratories serve before taking the next step of altering

long-standing institutional arrangements.

This chapter describes, compares, and contrasts

the basic management arrangements of DoD’s

government-owned and -operated laboratories with

those of comparable facilities, whether governmentowned and contractor-operated or federally funded

research and development centers (FFRDCs). It also

raises a fundamental question: Why does the government in general, and the DoD in particular, need to

develop technology through its own laboratories?

The problems of DoD’s in-house laboratories are

well documented. The next, and more difficult, task

is to take the argument a step further: to consider

some alternative approaches to technology development. The Defense Science Board (DSB) did this in

its 1987 summer study, recommending that under

carefully specified conditions some labs consider

converting to a GOCO model But the costs and

benefits must be carefully weighed. After ail, a

GOCO military lab would still be dealing with the

same sponsor whose rigidity prompted the conversion in the first place. Additionally, no governmentfunded institution can escape oversight merely by

converting to contract. The reason is simple: Whether government-operated or GOCO, operating funds

ultimately derive from congressional appropriations, and Congress holds the senior officials of the

sponsoring agencies accountable for their proper

use.

Beginning with a look at the roles of in-house

military laboratories, this chapter explores the systemic problems they face in getting work done—

problems of personnel management and development, starting and completing work, relations with

the sponsoring agency, and the like. The discussion

then turns to an alternative model, the multiprogram

laboratories operated under contract to the DOE.

The DOE national laboratories merit close study,

first, because the relations between what is now

DOE and its contractors have endured over four

decades; second, because these labs seem to have the

“critical mass” needed to bring very large technolIDefense Science Board, “Report of the Defense Science Board 1987 Summer Study on Technology Base Management, ” Washington, DC,

December 1987.

-63-
64 • Holding the Edge: Maintaining the Defense Technology Base

ogy development programs to fruition; and third,

because the labs and their sponsoring agency have

used the concept of ‘‘work for others” to redeploy

professional staff as projects wind down, and to

move into areas contiguous to their principal missions.

After outlining both approaches to technology

development, this chapter assesses both kinds of

institutions with respect to five topics: 1) management flexibility, 2) the extent to which GOCO

institutions tend to become more like government

labs over time, 3) the ability of both kinds of

institutions to transfer the results of their 6.1-6.3

programs to user organizations, 4) their mechanisms

for diversifying within their basic missions, and 5)

the ability of government labs to assimilate the more

successful features of GOCO institutions.

GOVERNMENT-OWNED,

GOVERNMENT-OPERATED

LABORATORIES

Justifications for In-house Work

Government-owned and operated facilities can be

justified for many reasons. First, apart from the issue

of whether such labs serve as smart buyers, perform

inherently governmental functions, or provide technical assistance for fielded systems, the relation of

laboratory to sponsor is more clear cut than it is for

other arrangements. Government operation avoids

the criticism sometimes made of GOCOs that the

government does not know whether a lab’s executives identify with the government or the contractor

who pays their salaries. As one authority notes,

‘‘in-house laboratories can be expected to share the

sense of mission of their agency and to be responsive

to their needs. ” Such labs provide stability and

continuity “by simply continuing arrangements that

have evolved historically. ”2

But such justifications skirt the important question: Why should technology for weapons systems,

space exploration, or measurement protocols be

developed out of government-staffed labs at all?

There are five principal justifications for such

facilities:

●

●

●

●

●

that certain functions are inherently governmental and may not be delegated to others,

that the lab serves as a smart buyer, evaluating

its contractors and keeping them at arm’s

length,

that, through basic research, the lab can originate new concepts that, with support from its

sponsors, may develop into fielded systems;

that the lab can do special-purpose work for

military customers that either is of no interest

to industry or is kept from industry for security

reasons, and

that the lab can provide support to users once a

weapons system has been successfully fielded.

Moreover, in-house laboratories can react quickly to

military emergencies, as the Naval Research Laboratory’s (NRL’s) recent support for the fleet in the

Persian Gulf shows.

Inherently Governmental Functions

The concept of ‘inherently governmental” functions is perhaps the fundamental justification for

technology development institutions run by civil

servants. As Budget Director David Bell told

Congress in 1962, there are certain functions that

may not be contracted out, functions that include:

the decisions on what work is to be done, what

objectives are to be set for the work, what time period

and what costs are to be associated with the work . . .

the evaluation and responsibilities for knowing

whether the work has gone as it was supposed to go,

and if it has not, what went wrong, and how it can be

corrected on subsequent occasions.3

This position has important implications for the

conduct of research at military laboratories. In this

view, a laboratory or research and development

center should have the capability to conceive of

weapons development projects, develop technical

specifications for industrial contractors, and supervise contractor efforts to ensure the reliability of

systems and components in the early stages of

ZT.J. W;] btis, “Domes[ic Models for National Laboratory Ulili.mtion,” in Energy Research Advisory Board, Final Report of the Multiprogram

Luborafory Panel, Vof. //: Support Studies (Oak Ridge, TN: Oak R]dgc National Laboratory, September 1982), p. 63.

‘3 David Bell, Bweau of the Budget, ~~ykrtem$ Deve/opmen/ u~ Ma~g~rnent, testimony at hc~ings before the HOU,SC Committee on Government

Operations, Military Operations Subcommittee, June 21, 1962, 87th Congress, 2nd Session, p. 44.
Chapter S--The Management of Defense Department Laboratories . 65

development, regardless of cost. 4 Carried to its

logical conclusion, this view holds that government

scientists and engineers are a national asset that,

within broad limits, should be retained beyond the

immediate programs for which they were hired; that

the lab is a going concern, not a job shop; and that

its professional staff must do basic and exploratory

research, simply to evaluate work done outside its

walls.

This basic philosophy is perfectly compatible

with a number of arrangements. Government laboratories exist in every phase of dependence on their

prime sponsor. A lab may: work exclusively for one

sponsor or for several; perform reimbursable work

for other organizations, as many service labs are

doing for the Strategic Defense Initiative Organization (SDIO); serve as a corporate laboratory over and

above its responsibilities to its parent agency; or

(what often comes to the same thing) do work that is

only loosely coupled to its sponsor’s missions.

There are even cases, like the optical facility at the

Air Force Weapons Laboratory (Kirtland Air Force

Base, New Mexico), of small GOCO units embedded in a government-run engineering center. Further, many military and civilian labs, particularly at

the National Aeronautics and Space Administration

(NASA), have chosen to contract out virtually all of

their support functions-functions ranging from

carting trash to managing the cafeteria to programming and operating tracking stations—without compromising their principal functions.

Smart Buyer

The laboratory may also function as a smart buyer,

a role that complements its mission to plan development projects. The lab acts as smart buyer when it

develops a particular technology-say, a new kind

of integrated circuit, wideband recording device, or

fault-tolerant avionics—that it can hand over to a

contractor for further development and production,

or when it evaluates private sector developments. In

effect, the lab’s R&D work presupposes, and depends on, the existence of a strong private sector

R&D infrastructure. At this level, the justification

for research is that a lab cannot assess technology

without being thoroughly knowledgeable. As one

DoD engineer put it, with some exaggeration, ‘if we

go to a symposium and see something new, we’re

not doing our jobs. ”

In another sense, the in-house lab serves as a

smart buyer when it proves a concept that may lead

to new technology. The job of an engineering center

working on, for example, very-high-speedintegrated circuit (VHSIC) technology is not to

make the systems work, but to show that they will

work. Actual operational success is in the hands of

the buying commands, systems developers, and

production people. A military service will insert

VHSIC or other technologies only where the technology can ‘‘buy its way” into a weapons system.

Where a lab really acts as smart buyer is in

bringing its expertise to bear in deciding when work

in a certain area has gone as far as it should. As one

technical director put it, his job “is to kill off

projects that will not fly before costs get out of

hand. ”

Long-term Research

The laboratory also serves as an incubator of new

concepts. In fact, it is this role that serves as the

principal justification for much 6.1 and 6.2 work

carried out by DoD institutions. It is more obvious

at NRL than at the other Navy R&D Centers—but

nowhere is it insignificant. If NRL has become a

corporate lab for all of DoD, it is because of its work

in technologies that had no immediate application

but that would ultimately define the technology for

a new generation of weapons systems. NRL’s work

in a variety of fields-designing x-ray astronomy

experiments, developing a unique class of electroac -

tive polymers, perfecting ceramic-air composites for

underwater sensors—positions the Navy to move

into the development phase, confident that the

technology to make systems work is available.

The importance of such advanced work may be

gauged by the efforts of lab technical directors to

increase their pot of 6.1 and discretionary funds—

though it should be noted that the two are by no

means the same. Most of them would agree, in the

words of one of them, that the government ‘should

support some tech base work that is independent of

@n his point, sw Feder~ Coordinating Council for Science, Engineering and Technology, ‘‘A Research and Development Management Approach:

Report of the Committee on Application of OMB Circular A-76 (o R& D,” Washington, DC, Oct. 31, 1979, pp. VI-VII,
66 ● Holding the Edge: Maintaining the Defense Technology Base

any particular program, because otherwise you may

shut out some technologies that could become very

important. ”

The sponsoring of basic research at military

laboratories serves a number of ends. Basic research

can be justified as a means of enhancing the lab’s

reputation; indeed, most facilities try to hire the best

science and engineering graduates by holding out

the possibility of their doing some basic research.

Such research makes scientists available to engineers to work on serious technical problems, without

going into development work full time. Finally,

basic research allows an engineering-oriented facility to develop a few special applications to military

technology.

Yet the laboratory executives are caught on the

horns of a dilemma. To try to justify basic research

on the ground that it will lead to some definite payoff

is self-defeating, especially in an environment where

everything militates against risk-taking. Basic research can be justified because it helps to define the

technology out of which weapons systems may

develop; new defense systems are made up of

fragments of new defense technologies coupled to an

existing base. According to this view, 6.1 work is the

“push” that really changes the technology base,

with 6.2 and beyond as the “pull.” Nor need basic

research always precede the product development

cycle; a military microelectronics facility producing

customized chips for military customers, for example, may do fundamental research into the properties

of matter as part of its design program.

Special-purpose Work

The in-house laboratory also exists to do work that

is not of interest to commercial industry but is of

interest to the military. A case in point is the kind of

small-batch production of radiation-hardened chips

done at a few labs. Such R&D serves two related

purposes: it produces highly specialized chips in

small runs for military customers and, more important, it leads to new technology for subsequent

insertion into existing systems. The drafting of new

specifications can, by itself, lead to new development projects. What is more, the effort to improve

production cycles can itself lead to new technology:

in areas like silicon-on-sapphire microelectronics

technology, military labs are far ahead of industry.

Such special-purpose facilities help to tie industry to the work that is being carried on at military

facilities. By pushing the state of the art, these

facilities force industry to focus on applications of

military interest, such as the radiation hardening of

integrated circuits and the applications of iridium

phosphide and gallium arsenide technologies. By

doing very advanced research, these small, specialized production facilities stimulate the right kind of

work, so that it becomes available for industrial

production.

User Support

For many labs, work does not end when they hand

over technology to the buying organization. In this

context, the term “laboratory “ is something of a

misnomer, applying as it does to the NRL and a few

smaller institutions. The preponderance of service

R&D facilities are product development or engineering centers, whose staff will often continue work to

the fielding of a new system and beyond.

Viewed in this light, much of the research at the

Naval Weapons Center (NWC), the Naval Ocean

Systems Center (NOSC), and even NRL is done the

better to support their principal customers or, as

necessary, to provide quality control support to the

contractor. Thus NWC was brought in by the Naval

Air Systems Command to assist in redesigning the

Sparrow-a medium-range, air-to-air guided missile

that had run into serious problems when deployed in

Vietnam; NRL has consistently sent its scientists

and engineers in to support the fleet; and many Air

Force R&D centers have sophisticated approaches to

inserting new technologies in existing systems.

Indeed, much of this technology insertion can occur

indirectly: for example, a company may do development work under contract to an engineering center,

adapt the new technology and sell it back to the

military.

If stress has been laid on the role of Navy centers

in supporting the fleet, it is because this is one of the

features that most distinguish them from the other

Services, especially the Air Force. Compared to the

Navy, the Air Force uses its labs more exclusively

for technology exploration and component work,

and uses industry for bringing technology to production. The Navy, on the other hand, uses its labs in

‘‘full spectrum mode” for 6.1 through 6.4 (engineering development) work, and acquisition support and
Chapter S---The Management of Defense Department Laboratories ● 67

fleet support thereafter. The reason, as one Navy

official explained, is that the Navy’s mission ‘makes

continuous support for industry necessary, because

[otherwise] a contractor might have to go out on a

carrier for six months. ”

Still, it must be said that much of the justification

for military work conducted out of military facilities

is somewhat after the fact. The current institutional

arrangement of military R&D is more a matter of

history than of cold logic. In fact, the two alternative

models for technology development within the

government were generated outside DoD, by NASA

and the Atomic Energy Commission (AEC). Each

model embodied a philosophy of how different

research and engineering centers could be grouped

in related fashion.

In each case, the critical decisions on how the

agencies would operate were taken right at the

beginning. NASA would operate through a network

of field centers staffed by government employees

who would define the work to be done, select the

prime contractors, evaluate the work done and, if

necessary, be prepared to go into the contractor’s

plant and take over.5 By contrast, the AEC chose to

work through a network of multiprogram laboratories operated under contract; in the case of the

weapons laboratories, they would be part of a

vertically integrated system combining research,

weapons design, and production.

The important point is this: the institutional

arrangements at NASA and AEC were matters of

deliberate policy. By contrast, the military R&D

establishment has grown haphazardly without the

kind of fundamental decisions that NASA or AEC

took. Unlike those agencies, the Services and the

Office of the Secretary of Defense (OSD) have

vacillated among a number of approaches: between

building up labs as full-spectrum organizations, or

separating generic technology base work from

engineering and development; or between doing

research loosely coupled to service missions and

pressuring the labs to work only in mission-related

areas. While DoD’s stated policy is that its in-house

labs shall maintain “a level of technological leadership that shall enable the United States to develop,

acquire, and maintain military capabilities needed

for national security,” the actual policies of OSD

and the services are somewhat less consistent.6

This inconsistency shows itself in organizational

arrangements that (so to speak) require one part of

the organization to work around the rest. Despite

everything that militates against it (see ch. 4), some

good work manages to get done. The problems that

afflict military tech base work are those that afflict

all very large organizations. In general terms,

bureaucracies are “tentacular”; that is, if you make

a mistake, be very sure that every hole is plugged so

that it will never happen again. One official put it

this way, tongue firmly in cheek: “Central is better.

If you want to buy furniture, have one guy in charge

of buying for the entire organization, even if you can

go across the street and get the item at a much lower

price. ”

In fact, that remark identifies one of the key flaws

in the entire DoD technology development organization. At many labs, the technical director has no

control over the most important support elements of

his or her organization—the personnel office, the

general counsel, the procurement people, possibly

even computing services, all of whom report to the

buying commands or headquarters.

But this is to anticipate the ensuing analysis of

operations at military R&D centers. While one can

generalize about the problems of the military labs, a

better approach is to begin with specific issues and,

in the light of those analyses, to derive some useful

conclusions.

Personnel Management

Virtually every study of military laboratories has

noted critical deficiencies in the way they recruit,

train, and manage their professional staffs:

. Most of the larger laboratories experience

difficulty in hiring and retaining qualified

scientific and engineering personnel, especially

highly qualified senior staff.

Son (he dwl~lo~ t. ~reatc ~enters staffed by government employees, we Amo]d S. ~vine, Ma~ging/VAsA in fh APO11O Era, SP-4102 (Washington,

DC: NASA Scientific & Technical Information Branch, 1982).

6u.s. Dep~ent of ~fenw, Under SWretW of ~fen~e for Rese~ch and Engin~ring, Dep~ent of Wfenx Instruction 3201.3, MN. 31, 1981,

p. 2. Cited in Library of Congress, Congressional Research Service, “Science Support by the Department of Defense,” December 1986, pp. 178-179.
68 . Holding the Edge: Maintaining the Defense Technology Base

●

●

●

●

The government is at a major disadvantage in

competing with industry and the universities

for the best technical and engineering graduates.

The job classification system requires elaborate

position descriptions that have little or nothing

to do with the positions being filled.

The system makes it difficult to reward the

good performers or remove the poor ones.

Inflexibility in setting salaries means that pay is

seldom commensurate with performance:

Lab directors do have some discretion to work

within the system. Thus the Navy uses ‘‘managing

to payroll” (MTP) as a discipline to keep from hiring

too many people, while allowing trade-offs. MTP

allows the naval centers to keep their dollars

constant while changing the number of slots. From

the Navy’s perspective, the advantages of MTP are,

first, that it gives technical directors flexibility in

distributing work among different center employees

and contractors; and second, that it helps to

“cleanse” the centers by shedding work that they

should not have taken on in the first place. Under

MTP, centers can maintain a stable work force either

by cutting back on contractors, or by carrying their

people on overhead.

Most military R&D facilities have tried to make

similar, piecemeal improvements within the current

system. But two R&D centers have successfully

attempted a more comprehensive approach, within

the terms blessed by Title VI of the 1978 Civil

Service Reform Act. Since 1980 the NWC (China

Lake, CA) and the NOSC (San Diego, CA) have

participated in a personnel experiment, with two

other Navy centers as controls.

The China Lake experiment, as it is generally

known, breaks with the standard Federal personnel

system in four ways: 1) separate career paths, with

distinct paths for scientists and engineers on the one

hand and technical or administrative specialists on

the other; 2) the consolidation of 15 General

Schedule (GS) grade classifications into no more

than 5 broad “pay bands” corresponding to career

paths (professional, technical, administrative, technical specialists, clerical/assistant); 3) abbreviated

position descriptions and standards; and 4) a much

closer linking of pay to performance. Although the

Office of Personnel Management (OPM), which

oversees the project, originally designed it to run 5

years, Congress has extended it to 1990.7

Differences in the ways the two centers have

implemented the China Lake experiment are minor

compared to the similarities. At both NOSC and

China Lake, pay is linked to the GS scheme of

classification, There is a set formula for hiring junior

professionals determined by each center’s personnel

office; at higher levels, supervisors set salaries

according to the pay bands, with salary tables based

on government-wide changes in GS pay scales. Each

career path is a separate competitive path: if

reductions in force occur at a center, they can occur

only within specified career paths.

China Lake has been one of the most closely

followed demonstration projects ever sponsored by

the Federal Government. OPM has monitored the

project since its inception, issuing annual progress

reports and a comprehensive evaluation in 1986. In

that report, OPM found that the project had largely

succeeded in doing what it was intended to do.

Compared to the control sites, personnel at the

demonstration labs-employees and supervisors—

perceived the system to be more flexible than the

Navy’s conventional performance appraisal system.

In reviewing compensation systems, OPM concluded that the positive results it found seemed to

have been “strongly influenced by the introduction

of broad pay ranges corresponding to the new

classification levels . . . broader pay ranges provide

greater latitude in making performance-based pay

distinctions.”8

OPM identified other elements that, in the

opinion of its staff, helped account for the project’s

vTherehave ken mmy dcscrip~i~ns Ofthe china L*C experlrncnt. This account draws on several, including: U.S. ~fice of personnei M~agement,

Research and Demonstration Staff, Office of Performance Management, ‘‘Status of the Evaluation of the Navy PersonneI Management Demonstration

Project: Management Report I,” March 1984 and (s~e source) “A Summary Assessment of the Navy Demonstra[ionRoject: Management Report IX,”

February 1986. The original opM propos~ is in Federal Register, VOI. 45, No. 77, Apr. 18, 1980, pp. 26504-26543. A good summary account may be

found in Larry Wilson, ‘ ‘The Navy’s J3~rirnent with Pay, Perform~ce and Apprai@,” De~ense ManugernenrJournuf, Vol. 21, No. 3, 3rd quarter 1985,

pp. 30-40.

W.!j. office of Personnel Management, “A Summary Assessment, ” op. cit., footnote 7, P. VI1.
Chapter 5—The Management of Defense Department Laboratories ● 69

relative success. One of these was the labs’ involvement in developing their system. Another was that

the system covered employees at a wide range of

work levels, and a third was the protection of

employees from any initial adverse impact, by a

‘‘buy-out” feature written into the project plan.

The China Lake experiment was not designed to

be cost neutral. That is, the Navy recognized that

there would be certain start-up costs in moving to the

new system. Once the system was in place, average

salary differences between demonstration and control labs tended to flatten out, to the point that the

difference among scientists and engineers diminished greatly or even disappeared after they had been

on board 3 or 4 years. 9 But the ways in which the

same pot of money was distributed were quite

different. As OPM put it, “the initial salary gap is

great enough that in any year the remaining demonstration v. control difference in the salaries of new

and recent hires accounts for about 2 percent to 3

percent in additional demonstration payroll costs.”

One of OPM’s most significant conclusions

about China Lake was that although costs are

controllable, “the decision to limit costs can substantially alter the results achieved. Unless organizations are willing to make some investment in the new

systems, employees are likely to perceive they will

gain no benefit from the systems, or that they will

actually be penalized under the systems.”11 In fact,

OPM concluded, total salary costs had risen by 6.0

percent (as of January 1986) over those of the control

sites as a direct result of the project. Costs rose

because the demonstration labs were offering to

scientists and engineers starting salaries that were

17.5 percent higher than at the control labs, and

because China Lake permitted greater salary increases within pay bands than would have been

possible under the General Schedule.12

A May 1988 report by the General Accounting

Office (GAO) confirmed many of these findings.

GAO’s general conclusion was that the project

demonstrated that a pay-for-performance system

could be implemented to the general satisfaction of

many supervisors and their employees. Despite this

qualified approval, GAO found that the OPM

evaluation left many questions unanswered. In

GAO’s view, “the overall weakness of the China

Lake evaluation was that when all is said and done,

the volume of data that were either missing or

non-comparable was quite large. ” Although GAO

did not know the reasons behind the data problems,

it determined that ‘they were of such magnitude that

firm conclusions about project effectiveness cannot

be drawn.”13

The problems GAO cited included the noncomparability of the test and control sites and a lack

of information on how and to what extent the project

was implemented at the test sites.14

But this begs the question. Underlying the GAO

analysis is the assumption that one is comparing a

tentative demonstration with a system that is internally coherent and designed to address the same

issues (but in a different way) which the China Lake

demonstration was created to address. Leaving to

one side the difficulty of evaluating so complex a

program, the existing government personnel system

is even more vulnerable to criticism. Speaking only

of current hiring procedures, former OPM Director

Constance Homer said that the system “is slow; it

is legally trammeled and intellectually confused,

and it is impossible to explain to potential candidates.”’ China Lake and a comparable demonstra-

~Ibid., pp. 51-52.

ltllbid., p. 52.

11 Ibid., p. VIII.

12[,, ~ “@ate “f its 1986 ~eP~, OpM concluded Mat tie average sa]~ries of dcm~n~tralion lab scientists ~d engineers continued tO gTOW re]atiVe

to those of their control lab counterparts. This difference could nor be cxpltiined by the effecxs of salary increases, since these were virtually identical

at both kinds of site. Higher starting salaries for scientists and engineers, which were 18.7 to 29.1 percent greater at the demonstration sites, secmcd to

account for much of the differential. U.S. Office of Personnel Managcmcm, ‘ ‘Salary Costs and Pcrfcmnance-Based Pay Under the Navy Personnel

Management Demonstration ProJcct: 1986 Update: Managcmcnt Report X,” December 1987, pp. 3-6.

IJu.s. General Amounting OfilCC, “Observations on the Navy’s Pcrsormcl Management Demonstration Project,” GGD-88-79, May 1988, p. 29.

These remarks were included in a letter from GAO to Senator !hn Nunn, Chairman of the Senate Armed Services Committee.

141n light of its findings, 1( is wo~h noting that GA() has ins[ltu[cd its ow~ pay. fc>r-pcrformmce system, wifi tbec pay binds corresponding 10 Grades

7 through 12, “leadership” positions at GS-13/14, and “managerial” posts at GS - 15.

l~Constance Homer, ‘‘Address to Career Entry Recruitment (’onfcrencc, ” Washington, DC, June 23, 1988, p. 4.
70 . Holding the Edge: Maintaining the Defense Technology Base

tion project at the National Institute of Standards and

Technology (NIST) (formerly the National Bureau

of Standards) have a coherence and logic that the

current system altogether lacks.16

What has the China Lake experiment really

achieved? In one sense, it “demonstrates” just how

inadequate the current personnel system is. Note that

the experiment is now into its ninth year, with no

immediate prospect of extending it to other government laboratories. A program that began under

Carter and continued under Reagan awaits the Bush

Administration for extension or termination. The

Civil Service Reform Act that authorized the project

provided no mechanism for extending it beyond its

test sites. Assuming that the project is extended

beyond 1990, the government may be faced with a

successful experiment that will have no ramifications, unless Congress enacts proposals to extend the

project to Federal laboratories generally .17

But if one concedes—as even GAO has done—

that the China Lake experiment did what it was

meant to do, its success is somewhat irrelevant to the

problems of DoD laboratories. One could conceive

of small-scale improvements to the current system

even without instituting performance-based pay.

After all, OPM has in place mechanisms that make

it easier for agencies to hire qualified professional

staff. Thus, agencies can now apply to OPM for

authority to hire engineers directly, without an initial

screening by OPM. OPM has delegated to agencies

the authority to negotiate starting salaries with

top-quality candidates for jobs at grades GS-11 and

higher. On a pilot basis, OPM is drafting simpler

standards that agencies can use to classify positions,

including engineering positions, These new standards, OPM says, ‘‘will give agencies more flexibility to redesign work, to classify jobs and to write

agency specific guides if needed. ” *8

But the ultimate limitation of China Lake and

similar proposals is that they simply divide up pieces

of a pie whose overall size remains about the same.

Salaries are adjusted within narrow parameters;

despite increases at demonstration sites, OPM found

that salaries for nearly all the occupations compared

grew 5 to 19 percent less at those sites than did

salaries for the same occupations in the private

sector. 19

In this respect, the NIST project is superior

because it has the authority to adjust the salaries it

pays its scientists and engineers to match those paid

by the private sector for comparable work. And

while its demonstration project is supposed to be

cost neutral during the first of its 5 years, NIST can

use the surveys as a device to narrow (if not close)

the salary gap between itself—NIST salaries are

already among the highest at Federal laboratories—

and industry by work force attrition.

Even if the China Lake experiment were extended

government-wide, it would take a long time to undo

the damage wrought by the current system. Personnel issues cannot be isolated from other issues—

funding, research planning, the acquisition of major

systems, and the like. Among the elements not yet

mentioned that affect the labs’ ability to hire,

promote, and retain are the periodic hiring freezes

that affect most government institutions; the new

Federal Employees Retirement System, which makes

it easier for government workers with portable

benefits to leave the government earlier; and cutbacks in travel budgets, which make it harder for lab

officials to recruit. Compared to the larger DOE

laboratories, which recruit from the top 10 percent of

graduates from the major national technical schools,

most DoD managers tend to hire locally-partly

because of small travel budgets, partly because they

are resigned to the unavailability of top graduates.

lbThere me mtiJor differences in the design of the NIST and China Lake projects. Although it incorporates such concepts as pay bands and career paths,

NIST has certain special features: direct-hire authority for all professional cmployees, an annual comparability survey of total compensation of NIST

positions to similar positions in the private sector, cost neutrality, and recruiting allowances for professionals that NIST particularly wants to hire.

ITThere have been a n~lber of legislative proposals to reform the Federal personnel system. OPM twice unsuccessfully introduced its Own ProPosai

for a “Simplified Personnel System, ” most recently in January 1987. A bill, S. 2530, introduced by Senator Jeff Bingaman (D-New Mexico) in June

1988 would extend the China Lake experiment beyond the two naval centers currently involved. S. 2530 would authorize between six and ten personnel

demonstrations, of which four would be instituted at DoD and onc at NASA. The biH would establish higher minimum rates of pay and an alternative

compensation system based on comparable rates for comparable private-sector work.

I~U.S. Office of Personnel Management, “Simplifying the Federal Manager’s Job” (n.d.), p. 3.

19u,s, Office of permmcl ~m~gement, op, cit., footnote ~~, p. [], opM ~erive(f its sa]ary-comp~sonfi~res from data provided by tie Bureau Of

Labor Statistics.
Chapter 5—The Management of Defense Department Laboratories ● 71

But personnel issues extend beyond competing

with the private sector for new hires. Retaining good

employees in an environment where the work force

is overgraded but underpaid is just as formidable a

problem. Technical directors stressed the nature of

the work itself as one of the strongest attractions for

their best and brightest. Good people stay if the work

is challenging, if they have the opportunity to do

some basic research and publish their findings, if

discretionary funding is available to start new work,

and if the laboratory gives equal recognition to

separate career tracks for researchers and managers.

Although many lab officials spoke of having

“two-track” systems, the evidence for such is

ambiguous. According to a survey by the Army

Laboratory Command, lower-level engineers believed “that a scientist had to become a manager in

order to get ahead in a government laboratory. ”20

From the lab director’s perspective, someone has to

take on the responsibilities with which external

organizations task the lab, as well as manage the

larger programs that constitute its mission. Thus,

inevitably, many scientists and engineers come

under pressure from their superiors to take on work

outside the disciplines in which they were trained.

Sometimes, scientists and engineers make a successful transition into management. Other times, as one

former government official said, “you take good

engineers and turn them into lousy managers. ”

There is also a more insidious threat to the

integrity of the professional work force. Throughout

DoD laboratories, the increase in congressional

oversight has gradually transformed the role of

research executives, such as division heads and

branch chiefs. Rather than managing projects or

ensuring their technical quality, one of their principal jobs is now to insulate their bench-level people

from the requirements with which Congress tasks

the labs and their sponsors. In particular, the amount

of oversight and paperwork appears to have increased the most at those laboratories where the bulk

of the work is contracted out—thus forcing managers and other senior professionals into contract

administration.

In sum, the personnel problems that afflict most

DoD laboratories are not personnel issues in the

narrow sense. They flow, rather, from the total

environment within which professional staff and

managers try to get their jobs done. Even where a

center can attract the top graduates, it has to contend

with problems that are not ‘‘personnel” at all:

uncertain budgets, long lead times in building new

facilities and procuring new equipment, and limits

on the pot of discretionary funds available to start

new work. The incentives for a new hire to remain

permanently depend more on the total environment

of his or her institution than on personnel management practices in the narrow sense.

Two more points deserve emphasis. The first is

that the Federal personnel system creates some

perverse incentives for retaining employees. Under

the Federal Employees Retirement System, the

better employees can take their retirement benefits

and leave for industry and universities with many of

their more productive years still ahead. At the same

time, mediocre performers remain; under the China

Lake system or Managing to Payroll, they can expect

no major salary increases, but they also stand little

risk of being terminated. Thus, a low turnover rate at

a laboratory can be a sign of health or a portent of

institutional decline.

The other point has to do with the optimal size of

laboratories, an issue discussed later in connection

with GOCO facilities. It may well be that there are

too many DoD laboratories, and that many of them

are too small ever to achieve critical mass. If an

institution is too small, there will be too little

flexibility for a few people to strike out into new

territory, or for new ideas to spill over into research

work. At smaller facilities, there may not be enough

groups of two or three or four people delving into

areas unconnected with their current missions but

that might lead to new missions. Government

institutions seemingly must have more than about

1,000 people before the kind of flexibility that makes

for their survival exists.21 Additionally, as weapons

systems grow ever more sophisticated, the number

of disciplines that a lab needs under one roof will

increase.

Z~<S. Army Laboratory Command, 4 ‘Innovative Personnel Practices, ” March 1988, p. 4.

ZIHm~ Mwk ad AmOld ~vine, The Ma~8eme~ of Research ln~titutions. A ~ok atGover~entL&oratories, SP4181 (Washington, ~: NASA

Scientific & Technical Information Branch, 1984), p. 70.
72 ● Holding the Edge: Maintaining the Defense Technology Base

The question of a lab’s optimal size bears

directly on the retention of quality staff. Unless a lab

is assigned a mission in one narrowly defined

area-the Army’s Night Vision Laboratory (Ft.

Belvoir, VA) might be an example-it must have

scientists and engineers drawn from a variety of

disciplines. Even in that case, as a 1979 government

report noted, ‘‘the development and enhancement of

modem technologies is an inherently multidisciplined endeavor. The most narrowly focused of

research activities today involve several professional disciplines as well as highly skilled technical

support personnel. “22

The DOE’s weapons laboratories have become

adept at instituting a matrix structure, whereby

money is pulled away from divisions and moved into

programs. The result is that there is more mobility

within Energy labs like Sandia and Los Alamos than

at most DoD labs. With some exceptions, a new

professional hired at a DoD lab is likely to spend his

or her career within the same research division or

directorate. In contrast, professionals at DOE labs

have more options: beginning their careers at (say)

the lab’s research division, they may move into

mission-related areas, return to research, or move

into management.

In fact, the DOE labs have done more to control

personnel problems than virtually any DoD facility.

For one thing, they have bypassed the entire issue of

salaries comparable to those of the private sector. As

a rule, salaries and personnel systems correspond

closely to those of the contractor who operates the

lab: the personnel system at Sandia National Laboratories is modeled on AT&T’s Bell Labs, while those

at Los Alamos and Lawrence Livermore National

Laboratories are modeled on that of the University

of California system. For another, the DOE laboratories tend not to hire for specific jobs. Their size and

multidisciplinary capabilities make it easier for lab

executives to move people to where they are needed

and redeploy people as projects wind down.

Laboratory Management Issues: Funding

The ability of a government laboratory to accomplish its mission depends on the ways it is funded.

The amount of funding obviously matters, but so

does its predictability, flexibility, and the ability of

lab managers to disburse funds once they become

available. Laboratory executives say they prefer

funding that is tight but predictable over larger but

unpredictable funds.

At DoD labs, funding problems are at least as

numerous as the personnel problems they aggravate.

Funding is unstable, making planning and staff

continuity on projects difficult; it is inflexible, in

that most funds cannot easily be transferred to other

accounts where they might be needed more; and

monies must be spent during the fiscal year for

which Congress appropriated them, preventing the

buildup of contingency funds. This requirement

affects DoD’s ability to sustain long-term work.

Nevertheless, there are important differences in

the way the services do their getting and spending—

with the Navy centers obtaining their funding from

the Naval Industrial Fund (NIF) and the Army and

Air Force receiving money through line-item appropriations.

NIF is a shorthand way of saying that naval

centers must recover the full cost of their operations.

Industrial funding provides working capital for

industrial-type activities, such as shipyards, the

overhaul of aircraft, or running a laboratory, Under

this approach, the activity pays all its expenses out

of working capital and charges its customer the full

cost of its products and services. Each industrial

fund activity group has a cost accounting system

specifically designed for its operations, to identify

and accumulate the costs of their products or

services.

This approach has important implications for the

conduct of naval research, development, test and

evaluation. First, because the NIF is a revolving

fund, payments that naval centers receive from their

customers should do no more than replenish the

working capital fund that finances operations until

payments are received. Second, in relation to their

“buying” commands, naval centers are contractors

de facto and de jure. A Naval center undertakes work

for (say) the Naval Sea Systems Command on the

basis of a contractual agreement that obligates both

parties until work is completed. A facility like the

NWC at China Lake has virtually no line-item

zzFedera] Coordinating Council for Science, Engineering and Technology, op. cit., footnote 4, P. 35.
Chapter 5-The Management of Defense Department Laboratories ● 73

budget authority. Instead, it operates like a Battelle

or SRI International, which would go out of business

if it had no customers.

A third, very important, feature of NIF is the asset

capitalization program (ACP).23 Effective fiscal

year 1983, the Deputy Secretary of Defense approved asset capitalization as a way to fund the

modernizing of industrial fund equipment. Under

the program, equipment costs are recovered over the

life of the asset by including depreciation costs in the

rates charged to customers, The availability of ACP

money strengthens the cash position of industrial

fund, and helps fund managers avoid shortages.

Thus, naval engineering centers obtain work

quite differently than a NASA research center or an

Army laboratory-although Army research, development, test, and evaluation (RDT&E) was funded

industrially at one time. At a facility like the NWC,

the program offices serve as “shadow offices” to

their counterparts in the prime sponsoring organization, which in their case is the Space and Naval

Warfare Systems Command (SPAWAR). Note that

this is not the principal buying organization for the

center; its principal customer, accounting for more

than half of its total obligational authority, is the

Naval Air Systems Command. Although there are

something like 3,000 customer orders in the system

at a given time, some two dozen cover most of

NWC’s work.

In the view of managers at the Navy centers,

industrial funding is an effective way of getting

work done. Among its advantages are that it

provides limited authority to start work on a

sponsor’s order prior to the receipt of funds, assists

managers to control their resources better, enables

the facility to finance and carry inventories of

non-standard materials, permits the use of working

capital for initially charging all costs, including 6.1

and 6.2 work, and serves to develop total costs for

each task, including overhead.

Most Navy lab managers consider a recent OSD

proposal to terminate NIF over the next two fiscal

years potentially disastrous. DoD contends that

industrial funds are more costly to operate than other

systems, that their advantages have not been demonstrated, that industrial fund clients are not bona fide

customers who can take their business elsewhere,

and that as structured, the system makes DoD and

congressional oversight difficult. The Navy, supported by GAO, disputes these assertions, chiming

that NIF meets the criteria under which the Navy’s

research and engineering activities are financed.24

If NIF were terminated, the Navy would have

several options. One would be to convert to a

resource management system that combined customerfunded direct labor with Navy-funded overhead

under an appropriate budget line item. This could be

disastrous, in the view of some officials, because

overhead becomes very difficult to defend in a

competitive budget preparation environment. Alternatively, the Navy could adopt a resource management system with ‘‘applied overhead,” which is

identical to NIF at the macro level, except that it has

no asset capitalization program. While the Navy

could live with this arrangement, it would incur

sizable one-time costs to convert its financial

systems.

Compared to Army and Air Force labs, industrial

funding gives the Navy a certain flexibility in

starting and accounting for work. But it is still firmly

part of the appropriations process, although at one

remove. The start of work at a Navy lab still depends

on its customers having the necessary obligational

authority-and, if that money comes in late in the

fiscal year, that it remains available to complete the

work it is funding. Further, there are important areas

of naval lab operations not covered by industrial

funding, such as military salaries, non-appropriated

funds, and military construction.

Military construction deserves special mention,

since delays in new construction are one of the major

obstacles to lab performance. This is the case for

several reasons: as with other functional areas, those

responsible for facilities management do not report

to the lab technical director; lab requests for new

facilities are thrown into one “pot” with other

construction requests, and new facilities for labs

generally have rather low priority. At some DoD

zson the -t capi~i~ation program, see U.S. General Accounting Office, “Industrial Funds: DoD Should Improve Its Accounting for Asset

Capitalization Program Funds,” NSIAD-86-1 12, May 1986.

ZQU.S. Gener~ Accounting Office, “Proposal to Change From Industrial Funding to Another Method, ” NSIAD-89-47, December 1988, pp. 1-3.
74 ● Holding the Edge: Maintaining the Defense Technology Base

laboratories, many facilities are 40 years or even

older.

This is doubly unfortunate, because good facilities not only drive a lab’s mission, but also attract

good people. In turn, an excellent staff will, to a

degree, generate good facilities, The process is

self-perpetuating; people tend to generate new

programs around the facilities, so that when an

RDT&E organization matures, its roles and missions

depend primarily on the facilities available: wind

tunnels, clean rooms, anechoic chambers, simulators, and the like. As other authors have noted,

“facilities have a longer ‘half life’ than people. A

facility like the 40-by-80-foot wind tunnel at [NASA’S

Ames Research Center] might be used for forty

years, while an individual researcher will change his

interests every three or four years and move on to

something new. Thus a vigorous research and

development program demands an efficient facilities

development staff, more particularly where one

facility serves a number of projects. ”25 By this

criterion, few DoD laboratories have the power to

develop facilities to keep pace with either the

equipment that they will house or the missions they

are designed to support.

Thus, DoD laboratories are subject to all the

disadvantages and few of the advantages of facilities

owned and operated by the government. But it is

important to understand that these problems do not

flow automatically from the status of these facilities

as government-owned, government-operated institutions. Both the NASA centers and NIST have

shown greater flexibility: NIST, because its role as

lead agency in measurement science is highly valued

by its government customers; NASA, because of the

much stronger ties between the centers and their

principal buyer, the headquarters program offices,

than in the DoD system. At NASA, the centers

largely define the programs that the agency funds. At

DoD, by contrast, the relation of the R&D infrastructure to the buying commands is much less certain.

The next section describes alternative approaches

to developing technology—those represented by

GOCO facilities of the DOE and the somewhat

similar FFRDCs under DoD.

GOVERNMENT-OWNED,

CONTRACTOR-OPERATED

FACILITIES: AN ALTERNATIVE

MODEL

Introduction

The GOCO facilities are an unparalleled resource

for the United States. In particular, the nine multiprogram, or ‘‘national” laboratories represent one of

the heaviest investments in basic and applied

research made by the United States or any other

country. Besides conducting about 70 percent of the

DOE’s weapons development and a quarter of its

energy-related research, the national labs have other

roles. As systems engineers for DOE, as consultants

to State and local governments, and as stewards of

unique facilities, the labs contribute in many ways to

the Nation’s technology base.

From their inception, all the multiprogram

laboratories have been government-owned and contractoroperated. The Atomic Energy Commissioners chose

this course, although they were not barred from

operating their own laboratories; indeed, the Atomic

Energy Act of 1946 authorized “a program of

federally conducted research and development. ”

According to Harold Orlans, the AEC contracted

with private organizations as the principal means of

‘‘retaining a degree of normalcy and freedom in the

evolving system of nuclear science and industry. ”26

By contracting with outside groups, AEC could keep

them informed about highly classified activities that

would normally be confined to official circles, and

bring to the government experience and advice not

normally available to it. Orlans concluded that this

decision helped, as much as anything, “to keep the

AEC more alive and alert, administratively and

technically. ”27 The result was an arrangement that

has no counterpart in the Federal Government, save

for the contract between NASA and the California

Institute of Technology to operate the Jet Propulsion

Laboratory.

zshlwk and t.,evine, op. cit., footnote 21, pp. 83-84.

‘2~H~O]d orIanS, contracting for Atoms (Washington, DC: Brookings institution, 19~7). P. ~.

271 bid., p. 8.
Chapter 5-The Management of Defense Department Laboratories ● 75

Before turning to the applicability of the

Energy model to DoD institutions, something

should be added about FFRDCs like Lincoln Laboratory and university-affiliated research centers like

the Applied Physics Laboratory (APL) of The Johns

Hopkins University.

28 DOD sponsored these centers

for much the same reasons that DOE chose to

operate its national labs through contractors: the

Services sought independent outside expertise from

organizations unfettered by many Federal regulations; they wanted to develop long-term relations

with such organizations; and they specifically

wanted to deal with institutions tied to the university

community. The 30-year collaboration between the

Navy and the Applied Physics Laboratory on the

Fleet Ballistic Missile Program shows how effective

such a special relationship can be.

The main difference between contract centers like

APL and a DOE laboratory is that the former are

privately owned organizations working for a primary sponsor. At APL, for example, Johns Hopkins

owns the land and the buildings—although the

Navy, APL’s prime sponsor, furnishes the equipment. There are other differences of degree rather

than kind. Compared to the DOE weapons labs,

which have their own audit organizations, FFRDCs

are audited regularly by the Defense Contract Audit

Agency (DCAA). Additionally, many centers have

to go through special procedures to avoid the full

weight of Federal regulations. For APL to avoid the

broad mandate of the Competition in Contracting

Act for competitive procurement, the Navy’s SPAWAR must draft a “justification and approval,”

which the Assistant Secretary of the Navy for

Shipbuilding and Logistics ultimately signs,29

Although these contract research centers perform

some of the functions of DOE’s national laboratories, there are significant differences. One difference

has to do with areas of emphasis: Compared to the

many functions of the larger national laboratories,

the FFRDCs and university affiliates tend to concentrate on systems integration and engineering services. They are more likely to work almost entirely for

one sponsor, and to devote most of their resources to

a few programs, than the national laboratories are.

While the same could be said of DOE’s weapons

laboratories, their size, their diversity, and their

capacities for advanced research make them a more

appropriate model for DoD’s consideration.

The GOCO Relationship at the Department

of Energy: Contractual Arrangements

The organization and operation of the multiprogram DOE labs’ are in dramatic contrast to those of

labs operated by DoD employees. In the former, we

find the vertical integration of research, development, and operations; a long-term relationship with

the sponsoring agency; a critical mass of scientific

and technical disciplines; and (compared to DoD)

much greater flexibility in moving people between

divisions and projects.

Although superficially complex, the administrative relations between the labs and DOE are actually

much simpler than those at DoD. Through its staff

and program offices, DOE headquarters in Washington sets broad policy and develops the overall budget

out of which funds to operate the labs will come.30

Eight field operations offices monitor the operating

contracts, although their roles encompass much

more. Finally, the labs carry out broad programs of

research and technology development within the

guidelines approved by headquarters.

Arrangements between DOE and its contractors

vary within narrow limits. Management and Operating contracts normally run for 5 years, with the

cognizant operations office performing a‘ ‘competeextend” analysis before the contract expires. Compared to standard commercial contracts between a

Federal agency and vendors, the terms are more

general and until recently were based mainly on

28u.s. Gener~ Accounting Office, “Competition: Issues on Establishing and Using Federally Funded Research and Development Centers, ”

NSIAD-88-22, March 1988.

2~Johns Hopkins University, Applied Physics Laboratow, “Report to The Johns Hopkins LJnivcrsity Trustees Committee on the Applied Physics

Laboratory,” March 1988, p. 2.

30FOT Pupxs of contract a~ifistration, the fie]d Operations offices located c]o~ to the labs oversee them. For purposes of program phrming and

institutional management, the nine muhiprogram laboratories are ‘‘administmuvely assigned” to two cognizant program offices, The Assistant Secretary

for Defense Programs oversees the Idaho National Engineering, Lawnmcc Livermore, Los Alamos, and Sandia Nationat Laboratories. The Director of

Energy Research is the “cognizant secretarial officer” for the Argonne, Brookhaven, Lawrence Berkeley, Oak Ridge, and Pacific Northwest National

Laboratories.
76 ● Holding the Edge: Maintaining the Defense Technology Base

reimbursable costs. Thus, AT&T manages Sandia on

a no-profit, no-loss basis; the contracts for Los

Alamos and Lawrence Livermore National Laboratories reimburse the University of California for

operating costs and award it a management fee.

More recently, at Oak Ridge National Laboratory,

DOE has instituted a cost-plus-award-fee arrangement, in which the contractor, Martin Marietta

Corp., receives a special fee based on performance.

If one looks at these contracts after reviewing a

standard contract between DoD and one of its

commercial suppliers, they seem extraordinarily

broad. Here is virtually the entire scope of work in

the contract for managing Los Alamos National

Laboratory:

Work under this contract shall, in general, comprise research, development and educational activities related to the nuclear sciences and the use of

energy in mutually selected military and peaceful

applications, engineering services, and such other

activities as the parties may agree upon from time to

time . . .

Due to the critical character of the work from the

standpoint of the national defense and security, it is

understood . . . that very close collaboration will be

required between the University and DOE with

respect to direction, emphasis, trends and adequacy

of the total program.

How can anything so vague serve as the basis for

operating a laboratory with an annual budget of $900

million? There is no single answer; instead, there are

several reasons that this contract is a successful

instrument for managing a national laboratory. One

is that there is much more to the contract than the

statement of work just cited; there are, in fact,

numerous powers, especially the power of the purse,

by which DOE fleshes out the very broad mandate

just cited. Another reason is that after 40 years’

experience of working together, both parties understand the terms very well. By itself, the GOCO

contract does not lead to a long-term relationship: it

presupposes it.

A special feature of the contracts between the

University of California and DOE is the provision

that work shall be set by mutual agreement. These

“mutuality clauses” are unique, although at one

time NASA had such a clause in its contract with

CalTech to operate the Jet Propulsion Laboratory.

(CalTech has an R&D contract with NASA, not an

operating contract for administrative services.) To a

degree, the mutuality clause gives a false impression, since it implies that DOE may unilaterally task

other laboratories that do not have such a clause.

There is actually a very complex give-and-take

between all of the multiprogram laboratories, their

sponsors, their clients (including DoD), and the

universities. The mutuality clause simply affirms the

understanding that runs through all of these contracts: that DOE is tapping the expertise of outside

organizations to run the labs; that this expertise

cannot be used effectively if DOE elects to micromanage the contractor; and that the contractor must

have freedom to select the technical approach most

effective in carrying out the lab’s mission.

In this system, the operations offices are much

more than contract administrators. This is why DOE

rejected a 1981 recommendation by the GAO that

the operations offices report directly to each lab’s

cognizant program office, rather than to the Department’s Under Secretary. DOE officials contended

that such a proposal would not only require a huge

increase in Federal staffing, but would lead to “the

balkanization of the field structure.”31 A more

compelling justification for leaving the field structure intact—as DOE did—is that the structure of the

operations offices mirrors the vertical integration of

the Department as a whole. For example, besides

overseeing the Sandia and Los Alamos laboratories,

the Albuquerque Operations Office administers 7

widely scattered weapons production facilities and

the system for transporting all government-owned

special nuclear materials.

The GOCO Relationship at the Department

of Energy: Complying With Federal Norms

How far are the GOCO laboratories bound by

Federal policies? There is no simple answer, perhaps

because neither DOE nor its contractors wish to be

locked into anything too definitive. Yet there has

been a gradual shift over the past decade, with DOE

31u.s4 Gener~ Accounting Office, ‘‘A New Headquarters/Field Structure Could Provide a Better Framework for Improving Department of Energy

Operations,” EMD-81-97, Sept. 3, 1981, See especially the comments of Assistant Secretary for Management and Administration William Heffelfmger

at pp. 48-49.
Chapter 5—The Management of Defense Department Laboratories . 77

trying to get the labs to conform more closely to

legislation and regulations.

The official view reflected in DOE directives and

in congressional legislation is that the labs’ status

does not exempt them from complying with the

spirit of Federal policies. As stated in an opinion of

the Deputy Comptroller General, the labs must

comply with “the Federal norm”:

It is our view that while Federal statutes and

regulations which apply to direct procurement by

Federal agencies may not apply per se to procurement by prime operating contractors . . . the prime

contractor’s procurements must be consistent with

and achieve the same policy objectives as the Federal

statutes and regulations. This, we believe, is what is

meant by the “Federal norm. “32

While a laboratory like Sandia follows AT&T

procurement and personnel management policies, it

is also bound by a variety of regulatory constraints.

These include DOE acquisition regulations and

directives that apply the Federal Acquisition Regulation to departmental entities, the Buy American

Act, and prevailing-wage legislation on Federally

subsidized construction contracts. As Federal contractors, the national labs also come under the

supervision of the Labor Department’s Office of

Federal Contract Compliance Programs,33

On the other hand, the labs are exempt from a

number of requirements that bind Federal agencies,

among them formal advertising, set-aside programs,

and the Competition in Contracting Act. Although

major purchasers of supercomputers, the national

laboratories are also exempt from complying with

the Brooks Act, which governs the acquisition of

computers and telecommunications equipment, at

least as it applies to scientific computing. The

situation is less clear for administrative and generalpurpose computers; the consensus at the labs is that

they must sponsor full and open competition for

these machines. Finally, because Sandia and other

facilities have their own audit capabilities, they do

not require the services of the Defense Contract

Audit Agency in monitoring their own contracts.

Lab officials believe that they can handle small and

medium-sized procurements much faster than DCAA

can, although there is evidence (see below) that

procurement lead times have increased substantially

at the national labs.

These exemptions affect the labs’ operations in

many ways. First, they enable the labs to build

long-term relations with industry in a way not

possible for Federal agencies bound by the Competition in Contracting Act. Second, the labs find it

expedient to comply with the spirit of the law, even

when they are not bound by the letter. Thus the

weapons laboratories set aside a substantial number

of smaller procurements for minority-owned small

businesses. For example, under pressure from GAO,

Oak Ridge National Laboratory dropped its percentage of sole-source procurements from 50 to 20

percent. Third, these exemptions make it possible

for the labs to function; to impose the full weight of

Federal regulations would undermine the rationale

for having them run by contract.

One area where the labs are free to set their course

is in personnel management. The personnel system

at each laboratory corresponds to that of the prime

contractor because, as one official explained, “in a

GOCO you have not only the people, but also the

organization’s management system. ” There are no

assigned slots at DOE labs, and the very best

technical people can make as much as $95,000,

although a lower figure is more usual. The most

senior executives at the weapons labs earn between

$100,000 and $150,000, roughly twice what their

counterparts at the military labs earn.

The principal constraint on the willingness of a

laboratory’s prime contractor to set the highest

salaries is the DOE review triggered at the $60,000

threshold; the local operations office has approval

authority up to $70,000, and DOE’s Office of

Administration up to $80,000, with higher salaries

requiring the Director of Administration’s approval.

Additionally, at some laboratories, DOE approves

the appointments of the most senior executives.

DOE also approves facility-wide salary increases, based on cost-of-living adjustments, recruitment and retention rates, and the like. The facility

proposes an increase to the cognizant operations

office, which forwards the proposal with its recomqzDecision of Bputy comp~ol]er General in protest of Piasecki Aircraft COW. (B-190178, JUIY 6, 1978), P. lo.

33 Alone ~ong DOE labs, Sandia has tO file its accounting system with the governmen[’s Cost Accounting St~dmds Board.
78 ● Holding the Edge: Maintaining the Defense Technology Base

mendations to headquarters. For its part, the Office

of Administration sponsors generic surveys of scientific and technical salaries. DoE is now developing

criteria to remove individual salary reviews and

convert to more “systemic” approaches to determining appropriate levels.

Although practice varies from lab to lab, there is

a certain uniformity in their hiring and promotion

policies. When officials say that “there are no

assigned slots at DOE laboratories,” they do not

mean that people move randomly from assignment

to assignment. What they mean is that laboratories

do not hire for specific jobs. Instead, they hire people

with the technical disciplines that fit the laboratory’s

mission, and who give promise of performing well

in a number of environments. Again, many labs like

to move their “high-potential performers” within

and between program divisions, especially those

individuals with management potential.

The laboratories can hire and move around the

best people because of their sheer size. Each of the

weapons labs has about 8,000 employees and, while

this creates problems of its own, the number and

diversity of projects does make it easier to attract and

retain the top engineering and scientific graduates—

some of whom the labs hire on the spot. In particular,

lab officials note that facilities are a key selling point

in hiring and promotions. Although layoffs do occur,

the labs can keep them fairly small, since they have

other options not available to DoD laboratories, such

as finding slots at production centers for lab

employees no longer needed at the main facility.

The personnel practices that DOE ratifies have

made the national labs far more competitive than

most of those staffed by government employees.

Thus, salaries are far more in line with industry and

the universities; the surveys sponsored by DOE help

to keep salaries realistic. Moreover, the labs recruit

aggressively. Most of the larger ones recruit nationally and hire directly—something government labs

are only beginning to do-and can attract the top 10

percent of graduates from the best engineering and

technical schools.

Funding Arrangements and Work for Others

The three weapons labs receive level-of-effort

funding for Defense programs. DOE allocates funds

to each institution annually, based on its mission and

the size of its staff. When the money becomes

available to the laboratory, each program or division

director negotiates with the lab director for a portion

of the funds. But unlike many government labs,

DOE facilities do not obtain their funds in one lump

sum. Instead, they receive money from hundreds of

separate contracts with other DOE components—the

headquarters program offices-each of which specifies the task covered by its agreement. In this respect,

the closest government analog is the NIF described

earlier.

DOE-sponsored work is funded with “no-year”

monies, available until spent. This does not mean

that the labs have complete discretion in scheduling

outlays. DOE provides budget outlay guidance on

when money shall be spent during the fiscal year,

and DOE weapons labs must obligate DOE funds to

within 1 percent of allocation. But as one DOE

laboratory executive observed, “it is the technical

discretion of the lab management (not accounting

discretion) which is crucial.”

Other funds are obligated on a project basis by the

end of the fiscal year, like those for DoD non-nuclear

programs, although some DoD money for R&D is

2-year funding.

Consider how this system works at one weapons

facility, Sandia National Laboratories. Its principal

mission is research, development and engineering of

the components of nuclear weapons (other than the

nuclear explosive). In light of this mission, Sandia

executives regard their technical programs as having

two components: a technology base (basic and

applied research, computing, analytic techniques,

advanced components) and deliverables (materials

fabrication, system design, quality assurance, stockpile surveillance, nuclear safety). It is this twofold

mission that drives the program and determines the

kinds of work Sandia will take on, particularly from

non-DOE organizations.

For its purposes, Sandia’s no-year budget authority has two advantages. First, it enables the lab to let

contracts beyond the current fiscal year; and second,

it allows long-term planning, even though DOE will

direct the lab through budget outlay guidance on

what may be spent in a given year. Beyond that,

Sandia officials can view their funding in different

ways. In terms of sponsorship, DOE defense-related

funding in fiscal year 1987 accounted for 60 percent
Chapter 5---The Management of Defense Department Laboratories ● 79

of total operating funds, with other energy-related

work accounting for between 9 and 10 percent. The

remainder of Sandia’s funds came from reimbursable work from outside organizations—the important category of “work for others.”

Sandia’s policies on work for others follow DOE

guidelines. Briefly, Sandia will not undertake work

if it interferes with DOE weapons programs. Even if

resources are available, Sandia will not commence

work unless it meets several criteria: The work must

be of national and technical importance, match the

lab’s mission and capabilities, avoid competition

with the private sector, and complement existing

DOE programs with integrally related work. Where

Sandia participates in reimbursable programs, it

incorporates DOE’s policy of full cost recovery.

Sandia will seek to recover all costs including labor,

direct charges, overhead (the lab charges the same

rates to DOE and outside organizations), and general

purpose equipment.

Like the other two weapons laboratories, Sandia

also applies a surcharge-a tech base ‘‘tax” on all

work for others—that it uses to fund new, long-range

research. At Sandia the tech base tax currently

supports 70 people, most of whose work runs for up

to 3 years. Note that this taxis only a portion of what

Sandia spends on tech base work. According to DoD

funding categories, approximately 8.4 percent of

Sandia’s 1988 budget went for 6.1 work and another

17.4 percent for 6.2, or exploratory development.34

Thus, Sandia is effectively spending just over a

quarter of its $1.1 billion budget on tech base-a far

higher amount than any DoD laboratory or engineering center, save the Naval Research Laboratory,

spends.

The major difference between DOE and DoD

policy on work for others is that the DOE multiprogram laboratories consider it a normal and desirable

part of their missions, while the latter does not. For

DoD, work for others—primarily non-defense work

for civilian agencies—is a distraction from the labs’

missions and to be confined within narrow limits.

For many years, DoD has had a policy of limiting

such work to 3 percent of professional staff-years at

individual laboratories. Since DoD labs are constrained by total personnel ceilings and are not

allowed to keep revenues for work for others, any

work done for external users comes directly at the

expense of their DoD clients. At the DOE labs, by

contrast, work for external agencies is much more

open-ended: up to 20 percent of operating budget for

Energy Research labs, and as much as 30 percent for

the weapons labs.

This raises a fundamental question about the

missions of the multiprogram labs: Why are they so

eager to diversify? The easy answer is that as

self-consciously “national” facilities, the laboratories regard diversification as an essential part of their

mission. But there is more to it than that. These

facilities have the preconditions for successful

diversification. The first is the presence of second

parties willing to sponsor a laboratory’s venture into

new fields, just as industry sponsored Sandia’s work

in drilling technologies, or Du Pent worked with

Argonne National Laboratory on neutron diffraction

studies of catalysts, or SDIO funded work at Los

Alamos in directed-energy weapons.

Next, lab executives believe that while their

organization’s mission remains relevant, current

programs do not exhaust the organization’s capacity

to carry it out. And not least, there are few

institutional barriers to prevent laboratories from

taking abroad view of their missions. Here, DOE has

played an important part by its policy of permitting

work for others, bringing in outside scientists and

engineers for advice and joint ventures, and improving conditions for cooperative work. Indeed, the

removal of obstacles may accomplish more than

well-intentioned, but largely fruitless, efforts to

stimulate two-party ventures.

This philosophy has implications for the defense

tech base. As funding for nuclear weapons shrinks,

DOE laboratory executives want to involve their

organizations more closely in nonnuclear defense

work. Diversification protects existing jobs and the

ability to hire fresh graduates. Their laboratories, so

their argument would run, are already working in

these areas and have the experience to move into

related fields. DoD funding for nonnuclear work is

actually growing much faster than DOE funding is;

at Lawrence Livermore, DOE funding between

fiscal years 1982 and 1986 increased by 34 percent—

sA~fomation supplied by Sandia budget and program officers.
80 ● Holding the Edge: Maintaining the Defense Technology Base

a real annual growth rate of 1 percent—DoD

funding, by 256 percent.35

The labs can bring their enormous resources to

bear on the most important technical problems; their

nondefense work often has defense applications; and

much of the technology that the weapons labs have

developed for SDI can be transferred to tactical

battlefield problems. Further, the enormous computing power at the labs—Los Alamos alone has

computer power equivalent to 60 Cray-ls—is a

resource for expanding the defense tech base in a

much more sophisticated way.

In sum, the DOE’s multiprogram laboratories

may serve as one (not “the”) alternative model to

facilities owned by the government and operated by

its own employees. They have avoided the rigidity

of government personnel classifications and much

(though not all) of its regulatory apparatus, and they

have benefited from DOE’s level-of-effort funding.

They have the critical mass to move on several fronts

simultaneously—although their size, as will be seen,

may be a double-edged sword. The final section of

this chapter examines the relevance of the DOE’s

GOCO facilities, and comparable federally funded

R&D centers, to the problems of military laboratories.

SUMMARY AND CONCLUSIONS

Growing dissatisfaction with the operations of

DoD labs has led to proposals that some of them

convert to a GOCO status. In substance, this is what

the DSB tentatively proposed for some labs in its

1987 summer study.36 And in one sense, certain

parts of DoD might accept such a transition. The

Services have long relied on outside laboratories for

sophisticated exploratory work. One thinks of the

establishment of the Aerospace Corporation and

Lincoln Laboratory as contract research centers for

the Air Force, and the reluctance of the Navy’s

Strategic Systems Program Office to use naval

laboratories in developing the Fleet Ballistic Missile

in the 1950s and 1960s. Since the early 1970s, DoD

in general and the Air Force in particular have

moved to reduce the proportion of basic and

exploratory research carried out by government

employees, with the results noted in OTA’s earlier

Special Report on the Defense Technology Base.37

To a degree, Service skepticism about the value of

their own laboratories becomes a self-fulfilling

prophecy.

The ultimate justification for converting a government facility to contractor operation is that it

more effectively provides the government with a

product or service, while ensuring that inherently

governmental functions are carried out by civil

servants. The remaining sections of this chapter

weigh the virtues and drawbacks of this approach, in

light of what is known about the operation of DOE’s

national laboratories.

Do contractor-operated facilities have greater

management flexibility than in-house government facilities? What are the advantages and

disadvantages, to the government and its operating contractors, of GOCO arrangements?

The evidence is unequivocal in personnel management but ambiguous elsewhere. Clearly, the

DOE laboratories have much greater freedom than

DoD facilities to hire directly from the universities,

to pay salaries comparable to what industry and the

universities pay for comparable positions, and to

move people through the organization with relative

freedom. Because the laboratories’ personnel systems reflect those of their operating organizations,

they tend to be less bureaucratic and more attuned to

market conditions than the generality of government

centers.

Some of this flexibility carries over into budgeting and program management. It should be noted

that a significant portion of the labs’ funding is for

tech base work and that, within broad guidelines,

much of their manpower is earmarked for work for

others. Much of this work is, in a sense, diversification within the laboratory’s primary mission, rather

than outside it. Thus at Los Alamos a large

proportion of work for others is sponsored by DoD,

although some of it, as in laser technology, may have

W-J.S. Gener~ Accounting Office, op. cit., footnote 28, P. 13.

s~Defense Science Board, op. cit., footnote 1.

STU.S, Congress, Office of TechnoloW As=sment, “Ch, 4—Managing Department of Defense lbchnology Base Programs,” in The Defense

Technology Base: )ntroducrion and Overvie# Special Report, OTA- ISC-374 (Washington, DC: U.S. Government Printing Office, March 1988).
Chapter 5—The Management of Defense Department Laboratories ● 81

important commercial applications. There are also

programs, like Lawrence Livermore’s work on in

situ coal gasification, which grew out of AEC

research into the peaceful uses of nuclear explosives.

Clearly, the labs benefit from a management

structure that enables the government to achieve its

ends through a quasi-industrial system. What the

operating contactors derive from this arrangement

is less clear. At one extreme, AT&T, in running

Sandia, and Du Pent, in operating the Savannah

River Plant, are essentially working pro bono.38 At

the other, Martin Marietta is operating Oak Ridge

National Laboratory for commercial reasons. It

wants the award fee, it wants access to Oak Ridge

personnel, and it wants access to technology—

although Martin Marietta gains access to technology

developed at Oak Ridge on terms no better than

other corporations receive.

In an intermediate category are the labs operated

by universities: Los Alamos, Lawrence Livermore

and Lawrence Berkeley by the University of California; Argonne by the University of Chicago; and

Brookhaven by Associated Universities, Inc. Although the University of California receives a

management fee for operating its laboratories, this is

not the main reason for the long-term relationship it

has had with AEC and DOE. From the University’s

perspective, the laboratories enable it to do one of

the things it exists to do-research. The laboratories

offer matchless opportunities to do “big science, ”

to use unique facilities, and to develop research

ideas. At some university-operated laboratories, a

sizable number of professional staff hold joint

appointments, while many graduate students take

summer jobs that ultimately lead to full-time positions. In these and numerous other ways, the

universities gain at least as much as they put into

running the laboratories.

There are, however, three disadvantages to the

GOCO arrangement as DOE has adopted it. The

first, the sheer size of the Energy weapons laboratories, was not inherent in the GOCO status. Rather, it

stemmed from the Atomic Energy Commissioners’

decision to make the laboratories full-spectrum

institutions tied to the production facilities. Although this arrangement worked well for many

years, it became more and more difficult for

management to stay intellectually on top of institutions of the size of the weapons labs. All of them

have now placed their own ceilings on institutional

size, although this owes as much to the constraints

of Gramm-Rudman-Hollings, and the likelihood

that arms negotiations will lead to major changes in

programs, as it does to a belief that a given

laboratory has reached its natural limit.

Another problem with GOCOs is a certain lack of

accountability. True, the operations offices are

supposed to oversee the labs and production facilities, but evidence is mounting that the oversight has

not gone far enough. Perhaps the evidence is

stronger at production facilities, like the problems

with reactors and nuclear wastes at the Savannah

River and Rocky Flats Plants, than at the laboratories themselves. Weapons labs like Lawrence Livermore and Los Alamos oversee each other to some

extent; this competition does not exist in the

production sector. What seems to have developed

over many years is a relationship between the

government and the operating contractor, with

virtually no continuing external oversight since the

demise of the congressional Joint Committee on

Atomic Energy in the mid-1970s.

This leads to the third problem, the abdication of

technical responsibility by the government. Because

the AEC elected to contract out almost all of its

technology development, it happened that virtually

all of the scientific and engineering expertise resided

in the laboratories, with the headquarters organization at a real disadvantage in evaluating the laboratories’ technical programs. This did not mean that

headquarters or the operations offices could not

overrule something the labs wanted. They could—

but for administrative, financial, and political reasons, not technical ones. Just as AEC turned over

research and development to outside organizations,

so it also turned over much of its evaluation to

s~[n ]i@t of Du ponl’s decision tO withdraw as operating contractor, the DOE has awarded a contract 10 Westinghouse to operate Savannah River when

Du Pent’s contract expires in 1989.
82 ● Holding the Edge: Maintaining the Defense Technology Base

outside advisory panels. In this respect, DOE is a

lineal descendant of the AEC.39

The experience of the DOE weapons laboratories

confirms the thesis that “the technical capability to

do something is often the trigger that causes the

establishment of a national policy based upon that

capability. ”40 This is true of the DOE weapons labs

in a way that it is not of any DoD lab, except for the

Naval Research Laboratory and a few engineering

centers. And yet, because neither AEC nor DOE had

any independent technical organization of their own,

they had to defer to the labs on the technical merits

of strategic weapons. It may well be that the

development of many weapons programs or the

creation of a civilian nuclear power industry would

have occurred very differently had AEC sponsored

an in-house organization to evaluate its contractors’

proposals.

Do GOCOs tend to become more like government labs, since they face the same pressures to

account for the use of public funds? To put it

differently, do GOCOs develop analogs to Federal policies in acquisition, information management, and personnel, thus losing the flexibility

that contractual status confers?

There does indeed seem to be a rule that, with

time, contractor-operated and government-operated

laboratories tend to become more like each other,

because both are accountable for their use of public

funds. In practice, no Federal agency has been

willing or able to give its contractor-operated

facilities complete independence to set policies

within the framework of their missions, even when

there were no specific regulations to prevent this.

Nor does DOE’s delegation of “inherently governmental functions” to the national laboratories contradict this. An agency can delegate those functions,

while micromanaging its facilities in every other

respect.

As asserted by the Deputy Comptroller General

(quoted earlier), the government’s position is that

even when a contractor-operated facility is exempt

from certain regulations, it must still comply with

the “Federal norm. ” For instance, the national labs

may not be directly subject to the Federal Acquisition Regulation; indirectly, they comply with it

through regulations that DOE, their prime sponsor,

imposes, Again, independent centers like APL need

special waivers exempting them from full and open

competition; must be prepared to respond to outside

audits from different agencies; and must fine-tune

their accounting systems to reflect the separate types

of appropriations from which their funding originates. All of this adds to administrative overhead and

to the demands on technical staff to shield benchlevel workers from government paperwork.

GOCO facilities react to these demands in several

ways. One is to comply with the spirit of government

policy without being bound by its letter. This is why

some DOE labs voluntarily synopsize their procurements in the Commerce Business Daily, reserve

procurements for small businesses, and try to limit

the number of sole-source contract awards. Another

approach is to justify a deviation from Federal policy

for special reasons, as the Energy labs do when they

apply for authorization to purchase supercomputers.

For all that is known about the GOCO facilities,

it is surprisingly difficult to acquire quantitative

information about their operations, partly because

DOE laboratory contractors are reluctant to supply

the information, and partly because DOE tends to

treat it as proprietary. The little that is known

suggests that the advantages of a GOCO operation

may be overrated. True, at Los Alamos, according to

a government source, the contract staff can annually

handle some 45,000 small purchases—those under

$5000----over the phone. However, anecdotal evidence suggests that lead times at some of the Energy

labs are at least as great as those at the larger military

labs, and in some cases greater. To the extent that

this is true, a GOCO institution is no guarantee

against micromanagement and the kind of inflexibility found in government organizations.

WSc)mc ~b~ewers have noted fllal ~D suf{”ers from tie same prob]cm, in ~hat [he headquarters Org:lnixaliOnS that SpOnsOr tic work of in-house L

laboratories may also lack the technical expertise to judge the pcrforrnancc of those labs. The difference is that DoD cxccutivcs did not dclibcralcly turn

over almosl all of the military laboratories and related R&D opcrtilions [o outsi& organi~ations, as the Atomic Energy Commission did with its labs,

which were contractor-operated from the start.

~{)Mark and ~>vine, op. cit., fo(lmotc 21, p. 221.
Chapter 5—The Management of Defense Deptzrtment Laboratories ● 83

How and in what ways do GOCOs differ

from government-operated laboratories in their

ability to transfer the results of their 6.1,6.2, and

6.3 programs to user agencies?

Again, the GOCO DOE laboratories show a much

greater ability to move from basic research down the

spectrum of technology development. DOE GOCOs

are closer to the ultimate application than DoD labs

are. Specifically, the weapons labs’ responsibility

extends from basic research to the retirement of

weapons in the national nuclear stockpile. As

mentioned above, the labs are only part of a

vertically integrated complex that extends from

basic research through the production of weaponsgrade materials to the assembly of the weapon itself.

In DoD, by contrast, the process by which technical

work at the laboratories eventuates in operating

systems is much harder to trace.

The very depth of expertise at the DOE weapons

laboratories has two notable effects. The first is their

commitment to a substantial amount of basic research and advanced exploratory work. Where a

DoD facility might do only enough exploratory

research to keep abreast of technology—keeping, as

it were, a window on the world—the national

laboratories tend to be more aggressive. They can

afford to be: Where expertise at a DoD lab might go

to a depth of two or three persons, at the national labs

it can encompass an entire branch working in

leading-edge technologies. Second, weaponsrelated work and nondefense programs cannot be

segregated in terms of research. There is a constant

give-and-take in these areas that leads to new ideas

and new applications. Thus, the Los Alamos Meson

Physics Facility (LAMPF) was originally designed

in 1967 for research into the structure of the atomic

nucleus. That research led, a decade later, to the

spinning off of a separate group, leading in turn to

neutral particle beam work that became a core

technology for SDI.

In sum, the national laboratories have the

resources to develop aggressively their portion of

the defense technology base. In their operating

agreements, DOE specifically recognizes basic research as a function that needs no extraneous

justification. Beyond that, the interplay of technologies, the respect the university community has for

the laboratories, and the tech base tax that the labs

place on work for others, give them a marked

advantage over the DoD labs in technology development.

What mechanisms can both kinds of institutions use to diversify within their basic missions?

Because the DOE laboratories have construed

their missions in the broadest way, they have

managed to diversify within, rather than outside,

those missions. A more fundamental difference

between Energy and Defense laboratories is that the

former consider such diversification an integral part

of their missions. The latter have diversified in

response to directives from organizations external to

the laboratories-the Service commands or OSD.

Thus, the Army Laboratory Command developed a

strategy for investing in next-generation and “notional” systems; and the Air Force sponsored

Project Forecast 11 as part of its tech base strategy.

Much of the military’s tech base work will occur

outside its own laboratories, while the reverse is true

for the DOE.

Given the capabilities of the DOE weapons labs,

it would be surprising if their primary mission did

not spill over into related areas. Siegfried Hecker,

Director of the Los Alamos National Laboratory, has

put it succinctly. At the weapons labs, “nondefense

basic and applied work is done in an environment

oriented toward national defense. Thus, multiple

payoffs are common and occur quite naturally.

While contributions are made to the solution of

nondefense problems and significant additions are

made to the international scientific knowledge base,

considerations of potential defense applications of

research results come as a natural by-product. ”41

This approach has led the DOE laboratories to

move increasingly into nonnuclear defense work.

Although the DOE technology base developed

separately from that of DoD, the two are converging.

Here, too, Los Alamos has moved aggressively:

applying (as mentioned before) LAMPF to the

neutral particle beam program for SDI; working with

the Army, the Marine Corps, and DARPA on the

qlslgfricd Hecker, Las Alamos National Laboratory, “Review of Managmncnt of the Nation’s Defense Twhnology Base, ” testimony at hearings

before the Subcommittee on Defense Industry and lkchnology, Senate Armed Services Committee, Mar. 18, 1988, p. 15.
&# ● Holding the Edge: Maintaining the Defense Technology Base

armor/anti-armor program; and investigating the

uses of free-electron lasers for ground- and spacebased weapons. Given the Energy labs’ computing

power, they can apply sophisticated modeling to the

problems they choose to attack.

If the experience of the DOE laboratories

demonstrates anything, it is that the greater the depth

of expertise, the greater the ability to apply it to

problems pertinent to the organization’s mission.

Most DoD laboratories lack this ability to move

quickly into new areas, first, because most military

“laboratories” are really engineering centers; second, because their charters restrict their freedom of

action in any case; and third, because they lack staff

and facilities comparable to those of the national

laboratories. It will take fundamental changes before

DoD laboratories can make greater contributions to

the defense technology base. Such changes could

include closing some facilities, consolidating others

into weapons development centers, or converting

some laboratories to GOCO facilities. This third

option is considered below.42

Can the relations of government laboratories

to their sponsor agencies be placed on a quasicontractual basis comparable to those of GOCOs?

Are any government labs considering such arrangements?

It is possible to imagine an arrangement under

which government laboratories could take on the

flexibility of GOCOs while remaining governmentoperated. For the sake of argument, a laboratory

could combine the China Lake personnel system

with the freedom NIST has to seek support from

Federal customers, an NIF-style funding scheme,

and an approach like NASA’s effort to turn over its

support functions to contractors-in fact, just what

the DSB had in mind when it recommended that

DoD sponsor a laboratory management demonstration. An organization run along those lines would

have a degree of freedom that few government

facilities now enjoy.

But such incremental improvements might not go

nearly far enough, The China Lake system does not

make government salaries more competitive with

those of the private sector. Demonstration projects

rarely have unambiguous results; and as China Lake

shows, they tend to remain insulated from other

government establishments, perhaps out of fear that

their example might metastasize through the system.

Similarly, NIST’s freedom to take on work for

other agencies or the standards community results

from its unique mission to support the U.S. technical

infrastructure. And the contracting-out of support

services raises legal and political issues, such as how

one distinguishes between services like running a

cafeteria and providing scientific computing services, which is more mission-related. In other words,

when do such services impinge on governmental

functions? How can one avoid the on-site supervision by government employees of contractors,

which is illegal? And how can an agency avoid the

inefficiency of converting base operations, function

by function? In any case, such hybrid facilities

would remain bound by government policies in

procurement and accounting that would attenuate

the freedom gained in other areas.

A single-step conversion to GOCO status could

avoid these problems while bringing others in their

train. However, all the GOCO institutions described

earlier have enjoyed that status since their inception.

If a Defense laboratory were to convert to GOCO, it

would be the first instance of an existing facility

taking that route. Because it would be unprecedented, a changeover would be very complex. There

would be numerous issues to be resolved along the

way: changeovers in employee benefits, relations

with the Office of Federal Contract Compliance

Programs, the need to restructure its procurement

authorities, and the like. But the main issue confronting such an institution would be the nature of its

relationship with its sponsoring agency. Under the

new arrangement, the laboratory might be operated

by an industrial contractor, a university, or even the

lab’s senior managers acting as a corporate body.

Alternatively, a laboratory could elect a hybrid

status-contracting out all support functions, while

conducting R&D as a Federal entity. A few NASA

facilities, like the Johnson Space Center, have

adopted such a mixed system, with all support

functions turned over to a prime base support

contractor. This has several advantages: for example, the contractor has direct-hire authority for

Q-@n the firs( two options, see ch. 7 below.
Chapter .5--The Management of Defense Department Laboratories ● 85

professional staff if their work falls within the

contract’s scope, and it can pay them market rates.

But the legal questions—the demarcation between

commercial and inherently governmental functions—

remain exceptionally complex.

What kind of DoD laboratory is the best

candidate for conversion to GOCO? While any

federally operated laboratory would benefit from

fewer restrictions on operations, it seems that only a

certain kind of institution is a suitable candidate for

GOCO status. It should already have a substantial

investment in tech base work; it should be able to

demonstrate that its operating problems cannot be

solved by minor variances from regulations; and its

importance to its DoD customers should be such that

they have a stake in improving its operations. In this

light, NRL and some of the larger naval R&D

centers would appear to be suitable candidates for

GOCO status.43

A military laboratory taking this route would

have problems to resolve that the DOE laboratories

have never faced. One would be determining the

organization for which it would be working. It might

be one of the Services, a Service command, or even

OSD, as is the case with some FFRDCs. Another

consideration is that such a conversion could well be

irreversible. Because conversion to GOCO could not

easily be undone, making the transition successfully

would require a strong commitment on the part of

laboratory employees as well as DoD. Conversion to

GOCO could not occur without the full support of

the relevant Service, as well as OSD.

Finally, in return for the benefits of GOCO, the

laboratories would also give up something. The new

status would mean weaker ties with Defense organizations, and perhaps a tendency on DoD’s part to

treat the reorganized institution as simply another

contractor. Further, the preceding analysis of DOE

laboratories suggests that the benefits from a GOCO

operation tend to diminish over time. In short,

everything would depend on the sponsor’s willingness to give the laboratory the freedom to strike out

in new directions, and to take on work for others that

drew on its capabilities. Whatever organization

assumed the operation of the laboratory would have

to have specialized management skills that would

justify turning the lab over to an outside contractor.

dqon tie c~cumstmces that might justify conversion to GOCO, see ch. 7 below.
Expl

Management
CONTENTS

OVERVIEW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89

The Changing Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. ., . . . . . . . . . . . . . . . 89

OtherExperiences and Concepts-How Applicable? .............. . . . . . . . . . . 90

PLANNING AND PRIORITIES . .. .. .. .. .. .. .. .. ... ...+,..... . . . . . . . . . . . . . . . . . . 90

Top-Down v. Bottom-up, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

Balancing Near- and Long-Term Research .. .. .. .. .. . .., ... . .,., 94

The Role of Special initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Centers of Excellence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

MANAGEMENT AND CONTROL . . . . . . . . . . . . . . . . . . . . .. .. ., .. .. .. ... .., .,..... 98

Which Focus: Technologies omissions? . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ....... 98

Balancing Intramural and Extramuml Research . . . . . . .. . ........ , .. .. .. ...... 101

GETTING RESULTS-THE “BOTTOM LINE” OF RESEARCH.........,.. . . . 102

Applications—Moving Technology From the Laboratory to the Marketplace . . . . . . . 102

Collaboration in Research and Technology . . . . . . . . . . . . . . . . . , ., . . ., . 104
Chapter 6

Exploiting Other Management Approaches

OVERVIEW

As the U.S. Department of Defense (DoD) and

Congress look for ways to solve problems associated

with managing technology programs and research

facilities, they will find that they are not alone in this

concern. Other organizations—large corporations,

foreign governments, and international groups—

face similar challenges, and have taken a number of

approaches with varying success.

For two reasons, the experiences of these other

organizations warrant attention. First, they form part

of the backdrop against which DoD will operate

—the corporate structures and the foreign governments with which DoD will cooperate to implement

its research and technology programs. Second, these

organizations exemplify other approaches to accomplishing related tasks and addressing similar management problems. They offer models that might be

adapted for DoD’s purposes.

This chapter concentrates on organizational and

management techniques, but along the way it

addresses the emerging international defenseindustrial environment within which DoD will

operate in the next decade.

The Changing Environment

Research managers—both in government and

industry-must find ways to keep up with the rapid

pace of science and technology. In industry, timely

applications of technology are essential to remain

competitive. In the case of defense programs, the

West must maintain a credible deterrent in a period

of political change and uncertainty, Rapidly increasing research costs and diminishing financial resources are also causing U.S. Government officials

and their industrial counterparts to rethink their

research programs. The overall structure of research

programs has been under scrutiny, especially the

mix between long-term research and near-term

applications. The use of new approaches to research

and technology development—such as universitybased or industrial centers of excellence—to direct

interdisciplinary resources toward key research goals

has grown in popularity. Policies governing intramural v. extramural research—the industrial research equivalent of make-or-buy-are being debated. On this point, the U.S. Government is unique

with its large and wholly owned laboratory structure.

At the opposite extreme, some governments and

companies maintain no internal research capabilities

at all, depending entirely on technology developed

by others. Research management methods are also

under review, with particular emphasis on the

question of whether centralized management should

replace independence at the researcher level.

Whether to collaborate or “go it alone” is

becoming a major issue. In general, full-spectrum

laboratories (i.e., those capable of conducting basic

research, advanced development, and engineering)

appear at odds with those offering specialized

capabilities (e.g., centers of excellence) and focusing on selected research topics. The disparity arises

because full-spectrum laboratories are often oriented

along mission lines and, for reasons of efficiency or

security, prefer to work alone; whereas specialized

laboratories must interact with other organizations

to get the job done. There is a growing attitude in

governments and the private sector that collaboration, with all its inherent difficulties, is perhaps the

only practical way to finance basic and applied

research on contemporary topics in science and

technology. Independence, whether for individual

laboratories, companies, or countries, is becoming

financially prohibitive, and those who insist on

going it alone are increasingly at a competitive

disadvantage relative to those who collaborate.

Finally, incorporating laboratory technology in

products carries a high priority for companies and

government officials alike. While different approaches have been taken to encourage better

technology transfer, they all involve giving someone

the responsibility and the authority to ensure that the

process occurs. While this is simple in concept,

making it happen is not easy, and few organizations

do this job satisfactorily.

–89-
90 . Holding the Edge: Maintaining the Defense Technology Base

Other Experiences and Concepts—

How Applicable?

In this chapter, approaches to technology base

management employed by other Western governmentsl and by the private sector are examined to see

if the successes-or failures-of others can serve as

models for DoD. Japan, major European governments (those with significant military technology

bases), and U.S. and European defense companies

are the primary subjects. The defense sector of

private industry was selected because its research

methods and objectives are viewed as being more

consistent with DoD’s than, say, pharmaceuticals or

consumer products. The specific approaches vary

according to the nature of each national or industrial

research program, the level of financing, and the

availability of skilled researchers to do the work. In

Europe, some interesting trends are developing, with

governments adjusting their research programs and

priorities to changes in world markets, the post-INF

East-West political environment, and the advent of

European economic integration in 1992.2 A few

major themes emerged from OTA’s review:

Most governments and companies have some

form of “research policy,” which is approved

at the top and promulgated throughout the

organization. While some latitude is still allowed and innovation encouraged at the research level, projects must be justified on the

basis of their contribution to achieving either

science and technology policy objectives or

business objectives.

There is a trend toward centralized management of research programs, with an increasing

emphasis on periodic, and relatively frequent,

reviews to assess actual v. planned progress.

Managers appear to be more willing to cut their

losses when projects continue to miss milestones, and to look outside to acquire technology developed by others.

Private and public organizations see collaboration as a means of affording research programs

that are of significant magnitude and have

promise of meeting overall policy or business

objectives.

It is tempting to suggest outright that DoD should

embrace these themes; indeed, DoD has already

begun to in some respects. However, their applicability to the Department’s overall missions and

responsibilities may not be entirely clearcut. Further, making sweeping changes to DoD’s structure

requires great caution; it may result in severe

disruptions instead of the promised improvements.

The magnitude and scope of DoD’s technology base

activities dwarf those of nearly every other organization in the world. DoD’s annual Science and

Technology (S&T) Program (i.e., budget categories

6.1, 6.2 and 6.3A) is approximately $10 billion,

whereas the United Kingdom’s (U. K.) Ministry of

Defence (MoD) equivalent is less than $1 billion

and, in West Germany, military S&T is just slightly

more than $500 million. The U.S. Army, Navy, and

Air Force each spend more on defense technology

base activities than these other nations.

It may be that DoD’s S&T Program is too large

and diversified to employ effectively the management techniques of smaller, more manageable organizations. Nevertheless, there do appear to be

methods that could be applied at least in part to DoD.

This chapter highlights some promising approaches

to the three broad issues that appear to be occupying

the minds of U.S. Government officials and corporate executives: 1) planning and priorities; 2) management and control; and 3) getting results.

PLANNING AND PRIORITIES

Top-Down v. Bottom-Up

DoD employs a highly decentralized approach to

science and technology planning. (See chapter 4.)

The three Services define their research needs with

only minimal direction from the Office of the

Secretary of Defense (OSD), and individual researchers exert substantial influence over program

content and priorities, By contrast, most other

Western governments are involved directly at the

highest levels in setting national research objectives—

*In this chapter, ‘‘Western governments” includes Japan.

‘The “Single European Act,” passed by the European Parliament in 1985 and ratified by European Community (EC) mcmbcr nations in 1986, has

put in mo[ion a set of measures tha[ will Icad to a standardized and largely intcgratcct financial and trade system in Europe in 1992. This should, in turn,

result in stronger and more competitive European industries opera[ing m world markets.
Chapter 6--Exploiting Other Management Approaches . 91

in some cases addressing both defense and civil

research with a ministry review committee. Through

the use of centralized research committees or

advisory panels, cabinet-level officials set priorities

and take steps to ensure that the government’s

wishes are translated into specific programs conducted by their laboratories or by the private sector.

These priorities strongly influence the content of

research programs at all levels. The Japanese Government skillfully ‘‘influences” civil research activities, and the same trend is seen in several

European governments. The European Community

(EC) is exerting top-down influence over the scope

and content of the member countries’ research

programs. This influence is sure to grow as the

Community works toward its 1992 economic integration.

Japanese Government

The Science and Technology Agency (STA),

Ministry of International Trade and Industry (MITI),

and Ministry of Education constitute the three

largest players in Japan’s Government-directed research and development enterprise. Much of the size

and influence of the Ministry of Education is

attributable to its responsibility for managing educational research facilities. The other two institutions

are deeply involved in planning and priorities. There

exists in Japan a broad consensus on the value of

research and development (R&D) efforts that provides a stable political and economic environment

for the pursuit of long-term goals. Bureaucratic

organizations and more politically oriented groups

help ensure the preservation and continual assessment of that consensus. STA, for example, is

organized under the office of the Prime Minister,

while MITI’s research programs report directly to

the head of the ministry. Scientific research trends

are monitored and influenced by advisory councils

associated with the office of the Prime Minister.

These councils fulfill multiple roles, including

facilitating a cabinet-wide consensus on government

research policies, allocating resources, and legitimizing initiatives developed in the private or public

sector by publicly endorsing them. Council reports

can have a considerable impact on progress in

specific research fields. Space exploration, for

example, has become a national priority, in part

because of the role played by these advisory councils

in articulating the government’s objectives and

gaining national support for them.

The process is not flawless. Inter-ministry

integration and cooperation in Japan are not always

as thorough as they could be. There have been

instances in which ministries have competed against

one another for prominent roles in research initiatives, forcing political compromises and wasteful

duplication. And important initiatives can fail, even

when there is a clear consensus in the government

and industry. However, Japan’s track record of

successful R&D provides a strong vote of confidence for the top-down approach to planning.

British Government

Perhaps the most visible and dramatic movement

away from independence and toward centralized

research planning is the one now under way in the

U.K. For the past 21⁄2 years, the U.K. ’S policies for

R&D have been subjected to intense scrutiny by the

British Government, Parliament, industry, and the

scientific community. In mid-1987, the government

published plans for sweeping changes in the management and funding of R&D in the U.K.3 The

proposals, which emphasized the economic potential of research, were drawn up following sharp

criticism of the government’s annual R&D effort by

a House of Lords Select Committee.4 The Lords had

said that the government’s R&D strategy lacked

coordination, particularly in the way research was

applied to industry. If science and technology were

to restore and sustain economic growth and prosperity, the Committee said, its promotion should be a

central objective of government policy, with the

impetus coming from the Prime Minister.

On a related issue, a 1987 review of governmentfunded R&D in the U.K.5 reported that MoD spent

52 percent of all government R&D funds in the year

1985-86. This high proportion of total R&D dedicated to defense generated widespread concern

S“Civil Research and Development, ” Cmnd 185 (London: Hcr Majes[y’s Stationery Office, July 1985).

Q“civll Re~arch and ~velopment: Report of the Select Committee on Scicncc and Technology, ” Vol. 1 (HL 20-1), British Parliament, House of

Lords, November 1986.

56’ 1987 Annu~ Review of Government Fwded R& D,” Government Statistical Service, United Kingdom, 1987.
92 ● Holding the Edge: Maintaining the Defense Technology Base

among British economists and industrialists that

defense might be crowding out valuable investment

in the U.K. civil sector. In its 1987 Defence White

Paper, 6

 the government noted this concern and

promised to take a closer look at defense programs

with a large R&D content to ensure that government

funding was essential. Significant reductions in

funding within 2 to 3 years were predicted as defense

R&D became more efficient and competitive, and as

Britain reduced its duplication of Allies’ research

efforts through greater collaboration. The aim was to

release more government money to support the civil

sector, both in industry and academia. In addition,

there was a clear desire (both in the British

Government and industry) for enhanced civil spinoffs from the R&D carried out by the government’s

Defence Research Establishments. Several initiatives were introduced, both to exploit the Establishments’ technologies for the benefit of the civil

sector, and to offer selected defense facilities for use

by industry. In a potentially dramatic move, the

Establishments may be combined into an independent Defense Research Agency that must “sell”

its research to the Ministry of Defence, industry, and

other customers (e.g., universities, European and

American industries, and consortia).

In implementing this new R&D policy, the

British Government outlined two challenges: 1) to

target scientific and technological resources without

constraining individual creativity; and 2) to coordinate related parallel R&D programs without divorcing them from their individual objectives.7 To

support this policy there is collective ministerial

consideration, under the Prime Minister’s leadership, of science and technology priorities. Also, the

government is to be advised by an independent body

that will comment not only on British scientific and

technological endeavors, but on international efforts

as well. The government’s stated aim is to harness

Britain’s total R&D resources, both civil and military, in a science and technology program that will

enhance both the U.K. ’S economic growth and its

defense capability. The planning and execution of

the more-or-less independent civil and military

programs are to be coordinated and monitored by a

government committee to ensure ‘value for money”

and objectivity, to avoid duplication, and to maximize cross-fertilization between the two efforts.

French Government

In France, top-down research planning has been

the rule, and appears to remain firmly entrenched.

The policies for government funding of French R&D

are highly centralized, but civil and defense R&D

are budgeted and administered separately. Innovation and exploitation are encouraged by an elaborate

system of aids and incentives; economic growth is

sought through market-driven high technology; and

defense R&D is expected to contribute to the overall

economy. Policies for nationalized firms and the

government-supported research system are framed

in the context of long-term plans for R&D and

innovation, with relatively specific priorities and

goals. Science and technology policies (especially

technology) are integrated wherever possible with

the government’s industrial and broader economic

policies.

The stated aim of French R&D policy is to

stimulate rapid, science-based economic growth,

with a selection of key enabling technologies given

priority in either national or collaborative programs.

These goals have subsequently been reflected in

legislation. The draft 1987 R&D Budget Plan was

touted as an essential element in reviving the French

economy. In the government’s view . . the field of

research and technological development is a fundamental component of that policy, because research

and technological development are seen by everyone

as being a powerful factor for the long-term development of our economies and providing a decisive

advantage in present day economic competition

worldwide. “8

West German Government

West Germany presents an interesting contrast.

The Federal Government’s philosophy for civil

research encourages independence. Bonn only promulgates general guidelines while a complex and

largely informal network of Federal and State

Government organizations, universities, private re-

~$$statement of tie ~fcnce Estimates 1987,” Cm 101-1 and-n (London: Her Majesty’s Stationery office, 1987).

T’ $1987 Annu~ Review of Government Funded R& D,” op. cit., footnote 5.

~Draft 1987 French R&D Budget pl~.
Chapter 6--Exploiting Other Management Approaches ● 93

search groups, and industries observes priorities and

moves research projects toward applications. In the

MoD, however, things are different. The Bundeswehr Plan, coordinated between all three Services,

forms the basis for the MoD annual budget estimate.

In addition, there are two MoD agencies concerned

with procurement, but not part of the military

departments. The Federal Office for Military Technology and Procurement (BWB) is the principal

body responsible for carrying out procurement

plans. The Armaments Division is concerned with

procurement planning and the coordination of technological areas that are considered ‘‘project-free”

(i.e., basic research not tied to specific applications).

Reporting to the Division head is the Commissioner

for Defense Research, who collates the research

requirements from all three Services-including

international aspects—into the overall research program.

In 1986, all responsibilities for Research and

Technology (R&T) program formulation and execution were assigned to the Armaments Division. MoD

has defined three categories of research: basic

technology; future technology; and systems technology, which are roughly equivalent to the U.S. DoD’s

6.1, 6.2, and 6.3A. These have been broken into

technology elements (100 in all) with an Armaments

Division Technology Coordinator assigned to each.

The Coordinator prepares an annual plan that

includes overall goals, a survey of the state of the art

(in Germany, Europe, and worldwide) and task

descriptions (with milestones and a 5-year funding

profile). The Coordinator also prepares bid requests,

evaluates proposals, makes awards, and monitors

contracts, Roughly 25 percent of research contracts

are delegated to BWB for placement. However,

direct control remains in the hands of the Armaments

Division Technology Coordinator.

West Germany commits about 15 percent of

government-funded R&D to defense-related R&D.

This is spent within the defense-related industries,

the national laboratories (not owned by MoD), and

the Fraunhofer Society,9 which has six of its

Institutes devoted to defense research funded by the

Ministry of Defense. The defense research and

technology budget is roughly DMIB (U. S.$550M)

annually. For defense research the message is clear

that centralized planning and control has become the

rule, and that duplication cannot be tolerated. There

simply is not enough money for laissez-faire.

Civil research presents quite a different picture.

The West German Government’s civil R&D budget

is nearly seven times that of MoD. It is augmented

by a nearly equal sum from State Governments, and

is spent largely by universities, the national laboratories, and independent research organizations (i.e.,

the Max Planck and Fraunhofer Societies). Through

this decentralized system, West Germany has been

eminently successful in promoting technologybased economic growth, a fact that seems to call into

question the wisdom of instituting a national research program based on centralized planning and

control as the U.K. ’S appears to be doing. Looking

behind the scenes, however, German civil research

is anything but laissez-faire. The Max Planck

Society exerts a major influence on research priorities and the Fraunhofer Society, in conjunction with

financial support from German industry, serves to

“‘pull” the products of research out of the laboratories in accordance with identified market priorities.

The “system,” although not set down in formal,

government-wide procedures, is apparently well

orchestrated and effective, as Germany’s record of

industrial growth and its world leadership in exports

will attest.

Private Industry

Turning to the private sector, in recent years most

European and U.S. companies have instituted topdown planning systems—although specific research

projects are increasingly set and executed at a

division (or operating company) level. In Japan,

top-down planning has always been the rule. The

commitment of top management in Japanese companies to promoting technological advances within

their companies is, perhaps, unparalleled. The participation of high-level managers and corporate officials varies from one firm to the next, but there is

corporate-wide awareness of, and support for, research. Funding decisions frequently are made at

senior levels, and failing projects are abandoned

gThe Fraunhofer SWiety is a nonprofit society that sponsors and performs applied R&D. Its clients are German industry ~d the Federal ~d State

Governments, and it is influential in setting the direction of German appiicd research. For basic research, the Max Planck Society pcrforrns a similar

function.
94 . Holding the Edge: Maintaining the Defense Technology Base

quickly, usually without their initial supporters

suffering adverse consequences.

Most major companies have elaborate procedures

for establishing long-range business objectives,

including an assessment of the key technologies that

are expected to contribute to their achievement. For

certain “enabling technologies” (i.e., those technologies with broad, corporate-wide applications),

the highest management levels are involved in

decisions on projects and funding. Often, corporatelevel centers of excellence are established to bring a

critical mass of resources to bear on the assigned

tasks—a reflection of how capital-intensive research

has become. These centers generally involve generic

technologies (e.g., advanced materials, artificial

intelligence, optoelectronics, and microelectronics),

and steps are taken to ensure that the divisions use

the results in applied research, design, and development programs,

To bring applied research closer to market, the

responsibility for research management no longer

rests solely with corporate central research laboratories; rather, the operating divisions or companies

(where the profit and loss responsibility lies) are

taking charge, The bulk of corporate internal R&D

is thus directed toward achieving near- to mid-term

business objectives, usually tied directly to identified customer requirements (e.g., DoD and MoD) or

to new products. Whether this trend is good or bad

with respect to industries’ contribution to scientific

knowledge and national technology bases, it clearly

demands a firm approach, one that focuses on the

bottom line and does not accept laissez-faire.

Balancing Near- and Long-Term Research

Defense Research

There is almost universal criticism that defense

research programs in the United States and in

Europe, both in governments and in the private

sector, focus too much on the near term. This is

probably a fair criticism. Engineering tasks are often

conducted by DoD laboratories under the guise of

technology base projects. U.S. companies direct

their Independent Research and Development (IR&D)

toward modernizing programs or improving current

products and systems, rather than basic research.10

And as DoD’s IR&D recovery program has come

under increasing pressure from both Congress and

the Administration, defense companies have responded by focusing even more of their IR&D

investment on those areas of technology likely to

provide a near-term commercial payoff. Critics

claim that the “R” in IR&D is silent. Without a

government IR&D allocation, European companies

are even more likely to spend R&D funds on

products, rather than research.

This situation has become further entrenched in

recent years as governments have reduced the

percentage—and in some cases the actual level-of

defense expenditures for basic and applied research.

In the United States, for example, DoD’s research

(6.1) budget did not keep pace as defense R&D

budgets increased under the Reagan Administration.

In France, under Chirac, overall research was cut,

with civil research taking the biggest “hit”; in the

U. K., defense research is being constrained, ostensibly to prevent the crowding out of civil research.

Defense research in West Germany is really too

small to make a difference in the ‘‘high-tech” game.

Civilian Research

Overall, it appears that long-term civil research

by European governments—and by the EC—is

enjoying a resurgence, with both industry and

academia benefiting from this trend. This is not an

accident. Influential observers argue that the greater the proportion of a government’s research

budget spent on civil research, the stronger that

country will be in world markets and, therefore,

the more prosperous it will become. Japan and

Germany are clear examples of this theory. Defense

research is viewed as a drag on the economy, and

governments are being urged not to overspend in this

area. In curtailing defense research, some governmentsnotably the U.K.—have put the burden on industry.

Companies are being urged to conduct research,

either under publicly funded civil programs or with

private funds, and to apply the results (in a more

mature form) to defense needs.

l~sonle Obscwers ~]icvc that dc~rca~s in (j.L funding could bc a cause; 6.2 funding has dccrcascd aboul 1S percent Over the p~sl two decades.
Chapter 6--Exploiting Other Management Approaches ● 95

Japan

Japan is noted for its long-term outlook on

research and technology. Both the public and private

sectors adhere to this philosophy, with corporate

strategies keyed to the exploitation of future technologies. This is in stark contrast to the situation in

the U.S. and European defense sectors.

Several factors contribute to Japan’s ability to

focus on the long-term. Cultural factors are important, but there are other reasons, many of them

financial. For example, in the United States the value

of a company’s stock influences business decisions.

U.S. managers rank profits and increased share price

as their primary objectives. Japanese executives also

view profits and return on investment as important,

but put them below market share. Further, Japanese

companies do not need to worry about the price their

stock commands. Equity remains less important than

debt in corporate financing, and new stock issues are

the exception in raising funds. Also, the lower cost

of capital in Japan makes long-term projects more

attractive.

A definite shift in emphasis is apparent: While

defense R&D was once the “locomotive” for

advancing technology, civil research appears to

be assuming this role in much of the Western

world. In part, this is because the line between civil

and defense technology is fast disappearing; and in

part it is because governments are moving to

improve their industries’ competitiveness in emerging global markets that are technology driven. In

developing policies and priorities for defense research, DoD officials are sure to come under

increasing pressure to take a wider view of national

security. Indeed, maintaining an adequate defense

industrial base may only be possible through maintaining competitive U.S. industries in world markets. The Europeans appear to have offset a nearterm focus in defense with support for the long term

in civil research. Their industries are finding sufficient government- (or EC-) sponsored civil research

programs to challenge both existing scientific and

technical staffs and available resources.

The Role of Special Initiatives

Historically, the pace of U.S. science and

technology has benefitted greatly from a succession

of special top-down initiatives, driven either by

urgent defense priorities or by political objectives.

The World War 11 Manhattan Project resulted not

only in the atomic bomb, but also in an array of

technologies that served both military and civil

purposes for more than a decade. The Apollo

Program of the 1960s succeeded in meeting President Kennedy’s objective to put a man on the Moon;

but it also provided breakthroughs in materials,

electronics, data processing, guidance and control,

and propulsion. Other past technological initiatives

such as Project Sherwood (controlled nuclear fusion), Project Plowshare (peaceful applications of

atomic weapons technology), and Vanguard (rocket

development) were not successful, but they also

provided beneficial spinoffs in other areas. (The

Strategic Defense Initiative [SDI] program may also

provide spinoffs to conventional defense programs

and to some civilian fields, but the returns are not yet

in.)

While these initiatives created an environment

that encouraged rapid advancements in science and

technology, they also disrupted the normal course of

research and have, some argue, thereby undermined

the Nation’s long-term technological health. It is

still an open question whether these initiatives have

provided a net benefit to science and technology, or

if S&T would be better left to follow a more natural

course.

Until recently, the Europeans have made little use

of special technology initiatives. Although concentrated efforts have been applied in major development programs [e.g., the Mane spacecraft, the

Tornado aircraft, the Airbus, and now the European

Fighter Aircraft], national research and technology

programs were relatively well-insulated from political pressures. But growing concern that Europe is

falling behind the United States and, perhaps more

importantly, Japan in world markets has changed

this attitude dramatically. Technological initiatives

are rapidly becoming the rule in Europe, rather than

the exception. These initiatives have been mainly

multinational in nature, directed from either the EC

or other multinational groups, such as the Independ-
96 ● Holding the Edge: Maintaining the Defense Technology Base

ent European Program Group (IEPG).1l They also

appear to have provided a “ramp effect” in several

key technology areas, propelling Europe to a level of

technology that is close or equal to that of the United

States. While the EC research projects are for civil

purposes, most involve “dual-use” technologies,

and many of the results will no doubt find their way

into Europe’s military systems. The impact of these

initiatives, therefore, will be relevant to future DoD

defense technology base programs.

The EC is sponsoring several research and

technology initiatives, headed by ESPRIT (European Strategic Program of Research in Information

Technology). The loosely defined intergovernmental

EUREKA12 program launched by France in 1985

has attracted support from 19 European countries.

After early successes—and a lot of publicity—

Europe’s governments encountered difficult questions on priorities and funding. The European

Commission proposed a substantial research budget

increase for the next 5 years. This proposal was

supported by the southern-flank European countries

but opposed by the major budget contributors (the

U. K., France, and West Germany), who urged

financial constraint and stringent selection to ensure

that funded projects broke new ground. The members finally agreed in September 1987 to spend 5.2

billion ECU (U.S. $6.8 billion)13 on a “European

Framework” for technology collaboration over the

next 5 years. Within the Framework are several

individual initiatives addressing, for example, information technology, advanced telecommunications,

biotechnology, alternative energy sources, environmental research, and nuclear safety. These initiatives

have been translated into specific research programs, such as ESPRIT, RACE, and BRITE.14 Yet,

the Commission does not fund EUREKA, which

could approach $5 billion in itself.

None of the more than 200 ESPRIT and 165

EUREKA projects have as yet yielded breakthroughs, although progress is claimed in many

areas. The most important contribution may be

psychological, with the shedding of isolationist

attitudes and inhibitions. Reaction by European

industry and academia to the EC programs varies

from enthusiasm to open skepticism. To some

Europeans, subsidized EC research collaboration

administered by officials in Brussels is not a cure for

Europe’s problems. It might, they warn, even

impede healthy change by accepting too readily the

established industrial order. ESPRIT, for example, is

dominated by a dozen big electronics groups. It

remains to be seen if these European high-tech

companies can actually cooperate in product development and marketing, thus capitalizing on the EC’s

investment in research.

Technological initiatives of some significance

might also evolve from Europe’s defense community. Driven by decreasing defense budgets, the

member countries of IEPG have, after more than a

decade of trying, finally begun to develop a coherent

program for cooperation in research, development

and acquisition. One of the IEPG’s first actions was

to establish a set of cooperative research projects.

Little has come from this effort to date, but much

more visible progress is being seen on joint development and production programs. The 1987 report of

an Independent Study Team15 signaled clearly that

the IEPG would henceforth be a primary forum for

collaborative defense programs within Europe, and

that it would increasingly become the “single

voice” on acquisition and cooperative issues involving the United States and Canada.

Centers of Excellence

Special research teams or “centers of excellence” are becoming a favored means to implement

research priorities. These groups concentrate on

interdisciplinary research relating to technologies

that require a critical mass of resources and person1 IThe IEPG is comprised of the 13 European members of NATO: Belgium, Denmark, France, West Germany, Greece, Italy, LuxemboWg, the

Netherlands, Norway, Portugal, Spain, ‘Ihrkey, and the U.K.

lzThe Europe~ Rese~ch Coordinating Agency is a Europcan program to strengthen non-military technologies, emphasizing JOint industrial md

government funding of civil projects that have clear market potential.

13 EWoPm budgets for rcwwch ~d tw~olo~ Usual]y do not include rese~ch overhead (e.g., general facilities ~d administration). AIso, other

groups (primarily industry) are expected to contribute up to an equal share. Thus, the EC’s $6.8 billion 5-year research budget is actually equivalent to

a much larger amount in terms of, for example, a DoD budget.

14 RACE: Rese~ch ~d ~ve]opment in Advanced Communications for Europe. BRITE: Basic Research into Industry Rchnology for Euro?=

lsIndcWndent EuI-opc~ progr~ Group, ‘‘Towards a Stronger Europe. “ Vols. I and 11 (Belgium: NATO Headquarters, 1987).
Chapter 6-Exploiting Other Management Approaches ● 97

nel; these are often corporate-wide activities. In the

case of governments, such centers may serve military or civil interests or both at once. Some examples

are described below.

European Community

The EC funds four laboratories, known as Joint

Research Centers (JRCs), at Ispra in Italy, Karlsruhe

in West Germany, Petten in the Netherlands, and

Geel in Belgium. Whereas the JRCs were once the

flagships of the EC’s collaborative research effort,

their direction, objectivity and usefulness have

recently been criticized so extensively that the EC is

planning to revamp their management. Under proposals adopted by the Commission of the European

Community in October 1987, the JRCs are to reduce

their dependence on the EC budget by 40 percent by

1991. The proposals envisaged that 15 percent of the

JRCs’ resources should come from contract research

for individual governments and the private sector by

1991, with a larger proportion also coming from

other Commission departments. While the plan does

not call for cuts in the JRCs’ 690 million ECU

(roughly $900 million) allocation for the subsequent

5 years, the Commission proposed a sweeping

reform of the JRCs’ objectives, mode of operation

and methods of management.

The nations, however, were unwilling to accept

the Commission’s proposals; West Germany called

for more details on how the JRCs’ performance

would be monitored; the U.K. called for better

control on areas where JRC work duplicates other

EC research; and West Germany, the U.K. and the

Netherlands thought the 40 percent reduction in

dependence on the EC R&D budget by 1991 did not

go far enough or fast enough. This debate suggests

that the JRCs are suffering from the same malaise

and lack of relevance in their research that affected

many U.S. corporate research laboratories in the

1960s. In today’s environment, research must be

responsive to the marketplace or to military needs.

European Nations

On the national scene, the intense and public

debate over the “State of Science” in the U.K.

resulted in movement toward the centers of excellence concept. In late 1987, two steps were taken for

reshaping British science, with emphasis on its

exploitation for commercial purposes. First came the

establishment of the Centre for the Exploitation of

Science and Technology (CEST), based at Manchester University. Envisaged as a “think-tank”

with a Steering Committee headed by the Cabinet’s

Chief Scientific Advisor, CEST’s role is to help

improve Britain’s ability to exploit R&D, imported

as well as home grown. CEST is to bridge the gap

between industry and the scientific community; over

80 percent of its funding will come from major

science-based companies and the rest from the

Government.

The second step was to create a number of

University Research Centres (URCs). The URCs are

expected to have a vital role in the government’s

plan as ‘‘agents of change. ” Similar in concept to

centers of excellence established in U.S. universities, these laboratories will be devoted to studying

specific scientific opportunities that hold the promise of being exploitable within a decade. The

National Committee for Superconductivity chose

Cambridge University to host the first URC. The

British Government’s Chief Scientific Advisor is

thought to believe that Britain must quickly establish 30 to 40 URCs to bring about the changes he

seeks in British science.

Industry

Industries on both sides of the Atlantic have been

following this trend. In Europe, nearly all major

companies and universities have participated in the

EC research initiatives or have joined “clubs”

(consortia) striving to bring together a critical mass

of resources. In the United States, major companies

are also beginning to shed their go-it-alone attitudes

and are seeking collaboration in key technologies,

either with universities or with potential competitors. The newly formed SEMATECH, a DoD and

industry consortium created to develop microelectronic manufacturing technologies, is the most

recent example. Earlier examples include the Electric Power Research Institute (EPRI), the Semiconductor Research Cooperative, the Council on Chemical

Research, the University Steel Resources Center,

and the Microelectronics and Computer Corporation

(MCC). This trend toward banding together has been

encouraged by a more benign U.S. Government

attitude toward the antitrust implications of joint

ventures in advanced technology and by the obvious

success of such ventures in Japan, and now in
98 ● Holding the Edge: Maintaining the Defense Technology Base

Europe. While collaboration in the ‘‘precompetitive phase” of research can result in a degree

of technical leveling and requires a long view of

market penetration, this trend holds promise as an

affordable means for U.S. industry to keep pace with

international competition.

Department of Defense

In DoD, the Services, especially the Army with

its University Research Initiatives Program, have

been instrumental in encouraging the trend toward

university centers of excellence. Such centers can

and should accelerate the state of the art in technology, However, time and the danger of technical

leveling could work against what should be a good

idea; clearly such centers need good management. It

will be important for DoD to set priorities and foster

collaboration with U.S. industry, or perhaps with

other governments.

European Defense R&D

Recent trends within major European governments, described earlier, reinforce this argument.

For France, Germany, and the U. K., defense research activities are being increasingly planned,

organized, and managed by central authorities,

independently of Service requirements and development activities. Research organizations are being

set up to serve as sources of technology that, when

mature, can feed into equipment-oriented organizations. This is also becoming the case on a multinational basis. The IEPG is considering forming a

European defense research agency. On the civil side,

most EC research projects are directed toward a

common set of enabling technologies, with applications left to industry to determine. In the U. K., even

mature research activities are being consolidated.

Under a gradual rationalization policy, MoD’s

Defence Research Establishments have been encouraged to adopt a technology, rather than mission,

orientation, 16

MANAGEMENT AND CONTROL

Japanese Defense R&D

Which Focus: Technologies or Missions?

Department of Defense

DoD’s laboratory structure is primarily missionoriented, with most Service laboratories dedicated to

a particular warfare specialty. While some conduct

(or sponsor) generic research, the vast majority are

considered a dedicated asset for accomplishing one

of the Service missions (e.g., Wright Aeronautical

Laboratories, the Naval Ocean Systems Center, and

the Army Missile Command RD&E Center). Although a mission focus provides a closer link

between technology and military applications, it

also encourages overlap and duplication throughout

DoD. At mature R&D stages, a mission orientation

may be appropriate; however, in technology base

programs, where the key technologies are not yet

coupled to military applications, it can be argued

that DoD should be organized along more generic

technology lines, with Department-wide priorities

guiding individual research activities.

Japanese defense technology strategies are intertwined with an extensive process of technology

management within the government and industry

that emphasizes dual-use technologies to assure

Japan’s security in the broadest sense into the next

century. To understand the direction of defense

technology management, one must look beyond

narrow definitions of defense and security. One must

examine the roles and perceptions of a range of

business and government interests in formulating

and implementing technology-management policies

as part of a larger economic strategy. As evidenced

by the priority it places on developing dual-use

technologies with multiple applications, Japan’s

technology policies are generated and implemented

in a manner that merges economic, security, and

industrial policy considerations. As a result, government and industry consciously blur the line between

purely defense and civilian technologies to ensure

maximum use of emerging applications and processes. They encourage a flexible approach to applying commercial technology in military systems, with

Ib]f tie proposedconsolidation of ~fence Re~arch Establishments occurs, the U.K. new Dcfcnce Research Agency may find-as has U.S. industry

with its IR&D program--that research which does not directly satisfy a customer’s identified needs will be difficult to justify at the “bottom line. ”
Chapter 6-Exploiting Other Management Approaches ● 99

the aim of making Japan equal or superior to other

countries in terms of its defense technology base.

In Japan, there is not necessarily a national or

government-wide consensus about the value of

defense production and research for the overall

economy. Although Japan has embarked on a policy

emphasizing domestic weapons research and development, that policy is not universally embraced. The

Ministry of Finance argues that virtually any spending on defense comes at the expense of the economy.

This attitude is manifested in other ways. A number

of major research efforts within civilian ministries

and agencies have potential military applications

(e.g., artificial intelligence, high-performance plastics, ceramics, advanced alloys, jet-engine research,

and deep-sea mining systems). Although both the

public and private sectors are examining possible

military applications, the projects nevertheless are

justified primarily because of their expected beneficial impact on the civilian economy.

European Civilian R&D

In Europe, the bulk of publicly funded civil

research is directed toward generic technologies,

especially work conducted by universities and by

private research organizations. To capitalize on this

investment in basic research and technology, governments are also setting up support (or technology

transfer) organizations that work closely with researchers and industrialists to move basic research

into useful, marketable products.

West Germany presents an interesting case where

decentralization, coupled with adherence to broad

national research goals, has been successful. While

the Federal and State Governments have longstanding policies that nurture civil research, the

researchers themselves are free to choose their

subjects. This constitutionally guaranteed freedom

of scientific research is the first of four basic pillars

governing research policy in the Federal Republic.

The second can be seen as an outgrowth of West

Germany’s federal structure, where the 11 federal

states assume independent responsibility in the areas

of education and science. The third pillar is the

declared intention of the Federal and State Governments to interfere as little as possible with the

research systems. The fourth pillar is symbolized by

the intention that German research be integrated

closely and effectively into international—

specifically European-research cooperation.

The German Research Society (DFG), an autonomous organization within the scientific community,

has great influence over German research programs

and policies. Although DFG is funded by the Federal

and State Governments [DM1 billion (approximately $750 million annually)], it is not subject to

direct governmental influence. It merely shares the

government’s goal to seek, realize, and expand upon

a high standard of achievement in basic research in

West Germany. The DFG’s independent staff of

experts evaluates research-grant proposals submitted by researchers of all disciplines. If their decision

is affirmative, approval of the grant is almost

automatic. The Max Planck Society and the Fraunhofer Society, both funded largely by the Federal

and State Governments, are also independent establishments that exert great influence in formulating

research policies. The Max Planck Society advises

on what research projects are needed at any given

time, while the Fraunhofer Society serves as a

catalyst for technology transfer between the scientific and business communities.

Intertwined with this, one finds German industry

working both with the basic research organizations—

in search of commercial “nuggets’ ’-and with the

Fraunhofer Society to smooth the way for technology transfer. Thus, while the Federal and State

Governments fund basic research with few

‘‘strings” attached, an infrastructure exists to

encourage a natural evolution from basic research into product-related (or mission-specific)

research which is much closer to the market.

Industry

In the U.S. and European industrial sectors, it

often appears that internally funded research is

largely conducted in operating companies. Closer

inspection reveals that most of this so-called research falls into the categories of development or

product improvement. The really basic research

continues to be conducted in central facilities that

concentrate on specific areas of technology. As

noted earlier, major corporations have established

their own centers around key technologies, which

provide a single technology source for the operating

companies’ use. These centers of excellence are

often staffed by a combination of permanent re-
100 ● Holding the Edge: Maintaining the Defense Technology Base

search personnel and personnel assigned from operating divisions—the latter tasked to become skilled

in the state of the art and to bring that capability into

the division. Also, the trend toward banding together

in research consortia further emphasizes a growing

private-sector concern for technology-oriented, rather than mission-oriented, research. Both moves

respond to the skyrocketing cost of research and

technology.

It can be argued that multiple, mission-oriented

laboratories working along parallel lines will encourage, or at least create opportunities for, greater

innovation. It appears, however, that many companies and governments have concluded that the

benefits of duplication are marginal and can even be

detrimental if sufficient funds are not available to

conduct in-depth research at multiple locations. By

merging technical and financial resources, managers

hope to gain the benefits of new ideas and innovation, while maintaining a central focus on selected

areas of technology.

Central v. Local Program Control

In Germany and Sweden, civil research is built on

a foundation of independence; the view is that

independence will encourage innovation, and innovation will result in progress. An informal, but

influential, infrastructure has evolved to link research to the market, with researchers having only

minimal technology -transfer responsibilities. This is

fine as long as there is no financial bottom line for

the research establishments, or no military capabilities that are needed urgently. In such cases, one

could argue that independence may not be wholly

appropriate.

In Japan, government laboratories and research

institutes fulfill a variety of roles in the R&D

process. It is important to note that they do not serve

exclusively as creators of new technologies or

initiators of larger research projects. While they

often serve these purposes, government facilities

have an equally important role as neutral testing

grounds to verify results achieved in private-sector

laboratories, and to carry research to a point where

it becomes more economical to pursue it in privatesector facilities. With such divisions of labor, it is

not surprising that much of the interaction between

business and government occurs among individual

researchers, their supervisors, and the directors of

research facilities.

In Japan’s private sector, engineers, researchers,

and other technical specialists are heavily involved

in assigning priorities among potential civil research

projects, and are active in the design and development phases of new products. Production and

manufacturing considerations are merged with development and design stages virtually from the first

consideration of a promising technology all the way

through the production phase. These considerations

are incorporated into product design, thus necessitating fewer costly and time-consuming modifications

later. It is still difficult to determine if the same can

be said for defense production in Japan, but similar

attitudes and practices probably prevail.

Among Western governments and industry, there

is a notable trend away from independent (i.e.,

“project free”) defense research that reflects the

need to get near-term results from shrinking budgets,

An example described earlier is West Germany’s

consolidation of its research and technology activities under a single organization within MoD’s

Armaments Division. Based on priorities set at the

Minister level, MoD “Technology Coordinators”

develop, organize, and direct the program. These

officials are expected to relate research priorities and

results to future operational requirements and are

often assigned temporarily to concept formulation

(or pre-feasibility) study teams to ensure that research results will be used. MoD oversight of

research activities is maintained at all times.

U.S. and European defense companies are increasingly holding their researchers accountable for

results, especially the ultimate applications of their

work to products or business objectives. As with the

West German MoD, many companies temporarily

assign researchers to project definition studies or

long-term product development activities, emphasizing that they have a responsibility for the bottom

line. The prevailing attitude in some companies

seems to be that ‘research is too important to be left

to researchers.*’ Centralized direction, review, and

feedback are the rule, While central control may tend

to stifle innovation, it is becoming a financial fact of

life that the industrial research community must

face.
Chapter 6-Exploiting Other Management Approaches ● 101

Balancing Intramural and Extramural

Research

U.S. and U.K. R&D

DoD’s extensive network of governmentowned and government-operated R&D facilities

is unique among defense establishments in the

Western world. Perhaps its closest counterpart is

the U. K., with its Research Establishments organized originally to support specific mission areas

(e.g., the Royal Aerospace Establishment and the

Admiralty Research Establishment). However, as

noted earlier, these activities have been gradually

consolidated and rationalized to align them more

with areas of technology. Also, if the Research

Establishments are separated from MoD and operated as an independent government research agency,

MoD will own no research laboratories and will have

to contract out all of its basic and applied research.

MoD would then mirror the West German MoD,

which owns virtually no laboratory facilities.

French Defense R&D

In terms of defense research, France falls

somewhere between the United States and West

Germany. The Ministry of Defense owns and

operates, through the Delegation Generale pour

l’Armement (DGA), three research laboratories (one

in conjunction with West Germany). France is a

special case; the head of DGA, who reports directly

to the Minister of Defense, has greater control over

research, engineering, and industrial matters than

any other European-or American-defense official. In addition to the MoD laboratories, the French

Government operates development facilities, and

owns and controls a large share of the defense

industry. Under these circumstances, the distinction

between government and industrial research is

blurred, but it seems that because of budget limitations little “project free” research is performed.

Japanese Defense R&D

Japanese intramural defense research is directed

by the Technical Research and Development Institute (TRDI). Organized as a division within the

Japan Defense Agency (JDA), TRDI is the Agency’s

primary research organization. It is headed by a

civilian who oversees three administrative departments along with four uniformed directors, who

supervise research and development in ground,

naval, and air systems, as well as precision guided

munitions. Conceptualization, design, and prototype

responsibilities occur at this level. Research centers

carry out projects, including surveys, research, test,

and evaluation to enable further development on

specific systems. TRDI maintains five research

facilities in Japan for testing and evaluating a broad

range of weapon systems and technologies. The

Institute has no prototype manufacturing capabilities, relying instead on private-sector capacities.

The government established TRDI as an independent center for weapons development, as well as

to stimulate the growth of the domestic armaments

industry. It began with a philosophy of limiting

direct participation in defense-related R&D, partly

to minimize government budget outlays; but also

because the assumption was (and still is) that

defense spending constituted a burden on the civilian sector. To a large degree TRDI has managed

defense technology according to its impact on the

domestic economic and technological base. The

Institute does not necessarily target the development

of technologies to field specific weapons systems; a

criterion for selecting and nurturing technologies

has been the expected impact on the commercial

sector. The chance that a given technology will be

targeted for development by TRDI is greater if it

contributes to the overall industrial base and is likely

to provide commercial opportunities.

Reflecting normal practice in the Japanese

commercial sector, TRDI maintains close relations

between government and business. TRDI works

with industry both formally and informally, in many

cases simply monitoring research already under way

at private companies. It also carries out preliminary

research that it hands over to the private sector, once

the research reaches the stage where risks have been

reduced and the technology is proven. These patterns were reinforced by a reorganization in July

1987 that totally eliminated minor research programs that could be pursued more effectively by

private-sector research facilities. In addition,

TRDI’s role was defined to include research that

lacks an immediately identifiable demand in the

commercial sector. This could mask an important

change in TRDI’s institutional role, and perhaps

represents a JDA judgment that fielding advanced

weapons systems will require selective development
102 ● Holding the Edge: Maintaining the Defense Technology Base

of specialized technologies with primarily military

applications.

Civilian R&D

In European civil research, there appear to be

more laboratories that are owned, operated, and

supported by governments than in the United States.

France maintains an extensive network of governmentowned research facilities performing basic research

in areas such as atomic energy, space, automation

and telecommunications. These laboratories, which

are staffed by researchers and administrative personnel, exert a powerful influence over French research

policies. Criticisms have been voiced that these civil

servants stifle innovation and serve their own

purposes, rather than those of the country at large

(arguments one often hears regarding U.S. Government labs). Germany, Sweden, and Italy operate a

few laboratories, but rely mainly on the private

sector, especially universities, to provide most

research capabilities.

Industrial R&D

Despite the growing number of industrial research consortia and, in the EC, common-funded

research, most industrial R&D is still performed in

company-owned facilities by company researchers.

This is understandable. Industry’s motivations are to

gain a competitive edge from research, making

collaboration or contracting out risky. However,

financial pressures now make research collaboration

acceptable to more industrialists. Some companies

have taken a different course of action by closing

their central research organizations and concentrating solely on applied research. In these cases, the

companies sometimes establish small advisory bodies to follow worldwide research and invest modest

amounts in promising technologies, often with

research institutes or universities. Such companies

effectively become “technological parasites, ” seeking to acquire technologies from any source to apply

them to products and systems to obtain a near-term

effect on the bottom line.

Other companies in Europe have established

hybrid programs in which some basic research is

conducted in central research facilities, some in

operating companies (often funded by the central

research organization), and a small amount is

contracted out. Rotating personnel between the

research organizations and the operating companies

serves to sensitize researchers and engineers to their

responsibility for technology transfer. In this way,

the companies hope to keep their basic research

organizations as lean as possible, and yet keep ideas

flowing into new products.

Through programs such as ESPRIT, BRITE, and

RACE, the EC hopes to establish Europe as a major

center for advanced technology, and to use this

technology to establish European industries as

leaders in world markets. Except for the Joint

Research Centers, the EC itself has no research

organizations and relies solely on external resources,

e.g., industry, academe, and private research organizations. Experts are retained temporarily to help

establish priorities, set research program goals,

prepare bid packages, evaluate proposals, and review programs. This raises the inevitable question

regarding the competence of EC staff to make

informed judgments on advanced technology and to

assess which technologies are ready for application.

It will be interesting to follow the progress of the EC

to see if an organization with such limited internal

research capabilities can accomplish its ambitious

goals.

Whether or not the EC succeeds, it appears that

the overall trend in Europe is toward fewer

nationally owned research facilities—especially

on the part of ministries of defense. To retain

technological relevance in this environment, MODS

will have to coordinate closely with national universities and independent laboratories expert in specific

areas of technology. It will also require a much

closer coupling between civil research and defense

needs if MODS are to maintain a state-of-the-art

military force. The research must be conducted

somewhere and, if it is not done in governmentowned defense research establishments, then other

effective mechanisms will have to be found.

GETTING RESULTS—THE

“BOTTOM LINE” OF RESEARCH

Applications—Moving Technology From the

Laboratory to the Marketplace

For DoD as well as for industry, the payoff from

research is its application, whether to a nextgeneration weapon system for DoD or a successful
Chapter 6-Exploiting Other Management Approaches ● 103

new product for industry. If the technology is

applied too hastily, manufacturing can become a

nightmare and expensive redesign is often needed.

Many defense acquisition horror stories are the

result of attempts at concurrency-entering initial

production stages before a design (or technology) is

fully developed and thoroughly tested. But, paradoxically, the Department is often sharply criticized

for leaving technology in the laboratory too long,

thus basing new weapons and systems on yesterday’s technology. U.S. industrialists are also under

growing pressure because of their apparent inability

to offer products that capitalize on new technology

in a timely fashion and at competitive prices.

European governments and industries appear to

be no better than their American counterparts at

effectively transitioning new technology into weapons systems or products. The European problem

may be more the result of a lack of sufficient

investment—a shortfall the EC is attempting to

correct through collective investment and “transnational” research priorities. In the United States, it

may be that too many technological options have

been available, and that the continued promise of the

‘‘next breakthrough” frequently has paralyzed DoD’s

decision process.

Department of Defense

Perhaps the toughest problem faced by DoD’s

research managers is technology transfer-how to

insert research results successfully into weapons and

systems without excessive cost and before the

technology becomes obsolete. Acquisition programs

are essentially risk reduction programs involving a

sequence of research, development, design, and

engineering tasks. New technologies must pass

through a number of phases during which they will

be viewed differently depending on their state of

development and the skills (and biases) of the

personnel involved. What might be obvious advantages or shortcomings to a researcher might not be

appreciated by the development engineer or designer. As a result, the technology might be used

improperly or have too much expected of it, so that

the insertion effort is deemed a failure. This dilemma

needs to be addressed. One ambitious DoD ‘ ‘insertion” effort is the current very high speed integrated

circuit (VHSIC) program, where existing avionics

and system design programs are converting to

VHSIC technology. The VHSIC program brings

significant performance enhancements, but also a

share of start-up problems. None of the European

governments has attempted, or planned, an effort of

this magnitude.

Japan

At present, Japan seems to be unique in its

industry-wide ability to move advanced technology

rapidly and effectively from the laboratory to the

market. The current trends in Europe should be

examined in light of Japanese successes, since the

Europeans appear to be trying to apply Japanese

concepts. What appears to work best is the establishment of teams of researchers, engineers, designers,

manufacturing specialists, and even marketeers,

early in the life of a technology or product. This

group is responsible for ensuring the efficient

movement of the technology through to manufacturing. These concepts appear to be under consideration

in Europe for EUREKA and for some multinational

programs sponsored by the EC, such as RACE and

BRITE. Within individual European MoDs, the

scope of national research may not lend itself to this

life-cycle approach to technology transfer, but if

research collaboration grows under the auspices of

the IEPG, formal technology insertion programs

may soon follow.

European Industry

Private industry in Europe is also struggling with

the transition problem, as several large European

companies are experimenting with new methods of

managing R&D. The goal is to concentrate on the

most commercially promising areas and to ensure a

faster transfer of research results to the market. In

pursuing this goal, R&D responsibilities are becoming more closely tied to the marketing and operating

divisions— a practice that has become the rule in

U.S. industry. Scientists, especially the most senior

research people, are expected to support the company’s business goals. They attend planning meetings and are considered part of the business team,

along with the marketing and production personnel.

Examples of the close relationship that is

essential between the research staff and those who

develop technical specifications exist in all successful companies. However, in large and complex

organizations the necessary interaction and communication can be jeopardized by interdepartmental
104 ● Holding the Edge: Maintaining the Defense Technology Base

rivalries and parochialism-problems that only

strong management and a clear set of objectives can

dispel. Unfortunately, examples of organizational

environments conducive to effective technology

transfer are few and far between, with ad hoc

measures often substituting for strong management

and sound policy.

A few specific approaches for assisting the flow

of technology can be mentioned. Some companies

recognize the need to retain continuity of technical

expertise as a research project moves from research

through development into production. One major

European firm, with both defense and commercial

operations, has developed a‘ ‘distributed” technology 

 transfer system involving four types of laboratories:

●

●

●

●

A basic research laboratory that concentrates on

long-term topics (>10 years), working with

universities and tackling problems of fundamental interest.

Central laboratories that serve major company

groupings through research on areas of common interest and on mission- or businessoriented concepts or systems (5 to 10 years

before product introduction).

Site laboratories that work on new products,

funded by individual product divisions and by

contracts with outside organizations (2 to 5

years before product introduction).

Product development within product divisions,

working on next-generation products, product

improvement programs, etc. (1 to 2 years

before product introduction).

In this company, technology transfer is effected

through a “push-pull” process, with the technology

moving from central to site laboratories, and from

site laboratories to divisions, in a process that

involves the temporary assignment of scientists and

engineers to a project for 2 or more years.

In another European example, a corporate research center serving the entire company receives its

funding from a variety of sources (i.e., from central

headquarters, from product divisions, and from

external contracts). A senior scientist within the

research center monitors all research programs,

relating each to possible and actual division interests. He also reviews programs for combinational

possibilities, commercial leverage, etc., and arranges joint technology demonstrations for the

business areas (divisions) concerned. The center has

also set aside a budget to fund the business areas that

will apply new technology, and routinely assigns

center scientists temporarily to the business areas to

effect technology transfer. While this technique

works in many cases, in others it may represent too

strong a “technology push,” and can encounter

resistance at the division level.

Some defense firms have no central research

organization at all, with the divisions being solely

responsible for internal R&D. While the research

focus of the division is inevitably more near term to

match the needs of their customers, these companies

do recognize the importance of acquiring new

technologies. In one example, an off-line technology

group in the central headquarters maintains a‘ ‘technology watch” and advises the product groups (or

divisions) when key technologies approach the

applications stage. The team studies research collaboration possibilities, monitors the introduction of

the technology into the division’s product line,

carries out marketing surveys, etc. The divisions will

coordinate the applied R&D on their own behalf,

while the central team then moves on to its next

problem.

Industry is employing a variety of approaches to

encourage the efficient and timely transfer of technology—approaches ranging from secondment or

temporary assignment programs to business development teams, to formal programs of “technological parasitism. ” The one common thread is that

someone who has both the responsibility and the

authority to make technology transfer work has been

put in charge of the process.

Collaboration in Research and Technology

International collaboration in research is becoming a way of life for most Western nations. Not only

has the cost of research become prohibitive for

individual organizations, but worldwide competitive pressures in defense and civil markets are

forcing companies and governments to pool their

resources simply to stay in the game. These factors

have triggered dramatic changes in the operating

methods of high-technology organizations, including

DoD, During the 1970s and early 1980s, European

governments and companies and, to a lesser degree,

their U.S. counterparts began to explore ways to
Chapter Exploiting Other Management Approaches ● 105

cooperate in defense R&D and production programs.

This effort spawned a number of European cooperative development projects, such as TRIGAT, Tornado and Airbus, and transatlantic programs, such as

the AV-8B (Harrier), the Multiple Launch Rocket

System, and the Family of Air-to-Air Weapons.

However, little cooperation was achieved in intraEuropean or transatlantic defense research, even

though cooperation was growing in civil and space

research activities. In the mid-1980s, this situation

began to change. Concerns about European competitiveness in advanced technology triggered initiatives

by governments to promote cooperation in both

defense R&D and civil research. The European

members of NATO (the IEPG countries) now accept

the necessity of giving up a degree of sovereignty to

make more effective use of the $8 billion that they

spend each year on military development, and to

receive through collaboration a better value for

expenditures on major procurement programs. The

European members of NATO, with and without U.S.

participation, have been collaborating on defense

projects on an ad hoc basis for over 20 years, but the

mood now is to establish a more cohesive, systematic program of collaboration in all phases of

acquisition, including research.

Steps are also being taken to deregulate the entire

European NATO defense industry. The 1987 IEPG

Study Team issued its blueprint17 for a common

armaments market, or a military EC, which it

believed could be achieved by “giving greater play

to competitive market forces. ” By opening U p

fragmented and highly protected national markets,

and developing a pan-European competitive and

collaborative environment, the IEPG Study Team

said that European NATO members should be able

to reduce the costs of designing and building modem

weaponry. The argument went that this would yield

a more coherent European defense industry, able to

compete and collaborate on more equal terms

with a U.S. defense industry that was twice its

size. IEPG ministers endorsed the report and directed their staffs to begin implementing many of the

recommendations. While many hurdles remain, the

deregulation of Europe’s defense industry appears

increasingly likely.

It is an open question whether DoD’s research

and technology community is ready to cooperate

fully with its European counterparts. Cooperative

development, with the 1985 Nunn Amendment as a

catalyst, has gained favor with the Services. Important programs are now under way. For the technology base program, however, a “go-it-alone” attitude seems to prevail, with Data Exchange Agreements dominating government-to-government interactions and industrial cooperation discouraged by

the exclusion of foreign firms from many exploratory and advanced technology development (6.2 and

6.3A) programs. The Nunn Amendment succeeded

because it gave the Services a financial incentive to

cooperate. Some type of Nunn appropriation might

be needed to encourage similar collaboration in

defense research and technology.

In civil research, the heightened sense of concern

in Europe for its technological future is attributable

to several factors, especially the scale of modem

technology and recognition of the severe structural

obstacles to Europe’s international competitiveness.

Breaking down the long-standing barriers that have

isolated European companies from each other is an

explicit objective of the Single European Act and the

planned 1992 economic integration. The collaborative high-technology initiatives now being pursued

are an important element of this strategy. European

industry also sees other reasons for cooperation in

research, As technologies converge, companies that

once were specialists in a single activity now need

to draw on a broad spectrum of sciences and

technologies. Also, with shrinking product life

cycles, there is a need for more frequent introductions of new ideas, thereby increasing the costs and

risks of research. Companies can no longer afford to

risk a generation gap in their products as the result

of a research failure. U.S. industrialists also face

these problems.

Other cooperative efforts have grown on a

national level. The U.K. Alvey program was directed toward developing a capability in information

processing that would help British industry keep

pace with some aspects of Japanese and American

developments. In Germany, and to a lesser extent in

Sweden, a collegial relationship has developed over

several decades among government, industry, and

IT1ndepCndcnt ELUOpC~ Probvw Group, op. cit., foomote 15.
106 ● Holding the Edge: Maintaining the Defense Technology Base

academe in civil research areas. Germany’s strong

position in world trade is partly a result of these

relationships which, without direct government

intervention, have produced an extraordinary network for exchanging information in research and

encouraging product development based on the

latest research results. The German system, in which

a key role is played by the independent institutes

(e.g., the Max Planck Society for basic research and

the Fraunhofer Society for applied research), maybe

the best example outside of Japan of collaboration

between the public and private sectors. Some argue

that the German system is even better than Japan’s

for stimulating technology-base activities.

Much has been said in this chapter regarding the

progress of Europe’s industries toward cross-border

cooperation. It is certainly true that the national

industries have supported their government’s collaborative civil research within the EC. They have

also accepted the premise that armaments cooperation (under the IEPG) has become an economic

necessity. In defense research, however, there has

been little industry-to-industry cooperation. This is,

in part, a reflection of the meager funding available

from Europe’s MODS for basic research-with

government research funds being increasingly funnelled into cooperative civil projects-and, in part,

a reflection of the highly competitive nature of world

defense markets. While European defense companies are willing to cooperate in development programs (or at least will cooperate when their governments tell them to), their internally funded research

projects, which are mainly applied research or

product development, are usually well hidden from

public view.

In Japan, selective cooperative research, particularly in the pre-competitive phase, plays an

important role in achieving technological gains in

the public and private sectors. Collaborative undertakings, though widespread, are not necessarily the

rule in Japanese research efforts, and multinational

research collaboration is still relatively rare. The

nature, timing, and participants of united efforts vary

from one field to the next. Informal and formal

structures and processes tend to identify promising

research fields or trends. Once a consensus has been

reached between government and industry on specific avenues of research, a joint government and

industry effort or a government-sanctioned research

consortium (involving multiple private-sector interests) is established. As research proceeds, greater

competition is introduced to hasten the introduction

of products to the market.

However, Japanese companies are apparently

less committed today to the consortium approach

than they might have been in earlier decades. Many

argue that important resources are being diverted

from corporations to government-sanctioned consortium efforts without a demonstration of sufficient

potential for tangible short- or long-term gains.

Some firms have suggested that their own resources

and decisionmaking processes are sufficient for

stimulating technological advances. And, while not

resenting the government role, these firms believe

that it should be reduced or shifted to other forms of

involvement in R&D. These same companies, however, continue to participate in deference to maintaining government relations—and out of a competitive concern that breakthroughs may be achieved

by a consortium to which they would not be a party.

Despite Japanese industry’s broadening disaffection with the status quo, this situation is not likely to

change in the near future. In defense research and

technology, for example, there are a large number of

industry consortia, including those in composite

materials, advanced turboprop research, and fighter

aircraft. Certain projects, such as the Fighter Support

Experimental (FSX), are seen literally as once-in-alifetime opportunities that, if neglected, could lead

to the complete loss of important capabilities. Cost

is another factor favoring cooperation, especially in

large-scale projects originating in, but not necessarily limited to, the defense field.

Many of these same considerations affect U.S.

industry as well. Although U.S. companies have

recently begun to band together in the precompetitive phases of selected technologies, they

are doing so largely because of their fear of foreign

competitors capturing domestic markets in which

the company has a stake-not necessarily to boost

the Nation’s overall defense preparedness or competitiveness in world markets. Because of financial

and competitive pressures, and because “1992” is

making it a political necessity, one now observes a

steady stream of U.S. industrialists traveling to

Europe and the Far East seeking to strike deals.

While most of these deals are focused on codevelop-
Chapter 6-Exploiting Other Management Approaches ● 107

ment or coproduction, American industrialists are U.S. companies (and with foreign companies) may

coming to realize that Europe’s technology is become increasingly attractive if the U.S. Governfirst-rate, and in many areas is on a par with our own. ment provides some incentives. A two-way street in

Japan’s technological excellence is, of course, no technology development might then become a

surprise to U.S. executives, and the reasons for it are

becoming well known. Research collaboration among

reality for commercial, not just military, purposes.
Chapter 7

Implications for the

Defense Technology Base:

Options for Congress
CONTENTS

Page

INTRODUCTION AND SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

POLICY OPTIONS FOR CONGRESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

High-Level Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Structure of the Laboratory System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Laboratory Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Funding and Budgeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

111

113

113

115

119

122

125
Chapter 7

Implications for the Defense Technology Base:

Options for Congress

INTRODUCTION AND SUMMARY

Chapters 4,5, and 6 of this report are an integral

package. Chapter 4 addressed broad management

issues facing the U.S. Department of Defense (DoD)

as it seeks to plan, execute and review the defense

Science and Technology (S&T) program. It highlighted the degree of control-or lack of control——

exerted by the research and technology staff of the

Office of the Secretary of Defense (OSD) over the

priorities and content of the S&T program.

Chapter 5 examined how the S&T program

operates at the ‘‘grassroots level’ ’—the DoD laboratory. This massive and unwieldy structure presents

significant management and organizational problems that DoD must solve if the defense research

program is to become more relevant and productive.

Chapter 6 surveyed how other sectors and other

nations have tackled the problem of planning and

executing S&T programs. The objective was to

determine what, if anything, the Defense Department might adopt from less complex environments.

The implications can be summarized as follows.

DoD’s S&T program is basically a bottom-up

process, with OSD serving largely in the role of

monitor. While OSD’s research and technology staff

occasionally exerts pressure on the Services regarding specific issues, they generally yield to Service

research and development (R&D) personnel on the

content and direction of research programs. OSD’s

main role is effectively to collect the inputs from the

Services, correlate them, and defend them before

Congress for review. With its direct access to the

Services, Congress often revises elements of a

Service S&T program-with or without the agreement of the Service, and often without consulting

OSD. Once the money is approved, the Services

execute their own programs. The other two major

S&T activities are the Defense Advanced Research

Projects Agency (DARPA) and the Strategic Defense Initiative Organization (SDIO) (SDI being

funded under Advanced Technology Development,

budget category 6.3A). SDIO is even more independent than the Services, with the Director reporting only to the Secretary of Defense. DARPA reports

to the Director, Defense Research and Engineering

(DDR&E), but enjoys a degree of autonomy, on

program content and priorities, from OSD’s S&T

monitors.

Different elements of the DoD S&T program are

thus managed through three different hierarchies: for

the Services, the laboratories report at a relatively

low level and programmatic decisions work their

way up the chain of command; DARPA reports to

DDR&E, three levels removed from the Secretary;

and SDIO reports to the very top. Under these

circumstances, the OSD research and technology

staff can do little but monitor and collect data.

This management structure also encourages

duplication and a degree of inefficiency, especially

considering the vast network of laboratories, centers,

and other facilities responsible for research program

activities. Nearly every other organization examined

reflects far more centralized planning and execution

of its S&T program. This is especially true in

military R&D where a central authority, often

reporting to the Minister of Defense (or in the case

of industry, to the company president), has both the

responsibility and authority to set research priorities

and to ensure that the program content meets the

organization’s goals. With goals set from the top,

there are means to exert pressure on the performing

bodies to make sure that the programs are responsive. Further, at least in most governments, military

research programs are generally stable over a period

of several years; thus, researchers in these programs

are not faced with annual—and disruptive-changes

in funding or priorities. It appears that DoD is

following a minority path in its conduct of S&T

programs, one that is declining in popularity among

governments and major companies.

Another unusual feature of DoD’s S&T program

is its extensive system of government-owned and

government-operated laboratories. No other noncommunist nation, let alone private enterprise,

operates so many facilities and maintains such a

large research staff. Depending on one’s point of

view, the DoD laboratory system is either a tremen-

–111–
112 ● Holding the Edge: Maintaining the Defense Technology Base

dous asset or a tremendous burden. Whether it is an

asset or a burden, the structure is in place today and

the Department needs to address some of the serious

management and organizational problems which

have beset the laboratory system.

One problem is the nature of most of the

laboratories themselves. In fact, they are not laboratories; they simply lack the “critical mass” of

multidisciplinary talent necessary to develop state-ofthe-art technologies consistently across a spectrum

of areas. Most of these organizations were created,

and continue to exist, to support the mission of one

of the military Services. Consequently, developing

technology per se is not their primary objective.

Rather, research and technology capabilities are

necessary to assist a Service in performing its

missions. Mission requirements can be satisfied

either by conducting internal research or by contracting out to major corporations, universities, or private

institutions. Each Service addresses mission support

quite differently. In the Navy, a large share of the

S&T budget is spent in-house. In the Air Force, the

laboratories place more emphasis on becoming

‘‘smart buyers,’* and contract out the bulk of their

S&T work. The Army falls somewhere in between.

With different mission orientations leading to different approaches to R&D, overlap and other inefficiencies arise throughout the system.

A second major problem with the DoD laboratories pertains to their ability to hire and retain

qualified researchers. Not only are there significant

salary deficiencies, but the politicized environment

in which research is conducted in many laboratories

often discourages qualified scientists and engineers,

sending them to higher paying and more rewarding

jobs in corporate research laboratories or at universities. This situation might be mitigated if there were

a DoD-wide policy to contract out as much research

as possible, essentially letting the research follow

the scientist. But policies regarding contracting out

are inconsistent, and laboratories are sometimes

forced to conduct in-house research with inadequate

staff.

Finally, the government-owned and governmentoperated laboratories are saddled with procedures

that often make them less efficient than the better

industrial and university laboratories. This is an

issue that must be addressed because research

budgets are likely to decrease as part of an overall

reduction of the defense budget. Other comparable

organizations structure their laboratories differently,

and some—with management problems similar to

those of DOD--are currently involved in basic

restructuring. One approach involves aligning research according to technology areas, creating

centers of excellence that assemble sufficient resources to make a difference in high-technology

fields. These centers are overseen by top management and serve as corporate-wide resources. While

some observers believe that this approach stifles

innovation, others argue that it increases efficiency

because progress is more likely once the organization decides on the line of research it will pursue.

This assessment raises other issues. Nearly every

Allied government is concerned for the future of its

national research and technology programs. Politicians and the civil service agree that a country’s

military and economic security depend on the

nation’s ability to produce affordable state-of-the-art

products, including weapons. Most nations also

concede their inability to conduct independent

research programs that are sufficiently deep in more

than a few technology areas to achieve technological

breakthroughs sustaining industrial competitiveness

in world markets, or deterring aggressors. What

money is available must be wisely spent. To ensure

that this happens, European governments have set

policies and priorities for research and technology at

the highest governmental level-often at the level of

the Prime Minister or President.

A related issue is the recognition by European

governments of the “dual-use” nature of advanced

technology. On one hand, government officials are

painfully aware of the success of the “Japanese

Model” in transferring the results of science and

technology programs into quality products, thereby

giving Japanese companies a competitive advantage

in world markets. On the other, they see continued

difficulties in exploiting technology developed under

U.S./European cooperative military programs, especially from the standpoint of technology transfer to

civil or to third-party military markets.

There is an international trend toward decreasing

the emphasis on military technology and increasing

emphasis on research for enhancing national industrial competitiveness. For example, in Europe,
Chapter 7-Implications for the Defense Technology Base: Options for Congress ● 113

military research budgets are declining, while investment throughout the European Community (EC)

is growing substantially. Many technologies the EC

is funding have clear dual-use applications; governments seem to be expecting that the results of civil

research will flow into military development and

production programs. In Japan, while military research budgets are growing modestly, the government is maintaining a close connection between this

research and commercial applications.

Additionally, collaboration in research is becoming important. Because most nations and private

organizations find the costs of sponsoring a “worldclass” research program prohibitive, they have

concluded that for all its problems, banding together

is the only way to go. With the emphasis on civil

research and the trend toward collaboration, DoD

may find increasingly that it is the “odd man out, ”

to the possible detriment of the competitiveness of

America’s high-tech industries. Foreign technology

in the civil fields is approaching, and in some cases

exceeding, the quality of DoD’s military technology. As this trend continues and the line between

civil and defense research gradually disappears, it

may be necessary to revise policies in such areas as

international collaboration, technology transfer, foreign disclosure, and export administration.

POLICY OPTIONS FOR

CONGRESS

The following policy options are based on these

findings. While they are by no means exhaustive,

they do address several issues that strongly affect the

‘‘health” of the U.S. defense technology base. These

options take into account the interdependence of

DoD’s research planning and execution with events

taking place throughout the S&T community, both

foreign and domestic. In its consideration of these

options, Congress should bear in mind that these are

extremely complex matters, and that no consensus

exists among experts on any of the issues or options

that are presented.

The options are grouped under five broad, and

unavoidably overlapping categories: 1 ) high-level

planning, 2) organization, 3) structure of the laboratory system, 4) laboratory management, and 5)

funding and budgeting.

High-Level Planning

Option 1: Establish government-wide priorities for defense research and ensure they are

followed by all DoD components and the private

sector.

This option addresses the need for the Federal

Government to execute an increasingly complex and

expensive defense research program with constrained (or decreasing) funding. The priorities

could be developed in conjunction with DoD’s

Program and Planning Budgeting System (PPBS)

process, related specifically to the early planning

activities of the Joint Chiefs of Staff (JCS) and

reflected in the Defense Guidance (DG). The private

sector (industry and academia) could be consulted

during periodic technology-assessment exercises

(e.g., the planning phase of the PPBS), kept fully

informed on progress and new directions (e.g.,

breakthroughs and political developments), and

encouraged to invest in complementary research.

The methods introduced by the European Community for its joint research projects could provide

some useful insights. The EC Commission sets

research priorities. A 5-year budget is adopted

providing for roughly 50 percent of the needed funds

and industry/academia consortia are invited to

submit bids. Industry funding of half the work and

university involvement are necessary conditions f-or

a bid to be considered responsive. Some factors that

have contributed to success include: 1) priorities set

at high political levels; 2) long-term (5-year) EC

funding commitment; and 3) research work at the

‘‘precompetitive” stage, with applications left up to

industry. Additionally, there is no alternative to joint

research projects, because individual government

funding sources are diminishing rapidly.

This model may not fit DoD’s situation exactly,

but it can be made to fit. The key technologies

required for defense systems are largely known; and

recent technology assessments, whether made by

DoD or industry or both, have much in common. The

Defense Science Board (DSB) could provide the

connection with the private sector for periodic

technology assessments. The necessary planning

procedures are largely in place, i.e., the PPBS, the

Joint Strategic Planning Document (JSPD) and the

DG. Finally, the independent Research and Devel-
114 ● Holding the Edge: Maintaining the Defense Technology Base

opment (IR&D) program is one source of (partial)

industry funding. To implement this, a top-level

commitment would be needed, with the Administration and Congress providing the political and

budgetary incentives.

Option 2: Reestablish OSD'S corporate oversight authority for DoD% technology base programs.

It appears that Congress has provided OSD with

the necessary statutory authority to exert strong

centralized guidance over DoD’s technology base

programs. But as chapter 4 described, OSD—

specifically the Director of Defense Research and

Engineering (DDR&E)—appears to have relinquished

to the Services much of the responsibility for

overseeing the technology base. This runs counter to

trends elsewhere; as chapter 6 pointed out, our

NATO Allies have initiated or further strengthened

the centralized management of their defense R&D.

Congress could insist that OSD, exercising its

statutory authority, reestablish its corporate oversight authority for DoD’s technology base programs.

OSD representatives have complained of everincreasing congressional micromanagement of their

S&T programs. Pentagon officials indicate that they

believe Congress is overstepping its responsibilities

in dictating how OSD should structure certain

technology base programs. Some of the OSD

observations may be valid; nevertheless, it is a

congressional perception that OSD is not sufficiently exercising its oversight responsibilities that

has led Congress into a deeper involvement in

shaping DoD’s technology base strategy. If OSD

were to assert its authority and develop a strategic

R&D plan, Congress would probably find it less

necessary to involve itself in individual programs.

In various discussions with OTA, some Service

representatives expressed their surprise and frustration that OSD had not exerted stronger management

control over DoD’s S&T programs. They contended

that stronger and more effective OSD technology

base oversight could go far to reduce inter-Service

rivalry and produce a more coherent technology base

investment strategy. However, other Service representatives argued that it would not be appropriate for

OSD to exercise greater authority. In their view,

because the Services ultimately would use the

products of R&D programs, they alone know what

is needed. Moreover, they felt that OSD personnel

were too far removed from technology base programs to understand them well enough or to care

enough about them to defend budgets successfully.

Some argued that if Service control over technology

base programs were to be reduced, the Services

would lose interest in—and decrease funding for—

the technology base.

Option 3: Institute a strategic planning process within DoD that will lead to a coordinated

Department-wide technology base investment

strategy.

Currently, the Services dominate planning for

DoD’s technology base program. If it wanted to

provide more centralized control, Congress could

consider requiring the Secretary of Defense to begin

a DoD-wide technology base strategic planning

process directed by the Undersecretary for Acquisition [USD(A)]. Without the endorsement of the

Secretary of Defense and USD(A), it will not be

possible to implement a strategic plan successfully.

Such an investment strategy could: 1) facilitate

OSD-directed strategic decisions, 2) diminish the

likelihood of technological surprises, 3) reduce

duplication of effort, 4) encourage short- and longterm technology base planning, 5) enable OSD and

the Services to examine the outputs of the S&T

programs and not just the inputs, 6) enhance the

understanding within DoD of the importance of

technology base programs within DoD, and 7)

provide Congress with a more coherent defense S&T

strategy.

However, in the view of some, centralized control

would only add another layer of bureaucracy between the invention of new military technologies

and the managers in the Services who will ultimately

have to acquire the technology for weapon systems.

From this perspective, OSD staff would be too far

removed from the technology base to understand the

needs of the user, and protect the funding for

critically important technology base programs.

USD(A) could direct DDR&E to initiate a

strategic planning process that would involve the

participation of the three Services, the defense

agencies (including DARPA), and SDIO representatives from the JCS, the unified and specified

commands, and the intelligence community. One
Chapter 7-lmplications for the Defense Technology Base: Options for Congress . 11.5

official within the Office of the DDR&E (ODDR&E)

would be responsible for developing, implementing,

and directing a DoD-wide technology-base strategic

plan. Developing a strategic technology base planning process would require the full-time attention of

the OSD official responsible for its success. ’

Any strategic technology base plan will have to

be tied closely to DoD’s national security objectives.

The principal aim of the strategic plan should be to

establish near- and long-term S&T objectives, leading to the achievement of the Department’s operational objectives.

Once the DoD-wide strategic technology base

plan is completed and approved by DDR&E and

USD(A), the Services, DARPA, and the other

defense agencies can use it to develop their own

technology base programs. In turn, OSD can use the

plan to evaluate the Services’ and DARPA’s technology base investment strategies and determine the

extent to which each technology base program

matches the plan.2

Finally, in view of the high turnover rate of OSD

political appointees, an accepted strategic planning

process should help new appointees to draft a

coherent technology base investment strategy. This

existing process should reduce the need for each new

top-level civilian manager to “reinvent the wheel. ”

Organization

Option 4: Establish a central coordinating

activity within the Administration to ensure that

dual-use technology is exploited in the best

interests of the nation as a whole.

A serious imbalance is emerging between the

United States and its allies with respect to dual-use

technology. Japan spends very little on defense

research and technology programs; there, civil

research is the main focus. This approach helps to

account for Japan’s enviable record of success in

world trade. In Europe, the EC has committed $6.8

billion over the next 5 years to civil research, much

of which also has potential military applications.

The European national governments are supporting

the EC and other joint civil research projects and

appear to be pulling out of defense research. The

U. K., for example, has limited its defense research

budget so as to prevent “crowding out” of civil

research—the government openly encourages domestic industry to bring the results of research to the

Ministry of Defense (MoD) “when it’s ready.”

In such fields as high-temperature superconductivity, high-definition television, microelectronics,

fiber optics, supercomputers, and telecommunications, the United States is competing with countries

(or blocs) with whom we are allied in the East-West

political competition. The United States, with its

focus on the Soviet threat, has placed its industries

at a potential disadvantage in world markets through

measures such as restrictive export and technologytransfer policies. Operating under less stringent

restrictions, our allies see their industries enjoying

significant sales growth in market areas previously

dominated by U.S. companies.

The Administration must take these trends into

account as it considers the future health of America’s

industrial base (recognizing that the defense industrial and technology bases are only two elements of

the Nation’s industrial base). A balance should be

found between the need to protect defense technologies (largely at the applications stages) and the

growing need for industry to exploit the same (or

similar) technologies in U.S. and foreign markets.

Accomplishing this tricky balancing act will require

the full support of the President, Congress, and

industry. It will also require the appointment of a

responsible and independent official with stature

and authority.

This official could be located in DoD, but if so,

interagency coordination (e.g., with State, Commerce, NSF, and NASA) should have high priority.

Alternatively, the Office of Science and Technology

Policy (OSTP) could perform this function. In

conjunction with government agencies, industry and

I The President’s 1983 private Sector Survey on Cost Control, Task Force on Research and Development, indicated that it could t~e S to 5 yems to

implcmenl a strategic planning process for DoD’s R&D programs. Consequently, top DoD management will have to be persistent in its support if strategic

planning is to be implemented.

2A recent Instltu[c for ~.fenw Analy~s (DA) task force rccomnlend~d 17 [e~hnology p~els(O improve the coordination of DoD’s S&T prO~~S.

OSD should bc able to determine the extent to which each panel ac[ivitics would bc linked to tic strategic plan; if some S&T projects have poor linkage,

they could be redirected or canceled. See ‘‘Report of the Task Force for Improved coordination of DoD Scicncc and Tcchno@~ Programs” (Alexandria,

VA: Institute for Defense Analyses, July 1988).
116 ● Holding the Edge: Maintaining the Defense Technology Base

academe, broad national technology goals could

evolve, with a “crosswalk” described between

technology investment plans and various applications, both military and civil. Joint research projects

between agencies, with industry and/or academe, or

with other nations could be encouraged. Applications would be left to individual agencies; in the case

of DoD this would normally be when mission needs

are matched with technologies, i.e., at the advanced

development (6.3A) stage. Most projects could be

unclassified, with the results flowing into civil, as

well as military, applications.

Option 5: Develop a coordinate, Administrationwide program of collaboration and cooperation

in defense research and technology.

This option includes two kinds of action. First,

better inter-Service research cooperation would be

promoted, with some consolidation of responsibilities and lines of authority to improve communication and minimize duplication. The goal should be to

bring to bear on key technologies sufficient resources to “make a difference. ” Second, a dedicated

budget might be established for cooperation in

research and advanced technology, involving joint

research projects, technology demonstrations, and

periodic high-level reviews to assess opportunities

for cooperation, monitor progress, and set priorities.

Research collaboration within DoD (i.e., all three

Services, DARPA, and SDIO) is widespread today,

although much is ad hoc and conducted at a

researcher-to-researcher level. This approach should

be retained, but augmented with senior-level coordination on priorities, the assignment of lead organizations for key technologies, and a secondment

program through which special skills are assembled

into multidisciplinary research teams. Over time,

this combination of approaches could encourage a

‘‘natural rationalization” of DoD’s laboratory structure. The U.K. Research Establishments have

evolved this way in the face of serious budget

reductions. The Establishments were first brought

under a single authority-the Controller, Establishments, Research and Nuclear (CERN)---separating

them from the previous direct Service orientation.

Lead Establishments were then assigned to areas of

technologies with the other Establishments ● ’encouraged” to follow. There was no need for

draconian measures. Instead, a gradual rationalization occurred.

From this perspective, DoD and the U.S. defense

industry need to exploit foreign technology far more

than they do today. To achieve major gains, however, will require the easing of restrictions imposed

on industry by strict technology-exchange and

export-administration regulations as well as a reduction of time-consuming procedures that govern

industrial collaboration. There is another imperative

to increase cooperation on international defense

research: our European allies are developing a

coherent program of intra-European cooperation in

civil and military research and technology. Unless

the United States develops a policy for transatlantic

research cooperation, we may become ‘locked out”

of their plans. NATO armaments cooperation would

suffer a severe blow, and U.S. industry might well

lose existing competitive advantages in world markets.

The Nunn Amendment to the fiscal year 1986

Defense Authorization Act (and its subsequent

continuation) has been a “shot in the arm” for

NATO armaments cooperation. It has given both the

Services and U.S. industry incentives to pursue

NATO (and now non-NATO) cooperative programs

in systems development. A simple extension of the

Nunn legislation might provide a similar incentive

for research cooperation. A specific budget (6.1/

6.2), obligated for cooperative research, would

undoubtedly result in increased interest on the part

of Services and our Allies.

Option 6: OSD could establish DoD-wide

systematic guidelines to enhance the transfer of

technology into new or existing weapon systems.

Congress might recommend that DoD develop

guidelines for selecting, planning, managing, and

evaluating all advanced technology demonstration

projects. OSD could develop these guidelines with

the participation of the three Services, DARPA, and

SDIO. It is important to have such guidelines, since

the purpose of DoD’s technology base programs is

to insert new technology into weapon systems as

rapidly as possible.

Because DoD’s current technology -transfer process relies heavily on individual initiative, it is

inconsistent and haphazard. Developing a DoD-
Chapter 7-Implications for the Defense Technology Base: Options for Congress ● 117

wide advanced technology demonstration process

could provide a more rational basis for setting

priorities, expedite the rate at which new technologies are adopted, and provide consistent guidance

for evaluating the success of various advanced

technology development projects.

Option 7: Appoint a civilian research advocate

in DoD with oversight of all technology base

programs (6.1, 6.2), and a role in coordinating

advanced technology development (6.3A) with

Service research heads.

The overriding task would be to ensure that the

results of DoD’s technology base programs are

exploited by the Services as soon as possible. Three

subordinate functions are critical to this task: 1) an

oversight process that augments normal ‘‘peer”

review with a management review focusing on

non-scientific factors, such as priority, applications,

opportunity costs, and cost-benefit; 2) a means for

DoD-wide dissemination of data on technologies

deemed ready for transition; and 3) procedures for

monitoring the efficiency of the transition (i.e.,

technology transfer) process.

The Administration could use parts of several

models; although no single system covers all aspects

of this option. In the U. K., the Chief of Defence

Procurement (CDP) and in France the Delegue

General pour l’Armement (DGA) have full authority

over all defense R&D, and procurement. Each has a

deputy for land, air, and naval systems, and a deputy

for R&D, who is responsible for all “project-free”

research. This approach works fairly well for these

nations; however, in each case the scope of their

technology base programs is less than one-tenth of

DoD’s—and even less is actually “project-free.’* It

might not be appropriate to adopt these models in

toto, but they do make a case for OSD to assert more

authority over the content of technology base

programs.

Neither the U.K. nor France has appointed a

technology transition authority, and both have as

much difficulty in this area as DoD. Some lessons,

however, can be found in West Germany and Japan,

especially in the civil fields. In West Germany, only

broad civil research goals are promulgated from

Bonn, and the private sector is organized to effect

transfer. As previous chapters described, two influential private (but largely government-funded) societies are central: 1) the Max-Planck Society

performs basic research and serves as a “locomotive” for other research institutes and universities,

and 2) the Fraunhofer Society performs applied

research and couples closely with industry to effect

technology transfer into the marketplace. While not

effecting direct control, a number of governmentsponsored groups provide oversight and advice. In

Japanese industry, teams are formed at early stages

of research that consist of researchers and experts

from engineering, design, manufacturing, and marketing. Their basic mission is to ensure the fastest

practical transition from research to a marketable

product.

DoD is well positioned to adopt this option. The

Goldwater-Nichols DoD Reorganization Act established the USD(A) to oversee all defense R&D and

acquisition. The DDR&E, reporting to USD(A),

looks across all of DoD’s technology base programs.

DARPA’s new role in prototyping, and its recently

expanded involvement with technological initiatives, provide the framework for a “transitioning”

authority. However, budgeting and review authority

over most of the technology base program rests with

the Services and other DoD components. Congress

and the Administration could bring these elements

together under DDR&E and charge this senior

official with exploiting the results of the government’s $10 billion annual investment in research and

technology. However, this could result in greater

technology push, which some believe could be

detrimental to U.S. defense efforts.

Option 8: Streamline the current OSD organizational structure for RDT&E programs.

Peter F. Drucker has discussed the importance of

sound organizational structure:

Few managers seem to recognize that the right

organization structure is not performance itself, but

rather a prerequisite of performance. The wrong

structure is indeed a guarantee of nonperformance; it

produces friction and frustration, puts the spotlight

on the wrong issues, and makes mountains out of

trivia. 3

3U.S. Senate, “Defense Organization: The Need for Change,” Staff Report to the Senate Committee on Armed Services, Oct. 16, 1985, p. 92.
118 . Holding the Edge: Maintaining the Defense Technology Base

The current DoD organizational structure for

research, development, test, and evaluation (RDT&E)

appears ill-suited to its role. Both civilian and

military representatives have argued that if DoD’s

technology base programs are primarily responsible

for maintaining DoD’s scientific and technological

superiority, then the official in charge of the RDT&E

program should report directly to the Secretary of

Defense. The Goldwater-Nichols Act puts primary

responsibility for the technology base program with

the DDR&E, who reports to the USD(A). Unfortunately, DoD’s general preoccupation with procurement issues has diverted the attention of the USD(A)

from important technology base issues.

Within ODDR&E, the Deputy for Research and

Advanced Technology (R&AT) is responsible for

oversight of the Services’ S&T programs, while the

Director of DARPA reports directly to the DDR&E.

This organizational arrangement has made it difficult to coordinate DARPA’s activities with those of

the Services fully. Although DARPA’s mission is

different from the Services’, its ultimate responsibility is to support the development of high-risk

technology for the Services. This activity could be

facilitated by requiring DARPA and the Services to

report to the same office.

Finally, any organizational review focusing on

the technology base should include SDIO. Since the

Director of SDIO reports to the Secretary of Defense, there is no formal technology base coordination with the Services and DARPA. If OSD is to

develop an effective technology base investment

strategy, much closer coordination will be needed

between SDIO, DARPA, and OSD.

Option 9: Improve DoD’s ability to attract

top-quality political appointees and high-level

civil servants.

Current and former DoD S&T personnel assert

that DoD is unable to attract individuals of high

scientific and managerial talent. They contend that

this problem must be solved if competent civilian

leadership is to be restored within OSD and the

Services.

There appear to be three specific actions that

Congress could take to help resolve this problem:

1. increase salaries of DoD science and engineering personnel,

2. amend the conflict-of-interest statutes, and

3. amend the Federal tax laws with respect to the

forced divestiture of assets.

These recommendations are not new, but are presented as options to highlight a problem that appears

to be deepening.

Numerous studies conducted by the Federal

Government and the private sector have documented

the growing disparity between compensation for top

Federal S&T personnel and that of their university

and private-sector counterparts. Congress could

examine the possibility of eliminating pay caps for

senior executives within DoD and instituting compensation that reflects the current market for such

individuals.

DoD should also have a pay structure that

compensates officials on the basis of their S&T

management responsibilities. Unlike the private

sector, the Federal pay cap fails to distinguish

between a laboratory director who manages the

activities of 3,500 people versus a director who

oversees a 500-person laboratory-or for that matter

an OSD Senior Executive Service (SES) manager

responsible for supervising a 12-person staff. DoD

cannot pay top scientists and engineers what the

private sector can.

Past and current DoD civilian personnel assert

that potential top-level political appointees—and

scientists and engineers—are often reluctant to

make the financial sacrifices required under the

Federal conflict of interest or “revolving door”

statues in order to accept a high-level DoD position.

As the Senate Armed Services Committee study on

the DoD organization observed, rather than altering

the divestiture requirement, Congress could alter

Federal tax law with respect to the forced sale of

assets.4 This would still protect the objective of

maintaining public confidence in OSD officials, but

it would reduce the onerous financial consequences

of accepting public service.

dIbid.
Chapter 7-Implications for the Defense Technology Base: Options for Congress ● 119

Structure of the Laboratory System

Option 10: Restructure the military’s RDT&E

organization by establishing corporate laboratories for each of the military services and creating

some full-spectrum weapons development centers.

The creation of “corporate” laboratories dedicated to individual Services would rationalize the

conduct of DoD’s RDT&E program. Corporate

laboratories could perform the bulk of each Service’s technology base work, by generating research

concepts and bringing them to the demonstration

phase. The laboratories’ mission would be to marshal the technical resources of their Services to

attack new objectives. This would require DoD to

increase its investment in technology base programs,

rather than have the corporate laboratories compete

with academe for a shrinking 6.1 budget.

The existing engineering and development centers would have to continue to establish priorities in

their development programs, pursue a dialogue with

the corporate laboratories, and position themselves

to transition technology. At their discretion, they

would also compete for that portion of the corporate

laboratory’s funds that would sponsor external

technology base work.

The creation of corporate laboratories would

involve more than establishing the equivalent of the

Naval Research Laboratory for the Army and Air

Force. Corporate laboratories could receive funding

from a variety of sources, under procedures analogous to those by which the Department of Energy

(DOE) national laboratories-and even some of

DoD’s federally funded R&D Centers—receive

their funds. They would receive multiyear block

funds to cover the programs authorized by their

respective Service, plus reimbursable funds to support work for others. In this context, “others” would

include the other military Services, independent

Defense agencies like DARPA and SDIO, and

civilian Federal agencies.

The Services might create semiautonomous units

within their corporate laboratories for certain kinds

of high-risk, high-payoff programs. A Service might

consider a particular discipline or mission area so

important that it would justify the creation of

specialized units working on them, The Army has

used this approach in setting up its Night Vision and

Electro-optical Laboratory and the Life-cycle Software Engineering Center. Even research in highly

specialized areas requires collaboration by experts

in several disciplines. And if the work is well done,

the results of such specialized research can flow into

other areas.

Corporate laboratories could create a much richer

network of external relationships----comparable to

those enjoyed by DOE’s national laboratories. The

laboratories’ work in basic research and exploratory

development could make them more attractive

partners for collaborative ventures. These relationships could include: technology transfer mandated

by the Stevenson-Wydler Act; work for non-Federal

sponsors like that done by the National Institute of

Standards and Technology (NIST); and the building

of formal and informal communication networks

with universities and industry. Far from precluding

collaborative work, the corporate laboratories’ missions would virtually require it. The point is to avoid

the two extremes: laboratories serving as “passthroughs” for development money, on the one hand,

and on the other, the inbreeding that results when

laboratories try to do everything in-house.

Congress and DoD might also create weapons

development centers to pursue work on significant

military systems problems, as was suggested in a

1966 Defense Science Board (DSB) report.5 While

private industry would continue to do virtually all of

the engineering and production work, these centers

would encompass the full spectrum of activities

from advanced development (6.3B) to the creation of

feasibility models to demonstrate ‘‘proof-ofprinciple” in a military environment. These centers

would be project-oriented research and engineering

institutions working in broadly conceived weapons

areas.

As the DSB defined it, weapons development

centers would have certain family resemblances.

They would have a critical mass of at least 1,000

scientists and engineers; the center director would

have direct control over all the necessary resources;

sDefense Science Bo~d, “Dcp~ent of Defense In-House Laboratories, ” report prepared for the Office of the Director of Defense Research &

Engineering, Oct. 31, 1966, p. 9.

95-677 - 89 - 5
120 ● Holding the Edge: Maintaining the Defense Technology Base

center specialists would participate in determining

military requirements associated with its mission;

and the center would be involved in the initial

procurement of equipment. Instead of serving as

pass-through agencies, each center would do most of

its development engineering in-house, with contracts serving to support such work.

The advantages of this approach are straightforward. A weapons development center would have

the critical mass to work on a range of problems,

clear responsibility for its end products, and the

ability to respond quickly to military emergencies.

The existence of such centers would enable DoD

engineers to work on military problems and to bring

together specialists in many disciplines.

In creating such centers, certain problems would

have to be solved; for example, how would a center

concentrating on aeronautical development relate to

one whose mission encompassed missile design?

Further, each center would inevitably be biased

toward its own system, even if another kind of

weapon or platform would provide a better military

solution. As the DSB panelists were well aware, by

their nature such centers would tend to commit

themselves to long-term projects, even in the face of

evidence that other approaches might work better.

Such centers could easily reduce their contractors to

suppliers of narrowly specified equipment and

services, with nothing to offer to the center’s

portfolio of ideas.

Option 11: Consolidate some military laboratories and close others.

A case can be made that there are too many DoD

facilities whose contribution to the defense technology base is difficult to discern. In the current

environment, both Congress and DoD should explore merging some facilities that can no longer

stand on their own and closing others. This option

appears radical only if one assumes that Federal

facilities are permanent. There is no definite Federal

policy on the closure of government facilities,

although something can be gleaned from Office of

Management and Budget (OMB) circulars barring

agencies from performing activities more suitable

for the private sector. Agency officials have asserted

principles that might justify closing a substandard

laboratory: if it has served its initial purpose, if there

is no likelihood that a new role for the laboratory can

be found, or if closing the laboratory would not leave

a significant gap in the national capability to perform

R&D.6

Consolidation and closure may be more palatable

options now than at any time since the mid-1970s.

The closing or merging of R&D facilities has not

always been unthinkable. In the early 1970s, for

instance, the Air Force undertook a major reorganization of its laboratories, converting its Cambridge

Research Laboratories from a basic research to an

“exploratory development” institution, closing the

Aerospace Research Laboratory at Wright-Patterson

AFB, and delisting one of its contract research

centers. This was also the period when NASA closed

its Electronics Research Center and transferred the

facility to the Department of Transportation; and

when part of the Army’s Fort Detrick became a

contractor-operated facility working for the National

Institutes of Health.7

The present budgetary environment will probably

encourage the Services to make difficult but necessary choices. Short of actual closure, the Services

could employ a number of strategies to keep the

weaker laboratories going—authorizing them to

seek support from other sponsors, clarifying their

roles, and redirecting them. But at some point, the

Services may decide that they can no longer carry all

of the research centers they currently support. For a

Service, there may well be a bigger payoff in cutting,

say, 20 percent of its laboratories than in slicing 20

percent from each laboratory’s budget.

The advantages of this approach are threefold:

first, fewer laboratories would make the remaining

ones more visible to their sponsors; second, more

funding available to the remaining centers would

strengthen them and probably produce more worthwhile research; and third, closing some laboratories

~Arnold S. Levine, Mamging IVASA in the Apollo Era (Washington, DC: National Aeronautics and Space Administration, Scientific ~d

Iniorrnation Branch, 1982), p. 137.

TFor ~ex ad other Cxmp]es, see TOJ, wilb~ks, ‘Domestic Models for National LaboraiOV utlll~a[lon~ “in Energy Research Adviso~ Board, The

Deparrmenr ofEnergy A4ultiprogram Laboratories, Vohune //: Speciul ,’hdies (Oak Ridge, TN: Oak Ridge National Laboratory, September 1982), pp.

66-67.
Chapter 7-lmplications for the Defense Technology Base: Options for Congress ● 121

is a necessary step to consolidating disciplines that

should go together.

DoD could possibly strengthen its technology

base with fewer and larger laboratories and engineering centers, because they would have the critical

mass of professional staff to move on several

research fronts. On the other hand, the question of

which facilities to merge or close is exceedingly

complex and highly political, and changes would

require several years to implement.8 A useful

precedent for an approach might be found in the

recent base closure legislation. Adopting a similar

“package deal” might ease the process.

Option 12: Promote the sharing of “national”

facilities and the interchange of personnel between government laboratories.

In the current budgetary environment, few

agencies have the luxury of duplicating existing

facilities. The sheer expense of building a new wind

tunnel or particle accelerator is forcing agencies to

turn to collaborative ventures—a tendency that

should be encouraged. At the same time, no agency

will willingly depend on another to accomplish

some of its most important programs. The creation

of national facilities available to all qualified users

is one way out of this impasse.

The multiprogram DOE laboratories are not the

only ‘‘national” entities that the government sponsors. Since 1980, NASA has opened two national

facilities at its research centers: the National Transonic Facility at Langley Research Center, and the

Numerical Aerodynamic Simulator at the Ames

Research Center. Both are world-class facilities that

keep the United States in the forefront of aeronautical research and serve all U.S. commercial, military,

and scientific requirements.

The creation of such national facilities bears on

the DoD laboratories in several ways. First, and most

obviously. they would obviate the need for DoD to

duplicate—at great expense—facilities that already

exist, Second, as resources available to all qualified

users, they actually make the military laboratories

more productive, with no investment beyond that

required for covering their share of facility operations. And third, the NASA facilities offer the

options of either onsite use of facilities or remote

access, via data communications networks that are

now in place.

The same principle of shared use applies to NIST

and the multiprogram DOE laboratories. The mission of NIST demands extensive work for other

agencies in a variety of areas. At the same time, the

DOE weapons laboratories are seeking a broader

defense role in nonnuclear weapons research. Given

their capabilities, one might expect that the DOE

laboratories’ multidisciplinary strengths could become a major resource for DoD.

Program budget pressures will no doubt force

DoD laboratories to work more closely with each

other and with those of other agencies. Congress

could explore the possibility of giving corporate

laboratories created by each Service the freedom to

take on the work of others. Like the DOE laboratories, a certain portion of each laboratory’s operating

budget would include work undertaken for another

Service, another Federal agency, or even State and

local governments. By working for others, laboratory scientists and engineers would acquire more of

a ‘‘hands-on” acquaintance with dual-use technologies than an individual Service might be able to

fund. A broader base of interests would, in turn,

allow researchers from all the Services to work on

many generic technologies (e.g., software engineering, weapons simulation, and high-speed processing) that could lead to Service applications.

It might also be to the DoD laboratories’

advantage to promote an exchange of personnel with

other facilities working in similar areas. There are

precedents for such assignments. For many years,

NIST has had a Research Associates program,

whereby scientists and engineers from industry can

come to NIST at their company’s expense to work

for a specified period on projects of mutual interest.

The DOE laboratories have had even closer ties with

outside organizations, not least because their contractor status virtually demanded it. These arrangements include joint ventures with industry, summer

study programs, joint appointments with the operat8Ano~er option, not fufier ~on~idcred here, would ~ t. keep ce~aln la~ratories in he ‘‘doub~ul” ~atego~ open, while leaving them free to s~k

support from any sponsor willing to provide it. A military Service would not be responsible for assuring a total ICVCI of support. Instead, the lab would

be placed on a footing analogous to Naval Industrial Funding, with military and other customers paying for much of the cost of operations.
122 ● Holding the Edge: Maintaining the Defense Technology Base

ing contractor, and the creation of university consortia like Oak Ridge Associated Universities.

A program to promote short-term exchanges of

laboratory personnel would serve DoD aims in many

ways. It would give DoD scientists and engineers a

better idea of the research being sponsored at DoD

and other government laboratories. It would enable

professionals from different services to work on

generic, or cross-cutting, technologies. Finally, it

would promote the idea that DoD laboratories—

particularly the corporate institutions—are resources

that should be freely available to all of DoD, as well

as some of its industrial contractors.

Laboratory Management

Option 13: Convert some government laboratories to government-owned, contractor-operated

(GOCO) status.

From time to time, government panels like the

White House Science Council and DSB have

suggested that some government-operated labs

should convert to GOCO status. Experience in such

conversion is limited to the partial 1983 conversion

of a small DOE technology center to private

operation.9 All other GOCO laboratories have had

this status since their inception. The issue that DoD

and the Congress should consider is what, if any,

advantages would flow from a GOCO conversion

that could be achieved in no other way. It is

significant that, in its 1987 summer study, the DSB

proposed such a conversion for existing laboratories

mainly as an alternative to improving their operation

within the system. As the study group put it, ‘‘where

existing government laboratories are not performing

well, conversion to a GOCO laboratory has some

attractive properties. ” But it also added that “such

conversion would involve significant disruption and

political opposition. ”10

Based on the DOE’s experience, the Federal

R&D community knows something of the advantages and disadvantages of the GOCO approach. The

greatest of these advantages is flexibility in personnel management: flexibility in developing personnel

systems; flexibility to set salaries at levels comparable to those in the private sector; and flexibility to

move staff from one activity to another on short

notice.11 And provided they comply with Federal

norms, GOCOs face a somewhat lighter regulatory

burden than do their government counterparts.

GOCO arrangements also carry disadvantages.

Some analysts claim that GOCO status reduces a

laboratory’s commitment to its sponsor’s mission,

and that there may be a perceived conflict of interest

if the contractor is a for-profit corporation. Other,

more fundamental criticisms are that the system

fosters a lack of accountability and that, by turning

technology development over to a contractor, the

government loses control of the operations of its

laboratories. Nor are GOCOs free from the more

burdensome kinds of oversight. If anything, these

institutions tend to impose on themselves the kinds

of burdens from which their status as GOCOs

supposedly exempts them.

In sum, GOCO status may be an option under

carefully specified conditions: if an agency is

considering a new facility; if government operation

forecloses the possibility of improving a laboratory’s operations; or if the sponsoring agency wants

the expertise of an industrial contractor for production facilities or of a university for research and

development. At this time, there may not be enough

hard evidence either way to justify the conversion of

a government laboratory to GOCO status.

Option 14: Eliminate institutional barriers to

the effective operation of DoD laboratories.

Congress could facilitate change by extending

practices at certain facilities to the rest of DoD’s

R&D community. The measures discussed below

are in line with the DSB’s 1987 recommendation

that each Service select at least one ‘‘representag]n 1983, tie Energy ~p~ent tr~sferred responsibility for its Bartlesville Energy Technology Center to the Illinois Institute of Technology

Research Institute (lITRI). Under a cooperative agreement between DOE and IITRI, the center, renamed the National Institute for Petroleum and Energy

Research, would work for both government and indusuy. IITR1 is responsible for the facility and shares operating costs, but receives no fee. The contract

provides that fees earned from industrial clients revert to DOE, and that for basic research, IITRI must write an annual work plan for DOE approval.

IODcfcnse Science Bowd, 6‘Sunlmer Siudy on ‘Rxhnology Base Managcmcnt: How to Improve the Effectiveness ~d Efficiency of the R&D ~oces%”

report prepared for the Of’fice of the Under Secretary of Defense for Acquisition, December 1987, p. 15.

I Ion t~lew ~d Other GOCO feat~es, we Office of Scicncc ~d Tcchno]c~W p~li~y, Executive Office of the President, ‘ ‘Final Rcpofi of the Working

Group on Federal Laboratory Personnel Issues, ” July 1984, p. 24.
Chapter 7-Implications for the Defense Technology Base: Options for Congress ● 123

tive” laboratory, and so alter its management that it

could attract the highest quality staff, improve

operations, and provide management with “authority and accountability. ”12

The most immediately obvious changes would be

in personnel management. For example, Congress

could extend the approach embodied in the China

Lake experiment (described in ch. 5) to all DoD

laboratories. This would give technical directors and

their division managers added flexibility to recruit

and promote effectively: broad pay bands that

incorporate a simplified classification scheme; an

employee appraisal system that links pay to performance; and an emphasis on performance as a

primary criterion for retention. If anything, the

China Lake approach could be more carefully

tailored to the problems of professionals working at

government laboratories. DoD might combine features of both the China Lake and NIST demonstration projects: the consolidation of 15 grades into a

few broad pay bands and the delegation of classification authority to line managers that is common to

both projects; and NIST’s direct-hire authority and

the ability to offer its professional employees total

compensation “comparable” to that offered in the

private sector for the same positions. In addition,

Congress might consider allowing laboratories to

pay exceptional scientific and engineering talent

market rates above civil service ceilings, and pay

competitive salaries for all technical employees.

This option raises two opposing questions. Why

should an approach tried at three facilities be

extended to the rest of DoD? Conversely, if the

China Lake/NIST approach has been successful,

why not extend it government-wide? China Lake

demonstrated that a simplified personnel system

could raise employee morale and lead to higher

retention of more capable professionals, even if it

did not automatically lead to government pay scales

that were more competitive with the private sector.

In answer to the question, “Why not governmentwide?” it can be argued that the current DoD (and

central oversight agency) approach to personnel and

financial management violates a basic rule of equity:

Do not treat unlike institutions as though they were

alike. A scientist at the Air Force Wright Aeronautical Laboratories should not be covered in quite the

same way as a Treasury official who maintains the

government’s central accounting system or a General Services Administration official who manages

public buildings. The merit of the China Lake and

NIST approaches is precisely that they recognize

that different groups deserve to be treated differently.

The China Lake experiment may give technical

directors and division chiefs an irreducible minimum of authority in hiring, promoting, and firing.

Similarly, a laboratory technical director should

have direct authority over all of his organization’s

functional offices, such as personnel, procurement,

and data processing. Lacking such authority, no

technical director can be fully responsible for his

laboratory’s operations.

Congress should also consider reforming the

ways by which the laboratories receive and spend

their operating funds. Studies have shown the effects

of overmanaging and underfunding DoD laboratories. In particular, laboratory officials have to cope

with uncertain funding—so uncertain that funds

often do not reach them until late in the fiscal year.

Multiyear and no-year funding might give DoD

laboratories the same kind of institutional stability

that the DOE’s national laboratories enjoy. Especially where technology base work is involved,

technical directors need the assurance that work will

be both fully and continuously funded, that funds

will cover all expenses, and that funding will be

assured over the life of a project. Block funding

could very well provide this assurance. Under this

approach, a laboratory would receive a lump sum

sufficient to cover the full costs of technology base

work, without the need for allocating funds under

existing DoD budget categories.

Laboratory directors also need discretionary

funding to start new work, to sustain projects where

other funding is incapable of carrying them to

completion, and to encourage cooperative ventures

between the laboratory, universities, industry and

other Federal agencies. The 1983 Packard Report

recommended that between 5 and 10 percent of a

laboratory’s annual budget be reserved for independent R&D at the director’s discretion—a range

that would permit potentially important work that

lzDcfense Science Board, op. cit., fbOmOte lo, p. 19.
124 ● Holding the Edge: Maintaining the Defense Technology Base

now goes unfunded. ’3 While officials will disagree

on the appropriate size of the discretionary pot, this

much must be said: if a Service considers a

laboratory’s mission worth doing at all, it should

accord a certain percentage of discretionary funds as

a matter of right.

The acquisition process is another area ripe for

reform. Evidence mounts that the length and complexity of acquisition cycles impose tremendous

paperwork burdens on military laboratories. Congress is aware of these problems, and has put in place

mechanisms that have somewhat eased the laboratories’ burdens. These include the use of Broad

Agency Announcements for research and exploratory development, the exemption of certain kinds of

scientific computers from the ‘full and open competition” provisions of the Competition in Contracting

Act, and the use of a simplified procedure for Small

Business Innovative Research (SBIR) procurements.

These approaches could be extended to other operations, for example, the acquisition of office equipment and general-purpose computers.

A major reform in acquisition must reflect a

proper sense of the laboratories’ missions. A laboratory, most of whose personnel monitor contracts,

cannot easily carry on its inherently governmental

functions, act as a smart buyer, and serve as a center

of technical excellence. And yet the majority of

military laboratories are conduits through which

buying commands funnel money to industrial contractors. Instead of the laboratories acting as passthroughs for development work, it may be that such

procurements could be handled directly by the

Service commands, with the laboratories providing

supporting research before a buy occurs and technical consultation afterwards.

Option 15: Allow DoD laboratories to contract

for those services that are not inherently governmental.

As an alternative to GOCO conversion, DoD

laboratories might elect to contract for those services

that are not essential to the conduct of R&D. The

principal guidance on acquiring commercial products and services needed by the government is

contained in OMB Circular A-76. Although that

Circular specifically exempts R&D work from its

coverage, it does include “severable” commercial

activities in support of research and technology

development. Given the blurring of lines between,

say, scientific programming and the work of inhouse researchers in artificial intelligence, it is often

difficult to distinguish between activities that are

and are not covered by A-76.

The important issues, though, concern efficiency

more than policy. A facility that contracted out all

support services would achieve a status somewhere

between government operation and GOCO. Such

contracting out would serve several purposes. It

would enable laboratories to pay market rates for

support services; give laboratory executives greater

flexibility in hiring workers and dismissing them

when they were no longer needed; and bring in

professionals who would not work directly for the

government. Under such a system, a laboratory

could, for example, contract out facility management, supply operations, and financial and administrative processing. Scientific and engineering professionals would remain government employees,

either under a reformed personnel system based on

the China Lake model or some special system, like

the one used to pay faculty of the Uniformed

Services University of the Health Sciences.

The best example of this hybrid system can be

found in the NASA centers. Since its establishment

in 1958, NASA has routinely contracted out almost

90 percent of its total budget, with much of that

going for center operations. NASA sponsors two

kinds of contract support. First, an agency installation may be managed by government employees,

with NASA awarding a master contract for housekeeping and base support and separate contracts for

more specialized functions. This is the arrangement

at the Kennedy Space Center, where EG&G provides base support, and at the Johnson Space Center,

where Rockwell International is the prime contractor

for mission support. Second, a NASA installation

may be government-run, but without a master

support contract. Instead, the center would let

separate contracts for services such as technical

writing, janitorial services, image processing, coml~E~ecutivc Office of the president, “Report of the White House Science Council, Federal Laborato~ Review Panel,” Office of Science and

Technology Policy, May 1983, p. 8.
Chapter 7-Implications for the Defense Technology Base: Options for Congress . 125

puter programming, or the operation of tracking

stations.

It is important to determine if a hybrid system

along these lines could work at DoD. The advantages listed above seem clear enough. The disadvantages are not nearly so. Nevertheless, the bifurcation

of support and essential functions might be difficult

for a laboratory to sustain over the long run. Further,

there are legal questions relating to the supervision

of contract employees by government officials. It is

the Office of Personnel Management’s position that

such supervision constitutes a personal service

contract and is illegal. It could be argued, though,

that so long as the sponsoring agency simply lays

down a general requirement—for example, “We

need someone to run this facility ’’—it could remove

such contracts from the prohibited category. So long

as a few military laboratories are candidates for

GOCO status, the hybrid arrangement could be an

attractive alternative-provided the legal and other

uncertainties surrounding it are removed.

Funding and Budgeting

Option 16: Institute multiyear budgeting for

DoD’s RDT&E program.

DoD first submitted to Congress a 2-year

RDT&E budget request for fiscal year 1988 and

1989. Congress approved a 2-year authorization, but

appropriated no funds for the second year. Congress

might consider reviewing the feasibility of providing multiyear appropriations for DoD’s technology

base program.14

Multiyear appropriations should decrease the

amount of time OSD personnel spend preparing,

reviewing, and defending annual budgets. It would

also add stability and efficiency to technology base

activities by providing known funding levels for

future S&T programs. By reducing the number of

programs that have to be acted on in any one year it

could also provide Congress with time for more

thorough oversight activities, such as giving the

Appropriations Committees more time to study the

recommendations of the authorizing committees.

Certainly, there are some disadvantages to

multiyear funding. Congress would be giving up

some of its annual oversight powers. Further, if

budget projections proved to be inaccurate it could

be difficult to make mid-cycle revisions, or to

accommodate changes in budget priorities. Yet,

multiyear budgeting could give OSD and Congress

additional time to consider technology base activities in terms of strategic options. Combined with a

strategic technology base plan, a multiyear budget

could improve the ways in which Congress reviews

DoD’s technology base programs. Lacking a coherent technology base strategy, OSD now presents its

S&T budget to Congress primarily as the sum of

individual program elements. An overall strategic

budgeting approach would help Congress understand the trade-offs and implications of different

technology base funding options.

Finally, multiyear appropriations could facilitate

DoD’s ambitious goals for allied R&D cooperation.

By 1994, 10 percent of DoD’s RDT&E budget is to

be committed to joint R&D projects with NATO and

other allies. Many Pentagon officials believe that

this goal is not attainable under the present annual

budgeting cycle. They argue that the European

Allies earmark funds for 3 to 5 years for R&D

programs, and that European officials may be

reluctant to enter into numerous high-risk, cooperative R&D programs with the United States unless

Congress is willing to guarantee funding for more

than one year.

Option 17: Separate the technology base

budget from the development, test, and evaluation portion of the RDT&E budget.

Although the ultimate success of many development programs may depend on underlying technology base projects, the 6.1-6.3A portion of DoD’s

budget is often overlooked in the “high-stakes”

game of RDT&E budgeting. The Pentagon’s toplevel budget review committee, the Defense Resources Board (DRB), seldom considers individual

technology base programs or priorities; rather, it

usually addresses only broad issues of spending

level.

141n this case, mu]tiyew appropriations could mean a congressional funding commitment Of from ~ tO ~ years, witi Congress rc~rving tie ‘ght

review the program at the conclusion of its second or third year of funding. Roughly half the Federal budget is permanently appropriated. (A permanent

appropriation is budget authority that became available as a result of previously cnactcd legislation and docs not require annual action by Congress.)
126 . Holding the Edge: Maintaining the Defense Technology Base

USD(A) could provide Congress with an

RDT&E report that clearly highlights the achievements of the Department’s research, exploratory

development, and advanced technology development programs. The report could summarize current

and future major thrusts of the technology base

program, demonstrating the linkage between these

activities and future military capabilities. It would

also be useful if the report were to address potential

civil applications of selected technology projects, in

recognition of the increasingly dual-use nature of

advanced technology.

The funding portion of the report should clearly

separate technology base funding trends from the

remaining “DT&E” portion of the budget. This

breakdown could provide Congress with a clear

picture of DoD’s RDT&E funding priorities-and

thus the “health” of the defense technology base.

For example, if the report were produced today it

would reveal that research (6.1) and exploratory

development (6.2) programs have suffered significant declines in recent years. If Congress wished to

do so, it could instruct USD(A) to halt this funding

decline.
Chapter 8

Lab to Field: Why So Long?
CONTENTS

Page

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. .. .. . . . . . . . . . . . . . . . . . . .

AFFORDABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .., .. .. .. ... ... ..... . . .

Funding Shortfalls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Aging Inventories .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Policy Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. ... . . . . . . . . . .

TECHNOLOGY INSERTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. .. .. .. ... ... .....

The Technology Insertion Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Previous Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Analysis and Policy Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....

THE DEFENSE ACQUISITION SYSTEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Introduction . . . . . . . . . . . . . . . . . . . . . .

Comparison With the Private Sector

Efficiency v. Effectiveness . . . . . . . . .

Analysis of the Acquisition Process

Policy Options . . . . . . . . . . . . . . . . . . . .

Figure

4.Technological had Times . . . . . . . . .

 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..’

Figures

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5. Projected Future Costs of Tactical Aircraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6. Projected Average Age of U.S. Army Tank Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7. Projected Average Age of USAF Cargo Aircraft Inventory. . . . . . . . . . . . . . . . . . . . . . .

8. Projected Average Age of U.S. Army Attack Helicopters . . . . . . . . . . . . . . . . . . . . . . . . .

9. Cost v. Regulatory Intensity

Table

5.Navy Advanced Technology

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Table

129

131

131

131

133

136

137

139

141

145

145

146

146

147

156

130

132

133

133

133

152

Page

Demonstrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
Chapter 8

Lab to Field: Why So Long?

INTRODUCTION

This nation’s military strategy depends upon

maintaining a technological lead in fielded military

weapons systems, both to take advantage of the

strong U.S. technological capability and to compensate for a numerical disadvantage relative to the

Soviet Union in many categories of weapons.

Nevertheless, leading defense officials are concerned that the technological level of operational

U.S. weapon systems lags considerably behind the

state of the art.

Some of this discrepancy is unavoidable. Many

systems now in the field have been there a long time.

Those just now entering service had their designs

substantially frozen years ago, while the level of

technology in the laboratory has continued to

advance.

The inherent time lag between lab and field

notwithstanding, the length of time it takes for new

technology to be fielded in U.S. military systems is

disturbing. According to the Department of Defense

(DoD),

The Soviets are methodically and efficiently

transitioning new technologies into their vast arsenal, oftentimes more rapidly than the West . . .

Consequently, the Soviets, although lagging the

West in technology, frequently field systems that are

sufficiently well-engineered to meet or exceed the

capabilities of counterpart Western systems. 1

A 1987 study by the Defense Science Board

(DSB)—a panel advising the Secretary of Defense

on technical matters-found that the inability to

move technology rapidly from research and development (R&D) programs to systems and products

‘‘is a primary contributor to the growing crisis in

military competition as Soviet weapons system

performance approaches and, in some cases exceeds,

that of U.S. and Allied forces. ”2

Figure 4 shows when several technologies now in

use in Air Force systems first started to be developed

in the laboratory. Some of the apparent lead times

are exaggerated, since the Air Force systems shown

are not necessarily the first ones to use the technology. (For example, since the B-1 was not the first

plane with a variable swept wing, the 20-year lead

time shown in figure 4 is not an accurate measure of

the time needed to get this technology into the field.)

Nevertheless, this illustration does suggest that

typical technologies now being fielded in military

systems began their development 10 to 15 years ago.

The lead time needed to field new technology can

be reduced in three ways: a nation can, by spending

more or by spending more efficiently, increase the

rate at which military systems are modernized; it can

hasten the rate at which new technologies are

included in proposed system designs; and it can

speed up the acquisition process by which any

particular new system gets into the field. Although

these different aspects—affordability, insertion,

and acquisition—are discussed separately in this

chapter, it is important not to treat them in isolation.

Even though the strategy of the United States

depends upon maintaining a technological advantage, that advantage can be realized only when

technology leads to increased military capability.

Introducing new state-of-the-art technology into a

military system has no benefit if the system cannot

be developed, if it cannot be supported and maintained in the field, or if it is prohibitively expensive.

This chapter first looks at the affordability issue,

one which cuts across all activities of DoD and is a

critical determinant of the rate at which forces are

modernized. It then examines factors that influence

the selection of new technologies when upgrade

decisions are made, and it concludes with a discussion of the DoD acquisition system itself—the

process by which decisions to modernize are implemented.

I LI,S. Dep~ment of Defense, “Soviet Military Power: An Assessment ol the Threat, 1988,” 1988, p. 149.

2Defensc Science Board, “Report of [k Defense Science Board 198”/ Summer Study on Technology Base Management, ” prepared for the Office

of the Under Secretary of Defense for Acquisition, December 1987, p. E 2.

-129 –
130 ● Holding the Edge: Maintaining the Defense Technology Base

chnological Lead Times

On-board oxygen generation

●

Electronically agile radar

●

Monopulse ECM

●

Engine components

Year

Year

Year

Variable sweep wing

●

-20 -15 -lo -6 IOC

Guidance seeker

●

Laser device theory

Atmospheric transmission codes

●

-20 -16 -10 -6 IOC

Second color IR detector

●

IR background models

●

Laser communications

●

IR detector arrays

●

Computer-driven displays

-20 - l5 -10 -5 IOC

Structured turbine blades

●

inlet/forebody aerodynamics

Look-down, shoot-down radar

●

Engine structural integrity

●

Fly-by -wire flight control

Year -20 - lb -10 -6 IOC

SOURCE. U.S. Air Force, Headquarters Air Force Systems Command, Depu!y Chief of Staff/Technol~y and Requirements Planni~, The Air Force Science & Technology and

Deve/ogxrrerrt P/amring Program, June 22, 1988,
Chapter 8-Lab to Field: Why So Long? . 131

AFFORDABILITY

Funding Shortfalls

The biggest impediment to fielding state-of-theart technology in future weapons systems may not be

getting the technology into the design; it may not

even be getting the design through the acquisition

process and into the field. The biggest problem may

be finding the money to buy the new system in the

first place.

After undergoing unprecedented peacetime

growth during the early part of the Reagan Administration, the DoD budget faces equally unprecedented shortfalls in future years as existing plans far

exceed likely available funding. Two factors are

leading to this squeeze. One is the “bow wave,”

representing the bills yet to be paid for weapon

systems that are now undergoing development or

entering production. The second, termed the ‘‘stern

wave, ” represents the rising cost of supporting and

maintaining weapons that have already been delivered. DoD data show that operations and support

(O&S) expenditures for new generations of weapon

systems often exceed those of the systems that are

being replaced. Although technological improvements sometimes actually reduce O&S costs, the

Comptroller General of the United States has stated

that expectations to this effect generally “are not

being fulfilled. ”3

Then Secretary of Defense Carlucci stated that

between $174 billion and $300 billion will have to

be cut from the planned DoD program for fiscal

years 1990 to 1993,4 assuming that the defense

budget will rise at a rate of 2 percent over the

inflation rate. Given the present $140 billion budget

deficit, the Gramm-Rudman-Hollings spending limits, and other Federal obligations such as cleaning up

years of environmental neglect in the nuclear

weapons production complex, these increases in the

DoD budget may not be realized. A DoD budget that

only keeps track with inflation will fall short of one

with 2 percent real growth by another $36 billion

over the next 4 years; one that only remains level in

current (not constant) dollars falls short by much

more. Clearly, as the Comptroller General has said,

“‘the services have too many systems chasing too

few dollars. ”5

Much of the problem is that the cost of new

systems is increasing at a rate that consistently

exceeds inflation. This does not necessarily mean

that the money is being wasted, since the quality and

performance of these systems is going up as well.

However, given fiscal constraints, this cost growth

will severely limit the quantities of new systems that

can be purchased. Norman Augustine, president and

chief operating officer of a major aerospace firm,

drives this point home in a striking way. Extrapolating current trends in tactical aircraft cost growth

(figure 5), he finds that the U.S. defense budget will

be able to afford only one plane in the year 2054, and

that the plane’s successor some 75 years later will

consume the entire Gross National Product (GNP).

Aging Inventories

Inability to complete ongoing modernization

programs at planned rates----even given the recent

budget buildup-aggravates what is already a slow

recapitalization rate within DoD. According to

Leonard Sullivan in an analysis conducted for the

Center for Strategic and International Studies ’(CSIS)

Defense Acquisition Study:

The total fiscal year 1986 replacement value of all

DoD facilities and properties ran just under $3

trillion-about 75 percent of the U.S. GNP. Based on

current [in 1985] acquisition plans, DoD is ‘‘rolling

over” its weapon and support systems roughly once

every 25 years and its fixed facilities once every 50

years. No commercial enterprise operates with such

slow turnover. It would appear difficult if not

impossible to keep defense at high readiness and

near the leading edge technologically with this poor

replacement rate.6

~Ch~]es A. Bowsher, C~mp~~lier General of the United States, quoted in George C. Wilson. “Pentagon Bracing for Two Waves: Rising Costs

Threaten Weapons, Readiness, ” The Washington Post, Nov. 13, 1988, p. Al.

‘$The SecrctW of Def~nse’$ rem~ks are referred to in I.IK Slalemcnl by Charles A. Bowshcr, Comptroller General of the CJnitcd StatM, before the

Senate Committee on Arrncd Services, Mar. 14, 1988, p. 9.

SIbid.

~~on~d Sullivan, Jr., “Charactcrizing the Acquisition Process,” piqxr presented at the Center for Strategic and International Swdics Confcrencc

on U,S. Defense Aequisi(ion, November 1986, Washington, DC, pp. 2-3. ((’omrnissioncd for U.S, Defense Acquisition: A Process in Tmublc, the CSIS

Defense Acquisition Study ).
132 ● Holding the Edge: Maintaining the Defense Technology Base

One

Quintillion

One

Quadrillion

One

Trillion

One

Billion

One

Million

One

Thousand

Figure 5-Projected Future Costs of Tactical Aircraft

1

1900 1950 2000 2050 2100 2150

Year of Initial Operation

SOURCE: Norman R. Augustine, Augustine’s Law (New York, NY: Penguin Books, 1983), p. 142,

Sullivan also points out that major systems—at

least platforms such as aircraft and ships-can easily

still be in service 40 years after they entered

full-scale development. With systems replaced, on

average, every 25 years, aging systems remain in

active service for a long time.

A study done by the DSB in 1984, during the peak

of the Reagan buildup, concluded that:

. . . many major equipment inventories will experience a steady aging during the remainder of this

century, [and] an increasing share of the necessary

Then-Year Dollars

force modernization of the future must occur

through the upgrading of equipment already in

inventory or already committed to production.7

Figures 6, 7, and 8 show the increasing average

age of Army tanks and attack helicopters and Air

Force cargo aircraft.8 Many other weapons categoriesalthough certainly not all—also show increasing

average ages.

The DSB study, while basically optimistic about

the potential for upgrades, did identify some areas

7u.s. Dep~men[ of Delknse, Irnprove(illefense Thro@ Equipment Upgrades. The U.S. and Its Securit)%Partners, Final Report of the 1984 Defense

Science Board Summer Study on Upgrading Current Inventory Equipment, November 1984, p. 2. (Emphasis in original.)

xAlthough the DSB study did not give the source of the data from which lhcsc graphs were derived, the office of Donald Rice (president and Chief

Exccutivc Officer of [he Rand Corporation), who chaired the study, confirmed [hat they were calcuhued from the long-range Extended Planning Annexes

of the Services. In the past, such long-range plans have tended to ovcrcslimatc future weapons purchases, duc both to underestimating weapon cost and

to overestimating available funds.
Chapter 8-Lab to Field: Why So Long? ● 133

Figure 6-Projected Average Age of

U.S. Army Tank Inventory

12

10 /

2-1---- , , 1975 1980 1985 1990 1995 2000

Year

SOURCE: U.S. Department of Defense, Improved Defense Through Equipment

Upgrades: The U.S. and Its Security Partners, Final Report of the 1984

Defense Science Board Summer Study on Upgrading Current Inventory

Equipment (Alexandria, VA: Defense Technical Information Center, November 1984).

Figure 7—Projected Average Age of

USAF Cargo Aircraft Inventory

Average age in years

Year

SOURCE: U.S. Department of Defense, Improved Defense Through Equipment

Upgrades: The U.S. and Its Security Partners, Final Report of the 1984

Defense Science Board Summer Study on Upgrading Current Inventory

Equipment (Alexandria, VA: Defense Technical Information Center, Novem

ber 1984).

for improvement.

9 It found that the Services seem

reluctant to pursue major upgrades for weapons

systems they are trying to replace, and that a

“systemic bias” against upgrades results from

Figure 8-Projected Average Age of

U.S. Army Attack Helicopters

10

5

0 , , , , I

1975 1980 1985 1990 1995 2000

Year

SOURCE: U.S. Department of Defense, Improved Defense Through Equipment

Upgrades. The U.S. and Its Security Partners, Final Report of the 1984

Defense Science Board Summer Study on Upgrading Currant Inventory

Equipment (Alexandria, VA: Defense Technical Information Center, November 1984).

consistently underestimating system lifetimes. Since

the Services are reluctant to upgrade systems that

they expect to retire soon, underestimating service

lifetimes thwarts upgrades.10

The DSB study also concluded that upgrade plans

should be part of a comprehensive modernization for

an entire equipment category, including upgrades

and new starts. Moreover, upgrading is much easier

if provided for in the original design of the system to

be upgraded.

Policy Options

The future shortfall in procurement funding can be

met in the short term only by reducing procurement

expenditures or by making cuts elsewhere in the

DoD budget. The magnitude of the task, involving

cuts of hundreds of billions of dollars from future

DoD budgets, will certainly curtail our ability to

sustain a technological advantage through force

modernization. Moreover, cuts of this magnitude

will have effects that go far beyond hindering the

introduction of new weapons systems and the

upgrade of older ones. They will affect overall

national security policy, strategy, and goals that lie

~Defcnse Science Board, op. cit., footnote 7, P. xii.

I~,vcV Onc of tie almost 40 helicopters, fighters, attwk aircraft, and wttiwibmarinc warfare aircraft fielded by the Navy since the carlY 195~s has

remained in active service longer than planned, some by over 20 years. The study concluded (p. 2) that there is ‘‘every reason to believe that this picture

rctlects the experience of the other Services, too. ”
134 ● Holding the Edge: Maintaining the Defense Technology Base

far outside the scope of this study. Therefore, this

study does not attempt to present a complete

discussion of the options facing military planners,

but will instead sketch out the implications of some

of the choices.

Distinctions must be drawn between short-term

and long-term solutions. Solutions that might best

improve the situation in the long run, such as

improving the efficiency of the acquisition process

or restricting the number of new starts, will take

years to produce substantial savings and will not

help the short-term problem. At the same time,

short-term fixes such as deferring or stretching out

weapons acquisitions will only make the long-term

problem worse.

Short-Term Measures

To balance the procurement budget in the short

term, either the cost of new systems must be reduced

or else more procurement funds must be made

available by cutting other areas. Options for reducing the aggregate cost of new systems involve three

different approaches: funding deferral, cancellation,

or upgrading existing systems.

Stretchouts or Funding Deferrals-This option

has been the traditional choice for handling funding

crises in the defense budget. It has the advantage of

being politically much easier than canceling programs outright, and it avoids having to write off

previous investments. However, it is one of the least

attractive solutions for the long run. Not only are

costs deferred, rather than eliminated, but those

deferred costs are increased due to keeping infrastructure and support on standby, inefficiencies

imposed by lowering production rates, changing

program plans, and inflation. Stretching out some

programs can provide room in the budget for other

important modernizations to proceed. However,

stretchouts exacerbate program variability, one of

the most-cited problems with defense acquisition.

Canceling Programs—Although canceling programs forces writing off sunk costs, at least those

costs do not come back to haunt budget planners in

future years. Moreover, some of the investment can

often be recouped in future programs that draw upon

technology developed in the canceled program. The

earlier in development a program is canceled, the

less the sunk cost will be and the sooner those

resources can be directed to other goals.

However, program cancellation is extremely

difficult, considering the balancing act of negotiation and compromise within DoD and between DoD

and Congress required for programs to be approved

in the first place. Ideally, those programs judged to

have the lowest military utility of all active programs

should be the first ones to be eliminated in times of

fiscal constraint. But, there is no universally accepted, objective measure that can help make this

determination, Program cancellations-like program approvals—inevitably involve political judgments.

Upgrade Rather Than Replace—The 1984 DSB

study cited above recommended that system upgrades, rather than replacements, be emphasized

more heavily in the future. To the extent that present

system design makes this possible, increasing emphasis on upgrades is likely to be an attractive option

for permitting modernization of systems we cannot

afford to replace. This option will not work, however, if the military Services see upgrades as threats

to their long-term plans for future acquisitions. More

realistic estimates of the service lifetimes of existing

systems will be needed for making valid upgrade

decisions.

To promote upgrades, proposals for new acquisitions could be required to include detailed comparisons of the relative merits of replacing v. upgrading

an existing capability. The office of the Under

Secretary of Defense for Acquisition [USD(A)]

would be an appropriate place for such a review to

be conducted, and it could provide inputs independent of the requesting Service.

Besides reducing spending on new systems,

funds could be devoted to procurement by making

cuts in other areas. Options for cuts elsewhere in the

DoD budget include:

Reducing Research, Development, Testing, and

Evaluation (RDT&E)—As was pointed out in

OTA’s previous report on the defense technology

base,11 R&D is always vulnerable to budgetary cuts

because its benefits are difficult to measure. More1 IU.S. Congress, office of Technology Assessment, The Dejknse Technology Base: lntrodu~’tion and @emiew+l .Tpecial Report, OTA-ISC-374

(Washington, DC: U.S. Government Printing Office, March 1988), especially pp. 3S-36.
Chapter 8--Lab to Field: Why SO Long? ● 135

over, cutting R&D appropriations in a given fiscal

year reduces actual spending that year by much more

than the same size cuts in other areas, such as

procurement. Cuts in RDT&E funding at first glance

would seem to threaten the U.S. strategy of compensating for quantitative inferiority by technological

superiority, since that technological superiority has

traditionally arisen from the DoD technology base

programs. Upon further examination, however, a

military strategy that depends on increasing the

technological sophistication of weapons systems

to the point where they can no longer be afforded

does not provide a sound foundation for national

security. Reevaluating the role that RDT&E plays in

national security is a long-term, rather than shortterm, measure; accordingly, it is mentioned again in

the discussion of “Longer Term Measures. ”

Reducing the Operations and Support Budget—

Cuts in O&S budgets, like cuts in RDT&E, have the

advantage of yielding relatively larger reductions in

outlays for that year than cuts in procurement. These

cuts are therefore attractive in the short run. However, making effective use of our substantial investment in defense systems and personnel requires that

systems be maintained and supported and that

people be trained. Therefore, reductions in O&S

funding would probably not be the most costeffective way to reduce the DoD budget in the long

run. Components of the O&S budget, however, can

certainly be reduced. The General Accounting

Office (GAO) has identified improvements that

could be made, for example, in logistics and spare

part inventories. ’2

Reducing Military Forces—in testimony before

the Senate Armed Services Committee, the Comptroller General stated that budget restrictions may

force the United States into reducing its level of

military personnel. “We may also have to rethink

some of our worldwide commitments in light of our

budgetary resources. ” This study will not presume

to speculate as to which commitments this country

could afford to cut back on. However. any reductions

in personnel, operations and support, and procurement might have the effect—planned or otherwisc—

of limiting this nation’s ability to fulfill its commitments. Reevaluating those commitments in the light

of budgetary pressures represents not so much a

decision to let budgets drive policy, as a recognition

that they do so whether that is desirable or not. It

would be preferable to start with the decision to limit

obligations and reduce spending accordingly, rather

than let budget cuts limit those commitments

arbitrarily.

One difficulty with reducing forces to save

money is that personnel reductions could involve

offering early retirements and redeeming accrued

leave, which might actually cost more money in the

short run than retaining people on full salary.

Reducing Civilian Personnel—DoD employs

over a million civil servants. Without doing a

bottom-up review as to how all these personnel are

employed, it is difficult to specify where reductions

could be made. However, many have suggested that

such reductions not only would save money but also

would improve DoD operation. The Packard Commission recommended ‘‘a substantial reduction in

the total number of personnel in the defense acquisition system, to levels that more nearly compare with

commercial acquisition counterparts. ”14 However,

the likelihood that personnel reductions may not

save much in the short term applies to civilian

personnel as well as military.

Longer Term Measures

Reexamine National Defense Commitments—

This option is the long-term continuation of the

short-term option of “Reducing Military Forces. ”

This nation’s long-term defense needs must-by

definition-meet its long-term defense budget. Whether the adjustment is made by lowering commitments or by raising additional funds, a deliberate,

well thought-out examination of national priorities

may be required. Like any other consensus-building

process that sorts out competing interests among

constrained resources, this process is inherently

political. It would require a continuing effort.

Improve Acquisition Efficiency-Although the

defense acquisition system probably does spend

more than an acquisition system designed for

l~chwlc$ A. Bowshcr, op. CIL, f~~tnote 3, p. ‘ 1‘

‘~lbid.

lqIbid.
136 • Holding the Edge: Maintaining the Defense Technology Base

optimum efficiency would, those excess costs are

often inherent in the political process surrounding

defense acquisition and in other cases are the price

we pay for pursuing national goals unrelated to

defense. Reducing many of these costs could require

Congress and the American public to reexamine the

value they currently attach to oversight and review,

as well as the cost they are willing to pay to pursue

a clean environment, fair labor practices, equal

opportunity, and many other objectives.

If savings in the acquisition process could be

identified-either through eliminating waste or by

choosing to relax various requirements that drive up

costs—it would take many years for those savings to

result in substantially lower system costs The vast

majority of the total life-cycle cost for systems now

in development has already been determined.

Reduce or Reevaluate Research, Development,

Testing, and Evaluation-The President’s Blue

Ribbon Commission on Defense Management (the

Packard Commission) recommended that “DoD

should place a much greater emphasis on using

technology to reduce cost—both directly by reducing unit acquisition cost and indirectly by improving

the reliability, operability, and maintainability of

military equipment. ” 15 Cuts in the RDT&E budget,

were they selected to address the affordability

problem, could be associated with a reevaluation of

how well the DoD technology base serves the goal

of cost reduction, in addition to-or instead of—the

more traditional goal of enhancing performance.

Note also that increasing the emphasis placed on

simulation, as opposed to hardware development,

can reduce RDT&E costs to the extent that the

simulations are valid. Increased computational capability, along with growing experimental databases,

can improve the validity of simulations.

Enforce Budgetary Discipline-One policy

choice here could be to require the Services to make

life cycle cost estimates of new systems for longer

terms than they do today, and to prevent them from

starting new programs unless they provide room in

these longer-term budgets to develop, produce, and

support the future systems. However, not only would

such a requirement demand accurate cost estimates

for the operation of systems that have not yet been

developed—almost a contradiction in terms—but it

would also require dependable projections of future

Service budgets, a task that has proven no easier.

Moreover, this exercise would be of little use unless

pressures within government and industry to underestimate the costs of new systems in order to fit them

into future funding requests can be mitigated. These

issues are discussed further in the section on

acquisition.

Consolidate Missions of Weapon Systems—

According to the Comptroller General, greater

efficiencies will have to be obtained in a number of

areas such as families of equipment that now fulfill

common missions. For example, several different

types of weapon systems, from shoulder-mounted

rockets to tanks to aircraft, in the past have been

developed to attack tanks. “While some variety of

systems is probably desirable, we must exercise

greater restraint in the future because we cannot

afford to replace weapon systems on a one-for-one

basis. ” 16

Realigning the assignments of weapon systems to

missions will involve substantial analysis on the part

of the military Services. It may even require

readjusting the Services’ respective roles and missions, if it is determined that tasks presently assigned

to one Service will in the future be accomplished by

upgrading or replacing a weapon system operated by

another Service. Firm guidance from the Office of

the Secretary of Defense (OSD) and the Joint Chiefs

of Staff (JCS) will be required to make the necessary

trade-offs.

TECHNOLOGY INSERTION

Making room in the budget to update or replace a

system does not automatically ensure the introduction of the latest technology. In fact, relatively few

systems developments or upgrades are undertaken

solely to exploit a specific new technological

capability:

Of the many scores of major acquisitions currently

in progress, fewer than a handful are responding to

genuinely original military needs (such as ASAT

[anti-satellite weapons]) or to a truly revolutionary

1566A Quest for Excellence: Final Report (o the President,” by the Presidcn(’s BILK Ribbon Commission on Defense Management, June 1986, p. 56.

l~ch~]es A. Bowsher, op. cit., footnote 4, P. 11
Chapter 8-Lab to Field: Why So Long? • 137

Soviet threat that challenges U.S. technological

prowess. Possibly 95 percent occurrent acquisition

programs are basically aimed at making marginal

threat-related improvements at the same time that

they offset depreciation of aging inventories with

something new.17

In the majority of cases where the primary

motivation for an upgrade or replacement is modernization, the introduction of new technology is neither

easy nor automatic. Although there have been

significant exceptions, DoD has traditionally not

been very successful at taking advantage of new

technologies that were promoted by their developers

(“technology-push”) in the absence of an interested

constituency among the technologies’ eventual users

(“requirements-pull”).

Those responsible for planning and developing

military systems should ensure that the potential

increased capability made possible by new technology justifies the risks-in cost, schedule, and

possibility of failure—inherent in that technology’s

development. In the case of obsolete equipment, for

example, putting any replacement at all in the field

is usually more important than including the latest

technological features. This conservatism poses

barriers that must be overcome before new technologies can be fielded.

To the degree that proven technologies are not

fielded, or promising technologies are not investigated, those barriers are inappropriate. However,

they should not be eliminated completely. It is not,

after all, the mission of DoD to deploy new

technology for its own sake. Unproven and high-risk

technologies that cannot be developed successfully

will not improve our military capability no matter

what their ultimate potential may be. Moreover, just

because a technology is new and effective does not

mean that it is the best solution to any particular

problem.

The Technology Insertion Process

Technology insertion depends, of course, on the

entire acquisition process, which is discussed more

generally at the end of the chapter. It refers

specifically to the process by which technical

developments in the laboratory are selected for use

in new weapon systems.

The office of the USD(A) was established in part

to combine jurisdiction over research and development with that over production. However, there is a

very significant discontinuity between technology

base activities and the later stages of full-scale

development and production. Technology base activities are undertaken with potential military relevance or application in mind, but they are generally

not targeted specifically towards a particular system

requirement. Instead, they are managed and directed

according to their field of science or technology, and

they serve to stock the shelves of the “technology

supermarket” from which designers of new systems

later draw.

When a requirement for a new military system

becomes formalized, at least for major systems,

funding and responsibility for that system is assigned to a System Project Office (SPO) dedicated

to satisfying that particular requirement. It might be

expected that developing a major new weapons

platform-ship, aircraft, land vehicle, or spacecraft—

would ease the introduction of advanced technology

through new generations of subsystems and components; in fact quite the opposite can occur. In today’s

political environment, where a conspicuous failure

can be used to delay or scuttle a new program,

proponents may choose to outfit an entire platform

with existing systems to minimize the risk of failure.

Then to take full advantage of the capability offered

by the new platform, its component systems must be

upgraded with new ones after the platform becomes

operational. Providing for upgrades in advance

makes those upgrades easier and more effective.

However, technology might be introduced still faster

if new platforms were designed to take better

advantage of new components and systems from the

beginning.

When a new system or subsystem is undergoing

development, its funding is generally in budget

category 6.4, engineering development, and responsibility for the system lies primarily with the

industrial contractor or contractors that won the

development contract. Thus, detailed design of

military systems, including the selection of technologies for use, is primarily the responsibility of

designers in private industry. Of course, these

designers do not work in isolation; their bids must

IT~onard sulliv~, Jr., op. cit., footnote 6, pp. 18-19.
138 ● Holding the Edge: Maintaining the Defense Technology Base

respond to government request, and the bids are

evaluated by government employees. SPO obviously has overall direction and responsibility for the

project. However, it is significant that the project

office personnel are largely separate from the people

who fund and execute R&D within government

agencies and laboratories.

Several mechanisms help bridge the gap between

technology base activities and the design and

production of particular military systems. The most

indirect might be termed technical diffusion, by

which findings and results of (unclassified) technology base funded activities appear in the open

literature and become available for use.18 Interaction

between those doing R&D in a generic field of

technology and those responsible for designing

particular systems is an important transfer mechanism, as is the actual transfer of personnel from

technology base activities to systems engineering.

Although technical interchange is essential in promoting the development and application of defense

technology in this country, there is concern that

increased diffusion could also allow this information

to pass to potential adversaries. Therefore, the

government has attempted to restrict export of

technical information, and there is considerable

controversy as to the net benefit to the United States

of these restrictions.19

More direct mechanisms to bridge the “transition

gap” include Independent Research and Development (IR&D) conducted by industry and (in the

case of defense contractors) partially reimbursed by

the government as art allowable charge on government contracts. Through IR&D, industrial scientists

and engineers—with feedback from government

evaluators-can explore technologies and gain sufficient expertise with them to feel confident enough

to prepare bids proposing their use in new systems.

Industry retains ownership of intellectual property

developed through IR&D.

In contract research and development, the

government funds and retains ownership of the

development of a particular technology, component,

or subsystem. The research findings and technical

data resulting from such contracts may be made

available to others, subject to classification and

export control restrictions. Even without proprietary

rights, the contractor winning such a contract

benefits directly by developing “hands-on” experience with the technology; other companies benefit

indirectly from the reports and technical data and

may find themselves forced by competitive pressures to develop an equivalent capability. Much of

this type of development is funded through budget

categories 6.2 and 6.3.

Perhaps the most direct means for transferring

technology from the laboratory into systems is

budget category 6.3A, advanced exploratory development. Category 6.3A includes funding for

non-system-specific prototypes or technology demonstration experiments intended to validate technologies to the satisfaction of those—either within

the system project offices or private industry-who

will ultimately recommend or select those technologies for use in future systems.

None of these transfer mechanisms resembles

what one government laboratory official characterized as the fictitious “midnight loading dock”

approach by which a government lab develops a

prototype and leaves it out overnight for an industrial contractor to pick up, duplicate, and churn out

many identical copies. In reality, the relative roles of

government scientists, government project office

sponsors, and industrial developers are far more

complex. Since the path by which technologies

developed in government laboratories end up in

system designs is so indirect, it can be difficult to

trace the contributions of the labs. Technologies

developed in, or whose development is sponsored

by, the government laboratories are picked up by

industry, where they are further developed, refined,

perhaps put to new uses, and eventually incorporated

into system designs. By the time they end up in bid

proposals, their origins in government-conducted or

government-sponsored research may no longer be

apparent.

The preceding discussion of technology insertion

applies to new system developments in which

Igclassificd findings we a]so disseminated through classified journals and seminars. However, the audience is restricted to those holding appropriate

clearances who can demonstrate a ‘‘need to know” the classified information.

lgThe exP~ con~o] con~oversy is discussed in depth in a recent study by the National Academy of Scicnccs: National Research Council, Balancing

the National Interest: U.S. National Security Export Controls and Global Economic Competition (Washington DC: National Academy Press, 1987).
Chapter 8-Lab to Field: Why So Long? ● 139

industry designs and builds a system to meet specific

military requirements. To the extent that the military

is able to use commercial products, either as they are

or with minor modification, it can bypass the lengthy

development process and proceed to apply the

technology embodied in those commercial products

directly to military use. In many areas, commercial

technology leads that available in the defense sector.

Such an emphasis on non-developmental items is

discussed in other chapters of this report that analyze

dual-use technologies and their relevance to military

needs.

Previous Studies

Several prior studies have addressed difficulties in

fielding state-of-the-art technology in military systems. The same factors often crop up in analyses

done years apart, showing that understanding a

problem does not automatically lead to a solution in

the face of unwillingness or inability to make

changes. In other cases, problems identified in

different studies appear to contradict each other.

1981 DSB Study on Technology Base20

In 1981, the DSB issued a report on the technology base. In addition to identifying crucial technologies to be emphasized and evaluating the current

government technology base investment and operation, this study identified a number of barriers

inhibiting successful transition of technology into

systems:

●

●

●

●

Discontinuity of funding, indecision, and the

short-term orientation of many key decision

makers.

The organizational and physical separation

within DoD of technology base activities and

system development.

Little emphasis on technology demonstrations

that can illuminate risks, costs, and payoffs of

using new technology.

Little emphasis on “test marketing,” or developing a constituency among the system developers for using new technological developments.

The study found that “there is a strong incentive

to pursue low risk options” and that “incremental

improvement is one of the biggest enemies of

innovation.” 21 It recommended creating an “Advanced Projects Agency” separate from the Defense

Advanced Research Projects Agency, or DARPA.

This proposed new agency, to be staffed by personnel from the military Services, would develop

experiments to quantify the maturity of emerging

technology, conduct the “test marketing” experiments mentioned above, and protect funding for

these experiments from being tapped for other

needs. In the absence of such an agency, the study

strongly recommended that more funding be allocated to category 6.3A, in any case, to conduct these

experiments. After concluding that DoD does not

make effective plans for inserting technology throughout the life of a system, the panel recommended that

technology insertion plans be made a basic and

fundamental part of program planning.

1985 DSB Summer Study on Practical,

Functional Performance Requirements22

This study examined a number of DoD programs,

concentrating on the earliest parts of the acquisition

process during which the requirements for systems

are determined. In apparent contrast to the 1981

DSB study, which accused system developers of

being overly conservative in their choice of technologies, this study concluded that developers

tended to reach too far. “The foremost factor

associated with unsatisfactory program outcomes

was that the technology, usually after the fact, was

assessed as being unready for entry into engineering

development. ” Like the 1981 study, however, this

DSB panel also highlighted the need for objective

measures of maturity. “It is likely that in almost

every case of failure the project’s initiators believed

at the time of initiation of engineering development

that the technology was, in fact, mature. ”23

20 Dcfcnsc Scicncc Board, “ReXJ~ of the Defense Science Board 1981 Surnmcr Study Panel on the Technology Base, ” prepared for tk Office of tie

Under Secretary of Defense for Research and Engineering, November 1981.

~lrbid., pp. IV-3, IV-5.

zzDcfcn\c Sclencc B(}ard, ‘LRcPfi of the Defense Science Bo~d ~9~5 Summer Study on prac~ica] Functional perfOrma.ncc Requirements,” preparCd

for the Office of the Under Secretary for Research and Engineering, March 1%6.

2~1bido, p. 20. (Emphasis in original.)
140 . Holding the Edge: Maintaining the Defense Technology Base

GAO Letter on Technology Transition,

January 198724

Upon concluding its review of the transition of

technology base activities into weapons acquisitions, GAO did not issue a formal report or make

recommendations. Its Associate Director for National Security and International Affairs did, however, write the Secretary of Defense expressing

concern that “early demonstrations of advanced

technologies have not received adequate management attention at the Office of the Secretary of

Defense level. ” GAO found that the “most significant barrier” to effective transition is the lack of

emphasis on such demonstrations, and it cited

recommendations of the Packard Commission highlighting the benefits of early prototyping. GAO

called attention to the low budget priority and

decentralized decisionmaking approach given to

such demonstrations. In response, the USD(A)

agreed with the importance of early technology

demonstration, conceding that the budget for such

activities had remained level in constant dollars

during the period reviewed by GA0.25 He noted that

funding for technology demonstration was projected

to double over the next 5 years.

1987 Defense Science Board Summer Study on

Technology Base Management26

This DSB panel found that “both the Defense

Department and commercial industry are seriously

deficient in rapid technology transition from R&D to

systems and products. ” Like the GAO and the two

preceding DSB studies, this DSB panel concluded

that the “greatest opportunity to improve the rate

and effectiveness of this transition process is by

increasing focus on the early advanced development

phase of the S&T [science and technology] program,

that is, Budget Category 6.3 A.” According to the

panel, 6.3A activities should include building and

testing experimental systems in field environments

to establish feasibility and utility before a commitment is made to full-scale engineering development.

Army Science Board Summer Study on

Technology Insertion27

The Assistant Secretary of the Army for Research,

Development, and Acquisition asked the Army

Science Board (an advisory body to the Secretary of

the Army analogous to the Defense Science Board)

to survey the Army, DoD, and industrial technology

bases to identify candidates for insertion into Army

systems, to evaluate the cost and effectiveness of the

Army technology insertion process, and to review

the Army acquisition process to recommend

changes. The panel found that:

●

●

●

●

●

New technology will have to be inserted in a

timely manner into fielded systems. Introduction of new systems will be severely limited by

future funding pressures and (particularly for

the Army) by delays or cancellations of major

systems, such as the LHX (Light Helicopter

Experimental) and the DIVAD (Division Air

Defense gun).

“To understand how technology insertion can

address cost and system effectiveness, technologists must understand operational problems . . . The payoffs from the technology base

usually come from combining of technologies

by system developers who know available

technical options and can see how to use

them.” 28 

Basing technology selection on acquisition cost

alone will always result in selection of the ‘low

risk, low cost, low technology approach. ” New

technologies have their biggest payoff in lifecycle, not acquisition, costs.29

Acquisition personnel are insufficiently experienced.

The budget process is a problem.

zQMichae] E. M~[ley, Associate Director, National Security and International Affairs Div ision, General Accounting Office, letter tO CaSpiW Weinbergcr,

Secretary of” Defense, Jan.16, 1987.

zsRichmd G~wln, Under SccretW of ~fcnse for ~qulsitlon, letter to Mi~hael Mo[lcy, Associate Director, National !jecurity ~d [ntematiOnd

Affairs Division, General Accounting Office, May 18, 1987.

z~Report of the Dcfcn= Science Board, op. cit., footnote 2, Dcccmbcr l’~~7.

27 Amy Science Board, ‘‘Army Science Board 1988 Summer Study on Technology Insertion in Army Systems,” prepared for the Assistant Secretary

of the Army for Research, Development, and Acquisi(lon, in press.

z~[bid,, p. 33. (Emphasis In original.)

291bid., p. 57.
Chapter 8-Lab to Field: Why So Long? ● 141

Analysis and Policy Options

The problems identified in the studies cited above

fall into three general categories. Those pertaining to

the discontinuity of funding, the short-term focus of

decision makers, the budget process, and personnel

affect the entire acquisition process and are discussed in the concluding section of this chapter (see

‘‘The Defense Acquisition System”). Another set of

problems relates to technological overoptimism or

extreme conservatism and the consequent need for

objective assessments of the maturity of a technology. These issues can be addressed by increasing the

emphasis put on prototyping and technology demonstration experiments, as well as by building product

improvement cycles into system design. Finally, a

third set of problems addresses the organizational

separation between technology base activities and

systems developers, the lack of “test marketing”

new ideas, and the lack of a constituency for

technological advances within the “user” communities. These issues can be addressed by an organizational structure that attempts to bridge the gap

between the laboratory and the system developer,

placing the ultimate users of a technology in more of

an “ownership” position and therefore making

them more receptive to the use of that technology.

Prototyping and Technology Demonstration

Most of the studies cited above argued for

increased reliance on prototyping and technology

demonstration. The Packard Commission found

that making trade-offs between the risks and benefits

of state-of-the-art technology requires reliable information, and that “the only consistently reliable

means of getting such information is by building

prototypes that embody the new technology. ” It

recommended that ‘‘prototyping, either at the system or critical subsystem level, be done as a matter

of course for all major weapon programs. ”30

Earlier studies had cautioned against overemphasizing prototypes. Almost 10 years before the

Packard Commission reports were issued, a DSB

summer study analyzing the acquisition cycle concluded that “the widespread or mandatory use of

full-scale system prototypes for all programs up to

the production prototype level is frequently wasteful

of critical national resources-dollars and manpower as well as time. ”31 This panel was particularly opposed to the contemporary practice of

forcing industrial contractors to fund large costly

prototypes out of their own resources. However, at

the component or subsystem level—rather than the

system level—the panel concluded that competitive

prototyping could significantly reduce the cost and

time needed to make a full-scale development

decision. In summary, the report found that prototyping could be ‘‘a sound and useful practice in

major system acquisitions provided that the candidates for the use of prototypes are carefully selected,

that only those things are prototype which really

need verification, and that prototypes are not considered to be some form of free lunch’ for the procuring

agency [e.g., by forcing contractors to pay for

them]. ”32

Advanced Technology Transition Demonstrations-The 1987 DSB report on technology base

management placed a heavy emphasis on Advanced

Technology Transition Demonstrations (ATTDs),

which it saw as an extension of the Packard

Commission prototyping recommendations to include technologies that are not necessarily committed to defined system developments. This distinction

is important. Prototypes are test versions of military

systems that have been designed to meet particular

military requirements. ‘‘ Demonstrations,” on the

other hand, provide opportunities to test technologies that are militarily relevant; but they do not in

themselves represent designs of specific systems.

The technologies they demonstrate, if successful,

could be implemented in future systems. (Note that

if a technology demonstration were realistic and

successful, there would be less need to prototype a

follow-up system using that technology.)

ATTDs, according to the DSB panel, should

follow several basic guidelines:

qopresident’s Blue Ribbon Commission on Defense Management, ‘*A Formula ~or Action: A Report to the President on Defense Acquisition,” April

1986, pp. 18-19.

slDefensc Science Board, “Report of the Acquisition C’yClc Task Force 1977 Summer Study, ” prepared for the Office of the Under kret~ for

Research and Engineering, Mar. 15, 1978, p. 53.

321 bid., p. 54.
142 ● Holding the Edge: Maintaining the Defense Technology Base

●

●

●

●

They should reduce technical risk by demonstrating a technology’s potential and maturity in an ‘‘operational,” rather than ‘ ‘laboratory, ” environment.

They should show a potential for new or

enhanced military capability, or for a significant improvement in cost effectiveness.

They should be accompanied by a technology

transition plan at the outset of the demonstration. That is, potential applications and opportunities to implement the technology should be

identified at the start, rather than the conclusion, of the demonstration process.

They should involve the participation of both

the developer of the technology (typically a

Service Systems Command) and the system’s

ultimate user (an Operating Command). The

user should serve as sponsor, with the developer as project manager.33

According to the DSB panel, a successful ATTD

would clarify the definition of the military need that

the technology is to meet; stimulate strong acceptance and sponsorship of the innovation among its

ultimate users; combine viewpoints of the research,

development, production, and operational communities; clearly prove both the maturity of the

technology and the satisfaction of a perceived

military need; provide visibility to those higher

levels within DoD and the Congress that will

ultimately approve subsequent developments; and

ensure adequate financial support to meet the goals

of the project and initiate follow-on development.

Given a limit on resources allowable for such

demonstrations, together with the need to provide

enough funds to do a meaningful experiment (estimated by the DSB panel as typically $10 million to

$100 million over 3 years), ATTD candidates would

have to be selected competitively. This competition

should ensure that the best ideas get funded. The

DSB panel urged that funding for these ATTDs be

“fenced off” from other R&D needs so that

overruns on large, more immediate demonstrations

do not threaten the many smaller, longer-term R&D

projects. (What this means in practice, of course, is

either that provision should be made in advance for

overruns when preparing project budgets, or else

that overruns should be covered from somebody

else’s pot.34)

The panel urged that these ATTDs be conducted

within the existing military Service and defense

agency acquisition procedures, and not centralized

DoD-wide. The various Services now have somewhat different practices concerning their 6.3A budgets. Most of the $2 billion now spent within 6.3A is

less focused, less field-oriented, and longer-term

than the proposed ATTDs would be. The DSB panel

recommended that, by 1991, each Service devote

half its 6.3A budget to ATTDs, sufficient to fund a

total of 20 to 30 projects.

Existing Technology Demonstration Programs— At present, the Navy and the Air Force each

have a program embodying many of the principles

recommended by the DSB for ATTDs. In essence,

both involve establishing an agreement between

the developer and the user that if the technology

is successfully demonstrated, it will be used; the

criteria for success are jointly developed at the

outset. Prior agreement is required both to establish

a sense of sponsorship in the user and to ensure that

the user reserves sufficient flexibility in its out-year

budget requests to make funds available for the

program once it has been successfully demonstrated.

DARPA, for its part, has significantly increased

its role in prototyping technologies. This increased

role has proven controversial.

Navy----The Navy has the smallest 6.3A program

of the three Services, totalling $189 million in fiscal

year 1989. Part of this 6.3A program represents

generic technologies—such as explosives development—that contribute to many weapons systems.

The remaining part of the 6.3A budget provides

candidates for Advanced Technology Demonstrations (ATDs), which formed the model for the DSB

recommendation regarding ATTDs (see table 5).

Navy ATDs are funded through the Navy-wide

6.3A account and are not funded or managed by the

commands responsible for the development of

particular new systems. ATDs therefore provide an

opportunity to demonstrate a high-risk technology to

a skeptical customer—a system development com33Dcfense s~iencc Board, op. cil., footnote 2, pp. 22-23.

34~oviding ~ontingcncy fwlding in DoD budgeting is discussed ]a[cr in [his ~hap[cr under ‘ ‘Reducing program Variability’. ”
Chapter 8-Lab to Field: Why So Long? ● 143

Table 5-Navy Advanced Technology Demonstrations

FY 1987 FY 1988 FY 1989

Advanced Fiber Optic All-Optical Towed Surveillance IRST

Technology Array (infrared search

and track)

SEA RAY (fiber optic Unified Network MADOM (magnetotether) Technology acoustic detection

of mines)

Undersea Weapons Airborne Transient Quiet Weapon Launch

Technology (heavy Processor (signal (undersea heavytorpedo propulsion processor) weight weapons)

improvement)

Fiber Optic ADCAP Adaptive Monopulse

(heavyweight Countermeasures

torpedo)

Ultra-Low-Noise

Crossed Field

Amplifier a

aAdded to replace the canceled BRIGHT EYE.

SOURCE: Office of the Secretary of Defense.

mand-without making the customer pay up front.

They are not appropriate for high-payoff, but lowrisk, projects that users are willing to fund without

any additional incentive. If an ATD proves to be

successful, according to criteria the user has agreed

to in advance, the user agrees to pick up future

funding. Even with future user support assured, the

new technology cannot be incorporated into new

systems unless the industrial contractors providing

those systems are involved. Typically, about half the

effort on an ATD is performed by industry. Moreover, once an improved technological capability has

been demonstrated to the Navy’s satisfaction, the

Navy will provide incentives for contractors to use

it. For example, the Navy may establish performance

requirements that cannot be achieved with older

technologies.

Sources for Navy ATDs come from Navy and

other DoD labs, DARPA, and industry, In 1988, 55

proposals were submitted that were ultimately

winnowed down to 7 new starts. Projects take a

maximum of 3 years and cost about$12 million each

over that time. The total ATD budget is projected to

grow to about $65 million per year. In fiscal year

1989, the ATD budget was $32 million, which

represented about 17 percent of the total Navy 6.3A

budget. However, the Navy is moving towards

applying ATD management techniques to a much

greater fraction of its 6.3A activities; it is estimated

that some 50 to 60 percent of the Navy’s 6.3A budget

could be managed under the ATD model.

Budgets for individual ATDs are protected unless

and until they run into problems. Since the projects

selected are all high-risk, technical problems are

expected; however, to prevent other projects from

being dragged down, projects that get into trouble

are killed. For example, BRIGHT EYE, an electronic countermeasure program scheduled to start as

an ATD in fiscal year 1989, was terminated when it

appeared that it would not be able to meet its

technical objectives. Budget cuts are not distributed

proportionately to all ATDs, but rather are absorbed

by canceling the lowest priority projects in their

entirety.

OSD, following up on the DSB 1987 summer

study that recommended use of ATTDs, is trying to

apply this management technique to 50 percent of

the 6.3A programs across the Services.

Air Force—The Aeronautical Systems Division

(ASD) of the Air Force Systems Command has

institutionalized a technology transition process

between the Air Force laboratories, which control

much of the Air Force’s technology base activities,

and SPOs within ASD, which are responsible for

developing new systems. The objectives of the new

process are to bound and focus activities at the

laboratories, and to enhance the involvement of
144 ● Holding the Edge: Maintaining the Defense Technology Base

acquisition managers within technology base activities, i.e., to narrow the gap between the originators

and users of technology.

When an Air Force laboratory proposes a new 6.3

activity, part of the budget submission process

involves preparing a technology transition plan.

This plan is presented to a panel composed of

representatives from the engineering support directorate (EN) of ASD. This panel--called SENTAR,

for Senior EN Technology Assessment Review—

evaluates the program’s objectives, recommends

modifications, compares the program’s schedule to

its need in the field, helps determine the program’s

priorities with respect to the lab’s other 6.3 work,

guides the development of criteria that will denote

when the activity is ready to be picked up by a

system project office, and determines when the

project meets those criteria. A major goal of this

process is to identify system project offices-the

users—that can benefit from the new development.

In doing so, the process generates customers for

these innovations who have an interest in seeing

them through to completion. Interested program

offices commit to a “strong moral obligation” to

pick up support for the activity, should it meet the

goals identified in its technology transition plan.

This technology transition process also establishes incentives for industry to incorporate new

technologies in their bid proposals. The EN of ASD

reviews all Requests For Proposals issued by ASD.

In these reviews, EN checks to see that the government requester will be receptive to companies

bidding technologies that have successfully passed

through the SENTAR process. If a company is

satisfied that use of a new technology will not be

considered too risky by the proposal evaluators, it

will be much more likely to incorporate that

technology into its bid.

DARPA-The Packard Commission urged that

DARPA, which was at the time charged with

conducting research and exploratory development in

high-risk, high-payoff technologies, also put emphasis on prototyping defense systems. DARPA has

since been given an expanded mission in this area.

For fiscal year 1989, technology demonstrations

were funded at a level of $237 million, or about 42

percent of DARPA’s 6.3 budget. Prototype funding

was included in the fiscal year 1989 budget within

technology demonstrations, and totalled $43 million. For fiscal year 1990, prototyping funds will

more than double to $94.7 million and will be

separated from demonstrations; the remaining technology demonstrations will be funded at $167

million, $27 million below their fiscal year 1989

level.

Given that the military Services at present largely

have control over their own research, development,

and acquisition programs, DARPA is perhaps the

only agency where a revolutionary new technology

that may not fit within the perceived missions of the

Services--or that might be seen as threatening those

missions-can be explored. However, precisely

because DARPA is outside the existing Service

acquisition chains, it has in the past faced difficulty

in turning technologies over to the military Services

for implementation. Giving DARPA a greater role in

prototyping will aid the transition of DARPAsponsored technology from the laboratory to a major

field experiment. However, without participation by

or interest within the military Services, the problem

of turning the technology over to the Services for

development into systems might remain.

An additional concern raised over giving DARPA

a greater role in prototyping is the degree to which

it will retain its original mission of exploring

high-risk, basic technology. If the expensive prototype demonstrations siphon funds from these activities, DARPA’s original mission could be endangered.

Preplanned Product Improvement

and System Upgrades

In addition to the increased use of prototypes and

demonstrations, another solution to the problem of

attempting too large a technological leap is the

concept of preplanned product improvements. If a

system is designed from the start with the intention

of periodically upgrading its capability, its operators

can be assured that they will be able to add

state-of-the-art technological capability in the future

without demanding it all at once.

Product improvements, or system upgrades, offer

a lower-cost and faster alternative to new systems

development for getting new technology out into the

field. However, since they do provide an alternative,

upgrades may be resisted by the Services as posing
Chapter 8-Lab to Field: Why So Long? ● 145

a threat to new system development. For example, in

the past the Navy has been reluctant to propose

upgrades to its existing fleet of Los Angeles-class

submarines because those upgrades might be seen as

reducing the rationale for the Seawolf, a major new

submarine that the Navy sees as essential to counter

the increased Soviet threat. Moreover, more realistic

lifetime estimates for deployed systems are necessary if upgrades to those systems are to receive

realistic consideration.

Summary

Technology demonstrations have the potential for

solving two seemingly contradictory problems:

overemphasis on what later turns out to have been

unproven technology, and unwillingness to accept

what later turns out to have been viable technology.

By convincing the skeptics that a technology can

work, and at the same time disabusing the optimists

of the notion that it can do everything, objectively

evaluated technology demonstrations enhance the

technology insertion process.

Prototype development is thought by some to be

an important aspect of realistic program planning

and cost evaluation. However, others caution that

excessive prototyping can impede the very process

that it is supposed to enhance.

THE DEFENSE ACQUISITION

SYSTEM

Introduction

For years, defense analysts have been frustrated

with the length of the acquisition process. Delays in

acquisition lead to lost time in fielding new systems,

and threaten our technological lead over the Soviets.

These delays also result in higher costs due to the

expense of maintaining extended development efforts. Even more serious than the increased time and

cost, according to a DSB panel35 that studied the

acquisition cycle over a decade ago, are the “second

order effects” of delays: technological obsolescence

by the time new systems are fielded, increased risk

as designers stretch the state of the art to avoid this

obsolescence, and added complexity as delays

aggravate the tendency to want “everything.”

Moreover, delays beget additional delays. Cost

escalation due to delays, together with budgetary

ceilings, leads to program stretchouts that compound

the original delay. Extending the expected time for

deployment also causes planners to magnify the

anticipated threat, upping the systems’ requirements

and lengthening the development time still further.

No single aspect of the acquisition process is

responsible for schedule delays. To prevent delays,

and to shorten the acquisition cycle, the overall

acquisition process must be made more efficient and

more effective, Therefore, the following discussion

of acquisition, along with Appendix A upon which

this discussion is based, takes a broad view. It

examines several systemic difficulties with acquisition, each of which can lengthen the acquisition

cycle or drive up its cost (which, as stated above, can

amount to the same thing).

These problems are not new. The foreword to a

recent compilation of six major studies of defense

acquisition over the past four decades states that

‘‘the bulk of the cures proposed as far back as 1948

were still being proposed in 1983 because they had

never been implemented. ”36 The possibility certainly exists, of course, that none of these studies

identified the real problems, which therefore remain

to be addressed. Alternatively, perhaps sheer intransigence and bureaucratic inertia within the Department of Defense keep it from substantially improving its operation.

More likely, however, is that many difficulties in

defense acquisition stem from factors that are

beyond the Department’s direct control and that no

amount of unilateral DoD activity can address. To

the extent that such external factors dominate,

improving defense acquisition will require making large-scale structural and institutional

changes that would not be restricted to DoD.

Some of these changes are impossible within our

present system of government. Others would interfere with various objectives that the nation has so

gSDefense science Board, op. cit., f(X)mOtC! ~1, pp. 38-39.

3~David ~ckw~, Andrew Mayer, and c~eryl crow, Library of Congress, Congressional Research SeWkC, “Defense Acquisition: Major U.S.

Commission Reports (1949-1988), Vol I,” prepared for the Defense Pollcy Panel and Acquisition Policy Panel of the Committee on Armed Services,

House of Representatives, Committee Print No. 26, Nov. 1, 1988, p. V.
146 ● Holding the Edge: Maintaining the Defense Technology Base

far-explicitly or otherwise-decided are at least as

important as efficient defense acquisition. And still

others involve resolving longstanding political disagreements and identifying common ground in the

face of seemingly incompatible positions.

Since the constraints within which defense

acquisition must operate are so important, the

discussion that follows begins with a description of

some of these constraints and their effects. Next, the

analyses of particular acquisition problems, and

specific options that have been proposed for ameliorating some of them, are presented. The chapter then

concludes with a more general discussion of four

different overall approaches that can be taken

towards defense acquisition reform. Depending on

which overall approach one selects, different specific options make sense.

Comparison With the Private Sector

One of the most important features of defense

acquisition is that it is conducted by the government.

Since the premise is widely accepted that the private

sector can accomplish tasks more efficiently and

cheaply than the bureaucracy-encumbered Federal

Government, previous studies have looked to the

private sector to provide a model. A 1977 study by

the DSB found that, while the portion of the defense

acquisition cycle preceding full-scale development

had lengthened over the previous two decades, the

corresponding interval for commercial aviation programs had not (see Appendix B of Volume 2).37

More recently, the Packard Commission concluded

that “major savings are possible in the development

of weapon systems if DoD broadly emulates the

acquisition procedures used in outstanding commercial programs. ”38

There are certainly lessons that the private sector

can offer the Federal Government, lessons that the

Packard Commission sought to uncover. However,

fundamental and inherent differences between the

government and the private sector must be understood before any of these lessons can be applied.

These differences-described more fully in

Appendix A of Volume 2-concern factors such as

the inability to measure government effectiveness in

the same way that profit, or return on investment,

provide figures of merit for the commercial world.

They involve the standards of accountability demanded by the taxpayer-and imposed by Congress—

on the expenditure of government funds, as well as

the pursuit of national goals such as fairness,

environmental protection, and equal opportunity

that may interfere with the ability to acquire defense

systems efficiently.

Other important differences between the government and the private sector include the role of

Congress and the political process, which has no

parallel in the commercial world. DoD’s sheer size

(its budget is several times larger than that of the

largest U.S. corporation) imposes inefficiencies of

scale not shared by smaller private-sector operations. Market forces that reward efficient companies

and punish inefficient ones have no counterpart

within the DoD, which cannot simply sell off or

disband a military Service or agency that does not

perform as well as hoped. As James Schlesinger,

former Secretary of Defense, has stated;

This is a society that based its system of government on the Constitution, which calls for a dispersion of powers. That means that everybody has to

agree, and under normal circumstances, most people

don’t agree, As a consequence, we are never going

to have the kind of model efficiency in the Department of Defense, or in government generally, that

some kind of theorist would want. 39

Efficiency v. Effectiveness

Defense analyst Edward Luttwak has stated that

‘‘The great irony is that the defense establishment is

under constant pressure to maximize efficiency, and

that its leaders believe in that goal when they ought

to be striving for military effectiveness—a condition

usually associated with the deliberate acceptance of

inefficiency. “4° The nature of defense acquisition

imposes specific requirements that go beyond even

sTDefense Science Board, op. cit., fOOtI’IOtc 31.

s~prcsidcnt’s Blue Ribbon Commission on Defense Management, op. cit., footnote 30, April 1986, p. 12.

3~6 ‘The Second Annua] Report of the secret~ies Of Defense, ” edited transcript of a conference held by the Southern Center for International Studies,

at Gaillard Municipal Auditorium in Charleston, SC, Sept. 30, 1988, p. 24,

dOEdwwd LuttwA, ‘‘The Price of Efficiency, “ Military logistics Forwn, July/August 1984, p. 22.
Chapter 8-Lab to Field: Why So Long? ● 147

the disincentives to efficiency facing government

activities in general. Much of the technology used in

defense systems is at a level of sophistication ahead

of that used in the commercial sector—if indeed any

commercial analogs exist at all. Although the

defense lead is not as pronounced as it has been—

and several areas of defense technology now lag

behind their commercial counterparts-military technology must nevertheless often be developed from

scratch for a relatively limited production run.

Since DoD is the only customer for sophisticated

military systems, producers do not have the option

of selling elsewhere should they not be able to sell

to DoD.41 If the Defense Department wants to

maintain a diversity of suppliers, it must buy enough

from each of them to keep them in business-even

if their products may not be DoD’s first choice. The

most efficient producer of a military system cannot

be permitted to drive the others out of business.

Aggravating the problem of maintaining a viable

production base are annual purchase sizes—

typically determined by externally imposed budgetary limits—that mandate suboptimal production

rates. 42

Entrepreneurs in the commercial sector willingly

accept the risk of failure—in the form of a loss of

investment or reduced earnings-as the price for the

chance to strike it rich. Substantial failure on the part

of DoD, however, would have consequences that

could be far more severe. Therefore, DoD practices

a far greater degree of redundancy and risk aversion

than a commercial enterprise does. Such risk aversion also extends to proposals for reform, which face

a stricter ‘burden of proof” than might be expected

for corporate reform.

In light of the factors that characterize government activities in general and defense acquisition in

particular, it may well be true, as defense analyst

Leonard Sullivan has concluded, that ‘‘many efforts

to make acquisition more efficient are simply

second-order expedients to paper over largely insoluble first-order problems. ”43

Analysis of the Acquisition Process

The President’s Blue Ribbon Commission on

Defense Management was not the first attempt to

apply lessons from the private sector to defense

management. Seventeen years before chairing the

Commission, David Packard, then Deputy Secretary

of Defense, established the present DoD acquisition

process to emulate industrial practices of project

management and sequential review and approval.

The basic process is one of distinct phases separated

by decision points or milestones. OSD develops

policy for major system acquisition programs and

conducts reviews to ensure that those programs

respond to specific needs and are managed soundly.

The military Services and defense agencies individually, for the most part, identify those needs and

define, develop, and produce systems to meet them.

DoD acquisition programs are run according to

the principle of Program Management, in which one

individual, the program manager, is responsible for

integrating in a single office the diverse administrative, professional, and technical capabilities required to manage the development and production of

a major system. However, many people and organizations inside DoD, but outside the program office,

have considerable influence over the program’s

outcome as well. The separation of responsibility

and authority—whereby people with no direct

accountability for a program’s outcome nevertheless exert control—has been identified by

study after study as a major problem of the

defense acquisition structure. Analysts differ as to

the degree to which power and accountability can be

brought back together in the defense acquisition

environment.

The review and oversight that acquisition projects receive at all levels, from commands within

individual military Services through OSD to Conq~c~mpmies can produce for expo~, but such expofls must bc approved by the U.S. Government and are not usually approved for technO@es at

or above the state of lhe art available to U.S. forces. Moreover, as the abortive F-20 fighter program demonstrated, foreign governments may not want

U.S. systems that the U.S. DoD is unwilling to buy.

~21n-dep~ examination of dcfen= indus~a] base conccms is beyond the scope of 111)\ study. For treatment of this subject, scc ‘‘Bolstering Defense

Industrial Competitiveness, ” Report to the Secretary of Dcfcnsc b) Ihc Under Sccrclary of Dcfcnsc for Acquisition, July 1988; and the report of the

Defense Science Board 1988 Summer Study on the Industrial Base, 1989. Weapon systcm production rates arc discussed further in Eflkcts of Weupons

Procurement Strek.%otm on Costs and Schedtdes (Washington, DC: U.S. Congrcssicmul Budget Office, 1987).

qq~onard Sul]ivan, Jr., op. cit., footnote 6.
148 ● Holding the Edge: Maintaining the Defense Technology Base

gress, has also attracted considerable attention from

analysts of the acquisition system. Many critics

decry what they see as excessive bureaucratic

layering and micromanagement. However, others

point out—as did the GAO-that such critics ‘‘fail

to realize that program managers are responsible for

expenditures involving billions of dollars in public

funds and that a system of checks and balances is

essential.” 44 The level of scrutiny needed to ensure

an appropriate level of checks and balances remains

controversial.

Problems in defense acquisition can be separated

into a number of categories, including: program

variability (sometimes called program instability);

the requirements generation process, including the

process by which resources are allocated and weapons systems are selected; bureaucratic paralysis;

inappropriate organization of the defense procurement system; and the quality of and incentive

structure facing acquisition personnel.

Program Variability

Sources of Program Variability-Perhaps the

most significant difference between defense acquisition programs and commercial activities is the

degree and the unpredictability of year-to-year

change in defense programs. Constant variation

makes sound management impossible. As a result,

studies of the defense acquisition system always

highlight variability as a major problem.

Many pressures for changes in defense acquisition programs are peculiar to government procedure,

originating from every level of congressional and

executive branch operation. Other stimuli for

change, shared by both government and private

activities, are changing threats (or market demands,

in the commercial world) and the inherent uncertainty of the technology development process. Even

if the changes due to governmental procedure

could somehow be eliminated, these latter sources--

which no amount of planning or acquisition

reform can remove-would remain.

A key source of self-imposed change is politics,

not in the pejorative sense that the word has acquired

connoting back-room deals, influence peddling, and

pork barreling, but in its original definition as a

struggle between competing interests. Decisions to

build multi-billion dollar weapon systems do not

merely follow from technical or strategic analyses.

They also represent choices concerning the relative

importance of certain military needs over others, and

of those military needs over other public needs (e.g.,

housing, health care, economic security, tax relief,

and deficit reduction). Finally, these decisions also

ultimately represent commitments to specific manufacturers employing people and purchasing goods in

specific congressional districts. These are inherently

political decisions, and in the United States, no

political decision is final.

The political process involves constant competition and interaction among many different actors:

the military Services against one another and against

OSD, DoD against the rest of the executive branch,

the executive branch against the Congress, and

various committees, subcommittees, and Members

of Congress against one another. When the interests

of many of these parties align, differences between

them can be resolved. However, in the face of

fundamental disagreement, the competition for influence and control can make it very difficult to

maintain continuity.

The struggle between Congress and the executive

branch leads to what is generally referred to as

‘‘legislative oversight responsibilities” within Congress and as ‘‘micromanagement” within the executive branch. It results in hundreds of budget line

item changes and other legislative restrictions and

requirements each year. Although congressional

modifications to the DoD budget request certainly

complicate program management, changes generated within the many layers of DoD management

add significantly to the problem. Many, if not most,

of the budget cuts imposed upon or generated within

DoD are due to DoD’s inability to forecast program

costs accurately, to defer new starts until sufficient

funding to cover the actual (rather than the originally

estimated) costs is available, or to eliminate programs—

rather than stretch them out—in the event of funding

shortfalls. GAO has found that, although the impact

of underfunding programs is ‘‘well-recognized and

documented, a workable and effective method for

‘W-J.S, General Accounting office, “A Critique of the Performance of the Defense Systems Acquisition Review Council: Billions in Public Funds

Involved,” PSAD-78-14, Jan. 30, 1978, p. i.
Chapter 8-Lab to Field: Why So Long? . 149

matching DoD’s needs with budgetary constraints

has not been developed. ”45

Reducing Program Variability-Although measures can be taken by both Congress and DoD to

reduce the number and effects of program changes,

changes cannot be eliminated. Analysts disagree as

to which of two management failures is the more

serious in the light of unexpected change: failure to

plan and budget flexibly, or failure to hold to a fixed

schedule. Efforts to reduce program variability

include reforming congressional budget review procedures, multiyear budgeting, program “baselining, ” increasing DoD management flexibility, and

reducing personnel turnover.

Reforming the Congressional Budget Review

Procedure-The current congressional budget process, involving three levels of review between the

budget committees, the authorizing committees, and

the appropriations committees, takes too long to

complete. Final decisions on the defense budget are

made by congressional conference committees as (or

in many recent cases, after) the new fiscal year starts,

late in the executive branch’s preparation of the

following fiscal year’s budget. Last-minute changes

in the appropriated funding levels require lastminute changes to the next year’s request--changes

that can be difficult to accommodate in a rational

manner.

Changing the congressional budget process

would require a major revision in congressional

procedures that would involve either cutting down

the number of committees having a significant role

or sharply delineating committee responsibilities.

However, Congress is a highly pluralistic institution,

and there is no single individual or organization that

can mandate these changes. Enacting them would

therefore require either widespread agreement within Congress or the unilateral abdication of authority on the part of committees that are now involved.

Even if the number of actors reviewing the budget

is reduced, the structure of that budget may not be

optimally suited for evaluating defense roles and

missions. Congressional review of the defense

budget now deals more with accounting inputs

(dollars, personnel slots, buildings, etc.) than with

defense outputs (mission capabilities or strategic

goals). The inputs are easier to count and to control,

and unlike defense mission capabilities they permit

comparisons to other programs across the entire

Federal Government. However, they also focus

congressional attention on funding for individual

program elements, whereas many argue that a more

appropriate role for Congress would be a high-level

strategic review,

Multiyear Budgeting-Lengthening the budget

cycle would provide a longer planning horizon and

require less frequent congressional review. Congressional oversight would be directed more towards

strategic guidance and away from individual line

items, offering the hope that programs could enjoy

greater stability. Although there are constitutional

restrictions on appropriations longer than 2 years for

certain military purposes, legislative and executive

procedures could be changed to permit budgeting in

2-year intervals, and program authorizations could

be even longer-term. However, this approach has

limits, because absolute program stability is fundamentally incompatible with holding elected officials

accountable at periodic intervals for their actions.

Every time an elected official is replaced, there

is—and must be—the opportunity for the new

official to change the way things have been done.

Although biennial budgeting was attempted for

DoD for fiscal years 1988 and 1989, no funds were

appropriated for 1989 during the 1988 budget cycle.

One effect that the experiment did have, however,

was to give Congress more visibility into out-year

plans of DoD than it had previously had. In

particular, for the 1990-1991 budget submission,

Congress will for the first time be given access to

DoD’s Five Year Defense Plan. Although some

might fear that this visibility would simply give

Congress that much more opportunity to meddle, it

is also plausible that improving the communication

between Congress and DoD in this manner can help

give Congress the confidence in DoD planning that

is needed before Congress can relax its level of

oversight and micromanagement. It extends the

planning horizon, enabling both Congress and DoD

to take a longer view.

45 LJ.s. (icneralkcoumjng Office, “MajorAequisitions: Summwy of RcwrringProblcmsand Systemic Issues 1960- 1987,” GAO/NSIAD-88- 135BR,

September 1988, p. 10. (See also the previous section of this ch~pter on ‘ ‘Affordability.”)
150 ● Holding the Edge: Maintaining the Defense Technology Base

Baselining--A “baseline” is an internal contract

between a military program manager and the senior

management of his or her Service concerning the

cost, schedule, and performance milestones for a

new weapon system program, Since changes to the

baseline require equally high level review, formalizing a baseline represents an attempt to reduce the

amount of change that programs undergo within

DoD. In practice, however, baselining requires that

the program manager have the authority to reject

changes to his or her program that are imposed from

sources outside the program. Granting this degree of

authority is extremely difficult within the present

DoD environment. For example, although specified

in a program’s baseline, one of the most important

program parameters, its budget, is in the final

analysis established externally. Moreover, it is often

changed annually by the Congress. Fully realizing

the benefits of program baselining requires extending it, or some equivalent, to Congress. It also

requires providing program managers or their superiors sufficient authority to resist or accommodate

changes imposed by other DoD organizations, such

as testing and evaluation offices. Changes of this

scope would go against recent congressional initiatives that strengthen independent auditing and evaluation functions within DoD.

Increasing Management Flexibility-Another

way to reduce the variability of DoD programs is to

increase the Defense Department’s ability to adjust

to changing circumstances without requesting congressional approval, DoD's ability to accommodate

changes—whether imposed by Congress or resulting from changing threats or unanticipated technological difficulties-is also limited by the absence of

reserve funds. Unless a means is available for

addressing unforeseen problems quickly, it is often

impossible to meet expected costs and maintain

schedules.

Although no individual program’s requirement

for such reserves can be predicted, the amount likely

to be needed by a group of programs can be

statistically estimated in aggregate. However, the

intense competition for funds within DoD and the

degree of scrutiny applied to defense budgets by

Congress both mitigate against providing reserves.

Indeed, in an environment where there are already

far more claims on defense dollars than there are

available funds, there is every incentive to underestimate the costs of programs when Service budgets are

prepared. So even if contingency reserves are

initially provided for, they are one of the first items

to be trimmed. And were management reserves

somehow to survive DoD’s internal budget preparation process, they would probably not fare well on

Capitol Hill, where they—referred to as “slush

funds’’—are usually eliminated to protect the taxpayer from waste, fraud, and abuse.

Members of Congress, on the other hand, can

point to instances where they believe DoD has used

internal fund transfers to evade congressional restriction or to protect programs that Congress has

sought to delay or cancel. Providing DoD with

management reserves and raising the thresholds for

internal funding transfers will therefore require

establishing a relationship of greater credibility and

trust between DoD and Congress.

Personnel Turnover—Another contributor to program variability is turnover in acquisition personnel.

Although typical defense programs have lifetimes

measured in decades, the average tenure of defense

program managers surveyed by GAO in 1986 was

less than 21/z years. Such short tenures make it

difficult to increase the authority of program managers, because they hinder any attempt to assign

accountability. Moreover, short tenures can generate

pressures to sacrifice long-term quality for shortterm results. (See the section on ‘‘Acquisition

Personnel” below.)

Requirements Generation and

Resource Allocation

Weapons systems are procured by “buying

commands” within the military Services that are not

directly tied to the Commanders in Chief (CINCs) of

the operational forces, who (or, more often, whose

successors) would have to use those systems in

combat.46 As a result, many studies have found that

the operational users are not sufficiently involved in

the acquisition process, including the establishment

46For operational Puvoscs, [he Arrncd Forces are org~i~cd into military commands that report through hC chairman of lhc Joint Chiefs of Staff ~d

the Sccrctary of Defense to the President. The military Scrviccs thcmsclvcs, each headed by a civilian Sccrctary, arc responsible for training and equipping

military forces, but not for commanding them operationally.
Chapter 8-Lab to Field: Why So Long? ● 151

of the military requirements that initiate new acquisition programs. Furthermore, requirements, when

established, tend to be observed rigidly rather than

being reexamined in light of new circumstances

such as schedule and cost overruns. While changing

the requirements too frequently does exacerbate

program variability, as described above, unwillingness to make changes in light of changing circumstances can force cost, schedule, and complexity

upwards.

Requirements tend to be overstated due to

insufficient interaction between those who know

what is needed and those who know how to provide

it. Further pressure for exaggerating military requirements stems from the process by which DoD

decides to develop new systems. This process is

conducted essentially in two stages. Once a military

requirement has been established, funds to meet that

requirement must be found in a highly competitive

and political environment involving the military

Service, OSD, the Office of Management and

Budget, and Congress. After funds are reserved, a

second stage of competition selects the actual

supplier.

The funding competition imposes great pressure

to over promise capability while underestimating

cost; there are few incentives to enforce realism.

Specific designs cannot be offered at this stage

because they would interfere with the ensuing source

selection competition. Program managers, who

should be in the best position to weigh the military

requirements for a system against the technological

prospects for satisfying those requirements, are

generally brought into the acquisition process too

late to have a significant impact on requirements

generation. It also appears that they are too seldom

able to modify requirements in response to subsequent events.

A recent study aimed at monitoring the reorganization of DoD, which drew upon the Packard

Commission’s recommendations and the GoldwaterNichols Defense Reorganization Act, noted progress

in enabling trade-offs to be made between requirements, cost, and schedule and in taking affordability

more seriously. “The organizations and procedures

that could make possible such a change [in acquisition procedures] have been set up,” the study

concluded, but “their effective operation will require continued high-level attention.”47

Bureaucratic Paralysis

Causes and Effects—A constant complaint of

those involved throughout the defense acquisition

process concerns the increasing bureaucratic burden

they must struggle through in order to do their jobs.

This bureaucracy manifests itself in multiple levels

of approval, the diffusion of responsibility and

authority, the lack of individual accountability, and

the profusion of auditors, inspectors, specifications,

and regulations. It is blamed for causing excessive

delay, stifling innovation, suppressing initiative, and

increasing costs.

Although these perceptions are widespread, they

are difficult to validate objectively. Analysis attempting to quantify trends in regulatory activity

found some indicators that showed increases and

others that did not. The effects of governmental

bureaucracy and regulation are even harder to

measure than the trends in regulatory activity, given

the absence of a standard for comparison. Although

private sector activities are often held out as models

for defense acquisition, it is not clear how relevant

they are to government operations (see sections on

“Comparison With the Private Sector” and “Efficiency v. Effectiveness” above). Therefore, the

usefulness of studies measuring how much lengthier

or more expensive government programs are than

‘‘equivalent” private sector ones is limited. Given

all the uncertainties and difficulties of estimating the

cost penalty imposed on defense acquisition by

existing defense acquisition regulations, it is not

surprising that such estimates are widely divergent.

They range from a few percent to more than 50

percent.

A simple model of the cost of excessive

regulation is shown in figure 9. With minimal

regulation or oversight, the government is dependent

upon the goodwill of contractors and public officials. Honest officials and corporations could operate very efficiently in this regime, but dishonest ones

would take advantage of the lack of oversight to

defraud the government. At the other end of the

dTH~o]d Brown and Jamcs Schlesinger, co-chairmen, ‘‘ M,aking Dcfcn.sc Reform Work: The Project on Monitoring Defense Reorganization.” a joint

project of the Johns Hopkins Foreign Policy Institute and the Center for Strategic and lnterna[ional Studies, Washington DC, November 1988, p. 49.

95-677 - 89 - 6
152 ● Holding the Edge: Maintaining the Defense Technology Base

spectrum, tight regulatory controls deter or detect

those defrauding the government, but they also drive

up the cost of doing business for everyone else.

Much of the political debate concerning “waste,

fraud, and abuse” concerns where on this curve the

defense procurement system lies. Analyses of defense procurement consistently indicate that the

system lies somewhere on the side of excessive

regulation, at least in terms of strictly economic

considerations. However, the public—to which Congress responds very effectively—may well believe

that the system is not yet regulated enough, especially in the wake of recent reports of procurement

scandals and defense contractor fraud. It may be that

the costs of imposing stricter controls are not well

understood by the public, and that if these costs were

more widely recognized, calls for additional regulation would be moderated. However, it is also

conceivable that the American taxpayer prefers to

pay the high costs of overregulation rather than

permit even lesser amounts of public money to go

unearned into someone’s pocket. If public demands

for overregulation can be thought of as a source of

avoidable waste, then perhaps some waste must be

considered the price of curbing fraud and abuse.

Some argue that the present approach of legislating strict oversight and accountability requirements

has the effect of penalizing everyone in defense

acquisition instead of just those individuals who are

truly guilty of violations of ethics or law. One

alternative system, according to this line of reasoning, would be one in which people are trusted to be

capable of doing their jobs without intrusive oversight and indeed are allowed to do so. However,

those found guilty of violating this trust would be

punished severely. While the relaxed oversight

might reduce the probability of detecting illegal or

unethical activities, those actions could nevertheless

be deterred by the increased severity of the punishment if caught. This approach would replace the

current adversarial relationship between government and industry with a more collaborative one.

Reducing Paperwork and Bureaucracy— Measures to cut red tape or streamline the bureaucracy

will fail unless they take into account the reasons

why the bureaucracy was initially established. ReguFigure 9-Cost v. Regulatory Intensity

Cost rises due

Cost rises due to bureaucratic

to fraud inefficiency 

Degree of regulation

SOURCE: Office of Technology Assessment, 1989.

lations and guidelines are a means of preserving

institutional memory in an environment where

presidential appointees have a median length of

service of just over 2 years48 and where military

personnel are regularly rotated. They incorporate the

political oversight and review procedures that come

with the expenditure of public funds. They codify

management procedures for large and unwieldy

organizations. Finally, regulations and guidelines

further important policy objectives that may be

in the nation’s or DoD’s collective best interest

even though they might interfere with the most

efficient execution of individual programs. As has

been stated before, the government has many

goals—environmental protection, occupational

health and safety, fair labor practices, equal opportunity, etc.—that may conflict with any individual

program manager’s ability to run a program efficiently. Just because a program manager does not

believe his or her program should be the vehicle to

implement national policy does not mean that that

policy should be ignored. Although regulations have

A~Natj~al Academy of Public Administration, ‘‘Leadership in Jeopardy,’” November 1985, p. 4. (This figure applies to the entire Federal

Government.)
Chapter 8--Lab to Field: Why So Long? ● 153

been criticized as attempts to solve yesterday’s

problems by impeding today’s progress, those problems are certain to reappear in the absence of some

means of institutionalizing the lessons learned. In

other words, much of the bureaucracy and

regulation surrounding defense acquisition has

resulted from the political environment—

reflected in public opinion and in legislation—

within which defense acquisition is done.

Studies such as that of the Packard Commission

have recommended changes in the DoD bureaucracy

that would have the effect of delegating authority to

lower levels. Program managers and their immediate

superiors would be freer to do their jobs, and the

advocates for interests such as competition, small

business, equal opportunity, testing and evaluation,

etc., would be relegated to advisory roles. In

particular, the Packard Commission recommended

setting up a streamlined acquisition chain of command in which program managers would report

through no more than two levels of command to the

senior procurement executive in DoD (the Under

Secretary for Acquisition). Much of this structure

has now been established. However, the new

structure supplements-and does not replace—

the existing chains of authority and command.

According to the study monitoring implementation

of the Packard Commission recommendations:

. . . the purposes of the legislation [implementing

some of the recommendations] have not been met.

Our sense is that the new positions were simply

superimposed on top of the existing structure.49

The new acquisition chain is at present a communications link, and does not control funds. Truly

implementing the Packard Commission’s recommendations would require substantial changes in the

operation of DoD.

The Packard Commission and other studies held

out certain programs within DoD-in particular,

highly classified “special access” or “black”

programs

50 and high-priority strategic programs—as

models that have successfully conquered the DoD

bureaucracy. Special access programs, due to extreme security requirements, bypass much of the

review, approval, and bureaucracy that ordinary

programs must contend with. However, those same

security constraints make these programs difficult to

analyze in general.

Some officials with extensive experience in both

special access and ordinary program management

say that the approaches used in the special access

world enable equipment to be fielded much more

quickly, and at lower cost, than do standard acquisition programs. Other officials say that the high

priority, high-level review, and high-quality staffs of

special access programs, more than their management techniques, are responsible for their success.

Moreover, they point out that bypassing checks and

reviews—although sometimes necessary in the name

of security-adds considerable risk. While some say

that extension of special access contracting procedures would improve acquisition, others say it could

not provide a general solution.

A number of different approaches can be taken to

reduce bureaucracy and regulation within DoD.

Implementing any of them, however, presumes an

atmosphere of trust among DoD, the rest of the

executive branch, and Congress; many reforms

require the same degree of trust to hold between

DoD and the defense industry,

Major Legislative and Administrative ReformOne approach would be to replace the existing

statutory and administrative framework, in which

fraud and abuse are deterred by extensive reporting

and auditing requirements, with one in which greater

responsibility is placed on voluntary compliance

coupled with vigorous enforcement and severe

punishment for those who get caught breaking a law.

Enacting such a system would involve a major

overhaul of the existing defense acquisition system

and the environment in which it operates. Moreover,

it would require (and also follow from) reducing

what many in government and industry see as the

existing adversarial relationship between the two.

Bottom-Up Review The opposite approach is to

start with the present system but examine each

regulation, directive, and specification to ensure that

@“ M~ing Defense Reform Work: The Projwt on Monitoring Defense Reorganization, ” op. cit., fOOtllOte 47, p. 50.

s~echnically, DOD does not ~= the tem L‘b]ack”progm$A‘‘specia] access program” is onc in which additionat restrictions beyond hose available

through the normal Confidential-Secret-Top Secret classification system are deemed required. The budgets and existence of such programs mayor may

not bc classified. “Black” programs generally refer to those whose existence is kcpl secret.
154 . Holding the Edge: Maintaining the Defense Technology Base

it is still relevant and appropriate. Such a task would

be a mammoth undertaking. Moreover, those with

the time to review the regulations would most likely

not be the ones adversely affected by them, and it is

unlikely that this approach would effect significant

change.

Evolutionary Review-Another approach, which

is being implemented in a number of DoD activities,

is to establish a mechanism by which those adversely affected by a regulation can petition for its

waiver, with all such petitions examined to see

which regulations should be waived or modified

across the board.

Those affected by a regulation can already seek

its waiver from the issuing authority without any

special program. However, DoD programs such as

the Pilot Contracting Activities Program and the

Model Installations Program have been established

to provide waivers in a more systematic way.

Requests for waivers are tabulated to identify those

regulations that seem to provide the greatest barriers.

If approved, waivers are evaluated on an experimental basis to see if they should be made permanent or

even extended DoD-wide. These programs at present cannot waive regulations imposed externally on

DoD (by legislation, for example). However, they

can identify those external regulations and laws that

participants find to be particularly onerous, and the

DoD can then propose legislation or regulatory

reform at higher levels to ameliorate the problem.

One drawback to this approach, from the point of

view of those seeking major reform, is that it is an

evolutionary process. Another problem is that in at

least some cases, individuals having to put up with

obsolete, ineffective, or inapplicable regulations

have found it far easier to ignore them than to

petition for their waiver.

Shifting the ‘ ‘Burden of Proof ‘—In this approach,

the “burden of proof” is shifted from those seeking

to waive regulations to those seeking to enforce

them against the objections of the program manager.

Essentially, it consists of pre-delegating waiver

authority all the way down to the program manager,

who could decide which regulations are appropriate.

The “special interests” and “advocates” would

still exist and would still be free to make recommendations to the program manager. However, the

program manager would be free to disregard their

advice, unless they were able to persuade the

program manager’s superiors. To the extent that

regulations are simply being ignored today, as

described in the preceding paragraph, this approach

is in essence being taken now—without official

sanction.

Such a system could only work if program

managers and their superiors were evaluated not

only on how well individual programs fared but also

on how well the programs, on balance, supported the

intent of the regulations—which, after all, serve to

incorporate DoD and national policies that senior

policymakers have decided are important. Program

managers would have to realize that their goal is not

simply development and deployment of a weapon

system but furthering national policy as well.

True implementation of this approach would also

require congressional action to relax statutory constraints, since those could not be waived by program

managers. Moreover, the problem of identifying the

essential core of laws and regulations that would

remain mandatory-ineligible for waiver at the

program manager’s discretion—re-creates the original problem. If it were easy to identify the irreducible core of regulations and laws in the first place,

this approach would not be necessary.

Organization of the Defense Acquisition System

So far this chapter has discussed acquisition

procedures within the existing organization, in

which OSD establishes policy and participates in

milestone reviews for major programs, but acquisition is executed (and for programs other than the

major ones, reviewed) by the Services. However,

there are other organizational models, ranging from

giving the USD(A) the acquisition authority that

presently rests within the Services all the way to

creating a civilian acquisition agency outside DoD.

Most studies of defense acquisition argue that the

military Services must have primary responsibility

for acquisition to ensure that the needs of the

operational user are met. However, some civilian

analysts argue that much of what goes on in

managing acquisition programs does not require,

and may not even be greatly aided by, military

control. They argue that the professional, stable, and

highly trained acquisition work force needed to

implement procurement reform can be created only
Chapter 8-Lab to Field: Why So Long? . 155

in the context of a civilian acquisition agency. Even

so, few proponents of a civilian agency call for it to

be outside DoD; most believe that the Secretary of

Defense must be responsible for national resources

devoted to defense.

Although a study of European nations that use

centralized procurement systems might illuminate

the successes or failures of such a plan, there are

significant factors that make such an analysis

difficult. One important difference is that European

defense programs are small compared to that of the

United States. There are other differences, too:

European military services do not dominate acquisition, European defense plans are done on a multiyear

basis, the legislatures make minimal changes to

annual defense procurement budgets, the government imposes minimal “how-to” requirements on

the defense industry, and industrial policy is a major

consideration in defense contracting.

One compromise position, adopted by the study

group that examined the implementation of the

Packard Commission recommendations, would be

to encourage each of the Services to create a

specialized “acquisition corps, ” but to consider

creating an independent acquisition organization

under the USD(A) in the event that the Services

balk. 51 Although the study stated a preference for

leaving acquisition authority with the Services, it

went on to conclude that ‘‘radical steps, such as the

establishment of a single procurement organization

within the Department, should not permanently be

ruled out. “52

Acquisition Personnel

Improving defense acquisition depends on a

high-quality, stable, and well-trained acquisition

workforce. In a letter to President Reagan one year

after the publication of the Packard Commission

report, David Packard stated that:

Personnel policy is the keystone of virtually all of

these reforms. With able people operating them,

even second-rate organizational structures and procedures can be made to work; and without able

people, even first-rate ones will fail.53

Improvements recommended by the Packard Commission included reducing the barriers to recruiting

senior-level executive branch personnel,54 attracting

qualified new personnel and improving the training

and motivation of existing personnel at the middle

management levels, and continuing the recent improvements in defining military career paths in

acquisition, Members of the Commission thought

that civilian acquisition personnel needed much

more attention than military personnel, and their

report cited many of the deficiencies of the federal

Civil Service system that are described in the context

of national laboratory personnel in chapter 5.

As was noted in the previous section, the ‘Project

on Monitoring Defense Reorganization” recommended establishing within each of the military

Services a professional ‘‘acquisition corps. ” Within

these corps, military officers who wished to specialize in acquisition would be able to pursue a career

path that did not constantly rotate them out of

acquisition billets. They would also receive the

training necessary to do their jobs and compensation

comparable to their private sector peers. Officers

with operational experience would still be assigned

to acquisition jobs, but in fewer numbers than now.

Although the Services have long resisted establishing such corps, the study concluded that the increased professionalism that this approach would

bring is essential for effective and efficient acquisition .

5 5

All proposals for reforming acquisition personnel

policy run into conflicts among competing objectives. Creating a military acquisition corps could

improve acquisition but it would also create a

military career path unlike any that the Services now

believe to be appropriate. Making fundamental

reforms to Civil Service procedures—or even exempting significant groups from them—would pose

51‘ * M&ing ~fense Ref~rm Work: ne project on Monitoring Defcmsc Reorganization,” op. C1l., fOOmOte 47, p. 59.

521 bid., p. 51.

sJDavid packard, letter to the president of the United States, July lo, 1987; cited by J. Ronald Fox and James L. Field, The Defense ~aW?ement

Challenge: Weapons Acquisition (Boston, MA: Harvard Business School Press, 1988), p. 315.

sqAnlong tic changes specified Were slmp]ifylng finan~ia] di,sclosurc forms and allowing appointees 10 defer capital gains tax liability incurredin

divesting assets so as to satisfy conflict-of-interest provisions.

55’ ‘M&ing ~fensc Rcfom Work: me project on Monitoring ~fcnsc Rcorg~ni~ation, ” op. cit., ~“oomotc 47, p. 59.
156 ● Holding the Edge: Maintaining the Defense Technology Base

substantial political difficulties. Federal employees

already feel as if they have 240 million supervisors,

and it sometimes appears, at least while reading

“Letters to the Editor” columns whenever civilian

pay raises are debated in Congress, that there is

nothing so despised as a civil servant. Proposals that

would increase compensation or other benefits of

Federal employment in an effort to attract more

senior and more highly qualified employees would

be seen by many as adding slots to the Federal

trough.

Conflict-of-interest regulations provide a case in

point. Many individuals with experience in defense

acquisition argue that ‘‘revolving door” legislation

that erects barriers to the interchange of individuals

between government and industry prevents skilled

individuals with hands-on technical or managerial

experience in the industrial world from contributing

their skills to DoD. On the other hand, a significant

segment of public opinion—shared by a significant

segment of Congress—sees the interchange of

individuals between government and industry as

providing inherent conflicts of interest. The political

reconciliation of these two points of view will be

difficult.

Policy Options

Trade-offs, inefficiencies and problems in the

defense acquisition system stem from a wide variety

of interrelated causes. Some of them are due to

structural limitations of the United States Constitution and our resulting political system. Others result

from the relationship between the Congress and

DoD, and would be amenable to congressional

action or clarification. Many problems arise from

conscious choices that have been made to emphasize

some national goals over others, choices that could

be reversed if the political mood of the nation were

to shift. And still others are unintended consequences of aggregating many individual actions,

each of which may be widely accepted.

Solutions almost always involve trade-offs.

Should the government relax its controls over

industrial performance, or should they be strengthened? One point of view is that of the Packard

Commission, which believed that although major

improvements were essential, “self-governance is

the most promising mechanism to foster improved

contract compliance. ”56 Quite a different viewpoint

is provided by the Project on Military Procurement,

which argued that “as expensive as it is to hire

legions of auditors, it is even more expensive to

allow contractors to continue to steal and goof

off. ”57 Although this picture of contractor behavior

is not supported by analyses of defense procurement—

which generally find that fraud, while certainly

present to some extent, does not consume a significant fraction of the defense budget—it does represent the attitude of a substantial fraction of taxpayers

and therefore of Congress.58 Regardless of its merit,

reformers of the defense acquisition system ignore

this public sentiment at their peril.

Has the overhead that comes with government

procurement (viz., accountability trails and socioeconomic goals) impeded defense procurement so

badly that we should be willing to trade off these

goals to obtain a more efficient system? Is the risk of

a visible and, in hindsight, preventable failure worse

than the risk of quashing individual initiative by

imposing regulations? Are we willing to assign

individual accountability and responsibility, knowing that the price of allowing star performers to excel

is the risk that incompetent and even criminal

actions may take place as well? What are the costs

of delaying a military capability v. the benefits of

delaying an expenditure? These are difficult but

crucial questions.

Incentives

The best, and possibly the only, solutions to

acquisition problems involve changing the incentive

structure facing people and organizations, rather

than imposing additional regulations. The present

sb~esiden~’s Blue Ribbon Commission on Defense Management, op. cit., footnote 15. P. 84.

57D~a Rasor, et d. Defense procurement Papers: Campaign ’88 (Washington, DC: Project on Military procurement, September 1988), P. 45.

58A public opinion smey of 1,500” Americ~s t~en for tie pa~k~d C(Jnlmi\~ion fo~d that the public believes $45 of each $100” in thc defense budget

goes to wrote (poor management) and fraud (illegal activities), with that $45 about evenly split between the two. Money lost through waste and fraud

is thought to end up primarily in defense contractors and individuals’ pockets. See Appendix L, “U.S. National Survey: Public Atti[udcs on Defense

Management,” prepared by Market Opinion Research; in A Questjor Exce//ence: Appendix, Final Report by the Prcsidcm Blue Ribbon Commission

on Defense Management, Exccutivc Office of the White House, Washington, DC, June 1986, pp. 217, 219.
Chapter 8--Lab to Field: Why So Long? ● 157

acquisition system offers incentives, according to J.

Ronald Fox and James Fields, but these often act the

wrong way. They argue that no lasting improvement

is likely unless an appropriate system of incentives

and disincentives is formulated and enforced:

Unless changes are made in the contractor source

selection process, which makes optimistically low

cost estimates a significant advantage in competing

for a contract, it is useless to discuss realistic

contractor proposals. The source selection process

must give far more weight to realistic cost estimates

and the contractor’s record of past performance.

Unless changes are made in the current profit

system that demands higher costs as a prerequisite

for higher profits, it is futile to expect lower costs.

Because profits are largely based on cost, there is

little economic motivation for contractors to reduce

direct or indirect costs. The profit system needs a

major overhaul to relate profits more to contract

performance than to the level of costs.

Unless changes are made in the current military

personnel system that makes short-term assignments

necessary for military officers to acquire the number

and variety of assignments required for promotion,

any significant reduction in personnel turnover in

defense program offices is unlikely.

Unless changes are made in the current OSD and

congressional practice of routinely accepting program stretch-outs as a tactic for funding new

programs, it is unrealistic to advocate economical

production rates.

Unless changes are made in the current DoD

practice of waiving training requirements and offering only short training courses, which limit coverage

to introductory rather than in-depth treatment of

important subjects, it is unrealistic to expect improved training for acquisition managers.

Unless changes are made in military careers that

currently provide few opportunities beyond age 45

or 50, it is unrealistic to expect military officers not

to seek a second career in the defense industry. In

addressing this problem, DoD needs to listen to

lieutenant colonels and colonels and Navy commanders and captains to learn their views on the

advantages and disadvantages of the acquisition

career field.

Without genuine promotion opportunities for

those who make the difficult decisions associated

with successful negotiating and wise buying, it is

unrealistic to expect to retain in government service

experienced program managers able to do much

more than promote their programs, prepare progress

reports, and conduct briefings.59

Approaches

Although there are innumerable specific changes

that could be made to the way defense acquisition is

done, the discussion in this chapter suggests that

many policy choices concerning defense acquisition

fundamentally rest on where the balance is established between efficient defense acquisition, on the

one hand, and furthering national goals such as

fairness and accountability, on the other. Four

alternate approaches, each establishing this balance

in a different way, are presented below. In Approach

1, the balance is tilted sharply towards efficient

acquisition. Approach 2 has the same objectives as

Approach 1 but pursues them in a more gradual

manner. Approach 3, ratifies the present choice of

that balance, and Approach 4 takes the position that

non-defense-related national objectives should be

emphasized even more than they are today.

Approach 1: Enact major structural and

legislative reforms of the environment within

which defense acquisition takes place, emphasizing

efficient procurement over other national goals.

Selecting this approach would represent a conclusion that the existing procurement system places too

much emphasis on non-procurement-related objectives. Many laws and regulations mandating, for

example, procedures for competitive bid solicitation

and award, barriers to conflict of interest, and the

promotion of minority-owned and small business,

would have to be reviewed and revised to give

individual contracting officers and program managers greater authority to do as they see fit for the good

of their programs. They would be less involved with

justifying every action, establishing audit trails,

complying with accounting standards, and fostering

full and open competition. Instead, the system would

rely more on individual responsibility, which would

have to be measured both by the success of the

programs and by the necessarily subjective evaluation of their manager’s superiors as to how well

S9J. Ronald FOX Wd J~cs L. Field, op. cit., fOOmOte 53, pp. S 1~-319.
158 ● Holding the Edge: Maintaining the Defense Technology Base

they protected the public trust.60 Careful study

would be needed to arrive at a new balance between

acquisition and these other goals. Successful accomplishment of this approach would also require some

degree of societal consensus, and the continuing

cooperation of Congress, so that the balance between procurement and these other goals would not

be reexamined every budget cycle.

Approach 2: Preserve the basic structure of

the defense acquisition system, but pursue evolutionary changes that would emphasize efficient

acquisition over other goals.

This approach is similar in underlying intent to

the preceding one, but would not try to do everything

at once. To the extent that individual regulations,

laws, policies, or procedures could be shown to

impede acquisition efficiency, the regulation, law,

etc., could be individually evaluated to see what

would be lost if it were changed. By proceeding at

a much more measured pace than the previous

approach, some would argue that it has a much better

chance of being implemented and would pose less

risk On the other hand, those totally dissatisfied

with the present acquisition system would probably

find anything less than a total overhaul insufficient.

Approach 3: Decide that the current balance

between efficient acquisition and other national

goals is more or less appropriate, and in so doing

recognize that acquisition will not be as efficient

or as effective as it would be if it were conducted

in isolation from those other goals.

This approach, too, would seek evolutionary

improvement to the acquisition system when specific impediments could be identified. However, it

would not presume that, given a conflict between

acquisition and other values, acquisition should

necessarily win. Selecting this approach essentially

codifies the status quo--it would be assumed that

the environment surrounding the acquisition process

is shaped by a compromise between competing

interests and has led to the creation of a system that

perhaps pleases no one, but is preferable to any

significant alternative.

Approach 4: Extend regulation and oversight

of the defense acquisition system under the

premise that it is not yet sufficiently responsive to

national needs.

Those who see recent press accounts of procurement improprieties and contractor fraud as indicating a lack of supervision and oversight would

recommend an approach diametrically opposed to

those discussed above. instead of favoring acquisition efficiency over other objectives, they would

seek changes—such as more stringent accounting

requirements and conflict-of-interest standards—

that would have the effect of increasing the bureaucratic overhead of the acquisition process. Proponents of this approach argue that more stringent

regulation would save taxpayers funds on net—i.e.,

that although the extra controls might cost money to

establish, they would prevent an even greater

amount of fraud and abuse, or that the price of the

further standards is worth paying to ensure public

confidence in the acquisition process.

~hisIattercriterion is not easy to memure. Is it good enough for a contracting officer to consistently award contracts to companies who do good work?

What if he or she then retires to lake a high-paying job with one of the companies that he or she had favored? What if another company, which had rea..on

to believe that it could have done a job better or cheaper or both, was not allowed to bid’! In both these cases, the appearance that the most efficient use

of taxpayer funds may not have been made must be considcrcd, even il” the reality is that the product obtained was as good as any.
Chapter 9

Civilian Technology and

Military Security
Page

MILITARY ACCESS TO CIVILIAN TECHNOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161

HEALTH OF THE DUAL-USE INDUSTRIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

Fiber Optics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165

Polymer Matrix Composites . . . +. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167

CONVERGENCE OF MILITARY AND CIVILIAN TECHNOLOGIES . . . . . . . . . . . . 168

Fiber Optics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Polymer Matrix Composites . . . . . . . . . . . . . . . . . . . . . . . . . . .

BARRIERS BETWEEN THE CIVILIAN AND MILITARY

Fiber Optics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Polymer Matrix Composites . . . . . . . . . . . . . . . . . . . . . . . . . . .

SUMMARY OF CASE STUDIES . . . . . . . . . . . . . . . . . . . . . . . .

FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Overall Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Findings Relevant to the Department of Defense . +.. . . . . .

Findings Relevant to the Defense Industrial Sector .....,.

Findings Relevant to Congress . . . . . . . . . . . . . . . . . . . . . . . . .

Findings Relevant to Civilian Industry . . . + . . . . . . . . . . . . . .

POLICY CONSIDERATIONS FOR CONGRESS . . . . . ..+ ,

Military Dependence on Foreign Technology ., ...., ... , .

Institutional and Administrative Barriers . . . . . . . . . . . . . . . .

Figure

10. Military Dependence

11. Military Dependence

on

on

Foreign

Foreign

Industry-Ownershi

Technology Located

. . . . , .........,,........, . 177

. . . . . . . . . . . . . . . . . . . . . . . . 178

. . . . . . . . . . . . . . . . . . . . . . . . 178

. . . . . . . . . . . . . . . . . . . . . . . 178

. . . . . . . . . . ... . . . . . . . . . 183

‘in Foreign Countries . . .. 182
Chapter 9

Civilian Technology and Military Security

MILITARY ACCESS TO CIVILIAN

TECHNOLOGY

This assessment was prompted by a concern on

the part of the Congress that the defense technology

base might be eroding in the United States. As a

result, the Armed Services might be unable to retain

a technological advantage over the Soviet Union and

other possible adversaries in the future. This concern

is closely related to two observations. First, certain

high-technology industries-such as semiconductors and numerically controlled machine tools—

have lost domestic market share to foreign competition. Some appear to have entered a cycle of

decreased capitalization, weakened innovation, further loss of market share, and eventual loss of

leading-edge capabilities, in both design and process

technologies. As a result, U.S. military dependence

on foreign civilian technology is increasing. The

second observation is that the U.S. military appears

less and less able to acquire the leading-edge

technology that does exist. Such technologies may

be available in the civilian sector of the domestic

economy, but they are somehow beyond the reach of

the Department of Defense (DoD).

Because of these concerns, OTA conducted policyoriented case studies of three dual-use1 technologies—

fiber optics, software, and advanced polymer matrix

composites (PMCs)—to assess the availability of

civilian technology for military purposes and to

analyze difficulties in the transition of technology

between the civilian and military sectors of the U.S.

economy. The case studies avoid extended technical

description in favor of policy-relevant analysis of

major issues confronting these high technology

industries. For each case, the inquiry has addressed

three central questions: 1) Are civilian hightechnology industries (those critical to the military) eroding in the United States? 2) Do military

technologies and their applications diverge significantly from their counterparts in the civilian

sector of the economy? 3) What are the principal

barriers, both technical and institutional, that

inhibit military access to civilian technology and

vice versa? Each of these questions requires some

amplification.

The rationale for the first question depends on the

extent and nature of military dependence on civilian

technology, both domestic and foreign. If it is

possible and desirable for the defense industrial

sector to develop and produce all technologies

necessary for the Services, then the competitiveness

of the civilian sector of the economy, while important for other reasons, would not be related to

national security considerations, But if the defense

industrial sector relies to any substantial extent on

research and development (R&D), innovation, and

production conducted in the civilian sector, then loss

of commercial competitiveness in industries that

develop technologies that are pervasive or enabling

for military systems would have serious policy

implications. A recent report on defense industrial

competitiveness by the Under Secretary of Defense

for Acquisition took this position.2 It was also the

primary concern of the Defense Science Board

(DSB) when it recommended an industrial policy,

which amounted to a strategy for economic defense

of the domestic semiconductor industry.3 In the case

of semiconductors, the DSB argued in its report that

eroding domestic capacity seriously jeopardizes our

ability to build and field major weapons systems—

unless the United States is willing to depend on

foreign firms for strategically important technologies, materials, and devices in the future.

I ]n this chapter the term ‘‘dua]-u~” refers to technologiestha[ can have multiple, significant applications to military systems, ~d that can bc employcd

extensively in civilian industry as well.

z’ ‘As a nation and as a continent, we no longer are total]y sc]f+ufficicn[ in all essential materials or industries required to maintain a strOng national

dcfcnsc . . . . Clearly, the Department of Defense cannot provide massive financial assistance for every American industry characterized by a lack of

International competitiveness, nor can we effectively prowdc incentives Ii)r every manufacturing industry critical to our dcfcnsc. ” (Department of

Dcfcrwe, ‘‘ Bolstering Defense Industrial Competitiveness, ” Report to the !$wrctar-y of Defense by the Under Sccrctary of Defense for Acquisition, July

1988, p. v.)

~Dcfensc Scicncc Board, “Rcpo~ of wc Defense Science Board Task Force on D“efense Semiconductor Dependency, ” prepared for lhc Office of the

Under Sccrctary of” Defense for Acquisition, February 1987.

–161–
162 ● Holding the Edge: Maintaining the Defense Technology Base

These concerns have equally significant implications for emerging and fast-moving, hightechnology industries such as fiber optics, software,

and advanced composites. There is substantial

evidence and widespread agreement among experts,

for example, that the Japanese government and

industry are already deeply engaged in the process of

funding, researching, planning, and designing marketoriented applications for a wide range of fiber optic

and photonic technologies. By contrast, many American firms appear to be waiting in the wings, biding

their time, hoping for Federal assistance, and unwilling to commit substantial corporate funds for

products that might not reach the market for 10

years. If fiber optic and photonic technologies do

indeed supplant large portions of the consumer

electronics and computer industries-as some analysts argue they will—the implications for the

civilian side of the U.S. economy and its ability to

supply the military will be enormous. For this

reason, the case studies, which are located in a

separate volume of appendies to this report, all

address the question of the health of domestic

industry, specifically analyzing the threat of destructive foreign competition now and in the future.

The purpose of the second question -concerning

divergence and convergence in dual-use technology—

is to make explicit the differences and similarities

between military and civilian technologies and their

various applications. As technological divergence

between the two sectors increases, it becomes more

difficult for the military to draw on the resources of

the civilian sector of the economy. Absolute divergence between military and civilian technologies

would mean that by far the largest portion of the

technology and industrial bases in the United States

and around the world would be unavailable to the

military. This is clearly not the case. Indeed, a basic

strength of the West is that technological innovation

is rooted in society and not in the military. Nevertheless, there is a widespread belief among many

defense planners and technologists that military and

civilian technologies are inherently different, because weapons systems must push the outside

envelope of performance, must be built to sustain

battlefield environments, and are expected to survive up to several decades of readiness and training

missions.

Critics of this position contend that it is possible

to plan for convergence of military and civilian

technologies, even in early development, by harmonizing otherwise divergent standards and specifications. They believe that much divergence is the

result of a military fixation on achieving technical

performance levels that may or may not be decisive

in warfare or desirable from a training and maintenance perspective. They believe that civilian products can be as rugged as those built to military

specification. There are, for example, few environments more hostile than the one under the hood of a

car, where semiconductor devices are hard-mounted

to the engine block.

Many observers agree that in any dual-use industry there will be strong convergence between the

military and civilian technologies themselves, and

potentially significant divergence when it comes to

end-use. Clearly, there are military applications that

will never find expression in civilian life, but at the

same time it appears to be possible to substitute

commercial off-the-shelf (COTS) products for Milspec items4 in some of the most advanced weapons

systems. But the relationship between civilian and

military technologies is far more complex than

arguments about the adoption of finished pieces of

hardware can suggest. It is evident that civilian

technology that could be important to the Armed

Forces will be irrelevant if military officials—from

general officers to program managers—reject suitable civilian parts in favor of items developed under

contract with the government, And it is likely that

Service acquisition managers will continue to resist

civilian technology and components until the incentive system is changed. At present, many managers

avoid new technologies available in the civilian

sector, because the acquisition system forces them to

assume responsibility when such a part or component fails, thereby jeopardizing their careers. Most

prefer to use older technologies, waiting until the

specifications, standards, research, and testing are

complete—and the risk of failure is eliminated or

can be transferred to another program.

4M11sPc itcms MC Ptis (Jr systems fomally specified in the kfy of ~!i]it~ry Spwifications and St~dwds published by the Dep~ment of Defense.
Chapter 9-Civilian Technology and Military Security ● 163

In the sphere of complex, information-intensive

military systems—whether involving weapons or

not—the utility of civilian technology and applications must be addressed case by case. For each of the

cases in this report, an effort was made to analyze the

extent of convergence and divergence of civilian and

military technology, and to explore existing and

potential areas of overlap. The case studies attempt

to sort out the extent to which divergence is

technologically necessary and the extent to which it

is a product of military culture as well as economic

incentives for the contract industries on which the

Services depend.

The final question asked earlier, regarding impediments to military use of civilian technology,

requires an analysis of the barriers to the fluid

exchange of technology between the military and the

civilian economies. When OTA began to investigate

questions of dual-use technology, complementary

complaints surfaced from within DoD and from

civilian sector managers. Military technologists

asserted that while there were many advanced and

desirable technologies in the civil sector, the military encountered difficulties in gaining access to

some of them. In addition, senior defense officials

indicated that some military contractors had diversified into the civilian sector of the economy with the

intention of getting out of the defense business

altogether. These officials cited a need to reduce red

tape and to make doing business with DoD more

stable and predictable. The other side of the complaint—

which first emerged from managers of small, entrepreneurial firms-was that doing business with

the government involved difficult adjustments, including compliance with outdated military specifications, cumbersome auditing and reporting procedures, and possible compromise of proprietary

information. They considered DoD to be a very

difficult customer, often too costly to pursue for

commercial purposes. The bottom line is that DoD

may have to buy advanced technology from companies that do not need, or even particularly want, its

business.

Accordingly, it is important to investigate the

processes by which specific technologies move

between the civilian and military sectors. The

existence of significant barriers-whether technical

or institutional in character-points to severe deficiencies in national security policy. If security rests

to a large extent on the health of the domestic

economy and its ability to produce technology and

materiel for the national defense, then any substantial inability of the military to draw on civilian

technology and industrial resources constitutes a

serious and presumably unnecessary liability. If

civilian high-technology industries erode significantly in the United States, or if the government

loses the ability to exploit the civilian technology

base efficiently, it amounts to the same thing. The

OTA case studies specifically investigate the extent

to which and under what conditions existing barriers

are technical in nature, and the extent to which they

are due to institutional considerations, including

regulatory, legal, and administrative factors.

The focus on the problem of the transition of

technology between the civil and military sectors of

the economy served as a principal criterion for the

selection of the three technology case studies in this

reports Fiber optics is a high-technology industry

that is well-established in the civilian sector, both

domestically and internationally, but which has

lagged significantly in the military sector where it

has numerous potential applications. On the other

hand, advanced polymer matrix composites were

developed in the aerospace industry for military

purposes. They have only begun to find markets in

the civilian sector, even though they could be

employed extensively in the construction, civilian

aerospace, automotive, and medical instrumentation

industries, among others. Finally, software is a case

where the technology is advanced and resident in

both sectors of the economy, but where each sector

still encounters difficulty in drawing on the resources of the other.

sThis chapter employs a rese~ch strategy based on [he method of structured, focused comparison. SCC Alexander L. George, ‘‘Case Studies and

Theory Development: The Method of Structured, Focused Comparison, ” In Paul Gordon Lauren (cd.), Diplomacy. New Approaches in History, Theory,

and Policy (New York, NY: The Free Press, 1979), pp. 54-59. Scc also, Alexander L. George, “Case Sludies and Theory Dcvclopmcnl, ” a paper

presented to the Second Annual Symposium on Information Processing m organi~ations, C’arncgic Mellon University, Oct. 15-16, 1982, pp. 25-34.

~Thc fol]owi[lg ~ree ~ctions present summaries of t.ttc results of each of the cases as [hey apply to the three principal questions addressed in this

chapter. The reader is referred to Appendices D, E, and F in Volume 2 of” this report for more in-depth analysis and documentation.
164 ● Holding the Edge: Maintaining the Defense Technology Base

HEALTH OF THE DUAL-USE

INDUSTRIES

Are civilian high-technology industries, those

that are critical to the military, eroding in the

United States’? The story is somewhat different for

each of the three high-technology industries considered in this study.

Fiber Optics

Over the past decade, the fiber optics industry has

realized tremendous growth, not only in production

and sales, but also in the scope of the technology

itself. It is a vital technology whose future patterns

of development and diffusion have strong economic

as well as military implications. Military planners

recognize the technical superiority of fiber-based

communication systems over those that employ

coaxial cable or twisted copper wires. Many analysts

believe that fiber optic and related photonic technologies will eventually exert an impact on the

world economy comparable to that of the electronics

revolution of the 1970s and 1980s.

The worldwide fiber optics industry is characterized by overcapacity and intense competition, with

many advanced industrial nations already designating fiber optics as an essential national capability.

By 1980, definite patterns had emerged in the way

that OECD7 member governments would respond to

the strong growth potential of fiber optics markets.

In the United States, large, vertically integrated

firms like ITT and AT&T had begun to invest

heavily in fiber optic R&D.8 An early lead in fiber

development was established by Coming Glass

Works, which holds many of the most important

patents in the field. Major cable makers were

targeted for takeover by firms seeking to position

themselves for future fiber optics business that had

not been principally associated with the telecommunications industry.

In contrast to the United States, the Japanese

government pursued a deliberate strategy of sponsoring a domestic industry, insulating home markets

from foreign competition, building up a highly

capable, vertically integrated industry with significant overcapacity, and encouraging export of quality

systems to Europe and the United States. NTT,

MITI, and KDD9 (the Japanese international communications agency) initiated a carefully orchestrated campaign. NTT (then an official government

agency) led the effort, conducting and promoting

fiber optic and optoelectronic research, working

principally with three companies, Sumitomo, Furukawa, and Fujikura. At the same time, KDD set up

a long-term program to develop all aspects of the

technology necessary for submarine fiber optic

systems. And MITI sponsored two substantial research projects, the Hi-OVIS program and the

Optical Measurement and Control System R&D

program. By the mid-1980s, Japanese optoelectronics companies had developed technology on a par

with the best in the world, and had established a

major position in world markets for fiber optic

systems.

European countries generally appeared to take a

middle ground, with the national PTTs (state-run

public telecommunications monopolies) establishing R&D programs (such as BIGFON in West

Germany) and actively seeking to promote the

interests of their domestic industries. In Sweden and

the Netherlands, the private sector appears to have

taken a stronger role. Most European Community

(EC) member states have designated fiber optics as

a critically important technology, and the national

PTTs have tended to favor a few domestic suppliers

of equipment and cable. The PITs provide centralized planning and control of the telephone network

and have supported the introduction of new technology into that network by sponsoring trials and

demonstration projects. The present configuration of

national policies would change dramatically if a

pan-European policy develops in the future.

As a result of these differences in policy and

approach, U.S. firms face stiff competition at

6The fo]]owlng three ~ctions Present ~~marics of the results of cxh of the cases as they apply to the three principal questions addressed in this

chapter. The reader is rcftxred to Appendices D, E, and F in Volume 2 of this report for more in-depth analysis and documentation.

7OECD: @-ganila~ion for Economic Cooperation and Dcveloprncnt.

81ntemationa] Tclcphonc and Tclcjytph, and American Tclcphonc and Telck~aph.

gNipWn ~leph~nc and Te]e~aph,Ministry of International Trade and Industry, wd Kokusai Denshin Denwa.
Chapter 9-Civilian Technology and Military Security ● 165

home—while they are effectively barred from substantial penetration of some important foreign markets. Nevertheless, representatives of some American fiber and optoelectronic companies believe that

the United States presently maintains a technological lead in virtually every area of fiber optics, but

that this lead is eroding. The American position was

established and is still based on intense competition

for sales to American telephone companies. Some

analysts believe that because the industry is robust,

officials in Washington should stay on the sidelines

and allow market forces to continue to strengthen an

emerging industry in which the United States has

already proven itself to be particularly sturdy and

capable.

Many analysts are less optimistic about the

competitive status of the fiber optics and optoelectronics industries in the United States. They believe

that the success of the U.S. industry is by no means

assured, but instead will hinge on a variety of critical

factors. The most important of these are discussed

briefly.

First, the future health of the U.S. fiber optics

industry largely depends on the extent to which it

can sell fiber and optoelectronic devices to the

telecommunications companies. That business, in

turn, depends on building fiber optic links to

individual homes across the United States, Legislators and regulators have tended to shift responsibility for the national telecommunications infrastructure to market forces and to the courts. Some

analysts believe that the present regulatory structure—

one that effectively separates telephone from television delivery systems and inhibits the spread of

telematic (online) services—retards the development of the optoelectronics industry in the United

States. At the same time, huge, vertically integrated

Japanese and European firms are gaining experience

in the production and commercialization of largescale fiber optic local area networks (LANs) in their

home markets.

A second area of concern focuses on the lack of

international standards for fiber optic systems and

associated optoelectronic devices. While international standards are developing, especially for integrated services digital networks (ISDN), progress in

this area is slow for an industry that is innovating

quickly. Different countries have tended to adopt

different standards, and standards have sometimes

been used as non-tariff barriers to protect home

markets for developing industries. Some industry

representatives believe that Japan and the European

nations have advanced farther towards setting standards than has the United States, and that they may

succeed in imposing de facto standards on the

competition in the future.

Third, penetrating foreign markets-especially in

Japan but also in some European countries-is still

difficult for American firms. This disadvantage for

U.S. companies is compounded because future

expanded demand for fiber optic systems is expected

to occur first in foreign markets, where domestic

manufacturers are favored.

Fourth, most European producer nations and the

Japanese Government have designated fiber optics

as an essential technology of the future and they

subsidize R&D in the optoelectronics field. In the

United States, government assistance has been

confined largely to the military, and U.S. companies

have tended to pursue research and development on

an ad hoc, isolated basis.

Finally, the United States continues to maintain a

regime of export controls for fiber optics that is more

restrictive than that of its CoCom partners and

non-CoCom nations such as Sweden and Finland.

U.S. unilateral controls have tended to exclude U.S.

firms from participating in some markets that are

open to the European and Japanese competition. In

addition, some foreign firms are reluctant to buy

U.S.-made optoelectronic parts and components,

because they fear that U.S. Government prohibitions

against exporting goods to third-party countries will

apply to them.

Software

Although the U.S. software industry currently

dominates world markets, both technically and

economically, its continued superiority will depend

on a number of complex factors. The industry faces

difficulties in meeting growing demand for all types

of software-packaged, integrated systems, and

custom-built. International competition is increasing as other nations—particularly Japan, France, the

U. K., Korea, and India—establish software production capacity and seek to penetrate global software

markets. U.S. software firms increasing y face tariffs
166 ● Holding the Edge: Maintaining the Defense Technology Base

and foreign trade policies that restrict imports of

U.S.-developed software. Enforcement of intellectual property rights in international software trade is

lax. And finally, as the world market continues to

grow, its composition will undoubtedly change, and

the demand for new types of software may create

advantages for companies in foreign nations. These

factors are addressed below.

The ability to meet the growing demand for

software, and the ability of the United States to

maintain its dominance of the software market,

depends on the supply of computer programmers

and the technology available to them. U.S. companies cannot meet the demand for software with the

present number of computer programmers. The

shortfall of software professionals in the United

States is estimated at 50,000 to 100,000 and is

forecast to grow steadily over the next decade. The

lack of qualified software developers maybe part of

a larger shortfall in trained science and engineering

professionals in the United States. Beyond any

doubt, there is a serious shortage of rigorous

software engineering programs at U.S. colleges and

universities.

Many programming methods and practices used

in U.S. industry today are primitive when compared

to sophisticated software engineering techniques.

The software development process can be improved

through the use of formalized and automated engineering techniques. These support the iterative

building and testing of software prototype systems,

allow for the reuse of software components, and

accommodate the complexity of software systems.

Widespread use of these technologies in the United

States is impeded by the existence of a large,

embedded, heterogeneous software base.

The growing cost of software maintenance is

directly related to the failure to recognize software

engineering as a scientific discipline and to the lack

of trained software engineers. Software maintenance—

the modification of software to correct errors and to

incorporate changes or enhancements—has become

the primary cost in most software systems. Present

estimates indicate that in fiscal year 1990, DoD will

spend 80 percent of its $20 billion software budget

on maintenance.

Approximately 40 percent of the packaged software

10 revenues earned by U.S. firms come from

outside the United States. This share is threatened by

the software industries in Japan, France, the U. K.,

Korea, India, Taiwan, and Singapore. Japan is the

strongest competitor primarily because of its advanced hardware industry and the propensity to take

advantage of standardized technologies and develop

marketable products from them. A principal strength

of the Japanese is the ability to close large portions

of their domestic market to foreign products, and

simultaneously to penetrate U.S. markets with

systems software developed using U.S. standardized

designs.

A comparison of the U.S. and Japanese industries

shows that, while the level of software technology in

both countries is similar, Japanese firms create more

disciplined software engineering environments in

which the use and production of tools is more

widespread. As a result, Japanese programmers are

much more productive than their U.S. counterparts.

In contrast to the U.S. industry, Japanese software

companies tend to invest more money in basic

technology and to distribute this capitalization

across the entire firm, rather than limiting it to

particular software projects. Many Japanese companies view programming as an applied science. Their

‘‘software factories, ” which reuse approximately 30

percent of previously developed software, have an

error rate one-tenth that of U.S. companies, and have

the potential to produce lower cost and higher

quality software.

As U.S. software companies operate in world

markets, they are increasingly subjected to intellectual property violations and infringements. U.S.

domestic intellectual property protections (copyrights. trademarks, trade secrets, and proprietary

data) are insufficient to protect U.S. interests in

many foreign nations, where the penalties for

intellectual property infringement can be less than

the resulting profits. This problem is most pronounced in less developed countries, which have

little to lose and much to gain by not honoring U.S.

lop~~k~gc~ soflwwc is soflwwc that is ~Onlmercial]y cicvcloped an(j broadly marketed, as opposed to custom software, which is dcvclopcd to meet

the particular needs of a specific user.
Chapter 9—Civilian Technology and Military Security ● 167

regulations. Japan is also cited frequently for violations.

Additional economic loss for U.S. industry is

attributed to the restrictive trade policies of many

foreign nations, which serve to foster native software industries at the expense of U.S. firms. Import

quotas, discriminatory taxes, local ownership requirements, embargoes, and preferential treatment

for locally produced goods are among the common

policies that discourage or preclude U.S. firms from

seeking business. These practices are most pronounced in Brazil, India, Mexico, and Korea.

Polymer Matrix Composites

Although the U.S. DoD drives the development of

composite materials technology (historically

through its R&D funding and now through its

aircraft/aerospace purchases), advanced composites

is a global business conducted by companies (U.S.

and foreign) with broad international interests.11

Large chemical and petroleum companies are suppliers of fibers and composite parts around the globe.

The world PMC industry is extremely intertwined

in terms of corporate vertical integration, integration

with its major end-use market (the military aerospace prime contractors), and with multinational

chemical and petroleum interests. Advanced composites are formed in a series of stages, each of

which corresponds roughly to a different industry—

raw materials, fiber preparation and shaping, and

components for end-use.12 In recent years, raw

material suppliers such as Amoco, British Petroleum, Phillips, Shell, BASF, Ciba-Geigy, Du Pent,

and Hercules have moved downstream into fibers

and shapes, where there is more value added in the

products. Most of these companies buy from, sell to,

and compete with each other for business from

military prime contractors. At the same time, defense aerospace companies, which had relied on

specialized companies for part forming services,

have moved upstream, making parts in-house and

buying only the raw materials.

In this discussion, two distinct stages of corporate

integration can be defined: material suppliers and

end users (including intermediate material suppliers). Fibers are sold as standardized commodity

materials. End users (and intermediate suppliers)

develop individually tailored structures for each

application. Because of this dichotomy, fiber suppliers conduct a different style of business, with

different issues and concerns, from that of the end

users.

Material Suppliers

Carbon fiber is a principal ingredient in the

production of advanced PMCs. About 65 percent of

the U.S. carbon fiber market is in the aerospace

industry. Over half of the U.S. aerospace market for

fiber is military. Defense applications are projected

to grow by as much as 22 percent annually in the

next few years. The U.S. military market is a primary

target for foreign companies producing carbon fiber

composites, because it is the largest, most advanced,

and most attractive in terms of sales and profitability. The second largest market is in the Far East,

where carbon fiber products are used to make

sporting goods.

Worldwide, carbon fiber capacity is twice the

current market volume. Japan and the United States

have about equal capacity. Japanese companies

manufacture a carbon fiber precursor, which is then

sold to U.S.-based carbon fiber suppliers (mainly

Hercules), which is in turn the major supplier of fiber

for military programs. At present, no Japanese

carbon fiber is supplied directly to U.S. military

programs.

U.S.-based industry is continuing to add carbon

fiber capacity—about 1 million pounds in 1988.

Accordingly, there is and will continue to be a great

deal of excess capacity both in the United States and

in world markets. While the United States has a large

fiber overcapacity compared to domestic market

requirements, most of the world excess capacity is

concentrated in Japan.

1 IThe ~l~cussion of pMCs draws on ~ previous OTA assessment. Scc ~J, s, CongCsS, offi~c of ‘TcchrIo]ogy Assessment, Advance

Design: New Sfrucruraf Materials Technologies, OTA-E-35 1 (Wush]ngton, LX: U.S. Government Prin[ing Ofilcc, June 1988).

121n ~hc ,Ilmufacturc of PMCs, highly ~r~cs~d ~wbon fi~rs xc ~hcm ically ~C~tCd ~nd ~nded With a m~trix matcri~], The malcria] is shaped during

this process which involves heating and compressing it into d mold. Thcw shapes arc ihcn Iinishcd by machining, and bccomc final products such as

airplane wings and tennis rackets.
168 ● Holding the Edge: Maintaining the Defense Technology Base

Although Japan is the largest manufacturer of

carbon fiber in the world, it has been only a minor

participant to date in the advanced composites

business. Japanese companies have been limited by

licensing agreements from participating directly in

the U.S. market. In addition, Japan does not have a

domestic aircraft industry to which advanced PMCs

could be sold, although it is trying to establish one

through a joint venture with Boeing and through its

decision to build the FSX fighter. Japanese companies are building a strong position worldwide in

PMC technologies.

End Users

The United States leads the world in developing

and using advanced PMC technology, based largely

on the strength of its military aircraft and aerospace

programs. Nevertheless, foreign commercial end

users outside the aerospace industry are more active

in experimenting with these new materials than are

their U.S. counterparts. Western Europe leads the

world in composite medical devices, partly because

the regulatory environment controlling the use of

new materials in the human body is less restrictive

in Europe than in the United States. The EC is taking

additional steps to commercialize advanced PMCs.

For example, the EUREKA Carmat 2000 program

proposes to spend $60 million through 1990 to

develop advanced PMC automobile structures.

The U.S. market on the whole is projected to grow

faster than the world market, based on the assumption that the military demand for PMCs will expand

rapidly over the next 5 years. Although the number

of U.S. military aircraft being built is declining,

composites are replacing much of the metal on

airplanes. For example, the F-16 has 260 pounds of

advanced composites per aircraft, while the V-22,

which recently moved into production, will have

from 8,000 to 9,000 pounds per aircraft. However,

growth is expected to level off in the middle 1990s

as advanced PMCs move into all of the structures for

which they are suited.

Foreign production of U.S. aircraft components is

increasing, and manufacturing of composites for

commercial aircraft is moving offshore in many

cases. A significant number of foreign companies

fabricate parts for U.S. aircraft manufacturers. This

is largely the result of economic offsets that are used

to secure sales of aircraft by offering portions of the

aircraft fabrication to companies from the buying

nation. Such sales enhance technology development

in, and the potential economic competitiveness of,

foreign-owned advanced composites businesses,

possibly at the future expense of U.S.-owned firms.

In the past few years, participation of Western

European-owned companies in the U.S. advanced

PMC market has increased dramatically. This has

largely taken the form of acquisitions of U.S.-owned

companies. Industry analysts indicate that U.S.

carbon fiber facilities have been sold, due to

corporate ‘‘impatience” resulting from the need to

report favorable quarterly earnings. In general,

foreign corporations tend to be more patient. Despite

excess worldwide capacity and profitability problems, the Japanese have not sold any carbon fiber

facilities. As a result of extensive acquisition of U.S.

firms, foreign makers of advanced materials have

entered the U.S. aerospace market and share the

technology leadership that participants enjoy.

CONVERGENCE OF MILITARY AND

CIVILIAN TECHNOLOGIES

Do military technologies and their applications

diverge significantly from their counterparts in

the civilian sector of the economy?

Fiber Optics

The distinction between tactical and fixed-plant

fiber optic systems is important. Tactical systems

require rapid mobility. Although fixed-plant systems are installed directly in the ground or in

conduits, most tactical systems must be placed on

the ground, strung above the ground, or deployed at

sea. While there are no significant limitations on

cable length for fixed systems, tactical systems must

be configured so that they can be set up and retrieved

quickly. In addition, cable used in tactical communications must be more flexible and durable than that

used in fixed-plant systems. While optical splicing

may be used for many fixed applications, connectors

are necessary due to the requirement for mobility in

a tactical environment. And finally, batteries or

other local sources of power are usually required to

drive sources and repeaters in tactical systems.

Generally speaking, shipboard fiber optic systems

can be considered as fixed plant.
Chapter 9-Civilian Technology and Military Security ● 169

Do such differences between military and

civilian applications translate into differences in the

technology itself or in the way that R&D for fiber

optics must be conducted? The answer is a qualified

“No.” For fixed-plant systems, military requirements would differ only marginally, if at all, from

those used in private-sector businesses or for local

area subscriber networks. For a large percentage of

military applications—wiring the Pentagon, the

DoD laboratories and R&D facilities, and the

military bases—the technology is broadly available

from the civilian sector. In addition, fiber optic

systems deployed on ships would be similar to

LANs now undergoing trials in the private sector in

Japan and in the United States.

Optical sensors have enormous potential in a wide

range of applications both military and civilian.

Many of the major sensors used by the military-or

under development—are analogous to those used in

the civilian sector. One fiber optics group in the

Navy has tested 54 different sensors developed for

civilian purposes and found that most of them do not

perform adequately in a military context. They

concluded, however, that the civilian sensors should

not be discarded and replaced by sensors built to

military specification. Such specifications do not yet

exist, and the process of writing them and getting

them approved would take years. Instead, the group

takes the approach of addressing the military requirement by modifying commercial products so

that they are suitable for the particular military task

for which they are envisioned.

Their objective is to use the existing technology—

which they believe is far more advanced than that

which the Services presently need. For example,

industry already has endoscopic devices for looking

into machinery and into places where electronics

cannot be placed. This is not a new or radical

technology. These devices represent basic technology with new applications. In this approach, DoD’s

challenge is to figure out how to take the technology

that is available-not a radical departure from

it—and use it in a military setting.

Despite the decidedly military character of the

FOG-M missile,13 its designers indicate that the

Army has been able, for the most part, to use optical

fiber that can be produced on modified commercial

manufacturing equipment. The fiber companies

have entered into earnest discussion with the FOGM program, because they anticipate a run of fiber

that might reach a volume of up to 2 million

kilometers. There are special military requirements

in the way that the fiber is wound on the spool, in the

fiber design, and in the materials that are used to

attach the fiber to the spool. But these do not

translate into large differences from civilian technology, nor do they require significant changes in the

way that R&D) is carried out. The military requirements can be met if civilian fiber companies are

willing to develop the modifications.

Software

The software industry is increasingly divided into

two camps, one that is dedicated to military interests

and another that supplies the commercial world.

These two sectors have been present since the birth

of the industry, and exchange between the two was

assumed to be the norm, not the exception. But there

are significant indications that divergence between

these groups is increasing, which may contribute to

a weakening of the U.S. software technology base.

The underlying software technologies are very

similar in both the military and civilian sectors, and

divergence becomes noticeable only in the detailed

requirements for specialized applications. Convergence between civilian and military software industries is most noticeable in the small-scale applications and systems software areas. Both sectors use

packaged COTS software for the majority of their

small-scale software applications, such as personal

computer (PC) based programs and office automation products.

Similarities in the applications of software are not

limited to PC-based and systems software. Analogous applications of large-scale software systems

also can be found in both sectors, including software

developed for avionics, telecommunications, and

embedded systems. But while the applications are

similar, military and civilian environments place

different, sometimes opposing requirements on the

]3Thc Fibcr @tic Guided Mi\~ile (FOG. M), now in fu]].sca]c Cnginccring dcvelopmcn(, pays OIJ( optical fiber from a bobbin, enabling the battlclicld

operator to target the missile with a real-time video image cmanating from a camera in the nose of [he missile.
170 ● Holding the Edge: Maintaining the Defense Technology Base

software that controls these systems. This is particularly true for large-scale, mission-critical applications in the DoD.

Thus, different requirements, as well as differences in scale, create two distinct software industries

in the large-scale applications area. The industry

divergence is illustrated in avionics systems software, where military requirements for highperformance avionics are exchanged for high survivability and safety in civilian avionics. The significance attached to software requirements by each

sector, and whether they become rigid specifications

or economic trade-offs, partially explains why there

is little transfer of software between the military and

civilian sectors in the embedded and large-scale

applications.

Military requirements for custom-built and embedded software are generally far more rigid than

civilian requirements. Once documented and approved in the design stage, specified requirements

govern the subsequent development of the software.

The need for specific performance and operational characteristics is evident in many DoD

mission-critical systems. It is necessary to require

nearly 100 percent reliability for a missile guidance

system or multi-level security in a networked

defense communications system. But when these

requirements are transferred unnecessarily to other

military systems, the cost of development increases

and the ability to use analogous civilian applications

or commercially developed software diminishes.

Many of the requirements often identified as

unique to military applications—for example, multilevel security, data encryption, interoperability,

survivability, and high reliability—are equally appropriate in banking, insurance, commercial flight

control, and other civilian applications. Indeed,

many features incorporated into military systems

could be transferred to civilian applications and vice

versa. But while these features are desirable and

appropriate in civilian applications, their implementation would be based on economic and risk analysis.

In the civilian sector, if the cost of implementing a

requirement exceeds the expected return, then the

requirement is usually deleted or deferred. This

analysis and design-to-cost approach rarely occurs

in military software acquisitions, although similar

accommodations will be more likely if military

software costs continue to escalate.

A more recent divergence between the military

and civilian sectors of the software industry relates

to the military’s mandated use of a single high-order

language, Ada, in its mission-critical software systems. DoD’s sponsorship of Ada began in 1974

when the ‘‘software crisis” was first recognized and

acknowledged to have potentially serious consequences for the military’s ability to maintain and

operate its many computer systems. In 1983, Ada

was approved as a standard by the American

National Standards Institute (ANSI) and by DoD as

Military Standard (MIL-STD) 1815A. By 1987, Ada

was approved as an International Standards Organization (IS0) standard.

The DoD Directive that Ada shall be the single

high-order language used in command and control,

intelligence, and weapons systems has no counterpart in the commercial environment. With the

exception of civilian avionics systems, Ada is not

widely used in U.S. commercial applications. Instead, civilian-based software continues to be implemented in the language considered to be best for that

particular application—whether it be COBOL, a

fourth generation language, or any other computer

language, As new DoD computer systems are

developed, the convergence of new software technologies and the ability to transfer software between

the two sectors will depend a great deal on several

factors: first, the civilian sector’s acceptance of, and

demonstrated use of, Ada; second, DoD’s willingness to grant waivers to its Ada mandate; and finally,

the military’s acceptance of, or ability to, incorporate commercially developed, non-Ada software

into its computer systems.

Polymer Matrix Composites

There is both convergence and divergence in

military and civilian applications of advanced PMC

technology. In general, military and civilian markets

have different technical and cost criteria for the

selection of materials and process technologies.

Convergence and divergence occur simultaneously

in different aspects of the PMC industry and its

markets.

Various segments of civilian and military markets

place different emphasis on performance and cost. In
Chapter 9---Civilian Technology and Military Security ● 171

the commercial aerospace, military non-aerospace,

automotive, and construction markets, for instance,

acquisition costs and operating expenses are the

major purchase criteria, with a progressively lower

premium placed on high material performance. In

military aerospace, biomedical, and space markets,

on the other hand, functional capabilities and

performance characteristics are the primary purchase criteria.

Although general functional requirements (e.g.,

low weight, high strength for primary structures,

lower strength for secondary and nonstructural

parts) lead to convergence between the military and

commercial aircraft sectors, the stringent mission

requirements for military aircraft drive the use of

advanced composites in the military. For space

applications and fighter aircraft, advanced PMCs are

more than just one of many competing materials.

They can be the enabling technology for mission

requirements because of their high strength-toweight ratio.

The use of lower cost materials (such as glassreinforced composites, or fiberglass) in general

means more weight and lower performance in the

traditional aerospace sense. Industry representatives

assert that battlefield conditions require that weapons systems weigh less. That was the initial reason

for the attractiveness of composites, particularly

graphite-reinforced composites. While lower costs

are desirable in the military aerospace sector,

performance remains the main driver.

According to advanced PMC industry representatives, cost currently limits market growth and the

transfer of high-performance military PMC technology to the commercial sector. Carbon fiber is priced

at about $15 to $20 per pound. Chemically treated

fiber, called prepreg, sells for $35 to $40 per pound;

and the cost of finished aircraft structural components is between $250 and $600 per pound. Aluminum structures cost about $85 a pound, including 2

hours of labor and $5 of material. Some 70 to 80

percent of the cost of a finished advanced PMC part

is due to fabrication costs.

Many developments have wide applicability

across both the civilian and the military arenas.

There is synergism between military and commercial aircraft production in resins and fibers, the way

materials are stitched together, and the way they are

used. For military and commercial aircraft, the

structures made from composites (e.g., wings, tail,

and empennage) are similarly complex to fabricate.

The basic method of production of aircraft parts is

also similar: coating of continuous fibers with resin,

careful placement of fibers, and application of heat

and pressure to form the structure.

However, military requirements may make it

necessary to modify the fabrication process. For

example, pultrusion is typically used in the commercial market to form beams. Military applications

need superior load-carrying capacity, so that for

military applications the pultrusion process must be

modified to impart different properties to the fabricated part.

From abroad perspective, the military community

often requires custom-made hardware, while commercial industries look for off-the-shelf products

combining low cost and high quality. Many military

and space hardware applications are very specialized

and require low production volumes. The automotive industry, on the other hand, is driven by low

costs and high production rates. Between the aerospace and automotive advanced PMC markets, a

variety of other market applications (including the

non-aerospace military market) have production

rates higher than military aerospace, cost objectives

similar to automotive applications, and moderate

performance requirements.

Military and commercial aircraft both experience

similar environmental conditions, and thus require

similar lightning protection, corrosion resistance,

fatigue resistance, and material toughness. While the

technical requirements for PMCs in commercial

aircraft are comparable to those for fighter aircraft,

there are some major differences related to peak

G-loading and maneuverability, repair strategies,

stealth, radiation hardening, and design temperatures.

Military and commercial aircraft have inherently

different duty cycles. Military aircraft are on the

ground a significant portion of the time, while

commercial airplanes are in the air much of the time.

Commercial aircraft designers are concerned with

structural fatigue, and with takeoff and landing duty

cycles. The dominant factors for maintenance of

military airframes are ground temperature, corrosion, and exposure.
172 ● Holding the Edge: Maintaining the Defense Technology Base

BARRIERS BETWEEN THE

CIVILIAN AND MILITARY

SECTORS

What are the principal barriers, both technical

and institutional, that inhibit military access to

civilian technology and vice versa?

Fiber Optics

In order to do any substantial amount of business

with the DoD, fiber optics companies have found it

necessary to create a separate corporate division. To

meet government regulations and specifications,

fiber optics businesses must organize many of their

principal functions differently—including accounting, personnel, auditing, R&D, production, advertising, marketing, and management information systems. They must also adjust their business psychology and profit orientation, Successful fiber optics

and optoelectronics companies invest heavily in

research, develop a superior product, realize large

profits, and plow their earnings back into the R&D

effort. This business environment contrasts sharply

with one of government-subsidized research and

regulated profit margins.

The question of how to specify fiberoptic systems

and devices for the military poses what amounts to

a paradox, both for the industry and for the

government. The problem is that optoelectronic and

fiber optic technologies are changing so rapidly that

no one can agree on standards. DoD is confronted

with the problem that, by picking a standard, it may

lock itself into an obsolete technology or an application that no one in the civilian sector is willing to

build at a reasonable cost. This is because the

military wants to nail down prescriptive standards14

in a field that is changing from month to month. The

alternative is to adopt performance standards essentially specifying, in a general way, the characteristics that a part or component must meet, and then

leaving it to industry to figure out the specifics. This

would, however, make it more difficult to conduct

competitive procurements. The range of competing

designs might be very wide, and it would be

necessary to trade off price against quality.

Industry executives suggest that the military

generally does not recognize the capabilities of the

commercial sector. From the industrial perspective,

this is due to “the momentum factor” and “cultural

conservatism” in the military, two substantial barriers to the large-scale introduction of fiber optic

technology. The former proposes that the Services

have committed themselves to older communications and sensing technologies, many of which are

not compatible with fiber optic systems. According

to the latter, there is little incentive for program

managers to seek out a new technology and put it

into a weapon system, particularly if the technology

is changing rapidly and proposed parts or components are not fully specified.

The lack of industry standards exacerbates this

already difficult internal problem. From the DoD

perspective, there is no way that acquisition managers can make mass-scale purchases from civilian

industry—and this is where the technology resides—

in the absence of performance, design, and testing

specifications. These are considered essential to the

acquisition process.

By insisting on the use of existing specifications,

the military can create barriers to the introduction of

a new technology—for example, when a large

civil-sector company attempts to install a standard

fiber optic telecommunications system for a military

base. DoD could procure regular commercial products, since there are no special military requirements. But it is very difficult to install such a system

on a base. If there are no existing military specifications and standards, DoD is reluctant to buy a

system. If there are military specifications, they are

unlikely to correspond to existing commercial products, because civilian technology probably advanced

while the military specifications were being written

and approved. In this case, the Defense Department

will end up paying more for a less capable system

than would a commercial purchaser. Somehow,

DoD must learn to make decisions about what it

wants—either by writing specifications, modifying

specifications, or carrying out procurements without

specifications-in a matter of a few months.

1dln ~cncra], ‘Prescriptive stmdards” speci fy how somc~ing is M bC made or what it is to be made from. [n contrast, ‘pcrfonmccstandards” sPecifY

only lhc resulting capabi Iity or pcrfw-rnancc Icvel to be achicvcd.
Chapter 9--Civilian Technology and Military Security ● 173

Industry executives and analysts point to several key reasons why some optoelectronics and fiber

optics firms have difficulty in selling their products

to DoD, and others are reluctant to do business at all.

Those most often cited include: 1) DoD cannot

guarantee firms that funding will be available for

authorized projects; 2) DoD seeks to acquire data

rights that would compromise large R&I) investments; and 3) to do business with DoD, a firm must

fundamentally alter its corporate structure, policies,

and overall intentions. Each of these problems is

discussed below.

In a somewhat ironic case, a fiber optics company

licensed its technology from a university research

program funded by DoD, and is now unwilling to do

business with the government. It is a small, highly

profitable company that is limited in the extent of

money and technology that it can leverage for any

given purpose. Its executives are very reluctant to

take contracts with DoD, because they cannot afford

to hire specialists who can respond to DoD regulations, contracting procedures, auditing practices,

and other requirements. They are unable to support

the cost of research and gearing up for production,

unless there is u definite market for the product in

question and the opportunity to realize substantial

profits.

In the civil sector, a company can develop

long-term relationships with its suppliers and customers. Government notions of fairness and competition rules make it difficult to sustain such relationships, a$ does the turnover of contracting personnel.

A second major problem, cited by some industry

analysts, is that government procurement officers

and regulations do not recognize the extent to which

fiber optic and optoelectronic technologies are

driven by R&D activity. Government agents tend to

demand as many data rights as they can get in any

given contract. Most fiber optics firms are unwilling

to share their data, because they believe that such

data can be used to reveal a core of proprietary

process information.

For optoelectronics and fiber optics companies,

the problem of protecting proprietary rights comes at

the very beginning of a decision to take a government contract. If the company has not worked with

DoD in the past or if the military segment of the

business is small, many executives tend to skirt the

problem by avoiding government contracts.

A third major impediment between DoD and

civil-sector fiber optics firms is the perception on the

part of industry executives that they are simply

ill-equipped to do business with DoD. This is in part

a consequence of the divergence of business practices in the military and civilian sectors of the

economy. and partly a result of inflexibility on the

part of government. To do substantial business with

DoD, managers would have to learn to live with and

respond to regulatory, reporting, accounting, and

auditing requirements that are largely incompatible

with their own systems, and that do not make sense

in the context of civil-sector business.

Software

Despite similarities in the technologies available

to the civilian and military software sectors, differences in their respective acquisition strategies obstruct the exchange of software technologies and

applications. Persistent barriers to the transfer of

technology, methodologies, and products between

military and civilian interests are identified below.

In 1987, a DSB task force reported that both

technical and management problems are evident in

military software development, with the latter being

more significant.15 These management problems

relate to the manner in which DoD procures software, and they represent major barriers to the

exchange of software technology between the civiiian sector and DoD.

According to industry representatives, the principal problem is the bureaucracy and administrative

overhead associated with DoD acquisition procedures. The requirements regarding procurement,

design, development, and maintenance of DoD

software are set forth in DoD-STD 2167A. As a

government review mechanism, DoD-STD 2167A

references and directly or indirectly requires compliance with many additional standards, directives,

data item descriptions, and Federal Acquisition

lsDcfcnsc science Bowd, “Repo~of~e DSB 1987 Summer Study on Technology Base Management,” prepared for the Officcofthc Under Sccrctq

of Defense for Acquisition, December 1987.
174 . Holding the Edge: Maintaining the Defense Technology Base

Regulations (FAR). As is true of fiber optics

companies, in an attempt to comply with contractual

obligations, commercial software vendors must

employ specialists who are fluent in military regulations, government reviews, documentation, and

accounting procedures. These requirements and

associated legal issues have forced many DoD

contractors to establish autonomous divisions for

conducting business with the government. As a

result, few civilian software firms regularly contract

with DoD.

Defense Depw-tment acquisition procedures and

contracting practices limit the number of potential

vendors and discourage established contractors who

already work for the military. Civilian firms that

contract with DoD receive no guarantee of a

continued relationship with the government, achieve

poor profit margins, and often lose the rights-in-data

to their software.

Although software firms guard proprietary information closely, this property is often transferred—

by contract—to the government. Despite the flexibility allowed government contracting officers to

negotiate less-than-exclusive rights to data in software acquisitions, commercial venders generally

lose most, if not all, of their intellectual property

rights to the software they develop. The government’s claim to unlimited data rights is based on the

notion that these rights protect the government and

ensure public dissemination of publicly sponsored

research efforts. In negotiating for unlimited rights

to data for its software, the government achieves the

ability to maintain and modify its software systems

in the future. This practice is intended to ensure fair

competition for future software maintenance and

reprocurement contracts. Some analysts assert, however, that such policies weaken DoD’s ability to

negotiate for the best software at competitive prices,

because they drive away potential bidders.

Ada has been cited by some civilian software

firms as a barrier to doing business with DoD. The

directive stating that Ada shall be the “single,

common, computer programming language” used in

command and control, intelligence, and weapons

systems may help in the long run to alleviate the

military’s software crisis. But because of its relative

immaturity, the number of software firms proficient

in Ada is limited. The mandate to use Ada appears

to reduce the already limited number of firms willing

and able to contract with DoD.

Some experts cite Ada as an example of the

government’s tendency to standardize too much, too

early. Although the requirement to use Ada for

mission-critical applications was arguably premature in 1983, developments associated with Ada

have advanced significantly since that time. But

many commercial vendors, with the exception of

those in the avionics industry, still take a wait-andsee attitude about Ada.

The merits of a single, standardized language,

such as Ada, will continue to be debated. Ada’s

benefits include its embodiment of engineering

techniques essential to the development of maintainable software, its support for modular (and reusable)

components necessary in the development of largescale, integrated systems, and its portability among

diverse computer architectures. Additionally, because it was standardized early and trademarked,

there are no incompatible dialects of the language;

such dialects tend to decrease the reliability and

complicate the maintenance of software systems.

These characteristics have the potential to bridge

some of the technological differences between the

civilian and military sectors.

Whether Ada becomes an area of convergence,

rather than a barrier, remains to be seen. Because

DoD is the single largest consumer of software and

is committed to the use of Ada, the language will be

an important factor in future software technologies.

Its potential, though, conflicts with the current

situation in which many military mission-critical

applications are required to be implemented in Ada,

while similar civilian applications will continue to

be developed in the language deemed best for each

particular project.

Polymer Matrix Composites

Advanced composites technology was first applied in the military sector. Although the PMC

industry envisions a very large commercial market

for advanced composites in the future, it sees limited

commercial opportunities today. PMC suppliers feel

that commercial development is the key to profitability in advanced composites, and that sustaining

a presence in the military marketplace is a way to

pursue it.
Chapter %--Civilian Technology and Military Security ● 175

As in the other industries under review, military

contracting and accounting procedures, and the

potential loss of proprietary rights and patentability,

may be the costs of participation in the military

composites market. Loss of data rights is considered

by some commercial sector companies as a threat to

their survival in a competitive marketplace. Forfeiting proprietary rights goes against the ‘‘corporate

culture” in many non-defense companies and fear of

such losses inhibits the flow of technology between

the defense and commercial sectors. Indeed, technology developed in the commercial half of a

company may not be shared with the military half

due to proprietary concerns.

These barriers represent inhibitions, but not prohibitions, to the transfer of technology between the

civilian and military sectors. Participation by commercially oriented companies in recent defense

programs, such as the Low Cost Composite Weapon

Program and C-17 subcontracts, indicates that such

companies are willing to engage in military programs.

Government business rules and regulations have

inhibited the transfer of PMC technologies from the

commercial sector into military applications. For

example, in 1978 ACF Indusrnes successfully developed an inexpensive glass-fiber composite railroad car based on aerospace technology. DoD

repeatedly approached ACF to use this technology

in an ongoing defense program. ACF management

declined to work with the government, because

putting up with government audit procedures was

more trouble for the company than it was worth.

Similarly, the teaming arrangement for the Low

Cost Composite Weapon Program was designed to

augment a military aircraft manufacturer’s capabilities with the lower-cost commercial technology of

nonmilitary subcontractors. The lack of simple

purchase orders for commercial sector contractors

and the government accounting compliance requirements met with stiff resistance. The commercial

sector subcontractors expressed reluctance to participate on this project, because of the required

forms, audits, and the justification of overheads.

In addition, personnel working on highly clmsified programs sometimes cannot obtain clearance to

share nonsensitive information such as generic

materials and process technology data. This information is often embedded in classified reports. It is

costly for the military or the contractor to employ

personnel to extract generic types of information

from classified reports.

The DoD has similar problems internally. Some

analysts are concerned that there may be technology

under development in the “black world” that the

rest of DoD could build on but does not know about.

PMC industry representatives have indicated that

more attention should be placed on the transfer of

“black” technology into the “white” technology

base.

Industry representatives indicate that the pressure

to share data in military markets to reduce costs

conflicts with their competitive instincts. Some

companies feel that information disclosed to the

~overnment would become public and might be used

by their competitors in a different market. Nevertheless, some sharing of materials databases is necessary to reduce the currently excessive costs of R&D

and processing.

Aircraft manufacturers, parts fabricators, and

material companies that contract directly with DoD

(or that take subcontracts) often set up separate

divisions to comply with government regulations

and procedures. Although personnel can be transferred from the commercial divisions or hired from

other defense contractors, industry analysts state that

everybody in the defense division eventually thinks

“government contracting. ” The overhead charged

by that division is typically a great deal higher than

that charged by the rest of the company.

SUMMARY OF CASE STUDIES

The case studies send mixed signals about the

overall health of the three industries. Each exhibits

different strengths and vulnerabilities. The U.S.

optical fiber industry is strong today, but it is

concentrated in two large companies. These companies face daunting competition in the future, both

from the EC nnd from .?apan. In software, U.S.

companies clearly lead the world in both sales and

technology leadership. But the competition—

especially from Japan—is closing the gap, and the

United States is experiencing a growing shortage of

software engineers. The U.S. PMC industry is strong

and thoroughly internationalized. It is also extremely dependent on the Defense Department. DoD
176 ● Holding the Edge: Maintaining the Defense Technology Base

has supported PMC technology because it is both

pervasive and enabling for a large number of

military systems. But the cost to DoD is very great.

To date, there is little indication that U.S.-based

producers are willing or able to diversify into

civilian markets, so long as a lucrative military

market exists.

For each of the three technologies, a high degree

of technological convergence between civilian and

military applications is evident. There are also some

applications that are unique to the military for each

of the technologies. There is, however, significant

divergence between the military and civilian economic sectors for each industry, and this occurs for

reasons that are not directly related to the technology

itself. In the fiber optics industry, the civilian sector

is far in advance of the military in most areas. The

software industry is increasingly divided into two

camps--one that serves the military and one that

does not. Such divergence is rooted largely in

differences in the way that military and civilian

business is conducted. Of the three technologies,

advanced materials shows the greatest divergence

between military and civilian applications. There are

significant differences in the molecular structure of

each end-product because each PMC material must

be individually designed. However, automation of

the production process and dissemination of data

bases would certainly reduce costs and aid in

diffusing PMC technology into a variety of civilian

applications.

In each of the cases reviewed, the barriers that

exist between the military and civilian sectors of the

economy are due largely to differences in organization, administration, and business practices, rather

than to differences in the technologies themselves.

Indeed, this is a principal finding of this study. The

reality—that the military often buys less than

state-of-the-art technology—is disturbing, both from

a national security perspective and in terms of the

kind of efficiency that is associated with good

government. As we have seen, many companies that

produce fiber optic and optoelectronic technologies

are reluctant to do business with the government.

Barriers to the participation of civilian sector companies appear to be largely generic across many

industries. In the case of software, DoD simply does

not have access to the best and most advanced

civilian talent and products, and there is very little

synergy between the military and civilian components of this critical high-technology industry.

Advanced composites offer a different view of the

same sorts of problems. Because the industry was

developed largely by military aerospace companies

and other DoD contractors, it makes sense to look for

a ‘‘spin-off” effect. However, U.S.-based firms that

do significant business in advanced composites with

the DoD have generally not been successful in

marketing their products in a nondefense context.

FINDINGS

The general findings of the case studies are

presented below. While they are based on the three

cases, they have wider implications for the defense

technology base and for other high-technology

industries. Detailed findings that are more specific to

the individual technologies are presented in the

particular case studies, located in Volume 2 of this

report.

Overall Findings

1. Two relatively separate economic sectors have

evolved in the post-World War II period, one

military and the other commercial. Business practices in the two diverge significantly, and substantial

barriers impede the transfer of advanced technology

between one sector and the other.

2. Nevertheless, the ability of the military to

achieve and maintain leading-edge technology in the

future will depend in many cases on the health of the

corresponding indust~ in the commercial sector of

the economy. Machine tools and semiconductors are

well-documented examples.

3. The barriers that stand between the military and

the commercial high-technology sectors are largely

due to legal, institutional, and administrative factors,

and are not inherent in the technologies themselves.

4. The United States is failing to develop and/or

maintain a competitive commercial base for some

technologies that are important or even essential to

military procurement. It is likely that DoD either will

have to turn increasingly to foreign suppliers to

achieve or maintain state-of-the-art capacities in

such areas, or will pay a high price to maintain

in-house capacities.
Chapter 9---Civilian Technology and Military Security ● 177

5. Ixmgstanding industrial and trade policies may

have to be reformed if the United States is to achieve

and/or maintain world-class industrial capacity in

support of certain essential dual-use technologies.

Findings Relevant to the

Department of Defense

1. DoD faces two central problems in the area of

dual-use technology. First, government procurement

practices make it increasingly difficult for DoD to

obtain state-of-the-art technology in areas where the

private civilian sector is leading. Second, certain

essential high-technology industries are weak in the

United States, and others may not be located herein

the future.

2. Due to the magnitude of the investment that is

required to create advanced technological capability

in a number of critical areas, DoD cannot afford to

finance advanced technology and product development across the full spectrum of technologies that

are important to the military. Instead, it must rely on

innovation and R&D in the civilian sector to pull

some technologies forward.

3. Initiatives to increase DoD’s access to and use

of commercial technology have tended to fail in the

past, largely because they did not address institutional and structural factors.

4. Many firms are reluctant to do business with

DoD because they consider the government to be a

bad customer. Some commercial firms cite excessive regulation, burdensome auditing and reporting

requirements, damaging competitive procurement

practices, rigid military specifications, compromise

of proprietary information, loss of data rights, and

corporate “culture shock” m reasons not to seek

DoD business. Some of these problems might be

resolved through DoD or congressional action.

Others are probably inherent in any industrygovemment relationship,

5. The recent expansion of special access or

“black” programs reflects both an effort to increase

technological security and an attempt to circumvent

burdensome regulation and congressional oversight.

Because they are highly classified, such programs

present additional barriers to companies that are not

ordinarily engaged in defense work.

Findings Relevant to the

Defense Industrial Sector

1. In many high-technology areas, the defense

industries no longer lead the commercial sector, and

the disparity may be increasing.

2. The defense industrial sector has been shaped

by an ad hoc—yet extensive—system of regulation

and defense industrial policies that has tended to

stifle innovation and creativity over time. These

include nearly 400 different regulatory requirements

in the FAR alone, extreme and uncoordinated

government auditing activity, and pervasive overspecification of developmental items. Some were

established pursuant to acts of Congress; others are

the result of internal DoD practices.

3. Congressional attempts to reform DoD and the

defense industries may be inappropriately aimed at

fixing an archaic military-industrial structure that is

out of step with a world economy radically transformed by intense international competition. Comprehensive restructuring and elimination of inefficient elements and practices within DoD may be

necessary.

4. Strategic planning in the largest defense prime

contractors is based on the assumption that doing

business with the government is a slow and ponderous process, and that it is not likely to get better. For

better or worse, corporate planning is married to the

DoD planning and budgeting cycle.

Findings Relevant to Congress

1. Congress plays a major role in shaping the

acquisition process, and with it, DoD’s access to

both the defense-specific and commercial technology bases. But the acquisition system has built up

over time, and overriding national goals often

conflict with the particular program-specific objectives of defense acquisition. These national goals

include efforts to ensure fairness, access for small

and minority firms, environmental protection, competition, and the best product obtainable with the

taxpayers’ money.

2. The opportunity to interpret and amplify the

intent of Congress exists at many levels—in OSD, in

the Services, in the large prime contractors, and at

the sub-tiers-and is often acted on, particularly

where criminal sanctions might be imposed. The
178 ● Holding the Edge: Maintaining the Defense Technology Base

result is a risk-averse, highly conservative defense

industrial sector that has trouble taking advantage of

rapid technological change in the commercial sector.

3. The structure of the large defense companies

complements the legal, administrative, and bureaucratic form of the government. Such structures are

imposed on the defense firms by acts of Congress, by

DoD regulations, by military specifications, and by

auditing requirements. Every aspect of business in

these companies conforms to and is enforced by such

bureaucratic and administrative controls. Making

the defense industries more efficient and accountable might entail radical alteration of the legal and

institutional structures that shape the DoD.

Findings Relevant to Civilian Industry

1. In many dual-use, high-technology industries,

the civilian sector leads the defense industries. This

civilian capacity may or may not be located in the

United States.

2. A company can organize to do business in

either the military or in the civilian sector of a

high-technology industry, but it is extremely difficult to do both under one administrative roof.

Companies that work in both sectors typically have

separate divisions that are organized, administered,

and staffed differently. In that case, the two divisions

usually cannot share staff, production lines, laboratory facilities, data, research, accounting procedures,

and other administrative systems.

3. These differences are profound. In large aerospace companies, for example, the commercial side

of the firm responds to market conditions, whereas

the military side of the house responds to the nature

of the threat, to government directives, and to the

federal budget. Executives and engineers transferred

from a military to a commercial division often

experience a prolonged period of culture shock and

some are unable to make the adjustment. This is the

opposite of the situation in civilian industry, where

the chief executive officers of Fortune 500 companies are increasingly interchangeable.

4. Many entrepreneurial civilian companies—

large and small alike-are unable and/or unwilling

to conduct business with DoD because of the heavy

investment and reorientation in business practices

necessary to meet DoD requirements.

5. Antitrust policy and a rigid regulatory framework in some high-technology areas is adversely

affecting the competitiveness of U.S. industry.

Faced with foreign competition—specifically, with

governments that act to create advantages for their

firms in the U.S. market-U.S. firms may well fail

to compete successfully with foreign businesses that

are presently gaining experience in these areas.

POLICY CONSIDERATIONS

FOR CONGRESS

The policy discussion that follows is divided into

two areas. The first deals with the question of

military dependence on foreign civilian technology. It is addressed because an increasing number of

domestic high-technology industries that are important to the military are losing technology leadership

and market share to foreign competition. The

military response has been to buy materiel from

high-technology firms located abroad. The second

area focuses on the problem of inadequate military

access to civilian technology in the United States.

In many industries, the military could improve its

access to civilian technology substantially, but

Congress would have to make changes in the

procurement system to stimulate DoD demand for

civilian products and to make it easier for civilian

companies to do business with DoD.

Military Dependence on Foreign Technology

The U.S. strategy of developing and fielding

better military technology than that of potential

adversaries requires that the DoD have access to

many technologies that are sold primarily in civilian

markets. The technologies of microelectronics, for

example, and those contemplated for optoelectronics, require enormous and continuous investments in

R&D and production facilities. These investments

will be made only by companies that expect to sell

the resulting products in a civilian market that is

many times larger than defense purchases. That

market is generally one that innovates more rapidly,

because intense competition has compressed the

product life cycle, forcing the incorporation of

technological advances at the earliest possible date.

In most cases, DoD cannot afford to pay the price

associated with this kind of R&D and is unable to

induce private industry to develop it with the

promise of future orders. Therefore, if the Defense
Chapter 9-Civilian Technology and Military Security ● 179

Department wants to acquire state-of-the-art technologies in these fields, it must purchase them from

companies that are producing for, and selling to, a

large civilian market.

Although it may be very important to U.S.

national security that the Defense Department have

access to such technologies, DoD can do very little

to influence the location, ownership, capitalization,

and fundamental directions of the commercial technologies and industries that it needs. These are

driven, instead, by domestic and international market forces, financial opportunity, and the trade and

industrial policies of OECD and other producer

nations. The corporate structure that prevails will

ultimately be determined by fierce international

competition for civilian markets and by the national

trade policies of self-interested individual trading

nations.

Two policy problems arise in this context. First,

there are unmistakable signs that participation by

U.S. companies in the high-technology sector of the

international economy is weakening in important

respects. Significant loss of capacity by U.S. companies in these dual-use industries could ultimately

undermine our basic military strategy of countering

superior numbers of enemy troops and equipment

with superior technology. The second problem,

which follows from the first, is that DoD is

becoming increasingly dependent on advanced technology and products that are developed abroad or by

foreign-owned companies located in the United

States. Although DoD does not maintain systematic

records on the amount of foreign content in U.S.

weapons systems, military and civilian officials

agree that it is significant and growing. Failure to

address these problems would eventually leave the

U.S. military vulnerable to the self-interested actions of other nations upon whose technology the

U.S. may depend.

There are no easy solutions. DoD is a small and

relatively insignificant customer when compared to

aggregate consumer demand in most hightechnology, civilian-based industries. Accordingly,

a requirement that DoD systems contain products

made only by U.S.-owned companies located in the

United States would exert little influence on the

international marketplace. Instead, such a mandate

would be likely to produce a number of unintended

and dangerous consequences. It would, for example,

limit access to advanced foreign technology, heighten tensions with our allies and trading partners, and

create financial and administrative havoc in the

defense sector of the U.S. economy. The resulting

industries would have small, assured markets, and

accordingly, little incentive to press toward the

cutting edge of international technological competition.

If Congress wishes to address this problem, it will

find that the issues of eroding dual-use industries

and military dependence on foreign firms extend

well beyond the purview of the DoD as well as the

jurisdictions of the Armed Services committees of

both Houses. This is because the environment in

which policy must operate is the civilian sector of

the international high-technology economy. DoD

does not have the competence, the resources, or the

policy levers to approach the situation in a comprehensive manner. At best, it can attempt band-aid

solutions, such as funding Sematech and research

into high definition television. What DoD might

usefully do is to help establish parameters for the

kinds of dependence that would be more or less

acceptable, even if it cannot take meaningful steps to

address the underlying causes of foreign dependence. Similarly, the Armed Services committees are

constrained by custom and by the limits of their

jurisdictions. As a result, few if any policy choices

are available without the cooperation of the tax and

trade policy committees which most affect the rules

by which companies compete in America. Nevertheless, the nation and the Congress have a national

security interest at stake, because it is unlikely that

DoD, acting alone, will be able to keep pace with

worldwide technological developments and avoid

foreign dependence.

Policy makers will have to start with a clear

conception of what a U.S. corporation or industry is,

and will have to distinguish between the question of

ownership and that of location of manufacturing

facilities. Figure 10 indicates four different combinations, each of which suggests the need for a

different policy response. In case 1, the simplest

case, a corporation or industry is largely owned by

U.S. interests and conducts most of its R&D and

manufacturing operations in the United States. From

a military perspective, this is the ideal situation, and

it was, in fact, a characteristic condition in the
180 ● Holding the Edge: Maintaining the Defense Technology Base

immediate post-WWII era. At the other extreme,

case 4, a corporation or industry is owned by foreign

interests and is physically located abroad. Here, a

flexible policy is needed that can calibrate the

degrees of risk associated both with different supplier nations and with specific technologies of

military significance. It would, of course, be necessary to make adjustments as international trading

and military relationships evolve.

Cases 2 and 3 suggest intermediate possibilities.

From a military perspective, case 2 (U.S.-based and

foreign-owned) generally represents the more acceptable condition, because the corporation and

most of its employees would be subject to the laws

of the United States and could be required to give

priority to U.S. national security needs in a crisis.

But from an economic perspective, creating incentives for foreign-owned companies to locate manufacturing and R&D facilities in the United States

might enhance or detract from the competitiveness

of U.S.-owned companies with plants in foreign

nations. There are competing interests at stake in

these situations, but it is not necessarily a zero-sum

game.

It is necessary, moreover, to distinguish between

companies that merely assemble parts into finished

products and those that actually conduct R&D and

manufacturing operations in the United States. The

former contribute far less to the U.S. defense

technology base. In addition, DoD may need access

to R&D and manufacturing facilities. While many

analysts contend that the most efficient businesses

colocate R&D and production facilities, the two are

quite clearly separable. For example, Honda makes

and sells cars in the United States but conducts

research in Japan. And Coming Glass Works manufactures optical fiber in Australia but designs it in the

United States. It would be important to consider that

foreign-owned firms might produce less advanced

technologies in the United States, saving the leadingedge R&D and production for their home bases. Care

would have to be taken in connection with any

policy that seeks to encourage foreign-owned firms

to establish R&D and production facilities in the

United States.

To the extent feasible, DoD would naturally

prefer to minimize foreign dependence in dual-use

industries that are important to the military (as in

case 1). However, doing so is not a simple matter; it

would require a variety of congressional actions, the

consequences of which would extend far beyond

their impact on foreign dependence for defense

technology. Therefore, Congress will want to take

many economic security considerations into account

in considering whether or how to act.

The basic strategy for minimizing military dependence on foreign technology would be to extend

a variety of incentives to U.S. companies to carry out

R&D and manufacturing in the United States. A

second, and perhaps complementary, course would

be to establish incentives and sanctions to encourage

foreign (and U. S.) companies to locate their R&D

and manufacturing facilities in the continental United States (case 2). In high-technology industries

where these two approaches might be unavailable, a

realistic policy would rank technologies (according

to military necessity) and countries (according to

geopolitical factors). It would then be necessary to

proceed on an industry-by-industry basis, weighing

the risks of foreign dependence against the cost and

feasibility of maintaining a particular capability in

the United States. A policy framework for each of

the four cases is shown in figure 10.

Case 1: If the goal is to promote military security,

then it makes sense to establish policies to enhance

the dual-use portion of the defense technology base

that is U.S.-owned and located in the United States.

The question of foreign dependence arises when a

critical industry is failing in the United States or

when U.S. companies fail to enter the competition in

a particular technology at all. The policy problem is

how to stimulate and otherwise assist corporations

that produce technologies and products that are (or

could be) important to the U.S. military. Policies that

are intended to improve the defense capacity of these

largely civilian companies may simultaneously affect their economic competitiveness. What is good

for the military may or may not contribute to the

health of any particular dual-use industry. It may be

necessary to set up one group of institutional

mechanisms to assist U.S. dual-use corporations and

another to enhance military access to, and procurement of, technology and products developed in the

civilian sector of the economy. These mechanisms

are discussed at the end of this chapter.
Chapter 9-Civilian Technology and Military Security . 181

Figure 10-Military Dependence on Foreign industry Ownership v. Location

OWNER SHIP

u.s. Fore i g n

u.s.

LOCATION OF

MAN U FACT U R i N Q /

R&D CAPACITY

For e i g n

1. Pro motes

miIitar y

s ecu r i t y

3. Risk depends

on specific

technologies

and nation s

SOURCE: Office of Technology Assessment, 1989.

Case 2: There will be some dual-use industries

of military significance that are located in the United

States, but which are partly or largely foreignowned. The advanced composites industry is a good

example. Roughly half of these companies are

foreign-owned, but their R&D and production facilities are mainly based in the United States. This

critically important technology is enabling for many

defense aerospace applications. DoD has tended not

to discriminate among such companies on the basis

of national ownership, and has not promoted a

stronger U.S. presence in this industry. In most

cases, it makes little difference to the military

whether or not a corporation or industry is dominated by foreign interests—so long as the critical

R&D capacity and production facilities are maintained at state-of-the-art in the United States. Yet,

distinctions would be necessary. For example,

would it be acceptable for a company to manufacture

products in the United States if all the machinery

used in the plant were foreign-built? Similarly, in

complex weapons systems, how far down the

parts-supplier chain should a requirement to manufacture in the U.S. reach’?

2. Acceptable, subject

to U.S. priori ties

i n a crisis

4. Least acceptabl e

i n terms of m i I -

i tar y security

(#3 also applies)

Case 3: Cases 3 and 4 can be combined, with the

caveat that case 3 companies (those that are U. S.-

owned and foreign-located) would presumably be

more receptive to making concessions in the national interest, although still subject to host country

controls on their operations. In general, these

companies do not contribute significantly to the

domestic defense technology base (although profits,

if repatriated, may produce economic benefits for the

United States). However, some U.S. companies

conduct R&D in the United States, but have

manufacturing and assembly operations overseas.

Policy should be sensitive to this situation, acknowledging that these companies do make a contribution

to the U.S. technology base beyond that of case 4 and

some case 2 companies. Policy may seek to remove

barriers that impede competitive domestic manufacturing.

Case 4: The defense implications of dependence

on industries that are foreign-based and foreignowned are more complex. Policy will have to be

sensitive both to the geopolitical relationship between the United States and the particular foreign

nation and to the specific technologies under consid-
182 . Holding the Edge: Maintaining the Defense Technology Base

eration. Although it is an oversimplification, figure

11 displays some of the factors that would have to be

evaluated on a case by case basis. The United States

might, for example, tolerate foreign dependence for

some key technologies and products if they were

made in Canada, which shares technology base and

free trade agreements with the United States. Contrast this with an extreme case, in which the U.S.

military depends on a Warsaw Pact nation for a

technology that is enabling for a major weapons

system. While it is easy to discriminate between

friendly neighboring countries and some Eastern

European states, it is a matter of extreme delicacy to

assess the security risk associated with technological

dependence on a variety of nations, ranging from the

EC to the Persian Gulf and the Pacific Rim. There is

the further consideration that, for some technologies,

the United States might be forced to accept a foreign

supplier or do without. One alternative is to create

the capacity domestically, using grants, tax incentives, guaranteed low-interest loans, R&D contracts

with the government, and other schemes—possibly,

but not necessarily, at expense to the taxpayer. There

are also models from other nations, including Japan,

where a portion of some domestic markets, both

civilian and defense, is reserved for domestic firms.

Congressional Action and

Institutional Mechanisms

Some analysts believe that new institutions will

be needed to address these problems. They think it

unlikely that Congress can effect such policies by

delegating the task of implementation to existing

agencies; no agency presently has the necessary

capacities or powers. From this perspective, if

Congress is interested in pursuing a policy on

dual-use technology and foreign dependence, it

could invest extraordinary powers and independence

of action in a high-level council or agency created

for that purpose. Such an agency would take steps to:

1) gather data on such essential items as foreign

content in defense systems and foreign investment in

high-technology companies, 2) assist U.S. dual-use

industries that are essential to U.S. military security,

Figure n-Military Dependence on Foreign Technology Located in Foreign Countries

GEO-POLITICAL FACTORS:

. all y

● s ustaine d supply

● contiguous

TECHNOLOGY

FACTORS:

. stategic

. enabling

. pervasive

Possibly

acceptable

(-)

Probably

UnacceptabI e

(‘)

AcceptabIe

● noncritical

● substitutes exist

(+) . Iimited miIitary

applications

Probably

accept a b I e

(-)

. hostiIe

● interruption of suppIy IikeIy

. distant

SOURCE: Office of Technology Assessment, 1989.
Chapter 9-Civilian Technology and Military Security ● 183

3) induce foreign-owned companies that are located

in the United States to conduct R&D and manufacturing operations here as well, and 4) develop or attract

an indigenous capacity for dual-use technologies in

industries where foreign dependence is unacceptable, and the domestic private sector is unwilling or

unable to withstand or enter the competition.

As an alternative, Congress may wish to consider

mandating coordination between existing agencies

and offices such as the Department of Commerce,

DoD, and the United States Trade Representative.

There can be no assurance that such an approach

would work. Each agency has its own established

areas of business and expertise, and debilitating

battles over leadership, functions, and turf could be

expected. Congress might, of course, opt to require

further studies of this problem and various approaches to it.

If Congress decides that an institutional approach

to this policy area is inadequate, an array of

strategies, used by other nations with varying

degrees of success, is available. These include

incentives and sanctions, both positive and negative.

For example, Congress could require foreign-owned

companies to locate manufacturing and R&D capacities in the United States if they intend to sell

dual-use, high-technology products in this country.

In addition, Congress could substantially strengthen

the U.S. defense technology base through increased

funding of graduate education for scientists and

engineers, and by targeting the funds for American

citizens, who are more likely to make their careers in

the United States. Congress might require a policy of

reciprocal dependence—for example, the United

States might depend on Japan for DRAMs16 and in

return, Japan would agree to depend on the United

States for jet engines, with the intent of establishing

a regime of equivalent dependencies. Or Congress

could change the structure of the tax system to

encourage U.S. companies to make longer term

investments, and change the tax code so that it no

longer favors speculative investment by increasing

taxes on short-term capital gains.

These options require painstaking analysis that is

beyond the scope of this particular assessment. They

are raised here because they illustrate the point that

the solutions to the problems of eroding hightechnology capacity and increasing military dependence, while critical to the national defense, fall

outside the usual jurisdictions of the requesting

committees of Congress. If the Armed Services

committees believe that there is a national security

interest in conserving the health of the defense

technology base in the United States, it may be

necessary to reorient the way in which the business

of the committees is conducted—i.e., to focus less

on the internal structure of DoD and more on taking

steps to build a consensus within the Congress that

can place these problems centrally on the national

agenda.

Institutional and Administrative Barriers

Unlike the problems discussed above, the issue of

military access to domestic technology falls

squarely within the purview of DoD and the

jurisdictions of the Armed Services committees of

Congress. DoD and the military-industrial sector

have become insulated from the rest of the economy

in ways that tend to weaken military access to

leading-edge civilian technology. This is largely the

result of a gradual accretion of regulations, auditing

requirements, paperwork, detailed specifications,

and inefficient business practices that constitute

substantial barriers between the military and civilian

sectors of the U.S. economy. Most of these rules

were instituted for good reasons and in response to

real problems. But the cumulative effect has been to

make defense procurement cumbersome and to

concentrate military buying in a relatively small

group of companies that have learned to conduct

business according to government rules and norms.

If Congress wishes to improve military access to

civilian technology, it will have to make some

extremely difficult choices. Congress has played an

integral role in establishing the structure of the

military-industrial sector, as well as the rules and

regulations under which it is run. To a large extent,

Congress already approves or disapproves many

important decisions that affect the defense technology base in the United States, The problem is that

many isolated decisions and actions—taken not only

by Congress, but also by DoD and the executive

16Dynmic r~dom.access IIlemO~ chips.
184 ● Holding the Edge: Maintaining the Defense Technology Base

branch—have built up over time, and the resulting

system is a patchwork of conflicting requirements

and goals. To remove barriers that impede military

access to the civilian sector, Congress will have to

balance competing interests—many of which are

supported by basic notions of fairness and other

values that have shaped the present system. The

most important barriers are outlined below, together

with discussion of the relevant policy choices and

problems.

Procurement Reform

In recent months, interest in the defense procurement process has focused on allegations of criminal

activities by officials in the Pentagon and among

some of the large defense prime contractors. While

it is important to discourage such misconduct, an

exclusive focus by the 101st Congress on issues of

malfeasance will do little to address underlying

structural problems that inhibit DoD’s access to

advanced civilian technology. Indeed, if Congress

mandates several new layers of regulation and

auditing in response, it may inadvertently create

additional barriers.

Many civil-sector companies are already reluctant

to bid on contracts with DoD because they are not

organized and staffed to comply with the FAR, and

because they do not need government business.

Generally speaking, DoD has structured its procurement process to deal with corporations that are

primarily or exclusively engaged in work for the

military. These regulations inhibit access to companies whose technology and business is largely

resident in the civilian sector of the economy. One

result is that DoD is often forced to pay a premium

for the development of a range of technologies and

products that already exist in the civilian sector.

If Congress acts to increase regulation and auditing requirements, it may be able to reduce the

amount of fraud and misconduct within the procurement system. But in so doing, it will almost certain] y

also reduce the efficiency of existing defense

companies, because they will have to increase their

paperwork load and internal audits to meet the new

requirements. At the same time, tightening up the

system to eliminate malfeasance would result in an

even more complex regulatory environment for

civilian firms, increasing the probability that such

firms would not choose to work with the government

in the future. One alternative is to do nothing, which

is a possibility when combined with rigorous

enforcement of criminal statutes already on the

books.

The opposite course is also a viable policy option.

Congress could take steps to reduce paperwork,

regulation, and auditing, with the intention of

increasing overall efficiency and DoD’s access to

high-technology companies and products in the

civilian sector of the economy. Such action might or

might not result in an increase of fraud and

mismanagement in the defense sector. But it might

expand the interaction with civil-sector firms that

are now reluctant to do business with DoD. Some

argue that the complexity of the defense regulatory

environment encourages defense contractors to find

ways to skirt the rules, simply because the proliferation of such regulations over time has made it

extremely difficult to conduct business in an efficient and rational manner. Congress will have to sort

out these issues as it seeks a policy that discourages

misconduct without increasing the barriers of inefficiency and complexity that afflict the present

system.

If Congress is reluctant to act, it may wish to study

these problems in greater depth. To do so it could

establish an independent commission to explore

the effects of: 1) reducing or expanding procurement regulations, and 2) exempting hightechnology civil-sector firms from some procurement regulations. This commission would examine

the difficulties that civilian companies face in doing

business with DoD. It would evaluate the ways in

which the procurement system itself mitigates

against military access to civil-sector technology.

And it would weigh the costs and benefits of

expanding or reducing procurement regulation. A

central purpose would be to recommend changes in

the procurement system that would induce civilsector companies to sell their products to DoD or to

modify them to meet DoD’s needs.

A complementary and probably subsequent approach would be to create a market for civilian

products in DoD by mandating a preference for

commercial items that are not developed under

contract with DoD, using simplified and expedited contracting and acquisition procedures. In

DoD, commercial products are referred to as non-
Chapter 9--Civilian Technology and Military Security ● 185

developmental items (NDI) and commercial off-theshelf. The purpose of this preference would be to

ensure that program managers give careful consideration to existing NDI/COTS technology before

beginning new development. Despite repeated cabinetlevel memoranda and executive direction to the

contrary, DoD rarely substitutes commercial products for milspec developmental items. This is due

partly to a historical bias in favor of contracting for

development, partly to a reluctance of program

managers to risk using items not designed to military

specification, and partly to the regulatory structure

that governs the procurement process. If Congress

decides to increase government access to civilianbased technology and products, it will have to use

the blunt instrument of a direct and unambiguous

legislative mandate to overcome a large measure of

resistance within DoD and the military sector of the

economy.

It is likely that any reform of the procurement

process that encourages the use of civil-sector

technology and products will also require fundamental changes in the relationship between DoD and

some of the firms with which it does business.

Civilian sector executives who do not need DoD

business are unlikely to tolerate the heavy hand of

government regulators and auditors changing the

administrative policies and practices of their companies. Regulated profits, detailed military specifications, set-asides for small and minority firms,

affirmative action, specialized auditing procedures,

and competitive bids from sub-tier suppliers may

satisfy government notions of fairness and social

responsibility. But when they are imposed on

commercial operations, they tend to weaken the

efficiency and competitiveness of companies that

depend on sales in consumer markets for survival.

These companies are in business to make a profit.

Their managements are responsible to stockholders,

who expect shorter-term results than are typically

envisioned by government programs or international

competitors. Congress will have to make allowances

for the fundamental differences in the way business

is conducted in the defense and civilian sectors of the

economy, if it wants to increase military access to

advanced, commercially based technologies and

products.

Specifications Overhaul

In general, the DoD specifications process is too

cumbersome and too rigid to establish reasonable

and realistic standards for technologies that are

changing rapidly. Too often, prescriptive standards

are mandated where performance specifications

would be more appropriate. Although they are

necessary if DoD is to conduct procurement at all,

specifications can lock the military into a developmental mode and block access to existing civilsector technologies, products, and systems. The

OTA case studies found instances where the military

could not use existing superior civilian technology

because DoD regulations mandated compliance

with outmoded specifications. Civil-sector companies, military prime contractors, and milspec specialists in the Services all agree that there are too

many specifications, referencing too many additional documents, and that there is no effective

process for eliminating outdated and unnecessary

documentation. Military specifications can exert the

largely unintended effect of creating divergence

between military and civilian applications of the

same technologies.

If Congress wishes to address this problem, there

are a number of steps it could consider. In hightechnology fields where civilian products and technologies are clearly at the leading edge, Congress

could require the harmonization of military

specifications with best practice in the civilian,

high-technology sector. Such a requirement would

apply to dual-use technologies where meeting adverse training and battlefield conditions is not at

issue. In its study of fiber optics and software, for

instance, OTA found numerous examples where the

military could benefit from adopting best practice in

fast-moving civilian technologies. Such action might

encounter resistance from quarters within DoD

where there is a strong belief in the necessity of

designing systems specifically to meet user requirements and battlefield conditions. Nevertheless, where

the underlying technologies are similar in the

defense and civilian sectors, great cost savings might

be realized by tailoring military specifications to

take advantage of existing civilian products and

applications —as opposed to designing divergence

into the specification and codifying it.
186 . Holding the Edge: Maintaining the Defense Technology Base

In addition, Congress may wish to mandate the

use of performance-type specifications in fastmoving, high-technology fields. The alternative is

to nail down prescriptive standards that tend to

freeze military systems at or below present-day

levels of technological development, Performance

specifications have the advantage of introducing a

measure of flexibility into the system itself, and into

the procurement process, that could substantially

enhance military access to advanced technologies in

the civilian sector. They could be written broad] y to

encourage substitution of NDI or COTS products

where possible,

It is unlikely that specific policy options can be

implemented until the system of writing military

specifications and the culture that sustains it are

changed. With this caveat in mind, Congress might

require the review and consider the revision or

nullification of existing prescriptive specifications at some specified interval. The purpose of

such a review would be to make the process of

writing specifications more responsive to technological advances in the civilian sector, and to do

away with the proliferation of unnecessary or

outdated requirements and documentation. By the

time they are written, many military specifications

no longer reflect the state of the art in dual-use

technology industries. This is partly because the

product cycle is so much shorter in the civilian

sector. In order to reduce the multiyear process of

specification writing, it may be necessary to introduce greater flexibility by reducing inter-Service

coordination and permitting the different Services to

use different specifications to meet their specific

needs.

Restructuring Data Rights

It is extremely difficult to strike an equitable and

appropriate balance in allocating data rights in

contracts between the government and the private

sector. Government agents tend to demand as many

data rights as they can get in any given contract

because they are under a fiduciary obligation to

protect the interests of the government. In many

cases, the contractors lose most, if not all, of their

intellectual property rights to the technology and

products they develop. DoD negotiators typically

demand the right to duplicate, use, and disseminate

such data without restriction. The claim to unlimited

data rights is based on three important considerations. The first is that by securing complete data

rights, DoD is in a position to foster competition by

sharing the data among potential contractors. Second, unlimited rights protect the government from

future costs and claims of infringement, and help to

ensure dissemination of publicly sponsored research

efforts. And third. full data rights to software ensure

that DoD will be able to modify and maintain

software in the field.

This orientation contrasts sharply with practice in

the civilian sector, where R&D and process data are

carefully guarded and no company could expect any

rights to another’s proprietary information. Many

executives of civil-sector firms believe that government procurement officers and regulations do not

recognize the extent to which high-technology

industries are driven by R&D activity. These firms

are typically unwilling to share data, because they

believe it can be used to reveal a core of proprietary

information. In some cases, software and fiber optics

companies invest tens of millions of dollars to

develop a process or series of products. Consequently, these civil-sector companies are unwilling

to contract with DoD, because it insists on extensive

data rights and may even set a competitor up in

business.

In the case of software, the most recent directives

and regulations enable DoD to accept limited rights

to intellectual property. For software developed

wholly with private funds, the contractor can negotiate restricted data rights giving the government the

ability to modify software and make backup copies,

but allowing the developer to incorporate a typical

licensing agreement. The government hopes to

retain the ability to maintain its software systems

and to ensure that future maintenance and reprocurements will be competitive. Despite these acknowledgments and the flexibility granted government

contracting officers to negotiate less-than-exclusive

rights to data, DoD still insists on full transfer of data

rights in most cases.

If Congress wants to increase government access

to civilian high-technology firms, it will have to

reevaluate the principle of exclusive and unlimited

data rights. In part, this may require that DoD

distinguish companies that have developed a product or process with private funds from those that
Chapter 9-Civilian Technology and Military Security ● 187

have done so under contract with the government or private sector. Congress may wish to review existing

with funds that are reimbursed by DoD. In addition, data rights policies and procedures mandated interCongress might require DoD to create different nally by DoD directives, and to assess the level of

categories of data rights—ranging from the unlim- training that would be necessary to enable contractited to the narrowly specified-when it is buying ing officers to negotiate data rights and still protect

from firms that do most of their business in the the legitimate interests of the government.