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i 

85–330 2014

[H.A.S.C. No. 113–66] 

TWENTY–FIVE YEARS OF ACQUISITION 

REFORM: WHERE DO WE GO FROM HERE? 

COMMITTEE ON ARMED SERVICES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

OCTOBER 29, 2013 
(II) 

COMMITTEE ON ARMED SERVICES 

ONE HUNDRED THIRTEENTH CONGRESS

HOWARD P. ‘‘BUCK’’ MCKEON, California, Chairman 

MAC THORNBERRY, Texas 

WALTER B. JONES, North Carolina 

J. RANDY FORBES, Virginia 

JEFF MILLER, Florida 

JOE WILSON, South Carolina 

FRANK A. LOBIONDO, New Jersey 

ROB BISHOP, Utah 

MICHAEL R. TURNER, Ohio 

JOHN KLINE, Minnesota 

MIKE ROGERS, Alabama 

TRENT FRANKS, Arizona 

BILL SHUSTER, Pennsylvania 

K. MICHAEL CONAWAY, Texas 

DOUG LAMBORN, Colorado 

ROBERT J. WITTMAN, Virginia 

DUNCAN HUNTER, California 

JOHN FLEMING, Louisiana 

MIKE COFFMAN, Colorado 

E. SCOTT RIGELL, Virginia 

CHRISTOPHER P. GIBSON, New York 

VICKY HARTZLER, Missouri 

JOSEPH J. HECK, Nevada 

JON RUNYAN, New Jersey 

AUSTIN SCOTT, Georgia 

STEVEN M. PALAZZO, Mississippi 

MARTHA ROBY, Alabama 

MO BROOKS, Alabama 

RICHARD B. NUGENT, Florida 

KRISTI L. NOEM, South Dakota 

PAUL COOK, California 

JIM BRIDENSTINE, Oklahoma 

BRAD R. WENSTRUP, Ohio 

JACKIE WALORSKI, Indiana 

ADAM SMITH, Washington 

LORETTA SANCHEZ, California 

MIKE MCINTYRE, North Carolina 

ROBERT A. BRADY, Pennsylvania 

ROBERT E. ANDREWS, New Jersey 

SUSAN A. DAVIS, California 

JAMES R. LANGEVIN, Rhode Island 

RICK LARSEN, Washington 

JIM COOPER, Tennessee 

MADELEINE Z. BORDALLO, Guam 

JOE COURTNEY, Connecticut 

DAVID LOEBSACK, Iowa 

NIKI TSONGAS, Massachusetts 

JOHN GARAMENDI, California 

HENRY C. ‘‘HANK’’ JOHNSON, JR., Georgia 

COLLEEN W. HANABUSA, Hawaii 

JACKIE SPEIER, California 

RON BARBER, Arizona 

ANDRE ́ CARSON, Indiana 

CAROL SHEA-PORTER, New Hampshire 

DANIEL B. MAFFEI, New York 

DEREK KILMER, Washington 

JOAQUIN CASTRO, Texas 

TAMMY DUCKWORTH, Illinois 

SCOTT H. PETERS, California 

WILLIAM L. ENYART, Illinois 

PETE P. GALLEGO, Texas 

MARC A. VEASEY, Texas 

ROBERT L. SIMMONS II, Staff Director 

LYNN WILLIAMS, Professional Staff Member 

SPENCER JOHNSON, Counsel 

TIMOTHY MCCLEES, Professional Staff Member 

AARON FALK, Clerk 
(III) 

C O N T E N T S 

CHRONOLOGICAL LIST OF HEARINGS 

2013 

Page 

HEARING: 

Tuesday, October 29, 2013, Twenty-five Years of Acquisition Reform: Where 

Do We Go from Here? .......................................................................................... 1 

APPENDIX: 

Tuesday, October 29, 2013 ...................................................................................... 45 

TUESDAY, OCTOBER 29, 2013 

TWENTY–FIVE YEARS OF ACQUISITION REFORM: WHERE DO WE GO 

FROM HERE? 

STATEMENTS PRESENTED BY MEMBERS OF CONGRESS 

McKeon, Hon. Howard P. ‘‘Buck,’’ a Representative from California, Chairman, Committee on Armed Services .................................................................. 1 

Smith, Hon. Adam, a Representative from Washington, Ranking Member, 

Committee on Armed Services ............................................................................ 2 

WITNESSES 

Chao, Pierre A., Senior Associate (Non-Resident), International Security Program, Center for Strategic and International Studies ...................................... 7 

Francis, Paul L., Managing Director, Acquisition and Sourcing Management, 

U.S. Government Accountability Office .............................................................. 11 

Schwartz, Moshe, Specialist in Defense Acquisition Policy, Congressional Research Service ....................................................................................................... 9 

Zakheim, Hon. Dov S., Former Under Secretary of Defense (Comptroller), 

Senior Advisor, Center for Strategic and International Studies ...................... 3 

APPENDIX 

PREPARED STATEMENTS: 

Chao, Pierre A. ................................................................................................. 77 

Francis, Paul L. ................................................................................................ 112 

McKeon, Hon. Howard P. ‘‘Buck’’ .................................................................... 49 

Schwartz, Moshe ............................................................................................... 87 

Smith, Hon. Adam ............................................................................................ 51 

Zakheim, Hon. Dov S. ...................................................................................... 53 

DOCUMENTS SUBMITTED FOR THE RECORD: 

Statement of J. Ronald Fox, ‘‘Defense Acquisition Reform’’ ......................... 133 

WITNESS RESPONSES TO QUESTIONS ASKED DURING THE HEARING: 

[There were no Questions submitted during the hearing.] 

QUESTIONS SUBMITTED BY MEMBERS POST HEARING: 

Mr. Langevin ..................................................................................................... 157 

Mr. Miller .......................................................................................................... 151 

(1) 

TWENTY–FIVE YEARS OF ACQUISITION REFORM: 

WHERE DO WE GO FROM HERE? 

HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, Washington, DC, Tuesday, October 29, 2013. 

The committee met, pursuant to call, at 10:10 a.m., in room 

2118, Rayburn House Office Building, Hon. Howard P. ‘‘Buck’’ 

McKeon (chairman of the committee) presiding. 

OPENING STATEMENT OF HON. HOWARD P. ‘‘BUCK’’ MCKEON, 

A REPRESENTATIVE FROM CALIFORNIA, CHAIRMAN, COMMITTEE ON ARMED SERVICES 

The CHAIRMAN. The committee will come to order. 

We convene on a sad day. Yesterday, this committee lost a 

former chairman, a hero, a patriot, and a friend. Ike Skelton will 

be deeply missed, not only by those of us Members and staff in this 

room, but by the men and women in uniform who Ike worked so 

hard and so humbly for. 

It was always difficult to have a conversation with Ike in public 

because our troops were always stopping him to thank him, to have 

their picture taken with him, or to let him know how his service 

had made theirs better. Ike was always humble when he met them. 

There is no tribute we can offer that can ever match the gratitude of those men and women. It is appropriate, though, that we 

take a moment now to bow our heads and thank God for the gift 

of having known Ike and for the opportunity to carry on his work. 

[Moment of silence.] 

The CHAIRMAN. Thank you. 

That brings us to today’s hearing. As many of you know, this 

committee, under leadership of many like Ike, has a long track 

record of tackling incredibly complex and challenging issues. The 

subject of today’s hearing, acquisition reform, is one of those issues. 

For anyone who needs reminding of the magnitude of defense acquisition, in 2012 the Defense Department’s contract obligations 

were 10 percent of the entire Federal budget. 

While this committee has led successful efforts to improve the 

way the Department acquires items and services, there are still 

significant challenges facing the defense acquisition system. We 

cannot afford a costly and ineffective acquisition system, particularly when faced with devastating impacts of repeated budget cuts 

and sequestration. 

The Congress, together with the Department of Defense and industry, must be willing to do the hard work to find root causes, 

look past Band-Aid fixes and parochial interests, and have the 

courage to implement meaningful, lasting reform. To this end, I 
2 

have asked our vice chairman, Mr. Thornberry, in consultation 

with our ranking member, to engage in a long-term DOD [Department of Defense] reform effort that includes a hard look at acquisition. 

We have invited an extraordinary panel of witnesses to help us 

with that task here today. I am very thankful for their willingness 

to be here to examine previous reform efforts, explore reasons the 

Department continues to field programs over budget and behind 

schedule, and look to ways that we can lead lasting reform efforts. 

Joining us today are the Honorable Dov Zakheim, former Comptroller of the Department of Defense; Mr. Pierre Chao, senior associate, Center for Strategic and International Studies; Mr. Moshe 

Schwartz, specialist in defense acquisition policy, Congressional Research Service; and Mr. Paul Francis, Managing Director, U.S. 

Government Accountability Office. 

Unfortunately, Dr. Ron Fox from the Harvard Business School 

could not be here today. He did, however, provide us with written 

remarks that you all have a copy of, and I thank him for that. 

And I ask unanimous consent that those remarks be entered into 

the record. 

Without objection, so ordered. 

[The statement of Mr. Fox can be found in the Appendix on page 

133.] 

The CHAIRMAN. Mr. Smith. 

[The prepared statement of Mr. McKeon can be found in the Appendix on page 49.] 

STATEMENT OF HON. ADAM SMITH, A REPRESENTATIVE FROM 

WASHINGTON, RANKING MEMBER, COMMITTEE ON ARMED 

SERVICES 

Mr. SMITH. Thank you, Mr. Chairman. 

First of all, I want to share in your remarks about Chairman 

Skelton. I served on this committee with him for 14 years. He was 

an amazing man. I mean, I can’t think of anybody who was more 

dedicated to the people who served in the military. When you 

would travel with Ike, he always, as we were doing our meetings 

with different groups and everything, he would always say, ‘‘Where 

are the troops? I want to talk to the troops.’’ And he always did 

that, and he always looked after them. He had a knowledge of military history and a dedication to the men and women who served 

which is unparalleled. 

But he was also just an excellent mentor for everybody who 

served on this committee, Republican and Democrat alike. And Mr. 

McKeon and I always talk about how this is a—you know, it is a 

bipartisan committee. Well, it took dedication of people like Mr. 

Skelton to make sure that that was the case. As both the chairman 

and ranking member, he went out of his way to work across the 

aisle to make sure that we always remembered what we were 

doing here, which was to look after the national security interests 

of our country and those who served and protected it. 

He will be sorely missed by many. I know many of the staff 

worked very closely with him for years and years, as well. But he 

lived a very, very good life. And he upheld the standards of this 

body, Congress, and, in particular, upheld the standards of the 
3 

House Armed Services Committee in a way that all of the rest of 

us should absolutely aspire to. 

So I thank the chairman for taking a moment to recognize his 

service. And it is a very sad day. We will all miss Ike, but we 

thank him for all that he has done for his country, for his district, 

for the men and women in the military, and for this committee. 

It is hard to go from that to talking about acquisition reform, but 

I appreciate our panelists being here today. It is a never-ending 

challenge. One of the big things that was accomplished when Ike 

was chairman of this committee was we passed a comprehensive 

acquisition reform bill that I think has made, you know, some positive steps. 

And there is a whole bunch of different things that could be said 

about it, but the thing that I have sort of learned in my time of 

working on it is that it really comes down to people. You know, we 

can pass all the legislation we want. It really is a matter of how 

the DOD operates—the procurement shop, the program managers, 

you know, what is the ethic that is put in place there, how do we 

get to greater efficiency. 

I think one of the greatest challenges in that is getting the incentives right so that the men and women who work in this have the 

proper incentive to be innovative, to find the way to do the thing 

that is most cost-effective. I think far too often the incentives that 

are in place within our personnel system within DOD are to merely 

check the box. As long as you did the process right, regardless of 

the result, nobody can blame you. I think we need to better empower the people in the Pentagon to make those smart decisions. 

When you go out in private industry and you see how companies 

have, you know, sort of changed paradigms and all of a sudden become more efficient and more effective than their competitors, it is 

not because a group of people sat in a room somewhere and developed a perfect process and then everybody robotically followed it. 

It is because people doing the work saw opportunities and took 

them and figured out how to do things different and better and 

more efficiently. 

So I know there are a lot of other issues around this, but, for me, 

empowering the people to make those smart decisions is one of the 

most important approaches that we can take. 

I look forward to the testimony of our very distinguished panel, 

and I thank the chairman for holding this hearing. 

[The prepared statement of Mr. Smith can be found in the Appendix on page 51.] 

The CHAIRMAN. Thank you. 

Mr. Zakheim. 

STATEMENT OF HON. DOV S. ZAKHEIM, FORMER UNDER SECRETARY OF DEFENSE (COMPTROLLER), SENIOR ADVISOR, 

CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES 

Mr. ZAKHEIM. Thank you, Mr. Chairman. For the record, thank 

you for being so nice to my son. 

The CHAIRMAN. Can you move that mike right—real close? 

Thank you very much. 

Mr. ZAKHEIM. Were you able to hear me? 

The CHAIRMAN. You bet. 
4 

Mr. ZAKHEIM. Mr. Chairman, Ranking Member Smith, distinguished members of the committee, I appreciate the opportunity to 

appear again before you. 

The title of your hearing actually outlines the nature of the challenge that DOD faces: 25 years of acquisition reform, and we still 

have to ask, where do we go from here? 

In fact, for much longer than 25 years, talented officials, many 

of them with illustrious records in industry, have grappled with the 

reality that our defense acquisition system is fundamentally broken. 

And I would ask, because I have a long statement, that it be 

placed in the record, and that way I can abridge it now. 

The CHAIRMAN. All of your statements will be placed in whole in 

the record. 

Without objection, so ordered. 

Mr. ZAKHEIM. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. 

Mr. ZAKHEIM. More money is buying less product, and this is cost 

growth, not just inflation. The F–35 is a good example of a very 

long list. And despite so-called improvements in manufacturing 

processes, costs continue to grow. It is decades since Norm Augustine said that the way costs were rising, we would wind up with 

one plane, one ship, and one tank. And nothing has happened since 

he said that to change the analysis. 

And equally troubling is the management of DOD’s acquisition of 

services. Services get a lot less scrutiny than the acquisition of 

goods, but they account for more than half of all DOD acquisition. 

But poor product, duplication, more generally waste, occasionally 

fraud and abuse, have plagued the Department’s acquisition of 

services for years and are a special cause of concern. 

As long ago as 1975, a subcommittee of the Senate Government 

Affairs Committee, as it was then called, held a hearing—a series 

of hearings on defense acquisition, including one on major systems 

acquisition reform. Since then, we have had DSB [Defense Science 

Board] reports, commissions, task forces, think tanks all worrying 

about the same thing, government initiatives as well, most recently 

the Better Buying Power memorandum of November 2012, and 

changes all the time to the DOD 5000 series of acquisition directives. 

But the Rapid Acquisition Cell in effect identifies the heart of the 

problem and its size. Imagine, we set up a Rapid Acquisition Cell 

to get around our own acquisition system. 

And so the current era of budget constraints renders the need for 

acquisition reform even more urgent than in the past. We can’t afford to waste a cent, much less dollars or billions of them. 

And there is no point blaming anyone for this. We are where we 

are. But the executive branch and the Congress have to commit to 

a radical restructuring of the acquisition system in all its manifestations. And by the executive branch, I don’t just mean DOD. I 

mean OPM [Office of Personnel Management], as well, and OMB 

[Office of Management and Budget], too, its management side. 

So what do we need? First, we need a core of educated consumers. DOD no longer has the monopoly on technology. There is 

Silicon Valley, North Carolina Research Triangle, Route 28 in Mas-
5 

sachusetts, lots of other places that are ahead of DOD in advanced 

technology. But there is no DOD-wide program to ensure that its 

civilians remain conversant with the most up-to-date technological 

developments. Too often, they have to rely on contractors for analytical and scientific support. 

And, yes, there are online courses at the Defense Acquisition 

University and there is the university itself. But too many program 

managers appear to be deficient when it comes to supervising the 

progress of programs simply because they don’t know the technology that they are supervising. 

And, finally, too many contracting officers carry out their tasks 

in a lot less than optimal ways. They usually opt for the lowest 

price. That way, they can afford to avoid bid protests. That is not 

the way you should run the system. 

So, in the last minute or so of the time available to me, I am 

going to jump to some suggestions. 

First, we need to encourage, and not discourage, our acquisition 

officers to get outside education. We need to be sure that when 

they come back they have jobs that make it a profession, a career, 

and not just a job. This does not happen very often at all. 

We must make sure that contracting officers are proficient. They 

are not right now. We must guarantee that someone does not move 

up the chain of promotion unless they have had the equivalent of 

professional military education. You can’t become a lieutenant colonel without going to Command and Staff College. You can’t become 

a flag or general officer without going to the NDU [National Defense University] or one of the other 1-year university courses at 

the War College level. But you can get promoted to SES [Senior 

Executive Service], to GS–15 and –14 without having taken a single course since you went to graduate school. And then you are 

supposed to manage billion-dollar, leading-edge programs that are 

state-of-the-art. It doesn’t work. We need to do something about 

that. 

We need to encourage people not to simply spend every penny 

they’ve got because if they do so they will be penalized. It is absolutely the wrong way around. They should be rewarded for saving 

money. The money should go back to DOD. Maybe some would 

argue it should go back elsewhere. But it should be saved. And we 

need to reward people for that. 

Our measurement and reward system is simply not adequate, 

and a lot of that has to do with OPM. OPM is still operating with 

1960s rules, with the way it defines particular job descriptions, 

with the way it deals with promotions, with the way it deals with 

education. This is not just a DOD problem. If we are talking about 

defense civilians, then OPM has to weigh in. 

If we are talking about the military, then we have to look at how 

long they serve in a particular program management job. The director of the Nuclear Reactors Program for the Navy serves 10 

years. No senior military officer who is in charge of a major program should serve for less than 5 years. You cannot have the kind 

of turnover we have and expect programs not to overrun, not to be 

late, not to miss testing schedules. It just doesn’t work. 

Another point that I would like to make regarding some way to 

deal with acquisition in a different way from the present is we 
6 

need to focus a spotlight on DCMA [Defense Contract Management 

Agency]. The Defense Contracts Management Agency has roughly 

over 1,000 people—excuse me, more than that. It has—yes, it has 

over 1,000 people and over a billion-dollar budget and, I don’t 

know, about 12,000 contractors. 

DCMA has always been under everybody’s radar screen, and yet 

they are supposed to manage the contracts. They don’t reward people for managing contracts well. People just move up the chain. 

This needs to be looked into very, very carefully. We cannot—we 

far too often blame contractors, when, in fact, they are not given 

clear rules, they are not given clear directives. DCMA has to enforce that. 

And one thing that is exceedingly important for DCMA to enforce 

is the whole approach to engineering change proposals [ECPs]. 

What often happens is that contractors, because they know contracting officers will go with the low bid to avoid bid protests, contractors come in with the lowest bid. They lowball the bid, and 

then they figure, well, we will make it up later. Well, how do you 

make it up later? You make it up later when somebody gives you 

an engineering change proposal. It is like a dentist who discovers 

he has to do a crown; he praises God. It is the same thing with 

ECPs, because that busts completely through any firm, fixed-price 

contract. 

Who is supposed to enforce some kind of rigorous control over 

ECPs? Well, if you look at requirements, that is done by the Joint 

Chiefs. And Admiral Winnefeld has done a tremendous job in ensuring that once the Chiefs agree on a requirement, which is based, 

of course, on what the commanders-in-chief in the field say, by and 

large, then you review that requirement and you come back to it 

and make sure that it holds. But once there is an engineering 

change proposal, that falls through as well. 

DCMA has to ensure that an ECP simply is not approved at 

lower levels. You want an ECP? You hand it to your boss, and your 

boss hands it to their boss so that you have a senior person who 

is responsible, who is accountable, who then signs off, and I guarantee you the number of ECPs is going to be minimized. And once 

that happens, people are going to stop lowballing because they 

know they are not going to get their money back, and the whole 

cycle that we have now is going to get reversed. 

So I urge you to look very closely at DCMA, at the whole ECP 

issue, and talk to everybody about it—the military, the civilians, 

industry. You will get the same answer. 

It looks like I am way over my time, so I will just say this. I 

think what you are doing is exceedingly important. Like I said, this 

has been going on for years, for decades. The list of programs that 

have overrun is a mile long. And it is not going to take you 6 weeks 

or even 6 months to fix the problem. 

But the people in the Pentagon, particularly the top, are dedicated to this. One important thing is that, whoever is the Secretary 

of Defense—Democrat, Republican, doesn’t matter—they need to 

share this objective. You shouldn’t just come in and say, I am going 

to throw everything overboard because the other guy had it and 

this isn’t mine. It needs to be a bipartisan effort, it needs to be a 

long-term effort, and, God willing, you will succeed. 
7 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Zakheim can be found in the Appendix on page 53.] 

The CHAIRMAN. Thank you. 

Mr. Chao. 

STATEMENT OF PIERRE A. CHAO, SENIOR ASSOCIATE (NON– 

RESIDENT), INTERNATIONAL SECURITY PROGRAM, CENTER 

FOR STRATEGIC AND INTERNATIONAL STUDIES 

Mr. CHAO. Mr. Chairman, Ranking Member Smith, distinguished 

members of the committee, thank you for the privilege to appear 

before you to discuss the very important topic of improving the defense acquisition enterprise. It is an excellent one for the committee to be addressing. And, Mr. Chairman, as you noted, in a period of slowing defense spending, these dollars will be extremely 

precious, and it will be strategically important for the Department 

of Defense to have an efficient acquisition system. 

I thought I would make five, sort of, key observations about the 

acquisition reform system and the efforts and look forward in 

terms of what should be done. 

First, there has been a very useful evolution of the debate about 

acquisition reform. If you take the time to read, you know, the commissions and studies done after the Revolutionary War, Civil War, 

any other conflict, they are filled with horrific stories about true 

corruption and fraud and abuse. And so it should be no surprise 

that the first 150 years was spent in terms of putting in laws to 

prevent those kinds of things. 1980s, 1990s, 2000s, we rotated into 

looking at how do you bring efficiencies to the processes and functioning of the acquisition system. 

What I think has been important in the last 7 years has been 

the recognition that the acquisition system is part of a broader system that involves the requirements, budgeting processes, as well as 

the acquisition process. I can have the most perfectly designed and 

functioning acquisition system, but if it is fed the wrong requirements or rapidly changing requirements, it will still produce bad 

outcomes. 

And so continuing that focus and accepting the viewpoint and the 

results of GAO [Government Accountability Office] analyses and 

others that sits there and says that 85 percent of the cost of a 

weapons system is determined by the time the requirements are 

set, looking at the functioning of the requirements processes and 

systems and how it interfaces with others I think would be a very 

fruitful place, you know, to continue to look as we go forward. 

Second, the laws and rules defining and governing the DOD acquisition system are large and complex. They have accreted over 

time. If you go back to the original roots of any one of those rules 

or regulations, there was probably a true original problem. The 

problem is that we have accreted other rules that sometimes conflict, everybody forgot why the original rule came into place, and 

there has been a tendency to add rules but never take any away, 

which is why things like the Section 800 Panel that was done in 

1993 or the periodic rewrites of the 5000 instructions are so useful, 

because it causes a relook. 
8 

As an aside, putting a sunset clause on almost all new laws or 

rules to force a periodic reexamination would be an interesting best 

practice to consider. It would be my observation that many of the 

problems of the acquisition system are really the result of unintended consequences of a very Byzantine and sometimes outright 

contradictory set of laws and regulations rather than outright malice or malfeasance on the part of the people. 

Third point: One size does not fit all in this system. The Pentagon is acquiring and buying a wide range of technologies, products, and services. It touches almost every segment of the economy. 

We are doing everything from trying to draw in new technologies 

to buying very mature platform systems, buying services. Now, actually, the Pentagon buys as much services as it does hardware. 

And we have a system that is trying to live in a dual mode of both 

doing rapid acquisition for the war, where time and speed is critical, at the same time as we are trying to buy very long-cycle weapons systems. 

Reforms being done at one end of the system may actually be 

very counterproductive if applied to the wrong end of the system. 

And so avoiding the tendency to do, you know, one-size-fits-all 

types of rules or regulations would be important, and looking at, 

frankly, whether do we need multiple tracks that run through it, 

which—different sets of rules and policies and procedures and, 

frankly, cultures, as well. 

Fourth point: All the cost overruns, missed deadlines, failed programs are symptoms, not root causes. I think part of the reason 

why we have failed to shift the system is because many of the studies and reform attempts have tried to go after the systems rather 

than the root causes. And I would submit that there are four root 

causes to consider. 

The first one is, we want to have a military at the technological 

cutting edge—and that has always been our focus. If you live at the 

technological cutting edge, you are going to have failures, risk, and 

structural overruns. We will never be able to get the overruns 

down to zero, frankly, if we want to choose that. And attempting 

to do so is a little bit—is essentially chasing a chimera that doesn’t 

exist. That doesn’t mean we should tolerate poor performance and 

not try to improve it. It simply says that eliminating all cost overruns is incompatible with our strategic goals. 

Two, in terms of another structural disconnect, there are fundamental and structural disconnects in the timeframes used by the 

different actors. I am trying to do a decade-long program with program managers that rotate over a couple of years, with oversight 

by a Congress that has 2- and 6-year cycles, being executed by companies that have quarterly performance metrics that they are trying to match. 

Getting realignment in those timeframes, I think, would be useful, to the extent that it is those different timeframes that creates 

the friction and cost in the system. So, as Dov mentioned, having 

program managers who spend more time there. If you want to really take on something, looking at budgeting processes and how we 

appropriate dollars. In some cases it may be appropriate to do it 

on an annual basis, in other cases maybe on a multiyear basis, in 

order to better match and create stability in the system. I believe 
9 

we waste billions of dollars in this churning of mismatched timeframes. 

The other key structural issue: The economic and profit incentives embedded in the system creates adverse results. We would 

rather pay a billion dollars and 4 percent margins than $600 million and 20 percent margins. Even though that differential would 

save the taxpayers $400 million, I guarantee you, if it was that, we 

would have a question about, why did that contractor make 20 percent margins? And yet, when we use that kind of a system, we then 

turn all the economic incentives in the capitalist system that we 

have a military to protect and defend on its head. And so, looking 

at the disincentives to reduce costs and the behaviors are there. 

And, Ranking Member Smith, I was really encouraged by your 

using the word ‘‘incentives’’ in your comments, because that is a 

topic that has rarely been addressed in prior studies. We move 

boxes, we add people, we rearrange things, we pass laws, and rarely has anybody said, what are the incentives that we want to put 

into place? As you noted, in the end, it is down to the behaviors 

of people, and they go by those incentives. 

The system is set up with a structural incentive to lie to itself. 

We want to put in the low bid to win the contract, DOD wants to 

accept that low bid in order to get the program going, Congress 

wants to accept it so we can get the program going and get jobs 

in districts. And part of those cost overruns that you see is nothing 

more than that lie being manifest, and it is something that we 

knew right from the beginning. 

And some of the studies have begun to approach this, you know, 

budgeting to the 80 percent probability line rather than 50 percent, 

and I would argue, again, changing the incentives for missing that. 

In fact, we have the ironic counterincentive. The programs that fail 

are the ones that get extra money, and if you actually do your job 

and come in under budget and ahead of time, you get your money 

taken away from you. So why would I ever want to do that? 

If this group focused on this topic of incentives, I would argue 

you would move the ball much further than any other efforts have 

over the last couple of decades. 

Thank you for the opportunity to share some of my thoughts. I 

look forward to your questions and the dialogue. 

[The prepared statement of Mr. Chao can be found in the Appendix on page 77.] 

The CHAIRMAN. Thank you very much. 

Mr. Schwartz. 

STATEMENT OF MOSHE SCHWARTZ, SPECIALIST IN DEFENSE 

ACQUISITION POLICY, CONGRESSIONAL RESEARCH SERVICE 

Mr. SCHWARTZ. Chairman McKeon, Ranking Member Smith, distinguished members of the committee, thank you for the opportunity to discuss defense acquisitions. 

I want to begin with a quotation. ‘‘The policies of the Department 

on development and acquisition of weapons and other hardware 

have contributed to serious cost overruns, schedule slippages, and 

performance deficiencies. The difficulties do not appear amenable 

to a few simple cure-alls but require many interrelated changes in 

organization and procedures.’’ 
10 

If I told you that this quote was from a report written last year, 

I imagine no one in this room would question that or think twice. 

However, these words were written in 1970, and many analysts believe they are as true then as they are today. 

On one level, the defense acquisition system works well. Our 

military has the most advanced weapons in the world, and no other 

military could execute operational contract support on the scale 

necessary for the operations we conducted in Iraq and Afghanistan 

over the last decade. 

But on another level, the system is not working. Consider these 

facts: Since 1997, one-third of major defense acquisition programs 

have a cost growth of at least 15 percent. From 1996 to 2010, the 

Army spent more than $1 billion annually on programs that were 

ultimately canceled. The time it takes to develop new aircraft has 

increased since 1980 and is continuing to increase, and some programs have development times of 15 years or more. In short, it 

takes longer to buy fewer weapons and often with less capability 

than originally promised. 

The acquisition of services, which account for more than half of 

DOD contract obligations, have also experienced many instances of 

wasteful spending, schedule delays, and capability shortfalls. 

The United States must be prepared to respond quickly to a diverse range of security challenges within a context of constrained 

budgets. Analysts have questioned whether the current acquisition 

system is efficient and nimble enough to ensure that we are prepared to meet the security challenges of an ever-changing world. 

In recent years, there have been significant changes in the national security and acquisition landscape. Weapons and information 

technology systems are more complex than ever. The defense industrial base has consolidated significantly in the last 25 years. DOD 

is a less influential buyer, prompting some companies to diversify 

their business and others to forgo competing for government contracts. 

Industry is playing an increasingly important role in innovation 

and development, with DOD spending a smaller share of its contracting dollars on R&D [research and development]. And U.S. 

spending is declining, necessitating cuts to force structure and 

modernization programs. 

However, just as the acquisition landscape has changed, DOD 

has undergone changes that may make significant reform possible. 

Operations in Iraq and Afghanistan have highlighted the importance of acquisitions to the operational force. Constrained budgets 

are fostering a culture of better decisionmaking. And data is improving, allowing decisionmakers to make more informed decisions. 

So where do we go from here? Most reports have arrived at the 

same conclusion: The key to good acquisitions is having a sufficiently sized and talented workforce and giving them the resources, 

incentives, and authority to do their job. Yet most of the reform efforts of the past decades have not sought to fundamentally and systematically address the issue of workforce. 

The current system often incentivizes people to make poor decisions. Yet, even with the right decision incentives, without the authority to make binding decisions, even the most skilled and 

incentivized professionals cannot effectively manage a program. 
11 

The current management structure is often described as too bureaucratic. Too many people can say ‘‘no’’ or influence a program. 

As one program manager quipped, even program managers are not 

really sure who is in charge of their programs. 

In addition to improving workforce management, targeted reform 

efforts can save money and improve operations. Examples of possible areas ripe for reform include streamlining acquisition rules 

and focusing on contract logistics. 

But even such targeted reforms may have only limited success 

unless good decisions are made early and throughout the acquisition process. Former Secretary of Defense Robert Gates lamented 

that, in recent years, ‘‘DOD has lost its ability to prioritize, to 

make hard decisions, and to do tough analysis.’’ Similarly, Under 

Secretary of Defense Frank Kendall said in his guidance on implementing the Better Buying Power initiatives, ‘‘The first responsibility of the acquisition workforce is to think.’’ 

As my opening quotation indicates, the problem with our acquisition system is longstanding, and multiple reform efforts have made 

little cumulative progress. But improvement is possible, and the 

right changes, such as empowering good people to make good decisions, can help our military prepare to meet the security challenges 

of the future. 

Thank you again for the opportunity to appear before you. I will 

be pleased to respond to questions. 

[The prepared statement of Mr. Schwartz can be found in the Appendix on page 87.] 

The CHAIRMAN. Thank you very much. 

Mr. Francis. 

STATEMENT OF PAUL L. FRANCIS, MANAGING DIRECTOR, ACQUISITION AND SOURCING MANAGEMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. FRANCIS. Thank you, Mr. Chairman, Mr. Smith, and members of the committee, for inviting me here to participate in the discussion of acquisition reform this morning. 

I know this was an issue that Mr. Skelton cared about a lot, and 

he chaired a hearing in 2009 to discuss these very issues. So I condole with you over the loss of Mr. Skelton and then, earlier in the 

year, our good friend, Doug Roach. I know it has been a very tough 

year for the HASC [House Armed Services Committee] family, so 

my condolences. 

On the question of, should we do acquisition reform, should we 

keep at it, I think Mr. Skelton would say yes, so I say yes. Should 

we do it the same way? Should we revise policy, legislate? Maybe 

not. I think we should answer the question that David Packard 

raised, which is, we know what to do, so why don’t we do it? 

And when you think about the typical outcomes of acquisition 

programs, cost growth and schedule slippage, they don’t really line 

up with policy. That is not what policy asks for. So something else 

is going on, isn’t it? And I think of those, what else is going on, 

as rival incentives, sort of like what Mr. Chao mentioned. 

And I think we have to remember that practices take root because they help programs succeed in their environment. So what 

is this acquisition environment? Well, I will mention a couple of 
12 

features, but one is it is about a lot more than buying the right 

piece of equipment at the right price, isn’t it? Weapons systems embody policy, they embody roles and missions, service reputations, 

budget shares, jobs, careers. So they mean a lot more than just getting a piece of equipment. 

Another aspect of the acquisition environment is money. If you 

look at a commercial endeavor, a product development is an expense. The company doesn’t make any money until that product is 

developed, produced, and sold at a profit. In the Department of Defense, weapons systems are budget line items. They actually attract 

revenue. And I’d submit that the incentives associated with managing an expense in the private sector are quite different from 

managing programs in the Department of Defense which can be 

considered revenue generators. It is a different psychology. 

So let’s think now about a couple of the golden rules of acquisition—‘‘fly before buy’’ and realistic cost estimating—and put them 

in this environment. This is an environment where there is a lot 

of pressure to compete for funding, and once you have successfully 

competed for funding, you compete every year in the budget process. So there is a lot of pressure to keep focus on the funding 

stream and in the near term. 

So ‘‘fly before buy,’’ early test results, I think we would all agree 

that is a good thing. But do early test results really help you compete for funding? Test results can be really inconvenient when you 

are competing for funding. 

Realistic cost estimating, there is another golden rule. ‘‘Realistic’’ 

is a euphemism for ‘‘higher.’’ So I would again ask the rhetorical 

question, does a higher cost estimate actually help you when you 

are competing for funding? I would say no. 

So this is not about bad actors. I think the people in the process 

are great people acting rationally, trying to meet needs they consider to be legitimate. However, collectively, they create competing 

demands that give rise or force compromises in good judgment. 

So where does that leave us? I’d ask you to entertain the notion 

that maybe we have the system we have all asked for. 

After a program has gone through the serpentine path of requirements, cost growth, schedule slippage, testing problems, we reduce 

quantities, if it makes it through, we all are kind of winners. The 

warfighter gets something, the program office has a success, the 

service is happy, the committees have done their job, industry gets 

work, localities get jobs, the press writes about them, the critics 

and the overseers, we get to talk about them. It is a pretty good 

gig. 

So I think we have to think about maybe we have the system we 

have asked for. So it is not a simple process that is broken. I think 

we can fix that. It is a sophisticated enterprise that is an equilibrium, and it is a much tougher nut to crack. 

So I laid out some ideas on my written statement on what we 

can do about it. I don’t think they are an improvement on what has 

been said. I find them, myself, to be insufficient. But there are two 

things I would mention. 

One is what you do with money, your money decisions, is really 

important. Because right now our process is set up where you have 

to make budget decisions about 2 years ahead of a program deci-
13 

sion. So if a program has a milestone B in 2016, you are starting 

to authorize money for it now, which creates incentives for programs to behave a certain way. So if a program comes forward and 

it is breaking all the rules—it is concurrent, it is adopting high 

risk, it has an unrealistic cost estimate—and you fund it, that reinforces that behavior and sends the message that it is okay. 

So think about every year the Department of Defense brings forward a handful of programs to start. That is your highest point of 

leverage on a program. So I would look at them as a group, as a 

freshman class, even at the full committee level, and see if that 

group of new programs adheres to the principles that you consider 

important to sound acquisition, and then fund accordingly. 

Then I think, eventually, if we do a number of other things, our 

goal should be to put good people in a position to succeed, which 

I don’t think we do today. I think we put program managers and 

staff in very difficult positions and we grind them up. 

So I will leave you with a thought that I think we have to aim 

at these rival incentives. And I’d like to think about a good outcome being, can we help programs intrinsically build good practice 

inside them? And can we come up with incentives or create incentives that are self-sustaining, rather than impose practice on top of 

programs that otherwise would not be planned properly? 

So I will conclude with that and welcome any questions. 

[The prepared statement of Mr. Francis can be found in the Appendix on page 112.] 

The CHAIRMAN. Thank you very much. 

We often hear that the problem with the DOD acquisition system 

is one of culture and that you can’t reform the system without 

changing the culture. 

In your view, is culture—and this is to all of you—a major part 

of the problem? And can you provide some examples where the culture of the DOD, of industry, and Congress is causal in the failures 

of the acquisition processes? 

Mr. FRANCIS. Okay. I will start. 

Yes, I think culture is a very important ingredient as to what is 

going on. Because when you look at the question, why aren’t good 

people getting good outcomes, I think you get the culture. Again, 

I think people know what to do, but they have conflicting demands 

and they are asked to do different things. So, as I explained earlier, 

there are reasons why you don’t have a realistic cost estimate, because it may not help you. 

And I think the culture is really seated in the fact that people 

really believe that the program they are working on is the most important thing for the Nation’s defense. And so you adopt behaviors 

to help get that program in the end zone. And they may not be 

testing when you should, that may be starting production before 

you should, because you help guarantee the program will get 

through the process. 

I think some of the programs that we have looked at in the past, 

Future Combat Systems, where this committee did pioneering 

work, that was a program where we were rushing 50 technologies, 

trying to create a system and get it into production before we knew 

anything worked yet. I think that is culture at work. 
14 

This afternoon, I believe that Members are going to get a briefing 

on the UCLASS, the Navy’s unmanned aerial vehicle. We think 

that is a pretty good strategy. The problem is the whole strategy 

and the fielding complete before milestone B. I think that is culture. I think that is trying to get the system in before all of the 

oversight occurs. 

So it is real. We are all part of it, but I think we can address 

it. 

Mr. ZAKHEIM. I will pick up from there. 

Obviously, we look at the F–35 and we say, my God, there was 

concurrency, concurrency in testing and concurrence with production, and why does this happen? You can go all the way back to 

the TFX [Tactical Fighter Experiment] and you will see concurrency of a different kind—you know, concurrency in research 

and concurrency in production. It is cultural. Of course it is cultural. 

And, as I think several of my colleagues here on the panel pointed out, the system of rules we have disincentivizes savings, 

incentivizes people just to get, basically get, the thing out their 

door, and then they can move on. 

If somebody was on the job 5 years, they would be much more 

careful about how something was being produced. If you are on a 

job 18 months, you just want to get it out of the way, make sure 

nothing blows up on your watch, and off you go. Well, that is part 

of the culture. The turnover is part of the culture. Nobody imposed 

that on DOD. 

Another thing. I remember, when I worked in the Reagan administration, we had trouble with the B–1, and Mr. Weinberger finally 

got fed up and asked for a briefing every 2 weeks. And when you 

think about how Mr. Gates was his own action officer on the MRAP 

[Mine Resistant Ambush Protected], you get the picture that, somehow, the frustration levels reach so far to the top that the Secretary feels he has to be his own action officer. 

Now, why does that happen? I would argue, in part, it happens 

because the management levels very often are not really competent—and I will emphasize that—competent to manage highly 

complex programs, and so they let things slip in all sorts of ways. 

That is cultural. 

If you have, for instance, a Deputy Secretary who is a true manager, he is never going to go to the Secretary to begin with; it will 

be pushed downward. And I think the leadership has to start at 

the top. We have been far too lax about the requirements for how 

somebody should be Deputy Secretary of Defense, which, frankly, 

is the chief operating officer of the Pentagon. That is something 

probably the Congress could actually deal with. 

If you have an attitude where the new person comes in with a 

new set of buzzwords and a new set of terms, you create a cynical 

bureaucracy. If you have a bureaucracy that is not technically competent, it relies on contractors to give them the technical competence. It also means that whatever the contractor tells them they 

will have to believe, they have no choice. 

In the meanwhile, the contractor, as Pierre Chao pointed out, is 

being forced into the straitjacket of having very low profits and 
15 

driving up costs because there is no other way to do it except if it 

is fixed-price and, as I said, there is an ECP. 

So you have a system that essentially drives everybody crazy. It 

doesn’t have to be that way. That is cultural. 

Mr. SCHWARTZ. If I may perhaps give two examples, one is, with 

major weapons systems, usually 70 percent of the cost of the entire 

system is after it has been acquired. It is O&S costs, operations 

and support costs. 

And recently I was talking to a program manager of a multibillion-dollar program, and I asked a similar question. And his comment to me was, because of the pressure to save acquisition costs, 

there is no motivation to pursue long-term savings. That was an 

example of the incentive driving a culture where he was being told, 

save now at the expense of saving more later. 

Similarly, when I was in—another example is contract obligations. When I was in Kabul a couple of years ago, I remember talking to someone from USAID [United States Agency for International Development], and he was recounting the story where, recently, a few weeks earlier, he and his team had been told they 

have $100 million to spend by the end of the year. He said, there 

is no way we can spend that $100 million competently. But that 

$100 million got spent, because that is how they were being measured. 

So I would suggest those are two examples of incentives creating 

decisions and a certain culture that may not be the one that you 

would always like to have. 

Mr. CHAO. If I could maybe give one or two other examples that 

shows, again, that a lot of these things start from a good originating position but as you interface with the system it kind of gets 

turned on its head. 

I don’t know a single good engineer who doesn’t believe that they 

can actually do that task that they are asked to do, right? And part 

of that structural optimism is, yeah, I can invent that thing that 

is invisible and can go, you know, Mach 10; sure, we can do that. 

And so that part of that lying to yourself starts off from, actually, 

a good spot, but there is no one there to apply the outside metric 

and sits there and says, well, can you really? Right? And so that 

is a little bit of that cultural issue. 

The other one is from an oversight perspective. Former Under 

Secretary for AT&L [Acquisition, Technology and Logistics] Ken 

Krieg has noted we spend millions in oversight to chase pennies. 

Right? The sense of that there is no threshold level below which— 

which we sit there and say, all right—and it is a horrible thing to 

say, in some ways, and you would be probably crucified in the press 

for saying it, but—it is okay if there is this amount. 

I mean, Walmart, frankly, looks at its entire system and accepts 

a certain amount of shrinkage, you know, in its system. Here we 

will spend millions and millions of dollars to make sure that there 

is zero shrinkage. That is a cultural issue, right, and one that is 

reflective of the system, and that is part of the cost that is embedded in that weapons system. 

The CHAIRMAN. I mentioned yesterday I was meeting with a 

CEO [chief executive officer], and he said in one of his plants he 

has 200 people there from the government to oversee and make 
16 

sure he doesn’t have the shrinkage, and then he has to hire 200 

to watch them and respond to them. And I said, you know, if we 

probably eliminated those 400 people, he couldn’t steal that much, 

you know, if he wanted to. But it—good point. 

Mr. Smith. 

Mr. SMITH. Thank you, Mr. Chairman. 

I guess—and you sort of touched on this, but if you could just 

sort of narrow down specifically, how would we change the incentives? You know, if you had, like, one law that we could change— 

you know, we have always heard the classic example, as you mentioned, about USAID. You know, whenever people think about government, I swear the first thing they think about is, you know, the 

incentive to spend all the money you have, no matter what. And 

this has been going on forever, as near as I can tell. 

How would we change the incentives? What law would you 

change? What regulation? What approach? Just quickly, a couple 

of things that would change the incentives and move them in a 

positive direction. 

Mr. ZAKHEIM. I think the easiest thing to do is to change the way 

you promote people. If you basically promote somebody because 

they saved money, you have just changed the incentives. Now, is 

that a DOD regulation? It is probably something OPM has to do. 

Mr. SMITH. Okay. 

Mr. ZAKHEIM. And OPM constantly hides under the table when 

these things come up. 

Mr. SMITH. Why? 

Mr. ZAKHEIM. Why does OPM hide? I think OPM hides because 

they are OPM. I have never seen an agency that was more—basically, they are still running the way Chester Alan Arthur set it up 

in 1883 under a different name. 

We are so out of date with the way we manage personnel today, 

it is ridiculous. And there really needs to be a focus on it, not just 

in this respect but in many. But the fact of the matter is, if you 

promote somebody because they saved money, everybody is going 

to want to save money. 

Think about how Goldwater-Nichols worked. You couldn’t become 

an admiral or a general until you went to the Joint Staff. I remember in the early 1980s the Joint Staff was a dead-end position. You 

got into the Joint Staff, you knew you were going to have to retire. 

All of a sudden, after Goldwater-Nichols, the only way you can become flag or general officer is if you join the Joint Staff. You have 

just changed the incentives. And look at the difference our military 

shows today. That is what you have to do. 

And, frankly, if somebody really managed the system long 

enough to lose a ton of money, that should be the end of their career. 

Mr. SMITH. Thank you. 

Mr. CHAO. I also think the issue of aligning the tenure of the program managers to the phase of the program that they are watching. I mean, the old joke is you want to be the first and third program manager, not the second and fourth, right, because first and 

third you are the hero, second and fourth is where all the mistakes 

show up. 
17 

If you were there to suffer the consequences of your mistakes, 

you would be a little bit more careful about doing that. That will 

run right into the military promotion cycles and other cycles, and 

so, I mean, that is what needs to get reconciled. 

The other one is looking at this issue of budgeting and rewarding 

program managers who actually perform and not taking away their 

money. That is something—that is probably nothing you could legislate, but that is a bargain that you could have. 

Mr. SMITH. Well, if I could ask about that, I mean, because that 

is always the problem. If you don’t spend all the money, then you 

don’t get as much the next year. But that is the way it should be. 

I mean, if you are looking at and you have learned, okay, we can 

do it for $50 million instead of $100 million, you wouldn’t give 

them $100 million the next year because you would be reinforcing 

the problem. 

I mean, so I think you should reward the individuals who make 

the decision, to get back to the promotion thing. You have saved 

that money, you are more likely to get promoted than if you don’t. 

Because if you simply say, if you save money, we are going to give 

you more, that doesn’t quite solve the problem, I wouldn’t think. 

Mr. ZAKHEIM. Well, let me deal with that, since I happened to 

be in the hot seat of Comptroller for a few years. 

We have in the Department a midyear review, and what are we 

looking at? We are looking at programs that are spending too 

quickly, programs that are spending too slowly. We then come to 

you on the Hill and we say, here is a reprogramming, can you 

please approve it? And in most cases you do, because it makes 

sense. 

So if somebody is spending less money, it doesn’t necessarily 

mean that next year they are going to spend less money. 

Mr. SMITH. Right. 

Mr. ZAKHEIM. And as long as the Department can reprogram and 

the Congress is willing to support the Department, I happen to 

think we should have much higher reprogramming ceilings. If we 

did that, then I think the Comptroller would have much more flexibility in moving money around. 

And then if we combined that with the incentives that Pierre has 

talked about, that I have talked about, for the individuals so they 

know, A, they are going to get promoted if they save money but, 

B, they might get more money next year because programs are like 

that anyway, that will change the mentality. 

Mr. SMITH. Okay. 

Mr. CHAO. And I would put my comments in the context of, we 

are programming but we are budgeting programs to the 50 percent 

mark, and so they are already—you know, I agree with you that 

if it is underspent and legitimately they don’t need the money, why 

give it to them? It is filling in that 50 percent mark to the 100 percent where they should be. 

Mr. SMITH. Okay. Thank you. 

Mr. SCHWARTZ. One is accountability. Who is responsible? And 

there are two senses of accountability, both positive and negative. 

For example, I was speaking to somebody at a private industry recently, last week, and I said, if somebody in your company saves 

$50 million, do they get any benefit out of it? And the response 
18 

was, yeah, they could apply for this fund, and they get $10,000, 

$15,000, $20,000 potentially, not all the time, but they can get it. 

Then I asked other people there, well, does DOD have similar 

structures where, if you save $100 million for the Department of 

Defense, you can apply and get some sort of bonus? And the answer was, well, generally not. Well, that is one example of positive 

incentive. 

Very often—I remember reading, I believe it was a GAO report, 

that said DOD is buying from the GSA [General Services Administration] schedule and they are not even asking, could we get a better price? Well, they might ask can I get a better price, if there was 

a potential for them to get a bonus. The optics might not be great 

on it, but that is one possibility. 

Mr. SMITH. Right. 

Mr. SCHWARTZ. The reverse is also—for accountability is the negative accountability, which is, if you had a program that completely 

went off the rails, who is responsible? And are they going to be 

held responsible or are they still going to continue the path up? 

Now, there is a problem with that, which is, if you are going to 

hold people accountable, you have to give them the authority. 

Mr. SMITH. Exactly. I mean, I think that is where it is painfully 

easy to hide. Because it is like, well, I wasn’t in charge of this, he 

was in charge of that. I mean, I hate to bring this up, but the Web 

site, you know, on health care is a great example of that. He was 

doing it; no, he was doing it; he was doing it. It is like, you know, 

somebody needs to be in charge and be held accountable and/or rewarded, depending on the circumstances. 

Mr. FRANCIS. I will add a couple to the good ideas my colleague 

raised. 

One is the end requirements. Again, I think our process still rewards proposals for new programs that come through advertising, 

revolutionary improvements over the existing system. There are 

some weapons that maybe have to do that, but when you think of 

what we as consumers do, when we buy a new car, we have to replace our old car. So we have to get something and we take advantage of what is available. That doesn’t cut it in the Department. It 

is always something a leap ahead. So if the requirements process 

can accept the fact that sometimes we are just replacing something 

with something a little better and not next-generation. 

And, again, I think if we can have a candid discussion about risk. 

Programs when they come forward, when they take risk, that is 

okay, but let’s have a candid discussion and fund risk. 

Risks are typically denied. No program is high-risk. The low-risk 

programs, they don’t worry about. The medium-risk programs, we 

apply this balm, and it is called risk-mitigation strategies, which 

have everything in them but time and money. 

And I think if we had that candid conversation, it is okay to take 

a risk, but let’s take it together and let’s resource it. 

Mr. SMITH. Thank you, gentlemen. 

Mr. THORNBERRY [presiding]. I am going to withhold my questions and give other Members a chance. 

Mr. Lamborn. 

Mr. LAMBORN. Okay. Thank you. 
19 

I have heard anecdotal stories from Colorado companies in my 

district who end up adding 5 to 10 percent to their costs simply due 

to the number of overseers that they have to support on an ongoing 

basis from DCAA [Defense Contract Audit Agency] and DCMA [Defense Contract Management Agency]. 

How do we strike the right balance between oversight and efficiency in contract management? For any one of you. 

Mr. CHAO. I think that is where we go to that threshold issue 

in terms of, at what level do we go? And there have been some of 

the studies done in acquisition reform over the last 4 or 5 years 

that have tried to look at that topic. There was one that Norm Augustine had with BENS, Business Executives for National Security, 

that I would recommend you take a look at. 

One of the things and proposals some people have said is, you 

know, can we turn to outside accounting firms to do the normal audits and you use DCAA to audit the auditors and make sure they 

are following the right processes and procedures. That would perhaps be more efficient. So people have begun to look at that. 

I would submit to you the key item there is, what is the right 

threshold level? I think it is back to that spending millions to chase 

the pennies that is really exacerbating and causing the imposition 

of the people. You don’t want to eliminate them, right? They have 

a legitimate role to play. It is, at what level? 

Mr. LAMBORN. Okay. Thank you. 

Mr. SCHWARTZ. So there are a number of perspectives. One that 

has been interesting is, you know, I believe it was Abraham Lincoln that said, if I had 6 hours to chop down a tree, I would spend 

the first 4 hours sharpening my axe. Very often, the oversight 

sometimes comes down to, well, they have had 25 percent growth; 

let’s have the GAO report, let’s have DCAA, let’s have DCMA, let’s 

have the hearings. 

But perhaps another possibility is spending more time getting it 

right up front and focusing on the requirements. Because oversight, 

very often, is after the costs have gone 25 percent, now you have 

the Nunn-McCurdy requirements to go through another milestone 

and notify Congress and have the Secretary of Defense certify that 

this is required. 

So sometimes getting it right up front—programs that start off 

right generally, statistically, do much better on cost schedule and 

performance later on. So that is another possibility. 

Mr. LAMBORN. We could explore this more, but I need to move 

on to another question for the sake of time. 

Overseeing service contracts versus the purchase of weapons or 

other tangible goods, are there any differences there in approach 

that you would recommend? Like, in my district, you have everything from trash removal to operating shooting ranges to managing 

satellites. Any advice there? 

Mr. ZAKHEIM. Well, for a start, I would say that service contracting—there are different kinds of services, and you just pointed 

that out. You’ve got brain work which counts as service contracting. You’ve got the guy who comes in and does his old job at 

the Pentagon but now has a different badge. It is called ‘‘butts and 

seats’’ in French. That is services. And then there is collecting 

trash; that is services. 
20 

I think what you need to do is recognize that the real problem 

is the second one that I was talking about. You always have to collect the trash, and you want people to use their brains. But Mr. 

Gates pointed out that the, what they call staff augmentation, the 

guys coming in and doing the government’s work, doing the civil 

servants’ work, that has gotten totally out of hand. And there is 

where I would look. I think we can cut back significantly. 

We are not spending half of our money; we are spending more 

than half of our money on services contracting. And considering the 

number of weapons that continue to drop each year with procurement, I would like to see more of that money going from service 

contracting to hardware, frankly. 

Mr. LAMBORN. Mr. Francis. 

Mr. FRANCIS. Yes. Services are quite different. So the people that 

write requirements are not your standard requirements organizations; they are bases, they are local places, people not necessarily 

well-versed in writing requirements. Services occur very quickly. A 

weapons system could take 10 or 15 years; a service is a level of 

effort that is done in months or a year. 

In weapons, dollars are a good proxy for risk. Something big and 

expensive probably involves risk. It is not the same for services. 

Some of your highest risk services, like Dov had mentioned or interrogators in Iraq, are not high-dollar. And some of the high-dollar 

things, which are buying a high volume of low-risk things, that is 

not necessarily what you need to be looking at. 

So I think the model for services is it has to be really front-endloaded. You have to triage the requirement to see what we are buying and why we are buying it. Because with services, once you buy 

it, it becomes a drug. Then we keep that service over time, but we 

don’t go back and look. So I think it is a quite different oversight 

regime. 

Mr. LAMBORN. Thank you all. 

Mr. THORNBERRY. Ms. Tsongas. 

Ms. TSONGAS. Thank you, Mr. Chair. 

And thank you all for being here. 

I would like to ask the question of, really, coming from Massachusetts, where we are home to so many high-tech companies who 

really engage robustly on solving a lot of these problems, how 

should Congress make sure that the Pentagon leverages high-tech 

communities like Massachusetts that are willing to partner with 

them and to share some of the upfront investment in bringing the 

next-generation technology to meet the future challenges? 

And the reason that I ask this is I am proud to represent 

Hanscom Air Force Base. The professionals there are responsible 

for acquiring some of the Nation’s most complex command and control systems and for making sure that these systems are adequately sustained through their lifecycle. 

So today we are facing new, much discussed challenges, for example, in the cyber domain, and it is Hanscom that is responsible 

for Air Force cyber acquisition. Now, the Air Force has acknowledged that Hanscom has improved cyber acquisition with the creation of the Cyber Solutions Cell and the creation of an organization responsible for lifecycle management of those cyber capabilities. But we also know that the cyber threat changes so quickly 
21 

that the traditional acquisition process cannot support the evolving 

cyber requirements. 

But we have in Massachusetts a community that is really rising 

to and engaging in the challenge. Some of our best cyber minds 

really want to solve this problem. So, for example, there have been 

initiatives that are in place, including the Advanced Cyber Security 

Center, the Massachusetts Green High-Performance Computing 

Center, and the Kostas Research Institute for Homeland Security. 

And MIT [Massachusetts Institute of Technology] Lincoln Labs is 

planning a $450 million upgrade in facilities to support Hanscom. 

These capabilities reside in Massachusetts. They have already 

provided great value in working to solve some of our technical challenges that are currently helping to protect the soldier in Afghanistan. 

So, with the pressure on defense budgets, knowing what we have 

in Massachusetts and other States across this country, how should 

Congress make sure that the Pentagon does not ignore these resources, that engages them to solve some of these problems without 

sort of reinventing the wheel, looking to what is there? 

Mr. ZAKHEIM. Well, I mentioned Route 128 in my testimony. 

Ms. TSONGAS. You did, and I was glad to hear it. 

Mr. ZAKHEIM. Well, a couple things. I have already spoken about 

the need for having technical expertise inside the Department. 

They need to know what to get. And right now we don’t have that 

to any extent, certainly not to the extent we need to have them. 

But a couple of other things. We clearly need to simplify the 

rules. A lot of companies just don’t want to get involved. It is too 

complex. And you have those companies that have done business 

with DOD for years, they know how to do it; those that have not 

just don’t want the trouble. 

So one of the things you all might want to think about, members 

of the committee, is having a hearing where you bring in these 

high-tech company executives and ask them what kind of rule 

changes would they like to see, what would get them to work 

alongside DOD. 

DOD, as you know, part of the culture we have talked about is 

not invented here. If it hasn’t been invented in a DOD lab or by 

some favorite contractor, it can be foreign, it can be domestic, it 

can be whatever, they are not interested. And Congress has tried 

to legislate in the past, you know, side-by-side competitions and all 

that. But there is always a way to fix the requirements to eliminate anybody you want to eliminate. 

And it seems to me that there is no question that, because of 

Moore’s law, our civilians who may—and military people who may 

not have taken a course in 30 years, by the time they get senior, 

have no idea what is going on in the Research Triangle or Route 

128 or Silicon Valley or whatever. We have to educate them. 

But we have to ask industry, how can the FAR, the Federal Acquisition Regulations, and the defense regulations that are appended to those be changed to simplify the ability of companies 

that really are at the cutting edge to support defense? 

Ms. TSONGAS. So do you think the Pentagon has an appreciation 

of what the opportunities are? Or do you think there is some education that needs to be done on that front, as well? 
22 

Mr. ZAKHEIM. I think, at the senior levels, the people who come 

in from the outside certainly have an appreciation. I think that if 

you have been in the bureaucracy 20 years, what you do is you rely 

on another contractor to help you out. It is called program management support or scientific engineering and technical assistance, 

SETA. What it really means is, I don’t know what this is all about, 

but I will get this contractor to tell me. How can you make educated choices that way? 

Ms. TSONGAS. Thank you. 

I would love to get your response, Mr. Chao, but we have run out 

of time. 

Mr. THORNBERRY. Mr. Turner. 

Mr. TURNER. Thank you, Mr. Chairman. 

Gentlemen, thank you for your testimony today and giving us 

some insight into not only what the Department of Defense is 

doing, or should be doing, but also what our agenda should be. 

And I would like to focus specifically on the issue of the use of 

lowest price technically acceptable, LPTA, contracting and the impact that it is having on both the Department of Defense and our 

industrial base. 

Let me first say that I certainly believe that it is important for 

the Department of Defense to continue its efforts to lower costs and 

to seek greater efficiency. However, I am concerned that lowest 

price technically acceptable contracting has become an over-utilized 

practice in the acquisition community. And, more and more, we are 

seeing increasingly complex and technical contracts be awarded as 

a result of lowest price technically acceptable, as opposed to the 

traditional best value approach. 

While lowest price technically acceptable may make sense in 

some cases, I am always hesitant when I learn of its use when contracting out critical national security capabilities. I would like to 

hear each of your thoughts on the lowest price technically acceptable contracting as it pertains to the Department of Defense. 

Is there a sense that in the long run this practice could lead to 

additional long-term costs? Could its overuse lead to a decrease in 

competition and an overall decline in the defense industrial base— 

quality of contractor workforce, ingenuity, and efficiency? Would 

you please provide me your thoughts? 

Thank you. 

Mr. CHAO. It is a great question. And I think the answer would 

be yes. I think it is one of these examples of a decent rule for a 

particular application being more overly broadly applied than it 

should be. You even have—you have had Ash Carter and Frank 

Kendall say, you know, this is not what I intended, in terms of the 

way it is being rolled out. 

And I would submit to you that we are currently seeing the—you 

are seeing the early signs of the bad-actor effects of companies who 

were awarded contracts that are actually not technically capable 

starting to fail in those program. So I suspect over the next 12 to 

18 months you are going begin to see some of the horror shows, you 

know, of some of that behavior. 

And so it does fall into the category of something that has been 

overused. 
23 

Mr. TURNER. Before we go on to the others, I want to underscore 

what you just said, because I think that was absolutely critical. 

You said companies that are not technically capable. One of the 

concerns is that technically acceptable is so borderline that the 

mistake then degrades to, as you just said, not technically capable. 

And that certainly is a disaster. 

Thank you. 

Mr. ZAKHEIM. I once was speaking to a contracting officer who 

explained to me why they do this. The reason they do this is because of the lawyers. There is an industry, a bid protest industry 

out there. And so everybody protests. And the lawyers have basically told these contracting officers, look, the best way to get 

around it is go with the lowest price. That way, it is harder to get 

protested. 

Now, what is the solution? The solution is clearly to make it 

much harder to protest the bid. And a lot of people aren’t going to 

like that. But if you raise the bar, that makes it harder for the contracting officer to say: ‘‘Well, you know, I am just going to go with 

the lowest bid.’’ Because it is going to be different. They won’t always get hit with a bid protest. 

Another thing you do—and this is really in the weeds, but you 

have asked an important question—is how you weight the selection 

process. In other words, we’ve got an index, and cost is one of the 

elements of that index. And there are other—there is technical acceptability and so on. What you do is you make cost a lower priority, so, by definition, it gets much harder for a company to win 

just because they are cheaper. That can be done. You don’t even 

need legislation for it. 

Mr. SCHWARTZ. The issue of lowest price technically acceptable 

also gets us back to workforce. Do we have the right people in place 

to decide when it should be used and when it shouldn’t be used? 

In addition to that, it is not just having the right people in place 

to decide when to use it, but how to craft what are the standards 

for ‘‘acceptable.’’ 

And if the standards for what is acceptable are crafted in a certain way and if the people in place are there to make the decision 

of when or shouldn’t it be used, it could be much more effective. 

Mr. FRANCIS. Batting last, I think low price technically acceptable is, you know, in principle, a good thing for the government to 

try to be doing in the right circumstance. What the government 

tends to do is, when it develops a new instrument, it tends to overuse it or not think about what situations it applies to. And I think, 

Mr. Turner, you hit—the real issue is, how sophisticated is the 

service that you are buying, and is this an appropriate instrument? 

And I think another thing that also kind of gets lost in the shuffle is we don’t do a good job of evaluating past performance of contractors. So some contractor may look technically acceptable, but if 

they have a poor track record for performance, you need to evaluate that, and you might find that is not the best way to go. 

Mr. TURNER. Mr. Chairman, for just a moment, if you might, 

could I put an objection on the record to blaming the lawyers, being 

a lawyer? Because I never think that is the answer. 

Mr. THORNBERRY. The gentleman’s objection is overruled. 

Mr. Peters. 
24 

Mr. PETERS. Thank you, Mr. Chairman. 

You know, I think a lot about innovation in this space. And I 

have been speaking to a lot of companies in San Diego, where I 

live, and also throughout California. I am sure this is true in other 

areas. And a couple things strike me. And it is a little bit anecdotal, but maybe you could think a little bit about the incentives 

of a contracting officer. 

First, many of them are familiar with the company they have always been working with. And someone has come along with a better idea. And it may be a small company who has part of the technology, and they just can’t seem to break through. And I can understand there is a fear in the contracting authority to make that 

change. 

But the other thing that strikes me and concerns me a little bit, 

and maybe you have some thoughts about this, is that generally we 

shouldn’t expect these contracting officers to be nearly up to speed 

on what is going on in innovation in the private sector. They are 

going to be way behind, you know, almost by definition. 

And so how is it that we can incentivize them to take advantage 

of what is being developed, which may be more efficient or more 

effective, and to adopt that as part of acquisitions? 

Mr. CHAO. It is a great question. I think—and over the last decade, partly because of the war, we have created better and more 

mechanisms to act as interfaces for innovation. We have always 

had DARPA [Defense Advanced Research Projects Agency], for example, but there have been other groups. I think one of the things 

to look at is making sure that, as we come out of the war, that we 

don’t forget or lose the lessons that we have learned the hard way, 

in terms of doing that. 

I would also submit to you that the initial interface, the ability 

to get SBIRs [Small Business Innovation Research] and other types 

of contracts to attract, you know, companies are there. The real 

hard part is the so-called valley of death, that you get that first initial contract but it is then getting it into the broader system that 

becomes difficult. And so a focus on that would be one of the places. 

The third thing that I would note is, which makes it hard for innovative companies, we have had a basic bargain, cultural bargain, 

that we have created over the last couple of years: Lose money or 

make very little money on research and development, make it up 

in production. Right? That incentivizes a system to get and it favors large companies. 

I would argue, in a downturn environment where preserving research and development and access to innovation becomes critical, 

making research and development a viable economic proposition is 

something that would turn the whole system on its head and actually, I think, help those kinds of companies. 

Mr. ZAKHEIM. I think a lot of it has to do with education. You 

put your finger right on it. Our people just aren’t keeping up with 

the technology. And that is why I have argued that, in order to get 

to a level where you are a senior contracting officer, senior acquisition officer of any kind, you need to be able to spend a year doing 

something, either learning in a top technical school with the government paying for it—it is worth the money, and the money is 

there—maybe spending time in industry, like the SECDEF [Sec-
25 

retary of Defense] Fellows do, so you really know what is going on 

on the other side. 

We need to incentivize people to do that. Very often somebody 

goes off for a year and comes back and they don’t have their job 

anymore and they don’t have any place. That is something DOD 

could say, no, when you come back, you are going to have a job that 

takes advantage of the education you just got. There are things 

that can be done so that people can keep pace with the technology. 

You also want to have, probably, integrated teams. You don’t 

want to just negotiate a contract with a lawyer. You probably want 

to have some technical person alongside you, as well. It will be better for industry. 

Mr. PETERS. There is another layer on this, though, because the 

problem is that it is not a system that listens to what is happening. 

So what has happened in the private sector is people will come up 

with products we didn’t know we needed. They have a good idea 

for something. And I see this in defense, is that there are good 

ideas on communication. But no one today in companies I have visited in my district, my area, no one today, say, in the Navy may 

be thinking that I need such a thing, so it is not getting down as 

a request for acquisition. 

So what we need, we need to go beyond educating these people, 

which I certainly agree is invaluable and necessary, to figuring out 

a way for us to be able to listen to what is happening in technology 

for ideas that we may not have thought we needed but could serve 

us, you know, make our warfighters safer, make our budgets tighter, and help us be more efficient. 

Mr. CHAO. You have touched on one topic which I would encourage the committee to really look at. We have created a growing divide and disconnect between the building and the industry in terms 

of the dialogue that you are able to have back and forth. There is, 

in some cases, you know, such a fear that if I engage in that, I am 

going to get in trouble. 

And it is exactly those mechanisms that we used to have that 

would enable that interchange of information that we are drifting 

away from now, I would argue, in a very dangerous fashion. And 

I think you are seeing that on the ground, live, in the companies 

that you are talking to. 

Mr. PETERS. And I just have the sense that our adversaries are 

better listeners in this way and adapting this technology in a way 

that is faster than us, and I don’t want to be in the way of it. 

Thank you, Mr.—— 

Mr. FRANCIS. I—— 

Mr. PETERS. Oh, sorry. 

Mr. FRANCIS. I just have one point. And I would say that the contracting officer is not the right person to be adjudicating something 

like this, that the real burden should be on the people with programmatic responsibility for doing market research, knowing what 

is out there. They can construct, then, a proposal that the contracting officer has to make sure it abides by law, but they 

shouldn’t be adjudicating the propriety of what is being done. 

Second point I would make is the government needs to have 

some venture capital, it needs to have different ways to explore 

these things. And they are going to fail, and that has to be okay. 
26 

Mr. PETERS. Right. 

Mr. FRANCIS. In today’s world, you have to hitch your wagon to 

a program. And once you do that, you are into long-established relationships, maybe different standards of accountability. So we 

need more flexibility up front. 

Mr. PETERS. Thank you. My time has expired. I appreciate it. 

Mr. THORNBERRY. Mr. Wittman. 

Mr. WITTMAN. Thank you, Mr. Chairman. 

And, gentlemen, thank you so much for joining us today. 

I want to get your perspective on the recent state of affairs and 

then where we go in the future with the current element of what 

I call ‘‘churn,’’ and that is budget decisionmaking, appropriations 

decisionmaking, budgeting by CRs and the uncertainty that comes 

with that. 

In that recent history and then projecting out into the future, 

how do you see that affecting acquisition reform? How do you see 

us being able to efficiently and prudently get the necessary equipment to our men and women? How do we make sure that we are 

making the proper decisions in acquiring the things that our military needs? 

I just want to get your perspective on where you think we have 

been and where you think we are going. 

Mr. ZAKHEIM. Well, when I was Comptroller, I gave out money; 

now, Bob Hale takes it away. So I feel for him. 

To some extent, the two overlap, but I think that is not an excuse for acquisition reform. And I think that is really the important 

point here. The budget situation is going to change. We know that, 

historically, there have been highs and lows. This is not the first 

budget-constrained environment we have been in. And what has to 

be done is to maximize the efficiency of the acquisition corps, regardless of the budget level. 

And so I would say, yes, we have difficulties now, but all the 

things that this panel have been talking about are not really budget-driven. And so I think this committee has a real opportunity to 

make change. Now, once the budget environment eases up, you will 

see even more benefit from these changes, but this should not be 

a limiting factor. 

Mr. WITTMAN. Gotcha. 

Mr. CHAO. I mean, I would take a little bit of a different tack 

from the perspective of the question you asked about all this churn. 

I think, without a doubt, it is costing the Department and the Congress money. You know, starting, stopping, laying off, rehiring, furloughing, bringing back; I can’t assign contracts to my supply 

chain; I have to cut them off because I don’t know, in order to follow rules; program managers afraid of going to jail for violating the 

Anti-Deficiency Act, so therefore not spending money. 

I guarantee you that that is embedding costs that we are going 

to see and we are going to have to pay for in the next 2 or 3 years. 

And anyone—you know, that is a guarantee that that is embedded 

in—as a result of what has been going on. 

Mr. WITTMAN. Very good. 

Mr. FRANCIS. I think one of the real consequences is, with this 

churn, funding is always being discussed and programs, I think, always live in the threat that they are going to lose money. So it 
27 

keeps them in the cycle, always working on their funding stream, 

which I think creates a very short-term perspective and it disincentivizes candor. 

You are not going to talk about problems or risks you have if 

every month you have another budget battle to fight. So, as long 

as we are in that environment, I don’t think we are going to get 

candid conversations about what is going on in programs. 

Mr. WITTMAN. Very good. 

Mr. Schwartz, any comments? 

Mr. SCHWARTZ. It was very well said. 

Mr. WITTMAN. Okay. Thank you. 

Gentlemen, you all spoke very eloquently about the current culture and how you change the culture to actually get true reform 

in acquisition. You talked about flexibility, which I think is critical, 

adaptability within those systems. 

How do we change that culture? You know, organizations are so 

large, and they figure out how to adjust to different administrations, to different Congresses. How do we have true change in that 

culture and reform? 

Mr. SCHWARTZ. So, if I may on this one—— 

Mr. WITTMAN. Yes. 

Mr. SCHWARTZ [continuing]. One possibility is to start with something I mentioned before, which is authority. And I want to quote 

Heidi Shyu, the Assistant Secretary of the Army, or the top weapons buyer, who reportedly said recently, ‘‘Having been in government for only 3 years and having spent 33 years in industry before 

that, I am utterly shocked about how little control the poor PM 

[program manager] has,’’ referring to the program manager. ‘‘The 

program manager is a flea on the tail of a dog, let’s put it that 

way.’’ 

And that is exactly what I have heard from a lot of other people. 

Just in the last 2 weeks, I jotted these down in the last 2 weeks, 

one program manager said, ‘‘I have authority for nothing but responsibility for everything.’’ Another one said, ‘‘We need more authority in the field.’’ 

Giving them the authority to make decisions and, of course, holding them to accountability is one way to change the culture. 

Mr. WITTMAN. Very good. 

Any other thoughts? 

Mr. ZAKHEIM. Well, one other thing. Culture starts at the top. 

Mr. WITTMAN. Uh-huh. 

Mr. ZAKHEIM. And I think one thing that Congress can do is really tighten up the requirements for who should be Deputy Secretary 

of Defense. 

Mr. WITTMAN. Gotcha. 

Mr. ZAKHEIM. Ultimately, that is where the decisions go. And you 

are the ones that set the requirements. The Deputy Secretary of 

Defense should be the chief operating officer, should ultimately be 

accountable for the kinds of things we are talking about. And there 

are some clear requirements for that, I think. 

Mr. WITTMAN. Very good. 

Thank you, Mr. Chairman. I yield back. 

Mr. THORNBERRY. Thank you. 

Mr. Langevin. 
28 

Mr. LANGEVIN. Thank you, Mr. Chairman. 

I want to thank the panel for your testimony today. It has been 

very helpful. 

And I would like to go back, if we could, on the topic of 

cybersecurity and how as it relates to the acquisition process. I 

know my colleague, Ms. Tsongas, talked about this. I want to talk 

about it maybe from a little different perspective. 

But acquisition of cybersecurity systems and software is commonly cited as a circumstance where the current acquisition system is woefully inadequate, due in large part to the extremely 

short timelines required. 

Are there concrete ways in which we could give the current system the speed and flexibility needed without simply bypassing it? 

Mr. FRANCIS. Well, I will start. 

I think so. One of the things that you keep in mind when you 

are embarking on an acquisition which involves technology changing at a very rapid cycle is your initial technology that makes this 

capability possible, I think you structure your acquisition around, 

do we have that? And then make that your minimal capability and 

go with that. And then you can fund at the same time all these different improvements, using flexibility to allow innovation to occur. 

And then you can bring those in as that product is being developed 

and improve it over time or improve that capability. 

A process where we have to have the whole thing at once doesn’t 

work in this situation because technology changes too fast. On the 

other hand, I don’t think you can go out to try to buy something 

that hasn’t had anything invented yet. So I think, you know, a first 

initial capability with a flexible acquisition strategy to improve 

over time is the way to go. 

Mr. CHAO. Well, and given that these are technologies that are, 

again, moving at Moore’s Law speeds, you know, 9 to 12 to 18 

months, a 2-year budget planning and budget execution cycle just 

is fundamentally at odds to it. And so you would have to think 

through a mechanism by which you could have just much more 

flexible dollars. And it probably is a go-around or, again, a different 

track with its own set of rules in order to accommodate that. 

And there will be—and there are other technologies, frankly, that 

match that, those characteristics. Aside from that, the gears will 

grind. 

Mr. LANGEVIN. So let me ask this. On the Better Buying Power, 

BBP, wanted to focus much attention on training and process, but 

absent from the discussion has been a focus on equipping the workforce with time-saving, modern, analytical software. 

Have acquisition support systems, such as the contract-writing 

systems, cost-estimating systems, auditing systems, and the like, 

kept pace with acquisition reform and evolution? And how could 

technology enable the acquisition workforce to forecast, estimate, 

compete, award, and monitor requirements better? 

Mr. ZAKHEIM. Well, a couple things. 

I think the first thing is the workforce needs to know how to use 

the technologies. One of the interesting things that I have found 

in government is they will buy technologies and then they don’t 

know how to use them, or they will act as if they know how to use 

them but use them the wrong way. 
29 

So it comes back, again, to training. A tool is only as good as the 

person who knows how to use it. And it seems to me there are tools 

out there that can be useful. 

And I will give you an example of a major failure that I had 

when I was Comptroller. I tried to centralize the entire auditing 

system. And we had, my God, the CEO of Oracle came to see me, 

for goodness’ sake, to see if he could sell his product. And we 

bought a product, and the staff simply did not really understand 

what it was supposed to do. So the whole thing collapsed of its own 

weight. 

And, of course, you know, we have the same thing, perhaps, now 

with the Affordable Care Act. The problem is the staff needs to 

know how to use what it buys. So there is stuff out there, but you 

need an educated staff to know how to use it. 

Mr. LANGEVIN. Good point. 

Well, let me ask you this. Could there be a better way to automate more of the acquisition process, particularly small contract 

changes like unilateral modifications, and, in doing so, free up time 

to work more complex acquisition issues? 

Mr. FRANCIS. I think there are ways to do that. The government 

has, in the past, gone through reforms to simplify acquisitions. 

Things that fall below a certain threshold should be easier to approve. I think it is a good time to relook at that. Government tends 

to do these things just periodically after several years. 

Given the changing nature of technologies, I think that there are 

plenty of opportunities to, again, give people authority to make decisions using guidelines. Let them make the decisions and be held 

accountable. So I think there is quite a bit of potential to allow 

some of these smaller decisions, if you will, to be made much 

quicker. 

Mr. LANGEVIN. Thank you. 

Thank you, gentlemen. I appreciate your testimony today. 

I yield back. 

Mr. THORNBERRY. Thank you. 

Mr. Scott. 

Mr. SCOTT. Gentlemen, thank you for being here. 

And I want to talk a little bit about weapons system 

sustainment. But I want to go back, before I do that, and give you 

a couple of examples that I have heard from—one from a program 

manager, one from a contractor that was a building contractor. He 

was a roofing contractor. And he got asked one time by the base 

command why he never bid on the original project. And the answer 

was, because I can’t do it at the price that you are awarding the 

bid at. But he made a very good living repairing what the original 

bid provided for the base. 

And the bottom line is the low-bid process is costing us a tremendous amount of money because it doesn’t deal with the sustainment 

of it, and nobody in the private sector would use the system we 

have. So, I mean, if you have a specific way for us to change that, 

I mean, in the end it gets to the people that we hire and some discretion. 

But one program manager, Mr. Schwartz, put it to me this way. 

He said, you know, he said, ‘‘If I am buying a tire and I am told 

to buy P235/70/16, and I can use discretion to buy a good tire, then 
30 

I can get a good price on it. But if I am told exactly which tire I 

have to buy, then the private sector knows that, and I am going 

to pay a fortune for it.’’ And the end result of that is a frustration 

and the rubber-stamping of million-dollar change orders. 

So, as we carry that forward into the sustainment of a weapons 

system, which is two-thirds of the lifecycle costs of the weapons 

system, my questions get back to the current acquisition system 

and sustainment and what can be done to make the sustainment 

more efficient and the use of our—I represent Robins Air Force 

Base, which is a depot—and the balance between the public sector 

and the private sector with regard to making sure that the taxpayer gets a good deal in the sustainment of the systems. 

Mr. SCHWARTZ. So, as we discussed, operations and support is 

very often 70 percent of the program. DOD, historically, has not 

had very good data upon which to track how reliable those O&S 

costs were going to be. So one starting place is to improve the data 

available so you can make those future tradeoffs. 

A second example is to prioritize the importance of the long-term 

operational support costs as a factor in authority and accountability and keeping the eye on that ball. Because, you know, NunnMcCurdy—and there is a lot to be said that is positive about NunnMcCurdy, you know, the reporting requirements, but it very often 

drives people to try to sacrifice the long-term costs for the current 

short-term costs, particularly in this environment. And if we could 

figure out a way to encourage the long-term view, and we have the 

data to back that up, then we might be able to get at that. 

Mr. CHAO. This is also an area where you have a cultural issue 

of the issue of colors of money, right, with the procurement dollars 

being in a different stovepipe than the O&M [operations and maintenance] dollars, which is exacerbating this phenomenon of, well, 

I don’t want to spend extra procurement dollars, the bidding on the 

original roof, in order to save money later on. And looking at that 

issue of color of money and can you perhaps allow some of that to 

slop back and forth, if it results in good decisions, is probably a 

topic to look at. 

Mr. SCOTT. Can I ask a follow-up to that? So in today’s day and 

time, in the cuts that are being made today, doesn’t that make the 

problem bigger going forward? Aren’t we going to push more of the 

costs of sustainment in the future with what we are doing right 

now? 

Mr. CHAO. Yes, for sure. And which is why, you know, never let 

a crisis go to waste. You know, and this would be the time to take 

a look at that, because it is going to drive that—it will drive exactly that kind of behavior. 

Mr. ZAKHEIM. I think—a couple things you can do. Again, it is 

how you frame the contract, how you actually make the decision 

about a contract. If price is way too high, then, by definition, you 

are going to go with the lowest price. 

To my knowledge, sustainability isn’t the major factor in contract 

decisions anyway, and it can be. I mean, obviously, you cannot predict the future, but you can certainly say, has it been tested? There 

are ways to test things like mean time between failure and so on. 

You could have that as a major standard. It could be part of what 

is technically acceptable. 
31 

‘‘Technically acceptable,’’ as has been said, is a very, very broad 

term. You raise the bar on what is technically acceptable and include sustainability in it. 

Mr. FRANCIS. I would just add to that, I think structuring the acquisition up front is very important. If you are going to focus on 

operations and support and sustainment, I don’t think we do that. 

I think performance still wins the debates. 

And I think over time the government has given up some of its 

ability to make decisions in its own interest. So we get into situations where we award a contract to a contractor to develop a product at the same time we give them the contract to sustain the product. So they are making money on both ends of the spectrum. 

And if we haven’t bought the data rights or stood up an organic 

capability, the government leaves itself no option but to go with the 

developer to sustain the product. And that is a disincentive to getting the product designed for sustainment. 

Mr. SCOTT. It is an unregulated monopoly, in that case. And that 

is the reason I firmly believe we need to continue with the 50/50 

rule, to make sure there is competition out there. 

Thank you, gentlemen. 

Mr. THORNBERRY. Ms. Speier. 

Ms. SPEIER. Mr. Chairman, thank you. 

The Inspector General has found a number of instances where 

contractors grossly overcharge the Department for spare parts. The 

IG [inspector general] pointed out this particular bearing sleeve 

that costs retail $10 and Boeing charged the taxpayers $2,286. This 

is a metal tube assembly. Boeing charged the taxpayers $12,400; 

it retails for $1,167. 

You know, the American people thought that the $800 coffee pots 

and the toilet seats were something of the past, but the truth is 

it is still going on today. 

So my question to you is, how do we hold these contractors accountable? Anyone who would like to answer that would be—— 

Mr. FRANCIS. Well, I think—— 

Ms. SPEIER [continuing]. Welcomed. 

Mr. FRANCIS [continuing]. The first thing is the structure of the 

contract. And I think, rather than the government focusing on the 

specific profit rate that is being established or the cost—the other 

side of that, Ms. Speier, is you can get that flood of auditors looking at all these individual things. So if the price is fair, then I 

think the government—that is where the government should be 

structuring itself. 

If they find that the contractor then, after an audit, is not being 

fair, that needs to be factored into their past performance history 

so that the next time the contract is awarded it may not go to 

them. The government has to be a smart buyer and has to be willing to walk away from somebody who is not giving them a fair 

deal. 

But I don’t know if I would go so far as to break down all of 

these individual parts and then create that audit burden. We have 

to get the big thing right up front. 

Mr. SCHWARTZ. I believe one of the examples that you are referencing was a part that, in fact, was in DLA [Defense Logistics 

Agency] inventory for a very cheap price. So another side of it is 
32 

not just the contractor, but who in that workforce signed off on 

paying $2,000, I think the figure was, for that part without calling 

DLA and saying, ‘‘Hey, can you beat $2,000 by $1,900?’’ So that is 

another element of the aspect you are talking about. 

Mr. CHAO. And, frankly, though, there are two elements to this. 

There are going to be the examples where there was overcharging, 

and then there is, frankly, the other element we have to be very 

careful of of sometimes those prices are reflecting exactly the overhead burden that we are imposing on the overall system, right, 

which they are required to do so. And so when you ask for that individual part and they are required to allocate a portion of that 

overhead burden onto that individual part, it will make that part 

look egregiously expensive, but that is what we have asked of the 

system. 

And so I think we need to distinguish between the two, lest we 

sort of go chasing some things that may not be relevant. 

Mr. ZAKHEIM. And, of course, if you say ‘‘the system,’’ it means 

something you ought to be changing. In other words, if you are 

going to impose rules on the contractors that only allow them to 

make money a certain way, that is how they are going to make 

their money. If you were to, for instance, convert some of these contracts to a firm, fixed price, and then they have to—and there are 

no engineering change proposals allowed, and they have to, basically, if they want to make a profit, come in below that price, you 

are going to see a very different kind of behavior. 

So you have two things here. You have the contracting officer 

who has no idea what DLA is offering because it is all over their 

head anyway and they are just undereducated, and then you have 

the rules that, even if they are educated, squeeze both them and 

industry in a certain peculiar and perverse way to come up with, 

whether it is toilet seats or hammers or anything else. 

Ms. SPEIER. So, Dr. Zakheim, you mentioned in your opening remarks that the lack of education is a critical component. So you 

would recommend that we have persons who are more highly qualified, pay them more, so that we are going to get greater value for 

the taxpayers? 

Mr. ZAKHEIM. I don’t know that we even have to pay them more. 

I mean, if we are promoting people from GS–13 to GS–14 anyway, 

they are going to get paid as GS–14s. It will cost some money to 

have them educated for a year, but, you know, frankly, that money 

is there. We find ways to find money that we need. And we are not 

talking about big bucks, and the payoff is huge. 

Mr. CHAO. And it is making the time available for them to take 

that training and put that into the rotation cycles. 

Ms. SPEIER. Thank you. My time has expired. 

Mr. THORNBERRY. Mr. Nugent. 

Mr. NUGENT. Thank you, Mr. Chairman. 

And I want to thank this panel for your insight because, as 

someone that has only been here 3 years, it is mind-boggling in regards to how we spend money, and sometimes have no idea why 

we spend it or how we spent it. 

I can just give you a simple example, and then to a question. 

When we were trying to buy a computer in our office, it came back 

that was going to be 1,100 bucks. And the same computer we were 
33 

able to buy with authorization through the purchasing for $500 

from Best Buy. One would say that the Federal Government probably should have a better buying power than Best Buy, but obviously not. 

But I want to get to, in Iraq, when we had issues, particularly 

when our enemies exploited the vulnerabilities of our Humvees to 

improvised explosive devices, not only in Iraq but also Afghanistan, 

the DOD, you know, launched an expedited program, the MRAPS, 

to get in the field, which was outstanding because I have three 

sons currently serving in the United States Army. Two have them 

have been in Iraq and Afghanistan. 

But would you talk about the lessons learned—and I guess anyone can answer this, but Mr. Francis in particular—lessons learned 

from the MRAP acquisition? Some of the positive examples, I 

guess, of cutting through the bureaucratic system to get the 

MRAPs fielded? And maybe if there are some negatives on important steps ignored? 

If you—I know it is three questions, and I can always come back 

to it. 

Mr. FRANCIS. I will try to muddle up my answer so all three will 

get answered. How is that? 

Mr. NUGENT. Great. 

Mr. FRANCIS. Yeah, I think there are good lessons learned from 

MRAP. So, on the positive side, once the government decided it 

wanted to go there, it did some really good things. One, it had 

money, top priority, it could put the best people on it. And it decided it was going to shop off-the-shelf and evaluate existing vehicles and then make a modification using existing equipment. So the 

government was going to pick the best vehicle and then put the 

equipment on it that it needs and get it out there. And we did it 

really fast, and it was really successful. So I think that was good. 

You ask yourself then, well, how come we are not producing that 

kind of equipment? And that gets to the negative. I think it took 

2 years, at least 2 years, before the government realized that uparmoring Humvees and so forth wasn’t getting the protection it 

needed. 

Mr. NUGENT. Right. 

Mr. FRANCIS. Those vehicles that they ended up buying had been 

around for years, but that is not where we look first. You know, 

we looked at our tried-and-true ways. And only when we had no 

other option, then we go out and do the right thing. 

So I think the question for the acquisition process is, could it 

have done the right thing right away? And I think the answer is 

yes. But the organizations have relationships. They have favorite 

programs, they have favorite contractors, and it is very hard to get 

them to respond differently. 

I don’t think we need to go to a system that is all rapid acquisition that breaks the rules all the time, if you will. But we have to 

look at the current acquisition and say, can’t the requirements 

process and the acquisition process be more responsive to meet 

needs like that? 

Mr. NUGENT. Mr. Chao. 

Mr. CHAO. I do think it also highlights one other thing that we 

are going to have to be very careful of as we go through a little 
34 

bit of time, right? The acquisition system is always trading off cost, 

performance, and time, right? That was a great example. And you 

can optimize two and you are going to have sacrifice the third. 

Very clear example in the MRAPs of emphasizing time and performance, and I paid for it in cost, right? 

As we come out of the war and the time imperative decreases for 

most of the system—SOCOM [Special Operations Command] and 

other parts will still have that time imperative—the system and 

the emphasis will shift, and things that will look normal in the 

new system—or that looked normal in the old system will not look 

normal in the new system. 

Mr. NUGENT. And, lastly, I am running out of time, but is it possible to use existing technology without trying to always reinvent 

the wheel and then add on to that existing technology in a way 

that would save us money? 

Mr. ZAKHEIM. Well, it certainly is possible, and it has been done. 

But part of the difficulty, if you take the MRAP, it was basically 

based on a South African design, as we know. We tend to be very, 

very narrow and restrictive about where we look, and so we tend 

not to look at what is on the shelf. When we do take something off 

that shelf, we tend to modify it so it is unrecognizable. 

That is something that has to change, and that has to be 

changed by top management and enforced year after year, Secretary after Secretary, party after party. If there isn’t consistency 

in this, the system will just lapse again. 

Mr. NUGENT. Thank you very much. My time has expired. 

Mr. THORNBERRY. Mr. Larsen. 

Mr. LARSEN. Thank you, Mr. Chairman. 

Mr. Schwartz, do you think that the Defense Acquisition Workforce Development Fund, first, has made some progress on getting 

the right number of people working in the acquisition field? And, 

as well, has it increased the professionalism of the acquisition 

workforce? Have you done any assessment on that? 

Mr. SCHWARTZ. If I understand, I believe it is approximately 

2,000, or slightly more than that, individuals in the acquisition 

workforce that were brought on board to the Department of Defense as a function of the funding that was created in the DAWDF, 

the Defense Workforce Acquisition Fund. 

In addition to that, even some of the requirements from DAWIA, 

the Defense Acquisition Workforce Improvement Act, from 20 years 

ago, which required, I believe, program managers to have 8 years 

of experience, PEOs, program executive officers, to have 10 years 

of experience, those regulations that have started educating the 

workforce, those people that went through that are just now generally getting to that layer of senior management and have been 

brought up through that system. 

So with DAWIA and Defense Workforce Acquisition, they are— 

from my understanding of people in the system, there definitely 

has been an improvement of people who went through that who 

have better training and more experience. 

Part of the problem, though, is that the average age of many people in the acquisition workforce is much higher. The workforce was 

cut substantially in the 1990s, and as we are hiring more people, 

it could take 10, 15 years until those individuals get through that 
35 

process. So with DAWIA and with the Workforce, it definitely is 

setting a good standard, but it is going to take time to get that 

workforce back up to where it needs to, from that perspective. 

Mr. LARSEN. Yeah. 

And a follow-up for that: Can you provide the committee with an 

example of some of the challenges that program managers face trying to navigate and keep track of the steps in the acquisition program? 

Mr. SCHWARTZ. Absolutely. So the acquisition framework is set 

forth in the 5000 series. Perhaps I can show you. One individual 

recently said, we have legislated and regulated our way into a 

black hole. 

So this is the—these are the directives of the 5000 series. This 

is the basis. Now, on this is the Federal Acquisition Regulation. 

This is the Federal Acquisition Regulation. It is about 1,800 pages. 

But there is guidance that is necessary to understand that. This is 

the Defense Acquisition Guidebook that explains how to use the 

Federal Acquisition Regulation. 

And that is for all of government. Now, defense is slightly different. 

Mr. LARSEN. Thank God that one is in a binder, anyway. 

Mr. SCHWARTZ. This is the Defense Federal Acquisition Regulation Supplement just for the Defense Department. 

Now, just to make sure you understand how to use that, there 

is the Defense Acquisition Regulation Procedures, Guidance, and 

Information that explains that. 

That is one of the challenges of the program managers today. 

Mr. LARSEN. That looks like about 13 inches of challenges or so. 

All right. Good. Could you read those for us? No, I am just kidding. 

Mr. SCHWARTZ. We can make a CRS [Congressional Research 

Service] report with all that. 

Mr. LARSEN. Great. Thanks. 

I think another challenge, too, for Mr. Francis to answer, is, looking at your GAO report, noting in your ‘‘Analysis of DOD Major Defense Acquisition Program Portfolios,’’ page 2, is kind of the depressing number here, that from 2008 to 2012 the average delay 

in initial operating capability for these programs have gone from 

22 months to 27 months. The change in development costs from 

first full estimate has gone from 42 percent to about 49 percent. 

Where is the—is there a good news in this story? 

Mr. FRANCIS. I think there is some good news. I think in the last 

2 years we have seen some benefits from acquisition reform in 

WSARA [Weapons System Acquisition Reform Act] and Better Buying Power. We have seen some difficult decisions made, I think, 

after 2008. That is when Secretary Gates made a lot of decisions 

in 2010 to get rid of some bad programs and have them come out 

of the portfolio. So I think that was good. 

I think some of the things that they are doing today on cost studies and making requirements tradeoffs, I think those are doing 

okay. But I am not willing, at this point, to say we have turned 

the corner, all of a sudden the trend is going up. What we tend to 

see is, when you see improvements like that, they are imposed by 

strong individuals. It is the hero model. I don’t think yet that the 
36 

process has been institutionalized, and we would have to see this 

over time. 

Which is why I think this hearing is very important. Because 

when people like Ash Carter leave and Frank Kendall leave and 

some of the service acquisition executives leave, are we going to see 

this trend continue or is it going to disappear? I think this is mainly operating on the strength of individuals, which is good, we will 

take that success so far, but we need to institutionalize it. 

Mr. LARSEN. Thank you. 

And, Mr. Chairman, if we could, as the committee hearing ends 

at some point, if we could get a dolly in to help Mr. Schwartz take 

the regs back, I would appreciate that. I am sure he would appreciate it. 

Mr. THORNBERRY. We are definitely going to record the stack for 

posterity. 

Ms. Davis. 

Mrs. DAVIS. Thank you, Mr. Chairman. 

And, certainly, I reflect on the memory of Ike Skelton, as well, 

and the fact that he was very concerned about this issue, as you 

all mentioned earlier. 

It does feel a little like de ́ja` vu. I know that Mr. Andrews and 

Mr. Conaway took part in a very active task force quite a number 

of years ago. I guess that was in 2009. And what I recall from that 

was that issues such as bundling and other ways in which—we 

question whether small businesses could get more in the fight, if 

you will. And we talked about that a little bit earlier, in terms of 

innovation. 

Do you see improvements in this way? I mean, has that made a 

difference? And is there something that Congress should be doing 

with addition to language or what have you? 

I mean, I am looking at the stack, and I am—one question really 

is, how much of that do you relate to what Congress has done? I 

know that is a part of rulemaking, but in terms of the effort that 

Congress has made that has been positive and both negative in 

that regard. You know, are we 3 inches of that or are we—what 

part of it does Congress represent? 

And I am particularly interested in the bundling issue because 

I think that has been a great frustration to small businesses. It is 

very difficult for them to be able to jump in. And we have seen this, 

you know, we have seen this in the ACA [Affordable Care Act], as 

well. 

Mr. SCHWARTZ. It being my stack, apparently I will answer that 

question. 

This is an improvement from the 1970s, when it was 30,000 

pages and streamlined across the government. So, on one level, the 

acquisition system, while not aggregately perhaps improving, has 

kept up with the change. So even as systems and other services are 

more complex, generally, at least the cost overruns haven’t skyrocketed more than they are currently. So that is one way of looking at it. 

In the last six National Defense Authorization Acts, the Title 

VIII of acquisition had approximately 250 different sections. So 

some people have suggested that perhaps that is more active. Others have said, well, some of these are very well-timed. But a num-
37 

ber of these perhaps were right on target 15 years ago but might 

not be appropriate now. Others of these might have had unintended consequences but just stayed on the books because we 

haven’t, since 20 years ago with the 800 panel that Dr. Zakheim 

referred to, been gone through. And some of them didn’t have—had 

a bad result, unintended. 

Mrs. DAVIS. Uh-huh. 

Mr. SCHWARTZ. So I think a review, perhaps, of this stack and 

say which of them are outdated, which of them had unintended 

consequences, perhaps could be repealed or amended to say, how 

do we streamline it without undercutting some good oversight and 

some good things that may very well be in there. 

Mrs. DAVIS. And the mechanism for that? I mean, is that a role 

of the Congress? Is that a role of a task force? Is that a role—how 

do you see that? 

Mr. SCHWARTZ. So I would suggest the way it was done last time 

was collaborative. And, generally, if you look at the past reform efforts, those that have been successful have been substantial, collaborative efforts across departments and across branches of Congress. 

You know, Packard, I believe it was, who said that he was 

shocked that when—when he was Deputy Secretary of Defense, he 

was shocked that they would put in at the Department of Defense 

on a senior level these reforms and the services wouldn’t buy into 

them. 

Mrs. DAVIS. Uh-huh. 

Mr. SCHWARTZ. So, no matter what the senior level does, if the 

services don’t buy in, it won’t be as effective. 

Even if the services do it, if the lower components don’t buy in, 

it won’t be effective. And, arguably, it is the same with Congress 

and DOD. If it is a collaborative effort together, which is how it 

was done in the 800 panel—Congress required, I believe it was Defense Acquisition University to do a study, and that was turned 

over to Congress, with input from numerous experts, and then that 

is how we got the Streamlining Act. 

Mrs. DAVIS. Uh-huh. But I guess part of what I wonder about— 

because we have talked about the education piece. If you have a 

lot of the same people, even though perhaps they are newer to the 

process, are we going to get the same results? 

Mr. ZAKHEIM. I think that one place we haven’t talked about is 

the White House. I think you will need OMB, OPM, and OFPP, the 

Office of Federal Procurement Policy, to play in this. A lot of this 

stuff is generated, or at least is theoretically under the oversight 

of those offices. 

Mrs. DAVIS. Uh-huh. 

Mr. ZAKHEIM. And, again, a lot has to do with merits and measurement and reward. The services, if they know that they will not 

be penalized for not listening to a Deputy Secretary, they are not 

going to listen. 

So there is a combination of things. It has to be collaborative. It 

has to be nonpartisan. And within the Department, there has to be 

a sense of—— 

Mrs. DAVIS. And do you think that this is something that Congress actually has to—— 
38 

Mr. ZAKHEIM. Well, Congress should play in this and ask for it. 

Mrs. DAVIS. Yeah. Okay. All right. 

Mr. FRANCIS. Ms. Davis, just a couple points. 

A couple of teasers. We are doing work on bundling right now, 

so we will have a report coming out. And we are also looking at 

small-business innovative research for this committee. So we are 

looking at how small businesses are faring in that world. 

And then just a little conundrum that we are facing here. If we 

were to, let’s say, talk a lot about small business, Congress’ role, 

they might write a law about small business that might add this. 

We talked earlier about cybersecurity; there might be something 

added for that. And we talked earlier about the defense acquisition 

workforce; we might want to pass laws and legislation on that. All 

individually good things to do. But then at the end, you say, have 

we looked at the cumulative effect? 

Mrs. DAVIS. Uh-huh. All right. Thank you. 

Mr. THORNBERRY. I thank the gentlelady. 

Mr. Kilmer. 

Mr. KILMER. Thank you, Mr. Chairman. 

I have a few questions. One, it seems appreciated and understood 

that the use of commercial off-the-shelf products tends to be cheaper when initially purchased and maintained as compared to custom 

solutions. Part 10 of the Federal Acquisition Regulation supports 

that notion and encourages the use—encourages agencies to seek 

out those commercially available solutions while conducting market 

research. 

I guess, a few questions. One, are organizations adopting this 

shift? Have we actually realized a significant shift to purchasing 

commercial off-the-shelf? And are there any statistics that you have 

seen that support such a trend? 

Mr. SCHWARTZ. There has been significant change in that since 

the 1990s with, I believe it started with Secretary of Defense Perry, 

when there were mil-specs, military specifications, for virtually everything, and he really initiated that efforts move away from that 

and buy commercial. 

What a number of people have suggested is, while that is definitely good, perhaps at some point the pendulum went too far, and 

we are trying to force that buying into commercial, which, as a 

number of the other people on the panel talked about, is, well, 

when that was the incentive, everybody had to buy commercial, 

whether it was the right thing or not. Now, perhaps, it is settling 

a little bit more. So that is one thing. And I will take that as a 

task and, over the next week or so, try to get you some statistics 

on that. 

The other issue with that, in addition to a clear increase in doing 

that as well, is there have been a number of instances, unfortunately, where the initial effort seemed that it was ideal to get offthe-shelf, and then when it was adapted to military requirements 

or when some of the regulations started kicking in, it ceased to be 

that. And then somehow a major development effort had to be done 

to incorporate these regulations, and then you lost the whole benefit of that, and sometimes the costs even went higher than otherwise. 
39 

Mr. CHAO. So here is where I would quibble a little bit. I mean, 

the reforms of the 1990s were actually fairly revolutionary in terms 

of switching the whole system from defaulting on mil-spec to now 

defaulting on commercial and proved to me why it should do milspec. 

Over the last decade, I think that pendulum has kind of started 

to swing back a little bit, and it has been creeping back—mil-spec 

has been creeping back into the system. And I would argue a review, you know, of that would be important. 

I think I saw a statistic that something around 28, 29 percent 

of the dollars are being spent on a commercial basis, and it has 

kind of plateaued. And you would think, if you think of all the 

technologies that are moving more and more commercial, like IT 

[information technology], you would think that that percentage 

should be growing. 

Mr. KILMER. Okay. Thank you. 

I also had a question around the small-business preferences that 

exist within our procurement policy. I know there are preferences 

to encourage disabled veteran and female and minority businesses. 

I want to get your sense of how successful those programs have 

been in encouraging qualified individuals to establish businesses 

and to grow their businesses. Have you seen—is there competition 

between the various preferences that might inhibit the achievement of each agency’s goals in that regard? 

Mr. ZAKHEIM. Well, my experience as a contractor for more than 

the time that I was in government tells me that, as usual, the system gets played. 

So, for example, big companies will hide behind the small business, which doesn’t really have the capability to do everything that 

the government demands of it. That begs the question, should the 

government be demanding as much as it does from small businesses that forces them to turn to the big companies to back them 

up? So that is one issue that I think needs to be perhaps dealt 

with. 

Another is, yes, there is clearly a competition. If you want to 

have a woman-owned business, a disabled-owned business, a veterans business or so on, they are all competing against each other. 

Does DOD always meet its goals in terms of small business? No. 

The answer is, you know, sometimes it does, sometimes it doesn’t. 

Is there a desire on the part of industry to bring in small business? 

Always, because you know that if you get a small business in, you 

have a better chance of winning the contract. 

But, again, it is kind of backwards. It is the big company that 

is looking for the small company in order to win the business, as 

opposed to the government looking for the small company for the 

reasons that presumably you support. 

Mr. KILMER. So, from a public policy standpoint, what would you 

do differently? 

Mr. ZAKHEIM. You probably would not make as great demands 

on the small companies, and just give them the opportunity to 

bring in what they bring in without forcing them, in effect, to join 

the big guys because, otherwise, they can’t win a contract. 

Mr. CHAO. I mean, as a mechanism for incubating small businesses, I would argue it has been successful. The place where it 
40 

has gotten a little bit perverse is, as companies hit that threshold, 

deciding to stay there rather than crossing over. And, I mean, 

ideally, you would think that that was a policy established to incubate companies and let them grow all the way up. And now we 

have people that are just deciding to, you know, opt out, ‘‘I don’t 

want to go across the fence into the maelstrom,’’ and so they stay 

right at that level. And that is probably something to take a look 

at. 

Mr. KILMER. Thank you. 

Thank you, Mr. Chairman. 

Mr. THORNBERRY. Mr. Carson. 

Mr. CARSON. Thank you, Mr. Chairman. 

This question is for all the panelists. It has been repeated often 

by Members on both sides of the aisle that sequestration is, I think 

we all agree, is the worst possible way to cut back our defense 

spending. The same goes for domestic spending. And we should 

eliminate both immediately. 

But I think it would be foolish not to learn from our mistakes. 

The DOD is effectively being forced to make decisions that it would 

likely not have considered if it were not for sequestration. 

Are there lessons we can take from sequestration about DOD acquisition and potential efficiencies that could be pursued? And 

what do we know now about DOD’s ability to make tough choices 

in acquisition that we didn’t know prior to sequestration? 

Mr. FRANCIS. Okay. I will start. 

Mr. Carson, we have taken a look at how the Department has 

handled its investment accounts, and I think for fiscal 2013 for the 

sequester it has taken short-term measures. It has postponed some 

decisions, may have pushed out some quantities, but it hasn’t done 

anything drastic, in terms of canceling programs. It hasn’t broken 

up any big contracts. So it hasn’t done anything that I would say 

was imprudent. That is okay for this year. 

Next year, some of those same tools are not going to be available 

to the Department. So some of the things they have put off, particularly in shipbuilding, for example, where you have advance 

funding to buy long-lead items, you can put them off for a year, but 

you can’t take them away. So they can’t put them off again next 

year. 

I think lower budgets, if you know they are coming, can actually 

force some good decisions, some hard choices. They can bring discipline to a process. We have seen the opposite, where big budgets 

don’t necessarily make for better decisions. 

I think the structural issue here is the Department has put forth 

a budget that does not yet reflect the sequestered amount. So when 

it goes back in, I am not sure it is going to make decisions to put 

it on a long-term glide path to save money. The decisions are not— 

are going to be, again, short-term in nature and maybe not as welladvised if you know you are going to be sitting on lower budgets 

for the long term. 

Mr. SCHWARTZ. I believe it was Winston Churchill who said, 

‘‘Gentlemen, we are out of money. We now need to think.’’ That 

concept is starting to really pervade the Department of Defense. 

In the past, there was this culture, perhaps we can call it, of, 

well, that program is going to increase in costs but we will get 
41 

funding for it, and we will ask for more money, and we will ask 

for the cost cap to be raised, and we will ask for more money, and 

it will get funded one way or the other. 

That is not necessarily the culture now that a lot of people, not 

everyone, but a lot of people are feeling in the Department of Defense. It is no longer a given that if there is cost overrun, they are 

going to get funding. And it is no longer a given that if they promise more capability, that is going to sell. 

And Secretary Gates started this when he said, we don’t need exquisite technologies anymore, we need the 80 percent solution. And 

a lot of people have traced that change in culture to comments like 

that. 

Mr. CHAO. So, I mean, the most damaging thing about sequestration was the elimination—and it was designed to be so horrific that 

it would never be taken up—but of the across-the-board cuts of everything having to be applied. And so, how can I cut, you know, 

a fifth of a ship, for example? And yet, you know, hence we were 

down that path. 

And so the Pentagon knows how to plan. In fact, it is very, very 

good at it. And I think that is one of the—if you give it the opportunity to do so, if it was told, here is the level to which you need 

to plan to, I would submit to you it can do a very, very good job 

of that. You know, the current environment has eliminated that 

ability and has created the turmoil. And I think that is where you 

are picking up all the inefficiencies, because it cannot do that planning. 

Mr. ZAKHEIM. You know, even without sequestration, there has 

always been cut drills for years and years and years. And what 

happens is programs that are promising very often get cut because 

they just don’t have the right sponsors in the right places. 

I don’t know whether the Department right now has made the 

kinds of structural, as opposed to near-term, choices. I agree with 

my fellow panelists about where we are headed over the next year, 

but if you are talking about fundamental change in the way you 

do your acquisition, it is not clear to me that that is happening. 

And, at some point, the budgets will go up again. And if you don’t 

have those kinds of changes, you are not going to get the efficiencies; you will waste money again. 

Mr. CARSON. Uh-huh. 

Mr. ZAKHEIM. So the sequester may have focused people’s minds. 

The next question is, have they done the kinds of things that will 

allow for more efficient acquisition regardless of the budgetary environment? And I think the jury is out on that. 

Mr. CHAO. If I could quickly follow up on that, if the budgets actually peaked, including the OCO [Overseas Contingency Operations] accounts, in 2009 and we are planning the 2015 budgets, 

we are actually 6 years into the downturn. I know it doesn’t feel 

like that. And if you look at the historic cycles, we usually had 

10-, 12-year cycles. I would submit to you we are almost, quote/ 

unquote, halfway through. 

So as I talk to industry, I tell them, if you are starting to think 

about the downturn now, you are way too late. You should actually 

be thinking about what the next upturn looks like and what do we 

want to do during this downturn to strategically position ourselves. 
42 

And I think the Pentagon really wants to do that. I think it is a 

great role for Congress, you know, to also play in thinking about 

how to do that. 

I mean, to end on an optimistic note, you know, for as much complaining, we still end up with the best equipped military in the 

world. Now, we may sit there and say, you know, that is a ‘‘we 

suck less’’ strategy and that doesn’t feel very good. But, you know, 

this is as much of an opportunity, I think, to position for—you 

know, to position ourselves for, frankly, for what the next upturn 

looks like. 

Mr. CARSON. Thank you, gentlemen. 

I yield back my time, Mr. Chairman. 

Mr. THORNBERRY. Thank you. 

And thank you all. We have covered a lot of ground today. Members had a lot of good questions. 

I guess I do want to ask, is there some key element of this that 

we have not touched on that any of you all think that you would 

like to highlight as a last comment? You don’t have to say anything. I am just giving you the chance in case we missed something. 

Mr. CHAO. So, one last topic, which was touched upon obliquely. 

It is another politically sensitive one. It is the issue of the revolving 

door. Right? To the extent of, if we have these issues in the workforce and you need to get better quality people in, and we have 15 

percent, I think, of the Federal workforce eligible for retirement 

and another 30 percent coming in the next 5 or 6 years and there 

is going to be this brain drain, the ability to pull people mid-career 

into the system and back out again is probably something that 

needs to be really, really looked at. 

And it has become almost a one-way trip, either one way or the 

other. It has become very, very difficult to do that. Again, to sit 

there and say, ‘‘I want to increase the revolving door’’ is not politically palatable or popular, but it is a real topic, I would argue, to 

look at. 

Mr. ZAKHEIM. Another one that is clearly a tremendous frustration is, how do you bring people in at the political appointee level? 

A lot of people just don’t want to get involved because it is just so 

hard to make it through the confirmation process. 

And I know that takes place in the other Chamber, but it seems 

to me it is a challenge for everybody involved in acquisition. And 

it is something that, as you talk to your colleagues in the other 

Chamber, it really needs to get resolved. It is not a partisan issue. 

It is an issue of, can we get the best people for this country? And 

there are an awful lot of good people out there who just don’t feel 

they can serve. 

Mr. THORNBERRY. Okay. 

Mr. FRANCIS. Mr. Thornberry, I just would conclude that it is 

kind of easy to say the acquisition workforce should do something 

different, or the executives or the program managers, but I think 

we have to think holistically and look at all of us put pressures on 

the system and create pressures. And I think it responds pretty 

much to those pressures. 

So if we want to get different results, I think we each have to 

look at what are we contributing to the current state of affairs and 
43 

what can we do to take some of the pressure out of it. And I think 

that is going to be key to getting results in the future, instead of 

just looking at what the other guy can do. 

Mr. SCHWARTZ. And perhaps to sum that up, what the role of 

Congress—and there was a question before. So this committee has 

done a lot of work, as other committees have, on operational contract support. And everyone I have spoken to in the Department 

of Defense had said that the progress made could not have been 

made without the effort in Congress. 

I would suggest that the past successful reforms, Congress has 

always played a critical role. And there is a critical role for Congress to play in the future. 

Mr. THORNBERRY. Well, I appreciate that. You all heard what the 

chairman and Mr. Smith have agreed to do. And, as I think each 

of you have said at one time or another, that requires not only Republicans and Democrats, House and Senate, it requires various 

levels of the Pentagon and also working with industry. Because 

until you get, kind of, everybody more on the same page, we are 

not going to have the success we need. 

So thank you all very much for your time today. And I hate to 

break it to you, but we are going to be calling on you in the future 

to help guide this effort. 

With that, the hearing stands adjourned. 

[Whereupon, at 12:21 p.m., the committee was adjourned.] 

A P P E N D I X 

OCTOBER 29, 2013 

PREPARED STATEMENTS SUBMITTED FOR THE RECORD 

OCTOBER 29, 2013 

(49) 

Chairman McKeon Opening Statement 

"Twenty-five Years of Acquisition Reform: Where Do We Go From Here?" 

October 29, 2013 

We convene on a sad day. Yesterday, this committee lost a former chairman, a 

hero, a patriot, and a friend. Ike Skelton will be deeply missed-not only by those of 

us, members and staff, in this room-but by the men and women in uniform who Ike 

worked so hard-and so humbly-for. It was always difficult to have a conversation 

with Ike in public because our troops were always stopping him to thank him, to have 

their picture taken with him, or to let him know how his service had made theirs 

better. Ike was always humble when he met them. There is no tribute we can offer 

that can ever match the gratitude of those men and women. It is appropriate though 

that we take a moment now to bow our heads and thank God for the gift of having 

known Ike, and for the opportunity to carryon his work. 

That brings us to today's hearing. As many of you know, this Committee 

under leadership of many like Ike-has a long track record oftackling incredibly 

complex and challenging issues. The subject oftoday's hearing-acquisition reform 

-is one of those issues. For anyone who needs reminding of the magnitude of 

defense acquisition, in 2012, the Defense Department's contract obligations were lQ 

percent of the entire federal budget. 

While this Committee has led successful efforts to improve the way the 

Department acquires items and services, there are still significant challenges facing 

the defense acquisition system. We cannot afford a costly and ineffective acquisition 

system, particularly when faced with devastating impacts of repeated budget cuts and 

sequestration. The Congress, together with the Department of Defense and industry, 

must be willing to do the hard work to find root causes, look past band-aid fixes and 

parochial interests, and have the courage to implement meaningful, lasting reform. 

To this end, I have asked our Vice Chairman, Mr. Thornberry, in consultation with 

our ranking member, to engage in a long-term DOD reform effort that includes a hard 

look at acquisition. 
50 

We've invited an extraordinary panel of witnesses to help us with that task 

today. I'm very thankful for their willingness to be here to examine previous reform 

efforts, explore reasons the Department continues to field programs over budget and 

behind schedule, and look to ways we can lead lasting reform efforts. Joining us are: 

• The Honorable Dov Zakheim, Former Comptroller for the Department of 

Defense; 

• Mr. Pierre Chao, Senior Associate, Center for Strategic and International and 

Studies; 

• Mr. Moshe Schwartz, Specialist in Defense Acquisition Policy, Congressional 

Research Service; and 

• Mr. Paul Francis, Managing Director, U.S. Government Accountability Office. 

Unfortunately, Dr. Ron Fox, from the Harvard Business School, could not be 

here today. He did, however, provide us with written remarks that you all have a 

copy of. I thank him for that and ask unanimous consent that those remarks be 

entered into the record. 

Hearing no objection, it is so ordered. 

With that, I turn to Ranking Member Smith for any remarks he may have. 

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51 

Statement of Ranking Member Adam Smith 

"Twenty-five Years of Acquisition Reform: Where Do We Go From Here?" 

October 29, 2013 

Thank you, Mr. Chairman. 

First of all, I want to share in your remarks about Chairman Skelton. I served on 

this committee with him for 14 years. He was an amazing man. I mean, I can't 

think of anybody who was more dedicated to the people who served in the military. 

When you would travel with Ike, he always, as we were doing our meetings with 

different groups and everything, he would always say, "Where are the troops? I 

want to talk to the troops." And he always did that, and he always looked after 

them. He had a knowledge of military history and a dedication to the men and 

women who served which is unparalleled. 

But he was also just an excellent mentor for everybody who served on this 

committee, Republican and Democrat alike. And Mr. McKeon and I always talk 

about how this is a-you know, it is a bipartisan committee. Well, it took 

dedication of people like Mr. Skelton to make sure that that was the case. As both 

the chairman and ranking member, he went out of his way to work across the aisle 

to make sure that we always remembered what we were doing here, which was to 

look after the national security interests of our country and those who served and 

protected it. 

He will be sorely missed by many. I know many of the staff worked very closely 

with him for years and years, as well. But he lived a very, very good life. And he 

upheld the standards of this body, Congress, and, in particular, upheld the 

standards ofthe House Armed Services Committee in a way that all ofthe rest of 

us should absolutely aspire to. 

So I thank the chairman for taking a moment to recognize his service. And it is a 

very sad day. We will all miss Ike, but we thank him for all that he has done for 

his country, for his district, for the men and women in the military, and for this 

committee. 
52 

It is hard to go from that to talking about acquisition reform, but I appreciate our 

panelists being here today. It is a never-ending challenge. One of the big things 

that was accomplished when Ike was chairman ofthis committee was we passed a 

comprehensive acquisition reform bill that I think has made, you know, some 

positive steps. 

And there is a whole bunch of different things that could be said about it, but the 

thing that I have sort oflearned in my time of working on it is that it really comes 

down to people. You know, we can pass all the legislation we want. It really is a 

matter of how the DOD operates-the procurement shop, the program managers, 

you know, what is the ethic that is put in place there, how do we get to greater 

efficiency. 

I think one of the greatest challenges in that is getting the incentives right so that 

the men and women who work in this have the proper incentive to be innovative, 

to find the way to do the thing that is most cost-effective. I think far too often the 

incentives that are in place within our personnel system within DOD are to merely 

check the box. As long as you did the process right, regardless of the result, 

nobody can blame you. I think we need to better empower the people in the 

Pentagon to make those smart decisions. 

When you go out in private industry and you see how companies have, you know, 

sort of changed paradigms and all of a sudden become more efficient and more 

effective than their competitors, it is not because a group of people sat in a room 

somewhere and developed a perfect process and then everybody robotically 

followed it. It is because people doing the work saw opportunities and took them 

and figured out how to do things different and better and more efficiently. 

So I know there are a lot of other issues around this, but, for me, empowering the 

people to make those smart decisions is one of the most important approaches that 

we can take. 

I look forward to the testimony of our very distinguished panel, and I thank the 

chairman for holding this hearing. 
53 

TWENTY-FIVE YEARS OF ACQUISITION REFORM: 

WHERE DO WE GO FROM HERE? 

Dov S. Zakheim 

Testimony Before the House Committee on Armed Services 

October 29,2013 

1 
54 

Chainnan McKeon, Ranking Member Smith, distinguished members of the 

Committee, I appreciate the opportunity to appear again before this Committee. The 

title of your hearing outlines the nature of the challenge that the Department of 

Defense faces: Twenty Five Years of Acquisition Refonn, and we still must ask, 

"where do we go from here?" For a quarter-century, indeed, for far longer than that, 

talented officials, many of them with illustrious records in industry, have grappled 

with the reality that our defense acquisition system is fundamentally and structurally 

broken. 

Yet despite the best efforts and good intentions of so many well-intentioned, indeed 

devoted, public servants, and some small-scale successes that they might have 

achieved, the acquisition system remains severely challenged. Cost overruns, 

schedule delays, programs that were summarily cancelled, all too often have 

characterized the Department's procurement of weapons and systems. Currently 

programs face delays that last, on average, more than two years. Roughly a third of all 

major system acquisition programs have breached Nunn-McCurdy ceilings, which 

means that at a minimum, they have increased by 30 per cent over their original 

baseline estimates or at least 15 per cent over current baseline estimates. 

Finally, more money is buying increasingly less product. Cost growth, as opposed to 

inHation, has resulted in severe cutbacks in weapons system programs, of which the 

F-35 is the latest in long list of sorry examples. Despite constant so-called 

improvements in manufacturing processes, many of which have proved themselves in 

the commercial sector--Lean Six Sigma being but one example--costs continue to 

grow and quantities continue to shrink. It is decades since Norm Augustine lamented 

2 
55 

that at the rate costs were rising and quantities declining, DOD ultimately would be 

able to afford no more than a single plane, a single ship and a single tank. Nothing 

that has happened in the intervening years has thus far disproved his trend analysis. 

No less troubling is the management of DOD's acquisition of services. Traditionally 

subjected to far less scrutiny than the acquisition of goods, services now account for 

more than half of all DOD acquisition. Yet poor product, duplication, and, more 

generally, waste, and occasionally fraud and abuse, have plagued the Department's 

acquisition of services for years. Wartime contracting has been a particular cause for 

concern. The Commission on Wartime Contacting in Iraq and Afghanistan asserted 

that between $31 and $60 billion were lost through waste, fraud and abuse between 

2001 and September 30, 2011. The higher range of the estimate was probably closer 

to the truth, while more of the same has been uncovered since then. 

Invariably, the arrival of a new senior official on the DOD scene leads to a new effort 

to "fix" the acquisition system. These fixes usually consist of two thrusts: new 

terminology--colloquially called "buzz words" and new processes. The career 

acquisition bureaucracy, hardened by cynicism, will mimic the buzz words until the 

incumbent official departs and a new one arrives, with a lexicon of his or her own. 

And the processes will often involve a shuffling ofthe bureaucratic cards, with new 

teams of officials replacing fonner teams, but with little advancement in management 

efficiency, or for that matter, accountability. "Where do we go from here?" therefore 

is not merely a question. It is a desperate cry for help. 

3 
56 

As long ago as 1975, a subcommittee of the Senate Government Affairs Committee, 

as it was then called, held a series of hearings on defense acquisition, including one 

on major systems acquisition reform. At the time, the Navy was reeling from the 

skyrocketing costs of the LHA program. There had been major program cost ovelTUns 

that undermined programs even before then: the Air Force's Skybolt missile, the 

Anny's Shillelagh missile and the Navy's version ofTFX aircraft, to name but three. 

Numerous Defense Science Board reports, and a host of commissions and task forces, 

notably the J 986 Packard Commission, legislation ranging from Goldwater-Nichols 

of that same year, through Clinger-Cohen ten years later, through the 2009 Weapons 

System Acquisition Refonn Act have all recommended, and in the latter three cases, 

mandated change. Think tanks have also weighed in with recommendations for 

change, notably recent efforts by the Center for Strategic and International Studies. In 

addition, DOD's own initiatives such as the 1999 Commonality Initiative, which 

incorporated lessons learned from previous attempts at common development ranging 

as far back as the TFX; the emphasis on "spiral development" in the early 2000s; the 

creation of Rapid Acquisition cells in 2009; the Better Buying Power memorandum of 

November 2012 and the numerous revisions to the DOD 5000 series of acquisition 

directives, all have sought to reform aspects of the acquisition system. 

The creation of Rapid Acquisition Cells illustrates the magnitude of the problem, 

however. These cells and the rapid acquisition effort more generally, represent an 

effort to bypass DOD's own acquisition system, which has been deemed too 

cumbersome to meet the urgent needs of Combatant Commanders. There could be no 

greater indictment of the current system. 

4 
57 

The cun'ent era of budget constraints renders the need for acquisition reform even 

more urgent than in the past. The Department of Defense must husband every 

available dollar and put it to its most efficient use. It can no longer tolerate massive 

cost overruns, delays, and waste, much less fraud and abuse. 

There is little utility in assessing blame for the CUlTent state of affairs. Instead, both 

the Executive Branch and the Congress must commit to a radical restructuring of the 

acquisition system, in all its manifestations. And, when referring to the Executive 

Branch, it is not only the Defense Department that must implement change. The 

White House, notably the Management side of the Office of Management and Budget, 

must press for refonn, and the Office of Personnel Management must ensure that its 

policies do not undennine reform, as, it could be argued, is the case today. 

Creating a Corps of Educated Consumers 

It is widely recognized that the Department of Defense no longer boasts the same 

level of technical and financial expertise that it once did. Indeed, the Department no 

longer is at the cutting edge of American science and technology. Silicon Valley, the 

North Carolina Research Triangle, Route 128 in Massachusetts, and a host of other 

locales have outpaced DOD in many areas of advanced technology, notably in various 

aspects oflnformation Technology well as materials technology that were once the 

Department's preserve. 

Yet there is no Department-wide program to ensure that its civilians remain 

conversant with the most up-to-date technological developments. Too often they must 

5 
58 

rely on contractors for analytical and scientific support. Similarly, despite the 

availability of on-line courses, as well as the curriculum of the Defense Acquisition 

University, too many program managers appear to be deficient when it comes to 

supervising the progress of programs. Once more it is contractors who must come to 

the rescue, providing support to program management offices and occasionally 

overstepping the line between non-governmental and inherently governmental 

activities. Finally, too many contracting officers CalTY out their tasks in less than 

optimal ways. On the one hand, when deciding competitions, many will opt for lowest 

bidders, overlooking the risk that invariably one gets what one pays fOf. On the other 

hand, contracting officers all too often are insufficiently rigorous when approving 

options on contracts, and when granting award fees--in the latter case, even when 

contractor performance was clearly sub-par. 

What the Defense Department needs is a rigorously enforced carefully structured 

continuing education and re-certification policy and process for its civilians, one that 

mirrors the professional military education that is mandatory for promotion in the 

military. For example, to reach the rank of field-grade officer, one must attend 

Command and Staff College. To achieve !lag rank, it is necessary to complete a year 

at one of the War Colleges or their equivalent. Yet not all senior acquisition officers 

must meet the same level of requirements. Courses at the Defense Acquisition 

University are not all year-long, many involve distance learning. Prerequisites are not 

terribly demanding: relatively few years of experience are required, in addition to a 

bachelor's degree, regardless of the applicant's class rank. 

6 
59 

Moreover, the DA U is geared to the training of acquisition managers. It does not 

afford them the ability to become Clm-ent with the latest technological developments. 

Finally, managers can fulfill requirements for certification as acquisition officers by 

taking on-line courses, which are simply not the same thing as face-to face 

instruction, even if one can interact with the instructor on-line. 

It is true that Defense civilians are generally encouraged to earn higher degrees. The 

Department affords a small number of civilian acquisition officers to spend a semester 

or even a year at one of the country's major business schools. Unfortunately, 

acquisition managers are reluctant to lose their best personnel for six months or 

longer. Moreover, when these people return to their offices, they often cannot return 

to their previous positions, which of necessity have already been tilled by someone 

else. Their managers are often at a loss as to where to place them, and for that reason 

do not always make the most of the education that these officials have just received. 

In effect, those who go off to university discover that they have jobs, not careers; the 

entire process ultimately can be counter-productive. As a result, both they, the 

Department of Defense, and ultimately, American taxpayers, are seriously shortchanged. 

This situation is in marked contrast to the military, who have detailers, in essence 

career planners, with whom they work throughout their careers, at least until they 

reach the twenty-year mark. Moreover, these careers tend to be shaped by templates 

that, while adjusted for each individual case, provide guidelines that ensure rigorous 

professional development. Incidentally, it is not only the military whom the 

government treats as pursuing careers, not merely holding down jobs. The Foreign 

7 
60 

Service, the Coast Guard, the FBI and the Public Health Service likewise view their 

personnel as pursuing careers. 

The same and even greater challenges that render it difficult for defense civilians to 

absent themselves from their oftlces while pursuing educational opportunities 

confront those who might otherwise be ready and willing to spend a year on an 

exchange program with industry. DOD does have a special program, the Secretary of 

Defense Fellows, which provides individuals with the opportunity to spend a year 

inside major businesses. This program is exceedingly valuable, because it affords the 

Fellows the opportunity not only to interface with senior corporate executives and 

understand their approach to doing business, including business with DOD, but it also 

atTords them the chance to familiarize themselves with successful management 

techniques and often devclopmcntal technologies as well. Unfortunately, there are 

only some twenty SecDefFellows, and virtually all are uniformed oftleers; civilians 

do not really benefit from this program. 

I should add that there are also too many anecdotes of government oftlcials who seek 

educational opportunities as a stepping stone to obtaining positions in industry and 

other fields outside government. Clearly the Department is wasting its money on these 

people, while depriving more dedicated officials with the opportunity to advance 

themselves. 

Department of Defense officials face other hurdles as well. It is onen difficult to 

require particular levels of education from prospective candidates for technical 

positions because doing so violates OPM policies. While some offices will indicate in 

8 
61 

their job vacancy announcements that a given level of post-graduate education is 

"preferable," there is no ensuring that the most qualified candidate will get the 

position in question, particularly if the official making the tinal selection seeks to fill 

that position with a favored employee, who may not have the same technical skills. 

I am dealing at length with personnel matters because my many years of government 

service, as well my even lengthier time in industry have convinced me that human 

resources are the key to progress in reforming acquisition as indeed, in virtually all 

other endeavors. The Department needs to increase its focus on the career 

development of its acquisition personnel, beginning with its recognition those in the 

acquisition corps are pursuing careers, and not merely holding down jobs. To the 

extent it does so, it tends to focus on personnel involved in weapons system related 

activities. On the other hand, those officials who deal with services contracting, 

which, as noted, represents more than half of all DOD acquisition, tend to have even 

less career support; as the Commission on Wartime Contracting pointed out, 

agencies act though nuanced skills, tradecraft, and professional experience 

are not needed for services contracting ... They have not ... emphasized the 

importance of services contracting by providing focused training, education 

and on-the-job opportunities that would prepare contracting officers for the 

complex and large-scale services contracts they will encounter during a 

contingency 

or, for that matter, it might be added, for peacetime contracting as well. 

Doing so will involve the expenditure of precious resources, but I am convinced that 

every dollar spent on the training and development of civilian acquisition 

professionals will yield a significant return on investment. Moreover, as a former 

DOD Comptroller, I can assure you that the funds, which do not involve large sums, 

9 
62 

can be found even today, even with the budget levels that are so constraining the work 

of the Depaliment. 

To begin with, OPM must grant DOD far more tlexibility in hiring and developing 

top notch acquisition officials. Senior DOD managers should be permitted to 

authorize educational requirements for those seeking positions in the acquisition 

corps. IfOPM is to any extent restricted by legislative authority, then that authority 

should be revised to lift any such restrictions. 

OPM also needs to revise its definitions of career fields. Many of these definitions are 

vestiges of an earlier era. Career fields should include those for program managers in 

acquisition, a variety of financial management positions, as well as of contract 

management positions. Career definitions should recognize, and emphasize, that all 

aspects of acquisition involve careers, not jobs. 

OPM should also mandate that promotions to senior acquisition positions should 

require levels of continuing education equivalent to those demanded of military 

officers: no one should be permitted to advance to a GS-14 position, the equivalent of 

a field grade officer, without at least six months of technical and/or managerial higher 

education. No one should be able to advance to the Senior Executive Service without 

a year at a major university or business school or in service in a major corporation 

that either supports, or could support, the defense industrial base. It would of course, 

be preferable that at some stage of all ot1icial's government career, he or she spent 

some time in industry prior to achieving an SES position. This would be the 

equivalent of the Goldwater-Nichols requirement that an officer needed Joint service 

10 
63 

experience in order to qualify for flag rank. That requirement not only fundamentally 

enhanced the capability of the Joint StatTin particular, it also broadened the horizons 

of those in the military who pursued the joint route. That is exactly what is needed for 

the civilian acquisition corps as well. 

In this regard, DOD should create an equivalent to the SecDefFeliows program that is 

fivefold larger than that program, in other words, that accommodates one hundred 

civilian fellows annually. And defense industry, as well as related high-tech 

industries, should be pressed to take in these fellows; it is as important for industry to 

understand the defense civilians as for civilians to understand industry. 

Managers must also encourage their staffs to avail themselves ofthe many training 

opportunities that the government ol1ers them. Some managers do so, but surely this 

is the responsibility of all managers. Moreover, managers should reward their staffs 

for capitalizing on the training opportunities offered them. The focus should be on 

constant self-improvement and career enhancement. Efficiency and cost savings will 

follow. 

The Department must also expand the opportunities for young post-graduates to enter 

the acquisition corps, even during periods of hiring freezes, such as the one that is in 

force today. Funds should be made available to expand internship programs in the 

acquisition domain, which exist and are effective, but are far too limited. For 

example, though the Navy's civilian turnover rate is about 2500, only 300 of those 

slots are filled--by young people hired as interns. That number should at least be 

doubled. And the same principle applies to the other Services. Recent post-graduates 

11 
64 

are conversant with state-of-the art technology. They replace civil servants who often 

have not taken a single course in engineering or physics or chemistry during the many 

decades of their government service. Moore's Law has overwhelmed them, and they 

are forced to rely far too heavily on contractors for what is tenned SETA-scientific, 

engineering and technical assistance. 

None of the foregoing should imply that the Department should not cut back on the 

size of its civilian work force, much less its services contractor force. As has been 

widely reported, the civilian workforce has grown significantly since 2001; the 

Defense Business Board and other organizations have recommended that the civilian 

work force be reduced by as much as 100,000 personnel. But that reduction should 

avoid targeting key acquisition personnel, including contracting personnel; doing so 

would be penny-wise and pound foolish, and maybe not even penny-wise. 

With respect to contractor personnel, the Department faces the challenge of 

determining just how many services contracting individuals provide support such as 

SETA support. Many ifnot most services contracts focus on the service desired rather 

than on the number of personnel providing the service in question. Yet many of these 

personnel are former DOD military or civilians who return to their old jobs and 

merely exchange a DOD badge for a contractor badge. Secretary Gates launched an 

effort to cut back on the number of these individuals and the contracts that provide for 

them. He was very much on target and his efforts must be reinforced at every level of 

DOD operations. 

12 
65 

Though I have focused primarily on civilians, civil servants in particular, but also 

contractors, it is important to note some needed enhancements to the capabilities the 

military component of the acquisition corps. Too often service in that corps is not 

sufficiently a factor in the promotion of military officers. The reverse should be the 

case: those officers seeking to pursue careers in any aspect of acquisition should be 

encouraged to do so, and rewarded for success. 

In addition, as many studies have previously argued, military program managers 

should serve in their positions for a minimum of five years. Some already do so, and 

the director of the Navy's nuclear reactor program, not only serves for ten years but is 

a four star admiral. It should come as no surprise that the reactor program has 

historically been one of the best managed in DOD. Longevity and expertise do make a 

difference. 

What to do about Process 

Bureaucracies invariably focus on process, which often involves meetings rather than 

action, collective rather than individual decisions, and a staggering lack of 

accountability. As noted above, every new senior official brings with him or her 

"solutions" to the acquisition challenge, unusually accompanied by new terminologies 

and new processes, but yielding few substantive results. The Department of Defense 

culture is one that focuses on process rather than substance, on past practice rather 

than on future opportunities, on collective decision-making rather than on individual 

accountability. 

13 
66 

The 1986 Packard Commission report asserted that "the truly costly problems are 

those of rigid organization and overcomplicated procedure." Not very much has 

changed in the nearly three decades since those words were written. What often 

changes, in fact, are the names of committees and officials that oversee acquisition. 

The Defense Acquisition Board previously was named the Defense Systems 

Acquisition Review Committee (or DSARC). The committee has long been cochaired by the Department's leading acquisition official, variously called the Under 

Secretary for Research and Engineering, the Under Secretary for Acquisition, the 

Under Secretary for Acquisition, Technology and Logistics. It is only the 

nomenclature that is ditTerent. 

[n contrast to the constant tinkering with process, the substantive challenge begins 

with requirements definition. The Joint Staffhas for some time waged a valiant effort 

to force clear definition of requirements. Admiral Winnefeld, the current Vice 

Chairman, has emphasized that requirements must not only be defined, but upheld in 

the course of the development and production process. He is absolutely correct, and 

his objective must be enforced at every level of program management. Moreover, 

program managers and their deputies, whether military or civilian, should be held 

accountable for deviations fi'om meeting those requirements. Transfers to other 

positions are not enough. Offenders should be disciplined and their careers clearly 

jeopardized. 

In the same vein, program managers should be held accountable for approving 

engineering change proposals or ECPs. These ECPs are probably the most significant 

cause of cost growth. They cause production delays. They undermine uniformity of 

14 
67 

production runs. They should only be approved by the highest supervisory levels and 

then only sparingly. 

The requirements process should also be open both to commercial systems as well as 

foreign military systems to a far greater extent than is currently the casco The notion 

of "not invented here" should never have been tolerated. Today, when the commercial 

sector leads DOD in many advanced technologies, and is as concerned about security 

as is the government, there should be an accelerated emphasis on off the shelf 

systems. The Secretary of Defense should mandate that acquisition managers justifY 

in writing their decision not to acquire on~the-shelf systems and that these 

justifications be undersigned by an official in his office. 

Just as DOD no longer has the monopoly on cutting-edge technology, so too does it 

no longer lead foreign nations in all aspects of weapons system development. From 

the acquisition of remotely piloted vehicles (as unmanned aerial vehicles were then 

called) in the 1980s, to the accelerated development of the MRAP to counter IEDs 

during the Iraq and Afghan wars, the Department has occasionally recognized that 

other states might have systems that were more effective than those developed in 

America. That is increasingly the case today, and should not be undermined by 

excessive emphasis on specialized requirements that effectively block any foreign 

purchases. Secretary Gates was virtually the "action officer" in ensuring the 

production and acquisition ofMRAP. That cannot possibly be the case with respect to 

any weapons system, but clearly, the impetus for obviating the "not invented here" 

syndrome must corne from the very top of the Department. 

15 
68 

Concurrent Development 

One of the major factors undermining adherence to both cost and schedule is the 

proclivity of the DOD for concurrent development and/or testing. There have 

been intermittent efforts to curb this practice-"spiral development"-was one 

such attempt to do so, but as the current troubles of the F-35 make clear, 

concurrency (in the case of the F-35, it is concurrent production and testing) 

continues to plague the acquisition system. 

Program managers invariably turn to concurrency in order to speed up delivery 

of a weapons system. Equally invariably, concurrency results in major cost 

overruns, schedule delays, insertion of additional tests, and reductions in 

production runs. The DOD should simply ban concurrency, except under the 

most extraordinary circumstances, when it should be approved by the Deputy 

Secretary of Defense. 

The Defense Contracts Management Agency is charged with administering the 

Department's contracts. Yet it is widely acknowledged that defense contract 

management leaves much to be desired. Acquisition officers are disincentivized 

from saving money on programs because the Pentagon culture tends to reward 

those who manage to increase their budgets from year to year, and, even more 

important, penalizes those who do not spend the entirety of the budgets 

allocated to them. As a result, contract managers have developed a "use it or lose 

it" mentality. 

16 
69 

This attitude can only be reversed through a complete overhaul of the 

measurement and reward system that governs the advancement of contract 

managers. Cost containment should be a major criterion for promotion. 

Currently, it is not a factor at all. Unauthorized ECPs are not penalized in 

performance evaluations; they should be. These reforms must be initiated by 

DCMA. mandated at the Secretary of Defense level and then implemented 

throughout the Department. Contract management ultimately is DCMA's 

responsibility; its staff should be given credit for contracts that have successfully 

been fulfilled, but held accountable for those that have suffered overruns, delays, 

or any other problems. 

Acquisition Rules Must Be Simplified and the Contracting System Reformed 

Bureaucracy is enamoured with rule-making, and defense acquisition is rife with 

rules. There are literally thousands of pages of acquisition rules: the Defense 

supplementto the Federal Acquisition Regulations (known as the DFAR) only 

adds to the complexity that the government imposes on the system. Rules are 

rarely simplified; they increase in number and complexity with the passage of 

time. 

The system's complexity scares away many firms that could potentially offer 

DOD important products. On the other hand, companies that know how to 

navigate the system can win contracts even though their products might not be 

the most effective for carrying out the Department's mission. 

17 
70 

Beyond the rules themselves, the contracting officers who apply them need to be 

better trained for their jobs. All too often, contracting officers award contracts to 

the lowest bidder, regardless of the quality of the product or service being 

offered. They do so in order to avoid the headache of bid protests: choosing a 

contractor on the basis of best value tends to be far more difficult to justify 

objectively, and, given the cottage industry that has grown up around the 

practice of bid protests, the attraction of going with the lowest bidder-even if 

the bid is "low balled" and likely to be revised, especially if ECPs are issued-is 

hard to resist. In order to curb the current proclivity for awarding low bids, DOD 

not only needs to focus on educating and training contracting officers, but also 

should disincentivize them from awarding contracts with little regard for best 

value. One way to do so would be to penalize officers who award a contract to 

the lowest bidder only to have the price revised upward within twelve months of 

contract award. 

Lastly, experience demonstrates that weapons are most efficiently procured in 

multi-year tranches-and the Congress should be more supportive of DOD 

requests for funding multi-year programs. On the other hand, multi-year services 

contracts, or contracts with multiple option years and/or award fees, tend to 

result in payment for poor performance. Congress should legislate that unless 

certified by the Secretary of Defense, no services contract should have more than 

two option years; moreover, justification for award fees should be in written 

form, to avoid the automatic award of these fees regardless of performance. 

In Conclusion 

18 
71 

There is much that can be done to reform the acquisition system. The solutions 

to the problems that plague that system are not new. What is needed is 

consistent leadership on the part of DOD officials, and consistent support from 

the Congress, with legislation as required. 

The acquisition morass is not a partisan issue. Democrats and Republicans have 

both tried to improve the system; and both Democrats and Republicans have 

failed to do so in any material fashion. The system can, in fact, only be reformed 

if the Secretary of Defense not only makes it a priority objective both personally 

and for the Department, but if his successors also retain that priority and make it 

their own. Similarly, the Congress must approach the acquisition challenge on a 

bipartisan basis; both within its own deliberations, and in support of the 

Secretary of Defense regardless of the Secretary's party affiliation. Only in that 

manner will reform really take place, both to the betterment of our military 

capability and to the Nation's security in the years to come. 

19 
72 

Honorable Dov S. Zakheim 

Dov S. Zakheim is Senior Advisor at the Center for Strategic and International Studies and Senior 

Fellow at the CNA Corporation, a federally funded think tank. Previously he was Senior Vice 

President ofBooz Allen Hamilton where he led the Finn's support of U.S. Combatant 

Commanders worldwide. 

From 2001 to April 2004 he was Under Secretary of Defense (Comptroller) and Chief Financial 

Officer for the Department of Defense, serving as principal advisor to the Secretary of Defense on 

financial and budgetary matters, leading over 50,000 staft~ developing and managing the world's 

largest budgets, and negotiating five major defense agreements with US allies and partners. From 

2002-2004 Dr. Zakheim was DOD's coordinator of civilian programs in Afghanistan. He also 

helped organize the 2003 New York (UN) and Madrid Donors conferences for Iraq reconstruction. 

From 1987 to 2001 he was both corporate vice president of System Planning Corporation, a 

technology and analysis firm based in Arlington, Va. and chief executive officer of its subsidiary, 

SPC International Corp. During the 2000 presidential campaign, he served as a senior foreign 

policy advisor to then-Governor Bush. 

From 1985 until March 1987, Dr. Zakheim was Deputy Under Secretary of Defense for Planning 

and Resources in the Office of the Under Secretary of Defense (poliey), playing an active role in 

the Department's system aequisition, strategic planning, programming and budget processes. Dr. 

Zakheim held several other DOD posts from 1981 to 1985. Earlier, he was a principal analyst in the 

National Security and International Affairs Division of the Congressional Budget Office. 

Dr. Zakheim has served on numerous government, corporate, non-profit and charitable boards. He 

is Vice Chairman of the Foreign Policy Research Institute's Board of Trustees, and of the Board of 

Directors ofthe Center for The National Interest. 

Dr. Zakheim's membership of government boards and panels includes the United States 

Commission for the Preservation of America's Heritage Abroad (1991-93); the Task Force on 

Defense Reform (1997); the Board of Visitors of the Department of Defense Overseas Regional 

Schools (1998-2001); Defense Science Board task forces on "The Impact of DOD Acquisition 

Policies on the Health of the Defense Industry" (2000) and "Urgent Operational Needs" (2009); the 

Secretary of the Navy's Advisory Board (2008-2010); and the National Intelligence Council's 

International Business Practices Advisory Panel, which he chaired (2008-2011). He was appointed 

by President Bush to the Commission on Wartime Contracting in Iraq and Afghanistan, whieh 

completed its work in September 2011. He is currently a member of the Congressionally-mandated 

Military Retirement and Compensation Modernization Commission and of the Board of Control of 

the United States Naval Academy Athletic Association. 

Dr. Zakheim is a member of the Chief of Naval Operations Executive Panel; the Council on 

Foreign Relations; the Royal Institute of International Affairs, and the International Institute for 

Strategic Studies. He is a Senior Fellow of the Defense Business Board, on which he served from 

2004-2010, and which he helped establish. 
73 

A 1970 Phi Beta Kappa graduate of Columbia University with a B.A., summa cum laude, Dr. 

Zakheim also studied at the London School of Economics. He holds a doctorate in economics and 

politics at St. Antony's College, University of Oxford, where he held three graduate and postgraduate fellowships. Dr. Zakheim was an adjunct Senior Fellow of the Council on Foreign 

Relations and an adjunct Scholar of the Heritage Foundation. He has been an adjunct professor at 

the National War College, Yeshiva University, Columbia University, Georgetown University and 

Trinity College, Hartford, Conn., where he was Presidential Scholar. He was elected a Fellow of 

the Royal Swedish Academy of War Sciences in 201 1. 

Dr. Zakheim lectures and regularly provides print, radio and television commentary on national 

security policy issues domestically and internationally. He blogs on Foreign Policy/Shadow 

Government and The National Interest. The author of over a dozen books and monographs, his 

most recent book is A Vulcan's Tale: How the Bush Administration Mismanaged the 

Reconstruction of Afghanistan (2011). 

Dr. Zakheim is the recipient of numerous awards for his govarument, professional and civic work, 

including the Defense Department's highest civilian award in 1986, 1987 and 2004. 
74 

I ISCLOSURE FORM FOR WITNESSES 

CONCERNING fEDERAL CONTRACT AND GRANT INFORMATION 

INSTRUCTION TO , r.TNESSES: Rule 11, clause 2(g)(5), of the Rules of the u.s. 

House of Representativ s for the 113th Congress reqlrires nongovernmental witnesses 

appearing before HOlls< committees to include in their written statements a curriculum 

vitae and a disclosure 0 the amount and source of any federal contracts or grants 

(including su.bcontract sand subgrants) received during the cunent and two previous 

fiscal years either by th witness or by an entity represented by the witness. This form is 

intended to assist witne sea appearing before the House Committee on Armed Services 

in complying with the ouse rule. Please note that a copy of these statements, with 

appropriate redactions tl:> protect the witness's personal privacy (including home address 

and phone number) wil be made publicly available in electronic form not later than one 

day after the witness's ppearance before the committee. 

Witness name: tiow ~'-I S. ,-~\<..'r\E.11") 

Capaeity In which ap earing: (check one) 

~Individua1 

_Representative 

If appearing in a repr sentative capaeity, name of the company, association or other 

entity being represen tfJd: 

FISCAL YEAR 2013 

! federal grant(s) f federal agency dollar value subjeet(s) of contract or 

I contracts grant 

I \ 

\'-.. \ \ L 

\ \ l ) 

FISCAL YEAR 20ll 

federal grant(s) I federal agency dollar value subject(s) of contract or 

contracts IZrant 

\ ,.... 

~\\.i 

\ \\ 

1 
75 

FISCAL YEAR 2011 

Federal grant(s)! federal agency dollar value subject(s) of eontract or 

contracts I!rant 

.~ lFf \"lo \ 

I 

I 

1 

Federal Contract Info mation: If you or the entity you represent before the Committee 

on Armed Services bas pontracts (including subcontracts) with the federal government, 

please provide the folio ~ing information: 

Number of contracts (i eluding subcontracts) with the federal government: 

Current fiscal ear (2013): 

~~ , Fiscal year 20 2: ; 

Fiscal year 20 1: i 

Federal agencies with v hich federal contracts are held: 

Current fiscal], 1<" 

Fiscal year 201 1'\.\ \ lA 

Fiscal year 201 \ \ 

List of subjects offede al contract(s) (for example, ship construction, aircraft parts 

manufacturing, sofiwar design, force structure consultant, architecture & engineering 

services, etc.): 

Current fiscal y ,~ 

Fiscal year 201 .\ \ f)' 

Fiscal year 201 \ \ 

Aggregate dollar value Jf federal contracts held: 

Current fiscal y ar(2013): 

~\ ~ ; 

Fiscal year 201 : ; 

Fiscal year 201 : \ 

2 
76 

Federal Grant Inform lion: If you or the entity you represent before the Co 

on Anned Services has 

provide the following 

~ants (including subgrants) with the federal government, 

iI~onnation: 

nunittee 

please 

Number of grants (inc l.tding subgrants) with the federal government: 

Current fisca I rear (2013): 

Fiscal year 20 

Fiscal year 20 

2: 

II: 

,(\ IA 

I'" 

Federal agencies with v hich federal grants are held: 

Current fiscal 

Fiscal year 20 

Fiscal year 20 

y ar(2013); 

1 : 

1 ; ~lf\ 

: 

; 

; 

List of subj ects of fed e fat grants(s) (for example, materials research. sociological 

software design. etc.): 

Current fiscal 

Fiscal year 20 

Fiscal year 20 

y~(2013): 

1 ; 

1 : ~\e) 1 

Aggregate dollar valu e of federal grants held: 

Current fiscal yFiscal year 20 

Fiscal year 201 

1 

; 

\\ D.. 

\ \ 

3 

study, 

; 
77 

Twenty-five Years of Acquisition Reform: 

Where Do We Go From Here? 

Statement of Pierre A. Chao 

Before the 

Committee on Armed Services, House of Representatives 

October 29, 2013 

Chairman McKeon, Ranking Member Smith, distinguished members of the Committee, thank 

you for the honor and privilege of appearing before you today to discuss the very important 

topic of improving the defense acquisition enterprise. 

I am before the Committee today as an individual, not representing any particular institution. 

However, I have been a student of and lived with the defense acquisition system for over 25 

years. As a policy analyst and a participant in the acquisition reform efforts of the last two 

decades, I have been affiliated with the Center for Strategic and International Studies as both 

the Director of the Defense Industrial Initiatives Group from 2002-2007 and currently as a 

Senior Associate (Non-Resident). I am also a guest lecturer at the Defense Acquisition 

University and the Industrial College of the Armed Forces, and have participated in dozens of 

acquisition reform studies and commissions. As a business person, I spent over a decade on 

Wall Street as an equity analyst and investment banker during a period that spanned the last 

downturn in defense spending, have run my own strategy consultancy firm and most recently a 

firm that invests in/supports small businesses in the aerospace/defense/government services 

sector. I therefore approach the problem from both an academic and very pragmatic business 

viewpoint. 

The topic of acquisition reform is an excellent one for the Committee to be addressing, 

particularly as we head into a period of slowing defense spending. As defense budget dollars 

become more precious, there will still be a need for additional capabilities and the 
78 

Pierre Chao 

25 Years of Acquisition Reform: Where Do We Go From Here? 

Page 2 of 6 

development of new technologies. Therefore, having an efficient acquisition system will be 

strategically critical to the Department of Defense over the next decade. Bringing a considered 

and thoughtful approach to the problem will be important; and difficult given that this is a topic 

fraught with hyperbole, mythology, and the confusion of symptoms for root causes. 

I would like to raise five key observations as you consider the last 25 years of acquisition reform 

and look forward to what should be done. 

1} First, there has been a very useful evolution in the nature of the acquisition reform 

debate over the last seven years. It is eye-opening and instructive to read the 

Congressional record of the acquisition reform commissions that followed the 

Revolutionary War, Civil War and other conflicts. The acts of outright fraud and 

corruption are abundant and one can see why the focus of reform for most of our 

history has been broadly focused on the issue of fraud, waste and abuse. In the 1980s, 

1990s and 2000s, the debate then evolved to looking at bringing efficiencies to the 

processes and functioning of the acquisition system. 

During the last decade the discussion has shifted from trying to reform just the 

acquisition/procurement process. There has been the recognition that the acquisition 

process is part of a broader system that includes the requirements, budgeting and 

acquisition processes, referred to as the "big A" acquisition system (the Defense 

Acquisition Performance Assessment project of 2005 and C515's Beyond GoldwaterNichols project are two studies that discussed this issue). This has led to a focus on 

improving the requirements process, as well as the interaction between the 

components of the "big An acquisition system. GAO analysis and Defense Acquisition 

University studies indicate that 85% of the lifecycle cost of a weapon system is 

determined by the time the requirements are set. A perfectly performing acquisition 

system that efficiently delivers unneeded items or poorly conceived items or inherently 

expensively designed items, will still produce bad outcomes and be viewed as a failure. 

Continued focus on the requirements system, the professionalism involved, discipline 

used and how it interfaces with the acquisition system should be a very fruitful area for 

future reform efforts. 

2) Second, the Department of Defense's acquisition system is a large and complex 

enterprise, whose governing laws, regulations, rules and procedures have evolved and 

slowly accreted since the founding of the Republic. I believe an analysis of the system 

would reveal that most of these laws and regulations were based on real 

problems/issues that required a solution or response, but that over time the problems 
79 

Pierre Chao 

25 Years of Acquisition Reform: Where Do We Go From Here? 

Page 3 of 6 

evolved, solutions to other problems create conflicts with older rules and there has 

been a tendency to add rules but not take them away. This is why periodic reviews of 

the system aimed at reviewing the laws and regulations, such as the Section 800 Panel 

of 1993 or the rewrites of the DoD Instruction 5000 are so useful. As an aside, putting a 

sunset clause on all new laws or rules to force a periodic reexamination would be an 

interesting best practice to consider. It would be my observation that many of the 

problems of the acquisition system are the result of unintended consequences of a very 

byzantine and, at times, outright contradictory set of laws and regulations, rather than 

problems of outright malice or malfeasance - despite what some breathless headlines 

would have you believe. 

3) Third, one size does not fit all when it comes to the acquisition process. The 

Department of Defense buys an extremely wide range of technologies, products and 

services; it touches virtually every segment of the economy. The appropriate processes 

for the purchasing of commodities will differ from those required to acquire emerging 

innovative technologies such as cyber capabilities, let alone the procurement of more 

mature and asset intensive systems such as heavy space launch vehicles, heavy armored 

vehicles or naval vessels. There has also been recognition that the purchasing of 

services by the Department of Defense has become significant and has different 

characteristics than the development of weapon systems/procurement of hardware. 

Similarly, the rapid acquisition systems required for war time environments or rapidly 

changing technologies may not be appropriate for the development of very long cycle, 

complex weapon systems. In fact, acquisition reform efforts aimed at the traditional, 

long cycle acquisition processes, if improperly applied to the rapid acquisition systems 

could fundamentally break them. And vice versa. One of the characteristics of the 

modern era is that the Pentagon is faced with operating in both modes, the rapid 

wartime system and the long cycle development system, simultaneously. It begs the 

question as to whether well defined, different "tracks" in the acquisition system are 

required - each with their own rules and processes. The creation of DARPA, with its 

own set of acquisition rules and culture, was the recognition in a prior era that a 

different "track" was required to develop cutting edge technologies for example. 

Overly broad laws and regulations that are applied across the entire span of activity of 

defense acquisition are likely to cause as many problems as they solve. Defense 

acquisition is varied, nuanced and, I would submit, rarely amenable to simple rules; it is 
80 

Pierre Chao 

25 Years of Acquisition Reform: Where Do We Go From Here? 

Page 4 of 6 

an endeavor that requires judgment and that judgment cannot be legislated or imposed 

by regulation. 

4) Fourth, cost overruns, missed deadlines and failed programs are symptoms, not root 

causes. Unless the root causes are addressed, no amount additional oversight, extra 

regulation, rearranging of organization boxes, creation of new offices or changes to 

processes will help. In fact they will likely (and have), make things worse. I believe this 

is why after decades of acquisition reform, the statistics show the same persistent cost 

overrun percentages and lengthening development timelines. 

There are four root cause factors to consider: 

a) The U.S. military has relied on having technological and industrial superiority as part 

of its core strategic advantage on the battlefield for almost a century. The 

acquisition system is asked to push the limits of technology and do very difficult 

things - go faster than the speed of sound, make an invisible airplane, build a missile 

that can precisely hit a target half way around the world. Pushing the limits of 

technology is expensive, is fraught with risk and setbacks, and can rarely be 

predicted with precision. Some of the cost overruns and delays are simply inherent 

to what we ask the acquisition system to undertake. As long as technological 

superiority is a key goal it will be impossible to reduce the overruns to zero. It does 

not mean we should tolerate poor performance and not try to improve the 

efficiency of the system; it simply says eliminating all cost overruns is incompatible 

with our strategic goals and potentially counterproductive. 

b) There are fundamental and structural disconnects in the time frames used by the 

different actors in the acquisition system. Decade long projects are funded annually, 

are being executed by project managers who change every few years, with oversight 

applied by members of Congress who have to think in two and six year cycles, and 

built by companies who need to meet quarterly financial performance metrics. 

Because the time frames of the actors are driven by other considerations, these 

disconnects are likely structural. This structural churn creates friction (and cost) to 

the system. That being said, reducing the gaps is a worthwhile goal for future 

reform efforts - ideas suggested by prior acquisition reform studies include 

extending the tenure of program managers to better match the milestones of long 

projects. I would also suggest looking at matching the funding cycles for programs 

to match the type of technology/service being acquired. So, long cycle projects get 

multi-year appropriations/budgets, while others have annual appropriations. This 
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Pierre Chao 

25 Years of Acquisition Reform: Where Do We Go From Here? 

Page 5 of 6 

simple, but culturally difficult issue, could result in billions of dollars of savings by 

providing greater visibility and stability to programs. 

c) The economic/profit incentives culturally embedded in the system creates adverse 

results. Culturally we have evolved to a point where the system would rather pay $1 

billion and 5% profit for a defense good, than $500 million and 20% profit. Even 

though in that example the taxpayer would save over $400 million, the focus would 

be on why 20% of profit was paid. I exaggerate for effect, however, there are deep 

roots to this cultural issue - notions of profiteering that go back the First World War, 

and differences in perceptions of risk and value add. As long as this phenomenon of 

favoring "cost plus" persists, there will a disincentive to reduce costs and use the 

normal economic/profit motivator used by the commercial world to drive for 

efficiency in order to maximize profit. 

d) Finally, there is a structural incentive for the entire system to be optimistic. Put 

more bluntly, the system is incentivized to lie to itself. A contractor is incentivized to 

be optimistic about the costs of a new weapon system because it wants to win the 

competition; the Pentagon is incentivized to believe the low (potentially unrealistic) 

bid because it wants to launch the program; and the Congress is incentivized to 

believe the proposed (and potentially unrealistic) program budget because it wants 

to see a program launches and jobs created. Compounded over multiple programs 

and the system ends up with the "ten pounds of programs in an eight pound bag" 

problem. I would submit that a portion of the cost overruns is simply the revelation 

of the self-lie that was embedded in the program at launch. 

Furthermore, there are rarely consequences for being wrong. In fact, mis-budgeted 

programs/accounts or overrun programs are often given more money to solve the 

problem, while the poor program manager who actually delivers under budget and 

early has money taken away from them. There has been some thought given to this 

issue in recent acquisition reform efforts - budgeting to the 80% probability line (vs 

50%) for example. I also believe creating incentives for good performance are ideas 

to consider - if your program performs the budgets are preserved/untouched for 

example, or better share lines/profit for industry for coming under budget or early. 

Although these are difficult issues to address and many are structural, I would submit 

looking at these core topics and seeing where the unintended consequences could be 

offset or narrowed would be fruitful areas for potential study. 
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Pierre Chao 

25 Years of Acquisition Reform: Where Do We Go From Here? 

Page 6 of 6 

5) Fifth and finally, in many of the acquisition reform studies (until recently) the topic of 

incentives rarely comes up. I believe this is another reason why the problems persist 

despite the decades of acquisition reform attempts - the development new processes, 

organizations and regulations. Unless the proper incentives are put into place in order 

to cause behavior to change, we should not expect different results. It is a simple 

premise but one that is often overlooked, people respond to the incentives put before 

them. If there was one area for significant more thought and effort by a future 

acquisition reform effort, I would submit the topic of incentives in the system is key. 

Mr. Chairman, Mr. Smith, members of the Committee, thank you for the opportunity to share 

some thoughts. I look forward to your questions and the dialogue. 
83 

Pierre A. Chao 

Mr. Chao has spent 27 years in the aerospace/defense industry as a strategist, 

investment banker, equity analyst, policy analyst and investor. 

He is the co-founder of Enlightenment Capital and, prior to that, in 2008 of 

Renaissance Strategic Advisors. From 2003-2007, Mr. Chao was the Director of 

Defense-Industrial Initiatives at the Center for Strategic and International Studies 

(CSIS), a Washington D.C.-based, non-partisan defense and foreign policy think tank; 

where he still remains as a Senior Associate. 

Before joining CSIS in 2003, Mr. Chao was a Managing Director and senior aerospace/defense analyst at 

Credit Suisse First Boston from 1999-2003, where he was responsible for following the u.s. and global 

aerospace/defense industry. He remained a CSFB independent senior adviser from 2003-2006. Prior to 

joining CSFB, Pierre was the senior aerospace/defense analyst at Morgan Stanley Dean Witter from 

1995-1999. He served as the senior aerospace/defense industry analyst at Smith Barney during 1994 

and as a director at JSA International, a Boston/Paris-based management consulting firm that focused 

on the aerospace/defense industry (1986-88, 1990-93). Mr. Chao was also a co-founder of JSA Research, 

an equity research boutique specializing in the aerospace/defense industry. Before signing on with JSA, 

he worked in the New York and London offices of Prudential-Bache Capital Funding as a mergers and 

acquisitions banker focusing on aerospace/defense (1988-90). 

Over the course of his Wall Street career, Mr. Chao's team was ranked #1 by Institutional Investor every 

year eligible and he was on the Institutional Investor All-America Research Team every year eligible. He 

participated in 31 landmark aerospace/defense equity offerings/IPOs raising $11.7 billion and dozens of 

buy-side and sell-side M&A assignments. 

He is also a guest lecturer at the National Defense University and the Defense Acquisition University, 

and he has served on multiple Defense Science Board/Defense Business Board task forces. He is a 

member of the board of directors of KeyW Corporation (Nasdaq:KEYW) and Channel Technologies; and 

he is a member of the board of directors of the Truman National Security Project. 

4-4-12 
84 

mSCLOSURE FORM FOR WITNESSES 

CONCERNING FEDERAL CONTRACT AND GRANT INFORMATION 

INSTRUCTION TO WITNESSES: Rule 11, clause 2(g)(5), of the Rules of the U.S. 

House of Representatives for the I 13th Congress requires nongovernmental witnesses 

appearing before House committees to include in their written statements a curriculum 

vitae and a disclosure of the amount and source of any federal contracts or grants 

(including subcontracts and subgrants) received during the current and two previous 

fiscal years either by the witness or by an entity represented by the witness. This form is 

intended to assist witnesses appearing before the House Committee on Anned Services in 

complying with the House rule. Please note that a copy of these statements, with 

appropriate redactions to protect the witness's personal privacy (including home address 

and phone number) will be made publicly available in electronic form not later than one 

day after the witness's appearance before the committee. 

Witness name: Pierre A. Chao 

Capacity in which appearing: (check one) 

X Individual 

_Representative 

If appearing in a representative capacity, name or the company, association or other 

entity being represented: 

FISCAL YEAR 2013 

federal grant(s) / federal agency dollar value subject(s) of contract or 

contracts grant 

None 

FISCAL YEAR 2012 

federal grant(s) / federal agency dollar value subject(s) of contract or 

contracts grant 

None 
85 

FISCAL YEAR 2011 

Federal grant(s) / federal agency dollar value subject(s) of contract or 

contracts grant 

None 

Federal Contract Information: If you or the entity you represent before the Committee 

on Anned Services has contracts (including subcontracts) with the federal government, 

please provide the following infonnation: 

Number of contracts (including subcontracts) with the federal government: 

Current fiscal year (20 13):~~None __________ _ 

Fiscal year 2012:. _________ None ___ ._~ __________ ; 

Fiscal year 2011 : ___ ._._._ .. _ None._ ... ___ ._. __ . __ ._ .. _____ .. ___ _ 

Federal agencies with which federal contracts are held: 

Current fiscal year (2013): _____________ _ 

Fiscal year 20 12: ________ . __ . ________ . _____ _ 

Fiscal year 20 II : .... _ ..__ ._ ... _. __ .. _. __ .. _____ . ______ . __ 

List of subjects of federal contract(s) (for example, ship construction, aircraft parts 

manufacturing, software design, force structure consultant, architecture & engineering 

services, etc.): 

Current fiscal 

Fiscal year 

(2013): ___________ _ 

Fiscal year 2011 : _________________ _ 

Aggregate dollar value offederal contracts held: 

Current fiscal 

Fiscal year 

(2013): ___________ ~ 

Fiscal year 2011.' ___________________ . 

2 
86 

Federal Grant Information: If you or the entity you represent before the Committee on 

Armed Services has grants (including subgrants) with the federal government, please 

provide the following infonnation: 

Number of grants (including subgrants) with the federal government: 

Current fiscal year (20 13): __ Nonc, __________ _ 

Fiscal year 2012: None ___________ , 

Fiscal year 2011 : ________ None ____________ ' 

Federal agencies with which federal grants arc held: 

Current fiscal year (2013): _____________ _ 

Fiscal year 2012: _________________ _ 

Fiscal year 2011 : __________________ _ 

List of subjects of federal grants(s) (for example, materials research, sociological study, 

software design, etc,): 

Current fiscal year (2013): _______________ _ 

Fiscal year 2012: __________________ _ 

Fiscal year 20 I 

Aggregate dollar value offederal grants held: 

Current fiscal year (2013): ______________ _ 

Fiscal year 2012: __________________ _ 

Fiscal year 2011,' ___________________ ' 

3 
87 

STATEMENT NOT FOR 

PUBLICATION UNTIL RELEASED 

BY HOUSE COMMITTEE ON 

ARMED SERVICES. 

Twenty-five Years of Acquisition Reform: 

Where Do We Go From Here? 

Statement of Moshe Schwartz, Specialist in Defense Acquisition 

Before the 

Committee on Armed Services, House of Representatives 

October 29, 2013 

Congressional Research Service 

7-5700 

www.crs.gov 
88 

Twenty"five Years of Acquisition Reform: Where Do We Go From Here? 

Contents 

DOD Contract Obligations .............................................................................................................. I 

The Quest for Acquisition Reform .................................................................................................. 3 

Cost, Schedule. and Performance Problems Still Persist .......................................................... 5 

Increased Complexity of the Acquisition Process ..................................................................... 6 

Constantly Changing Acquisition Rules ................................................................................... 8 

Legislative Changes ............................................................................................................ 8 

Regulatory Changes ............................................................................................................ 8 

Successful Acquisition Retorm Efforts ..................................................................................... 9 

Weapon Systems Acquisition Refonn Act of 2009 ........................................................... 10 

Operational Contract Support ............................................................................................ I I 

The Changing Landscape of Defense Acquisitions ........................................................................ 11 

A Framework for Improving Acquisitions .................................................................................... 16 

Improving the Workforce ........................................................................................................ 16 

Building a Capable. Trained, and Sufficiently Sized Workforce ...................................... 19 

Creating the Right Incentives ............................................................................................ 19 

Establishing Authority and Accountability ....................................................................... 20 

Targeted Retorm Eff0l1s .......................................................................................................... 21 

Streamlining Acquisition Laws and Regulations .............................................................. 21 

Contract Logistics ............................................................................................................. 21 

Figures 

Figure 1. Contract Obligations by Agency ...................................................................................... 2 

Figure 2. DOD Contract Obligations (FY2012 dollars) .................................................................. 3 

Figure 3. Percentage of Contract Obligations Dedicated to R&D Contracts ............................... 14 

Contacts 

Author Contact Information .......................................................................................................... 22 

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Chainnan M.cKeon, Ranking Member Smith, distinguished members of the Committee, 

thank you for the opportunity to appear before you today on behalf of the Congressional 

Research Service to discuss efforts to improve defense acquisitions. 

The Department of De!ense (DOD) has always relied on contraetors to equip and support our 

military. Contractors design, develop, and build advanced weapon systems, construct military 

bases around the world, and provide needed services such as intelligence analysis, logistics, and 

base support. 

Operations over the last thirty years have highlighted the critical role that contractors play in 

supporting U.S. troops-both in tenns of the type of work being perfonned and number of 

contractors. Over the last decade in Iraq and Afghanistan, and before that, in the Balkans, 

contractors accounted for 50% or more of Iota I U.S. forces in theatre. 

As the debates over the Mine Resistant Ambush Protection vehicle (M RAP) and other systems 

have highlighted, getting the right systems into the hands of our troops in the field quickly and 

effieiently can save lives and impact operations. Conversely, the ineffective execution of defense 

acquisitions can prevent troops from getting the resources they need, when they need it, and can 

lead to the wasteful spending of billions of dollars--<lollars that could have been used to fund 

other military requirements.' 

For decades, Congress and the executive branch have expressed frustration with the level of 

waste, mismanagement, and corruption in defense acquisitions, and have spent significant 

resources seeking to refonn and improve the process. Despite these efforts, many acquisition 

programs still experience cost oven-uns, schedule delays, and perfonnance shortfalls. 

As reflected by events in the Middle East, the United States must prepare for a diverse range of 

hard-to-predict security challenges, and do so within the context of constrained budgets. Many 

analysts believe that to meet these challenges, the United States can no longer afford a defense 

acquisition system that they see as costly, overly-complex, and slow to respond to an everchanging world. 

DOD Contract Obligations 

In FY2012, the U.S. government obligated $515 billion for contracts for the acquisition of goods, 

services, and research and development. The $515 billion obligated on contracts was equal to 

approximately 14% of the entire FY2012 U.S. budget of$3.5 trillion (Figure 1)2 DOD obligated 

$360 billion on federal contracts, which was more than all other government agencies combined. 

1 DepaJiment of Defense, Quadrennial Defense Review Report. February 2010. p. 93. U.s. See also Government 

Accountahility Oflice. Stabilizing And Rebuilding Iraq: Acfions /\reeded 10 Address Inadequate Accountability over 

U.S. Elfhrts and investments. GAO-08-568T. March 1 J. 2008. p. 4. 6; Urgent Ref()rm Required: Army K,pcditionar}' 

Confracting, Op. Cit .. p. 2-3 . 

.2 Calculations arc based on total contract obligations data as recorded in the Federal Procurement Data System . Next 

Generation. January. 2013. Sec also: the Budget of the United States Government for Fiscal Year 2012 (sec 

http:// \vw\v. treasury. go v! pres s~cente r! press-reI cases/Pages/tg J 734 ,aspx). 

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DOD's contract obligations were equal to 10% of the entire U.S. budget. In FY2012, contract 

obligations represented 52% of total DOD obligations.' 

Figure I. Contract Obligations by Agency 

FY2012 

Source: Federal Procurement Data System~Next Generation. January, 2013, Figure by CRS Graphics, 

From FY1999 to FY20 12, adjusted t(lr inflation (FY2012 dollars), DOD contract obligations 

increased ITom $170 billion to $360 billion (see Figure 2). Over the first part of this periodFYI 999-FY2008-DOD contract obligations increased 150%, ITom $170 billion to $420 billion. 

This trend reversed itself in FY2008: from FY2008-FY2012, DOD contract obligations decreased 

by 14%, dropping from $420 billion in FY200S to $360 billion in FY2012. 

::. For purposes of this statement, total obligations are defined as total direct obligations. See Department of Defense, 

Budgetfhr Fiscal Year 20()5~FY2()12, Financial Summary Tables. Deflators for converting into constant dollars derived 

from Office of the Under Secretary of Defense (Comptroller), Department of Defense, National Defense BudKet 

EstimatesjiJr FY2012. '"Department of Defense Deflators -- TOA 'Tota! Non-Pay,'" Table 5~5, p. 58, March 20! L 

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$450 Billion 

$400 

$350 

$300 

$250 

$200 

$150 

$100 

$50 

$-

Figure 2. DOD Contract Obligations (FY20 12 dollars) 

FY 1 999-FY20 12 (in billions) 

FY99 FyaO FYOI FY02 FY03 FY04 FYOS FY06 FY07 FY08 FY09 FYlO FYl1 FY12 

Source: CRS analysis of data from the Federal Procurement Data System-Next Generation, January, 20! 3. 

The Quest for Acquisition Reform 

Congress and the executive branch have long been frustrated with waste, mismanagement, and 

fraud in defense acquisitions, and they have spent significant resources seeking to refonn and 

improve the process. In the early 1980s, a number of major weapons systems programs were 

experiencing dramatic cost overruns, overruns that increased the defense budget by billions of 

dollars but resulted in the same number, or in some cases fewer, weapons. These programs 

included the Patriot missile system (37% cost growth over original estimates), the Hellfire missile 

(48% growth), the Blackhawk helicopter (24% growth), and the F-18 (21% growth). According to 

the December 1980 Selected Acquisition Report, there was a $47 billion cost increase for 47 

major weapon systems in just the last three months of 1980. 

Public and congressional concem over cost growth led to several reform efforts. In 1982, 

Congress passed the Nunn-McCurdy Act, which created a reporting requirement for programs 

experiencing cost overruns'" In 1985, President Reagan established the President.s Blue Ribbon 

Commission on Defense Management, which issued a final report (known as the Packard 

Commission Report) that contained far-reaching rccommendations "intended to assist the 

Executive and Legislative Branches as well as industry in implementing a broad range of needed 

reforms." Many of DOD's current initiatives to improve acquisitions can be traced back to the 

ideas and recommendations in the Packard Report. 

Efforts to address cost overruns, schedule slips, and performance shortfalls have continued 

unabated, with more than 150 major studies on acquisition reform since World War II. Every 

administration and virtually every Secretary of Detense has embarked on an acquisition refonn 

4 The Act was included in the Depatimcnt of Detense Authorization Act, 1983 (P.L. 97-86) 

Congressional Research Service 
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effortS Congress has also been active in pursuing refoffi1 efforts, by legislating changes through 

the annual National Defense Authorization Acts as well as through stand-alone legislation, such 

as the Federal Acquisition Streamlining Act of 1994,6 Clinger-Cohen Act of 1996,' and Weapon 

System Acquisition Reform Act of 2009,' 

The various studies and reform efforts have dramatically altered the process by which DOD 

procures goods and services. Major changes include 

• creating the Federal Acquisition Regulation to develop uniform acquisition 

regulations across DOD and the federal government, 

• estahlishing the Defense Acquisition University to improve the performance of 

the acquisition workforce, 

• instituting a streamlined management chain (Program Manager-Program 

Executive Office-Service Acquisition Executive-Under Secretary of Defense) to 

foster accountability and authority, 

• implementing a milestone decision process to improve oversight, 

• using multi-year procurement to promote cost efficiency (with Congressional 

approval), 

• requiring independent cost estimates to improve budgeting forecasting,9 

• establishing a joint requirements board to improve requirements development 

and el iminate duplicative programs, and 

• moving away from military standards and specification to promote the use of 

commercial technologies. 

:') Robert F. Hale. PromotinK ~[licien('y in the Department (~fDefense: Keep Trying, Be Realistic. Center for Strategic 

and Budgetary Assessments. January 2002. p. 7. 

6 P.L. 103-355. 

'P.L. 104-106. 

8 P.L 111-23. 

9 The Cost Analysis and Improvement Group was established in 1'172 to develop independent cost estimates. Today, 

independent cost estimates are generated by the Office of the Director of Cost Assessment and Program Evaluation. 

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.. ______ . _______________ ._ Twenty.·five Years of !i9!luisition Reform: Where Do We Go From Here? 

Cost, Schedule, and Performance Problems Still PersisFO 

There is much debate over how effective the numerous acquisition refonn efforts have been and it 

is not clear whether the reform efforts of recent decades have generally accomplished their aims. 

According to many analysts, since the 1970s and I 980s, acquisition programs continue to 

experience significant cost increases." As one RAND report stated, "despite the many acquisition 

reforms and other DoD management initiatives over the years, the development cost growth of 

military systems has not been reduced."" Consider the following: 

• Since 1993, development contracts have had a median of 32% cost growth (not 

adjusted for inflation)." 

• Since 1997, 3 J % of all Major Defense Acquisition Programs have had cost 

growth of at least 15%.14 

• During the period 1990-2010, the Army terminated 22 Major Defense 

Acquisition Programs; every year between 1996 aud 20 I 0, the Am1Y spent more 

than $1 billion on programs that were ultimately cancelled." 

• Aircraft development times have increased significantly since 1980.'6 

1() Cost schedule_ and pcrt(xmancc are the benchmarks most commonly used to evaJuate the acquisition system. It is 

important to note, however, that as paradoxical as it may seem, avoiding or minimizing procurement cost grovvth is not 

a\\vays synonymous \vith minimizing procurement cost, and that a sustained, singular focus on avoiding or minimizing 

procurement cost grov"th might sometimes lead to higher procurement costs for the government (See Statement of 

Ronald O'Rourke, Congressional Research Service. Bcfore the House Armed Services Committec, Subcommittee on 

Seapower and Projection Forces. On thc Navy's FY2014 30-Year ShiphuildinK Plan, October 23. 2013). In addition to 

cost grovvth discussed in this report, DOD acquisition has experienced increasing total costs for \veapon systems, driven 

in part by additions to weapon systems of technologies that provide marginal increases in capabilities relative to their 

cost. The process of gaining marginal operational benefit for substantial cost is otten referred to as gold-plating 

requirements. Former Secretary of Defense Robert Gates argue,d that DOD needed to "shift a\vay from the 99-percent 

exquisite service-centric platforms that are so costly and so complex that they take forever to build, and only then in 

very limited quantities. With the pace of technological and geopolitical change and the range of possible contingencies. 

we must look more to the 80-percent solution, the multi-service solution that can be produced on time, on budget and in 

significant numbers. As Stalin once said. 'Quantity has a quality all of its ovm.·" 

11 See David S. Christensen. Ph.D., Capt. David A. Searle. USAF. and Dr. Caisse Vickery. "'fhe Impact ofthe Packard 

Commission's Recommendations on Reducing Cost Overruns on Defense Acquisition Contracts," Acquisition Revicli' 

Quarterly, Summer 1999, p. 251.; Obaid Yousossi. Mark V. Arena, and Robert S. Lconard, ct aL.ls Weapon System 

Cost Growlh Increasing? RAND. Santa Monica. CA. 2007; Deloitte Consulting LLP. Can lYe ,~ffhrd Our (Arn 

Future? Why A&D ProKrams are Lale and Over-bud,g;ef- and TFha! Can Be Done to Fix the Prohlem, 2008; U.S. 

Congress. Senate Committee on Homeland Security and Governmental Affairs. Subcommittee on Federal Financial 

Management. Government Information. Federal Services. and International Security, Comments of Michael J. Sullivan. 

Government Accountability Office. Tools to Prevent Defense Department Cost Overruns, I 12th Cong., 1 st sess .. March 

29.2011. 

See Obaid YOllsossi, Mark V. Arena, and Robert S. Leonard, et aI., Is rVeapon System CO.'1't Growth Increasil1K?, 

RAND, Santa Monica. CA. 2007. p. xx. 

i3 Office of the Under Secretary of Defense Acquisition, Technology and Logistics, Pcr/hrmance I~lthe Defense 

Acquisition S.vstem, 20! 3 Annual Report, June 28, 2013. p. 28. 

14 Based on the percentage of programs experiencing a Nllnn~McCurdy breach. Office of the Under Secretary of 

Defense Acquisition, Technology and Logistics, PerjiJrmallce (~ffhe Dc:/i!nsc Acquisition ,s:,VS!C111, 2013 Annual Report, 

June 28. 2013. p. 20. 

l5 U.S. Anny, Army Strollg: Equipped, Trained and Ready. Final Report of the 2010 Army Acquisition Review, 

January 11.2011. p. ix. 

1(> Office of the Under Secretary of Defense Acquisition, Technology and Logistics, PCliormcmce of the Defense 

Acquisition System, 20 13 Annual Report, June 28, 2013. 

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________________________ ._ Twenty.·five Years of !i9!luisition Reform: Where Do We Go From Here? 

• Procurement costs for the aircraft carrier CVN-78 have grown more than 20% 

since the submission of the FY2008 budget, and 4% since the submission of the 

FY2013 budget, prompting the Navy to program more than $1.3 billion in 

additional procurement funding for the ship in FY2014 and FY2015. '7 

• Part of the acquisition plan for the F-35 was referred to as "acquisition 

malpractice" by then acting Pentagon acquisition chief Frank Kendall. '8 

• A number of analysts have argued that the successive waves of acquisition 

refonn have yielded limited results, due in part because of poor workforce 

management. A recent DOD report stated, "There is little doubt that acquisition 

reforms produce limited, positive effects because tlley have not changed the basic 

incentives or pressures that drive the behavior of the participants in the 

acquisition process.,,19 

Increased Complexity of the Acquisition Process 

Until World War II, the regulations and rules governing government contracting in general, and 

defense contracting in specific, were minimal. After WWII, the growth in defense acquisition 

regulations was so rapid and uncoordinated that an Office of Federal Procurement Policy study 

conducted in the late 1970s found that DOD had 79 dilferent offices issuing procurement 

regulations, and that these offices had developed a procurement process that consisted of some 

30,000 pages of regulations. 

Concerned that the defense acquisitions process was an overly complex and unwieldy system, 

Congress enacted the Federal Acquisition Streamlining Act of 1994 (P.L. 103-155) to overhaul 

the process. Despite this act and various other congressional and executive branch efforts, 

contracting with the federal government remains a highly regulated process governed by a myriad 

of statutes and regulations.") These regulations govern such issues as 

• how DOD solicits, negotiates, and awards a contract; 

• what costs DOD will reimburse and how contractors account for those costs; 

• the information systems used by contractors; 

• and how contractors must comply with rules regarding such socia-economic 

goals as affirmative action, combatting trafficking in persons, and maintaining a 

drug-free workplace.'1 

A number of analysts have argued that rather than improving the system, acquisition reform 

efforts have made the process less efficient and effective." A recent report on Anny acquisitions 

17 CRS Report RS20643, Hm:).! Fl)/'d (CVJ\'~7H) Class Aircraft Carrier Program: Background and Issuesfilr Congress, 

by Ronald O'Rourke, p. 9, 

18 CRS Report RL30563, F-35 Joint Strike Fi{{hter (.j,)'F) ProJ...:-ram, by Jeremiah Gertler, p. 7. 

19 J. Ronald Fox, Defense Acquisition Rej(Jrm 1960-2009: An Elusive Goal (Center of Military History, 2011), p. 190. 

20 http://\\'ww.cdc.gov/od/pgo/funding/col1tracts/contractmain.shtm 

21 Carl L. Vacketta, Federal Government Contract Overview, http://Jibrary.findlaw.com/1999JJanI!1241470.htl111. 

U.S. Institute for Peace, The QDR in Perspective: Afeeting America's A'ational Se('uri~v Needs in the 21st CenturJ'. 

Final Report of the Quadrennial Defense Revicvv Independent Panel, July 28. 20JO, p. 83; Department of Defense, 

Defens'c Acquisition Perfi:>rmance Assessment Report, January 2006, p. 6: Business Executives for National Security, 

(continued ... ) 

Congressional Research Service 
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____ . ___________ . _______ ._ Twenty.·five Years of !i9!luisition Reform: Where Do We Go From Here? 

argued "in an attempt to not repeat past failures, additional staff, processes, steps, and tasks have 

been imposed_ While well intended, collectively these modifications are counterproductive:"] 

One observer noted, "If someone were asked to devise a contracting system for the federal 

government, it is inconceivable that one reasonable person or a committee of reasonable people 

could come up with our current system."'" 

Acquisition reform is not the only factor leading to the complexity of the acquisition system. 

Other factors include the increased complexity of military systems and inclusion ofpublic policy 

goals into the acquisition process. Examples of regulations that reflect public policy goals include 

the requirement to purchase cCltain goods ti'om domestic suppliers (such as the Berry 

Amendment and Buy American Act)," preferences for buying goods and services in Afghanistan 

to support campaign objectives in theatre, requirements to take steps to combat trafficking in 

persons, "set asides to promote small businesses and other entities perceived as disadvantaged, 

and the International Traffic in Arms Regulations. 

In some instances, the goals of obtaining the best value for the government and promoting public 

policy goals are in conflict with one another. For example, some analysts debate the value of the 

various regulations requiring certain defense items to be manufactured domestically. Some 

analysts argue that these requirements are necessary to ensure domestic sources of supply during 

war time. Other analysts argue that domestic sourcing regulations unnecessarily increase the cost 

to government, that the regulations could be implemented in a more cost-efficient manner, and 

that some items are on the list for protectionist reasons, not to preserve military capabilities. 

From thElWright Brothers to the ModernTanker 

In December 1907, the War Department issued a two-page procurement notice ror what some 

observers have called one of the most important government contracts in U.S. history: a contract 

tobuild.a flying niachine that is heavier than air. By thcFebmary 1908. deadline, the War 

Departmentreceived 41 proposals. 

The contract, awarded to Orville and Wilbur Wright, is noteworthy.tor its brevity (less than. 1 0 

pages), focusing on engineering requirements and contractor cornpliance. In contrast, according 

to a Bodngofficial,theoriginalsignedcontractfor the KC-46 tanker that was awarded to Boeing 

on Febmary24, 2011 consisted of 1,233 pages when originally signedc-70 pages of the basic 

contract, with references to 27 attachments consisting ofanadditional 1,163pages. 

( ... continued) 

Getting fo Best: Reforming the Defense Acquisition Enterprise, A Business Imperative for Change from the Task Force 

on Defense Acquisition Law and Oversight. July, 2009, p. iii. 

23 U.S. Army, Army Strong' Equioped. Trained and Rea(~~-', Final Report of the 2010 Anny Acquisition Review, 

January 11.2011, p. IV 

241. Ronald fox. Defense Acquisition Refbrm19fiO-2()(j9: An Elusive Gool (Center of Military History. 201 J). 

25 See DFARS, Pmi 225.7002; FAR Part 25. See also CRS Repoli RL31236, Ihe Ben}' Amendment: Requiring 

Def~-'nse Procurement to Come.from Domestic Sources, by Valerie Bailey Grasso. 

rAR Subpart 22.17. Combating Trafficking in Persons. 

Congressional Research SeNice 
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The complexity of the regulations can make it difficult for some companies to enter the 

government contracting arena." Many analysts believe that the rules and regulations governing 

defense acquisitions need to be further streamlined and simplified in a manner that reduces the 

burden on private industry and controls the increase in costs while preserving sufficient oversight. 

Constantly Changing Acquisition Rules 

Some analysts believe that the successive reform efforts have discouraged some companies from 

seeking government contracts out of concern that the rules could be changed in the middle of the 

game. Implementing successive changes to the acquisition system can also add to the cost of 

doing business with DOD, and make it more difficult for DOD and Congress to determine 

whether individual changes are having a positive or negative effect on the acquisition process. 

Changes to the rules governing defense acquisitions generally are a result of legislation or 

executive branch rules and regulations. 

Legislative Changes 

In recent years, the primary mechanism by which Congress has exercised its legislative powers to 

reform defense acquisitions has been the annual National Defense Authorization Act (NOAA). 

Sections of these acts have prescribed requirements applicable to both specific acquisition 

programs and the acquisition structure overall, the latter of which has lypically been addressed in 

Title VIII, which is usually called "Acquisition Policy, Acquisition Management, and Related 

Matters." Over the last six years, the Title in the NDAA dealing with acquisitions included more 

than 275 seetions.'8 

Other titles within the NOAA can also include legislation that affects companies seeking to 

contract with 000.29 At times, Congress has chosen to enact legislation affecting defense 

acquisitions in a stand-alone bill. For example, in May 2009, Congress passed and the President 

signed into law the Weapon Systems Acquisition Reform Act of 2009 (S. 454/P.L. 111-23), which 

contained a number of sections that impacted defense acquisitions, ranging from issues related to 

competition to conflicts of interest. 

Regulatory Changes 

DOD procurement activities are generally governed by three sets of federal government 

regulations: 

27 Ibid. See abo Grant Thornton, 16th Annual Government Contractor Industry Survey Highlights Book, Industry 

Survey Highlights 2010, p. 7. 

28 Based on CRS review of the National Defense Authorization Acts fix FY2008-2012. Not all sections in the Title 

impact private industry: rather, the volume of sections portray the challenges in keeping abreast oflegisiative changes 

that could significantly impact industry. 

2'1 For example. the FY20 I 0 NDAA, Title !II (Operation and Maintenance) included a section effecting defense 

acquisitions. See P.L 111-84, sec. 325. 

Congressional Research Service 
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• the first set of regulations, which applies to the entire federal government 

(including DOD unless stated otherwise), are found in the Federal Acquisition 

Regulation (FAR), 

• the second set of regulations applies only to DOD and is tound in the Defense 

Federal Acquisition Regulation Supplement, and 

• the third set of regulations applies only to individual DOD components and is 

found in component-unique FAR Supplements:") 

Procurement actions in DOD must adhere to the various regulations, and program managers must 

take the regulations into account during the planning and execution of their programs. The rules 

and regulations governing defense acquisitions can change at a rapid pace. For example, the DOD 

Directive 5000 series was established in 1971 to regulate the acquisition of major weapon 

systems. Over the next 40 years, the process for acquiring weapon systems set forth in the 5000 

series was revised more than a dozen times -a change approximately once every three years. In 

some cases, the changes have been dramatic. The 5000 series documents have been issued and 

reissued, with different versions varying in length, ranging from as few as eight to as many as 840 

pages. These regulatory changes also modified the number of milestones and other decision 

points required for approval from two, to three, to as many as seven. The documentation required 

for milestone reviews has ranged from one document in 1971 to dozens of documents in 200S31 

Successful Acquisition Reform Efforts 

Given the results of past acquisition reforms, some analysts have argued that acquisition refonn is 

a fruitless effort; that the fundamental problems with DOD acquisitions lie not in policy but in 

execution and expectations. In an article entitled Let s Skip Acquisition Refimn This Time, MIT 

professor Harvey Sapolsky writes 

The limited number of available reforms have all been recycled. You can centralize or 

decentralize. You can create a specialist acquisition corps or you can outsource their tasks. 

You can 111' before you buy or buy before you tly. Another bluc-ribbon study. more 

legislation, and a nc\\' slogan \vill not make it happen. 32 

Other analysts point out that some past refom1 efforts have had modest success, generating 

savings in certain areas and keeping pace with a changing world. These analysts argue that 

defense acquisitions can and must be improved,3] that learning trom past reform eflortsunderstanding what worked, what didn't work, and why-is critical to successful acquisition 

30 The Army, Air Porce, Navy and Marine Corps, Defense Logistics Agency. and U.S. Special Operations Command 

each have unique supplements. 

31 Based on discussions with analysts and government officials. CRS review of regulations and documentation. and 

review of academic working papers that have not yet been published. See 1. Ronald Fox, Defense Acquisition Refhrm: 

An ElusiFC Goal- 1960 to 2010. Harvard Business SchooL Working Paper 11 ~ 120 , p. Appendix B, referenced with 

permission of the author. 

32 Harvey Sapolsky, "Let's Skip Acquisition Rd()rm This Time," Defense/'v'cl-VS, February 9, 2009, p. 29. 

Robert F. Hale. Promoting f,'tficienc-:v in the Department (~r Defense: Keep Tl):ing. Be Realistic, Center lor Strategic 

and Budgetary Assessments. January 2002, p. 11: Business Executives for National Security, Getting to Best: 

Refi)rming the Defense Acquisition Enferprise, A Business Imperative for Change fj'om the Task Forcc on Defense 

Acquisition La\-\' and Oversight, July. 2009, p. iii. 

Congressional Research Service 9 
98 

refonn."A number of analysts have argued that Congress is critical to significantly improving 

DOD acquisitions." 

Some acquisition refOlms have been judged successful. For example, most analysts view the 

original consolidation of disparate acquisition rules into a single, uniform Federal Acqnisition 

Regulation as an improvement to the system. More recently, Congress has embarked on select 

acquisition reform ef1(lrts that analysts believe have contributed to improving defense 

acquisitions, including the Weapon Systems Reform Act of 2009 and legislation and oversight 

connected with Operational Contract Support. 

Weapon Systems Acquisition Refonn Act of 2009 

In developing the Weapon Systems Acquisition Refi>rm Act 42IJIJ9, Congress considered reports 

by government and other analysts that focused on the early stages of weapon system 

development, prior Congressional hearings and investigations, and extensive consultations with 

DOD, industry, and outside experts. The Act did not seek to rectifY all of the problems related to 

the aequisition process. Rather, it focused primarily on improving the early stages of weapon 

system development. Key provisions in the act included 

• The appointment of a Director of Cost Assessment and Program Evaluation 

(CAPE), 

• The appointment of a Director of Developmental Test and Evaluation, 

• The appointment of a Director of Systems Engineering, 

• A requirement that the Director of Defense Research and Engineering 

periodically assess technological maturity ofMDAPs and annually report finding 

to Congress, 

• A requirement that combatant commanders have more influence in the 

requirements generation process. 

Given how recently the Weapon System Acquisition Reform Act was enacted, the full effect of 

the Act may not be felt until the next generation of weapon systems are in production. However, a 

number of analysts believe that the Act is having a positive effect. 36 Senior officials within the 

offices of the CAPE, Developmental Test and Evaluation, and Systems Engineering, believe that 

their offices are being better resourced and empowered to positively impact weapon system 

acquisitions:') These offices have been given access to senior leaders within the department, 

opportunities to provide input at key points in the acquisition system, and resources to cany out 

their responsibilities. For example, the CAPE has contributed to a better understanding of 

potential costs for a number of major programs, such as the F-35 Joint Strike Fighter program:" 

See: Robert F. Hale. Promoting l:X/iciency in the Department l?/ Defense: Keep Ti}'ing. Be Realistic. Center for 

Strategic and Budgetary Assessments. January 2002, 7. 

35 See: Business Executives for National Security. GeftinJ; to Best: Reforming the Defense Acquisition Enh!lprise, A 

Business Imperative f{)f Change from the Task Force 011 Defense Acquisition Lmv and Oversight, July, 2009, p. 3. 

36 U.S. Government Accountability Office, Defense Acquisition Reform: RcfiJrm Act is Helping DOD Acquisition 

Proj.,rrams Reduce Risk hut Implementation Challenges Remain, GAO-J3-J 03, December 14,2012. 

Based on meetings these senior officials had with CRS in carly 20! 1. 

38 Based on discussions with senior officials from the Joint Staff, J-8 (Force Structure. Resources, and Assessment 

(continued ... ) 

Congressional Research Service 10 
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Operational Contract Support 

[n recent years, DOD has significantly improved its use of operational contract sllpp0l1. Many 

analysts and senior DOD officials have stated that without the efforts of Congress, DOD would 

not have been as sllccessful at improving operational contract support39 Congressional efforts 

have included establishing the Special Inspector General for Iraq, the Special Inspector General 

for Afghanistan, and the Commission on Wartime Contracting in Iraq and Afghanistan. Congress 

has also held numerous hearings, published committee reports, and maintained focus on the issue. 

These efforts combined to elevate the importance of the use of contractors and resulted in the 

development ofa body of work that informed DOD and Congress. Examples of Congressional 

action often cited as having contributed to improving operational contract sllpport include: 

• legislation that led to establishment of the office of the Deputy Assistant 

Secretary of Defense (Program Support), 

• legislation establishing generallllag officer billets for acquisition, 

• legislation establishing the Defense Acquisition Workforce Development Fund, 

and 

• oversight hearings that raised awareness of contractor abuses and led to the 

creation of Task Force 2010. 40 

The Changing Landscape of Defense Acquisitions 

Much of the foundation of the defense acquisition system was developed during the early years of 

the Cold War. Over recent years, the defense acquisition landscape has changed significantly and 

a number of analysts believe that the acquisition system has not been sufficiently responsive to an 

ever changing world."' A 2009 study by the Defense Science Board argued that current DOD 

acquisition practices are inadequate in a changing industrial world.42 Significant changes often 

cited by analysts include the following: 

• The defense industrial base has consolidated significantly over the last 25 years. 

According to a study by the Defense Science Board, over the last 25 years, the 

number of major defense contractors decreased from fifty to six41 Such 

consolidation can hurt competition and innovation. 

( ... continued) 

Directorate) and Joint Operations Support (Acquisition. Technology & Logistics), December 2011. 

39 CRS Rcp0l1 R43074, Department of Defense 's Use (?lContrac/ors to Support Milita1:V Operations: Background. 

Ana~vs;s, and L'isueslor Congress. by Moshe Schwartz . 

.j() For a detailed discussion of reform in operational contract support, see CRS Report R43074, Department qf 

Defense's l.J"e (!lContractors to Support Militar:v Operations: Background, Anazvsis, and h'iUcsfiJr Congress, by 

Moshe Sclnvartz. 

41 Department of Defense. Defense Acquisition Performance Assessment Report. January 2006. p. 7. 

42 Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics. Buying Commercial: Gaining 

Ihe Cost/Schedule Benefitsfill' D\fense ,io,)Jstems, Defense Science Board Task Force on Integrating Commercial 

Systems into the DOD, Effectively and Efficiently. February 2009. p. xvii. 

43 Office of the Under Secretary of Defense For Acquisition, Technology, and Logistics, Creating an Effective lV'ational 

(continued ... ) 

Congressional Research Service ·11 
100 

• DOD is becoming a less iryfiuential buyer. Fewer and fewer U.S. industries are 

dominated by defense spending:" For example, in 1965 DOD accounted te)r over 

75% ofal! U.S. semiconductor purchases. In 1990, government-wide purchases 

represented less than 10% of the market; by 2012, government represented less 

than 2% of semi-conductor purchases. 45 

• As DOD becomes a less important customer, an increasing number of companies 

are diversifying their revenue streams. In 2012, the top 100 defense companies 

received 28% oftheir revenue from defense contracts, down from 38% of 

revenue in 2007.'" Other companies are choosing not to compete for defense 

contracts because of the extensive and ever-changing regulations, increased costs, 

auditing requirements, and the instability of funding associated with defense 

contracting, inc luding sequestration, continuing resolutions, and lapses in 

appropriations. 

• Weapon and information technology systems are more complex and 

sophisticated. Some analysts believe that the acquisition system is not nimble 

enough tor acquisition programs that rely heavily on rapidly changing 

technologies. These technologies are posing new challenges to acquisitions. For 

example, according to U.S. Air Force Lt. Gen. Christopher Bogdan, the biggest 

risk to the F-35 program is software development." Some analysts believe that 

the increasing complexity of systems is the reason that aircraft development 

times have increased significantly since 1980." 

• US. Military Spending is declining. U.S. defense spending is declining, 

necessitating cuts to force structure and modernization programs."9 Despite 

decreased s~ending, the U.S. must still be prepared for a diverse range of security 

challenges: (I Given current defense spending trends and potential security threats, 

DOD acquisitions may need to be morc efticient to ensure sufticient resources to 

protect U.S. interests. Increased cost-efticiency could ti'ee up resources that can 

.. continued) 

Security Industrial Bascfor the 21st Century: An Action Plan to Address the Coming Crisis, Defense Science Board 

rask Force on Defense Industrial Structure for Transformation, July 2008, p. [5. See also: Kenneth Flamm. "Post-Cold 

War Policy and the U.S. Defense Industrial13ase." /I/ational Academy (~lEngineering C?lthe National Academies, vol. 

35. no. I (Spring 2005); Barry D. Watts, Sustaining the US. Defense Industrial base as a S'lralegic Asset, Center for 

Strategic and Budgetary Assessments. Backgrounder, September 2013, p. 15. 

44 Kenneth Flamm, "Post-Coid War Policy and the U.s. Defense Industrial Base," National AcademJ' (d'Engineering (d the ,\-'ational Academies, vol. 35, no, 1 (Spring 2005); See: Business Executives for National Security, Gelling to Bes/.' 

Reforming the Defense Acquisition Enterprise, A Business Imperative for Change from the Task Force on Defense 

Acquisition Law and Oversight. July, 2009, p, 4, 

Data provided to CRS by Semiconductor lndustry, October, 2013, 

46 Zachary Fryer-Biggs, "Looking Beyond Detense: Finns Grovv Rcvenue--By Diversifying," De/enseNelVs, July 22, 

2013, p. II. 

47 Andrea Shalal-Esa, "Pentagon Sees Some Risk of Delay in F-35 Sofhvare." NBCnews,com, April 24, 2013, at 

http://w\\·w.nbcncws.com/id/51649848/nsltechnology_ and _science-tech _ and ~gadgcts!t/pentagol1-sces-some~risk~de!ayf~-softwarc!#.lJIWMmm3zByU. 

48 OfJice of the Under Secretary of Defense Acquisition, Technology and Logistics, Pe~l()rmance (~lfhe Defense 

Acquisition S,;!stem. 2013 Annual Repot1, June 28, 2013, p. 57, 

49 Department of Defense, Defense Buti..r;et Priorities and ('hoices, Fiscal Year 20 14, April 2013, p, 5. 

50 Department of Defense, S'ustaining ( .S Global Leadership: Priorities fiw 21st Century Defense, JanuaI)' 2012, p. l. 

4-7. 

CongreSSional Research Service 12 
101 

be used to maintain a robust force structure or fund research and development 

aimed at maintaining a qualitative advantage over potential adversaries. 

• Some analysts have argued that the United States may not dominate defense 

spending in the future as much as it did in recent years, further requiring a more 

efficient and effective allocation of resources. These analysts point to China's 

military modernization, which has been fueled by two decades of steadily 

increasing military spending. According to a DOD report to Congress, China's 

officially disclosed military budget increased an average of9.7% annually in 

inflation-adjusted terms over the decade from 2003 to 2012. At $114 billion, 

China's officially announced budget for 2013 represents an increase ofI0.7% 

over 2012. The Pentagon believes China's actual military spending is higher than 

the officially disclosed figures, with the report to Congress estimating that 

China's military spending for 2012 was in the range of$135 to $215 billion.51 

• Industry is playing an increasingly important role in innovation and 

development. 52 DOD is spending a smaller share of its contracting dollars on 

research and development (R&D) contracts. In FY1998, 18% of contract 

obligations were dedicated to R&D contracts compared to just 10% in FY2012 

(see Figure 3). One analyst pointed out that even though the military is still an 

impoltant funder of specific, leading-edge technologies such as supercomputers 

and microelectromechanical systems devices, "commercial demand for these 

products has lar outstripped the requirements of the military.,,5] At the same time, 

technologies developed for the commercial market are commonly adapted for 

military use. As one general officer stated, whereas the military used to go to 

industry and tell them to create a technology to meet a requirement, increasingly 

the military is going to industry and asking them to adapt an existing commercial 

technology to military requirements. 54 

51 See CRS Report R41108, n.s.~China Relations: An Overview l?f Policy issues, by Susan V. Lawrence, p. 16. 

S2 See Business Executives for National Security, Getting /'0 Best: Rd<mning the Defem'c Acquisition Entcl1wise, A 

Business Imperative lor Change from the Task Force on Defense Acquisition Law and Oversight. July, 2009, p. 4. 

53 Kenneth Flamm, "Post-Cold War Policy and the U.S. Defense Industrial Base," iVational Academ}' (?lEnginecring oj 

the Natiunal Academies, vol. 35, no. I (Spring 2005). 

54 Based on discussion with CRS analyst, May 8, 2013. 

Congressionai Research Service 13 
102 

Figure 3. Percentage of Contract Obligations Dedicated to R&D Contracts 

FY 1 998-FY20 12 

60% 

50% Goods 

40% Services 

30% 

20% 

10% R&D 

FY98 FYOO FY02 FY04 FY06 FY08 FY10 FY12 

Source: Analysis of data from the Federal Procurement Data System, October 14, 20! 3. 

Many analysts believe that an acquisition system designed to meet the challenges of the Cold War 

is not sufficiently nimble or efficient to address the security and economic realities of today. 55 

They argue that in light oflhe evolving landscape the current cost overruns, schedule delays, and 

performance shortfalls in acquisitions have a debilitating effect on our military and threaten 

America's technological advantage and military capabilities.'" Some of these analysts argue that a 

comprehensive acquisition reform is urgently needed. 57 Nonnan Augustine (former CEO of 

Lockheed Martin) and fonner Senators Gmy Hart and Warren Rudman jointly wrote that the 

defense acquisition system operates 

too slo\vly and at vastly greater cost than necessary. In earlier times we could arguably allbrd 

such f1<nvs in efficiency. but \ve can afford them no longeL .. Vv'e must examine the status 

quo systemically, in all its aspects, in order to make necessary and long overdue changes. If 

"vc do not we will he in an increasingly sclerotic defense acquisition process that may one 

day no longer be able to supply American \"ar fighters with the means to assure this nation's 

fi'eedom and security.;;R 

55 Department of Detense. Defense Acquisition Pc(j(mnancc Assessment Report, January 2006, p. 6. 

56 See: Business Executives tor National Security. A Business Imperative for Change Ji'om the Task Force on Defense 

Acquisition Law and Oversight. July. 2009, p. 4. Then Secretary of Defense William Perry used the same logic to 

implement acquisition reforms in the! 9905. } Ie stated "Because the world in \vhich 000 no\v must operate has 

changed beyond the limits of the existing acquisition system's ability to adjust or evolve -- the system must be totally 

re~engincered. If 000 is going to be capable of responding to the demands of the next decade. there must be a carefully 

planned, fundamental re~engineering or re-invention of each segment of the acquisition process." See Honorable 

William 1. Perry. Acquisition Reform: A ,Handatefor Change. Department of Defense, February 9. 1994, p. 9. 

57 See Department of Defense, Defense Acquisition Performance Assessment Report. January 2006, p. Introductory 

Letter by Chairman Ronald Kadish. 

Business Executives fiw National Security, A Business Imperative/hI' Changcfrom the Task Force on Defense 

Acquisition Law and Oversight, July, 2009, p. iii. 

Congressional Research Service 14 
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Just as the acquisition landscape has changed in recent years, many analysts and DOD officials 

argue that DOD has also undergone changes that may make significant reform possible. Some 

DOD officials and analysts detect a culture shift underway within the Department - a shift that 

reflects a better understanding of the importance of defense acquisitions, and a fuller commitment 

on the part of senior leadership, uniform personnel and civilian personnel, to support eft(lrts to 

improve defense acquisitions. Changes contributing to the culture shift include the following: 

Operations in Iraq and Afghanistan have highlighted the importance of acquisitions. In the early 

years of the conflicts, contracting in Iraq and Afghanistan was done on an ad-hoc basis, without 

significant consideration of implications for foreign policy and without putting in place necessary 

oversight systems. Insufficient resources were dedicated to oversight, resulting in poor 

perturmance, billions of dollars of waste, and failure to achieve mission goals59 However, the 

experiences of the operational force have highlighted the critical role of contractors in military 

operations. These experiences underscored the importance of acquisitions to senior leaders and 

prompted numerous internal efl(,rts to examine contractor support, such as the report of the 

Commission on Army Acquisition and Program Management in Expeditionary Operations 

(known as the Gansler report). 

Constrained budgets are fostering a culture of beller decision making. Former Secretary of 

Defense Robert Gates stated that as a result of defense spending more than doubling between 

FY2001 and FY201O, "we've lost our ability to prioritize, to make hard decisions, to do tough 

analysis, to make trades.""o Declines in defense acquisition spending since FY2008 require, and 

have resulted in, effOlis to prioritize programs, reign in the 'gold-plating' of requirements, and 

increased the focus on costS.61 

Data is improving."2 Data reliability is a critical element in making informed policy decisions."] If 

data is lacking or is unreliable, there may not be an appropriate basis for measuring or assessing 

the effectiveness of contracting, making policy decisions, or providing transparency into 

government operations. In some circumstances, a lack of reliable data could lead analysts and 

decision makers to draw incorrect or misleading conclusions. The result could be policies that 

squander resources, waste taxpayer dollars, and threaten the success of the mission."4 

51) CRS Report R43074. Department aIDefense's U"c (?lContractors to Support Aiili/my Operations: Background, 

Analysis, and bosuesfor Congress. by Moshe Sch\vartz. 

60 Department of Defense. "DOD Nc\vs Briefing with Secretary Gates and Adm. Mullen from the Pentagon," press 

release. June 6. 20 11. http://vv\vw.defense.gov!transcriptsltranscript.aspx,?transcriptid=4747. 

61 See Yamil Berard, "Former Pentagon leader says defense cuts are necessary." Fort fVorlh Star-Telegeram, October 

16.2013.; Barry D. Watts, ,s'ustaininlZ the (/.5;. Defense Industrial base as a ,(,,'trateg;c' Asset, Center for Strategic and 

Budgetary Assessments, Backgrounder, September 2013. p. 15. 

Office of the Under Secretary of Defense Acquisition. Technology and Logistics, Perfhrmance afthe Defense 

Acquisition System, 20 J 3 Annual Report. June 28. 2013. p. 106. 

6j CRS Report R41820. Department (~( D(jense Trends in Overseas Contracf Obligations. by Moshe Schwartz, Wendy 

Ginsberg, and Daniel Alexander; U.S. Government Accountability Office. Reliability of Federal Procurement Dala. 

GAO-04-295R, December 30, 2003. p. 1. for an additional discussion on the importance of having reliable data to 

develop policies affecting acquisitions, see U.S. Government Accountability Office. Defense Acquisitions: Tailored 

Approach 1'1/eeded (0 impnJl'(, Service Acquisition Outcomes, GAO-07-20, November 9, 2006. 

64 For a discussion on the importance ofgood contract data to improving government efficiency and saving taxpayer 

money, see U.S. Government Accountability Office, Opportunities to Reduce Potential Duplication in Government 

Programs. 5,'m'e TtL't Dollars, and Enhance Revenue: Collecting improved data on inferagency confracting to minimi:::e 

duplication could help the lZovernmel1! leverage its vast huy;ng power, GAO-II ~318SP. March. J, 2011. p. 70. 

Congressional Research Se!vice 15 
104 

Advances in information technology are making it possiblc to better track and analyze larger 

amounts of data. DOD is improving its IT systems and has embarked on a number of wideranging efforts to gather and analyze data to inform pol icy decisions, often at the behest of 

Congress. For example, the Weapon System Acquisition Reform Act 0/2009 required DOD to 

conduct a root cause analysis of the cost, schedule and performance of Major Defense Acquisition 

Programs that experience cost growth that surpasses the thresholds set forth in the NunnMcCurdy Act." Over the years, these analyses have provided insight into what drives cost 

growth. Despite the progress being made, there continue to be significant gaps in the data 

available and reliability of some existing data." 

A Framework for Improving Acquisitions 

Improving the Workforce 

Despite the hundreds of disparate recommendations to improve defense acquisitions, most reports 

seeking to address the fundamental weaknesses of the system arrive at the same conclusion: the 

key to good acquisitions is having a good workforce and giving them the resources, incentives, 

and authority to do their job6J As David Packard, co-founder of Hewlett-Packard and former 

Deputy Secretary of Defense wrote in a report to President Reagan, 

Excellence in defense management cannot be achieved by the numerous management layers. 

large statTs, and countless regulations in place today. It dcpends ... on reducing all of these by 

adhering closely to basic. common sense principles: giving a fe,,," capable people the 

authority and rcsponsibility to do their job. maintaining short lines of communication, and 

holding people accountable for results. 68 

Workforce is not the only area that analysts believe need to be improved-numerous 

recommendations are aimed at the budget process, requirements development, cost estimating, 

and other structural problems. However, without a culture that promotes good acquisition 

decisions, reform efforts will not achieve their fullest potential. This is true not only for the 

acquisition workforce but also for other people involved in the process, such as those involved in 

developing requirements and budgets. As DOD Comptroller Robert Hale wrote in 2002 

Efficiency requires change. and change is difficult to implemcnt in any organization---public 

or private. To have any chance ofsuccess. there must be an incentive to change. Incentives 

start with the climate created by top leaders ... But commitment must extend beyond the 

senior leadership to the Defense Departmenfs field commanders and managers. Et11ciencies 

65 P.L 111-23, section 103. 

66 Office of the Under Secretary of Defense Acquisition. Technology and Logistics, Perfhrmance (?fthe Defense 

Acquisition .)~vstem, 2013 Annua! Report, June 28, 2013, p, 105: U.S. Army, Army Strong: Equitmcd. Trained and 

Ready, Final Report of the 20 I 0 Army Acquisition Review, January 11. 20 II, p. iv. The report found that "The Army 

lacks a sufficiently robust and trust\vorthy database on acquisition programs, vvorkforce and lessons learned:' p. 42. 

67 See below'. For additional discussions. see Thomas Christie. "Sound Policy, Avvful Execution," DefenseA'ews, 

December 15.2008, p. 53. Thomas Miller, "Rearranging Deck Chairs on the Titanic: Why Does Acquisition Reform 

Never Work?," Defi.mse AT&L, November-December 2010, p. 27; Scott Reynolds, "Let's Fix It: A Five-Step Plan for 

Improving Acquisitions;' De/i.:nse AT&L, November-December 2009. p. J 8. 

68 A Questfin' Excellence, Final Report to the President by the Blue Rihbon Commission of Defense Management, June 

30, 1986. 

Congressional Research Service 16 
105 

achieved at the base or installation level could add up to substantial savings. and the 

individuals running these bases ,viii be more likely to implement changes if they have 

incentives to do SO.69 

It is this belief that prompted Under Secretary of Defense Frank Kendall to introduce guidance on 

implementing the Better Buying Power initiatives with the following overarching principle: 

Policies and processes are of little use without acquisition professionals \,rho are 

experienced, trained, and empowered to apply them effectively. At the end of the day, 

qualified people are essential to successful outcomes and professionalism, particularly in 

acquisition leaders. drives results more than any policy change. 7o 

69 Robert F. Hale. Promoting l:lficiency;n the Department of Defense: Keep Trying, Be Realistic, Center for Strategic 

and Budgetary Assessments. January 2002, p. 20. 

70 Frank Kendall, implementation Directive/i)r Better Buying Per-wer 2. 0 ~ Achieving Grearer E.tficienc:v and 

Productivity in Defense Spending, Office of the Undcr Secretary of Dcfcnse Acquisition, Technology and Logistics. 

Memorandum. April 24. 20 J 3. 

Congressional Research Service 17 
106 

The Importance of People and Proper Incentives 

Numerous reports have highlighted the,importance 'of people ,in successful 'ac,quisitions. Below ,are conclUsions 

from some -of the' most influential reports on defense acquisitions from r 970 to the present; 

'~Regardless of now'effective the'overaU system of Department procurement regulatiQns, may be judged to be, 

the key determin'ants of the,urtimate effe,ctiveness and effidency of the-Defense f>rocurem'ent process' are the 

procurement personnel;,:. -The iniportance,_of this truism: has not been"appr:opriately,reflecte~ in the 

recruitment. career development.' training. and management' of the procurement workforce ~':', 71' FitZhugh 

Report (1970) 

"DOD must be able to attract, retain, and ,motivate, well quaJified acquisition' personn'el."n Packard Report 

(1986) 

"Making'fundamental: im'p,rOYemMts in acquisitto'os win require attaching the cultural 'dimension 'of the 

problem. Changes cif the, type needed' will not come easily. They must be directed at,the system of 

inc,e'ntives."73 GAO (1992) 

"Give Hne managers more authority and accountability (reward results! not just con1'pliance,wlth rules; focus 

on the customer)."" Peny Report (/994) 

"The department should focus on creating incentives so that commanders' and managers s'eekeffidemcies."7S 

Robe" Hole (2002) 

'~To repeat the emphasl's must,be on ,the, individuals in line 'management..' .. the key to effective executio:n of 

any contract is not the qualitY-0fthe -ContraCt, it is the, quality ofthe program' managem'ent responding to 

crear a,ssignment of authority and accounta,bility fOf, each program."76 QDR/ndep,endent Panel (20)0) 

"There Is Httle: doubt rl1at acqui,sition reforms produce, limi,ted, positive effects because they have not changed 

the basic, rncentives or:- p~esslJres' that dHve the behavior of the' particip'ants in 'the' acquisition process. "17 

pefenseAcquisition Reform: 1960-2000 (2011) 

Most analysts believe that a number of steps need to be taken to improve the performance of the 

acquisitions workforce 7S Three common recommendations for doing this include the following: 

I. recruiting talented people and providing them with the right training, 

2. providing the right incentives, and 

71 Department of Defense. Report to the Pres;Jenl and the Secrcwr:v (?lDe/ense on the Department a/Defense hy the 

Blue Ribbon Panel, July 1, J 970, p. 94. 

72 A Ques!f!:>r Excellence, Final Report to the President by the Blue Ribbon Commission of Defense Management. June 

30. 1986. p. xxv. 

73 U.S. Genera! Accounting Office, Weapons Acquisition: A Rare OpportunitJ'for Lasting Change, NSIAD 93~15, 

December 1992. pp. 2~3. 

74 Honorable William J. Perry. Acquisition Rf:jcmn: A A/andatej(w ChanKe, Department of Defense, february 9, 1994, 

p.9. 

Robert F. Hale. Promoting £.fficiencT in the Department (~lDefb1se: Keep Trying, Be Realistic, Center for Strategic 

and Budgetary Assessments, January 2002. p. iii. 

70 U.S. Institute for Peace, The QDR in Perspective: /vieetinK America's National Security JI/eeds in the 21st Centw:v, 

Final Report of the Quadrennial Defense Review Independent Panel, July 28. 2010, p. 86. 

1. Ronald Fox. Defense Acquisition Rf:j(Jrm 1960~2009: An Elusive Goal (Center of Military History. 2011), p. 190. 

78 For example, one report found that Army acquisition competencies have eroded in the last h\'o decadcs; the Army 

has reduced thc numher of qualified people essential to acquiring modern equipmcnt. See U.S. Army, Army S'trong: 

Equipped. Trained and Ready, Final Rcport of the 2010 Anny Acquisition Rcvic\v, January 11,201 I. 

Congressional Research Service 18 
107 

J. granting the authority to make decisions and holding people accountable for 

those decisions. 

Building a Capable, Trained, and Sufficiently Sized Workforce 

Insufficient resources or shortages in the numbers properly trained acquisition personnel increase 

the risk of poor contract performance. which in turn can lead to waste, fraud, and abuse 79 The 

issue is not just the number, but also the quality and capability of the workforce.") 

In an effort to improve the size and quality of the acquisition workforce, the FY200S NDAA 

mandated the establishment of the Department of Defense Acquisition Workforce Fund to enable 

the "recruitment, training, and retention of acquisition personneI.S

)" From FY2008 through 

PY20 12, DOD obligated $2.3 billion through the fund. According to DOD, this funding was used 

to augment training and hire an additional 8,300 people and in contracting, cost estimating. 

systems engineering, auditing, and other related fields. Many analysts believe that while DOD 

and congressional efforts are starting to have a positive impact on the acquisition workforce, 

additional support and focus is needed." 

DOD has recognized the need to dedicate sufficient resources to develop a good, capable 

workforce. According to the 2010 Quadrennial Defense Review, "to operate effectively, the 

acquisition system must be supported by an appropriately sized cadre of acquisition professionals 

with the right skills and training to successfully perform their johs .... We will continue to 

significantly enhance training and retention programs in order to bolster the capability and size of 

the acquisition workforce."83 

Creating the Right Incentives 

Many analysts argue that even with a sufficiently robust, highly trained and capable workforce, 

the right incentives must be in place. Yet often the incentives in the acquisition process encourage 

people to make poor decisions84 For example, there is a culture within DOD that encourages 

the obligation offunds before they expire out offear that if money is not spent, funding for 

79.1, Ronald Fox, Defense Acquisition Reform 196()~2()()9: An Elusive Goal (Center of Military I-listory. 20 J 1). p. 195, 

199.See also. Commission on Wartime Contracting In Iraq and Afghanistan. At What Risk? Correcting over~reliance 

on contractors in contingency operations. Second Interim Report to Congress, february 24. 2011. p. 17; United States 

Institute of Peace, The QDR in Perspective: lvleeting America's j\lational Security I'v'eeds in the 21st Century, 2010, p. 

39: U.S. Government Accountability Offi.cc, Alilitary Operations: High-Level DOD Action /lieeded 10 Address LongstandinK Problems IFith Management and OversiKht (!fContractors SupportinK Deployed Forces, GAO-07-145, 

December 18.2006: Commission on Wmiime Contracting In Iraq and Afghanistan, Tran.~forminK Wartime 

Contracting: ('onlrolling costs, reducing risk. Final Rep0i1 to Congress, August. 20 I I, p. 83~84. 

80 See: Business Executives tor National Security, GellinK 10 Best: Re/i:)rming the Defense Acquisition Entel11rfse, A 

Business Imperative for Change from the Task Force on Defense Acquisition Law and Oversight, July, 2009, p. 3. 

81 P.L 110-\81. section 852. 

H2 Data provided by DOD. See also Department of Defense, Defense Acquisition W()r~fi)f'ce Development Fund 

(DAWDfJ FY2012 Report to Congress, Department of Defense, April 2013, p, 4. 

Sl QDR. p. 77-78 

84 J. Ronald Fox, Defense Acquisition Refhrm 1960-2009: An Elusive Goal (Center of Military History, 201 I), p. 197-

199; Department of Dctcnse, Dejense Acquisition pCffiwmoncc Asse.'lsmcni Report. January 2006, p, 5: Sec: Business 

Executives tor National SecuTity, Getting to Best: Re.f(mning the Defi.'11se Acquisition Enterprise. A Business 

imperative for Change from the Task Foree on Defense Acquisition Lmv and Oversight. July, 2009, p. 3. 

Congressional Research Service 19 
108 

future budgets will be cut. This belief can drive managers to prioritize spending money based 

on an arbitrary calendar deadline instead of sound business decisions.'5 Resetting incentives to 

ensure that they align with desired outcomes can improve the decisions of the workforce, 

Another example of incentives driving poor acquisition decisions relates to cost estimating, 

Senior Defense officials, both past and current, acknowledge that program advocates have 

strong incentives to underestimate program acquisition costs, Contractors use low cost 

estimates to win the contract; program representatives use low estimates to argue for approval 

of the system against competing systems:6 In 1981, then-Deputy Secretary of Defense Frank 

C Carlucci testified that low cost estimates "are fueled by optimistic contractor proposals to 

win competitions and program managers who want to see their programs funded,,,87 Almost 

30 years later, then-Under Secretary of Defense for Acquisition, Technology, and Logistics 

John Young echoed this sentiment, stating "the enterprise will ollen pressure acquisition 

teams and industry to provide low, optimistic estimates to help start programs,"" 

The absence of more reliable cost estimates denies Congress the ability to decide on 

competing strategic and budget priorities based on realistic cost assumptions and denies DOD 

the 0ppOliunity to develop a well-conceived acquisition plan, The 2010 Quadrennial Defense 

Review stated, "our system of defining requirements and developing capability too ollen 

encourages reliance on overly optimistic cost estimates, In order for the Pentagon to produce 

weapons systems efficiently, it is critical to have budget stability---but it is impossible to 

attain such stability in DOD's modernization budgets if we continue to underestimate the cost 

of such systems from the start ,,89 

Establishing Authority and Accountability 

Authority and accountability is viewed as a critical element in building an effective 

workforce,9o Without authority, even the most skilled and incentivized professionals cannot 

effectively nm and manage a program, Yet many analysts believe that the management 

structure is too bureaucratic; that too many people can say no or influence a program, As one 

program manager recently quipped, the inside joke among program managers is that "We are 

not really sure who runs the program,,,9' Without anyone having practical authority to 

manage a program, there is no one to effectively hold accountable, As the QDR Independent 

R5 Robert F, Hale and Frank Kendall. Department o/De/ense JIanagement o/Unobligated Funds,' Ohligatiol1s Tenets, 

Oftice of the Secretary of Defense, Memorandum, September 10.2012, 

86 House Armed Services Hearings. 97th Cong., 1st Sess .. Volume I L 1981. Op. Cit. p. 883. 

87 1-'lollse Armed Services Hearings, 97th Cong., 1st Scss .. Volume 1 t, 1981. Op. Cit. p. 1086. 

88 John J. Young, Jr., Reason:'I'fi:w Cost Changesj()r Selected Maior Defense Acquisition Programs (MDAPs). 

Memorandum. January 30. 2009. 

89 Department of Defense, Quadrennial Defense Review Report, February 20 I 0, p. 76. 

91) The Packard, lor exampJe, stated "We must give acquisition personnel more authority to do their jobs. Ifwe make it 

possible for people to do the right thing the tirst time and allow them to use their common sense, then \ve believe that 

the Department can get by \vith far fewer people." See p. xxiv. 

91 Based on conversation with program managers and other acquisition personnel, September 14,2013. 

Congressional Research Service 20 
109 

concluded, "the fundamental reason for the continued underperformance in acquisition 

activities is ji-agmel1tatiol1 of authority and accountability/iJr per/iJrmance . .,92 

Targeted Reform Efforts 

In addition to improving workforce management, as discussed above, targeted reform efforts, 

similar to the Weapon System Acquisition Reform Act of 2009 and efforts to improve Operational 

Contract Support can generate significant financial savings and operational benefits. Examples of 

possible targeted areas ripe for reform include 

• Streamlining acquisition laws and regulations and 

• Focusing on contract logistics. 

Streamlining Acquisition Laws and Regulations 

In some instances, regulations aimed at improving the acquisition process or promoting important 

public-policy goals impose unintended cost or regulatory burdens to industry. A number of 

analysts have argued that repealing or amending regulations that no longer provide a benefit 

could serve to simplify the acquisition process, remove unnecessary regulatory burdens on 

industry, and entice more companies to compete for defense and other federal government 

contracts. Sometimes, the laws and regulations governing defense procurement can add to the 

costs of doing business, as may occur in the case of certain domestic source restrictions like the 

Berry Amendment. Such a perspective does not necessarily argue for wholesale removal of 

regulations and oversight, but at a minimum argues for adopting an approach of weighing the 

costs to industry and government against the policy and oversight benefits of the regulations in 

question:3 Congress could also choose to amend certain statutes and regulations in such a way as 

to alleviate the regulatory or tinancial impact while preserving the fundamental intent of the 

regulation. 

Contract Logistics 

Some government officials and industry experts have identified logistics as an area where 

significant cost savings could be generated without having an impact on operational capabilities94 

Recent reports have identified instances of wasteful spending in this area. For example, the DOD 

Inspector General has developed a body of work that found 

• Boeing charged the Army about $13 million more than fair and reasonable prices 

for 18 parts on a SUppOlt contract,95 

U.S. Institute f(lr Peace. The QDR in Perspective: ,~fe('tin~ America's National Security Need" in the 21st Century, 

Final Report of the Quadrennial Defense Revic\v Independent Panel, July 28. 2010, p. 85. Italics as in original. 

93l-1onorable William J. Pen'y, Acquisition Rej(mn. Depaliment of Defense, A Mandate for Change. February 9, 1994, 

p.8. 

44 Based on conversations ofihese officials \vith CRS analysts. July 2013 through October 20 13. 

95 Department of Defense Inspector General, "Excess Inventory and Contract Pricing Problems Jeopardize the Army 

Contract "'lith Boeing to Support the Corpus Christi Army Depot." Report 0-2011-061, May 3. 2011. 

Congressional Research Service 21 
110 

• Sikorsky charged the Army approximately $12 million more than fair and 

reasonable prices for 28 parts,'" and 

• Boeing charged DLA Aviation $13.7 million more than fair and reasonable 

prices for 27 parts associated with 1,469 delivery orders." 

Earlier this month, the Special Inspector General for Afghan Reconstruction reported that military 

forces in Afghanistan were unable to account for about $230 million worth of spare parts and then 

ordered $138 million of additional parts without sutlicient accountability:" Given the examples 

of potential savings identified to date, Congress could consider logistics as a potential area for 

increased congressional oversight. 

Chairman McKeon, Ranking Member Smith, this concludes my statement. I will be pleased to 

respond to any questions the Committee may have. 

Author Contact Information 

Moshe Schwartz 

Specialist in Defense Acquisition 

mschvvartZ(0Crs.loc.gov. 7-1463 

96 Department of Defense Inspector General, "Pricing and Escalation Issues Weaken the Effectiveness of the Army 

Contract \·vlth Sikorsky to Support the Corpus Christi Army Depot," Report D-20 II ~ 1 04, September 8, 2011, 

<)7 Department of Detense Inspector General, "Improved Guidance Needed to Obtain Fair and Reasonable Prices for 

Sole-Source Spare PaJts Procured by the Defense Logistics Agency from the Boeing Company," Report DODIG-2013-

090,June7,2013. 

9R Special Inspector General for Afghanistan Reconstruction, Afghan National Army: Combined Security Transition 

Command-Afghanistan Lacks Key Information on Inventory in Stock and Requirements for Vehicle Spare Parts. 

SIGAR 14-3, October 16, 2013. p. l. 

Congressionai Research Service 22 
111 

Mr. Moshe Schwartz 

Moshe Schwartz is a Specialist in Defense Acquisitions 

at the Congressional Research Service and an adjunct 

professor at National Defense University's Eisenhower 

Center. He has written numerous reports and testified 

before Congress on a variety of issues, including the 

acquisition of major defense acquisition programs, the 

use contractors in military operations, DOD energy, and 

GAO bid protests. Temporary assignments include 

serving as a senior advisor to the Commission on 

Wartime Contracting in Iraq and Afghanistan, and as an 

advisor at ISAF headquarters in Afghanistan. 

Before joining CRS, Mr. Schwartz served as a senior analyst at the Government 

Accountability Office, as an Assistant District Attorney in Brooklyn NY, and as Vice 

President of the Public Relations firm KCSA Strategic Communications. 

Mr. Schwartz received a B.A. from Yeshiva University, a J.D. from Yeshiva University'S 

Benjamin N. Cardozo School of Law, an M.B.A. from Carnegie Mellon's Tepper School 

of Business, and a Masters in Public Policy Management from Carnegie Mellon's H. 

John Heinz 111 School of Public Policy and Management. 
112 

For Rf'lease- on Delivery 

Expected at 10:00 a.m. EDT Tuesday, October 29,201:3 

GAO-14-145T 

United States Government Accountability Office 

Testimony 

Before the Committee on Armed 

Services, House of Representatives 

DEFENSE ACQUISITIONS 

Where Should Reform Aim 

Next? 

Statement of Paul L. Francis, Managing Director 

Acquisition and Sourcing Management 
113 

WRy {>AQ:ni.d :nus8tlldy, 

OOO's~cqUlsitii>f\ol major \OIea!"'ll 

systems nas been 00 (3AO's hlghrisk 

IIshlnC<!199Q.0v..rihe past 5Q Yesrs, 

CongreSs "nct DOP have :continl\atfy 

~~pl0feJf,w~y~ ,to 'irnpro'(~ ~cq~.iisi~ion:' 

qutcoml?s, tnclqojng refdrms thi?l 'tlave 

ch~mpioned $-dunctm~nagen:'tent 

'pta9ttc~'$t sllch ~~ f~t!$ti¢ Cost 

""timatlng,protolyping, andsyst"ms 

e!)gin""'ing: 100 oft'"'" GAOrepO(tS 

0" the same klndl' 01 problems today: 

toat (l·did ovel2Q years a99. 

Til<) lopic "hOday's hearingjs'~2S: 

" Years of AcqUIsition Refofj11', Where Do We Go f'romH"r"g!' I<Ythal end, 

Ihis t~tim"nl1 dlscussesm the pe,rtOrlhanceof OOO',smajordeferise 

" al;~uisitiQ'n llfj)g'am pOr1folio; (2) thll, (l\a~agetylenf p"licies and processes': 

currently !npiece to guide \hOse' 

acqulsltlons;, (~)the Ihce(ltivesl" 

deviate frotyl otherwise sOl\h'd 

a~l1iSition i"ractices; arid (4) 

s~99~st!Q!:s ter temper t~~se 

incentivE/s. 'ffiis, ,statewentdrawsfr9ln 

GAO'sE/lctensiv~ t>O'dy6f,wot~on 

'OOO:"ooqu.isition 61 weapons'ystems: 

DEFENSE ACQUISITIONS 

Where Should Reform Aim Next? 

What GAO Found 

The Department 01 Defense (DOD) must get beUer outcomes from its weapon 

system investments, which in recent years have totaled around $1.5 trillion or 

more. Recently, there have been some improvements. owing in part to reforms. 

For example, cost growth declined between 2011 and 2012 and a number 01 

programs also improved their buying power by finding efficiencies in 

development or production and requirements changes. Still, cost and schedule 

growth remain significant; 39 percent of fiscal 2012 programs have had unit cost 

growth of 25 percent or more. 

DOD's acquisition policy provides a methodological framework for developers to 

gather knowledge that confirms that their technologies are mature, their designs 

stable, and their production processes are in control. The Weapon Systems 

Acquisition Reform Act of 2009 and DOD's recent "Better Buying Power" 

initiatives introduced significant changes that, when fully implemented, should 

further strengthen practices that can lead to successful acquisitions. GAO has 

also made numerous recommendations to improve the acquisition process, 

based on its extensive work in the area. While recent reforms have benefited 

individual programs, it is premature to say there is a trend or a corner has been 

turned. The reforms still face implementation challenges and have not yet been 

institutionalized within the services. 

Reforms that focus on the methodological procedures of the acquisition process 

are only partial remedies because they do not address incentives to deviate from 

sound practices. Weapons acquisition is a complicated enterprise, complete with 

unintended incentives that encourage moving programs forward by delaying 

testing and employing other problematic practices. These incentives stem from 

severa! factors. For example, the different partiCipants in the acquisition process 

impose conflicting demands on weapon programs so that their purpose 

transcends just filling voids in military capability. Also. the budget process forces 

funding decisions to be made well in advance of program decisions, which 

encourages undue optimism about program risks and costs. Finally, DOD 

program managers' short tenures and limitations in experience and training can 

foster a short~term focus and put them at a disadvantage with their industry 

counterparts. 

Drawing on its extensive body of work in weapon systems acquisition, GAO sees 

severa! areas of focus regarding where to go from here: 

at the start of new programs, using funding decisions to reinforce desirable 

principles such as weH-informed acquisition strategies; 

identifying significant risks up front and resourcing them; 

exploring ways to align budget decisions and program decisions more 

closely; and 

attracting, training, and retaining acquisition staff and managers so that they 

are both empowered and accountable for program outcomes. 

These areas are not intended to be all-encompassing, but rather, practical places 

to start the hard work of realigning incentives with desired results. 

_____________ United States Government Accountability Office 
114 

Chairman McKeon, Ranking Member Smith, and Members of the 

Committee: 

I am pleased to be here today to discuss weapon systems acquisition and 

where reform should focus next Weapon systems acquisition has been 

on GAO's high risk list since 1990.' Over the past 50 years, Congress 

and the Department of Defense (DOD) have explored ways to improve 

acquisition outcomes, including recent actions like the Weapon Systems 

Acquisition Reform Act and the department's own "Better Buying Power" 

initiatives. These and other reforms have championed sound 

management practices, such as realistic cost estimating, prototyping, and 

systems engineering. DOD's declining budgets and the impact of 

sequestration have lent additional impetus to reduce the costs of 

weapons. While some progress has been made on this front, too often we 

report on the same kinds of problems today that we did over 20 years 

ago. The cost growth of DOD's 2012 portfolio of weapon systems about 

$411 billion and schedule delays average more than 2 years. To get 

better results the focus should not be on adding to or discarding 

acquisition policies, but on the incentives that work against them. 

Today, I will (1) provide summary cost and schedule information on 

DOD's portfolio of major weapon systems; (2) describe the policies and 

processes in place to guide those acquisitions; (3) discuss incentives to 

deviate from otherwise sound acquisition practices; and (4) suggest ways 

to temper these incentives. This statement draws from our ex1ensive body 

of work on DOD's acquisition of weapon systems and the numerous 

recommendations we have made both on individual weapons and 

systemic improvements to the acquisition process. The work on which 

this testimony is based was conducted in accordance with generally 

accepted government auditing standards. Those standards require that 

we plan and perform the audit to obtain sufficient, appropriate evidence to 

provide a reasonable basis for our findings and conclusions based on our 

audit objectives. We believe the evidence obtained provides a reasonable 

basis for our findings and conclusions based on our audit objectives. 

1GAO, High Risk Series: An Update, GAO-13-283 (Washington, D.C.: February 2013). 

Page 1 GAO·14·145T 
115 

Trends in DOD's 

Portfolio of Major 

Acquisitions 

There can be little doubt that we can-and must-get better outcomes 

from our weapon system investments. As seen in table 1, the value of 

these investments in recent years has been on the order of $1.5 trillion or 

more, making them a significant part of the federal discretionary budget. 

Table 1: Analysis of DOD Major Defense Acquisition Program Portfolios 

year 

2008 2011 2012 

Change in development costs from first 42 percent 54 percent 49 percent 

full estimate 

Change in total acquisition cost from first 25 percent 40 percent 38 percent 

full estimate 

Estimated total acquisition cost growth $323 billion $465 billion $411 billion 

Share of programs with 25 percent or 42 percent 41 percent 39 percent 

greater increase in program acquisition 

unit cost since first full estimate 

Average delay in initial operating 22 months 23 months 27 months 

capability 

Source GAO analys,g of DOD data 

Note: The BaUistic Missile Defense System is excluded from the analysis of both portfolio size and 

portfolio mdicators as it does not have comparable cost and schedule data. Other programs were also 

excluded from the analysis of indicators when comparable data did not exist 

Large programs have an outsized impact on the aggregate portfolio. For 

example, Joint Strike Fighter costs have now consumed nearly a quarter 

of the entire portfolio. Yet, as indicated in table 1, 39 percent of programs 

have had unit cost growth of 25 percent or more. Recently, we have seen 

some modest improvements. For example, cost growth has declined 

between 2011 and 2012.2 We have also observed that a number of 

programs have improved their buying power by finding efficiencies in 

2GAO, Defense Acquisitions: Assessments of Selected Weapon Programs, 

GA~13 .. 294SP (Washington, D.C.: Mar. 28, 2013). 

Page 2 GAO·14·145T 
116 

One Side of the 

Acquisition Process: 

Stated Policy 

development or production, and requirements changes. On the other 

hand, cost and schedule growth remain significant when measured 

against programs' first full estimates. The performance of some very large 

programs are no longer reflected in the latest data as they are no longer 

acquisition programs. For example, the Future Combat Systems program 

was canceled in 2009 after an investment of about $18 billion and the F22 Raptor program has completed aircraft procurement. In addition, the 

Ballistic Missile Defense System are not included in any of the analysis as 

those investments have proceeded without a baseline of original 

estimates, so the many difficulties experienced in the roughly $130 billion 

program are not quantifiable. 

The enormity of the investment in acquisitions of weapon systems and its 

role in making U.S. fighting forces capable, warrant continued attention 

and reform. The potential for savings and for better serving the warfighter 

argue against complacency. 

When one thinks of the weapon systems acquisition process, the image 

that comes to mind is that of the methodological procedure depicted on 

paper and in flow charts. DOD's acquisition policy takes the perspective 

that the goal of acquisition is to obtain quality products that satisfy user 

needs at a fair and reasonable price. 3 The sequence of events that 

comprise the process defined in policy reflects principles from disciplines 

such as systems engineering, as well as lessons learned, and past 

reforms. The body of work we have done on benchmarking best practices 

has also been reflected in acquisition policy.4 Recent, significant changes 

to the policy include those introduced by the Weapon Systems Acquisition 

Reform Act of 2009 and the department's own "Better Buying Power" 

initiatives which, when fully implemented, should further strengthen 

Directive 5000.01, The Defense Acquisition System {Nov. 20, 

4GAO, Best Practices: DOD Can Achieve Better Outcomes by Standardizing the Way 

Manufacturing Risks Are Managed, GAO~ 10-439 (Washington, D.C: Apr. 22, 2010); Best 

Practices: Capturing Design and Manufacturing Knowledge Early Improves Acquisition 

Outcomes, GAO-02-70"1 (Washington, D.C.: July 15, 2002); Best Practices: Better 

Matching of Needs and Resources Will Lead to Better Weapon System Outcomes, GAO01-288 (Washington, D.C.: Mar. 8, 2001); and Best Practices: Better Management of 

Technology Development Can Improve Weapon System Outcomes, GAO/NS1AD-99-162 

(Washington, D.C.: July 30, 1999). 

Page 3 GAO·14·145T 
117 

practices that can lead to successful acquisitions. 5 The policy provides a 

framework for developers of new weapons to gather knowledge that 

confirms that their technologies are mature, their designs are stable, and 

their production processes are in control 6 These steps are intended to 

ensure that a program will deliver the capabilities required utilizing the 

resources-cost, schedule, technology, and personnel-available. 

Successful product developers ensure a high level of knowledge is 

achieved at key junctures in development. We characterize these 

junctures as knowledge points. While there can be differences of opinion 

over some of the specifics of the process, I do not believe there is much 

debate about the soundness of the basic steps. It is a clear picture of 

"what to do." 

Table 2 summarizes these steps and best practices, organized around 

three key knowledge points in a weapon system acquisition. 

5pub. L. No. 111-23 as amended, Office of the Under Secretary of Defense, Acquisition, 

Technology and Logistics Memorandum: "Better Buying Power: Mandate for Restoring 

AffordabHity and Productivity in Defense Spending" (June 28, 2010). Office of the Under 

Secretary of Defense, Acquisition, Technology and Logistics Memorandum: "Better Buying 

Power 2.0: Continuing the Pursuit for Greater Efficiency and Productivity in Defense 

Spending'· (Nov. 13, 2012). 

60epartment of Defense Instruction 5000.02, Operation of the Defense Acquisition 

System (Dec. 8, 2008). 

Page 4 GAO-14-145T 
118 

Table 2: Best Practices for Knowledge~based Acquisitions 

Knowledge Point 2: Critical design review midway through product development 

Complete 90 percent of engineering design drawing packages to ensure design is stable 

"Demonstrate with system integration prototype that design performs as intended---

Identify critical manufacturing processes and key system characteristics 

Establish targets and growth plan for product reliability 

Conduct independent cost estimate 

Conduct system critical design review to ensure design meets requirements 

Knowledge Point 3: Initiation of production for delivery to customer (Milestone C) 

Demonstrate critical manufacturing processes on a pilot production Hne 

Build and test production~representative prototypes to demonstrate product in 

operational environment and to achieve reliability goal 

CoUect data on critical manufacturing processes and demonstrate that they are in 

statistical control to ensure 

Conduct major milestone decision review to begin production 

Our work over the last year shows that, to the extent reforms like the 

Weapon Systems Acquisition Reform Act and DOD's Better Buying 

Power initiatives are being implemented, they are having a positive effect 

on individual programs. For example, several programs we have 

reviewed are: 

making early trade-offs among cost, schedule, and technical 

performance requirements; 

developing more realistic cost and schedule estimates; 

increasing the amount of testing during development; and 

Page 5 GAO~14·145T 
119 

placing greater emphasis on reliability. 

These improvements do not yet signify a trend or suggest that a corner 

has been turned. The reforms themselves still face implementation 

challenges such as staffing and clarity of guidance and will doubtless 

need refining as experience is gained. We have made a number of 

recommendations on how DOD can improve implementation of the 

Weapon Systems Acquisition Reform Act. 7 

To a large extent, the improvements we have seen tend to result from 

external pressure exerted by higher level offices within DOD on individual 

programs. In other words, the reforms have not yet been institutionalized 

within the services. We still see employment of other practices-that are 

not prescribed in policy-such as concurrent testing and production, 

optimistic assumptions, and delayed testing. These are the same kinds of 

practices that perpetuate the unsatisfactory results that have persisted in 

acquisitions through the decades, such as significant cost growth and 

schedule delays. They share a common dynamic: moving forward with 

programs before the knowledge needed to make decisions is sufficient. 

We have reported that most programs still proceed through the critical 

design review without having a stable design, even though we have made 

a number of recommendations on the importance of this review and how 

to prepare for itB Also, programs proceed with operational testing before 

they are ready. Other programs are significantly at odds with the 

acquisition process. Among these I would number Ballistic Missile 

Defense System, Future Combat Systems (since canceled), Littoral 

Combat Ship, and airships. We recently reported on the Unmanned 

Carrier-Launched Airborne Surveillance and Strike program which 

proposes to complete the main acquisition steps of design, development, 

testing, manufacturing, and initial fielding before it formally enters the 

acquisition process9 

7 GAO, Weapons Acquisition Reform: Reform Act Is Helping DOD Acquisition Programs 

Reduce Risk, but Implementation Challenges Remain, GAO-13-103 (Washington, D.C .. 

Dec. 14. 2012). 

8 GAO.02.701 

9GAO, Defense Acquisitions: Navy Strategy for Unmanned Carrier-Based Aircraft System 

Defers Key Oversight Mechanisms, GAO-13~833 (Washington, D.C.: Sep. 26, 2013). 

Page 6 GAO~14"145T 
120 

Another Side of 

Acquisition: 

Incentives 

Several Factors Create 

Incentives to Deviate from 

Sound Acquisition 

Practices 

Conflicting Demands 

The fact that programs adopt practices that run counter to what policy and 

reform call for is evidence of the other pressures and incentives that 

significantly influence program practices and outcomes. I will turn to these 

next. 

An oft-cited quote of David Packard, former Deputy Secretary of Defense, 

is: "We all know what needs to be done. The question is why aren't we 

dOing it?" To that point, reforms have been aimed mainly at the "what" 

versus the "why." They have championed sound management practices, 

such as realistic estimating, thorough testing, and accurate reporting. 

Today, these practices are well known. We need to consider that they 

mainly address the mechanisms of weapon acquisitions. Seen this way, 

the practices prescribed in policy are only partial remedies. The 

acquisition of weapons is much more complex than policy describes and 

involves very basic and strongly reinforced incentives to field weapons. 

Accordingly, rival practices, not normally viewed as good management 

techniques, comprise an effective stratagem for fielding a weapon 

because they reduce the risk that the program will be interrupted or called 

into question. 

I will now discuss several factors that illustrate the pressures that create 

incentives to deviate from sound acquisition management practices. 

The process of acquiring new weapons is (1) shaped by its different 

participants and (2) far more complex than the seemingly straightforward 

purchase of equipment to defeat an enemy threat. Collectively, as 

participants' needs are translated into actions on weapon programs, the 

purpose of such programs transcends efficiently filling voids in military 

capability. Weapons have become integral to policy decisions, definitions 

of roles and functions, justifications of budget levels and shares, service 

reputations, influence of oversight organizations, defense spending in 

localities, the industrial base, and individual careers. Thus, the reasons 

"why" a weapon acquisition program is started are manifold and 

acquisitions do not merely provide technical solutions. 

Page 7 GAO·14·145T 
121 

Funding Dynamics 

While individual participants see their needs as rational and aligned with 

the national interest, collectively, these needs create incentives for 

pushing programs and encouraging undue optimism, parochialism, and 

other compromises of good judgment. Under these circumstances, 

persistent performance problems, cost growth, schedule slippage, and 

difficulties with production and field support cannot all be attributed to 

errors, lack of expertise, or unforeseeable events, Rather, a level of these 

problems is embedded as the undesirable, but apparently acceptable, 

consequence of the process, These problems persist not because they 

are overlooked or under-regulated, but because they enable more 

programs to survive and thus more needs to be met. The problems are 

not the fault of any single participant; they are the collective responsibility 

of all participants. Thus, the various pressures that accompany the 

reasons why a program is started can also affect and compromise the 

practices employed in its acquisition. 

I would like to highlight three characteristics about program funding that 

create incentives in decision making that can run counter to sound 

acquisition practices. First, there is an important difference between what 

investments in new products represent for a private firm and for DOD. In 

a private firm, a decision to invest in a new product, like a new car design, 

represents an expense. Company funds must be expended that will not 

provide a revenue return until the product is developed, produced, and 

sold. In DOD, new products, in the form of budget line items, can 

represent revenue. An agency may be able to justify a larger budget if it 

can win approval for more programs. Thus, weapon system programs can 

be viewed both as expenditures and revenue generators. 

Second, budgets to support major program commitments must be 

approved well ahead of when the information needed to support the 

decision to commit is available. Take, for example, a decision to start a 

new program scheduled for August 2016. Funding for that decision would 

have to be included in the fiscal year 2016 budget. This budget would be 

submitted to Congress in February 2015-18 months before the program 

decision review is actually held. DOD would have committed to the 

funding before the budget request went to Congress. It is likely that the 

requirements, technologies, and cost estimates for the new programessential to successful execution-may not be very solid at the time of 

funding approval. Once the hard-fought budget debates put money on the 

table for a program, it is very hard to take it away later, when the actual 

program decision point is reached. 

PageS GAO·14·145T 
122 

Industry Relationship 

Third, to the extent a program wins funding, the principles and practices it 

embodies are thus endorsed, So, if a program is funded despite having 

an unrealistic schedule or requirements, that decision reinforces those 

characteristics, not sound acquisition processes, Pressure to make 

exceptions for programs that do not measure up are rationalized in a 

number of ways: an urgent threat needs to be met; a production capability 

needs to be preserved; despite shortfalls, the new system is more 

capable than the one it is replacing; or the new system's problems will be 

fixed in the future, It is the funding approvals that ultimately define 

acquisition policy, 

DOD has a unique relationship with the defense industry that differs from 

the commercial marketplace, The combination of a single buyer (DOD), a 

few very large prime contractors in each segment of the industry, and a 

limited number of weapon programs constitutes a structure for doing 

business that is altogether different from a classic free market. For 

instance, there is less competition, more regulation, and once a contract 

is awarded, the contractor has considerable power, 10 Moreover, in the 

defense marketplace, the firm and the customer have jointly developed 

the product and, as we have reported previously, the closer the product 

comes to production the more the customer becomes invested and the 

less likely they are to walk away from that investment 11 While a defense 

firm and a military customer may share some of the same goals, 

important goals are different Defense firms are accountable to their 

shareholders and can also build constituencies outside the direct 

business relationship between them and their customers, This 

relationship does not fit easily into a contract 

J, Ronald Fox, author of Defense Acquisition Reform 1960-2009: An 

Elusive Goal, sums up the situation as follows, "Many defense acquisition 

problems are rooted in the mistaken belief that the defense industry and 

the government-industry relationship in defense acquisition fit naturally 

into the free enterprise model. Most Americans believe that the defense 

industry, as a part of private industry, is equipped to handle any kind of 

development or production program, They also by and large distrust 

lOBarry D. Watts and Todd Harrison, Sustaining Critical Sectors ofthe Defense Industrial 

Base (Washington, D,C.: Center for Strategic and Budgetary Assessments. 2011). 

11GAO, Best Practices: to Weapon Acquisitions Requires Changes 

in DO~'s Environment, GAOI~JSII,D,98,56 (Washington, D,C.: Feb. 24, 1998). 

Page 9 GAO-14-145T 
123 

The Right People 

government 'interference' in private enterprise. Government and industry 

defense managers often go to great lengths to preserve the myth that 

large defense programs are developed and produced through the free 

enterprise system." But neither the defense industry nor defense 

programs are governed by the free market; "major defense acquisition 

programs rarely offer incentives resembling those of the commercial 

marketplace."12 

Dr. Fox also points out that in private industry, the program manager 

concept works well because the managers have genuine decision-making 

authority, years of training and experience, and understand the roles and 

tactics within government and industry. In contrast, Dr. Fox concludes 

that DOD program managers lack the training, experience, and stature of 

their private sector counterparts, and are influenced by others in their 

service, DOD, and Congress. '3 In 2006, we reported that program 

managers indicated to us that the acquisition process does not enable 

them to succeed because it does not empower them to make decisions 

on whether the program is ready to proceed forward or even to make 

relatively small trade-offs between resources and requirements as 

unexpected problems are encountered. Program managers said that they 

are also not able to shift personnel resources to respond to changes 

affecting the program.14 

We have also reported on the lack of continuity in the tenure of key 

acquisition leaders across the time frames of individual programs, A 

major acquisition can have multiple program managers during product 

development Other key positions throughout the acquisition chain of 

command also turn over frequently. For example, DOD acquisition 

executives do not necessarily stay in their positions long enough to 

develop the needed long-term perspective or to effectively change 

traditional incentives, Moreover, their decisions can be overruled through 

the cooperative actions of other acquisition participants. The 

effectiveness of reforms to the acquisition process depends in large 

measure on a cadre of good people who may be inadequately prepared 

12J. Ronald Fox, Defense Acquisition Reform, 1960-2009: An Elusive Goal (Washington, 

D.C.: U.S. Army Center of Military History, 2011). 

13Fox, Defense Acquisition Reform. 

14GAO, Best Practices: Better Support of Program Managers Needed to Improve 

Outcomes, GAO,06,liQ (Washington, D.C.: Nov. 30, 2005). 

Page 10 
124 

Where Do We Go 

from Here? 

for their position or forced into the near-term perspective of their tenures. 

In this environment, the effectiveness of management can rise and fall on 

the strength of individuals; accountability for long-term results is, at best, 

elusive. 

In my more than 30 years in the area, I do not know of a time or era when 

weapon system programs did not exhibit the same symptoms that they do 

today. Similarly, I do not subscribe to the view that the acquisition process 

is too rigid and cumbersome. Clearly, this could be the case if every 

acquisition followed the same process and strategy without exception. But 

they do not. We repeatedly report on programs approved to modify policy 

and follow their own process. DOD refers to this as tailoring, and we see 

plenty of it. 

At this point, we should build on existing reforms-not necessarily by 

revisiting the process itself but by augmenting it by tackling incentives. To 

do this, we need to look differently at the familiar outcomes of weapon 

systems acquisition-such as cost growth, schedule delays, large support 

burdens, and reduced buying power. Some of these undesirable 

outcomes are clearly due to honest mistakes and unforeseen obstacles. 

However, they also occur not because they are inadvertent but because 

they are encouraged by the incentive structure. I do not think it is 

sufficient to define the problem as an objective process that is broken. 

Rather, it is more accurate to view the problem as a sophisticated 

process whose consistent results are indicative of its being in equilibrium. 

The rules and policies are clear about what to do, but other incentives 

force compromises. The persistence of undesirable outcomes such as 

cost growth and schedule delays suggests that these are consequences 

that participants in the process have been willing to accept. 

Drawing on our extensive body of work in weapon systems acquisition, I 

have four areas of focus regarding where to go from here. These are not 

intended to be all-encompassing, but rather, practical places to start the 

hard work of realigning incentives with desired results. 

Reinforce desirable principles at the start of new oroarams The principles 

and practices programs embrace are determined not by policy, but by 

decisions. These decisions involve more than the program at hand: they 

send signals on what is acceptable. If programs that do not abide by 

sound acquisition principles win funding, then seeds of poor outcomes 

are planted. The highest point of leverage is at the start of a new 

program. Decision makers must ensure that new programs exhibit 

desirable principles before they are approved and funded. Programs that 

Page 11 GAO·14·145T 
125 

present well-informed acquisition strategies with reasonable and 

incremental requirements and reasonable assumptions about available 

funding should be given credit for a good business case. As an example, 

the Presidential Helicopter, the Armored Multi Purpose Vehicle, the 

Enhanced Polar System, and the Ground Combat Vehicle are all 

acquisitions estimated to cost at least a billion dollars, in some cases 

several billions of dollars, and slated to start in 2014. These could be 

viewed as a "freshman" class of acquisitions. There is such a class every 

year, and it would be beneficial for DOD and Congress to assess them as 

a group to ensure that they embody the right principles and practices. 

Identify significant program risks upfront and resource them: Weapon 

acquisition programs by their nature involve risks, some much more than 

others. The desired state is not zero risk or elimination of all cost growth. 

But we can do belter than we do now. The primary consequences of risk 

are often the need for additional time and money. Yet, when significant 

risks are taken, they are often taken under the guise that they are 

manageable and that risk mitigation plans are in place. In my experience, 

such plans do not set aside time and money to account for the risks 

taken. Yet in today's climate, it is understandable-any sign of weakness 

in a program can doom its funding. This needs to change. If programs are 

to take significant risks, whether they are technical in nature or related to 

an accelerated schedule, these risks should be declared and the resource 

consequences acknowledged. Less risky options and potential off-ramps 

should be presented as alternatives. Decisions can then be made with full 

information, including decisions to accept the risks identified. If the risks 

are acknowledged and accepted by DOD and Congress, the program 

should be supported. 

More closely align budget decIsions and oroaram decIsions Because 

budget decisions are often made years ahead of program decisions, they 

depend on the promises and projections of program sponsors. 

Contentious budget battles create incentives for sponsors to be optimistic 

and make it hard to change course as prOjections fade in the face of 

information. This is not about bad actors; rather, optimism is a rational 

response to the way money flows to programs. Aside from these 

consequences, planning ahead to make sure money is available in the 

future is a sound practice. I am not sure there is an obvious remedy for 

this. But I believe ways to have budget decisions follow program 

decisions should be explored, without sacrificing the discipline of 

establishing long-term affordability. 

Page 12 GAO·14·145T 
126 

(121176) 

Attract train and retain acquisition staff and management: Dr Fox's book 

does an excellent job of laying out the flaws in the current ways DOD 

selects, trains, and provides a career path for program managers. I refer 

you to these, as they are sound criticisms. We must also think about 

supporting people below the program manager who are also instrumental 

to program outcomes, including engineers, contracting officers, cost 

analysts, testers, and logisticians. There have been initiatives to support 

these people, but they have not been consistent over time. The tenure for 

acquisition executives is a more challenging prospect in that they 

arguably are at the top of their profession and already expert. What can 

be done to keep good people in these jobs longer? I am not sure of the 

answer, but I believe part of the problem is that the contentious 

environment of acquisition grinds good people down at all levels. In top 

commercial firms, a new product development is launched with a strong 

team, corporate funding support, and a time frame of 5 to 6 years or less. 

In DOD, new weapon system developments can take twice as long, have 

turnover in key positions, and every year must contend for funding. This 

does not necessarily make for an attractive career. 

Mr. Chairman, this concludes my statement and I would be happy to 

answer any questions. 

Page 13 GAO·14·145T 
127 

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129 

Bio for Paul Francis 

Current Position: Managing Director, Acquisition and Sourcing Management, U.S. 

Government Accountability Office 

Education: Bachelor's degree in Accounting (University of Scranton) 

Masters Degree in Public Administration (George Washington 

University) 

Senior Executive Fellow, Kennedy School of Government 

Work Experience: Mr. Francis has been with GAO since June 1975, with most of his work 

experience being in the area of major weapon acquisitions. He has 

been a member of the Senior Executive Service since 2002. Since 

March 2009, he has led GAO's Acquisition and Sourcing Management 

team, which has responsibility for assessing the acquisition of weapon 

systems, services, NASA projects, and Coast Guard systems, as well 

as the execution of efforts to manage Federal contracting, acquisition 

workforce, and protection of critical technologies, He has previously 

conducted or been involved with reviews of many individual weapon 

programs, including Army helicopters, Future Combat Systems, 

unmanned aerial vehicles, tactical communications, shipbuilding 

programs, and missile defense. He has also conducted or been 

involved with cross-cutting reviews, several of which involved 

benchmarking with leading commercial firms and successful 

Department of Defense programs. These included acquisition culture, 

transition to production, technology maturation, requirements setting, 

supplier relationships, integrated product teams, requirements setting, 

training, test and evaluation, earned value management, milestone 

authorization, and affordability. He has also done work in the areas of 

wartime medical requirements and detection of land mines and 

unexploded ordnance. He has testified before congressional 

committees numerous times. Mr. Francis spent one year with the 

House Science and Technology Committee early in his career. 

DOCUMENTS SUBMITTED FOR THE RECORD 

OCTOBER 29, 2013 

(133) 

October 18, 2013 

DEFENSE ACQUISITION REFORM 

J. Ronald Fox, Tiampo Professor of Business Administration, Emeritus 

Harvard University 

During the past fifty years, the Department of Defense has been plagued with significant 

cost overruns, schedule slippages, and technical performance shortfalls in the development 

and production of weapons and equipment. During the same period, more than twenty-eight 

major studies of defense acquisition reform have been commissioned by presidents, 

Congress, secretaries of defense, government agencies, studies and analyses organizations, 

and universities. The U.S. General Accountability Office (formerly U.S. General 

Accounting Office) has also published numerous studies on defense acquisition. The GAO 

studies and the 28 reform studies (see Table J) arrived at most of the same findings and made 

similar recommendations. 

To place the topic of acquisition reform in perspective, it is useful to note that 50 years 

ago (from 1960 to 1962) the Harvard Business School conducted a major research project 

dealing with the development of advanced weapons: The Weapons Acquisition Process: An 

Economic Analysis, by Merton J. Peck and Frederic M. Scherer. The report described the 

basic structure of the defense acquisition process and presented a comprehensive economic 

analysis. Peck and Scherer examined six specific problems in the management of large 

research, development and production programs conducted by the Department of Defense 

(DoD): (I) schedule slippages, (2) cost growth, (3) lack of qualified government personnel 

to manage acquisition programs, (4) high frequency of personnel turnover, (5) inadequate 

methods of cost estimation, and (6) insufficient training of government acquisition managers 

in the measurement and control of contractor performance. It is frustrating and 

disappointing that fifty years later, acquisition reforms continue to seek remedies for the 

same problems. 

In 2013, major defense acquisition programs continue to require ten years or more to 

design, develop, produce, and deploy initial operationally-capable units. Cost increases of 25 

to 40 percent occur frequently on major weapon programs, with significant numbers of 

programs experiencing larger cost increases and delivering less capability than planned. 

Virtually all attempts to implement improvements in thc management of defense acquisition 

programs have fallen short of their objcctives. It is increasingly cvident that barriers to 

improving the acquisition process derive, not from a lack of ideas. but from the difficulties 

encountered by senior government managers (in Congress as well as the Department of 

Defense) in identifYing and changing counterproductive incentives that apply to government 

and industry personnel participating in defense acquisition programs. There seems to be little 

hope of solving these chronic problems if the usual attempts at refonn are tried once again. A 

more comprehensive approach is required--one that changes the incentives that stimulate 

and reinforce the seemingly intractable problems. 
134 

October 18, 2013 

Defense acquisition programs contain a number of built-in, even cultural, challenges that 

resist change. These include a government acquisition workforce tl'equently having too little 

industrial training and experience, frequent turnover of government personnel assigned to 

monitor and manage huge defense acquisition programs; the short tenure of senior 

politically-appointed acquisition officials, averaging only eighteen months in o11ice; an 

irregular and erratic flow of weapons systems appropriations; the very nature of cutting-edge 

research and development; an ill-informed requirements process that virtually mandates 

changes to contracts as requirements are added or changed; and the many financial incentives 

that reward lowball contractor bids and provide negative sanctions for failing to spend all the 

allocated funds. These cultural challenges within the current acquisition system have great 

value to many key participants in industry, the services, and Congress and predispose them to 

be generally resistant to change. 

Twenty-one years ago, in 1992, the U.S. General Accounting 011ice (GAO) conducted a 

comprehensive study of defense acquisition, issuing an insightful report describing why the 

acquisition process had not been more responsive to reform efforts. The report entitled 

Weapons Acquisition: A Rare Opportunity.!or Lasting Change was based on a review of 

several hundred weapon system reports conducted during a fifteen-year period and was 

prepared by a team under the project direction of Paul L. Francis. 

In reviewing its own acquisition studies, the GAO offered a valuable and somewhat 

unusual analysis of a seemingly intractable problem. The report was unique among 

acquisition reform studies in that it stressed the impact of the acquisition "culture" as 

erecting formidable barriers to acquisition reform, thereby enabling persistent problems of 

cost growth, schedule slippage, and technical pertormance shortfalls to continue. 

The defense acquisition culture has changed little in the twenty-one years since the 1992 

report was issued. GAO identified counterproductive incentives for government and industry 

as key sources of reinforcers of the counterproductive culture. In2013, these incentives 

continue to exist despite the procedural changes resulting from the acquisition reforms 

conducted throughout the past fifty years. It seems clear to GAO researchers and to this 

author that the Defense Department must remove and replace the counterproductive 

incentives before improved results can be realistically expected. 

GAO also pointed out that in a collective process that favors compromise, decision 

makers in the military services preferred to maintain more programs under way at lower 

funding levels rather than to fund fewer programs. In that culture, program sponsors were 

motivated to make optimistic (i.e., low-cost) assumptions and to reduce quantities and 

program scope or prolong schedules to make programs affordable and thereby avoid 

cancellations. 

Most acquisition programs have been initiated to respond to perceived deficiencies in the 

ability to carry out military missions against projected threats. Program sponsors in the 

2 
135 

October 18, 2013 

military services are encouraged to specify demanding performance requirements that further 

distinguish their programs as the preferred solution to a perceived threat. These demands 

tiequently produce what is known as "goldplating," in which design features are added, even 

when their cost exceeds their expected value. The GAO stated that while it may be easy to 

criticize the authors of such requirements, it should be kept in mind that "this approach 

works: it is a successful, ifnot an essential, way to win program support from higher-level 

participants." As a result of their actions, the higher-level participants in the services often 

reinforce the formulation of optimistic schedules and technical performance levels that are 

exorbitantly expensive, if they are achievable at all. Contractors contribute to the optimism 

by bidding low in their desire to participate in an acquisition program, anticipating that 

government will later initiate changes in the contract schedule, funding, or technical 

performance that provide opportunities in the program for the government and contractor to 

increase the price. 

As acquisition programs proceed through development, it is not surprising for program 

advocates to continue to forecast program technical progress optimistically and to forecast 

cost estimates as low as can be rationalized. Cost estimators and program advocates do so to 

overcome thc challenges that threaten a program's existence as it experiences schedule, cost, 

or technical difficulties and encounters criticism. At the same time, program support grows 

because the time and money already invested in a program build active sponsors for its 

continuation. 

Each of the seventeen secretaries of defense since 1960 has made commitments to bring 

about more effective and efficient management of the defense acquisition process. Indeed, 

each has taken specific steps to identify problems and to initiate improvements. But each has 

left office before reform implementation has become institutionalized. 

The GAO pointed out, appropriately, that "even when the very underpinnings ofa 

program are badly shaken, strong arguments are made by participants at all levels to continue 

the program as planned." That tactic is common for programs that have entered the 

engineering and manufacturing development phase (formerly full-scale development), by 

which time it is generally conceded that programs are committed to production. 

In 2013 as in 1992, it is elear that the incentives inherent in the acquisition culture are 

major factors in understanding why weapon acquisition problems persist despite numerous 

attempts at refoml. While acquisition reforms seek to promote sound management practices, 

such as realistic estimating, thorough testing, and accurate reporting, these practices, while 

recognized as improved acquisition management, are frequently not widely adopted because 

they are seen as inconsistent with the very basic and strongly reinforced incentives to 

continue the development and production ofa weapon system irrespective of problems 

encountered. In contrast, practices not normally viewed as good management techniques 

(i.e., concurrency and unrealistically low estimates) can be useful to continuing acquisition 

development and production programs because they minimize the risk that programs will be 

3 
136 

October 18, 2013 

reduced, or canceled. 'I'here is little doubt that acquisition reforms produce limited, positive 

effects because they have not changed the basic incentives or pressures that drive the 

behavior of the participants in the acquisition process. 

Throughout the past fifty years, procedural and organizational solutions have often been 

adopted to correct acquisition problems without conducting effective root cause analyses to 

determine why the problems occurred in the first place. New organizational structures were 

proposed in attempts to reduce the strong tendency of program managers to report optimistic 

schedule and cost information to senior defense executives and to Congress. But the 

recommendations intended to improve the realism of cost estimates had not offset the 

incentives to submit excessively optimistic cost estimates. 

Acquisition refonn proposals calling for prototype competition and the practice of "flybefore-buy" have been resisted, not because they were unsound or because program sponsors 

had an affinity for increasing technical risks. The resistance to fly-before-buy and testing is a 

logical reaction to the additional time and up-front cost required, and to the reality that 

testing could jeopardize the continuation of acquisition programs. This is particularly true of 

operational testing because it occurs outside the program manager's control, exposes the 

weapon to harsh operating conditions, and at times poses the threatening question of whether 

the weapon can reliably carry out its mission. As such, one of the best ways program 

sponsors can insulate their program from the perils of the acquisition process is by adopting a 

strategy of concurrency, rather than fly-before-buy. 

Most acquisition reform studies point out that the short tenures of program managers and 

high-level DoD acquisition executives, make it difficult for them to change the system of 

incentives because other participants can wait out the reforms they oppose. In the I 990s, the 

GAO reported that to protect programs from criticism, the services were reluctant to provide 

OSD with current program information, such as updated cost estimates. In fact, 

congressional or OSD demands for more realistic program infonnation can intensify the 

protectionism of program advocates. 

The Defense Marketplace 

The U.S. economic system is built on the concept of free enterprise regulated by 

competition. The private-sector marketplace is the testing ground for products and methods 

of production and management. A well-managed, efficient firm will prosper, and a poorly 

managed one will filiI. Lower costs usually mean higher profits. Investors take risks that, if 

successful, will be rewarded by higher profits. But the defense industry does not lit that 

model. 

Many defense acquisition problems are rooted in the mistaken belief that the defense 

industry and the government-industry relationship in defense acquisition fit naturally into the 

free-enterprise model. Most Americans believe that the defense industry, as a part of private 

industry, is equipped to handle any kind of development or production program. They also 

4 
137 

October 18, 2013 

by and large distrust government "interference" in private enterprise. Government and 

industry defense managers otten go to great len!,>ihs to preserve the mistaken belief that large 

defense programs are developed and produced through the free-enterprise system. But major 

defense acquisition programs rarely offer incentives resembling those of the commercial 

marketplace. The limited positive effects of efforts to reform defense acquisition frequently 

fail to address the causes of acquisition problems. 

Tn the defense industry, most of the major producers depend heavily on one customer, the 

Defense Department, for business. Defense firms hire and maintain throughout their projects 

large groups of engineers, draftsmen, scientists, technicians, production workers, and 

managers to retain their capabilities for defense work and to increase their chances of 

selection for thc next defense contract. Few, if any, commercial projects would enable a firm 

to support such a large and varied workforce. On many large defense projects, the federal 

government also supplies a major part of a contractor's working capital and investment. 

Once a weapon system contract has been signed, a firm risks little likelihood of cancellation 

for default because the close interaction of government and industry managers involved 

makes it difticult to ascribe separate responsibilities. The firms are further protected because 

contract cancellations have the undesirable side em~cts of delaying programs and increasing 

the risk of program cancellations by Congress. 

Relationships between Government and Industry 

The functions of DoD managers oflarge acquisition programs are not those classically 

associated with the term manager. This is because DoD does not develop or produce its 

weapon systems in-house; rather, the development and production work is contracted by the 

government to prime contractors. Hence, the principal functions of the government program 

manager and stalT are planning, contracting, monitoring, controlling, and evaluating the 

schedule, cost, and technical performance of contractors and the government agencies that 

provide services and support. This range of activities includes design, development, 

procuremcnt, production, training, testing, and ficld support. The term technical performance 

is used here in the broadest sense to include not only the engineering aspects of a weapon 

system or a software program but also the contractor's management of resources (costs) and 

subcontractors. 

Managing technical performance, in this sense, poses demanding industrial management 

challenges. Government managers are required to oversee the performance of several 

private-sector industries involving many of the largest firms in the United States-firms 

managed by well-trained, experienced managers, familiar with the defense acquisition 

process, and with methods of estimating costs, measuring progress, allocating overhead, 

calculating profits, and measuring return on investment for high-tech programs. Most of the 

recurring problems of cost growth, schedule delays, and failure to achieve technical 

performance on large acquisition programs cannot be solved or avoided simply by better 

engineering, better forms of contracting, multiyear procurement, or more prototypes. 

Solutions require frequent negotiations between government and industry (monthly, weekly, 

5 
138 

October 18, 2013 

and sometimes daily) in situations that require government managers to be knowledgeable 

about their acquisition programs and the industries in which they work, experienced in the 

acquisition process, and highly skilled in applying the planning and control tools of industrial 

management. 

One of the conclusions from studying the management of defense acquisition is that it 

requires specific technical knowledge and skills well beyond what many recent government 

managers, senior military officers, and assistant secretaries in the office of the secretary of 

defense and the military services have acquired. There has always been an implicit 

assumption within parts of the military services that natural leaders with little or no advanced 

training and experience in the management oflarge industrial programs could function 

effectively at any level of acquisition management. This assumption has been a significant 

factor leading to the disappointing results of virtually every acquisition refonn program 

during the past fifty years. If the complex defense acquisition process is to be managed more 

effectively and efficiently, the Defense Department must develop more skilled, experienced 

acquisition managers and support staffs to manage the complex, continuing negotiations 

between one part of government and another and between government and large industrial 

finns. These tasks cannot all be delegated to contracting officers. 

The relationship between a government program office and its major contractor is 

necessarily a close one. Government and industry managers must work together to solve 

complex technical problems, and, on finding solutions, initiate contract changes to the work 

being performed. In this environment, rigorous day-to-day evaluations and negotiations 

between managers in government and industry is a necessity. 

Defense contractors, though usually motivated by a commitment to a strong defense 

program as well as economic gain, have three important goals: achieving the program's 

technical performance objectives, meeting payrolls, and satisfying stockholders. Therefore, 

industry managers continually strive to obtain additional contracts that will provide work for 

their research, development (R&D), and production workforce. 

Government Program Managers 

For decades, many have observed that government program managers and their staffs are 

intelligent and hardworking. Program managers, along with most other managers in defense 

acquisition, genuinely want to acquire advanced weapon systems that meet performance 

standards at reasonable costs. But in practice, too few government managers know much 

about industry financial incentives or the industry processes of controlling costs, schcdules, 

and technical perfOlmance in large private-sector contractor organizations. As a result, 

government managers, often with the best intentions, may have great difficulty making the 

decisions required to create and reward lean industrial organizations. 

The challenge of managing major acquisition programs effectively and efficiently 

requires government program managers and contracting ofticers skilled in achieving a 

6 
139 

October 18, 2013 

critical balance between the anns-length negotiation role and the pure partnership role 

between government and industry-a balance that produces what is referred to as a defense 

acquisition wise buyer. Achieving that balance requires years of acquisition training and 

experience; learning to cope with the complexities of the acquisition process; the day-to-day 

negotiations; and the marketing tactics within government, within industry, and between 

government and industry. What is needed is not an adversarial relationship characterized by 

animosity, suspicion, and mistrust, but a business relationship characterized by acquisition 

professional managers trained and experienced to perfonn rigorous analyses, bargaining, and 

a tenacious regard for the best interests of one's own side. But military and government 

civilian assignment policies often fall short of enabling government program managers and 

their superiors to acquire these capabilities. 

A government manager is not simply a partner with private industry but an independent 

manager charged with supervising the use of public funds. Army, Navy, Air Force, and 

Marine Corps program managers and contracting officers are nominally responsible for 

monitoring three areas of contractor activity: achieving technical performance called for in 

the contract, meeting the program's schedule requirements, and performing work within the 

specified budget. If a major defense acquisition program is to run smoothly and efficiently, it 

should be structured so that contractors have a reasonable opportunity to earn a return on 

investment comparable to commercial returns, without undennining government program 

objectives. That balance is often very difficult to achieve. 

When contractors meet their obligations at reasonable costs, government program 

managers should be trained and empowered to recognize that performance and to reward 

contractors with attractive profits and improved opportunities for future defense business. On 

the other hand, when contractors fail to perform effectively at reasonable costs, government 

program managers and contracting officers should be sufficiently trained, experienced, and 

motivated to discover and report inadequate performance to higher echelons of the Defense 

Department and to take corrective actions. Members of Congress and government oftlcials at 

all levels from program managers to the secretary of defense must be qualified and motivated 

to conduct this kind of responsible management. But the current acquisition process is often 

structured to frustrate that behavior. 

At present, government managers who handle crises effectively are given high 

performance ratings. Often, however, timely preventive action could have corrected 

problems before they became crises. Because preventive action requires attention to 

management detail, government program managers with limited experience may be unlikely 

to appreciate the highly-technical engineering and development work being performed by 

contractors. As a result, there may be limited capability in a government program 

management office to exercise ()ffective program control. 

The Well-Qualified Active Manager. Some government acquisition managers and 

oftleials describe the program manager's role as one of planning and making key decisions 

associated with rigorolls oversight ot~ negotiation with, and control of industrial finns 

7 
140 

October 18, 2013 

performing the development and production work on an acquisition program. This is called 

the well-qualified active manager view. It is based on the belief that in the defense 

acquisition environment, the competitive forces of the marketplace do not alone produce the 

desired cost, schedule, and technical performance, often frustrated by contract changes 

occurring throughout the life of a program. 

The Less-Qualified Manager. Other less qualified government managers and officials 

believe the job of a government program manager is primarily one of promoting a program, 

preparing progress reports and briefings, communicating with oHicials at the Pentagon and at 

various military commands and contractors. They often act as though the responsibility for 

cost control belongs solely to the contractor. This is often called the less-qualified manager 

view. Those holding this mistaken view believe that general leadership training and 

leadership experience added to two or three years of acquisition experience are sufficient 

qualifications to manage a major acquisition program. They mistakenly believe that 

substantial knowledge of industry and skills in industrial practices are not essential for them 

and that relying on functional subordinates and "presiding" over a team of functional 

managers can substitute for personal knowledge and involvement by the program manager. 

Those who hold the "less-qualified" manager view often talk about cost control in 

managing programs but fail to understand that the planning and control oflarge industrial 

programs are achieved neither by proclamation nor by good intentions. They occur only as 

the result of careful analyses and trade-offs associated with their program and with the 

rigorous control of engineering changes. The skills needed for these tasks require intensive 

practical training and acquisition experience in dealing with contractors, users, and other 

stakeholders, first on smaller acquisition programs, then on larger ones. 

In reality, the responsibility for cost control belongs to the government program manager, 

the contracting oHicer, and the contractor. Cost reductions are often possible, depending on 

the government managers' knowledge and skills in establishing and implementing 

challenging productivity and cost incentives, formal and informal, throughout the life of a 

program. 

Reexamining the Program Manager Concept 

The program manager concept works well in private industry. Why then does it 

experience serious problems so often in government? 

Consider the unique characteristics of industry program managers, who usually report to 

the company president. 

• They have genuine decision-making authority regarding personnel assignments, 

promotions, technical matters, and budgets. 

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October 18, 2013 

• They usually have years of training and experience in the work of their industry 

(e.g., development and production of missiles, aircraft, tanks, ships, and guidance 

systems). 

• They understand the goals and constraints of their customers and the ways in which 

their customers operate. 

• They understand the roles performed and the tactics employed within government, 

within industry, and between government and industry. They are experienced 

practitioners in dealing with these situations. 

DoD program managers, lacking the more extensive training, experience, and stature of 

their private-sector counterparts, often encounter another serious obstacle to performing their 

jobs. Namely, they are required to respond to (indeed, often placate) many individuals in 

government capable of influencing their careers: senior officers and civilians in the buying 

commands, the using commands, the service headquarters staff, the service secretariat, OSD, 

and Congress. Within these groups there are diverse elements: some who support a particular 

acquisition program, some who oppose it, and some who are undecided. The people 

representing one or more of these stakeholder groups can change every few months, as 

assignments change. These groups have voracious appetites for data from DoD program 

managers: How much will it cost to reduce the aircraft by 200 pounds? What is the 

consequence of reducing the budget by $100 million? How much can we save by reducing 

the production rate by 50 percent? What will be the impact of replacing the radar? What 

caused the program delay? What will it take to regain the lost schedule? How much can we 

save by competing the next production contract? 

It is long past time to reexamine the current method of manning and operating 

government program management offices. The current job descriptions portray program 

managers as supermen and superwomen who 

• cut through the red tape generated by several hundred "interested" government 

managers; 

• obtain budget approvals from the service headquarters, OSD, and Congress; 

• work as partners with industry in solving technical problems; 

• motivate contractor managers to perform effectively and efficiently; 

• obtain reliable measurement data from which to determine independently the 

schedule, cost, and technical performance status of a program; and 

• provide incentives for industry and report any contractor failures to perform 

effectively at the lowest reasonable cost. 

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October 18, 2013 

Today, all this is often expected of government program managers relatively 

inexperienced compared to their industry counterparts, yet responsible for directing and 

controlling complex engineering development programs with budgets of hundreds of 

millions of dollars. 

After fifty years, we know that an Army or Air Force colonel or Navy captain (at the rank 

of 0-6) with limited industrial management knowledge and experience is ill prepared to 

direct and oversee a first-of-a-kind, multi-hundred-million-dollar industrial program with 

hundreds of complex challenges and dilemmas. If DoD is to perform the role of the wise 

buyer on major acquisition programs, a senior 0-6 or a one- or two-star military officer or 

equivalent government civilian must be highly skilled and experienced in the acquisition 

process and business management, and committed to effective and efficient perfonnance. 

There is too much at stake for on-the-job training in these positions. Too often, the training 

and experience have been too shallow and brief. As Lt. General Lawrence Farrell, USAF 

(ret.) states: "We have a system that doesn't properly select, grow and nurture acquisition 

talent." 

What steps can be taken now to improve defense acquisition management? 

Managing taxpayer-funded acquisition programs costing hundreds of millions of dollars 

is too important and too complex to be conducted by government military and civilian 

personnel with part-time acquisition careers. There appears to be no realistic alternative to 

providing clear and more comprehensive career paths for government acquisition managers 

to acquire the needed skills and experience, from the level of functional managers, program 

managers, and program executive officers. Acquisition career paths for both military and 

civilian personnel need to include genuine promotion opportunities at least comparable to 

those provided in operational career fields. Short of these steps, the Defense Department can 

expect yet one or more decades of studies and recommendations for improvements, with 

little accomplished in the way of lasting change. 

It seems only reasonable that the heads of the Army, Navy, and Air Force acquisition 

organizations should be among the most qualified acquisition managers available, based on 

years of acquisition training and practical acquisition experience. When selected for these 

positions, they should have sole responsibility for materiel acquisition and personncl 

recruitment, selection, and assignments of their acquisition workforce. To separate these 

responsibilities is to invite the problems of the past five decades. 

Course offerings at the Defense Acquisition University (DAU) currently provide 

important steps in training program managers and their staffs. Nonetheless, more training 

time is required to enable students to practice dealing with more real-life examples of the 

ditlicult challenges they will encounter on their jobs. Future program managers should be 

required to complete six months or more of formal, advanced training, in which they learn to 

deal effectively with hundreds of realistic examples of the challenges and dilemmas both 

they and contracting officers will encounter on acquisition programs. Managers in training 

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October 18, 2013 

should analyze these challenges, discuss the strengths and weaknesses of the options 

available for dealing with them, and plan the implementation of selected options. Instructors 

will need to be familiar with industrial management practices, skilled in conducting practical 

training with interactive sessions, and current in practical knowledge of the opportunities, 

challenges, and constraints that exist in the field. These Instructors are not easy to find and 

attract to teaching. Instructors do not need to be academics or theorists; they need to be, or 

have been, effective practitioners. 

The training program should develop the "wise buyer" skills needed to resolve the 

complex problems that occur on major engineering development and production programs. 

The emphasis should be on students making analyses and decisions, using simulations of 

contractor negotiations, exercises, case studies, and other techniques to plan effective 

implementation programs. DAU courses currently provide a useful start toward 

accomplishing these goals. Student assignments in a program management office would 

ideally precede and follow a one-year practical training program; carefully chosen 

experienced program managers need to serve as mentors and supervisors. 

There should also be a more-effective screening process for selecting candidates for 

demanding acquisition positions; only those with the requisite talent, skill, and motivation 

should be accepted. In addition, a personnel board, comprising senior military and civilian 

acquisition officials, should review applicants for major positions and be authorized and 

motivated to remove government personnel whose performance is marginal or inadequate. 

Ideally, the board should also have the authority to provide significant financial rewards for 

outstanding performance. 

Government and Contractor Incentives 

If, as has been the case for five decades, the military promotion system will not respond 

to repeated attempts to provide attractive promotions and career opportunities for acquisition 

managers to attain flag or civilian equivalent grade, then the Defense Department should 

provide other incentives, such as additional pay and incentive compensation. If an extra 

$30,000 or more per year were paid to selected military officers and civilians (at the rank of 

0-6 and above) and career regulations permitted them to remain in the acquisition field, the 

incentives to retire and join private industry would be greatly minimized. The extra cost 

would be negligible compared to the benefits achieved by retaining experienced acquisition 

managers on large, costly acquisition programs. 

Such a proposal is not without precedent. Military of11cers on f1ight status and submarine 

duty as well as medical and dental officers and other special-skilled officers currently receive 

additional pay. Indeed, Sweden's government acquisition agency addresses the problem of 

attracting and retaining qualified peopk~military and civilian-by a special law that allows 

an added salary increase for crucial acquisition positions. Thus, a Swedish colonel serving as 

a program manager can receive a significantly higher salary than other colonels and even the 

11 
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October 18, 2013 

director general of the agency. 'rhis incentive provides prestige and draws highly qualified, 

experienced people to critical acquisition positions. 

Ifmore attractive and more stable government careers are available in DoD acquisition 

management assignments, it would then be possible to minimize the conflicts associated with 

frequent turnover of military personnel. The basic goal of any legislative remedy must be 

achieving and maintaining outstanding competence and integrity for the defense acquisition 

system. 

With respect to contractors, the Defense Department customarily does business with an 

invelied system of rewards and penalties. As noted earlier, contractors are often rewarded for 

higher than planned program costs with increased sales, higher contributions to overhead, 

and higher profits. The system also encourages government and industry managers to place 

far higher priority on gaining congressional approval to begin a new acquisition weapon 

program or obtain additional funding for an ongoing program than it does on controlling the 

cost of a program. In a New York Times article, Arthur E. Fitzgerald noted that the 

acquisition cost problems of the 1980s, 1990s, and 2000s are not aberrations; they are the 

result of many government and industry participants reacting in perfect accord with the 

distorted rewards and penalties inherent in the acquisition process. These observations 

correspond to similar observations now held by GAO analysts studying defense acquisition 

programs. 

Reluctance to establish more appropriate incentives has been a serious deficiency in most 

DoD improvement programs during the past five decades. Contractors should be rewarded 

with higher profits for complying with schedules, achieving promised technical performance 

standards, and delivering goods and services at or below contracted cost. Prospects for 

obtaining future contracts should be closely linked to performance on existing contracts. 

New contract forms; better planning, control, and reporting systems; and improved cost 

estimating and change control systems are unlikely to be effective unless government 

managers are skilled in the implementation and use of these techniques and are rewarded, 

along with contractors, for effective results. This is an essential step toward achieving better 

management control of defense acquisition programs. 

The Need for Extended Follow-up Actions 

A persistent problem associatcd with previous attempts at acquisition reform has been the 

failure of senior defense management to take vigorous action to ensure effective 

implementation of acquisition reform initiatives. The results of the acquisition reform efforts 

of the 1970s, 1980s, 1990s, and 2000s have taught us that communicating acquisition reform 

actions from the Office of the Secretary of Defense down to the services, without significant 

follow-up by managers throughout the government hierarchy, produces no more than 

temporary or marginal improvements at best. Much activity is often directed toward 

initiating reform efforts but insufficient activity toward following through to ensure that 

lasting changes occur and become institutionalized. 

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October 18, 2013 

Many in government and industry want to improve the acquisition process. But it is 

unrealistic to expect any lasting improvement if an appropriate system of incentives and 

disincentives is not established and enforced. Specifically, 

• Unless in-depth root cause analyses are performed routinely for each major acquisition 

cost growth, schedule slippage, and technical performance shortfall and corrective 

measures taken and institutionalized to prevent future recurrences, the cycle of major 

acquisition problems will continue. The Air Force learned that lesson long ago when 

they required root cause analyses and implemented corrective actions in response to 

aircraft accidents. 

• 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 cost based, there is little economic motivation for contractors to reduce 

direct or indirect costs. The profit system needs a major overhaul to relate a 

significant pOliion of profit to contractor investment and performance. 

• Unless changes are made in the current military personnel system that make shortterm assignments neccssary for military officers to acquire the number and variety 

of assignments needed 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 cun'ent DoD practice of waiving training 

requirements and offering only short training courses, of two or three months 

which limit coverage to introductory rather than in-depth skill building with 

respect to industrial planning and control, 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 reasonable for military officers to leave the service and 

seek second career in industry. In addressing this problem, DoD needs to listen to 

Army and Air Force lieutenant colonels and colonels and to Navy commanders 

and captains to learn their views on the advantages and disadvantages of the 

acquisition career field. 

• Without genuine promotion 0ppoliunities for military and civilian personnel who 

make the difficult decisions associated with successful negotiating and wise 

buying, it is unrealistic to expect to retain in government service experienced, 

well-qualified program managers. 

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October 18, 2013 

• Unless changes are made in the current contractor source selection process, which 

makes optimistically low-cost estimates a significant advantage in competing for a 

contract, it is useless to discuss more realistic contractor proposals. The source 

selection process must give far more weight to a contractor's record of realistic 

cost estimates and past performance. 

After nearly fifty years of initiatives to improve the acquisition process, it is increasingly 

evident that the schedule, cost, and technical performance problems of defense acquisition 

programs conducted by thousands of government and industry participants will not be 

corrected by short-term fixes. The persistence of acquisition problems is not due to lack of 

understanding of what practices need to be changed. The field of defense acquisition abounds 

with thoughtful recommendations developed by senior acquisition managers who have 

studied the acquisition process with care. The underlying stumbling block has been and 

continues to be one of inadequate implementation and failure to institutionalize the 

recommendations required to bring about more professional management. 

Future attempts to correct the persistent and costly problems of defense acquisition must 

include more effective follow-up by senior and mid-level government managers who must 

understand and agree with the changes that need to be made. Today's practice of reassigning 

military acquisition managers, at most levels every two or three years on acquisition 

programs that require ten years or more to complete, is unlikely to produce lasting 

improvements in managing those programs. 

The instruments required to bring about substantial improvements in defense 

acquisition management must be a strong secretary of defense and well-qualified 

government acquisition executives. The latter need to be managers chosen for their 

industrial experience, with expert knowledge and skills in defense acquisition, who 

understand why acquisition reform efforts of the past have failed to achieve lasting 

improvements, and who have strong commitments to achieving efficient as well as 

effective acquisition program outcomes. Unfortunately, current conflict of interest laws 

make it difficult to appoint qualified industry managers to 000 acquisition executive 

positions. 

It is clear that military and civilian acquisition managers need tenure longer than 

two or three years in program manager assignments, and need to be unambiguous in 

taking steps to improve management of acquisition programs. There is little likelihood 

that the cost of major acquisition programs will stabilize or decrease unless and uutil 

more skilled government acquisition mauagers, at all levels, have the ability and 

commitment to accomplish these objectives. Minor adjustments or corrections to the 

present acquisition process simply will not accomplish this vital job. 

In the second decade of the twenty-first century, the alarmingly high federal deficit, 

the continuing need for a strong defense, and a growing awareness ofthe need to deal 

more effectively with the high cost of defense acquisition can provide the stimulus 

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October 18, 2013 

needed to bring about more effective acquisition reform producing major 

improvements in the control of acquisition schedules, costs, and technical performance. 

****************** 

Table 1 

Twenty-Eight Studies of Defense Acquisition Reform, 1960 - 2010 

The following major studies on acquisition reform were conducted from 1960 to 2009: 

1962 The Weapons Acquisition Process-JIarvard Business School, 

Merton J. Peck and Frederic M. Scherer 

1970 Blue Ribbon Defense Panel (Fizhugh Commission) 

1972 Congressional Commission on Government Procurement 

1974 Arming America: How the u.S. Buys WeaponsHarvard Business School, J. Ronald Fox 

1979 Defense Resources Board Report on Defense Acquisition 

1979 DoD Defense Resource Management Study 

1981 DepSecDefCarlucci Thirty-Two Acquisition Initiatives 

1982 Special Panel on Detense Procurement, House Armed Services Cmte 

1982 The Defense lndustry Study, Jacques S. Gansler 

1985 Defense Acquisition, Center for Strategic and International Studies 

1986 DoD Blue Ribbon Commission (Packard Commission) 

1988 The Defense Management Challenge-Harvard Business School, 

J. Ronald Fox 

1989 Secretary of Defense Management Review Report 

1989 Affording Defense, Jacques S. Gansler 

1989 New Weapons, Old Politics-Thomas L. McNaugher 

1990 Defense Science Board Streamlining Study 

1992 Weapons Acquisition: A Rare Opportunity for Lasting Change, 

GAO/NSIAD-93-15 

1993 Defense Science Board Streamlining task Force 

1994 Critical Issues in the Defense Acquisition Culture, Defense Systems 

Management College 

1995 Defense Conversion, Jacques S. Gansler 

1998 DoD Defense Acquisition Reform Initiatives 

2005 Reexamining Military Acquisition Reform-Rand Corporation 

15 
148 

2006 

2006 

2007 

2007 

2009 

2009 --

Comparative History of DoD Management Reform, 

Naval Post Graduate School 

October 18, 2013 

Office of the Secretary of Defense Acquisition Performance AssessmentDAPA 

Report of the Commission on Army Acquisition and Program 

Management in Expeditionary Operations 

Defense Acquisition: Options for Congress, Congressional Research 

Service (CRS), Stephen Chadwick 

Creating a DoD Strategic Acquisition Platfonn-Depmtment of Defense 

and the Defense Science Board 

CNA Independent Assessment: Air Force Acquisition 

* * * * * * * * * * * * 

16 
QUESTIONS SUBMITTED BY MEMBERS POST HEARING 

OCTOBER 29, 2013 

(151) 

QUESTIONS SUBMITTED BY MR. MILLER 

Mr. MILLER. Dr. Michael Gilmore, Director of Operational Test & Evaluation, consistently speaks about developmental test & evaluation (DT&E) as being key to successful operational test & evaluation (OT&E). Prior to enactment of the Weapons 

Systems Acquisition Reform Act (WSARA) of 2009, the GAO and the Defense 

Science Board found that 50% of programs completing initial operational test & 

evaluation since 2000 were assessed as ‘‘not operationally effective or suitable.’’ 

GAO suggested that ‘‘. . . beginning production before successfully demonstrating 

that the weapon system will work as intended increases the potential for discovering 

costly design changes . . . and usually requires substantial modification costs at a 

later time.’’ 

• Do you believe enhancing the authority and resourcing of the Deputy Assistant 

Secretary of Defense for Developmental Test & Evaluation would improve that 

office’s oversight effectiveness, resulting in reduced cost overruns and schedule 

delays? 

• How would you recommend enhancing that authority and resourcing? 

Mr. ZAKHEIM. It is not clear why the DASD for DT&E requires additional 

resourcing. OSD is already overstaffed. At most, personnel should be dropped from 

other OSD offices in order to add a few more slots to the DT&E office. 

The key is additional authority, rather than resources. In order to ensure that 

DT&E has the desired impact in the acquisition cycle, the DOD 5000 series should 

require that the DASD DT&E certify to the Defense Acquisition Board that developmental testing and evaluation has been completed and that the program in question 

can move to production. The DOD Directive should make it clear that there will be 

no movement to production without such certification unless a waiver is explicitly 

granted in writing by the Deputy Secretary of Defense. 

Mr. MILLER. Over the past several years, this committee has attempted to pass 

legislation that would provide authorities to enter into long-term and/or multi-year 

procurement contracts. The constant obstacle is the CBO and the manner in which 

they score these initiatives. What are your thoughts on CBO scoring methodology 

associated with multi-year procurements and do you think it is time for the Congress to provide new guidance to CBO regarding the scoring of long-term procurements? 

Mr. ZAKHEIM. CBO scores multi-year programs in the year they were approved. 

This results in frontloading their costs and pushing aside other programs that cannot fit into budget caps or other prescribed spending ceilings. 

Should the Congress wish to change the nature of CBO’s scoring, it could of 

course provide new guidance to that effect. However, doing so would compromise 

CBO’s independence by opening the door for other changes in CBO’s methodology 

. . . something the Congress might do best to avoid. 

Mr. MILLER. Termination liability is often cited by both CBO and OMB as an obstacle to adopting long-term and/or multi-year procurement contracts. Industry continues to tell the CBO and OMB that termination liability can be mitigated through 

contract terms. What are your thoughts on termination liability? 

Mr. ZAKHEIM. There is no doubt that termination liabilities are a function of the 

contracts that are signed for a given program. Contracts, when amended or modified, are notoriously vague with respect to those liabilities. Engineering change proposals and other variations to the original contract change overall program cost and 

therefore affect the amount of termination liability, which arises when the Government chooses to terminate a contract for its convenience. In my testimony I suggested much more rigorous control over contract changes; included in that suggestion would be clarity regarding termination liability—a specific sum to be appended 

to every contract modification. 

Mr. MILLER. Dr. Michael Gilmore, Director of Operational Test & Evaluation, consistently speaks about developmental test & evaluation (DT&E) as being key to successful operational test & evaluation (OT&E). Prior to enactment of the Weapons 

Systems Acquisition Reform Act (WSARA) of 2009, the GAO and the Defense 

Science Board found that 50% of programs completing initial operational test & 

evaluation since 2000 were assessed as ‘‘not operationally effective or suitable.’’ 
152 

GAO suggested that ‘‘. . . beginning production before successfully demonstrating 

that the weapon system will work as intended increases the potential for discovering 

costly design changes . . . and usually requires substantial modification costs at a 

later time.’’ • Do you believe enhancing the authority and resourcing of the Deputy Assistant 

Secretary of Defense for Developmental Test & Evaluation would improve that 

office’s oversight effectiveness, resulting in reduced cost overruns and schedule 

delays? • How would you recommend enhancing that authority and resourcing? 

Mr. CHAO. I would focus attention on whether the office of the DASD (DT&E) has 

the proper resources rather than on the tinkering of authorities. Generally it is a 

good practice to push testing and evaluation earlier into the process and more into 

the actual design and development process, as the GAO has noted. The best practices found in industry and the commercial world place a great deal of emphasis on 

testing as you go, and building in assessment into the development process rather 

than waiting until the end to discover whether a product or system works. It should 

be noted however that the more complex the system is and the more that the deliverable product is a system of systems, the more there is a reality that the weapon 

system can only be fully tested when completed—that is the nature of very complex 

system of systems. 

Mr. MILLER. Over the past several years, this committee has attempted to pass 

legislation that would provide authorities to enter into long-term and/or multi-year 

procurement contracts. The constant obstacle is the CBO and the manner in which 

they score these initiatives. What are your thoughts on CBO scoring methodology 

associated with multi-year procurements and do you think it is time for the Congress to provide new guidance to CBO regarding the scoring of long-term procurements? 

Mr. CHAO. I believe serious consideration should be given to re-examining how 

multi-year procurements are scored and assessed. While very aware of the issues 

of annual appropriations, the anti-deficiency act and the prerogatives of Congress, 

there are sufficient advantages to multi-year procurements from a cost perspective 

that the topic should be examined. It will be particularly important as defense budgets decline and cost savings and the need to provide some stability to the defense 

industrial base becomes critical. The rules regarding multi-year procurement scoring 

in many ways offset the exact reason that they are useful/efficient—for long term 

visibility and stability the customer gets lower cost. Force the entire contract or 

large portion to be accounted for in one year and it naturally creates a huge disincentive to use the mechanism and short circuits the normal economics. These are 

ultimately rules that Congress has set for itself, and therefore can only be addressed 

by Congress. 

Mr. MILLER. Termination liability is often cited by both CBO and OMB as an obstacle to adopting long-term and/or multi-year procurement contracts. Industry continues to tell the CBO and OMB that termination liability can be mitigated through 

contract terms. What are your thoughts on termination liability? 

Mr. CHAO. Multi-year contracts have a known and well studied set of economic 

benefits. By buying in economically efficient lots they lower cost; they potentially reduce the overhead burden; they incentivize standardization and reduce start up 

costs (which also lowers cost); stabilize work forces and incentivize investments in 

productivity by the contractors. While they are not useful for every case, they can 

be ideal for situations where the requirement/need is stable, there is a base level 

of demand, and the costs are amenable to multi-year efficiencies. 

An issue raised, as you note, is termination liability with the big risk being the 

cancellation of a program early in its life. Given that the budgeting rules require 

the funding of the termination liability it certainly creates a disincentive to using 

multi-years. Ultimately this is a cultural issue—the component that creates the 

greatest fear (‘‘I don’t have flexibility, what if I need to change the contract’’), is exactly the element that generates the savings (‘‘this is stable, they can’t change the 

contract’’). The core topic is therefore risk mitigation, and as any business person 

will note risk can be managed/negotiated via contract terms. For example, termination liabilities can scaled or risk adjusted. The issue of termination liabilities 

should not a priori preclude the examination of using a multi-year. 

Mr. MILLER. Dr. Michael Gilmore, Director of Operational Test & Evaluation, consistently speaks about developmental test & evaluation (DT&E) as being key to successful operational test & evaluation (OT&E). Prior to enactment of the Weapons 

Systems Acquisition Reform Act (WSARA) of 2009, the GAO and the Defense 

Science Board found that 50% of programs completing initial operational test & 

evaluation since 2000 were assessed as ‘‘not operationally effective or suitable.’’ 

GAO suggested that ‘‘. . . beginning production before successfully demonstrating 
153 

1 Richard Whittle, ‘‘JSF’s Build and Test Was ‘Miscalculation,’ Adm. Venlet Says; Production 

Must Slow,’’ Breaking Defense, December 1, 2011, at http://breakingdefense.com/2011/12/jsfbuild-and-test-was-miscalculation-production-must-slow-v/. 2Office of the Director, Operational Test & Evaluation, FY 2012 Annual Report, December 

2012, p. X. 3 Ibid., p. v. 

4 Ibid., p. 6. 

that the weapon system will work as intended increases the potential for discovering 

costly design changes . . . and usually requires substantial modification costs at a 

later time.’’ • Do you believe enhancing the authority and resourcing of the Deputy Assistant 

Secretary of Defense for Developmental Test & Evaluation would improve that 

office’s oversight effectiveness, resulting in reduced cost overruns and schedule 

delays? • How would you recommend enhancing that authority and resourcing? 

Mr. SCHWARTZ. A number of analysts and government officials have echoed GAO’s 

suggestion that beginning production before successfully demonstrating that systems will work as intended increases the potential for costly modifications at a later 

time. As Vice Admiral David Venlet reportedly stated, DOD was surprised at the 

extent of the changes required—and the associated cost—that resulted from the 

high rate of concurrency found in the Joint Strike Fighter program.1

In the DOT&E FY2012 Annual Report to Congress, Dr. Gilmore stated that since 

2009 (the year the Weapon System Acquisition Reform Act was enacted into law), 

there has been progress in a number of areas related to testing, including significant progress in increasing the scientific and statistical rigor; early engagement 

with the requirements community to develop realistic, feasible, and testable requirements; and increased attention in reliability management, design, and growth testing.2 The report also stated that DOD recognizes ‘‘the significant adverse long-term 

life cycle cost impacts and reduced operational capability resulting from systems 

being unreliable.’’ 3

An example of DOD’s increased recognition and focus on the importance of testing 

in general, and developmental testing in particular, can be seen in the recently released draft DOD Instruction 5000.02, which contains a more robust discussion on 

testing than the current instruction. The draft instruction states that developmental 

test and evaluation 

demonstrates the ability of the system to meet its stated and derived requirements, including the approved KPPs, and that system production or fielding can 

be supported. The effort requires completion of DT&E activities consistent with 

the Test and Evaluation Master Plan and may include operational assessments. 

Successful completion of adequate developmental testing with production or 

fielding representative prototype test articles will normally be the primary basis 

for entering LRIP or Limited Fielding. 

The draft instruction also contains two enclosures dedicated exclusively to test 

and evaluation requirements, including Enclosure 2–3, which is an eight page discussion of developmental test and evaluation. The current instruction does contain 

such a focus on DT&E. 

Despite the progress cited above and the increasing attention being paid to the 

importance of testing, there are numerous areas ripe for improvement, such as the 

rate of systems meeting required reliability thresholds. According to the annual report, ‘‘reliability continues to lag; only 7/13 systems (54 percent) evaluated in 2012 

met their reliability thresholds and overall between 1997 and 2012 only 67/118 systems (57 percent) were reliable.4’’ 

Given the progress cited by Dr. Gilmore, the draft of the 5000.02 instruction, the 

Weapon System Acquisition Reform Act, and other reform efforts currently underway (including a heightened focus on program cost), there is little consensus as to 

what impact enhancing the authority and resourcing of the Deputy Assistant Secretary of Defense for Developmental Test & Evaluation would have on the goal of 

improving that office’s oversight effectiveness, and its ability to address cost overruns, and schedule delays. Some could argue that enhancing the authority and resources of DT&E activities will improve the process, particularly in those areas 

where observable progress has not occurred; others can argue that implementing 

further changes could have unintended consequences or may hinder the progress 

currently underway. 

Mr. MILLER. Over the past several years, this committee has attempted to pass 

legislation that would provide authorities to enter into long-term and/or multi-year 

procurement contracts. The constant obstacle is the CBO and the manner in which 

they score these initiatives. What are your thoughts on CBO scoring methodology 
154 

5For more information on MYP, see CRS Report R41909, Multiyear Procurement (MYP) and 

Block Buy Contracting in Defense Acquisition: Background and Issues for Congress, by Ronald 

O’Rourke and Moshe Schwartz. 6For example, see U.S. Government Accountability Office, Department of Veterans Affairs 

Major Medical Facility Lease Authorization Act of 2013, Cost Estimate: H.R. 3521, December 

6, 2013, http://www.cbo.gov/sites/default/files/cbofiles/attachments/hr3521_1.pdf. 7 CRS Report R41909, Multiyear Procurement (MYP) and Block Buy Contracting in Defense 

Acquisition: Background and Issues for Congress, by Ronald O’Rourke and Moshe Schwartz. 

associated with multi-year procurements and do you think it is time for the Congress to provide new guidance to CBO regarding the scoring of long-term procurements? 

Mr. SCHWARTZ. The statutory authority for executing MYPs include 10 U.S.C. 

2306b (providing for the use of MYP for the procurement of goods) and 10 U.S.C. 

2306c (providing for the use of MYP for the procurement of services). MYPs are further governed by DOD acquisition regulations.5 Generally, CBO does not score authorizations for MYP that are executed under existing legislation such as 10 U.S.C. 

2306b. However, CBO does score new legislation that would provide new types of 

MYP contracts, increase the maximum term of such contracts, or add additional 

goods and services to those authorized under current law.6 In conducting its analysis, CBO adheres to the principle that MYPs incur future obligations in excess of 

currently available appropriations. When scoring MYPs, CBO includes the total expected obligation for all out years, not just the current obligation and the termination cost if the contract is cancelled after the first year. 

The Congressional Budget Act (P.L. 93–344 section 312(a)) provides that for purposes of enforcement, spending and revenue levels ‘‘shall be determined on the basis 

of estimates made by the Committee on the Budget of the House of Representatives 

or the Senate, as applicable.’’ As such, Congress need not consider CBO scoring or 

analysis. Congress could also choose to provide new guidance to CBO as it relates 

to MYP scoring methodology, such as whether scoring should be based on termination costs or on all out-year costs in the contract. Such guidance may not be binding on CBO unless appropriately enshrined in statute. 

Mr. MILLER. Termination liability is often cited by both CBO and OMB as an obstacle to adopting long-term and/or multi-year procurement contracts. Industry continues to tell the CBO and OMB that termination liability can be mitigated through 

contract terms. What are your thoughts on termination liability? 

Mr. SCHWARTZ. There is a general consensus that MYPs generate cost savings for 

DOD. Compared with estimated costs under annual contracting, estimated savings 

for programs being proposed for MYP have ranged from less than 5% to more than 

15%, depending on the particulars of the program in question, with many estimates 

falling in the range of 5% to 10%.7 In practice, actual savings from using MYP rather than annual contracting can be difficult to observe or verify because of cost 

growth during the execution of the contract that was caused by developments independent of the use of MYP rather than annual contracting. 

The anticipated government savings generated from MYPs explain why DOD 

seeks to pursue such contracts. Generally, contractors are interested in signing 

multi-year contracts to book future work; contractors are more likely to make longterm investments in support of a contract if the contract period is long enough to 

ensure that the contractor will recoup its investment (and increase profits). However, because the federal government can terminate contracts for convenience, companies may forgo making long-term investments to guard against the government 

terminating the contract before the contractor recoups its investment. Generally, 

two main factors give contractors the confidence that DOD will not terminate an 

MYP contract and that the multiyear stream of business will materialize: 

• For a program to qualify for MYP, DOD must certify, among other things, that 

the minimum need for the items to be purchased is expected to remain substantially unchanged during the contract in terms of production rate, procurement 

rate, and total quantities. 

• MYP contracts include a cancellation penalty intended to reimburse a contractor for costs that the contractor has incurred (i.e., investments the contractor has made) in anticipation of the work covered under the MYP contract. 

The undesirability of paying a cancellation penalty acts as a disincentive for the 

government against canceling the contract (and if the contract is canceled, the 

cancellation penalty helps to make the contractor whole). 

A 2008 report by GAO found that, while DOD terminated hundreds of contracts 

for convenience each year, fewer than a dozen contracts terminated from 1995–2007 
155 

8 U.S. Government Accountability Office, Defense Acquisitions: Termination Costs are Generally Not A Compelling Reason to Continue Programs or Contracts that Otherwise Warrant 

Ending, GAO–08–379, March 14, 2008, p. 1. 9See Department of Defense Office of the Inspector General, Acquisition: Contracting and 

Funding for the C–130J Aircraft Program, D–2006–093, June 21, 2006, p. 3. According to the 

report the Secretary of Defense wrote a letter to Congress stating that it was in the best interest 

of DOD to complete the multiyear contract based on the additional cost estimated to terminate 

the C–130J MYP contract. However, the IG found that ‘‘The Air Force acquisition personnel provided the Secretary of Defense with an unsupported cost estimate to use in deciding whether 

to terminate the C–130J aircraft MYP contract. This occurred because the Air Force included 

ambiguous language in the contract and did not have cost and pricing data needed to develop 

an accurate cost estimate. As a result, the Secretary of Defense did not have sufficient termination cost information to determine the cost-effectiveness of continuing or terminating the C– 

130J MYP contract.’’ 1GAO, Defense Acquisitions: DOD Needs to Develop Performance Criteria to Gauge Impact 

of Reform Act Changes and Address Workforce Issues, GAO–10–774 (Washington, D.C.: July 29, 

2010); GAO, Weapons Acquisition Reform: Actions Needed to Address Systems Engineering and 

Developmental Testing Challenges, GAO–11–806 (Washington, D.C.: Sept. 19, 2011); Weapons 

Acquisition Reform: Reform Act Is Helping DOD Acquisition Programs Reduce Risk, but Implementation Challenges Remain, GAO–13–103 (Washington, D.C.: Dec. 14, 2012). 

were worth more than $100 million.8 However, from FY1999–FY2008, DOD contract 

obligations (adjusted for inflation) increased every year. From FY2008–FY2013 (adjusted for inflation), DOD contract obligations have decreased every year. Shrinking 

contract spending and the accompanying focus on cost increases the risk that DOD 

will terminate a contract for convenience. 

To the extent that there is an increased risk in contract termination or substantial funding changes, government officials have less of an incentive to enter into 

long-term or MYP contracts that carry a substantial termination liability. In the 

current environment, termination costs can also be the determining factor in deciding whether to continue or terminate a contract. The lack of reliable or complete 

information can lead to poor decisions, an issue discussed in a report by the DOD 

Inspector General which found that the Secretary of Defense did not have sufficient 

termination cost information to determine the cost-effectiveness of continuing or terminating the C–130J MYP contract.9

Part 49 of the Federal Acquisition Regulation is dedicated exclusively to contract 

terminations, including the responsibilities of the parties in determining and settling termination liabilities. In addition to the rules and regulations governing contract termination, termination liability can be addressed in the contract itself. However, the budget environment in recent years makes MYP a less attractive strategy 

for the government, particularly given the level of uncertainty in recent years related to • what the future overall defense base budget will be; • if DOD will be required to operate under a continuing resolution due to the lack 

of a budget being enacted; • whether a continuing resolution will include language prohibiting DOD from 

signing MYP contracts for the life of the continuing resolution; • whether sequestration will be triggered in future years; and • the stability of funding for individual programs. 

Mr. MILLER. Dr. Michael Gilmore, Director of Operational Test & Evaluation, consistently speaks about developmental test & evaluation (DT&E) as being key to successful operational test & evaluation (OT&E). Prior to enactment of the Weapons 

Systems Acquisition Reform Act (WSARA) of 2009, the GAO and the Defense 

Science Board found that 50% of programs completing initial operational test & 

evaluation since 2000 were assessed as ‘‘not operationally effective or suitable.’’ 

GAO suggested that ‘‘. . . beginning production before successfully demonstrating 

that the weapon system will work as intended increases the potential for discovering 

costly design changes . . . and usually requires substantial modification costs at a 

later time.’’ • Do you believe enhancing the authority and resourcing of the Deputy Assistant 

Secretary of Defense for Developmental Test & Evaluation would improve that 

office’s oversight effectiveness, resulting in reduced cost overruns and schedule 

delays? • How would you recommend enhancing that authority and resourcing? 

Mr. FRANCIS. We examined the staffing and influence of the DT&E office during 

our 2010, 2011, and 2012 assessments of DOD’s implementation of the Weapon Systems Acquisition Reform Act of 2009.1 In our 2011 and 2012 assessments, we reported that the office had to drop virtually all but the largest programs from its 

oversight list and eliminate oversight of some major automated information systems 

because its staff could not adequately cover a portfolio of over 200 acquisition pro-
156 

2Defense Federal Acquisition Regulation Supplement, 48 C.F.R. § 249.501–70; 252.249–7000. 

grams. In addition, the office was providing minimal coverage to programs prior to 

the start of development, which is the most opportune time to influence a program’s 

acquisition strategy. In our 2011 assessment, we also reported that the Deputy Assistant Secretary for DT&E would like his office to be staffed with a larger proportion of government employees as he believed it is important to maintain a core cadre 

of people with the required institutional knowledge and skills to support current 

and future program office needs. At that time, about two-thirds of the staff were 

contractors. Our 2011 report also discussed concerns about T&E’s influence within 

DOD. However, we could not determine if the office had the appropriate amount of 

influence because it was not tracking the extent to which its recommendations were 

being adopted or impacting weapon programs. This type of information would provide some indication of whether additional authority is needed. 

Accordingly, dedicating more resources to DT&E activities would allow the office 

to oversee activities on more programs. However, finding additional resources at a 

time when defense budgets are shrinking may be difficult to achieve. We do note 

(1) the difficulty in finding such resources given competing demands, and (2) the capability of the DT&E office is but one of many factors that could address cost growth 

and schedule delays. Collectively, the program offices and the offices of DT&E, Systems Engineering, Cost Assessment and Program Evaluation, and others need to address these issues. For example, while some of these risks could be addressed with 

additional testing earlier in a program, other risks may best be identified through 

increased attention to early systems engineering or more accurate cost estimating. 

In addition, while we have no analytical basis for recommending a change in the 

DT&E office’s authority, we reported in our 2012 assessment that the department 

must address challenges related to cultural barriers between OSD and the services 

that make service officials reluctant to accept DT&E’s recommendations. 

Mr. MILLER. Over the past several years, this committee has attempted to pass 

legislation that would provide authorities to enter into long-term and/or multi-year 

procurement contracts. The constant obstacle is the CBO and the manner in which 

they score these initiatives. What are your thoughts on CBO scoring methodology 

associated with multi-year procurements and do you think it is time for the Congress to provide new guidance to CBO regarding the scoring of long-term procurements? 

Mr. FRANCIS. While we are familiar with CBO’s scoring methodology we generally 

do not comment on it as CBO is a sister legislative agency and we feel that Congress is best served by having one support agency on this topic. We do note that, 

according to OMB scorekeeping guidelines, when a law provides the authority for 

an agency to enter into a long-term or multiyear contract, it is to score the entire 

amount of the government’s estimated legal obligation in the year in which the 

budget authority is first made available to make clear the Government’s total estimated legal obligations over the life of the contract. 

GAO has long supported such up-front disclosure of the full commitments of the 

government. We have advocated that it is the best way to ensure recognition of commitments embodied in budgeting decisions and maintain government-wide fiscal 

control. When certain costs are not fully recognized up-front, before funds are committed, important information on full budgetary effects may not be considered as 

trade-offs are made among competing priorities. 

Mr. MILLER. Termination liability is often cited by both CBO and OMB as an obstacle to adopting long-term and/or multi-year procurement contracts. Industry continues to tell the CBO and OMB that termination liability can be mitigated through 

contract terms. What are your thoughts on termination liability? 

Mr. FRANCIS. While it is true that termination liability can be negotiated up front, 

it is also true that multiyear contracts can entail higher costs if the contract is terminated. We have previously observed that a good understanding of potential termination costs can better position an agency to fulfill its mission. The amount of a termination settlement reflects costs for which the contractor is entitled to be reimbursed, including costs incurred in performance of the contract to date, and is typically limited in multiyear procurement contracts by a negotiated termination liability which places a ceiling on these costs. As a further limitation, under certain circumstances DOD procurement regulations provide for ‘‘special termination costs’’ 

clauses that may be used after negotiation and agreement with the contractor.2

Multiyear contracts allow contractors to enter into contracts for a period of up to 

five years so they can purchase more than 1 year’s worth of equipment or materials 

from their suppliers, thus incurring costs sooner. We have reported that compared 

to a series of annual contracts, this approach could result in cost savings when a 

multiyear contract is completed. However, if the contract is terminated, it may re-
157 

3GAO, Defense Acquisitions: Termination Costs Are Generally Not a Compelling Reason to 

Continue Programs or Contracts That Otherwise Warrant Ending, GAO–08–379 (Washington, 

D.C.: Mar 14, 2008). 

sult in higher incurred costs and thus a higher termination settlement.3 Termination liability is one factor to consider when looking at the stability of a program’s 

funding, a key element in determining whether a multiyear contract should be 

awarded, and should be considered an added risk that an otherwise stable, realistically priced program can avoid. Immature, volatile programs and those at risk of 

future changes should not be proposed as multiyear candidates because such instability puts the savings attributed to efficiencies of production and buying at risk. 

QUESTIONS SUBMITTED BY MR. LANGEVIN 

Mr. LANGEVIN. Better Buying Power (BBP) 1 and 2 focused much attention on 

training and processes, but absent from the discussion has been a focus on equipping the workforce with time saving, modern, analytical software. • Have acquisition support systems such as the contract writing systems, cost estimating systems, auditing systems, and the like kept pace with acquisition reform and evolution? • How could technology enable the acquisition workforce to forecast, estimate, 

compete, award, and monitor requirements better? • Could there be a way to automate more of the acquisition processes, particularly small contract changes like unilateral modifications, and in doing so free 

up time to work more complex acquisition issues? 

Mr. ZAKHEIM. While providing the types of software outlined in the question certainly could help improve the efficiency of the workforce, far more fundamental is 

the question of how the recommendations of both versions of Better Buying Power 

will be implemented. The two documents correctly identify the problems that best 

the acquisition system. Better Buying Power 2.0, in particular, outlines an exhaustive list of actions that must be taken to overcome those problems. Nevertheless, 

with some notable exceptions—for example, presenting affordability analyses to the 

Milestone Decision Authority; DAU incorporating Performance Based Logistics assets into its curricula; limiting the time for staff review of Acquisition Strategies 

and Decision Memoranda—even the lengthier and more detailed implementation 

memorandum for Better Buying Power 2.0 is full of words such as ‘‘review,’’ ‘‘evaluate,’’ ‘‘determine’’ and ‘‘study.’’ Directives that incorporate such language invariably 

are either circumvented or ignored by the bureaucracy. Acquiring expensive software or systems without ensuring bureaucratic performance invariably results in 

underuse or misuse of the software/systems. Only by basing bonuses, pay increases 

and promotions on actual performance, and by mandating far more stringent training requirements than are currently in force, will bureaucratic performance be improved. And at that point, it will be advantageous to acquire software/systems to 

further enhance that performance. 

Mr. LANGEVIN. One area of focus in acquisition reform has been the state of the 

acquisition workforce. Are there any international examples of different approaches 

to acquisition workforce management policies that have potential benefit for application in the U.S.? Similarly, are there examples of international acquisition systems, 

organizational structures and procurement processes that are structured fundamentally differently than our own that could be adopted to the benefit of our own defense acquisition system? 

Mr. ZAKHEIM. Because the American acquisition program and budget is so much 

larger than its equivalent anywhere else, there are limits to the lessons that might 

be learned from foreign acquisition systems. Those that tend to function more effectively, such as the Israeli system, involve fewer, and smaller, programs. What is 

noteworthy about the Israeli system is the emphasis on having operators involved 

in all aspects of a program’s development. Matching requirements to developmental 

performance is key to a successful program; the Vice Chairman of the Joint Chiefs 

has begun to implement this process, but it can be carried much further. 

There are some lessons to be learned from the French system as well. France has 

traditionally shared program management among the chiefs of staff and the Director General for Armaments (DGA). Since the late 1990s program teams have been 

organized in integrated, cross disciplinary fashion. While French acquisition has suffered from many of the same ailments as other nations, the system is far more tolerant of multi-year acquisition programs than the United States. The DGA also emphasizes harmonization of programs under a smaller number of contracts, to improve contract management, and the greater use of pilot programs. It may therefore 
158 

be worth exploring whether these efforts might be applied within the American context. 

There may also be much to be gleaned from the DGA’s human resource management, education and training system. French engineers are generally drawn from 

the country’s top school, the Ecole Polytechnique, where they earn the equivalent 

of a Master’s degree. They will also have had a year of military training. They also 

can obtain up to two additional years of specialized engineering education at one 

one of several advanced technical engineering schools, two of which are managed 

by the DGA itself. Many also train in foreign laboratories or earn doctorates. As a 

result, the leading career officials in the DGA not only have the highest level of 

technical education that France offers, but also military experience and, in many 

cases, foreign experience as well. 

The DGA has a more demanding system of continuing education than its American counterpart. French continuing education includes a staff course taken jointly 

by civil servants and defense company executives, a 44 day course for program directors (compared to 80 hour requirements for senior program managers in the DOD 

system), and a program for confirmed managers in their tenth year of service. 

The British acquisition system has suffered from cost overruns and schedule 

delays for some time. In 2004 the Ministry of Defense issued a series of ‘‘smart acquisition’’ guidelines (not dissimilar from the DOD’s ongoing Better Buying Power 

initiatives) to address these challenges, but within a year a parliamentary committee found that cost overruns and schedule delays persisted. Other attempts to 

improve the process since then have also been unsuccessful. As a result, the Ministry of Defense is considering the option of outsourcing the management of its acquisition and support operations, a task that in the United States is considered ‘‘inherently governmental.’’ The plan is highly controversial in Britain and has come 

under attack from former senior government officials such as Lord Peter Levene, 

who has argued that it would more efficient to revamp the government’s own acquisition organization. The Royal United Services Institute, leading British think tank, 

is also opposed to the plan. The MoD may nevertheless proceed with an award of 

a one year pilot contract to one of two bidders who would manage the $22 billion 

British program. Clearly, outsourcing acquisition and support would obviate the 

need for an acquisition workforce comparable to the one functioning in the MoD, or 

for that matter, in the US DOD. I am dubious that the British experiment, if undertaken, will succeed, however, nor, in the US context, would it be useful to extend 

inherently governmental functions to contractors. If anything, there should be greater scrutiny to ensure that contractors do not cross over the line the demarcates 

those activities that properly should only be carried out by the US government. 

Several European states have attempted to coordinate their acquisition efforts. At 

one end of the spectrum, the Nordic nations—Denmark, Sweden, Norway, Iceland 

and Finland established Nordic Defense Cooperation (NORDEFCO) in 2009 to coordinate their defense capabilities. The nations work jointly on acquisition and life 

cycle support, delineating areas for cooperation. The states claim to have saved several tens of millions of Euros, but their budgets and acquisition programs are quite 

small, even when aggregated among them all (Iceland does not even have a defense 

force). On the other hand, France and Britain have repeatedly attempted to coordinate their acquisition efforts, with at best moderate success. In 2010 the two countries agreed to strengthen the UK-France High Level Working Group’s efforts in the 

areas of industrial and armaments cooperation, which, if anything, was an indication of that Group’s lack of success until that time. 

Mr. LANGEVIN. One area of focus in acquisition reform has been the state of the 

acquisition workforce. Are there any international examples of different approaches 

to acquisition workforce management policies that have potential benefit for application in the U.S.? Similarly, are there examples of international acquisition systems, 

organizational structures and procurement processes that are structured fundamentally differently than our own that could be adopted to the benefit of our own defense acquisition system? 

Mr. CHAO. The topic of lessons to be learned from acquisition workforce practices 

of our international peers has been studied by various think tanks, academics and 

FFRDCs over the last 10–15 years and there are several good reports that are worth 

reading. The focus of the studies has been mostly on our NATO allies and the larger, more technologically sophisticated countries. The common cautionary note in 

most of these studies is that no other country has an acquisition system required 

to purchase the scope, scale and sophistication of the U.S. It does not mean there 

are no lessons to be learned, simply that the practices cannot be applied directly 

to the U.S. acquisition system. 

There are two key elements which stand out and are worthy of consideration: 
159 

1Section 101 of the bill read as follows: 

Congress finds the following: 

(1) It is essential that Congress act to establish an independent procurement system for the 

Department of Defense that will minimize abuses and provide high quality, competitively priced, 

and effectively designed defense products. 

(2) The frequent movement of individuals from the private sector to the Department of Defense, and from the Department of Defense to the private sector, fosters real and perceived conflicts of interest in defense acquisition. 

(3) The parochial interests of each military department often lead to duplication of effort and 

higher costs. 

(4) There should be an independent, well-trained, and well-paid team of professionals who 

have chosen the Independent Procurement Corps as a stable career path and who represent the 

public interest and the legitimate needs of the Department of Defense in all negotiations with 

defense contractors in all matters related to the procurement of property and services required 

by the Department of Defense, including research, development, production, and management. 

The first is that certain countries, such as France, have a professionalized and 

independent acquisition work force. Unlike the U.S. system where an acquisition assignment is one of many that can be had during a military career, in the systems 

that have professional acquisition corps, it becomes a permanent avocation. This is 

culturally very different than the U.S. system and although the notion has been 

raised in prior acquisition reform studies, it has not gained much traction. The related topic, that is perhaps better suited for the U.S. acquisition system, is how the 

Services treat their acquisition cadre—in terms of promotion, flag officer billets, etc. 

If pursuing an acquisition track is deemed to be negative to a career, then naturally 

the best talent will stay away and it will impact the quality of the acquisition system. 

The second element that one finds in the U.K., French and other allied acquisition 

workforces is a far greater exchange of professionals between industry and the government/civil service/military. This is achieved through military officer exchange 

programs and civilians moving back and forth between industry and government 

service throughout their careers. It creates a far better understand of the industry, 

their capabilities and their motivations by the government; and I would submit better ability to perform oversight. The growing divide between industry and the acquisition system in the U.S. is a dangerous trend—without fail former government acquisition professionals who have joined industry say ‘‘I wish I knew then what I 

know now about industry and how it works’’, and vice versa when members of industry go into government service. Examining how these countries enable that 

interchange, manage conflicts of interest and ethics issues would be areas of fruitful 

examination. 

Aside from these two key areas, there are a few other practices also worth looking 

at. The Australian practice of charging programs a cost of money creates some very 

interesting and healthier behaviors—it places a premium on getting programs done 

quickly. Also countries that truly implement total cost of ownership evaluation have 

a better ability to analyze programs that require higher up front costs but save 

money once in operation—our current system with the different colors of money 

(procurement separate from O&M) makes this hard in the U.S. system. 

Mr. LANGEVIN. One area of focus in acquisition reform has been the state of the 

acquisition workforce. Are there any international examples of different approaches 

to acquisition workforce management policies that have potential benefit for application in the U.S.? Similarly, are there examples of international acquisition systems, 

organizational structures and procurement processes that are structured fundamentally differently than our own that could be adopted to the benefit of our own defense acquisition system? 

Mr. SCHWARTZ. A number of countries have undertaken efforts to reform or improve their defense acquisition system, resulting in novel and innovative approaches 

to acquisitions. Some analysts have suggested that the United States can benefit 

from looking at the defense acquisition practices of other countries. 

1. Some analysts have suggested that DOD should emulate the approach taken 

by such countries as England, France, Sweden, Australia, Israel, and Germany, 

and create a centralized (joint) acquisition organization. Some of these analysts 

argue that just as Goldwater-Nichols created a ‘joint-ness’ in the operational 

forces, it is time to extend the principles of Goldwater-Nichols to the acquisition sphere and create a joint acquisition organization. Such an approach was 

outlined in HR 965, Independent Defense Procurement Corps Act of 1989 (the 

bill was not enacted into law).1

Others have taken the opposite view, arguing that the military services should 

be endowed with more acquisition authority, at the expense of the Office of the 

Under Secretary of Defense for Acquisition, Technology, and Logistics. This position 
160 

2 Information provided to CRS by an official at the Embassy of Israel in Washington D.C., December 12, 2013. Information also based on discussions with Israeli officials throughout 2012. 3One example is Israel’s Iron Dome system, which was developed and deployed within a timeframe that was faster than generally possible in the current DOD acquisition process. 4 Based on information and documentation provided to CRS by an official of the Defense Materiel Administration, November 29, 2013 (unless otherwise cited). Documents available upon request. 5 J. Ronald Fox, Defense Acquisition Reform 1960–2009: An Elusive Goal (2011), p. 204. 6Documentation provided by the Defense Materiel Administration. 

is consistent with those analysts and officials from other countries who are not persuaded that a centralized acquisition organization is inherently more efficient or effective. 

Below is a list of selected countries that some analysts or officials have suggested 

provide examples of approaches to defense acquisitions that can be emulated by the 

Department of Defense. 

Israel 2

The acquisition of goods and services for the Israeli military is generally executed 

by the Ministry of Defense’s Directorate of Procurement and Production. The directorate is organized into five main divisions: 

2. Air 

3. Land 

4. Sea 

5. Information and Telecommunication 

6. Maintenance and Services. 

Each of these divisions corresponds to and works closely with its operational counterpart. Requirements are developed by the relevant service, not by the Directorate 

of Procurement and Production. A separate organization, the Directorate for Research and Development, focuses on R&D programs and can set its own operational 

requirements. 

Some analysts and officials have suggested that another positive aspect of the 

Israeli requirements and acquisition process is that it allows for more rapid development and fielding of systems than the MDAP acquisition process in the United 

States.3

Sweden4

The Defense Materiel Administration (FMV) is the centralized organization that 

procures goods and services for the Swedish military. Starting January 1, 2014, the 

FMV will be expanded to also provide logistics. After January 1, the FMV will consist of six divisions: 

7. Systems and Production 

8. Logistics and Procurement 

9. Storage, Service and Workshops 

10. Tests and Evaluation 

11. GRIPEN (Strategic Projects) 

12. Commercial Operations. 

Some analysts have suggested that the United States should emulate the pay 

structure used by the FMV to attract and retain its acquisition workforce. According 

to acquisition expert Ronald Fox, Sweden addresses the challenge of 

attracting and retaining senior people—military and civilian—by a special law 

that allows an added salary increase for crucial acquisition positions. Thus, a 

Swedish colonel serving as a program manager can receive a significantly higher salary than other colonels and even the director general of the agency. This 

incentive provides prestige and draws highly qualified, experienced people to 

senior acquisition positions.5

The same policy applies to all FMV personnel in the acquisition workforce, including technical experts and project managers. Pay and benefits, which are influenced 

by the complexity of the task and the performance of the individual, are more flexible than DOD’s GS (General Scale) or uniform pay structures. According to the 

Swedish government 

Pay determination shall be individual, differentiated and adjusted to market 

conditions for all categories of personnel. It is the responsibility of each manager to ensure that his/her employees are evaluated and awarded based on performance . . . . In the pay review the individual evaluation shall be based on 

whether the employee has achieved the expected result and fulfills the competency requirements for his/her position.6
161 

7 Based on email discussion with official from the Defense Materiel Administration. 

8 Ethan B. Kapstein and Jean-Michel Oudot, ‘‘Reforming Defense Procurement: Lessons from 

France,’’ De Gruyter Business and Politics, vol. 11, no. 2 (August 2009). A policy brief written 

summarizing the full abstract was written by the author and issued by the Center for a New 

American Security. The policy brief can be found at http://www.cnas.org/files/documents/publications/CNAS%20Policy%20Brief%20-%20defense%20acquisition_1.pdf. 

CRS has not determined the extent to which this comparative analysis adjusts, as appropriate, for size, complexity, or technological advances in weapon programs The report points out 

that the methodology used by the Government Accountability Office to determine ‘average’ cost 

growth of 26%is unknown. As a result, the authors ‘‘look at both the arithmetic and geometric 

averages in our account of the French case, and thus the spread in averages from 5–10 percent.’’ 9 Based on discussions with officials from the Australian Senate and the Embassy of Australia, 

December 2013, and documentation provided to CRS December 13, 2013. Documents available 

upon request. 

A consequence of the pay system is that different positions have different salary 

ranges within which an individual’s pay is determined.7

France 

In 1961, France became one of the first nations to consolidate all defense acquisition under one bureau, the Direction Ge ́ne ́rale de l’Armement (DGA-General Directorate for Armament), which is responsible for virtually all aspects of weapon system development (including exports). Some analysts have argued that the French 

approach to defense acquisition can provide lessons in improved acquisition performance. One report found that cost overruns in French weapon acquisitions 

tend to be relatively minor in scope; on the order of 5–10 percent per weapons 

platform, versus an average overrun of 26 percent per platform in the United 

States.8

The report argues that three related factors are substantially responsible for cost 

control: 

13. hard budget constraints; 

14. technical knowledge and experience of the acquisition workforce, coupled with 

a more collaborative relationship between the military department and industry; and 

15. empowered program managers. 

Another difference between the U.S. and French systems is the role of the legislative branch. The French legislature is viewed as having less authority in the budget 

process over individual weapon systems than the U.S. Congress. 

Australia 9

The Defense Materiel Agency (DMO), established in 2000, is the centralized organization responsible for the acquisition of goods and services for the Australian military. In 2012–2013, the DMO was responsible for 40% of the Australian military’s 

budget. According to the Australian government, since the establishment of a centralized acquisition organization: 

On average, projects are delivered under budget (using 98% of available funds). 

Average schedule slips have decreased from 50% to 30% in 2007; the number of 

projects delivered on time has doubled. 

One unique feature of the DMO is that it provides independent cost, schedule, and 

risk analysis to the military and civilian government, providing independent analysis from those executing the acquisition programs (the DMO does not weigh in on 

capability requirements). According to government documentation, 

DMO is responsible for delivering military equipment to the ADF (Australian 

Defense Forces) according to the cost, schedule and specifications agreed by the 

Government. To be properly held to account for doing so, DMO needs to be able 

to provide independent advice to Government on matters which it remits. 

Another unique feature of the Australian system is the role of Gate Review 

Boards. Gate Reviews are the rough equivalent to DOD milestones. Gate Reviews 

are conducted by Gate Review Boards. Each board is made up of 

• Senior DMO management; 

• DMO officials independent of the program in questions; and 

• Independent non-DMO officials. 

The board conducts in-depth analysis of the program, and the Chair of the board 

provides guidance to the program manager and the senior executive responsible for 

approving the program’s readiness to advance to the next acquisition phase. Australian officials have indicated that this process has been very successful in improving the performance of the acquisition process. 
162 

1 High-Risk Series: An Update, GAO–13–283 (Washington, D.C.: Feb. 2013). 

2GAO, Strategic Sourcing: Improved and Expanded Use Could Provide Significant Procurement Savings, GAO–13–765T (Washington, D.C.: July 15, 2013). 

Challenges to Adopting Foreign Practices 

While there may be lessons to be drawn from the acquisition practices of other 

countries, it is worth noting the vast difference in scale between DOD and the military establishments of other nations, including the 

1. comparative size of the defense acquisition workforce; 

2. number of complex and challenging acquisitions undertaken by DOD; and 

3. significantly larger acquisition budget of DOD. 

Put in context, DOD obligated more money on just contracts in FY2012 ($360 billion) than the combined value of the five largest non-U.S. total defense budgets in 

the world ($335 billion). Some policies that appear effective in smaller acquisition 

organizations or in less complex procurements may not prove to be as effective when 

pursued on the scale of DOD. 

Another challenge in adopting foreign practices is the difference in the organizational structure of DOD compared to that of most other countries. Title X of the U.S. 

Code endows the military services with a substantial role in the acquisition process. 

This is in marked contrast to the structure established in many other countries, including most European countries, where there is a centralized defense acquisition 

organization. Policies that work in a centralized acquisition organization may not 

be transferable to or as effective in the military service-oriented structure of the Department of Defense. 

Mr. LANGEVIN. Better Buying Power (BBP) 1 and 2 focused much attention on 

training and processes, but absent from the discussion has been a focus on equipping the workforce with time saving, modern, analytical software. • Have acquisition support systems such as the contract writing systems, cost estimating systems, auditing systems, and the like kept pace with acquisition reform and evolution? • How could technology enable the acquisition workforce to forecast, estimate, 

compete, award, and monitor requirements better? • Could there be a way to automate more of the acquisition processes, particularly small contract changes like unilateral modifications, and in doing so free 

up time to work more complex acquisition issues? 

Mr. FRANCIS. Theoretically such systems could assist the department, but, in 

DOD’s past experience, such systems have proven problematic. For example, in October 2011, the Under Secretary of Defense for Acquisition, Technology, and Logistics noted that the Standard Procurement System (SPS)—the department’s contract 

writing system that supports nearly 27,000 procurement professionals in issuing solicitations, award contracts and modifications, approving payments, and closing out 

contracts—was difficult to maintain and improve and was technologically fragile. As 

a result, no new contracts, agreements or orders are to be awarded through SPS 

after September 30, 2015, and the use of the system is to cease two years later. As 

we noted in our February 2013 high-risk update, DOD needs to ensure that these 

types of business systems investments are managed with the kind of acquisition 

management rigor and discipline that is embodied in relevant guidance and best 

practices so that each investment will deliver expected benefits and capabilities on 

time and within budget.1

GAO has not assessed specific technologies or software that could enable the acquisition workforce to better execute or automate contract management, but we 

have found means of achieving greater efficiency that are not software related but 

could improve acquisition practices. For example, one way that improved analytics 

and data can help DOD and other federal agencies potentially save billions of dollars is through the expanded use of strategic sourcing.2 Generally speaking, strategic sourcing is a procurement process that seems to move an organization away 

from numerous individual procurements to a broader aggregate approach. The tools 

and techniques that come with strategic sourcing enable organizations to: 

• develop a better picture of what they are spending on goods and services, 

• better understand cost drivers, 

• prioritize their requirements, 

• better manage suppliers, 

• take advantage of market trends, and 

• target savings. 

Leading companies strategically manage 90 percent of their procurement spending, and report savings of 10 percent or more of total procurement costs. We have 

found, however, that federal agencies have been slow to embrace this approach, 
163 

3GAO, Acquisition Planning: Opportunities to Build Strong Foundations for Better Services 

Contracts, GAO–11–672 (Washington, D.C.: Aug. 9, 2011). 4GAO, Results-Oriented Cultures: Insights for U.S. Agencies from Other Countries’ Performance Management Initiatives, GAO–02–862 (Washington, D.C.: Aug. 2, 2002). 

even in a time of great fiscal pressure, due in part to the lack of leadership commitment, expertise, and data barriers among other factors. As a result, we found that 

while DOD and the Departments of Homeland Security, Energy, and Veterans Affairs accounted for 80 percent of the $537 billion in federal procurement spending 

in fiscal year 2011, less than 5 percent of that spending was managed through strategic sourcing efforts. 

In addition, our audits of civilian agencies have found that agencies did not always take full advantage of acquisition planning to develop a strong foundation for 

the services contracts they awarded.3 In particular, GAO found that agencies faced 

challenges defining their needs, documented cost estimates to varying degrees, and 

documented lessons learned to a limited extent. 

Mr. LANGEVIN. One area of focus in acquisition reform has been the state of the 

acquisition workforce. Are there any international examples of different approaches 

to acquisition workforce management policies that have potential benefit for application in the U.S.? Similarly, are there examples of international acquisition systems, 

organizational structures and procurement processes that are structured fundamentally differently than our own that could be adopted to the benefit of our own defense acquisition system? 

Mr. FRANCIS. We have not recently assessed other countries’ acquisition workforce 

management policies, but our prior work found that the experiences of other nations 

in developing their workforce performance management systems as a whole could 

be instructive to U.S. agencies considering reforms. For example, in 2002, we noted 

that Australia, Canada, New Zealand, and the United Kingdom had begun to use 

their performance management systems to help their governments achieve results.4

To do so, these countries 

• created a ‘‘line of sight’’ between individual and organizational goals, 

• used competencies to provide a fuller assessment of individual performance, 

• linked pay to individual and overall organizational performance, and 

• fostered organization wide commitment to results-oriented performance management. 

While the performance management initiatives in these countries reflected their 

specific organizational structures, cultures, and priorities, we concluded that their 

experiences provided a useful point of reference for U.S. agencies. In addition to the 

performance management practices used by other countries, our prior work has 

identified management practices that could help improve the capacity of the federal 

acquisition workforce. They include robust workforce planning, succession planning, 

and using practices that have shown to boost employee morale and engagement. 

Similarly, while we have not assessed other nations’ acquisition systems or procurement processes, we have participated in numerous forums, conferences, and 

meetings with our fellow auditors from around the world to compare experiences 

and exchange lessons learned. Acquisition systems, organizational structures, and 

procurement processes vary from country to country and may have similarities to 

or differences from our own. While British and Australian defense acquisition processes have a ‘‘gated’’ review processes similar to DOD, for example, they use a more 

portfolio-oriented approach for program execution. Regardless of acquisition structure or policy, however, foreign audit entities report outcomes similar to those here 

at home. For example, British and Australian audit agencies release an annual report on the performance of their defense acquisition programs much as we do. Those 

reports communicate the same kinds of cost and schedule overruns and note similar 

reasons for overruns such as poor cost and schedule estimating and a bias towards 

performance over cost when tradeoffs are needed. It should also be noted that Britain, Australia, and other countries procuring major defense systems do not tend to 

engage in as many, or as costly and complex, development programs as DOD. 

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