Report of the

Defense Science Board

Acquisition Workforce Sub-Panel

of the Defense Acquisition Reform

Task Force

On

Defense Reform

OFFICE OF THE UNDER SECRETARY OF DEFENSE

FOR

ACQUISITION AND TECHNOLOGY

WASHINGTON, D.C. 20301-3140

March 1998
This report is a product of the Defense Science Board (DSB). The DSB is a Federal

Advisory Committee established to provide independent advice to the Secretary of

Defense. Statements, opinions, conclusions and recommendations in this report do not

necessarily represent the official position of the Department of Defense.
OFFICE OF THE SECRETARY OF DEFENSE

3140 DEFENSE PENTAGON

WASHINGTON. DC 20301-3140

DEFENSE SCIENCE

BOARD

19 Mar 98

Dr. J. S. Gansler

Under Secretary of Defense for Acquisition and Technology

The Pentagon

Washington DC

I am forwarding the final report of the Acquisition Workforce Sub-Panel of the Defense

Acquisition Reform Task Force. This report provides three policy recommendations, based on the

overarching theme of more closely integrating DOD with industry. The Sub-Panel believes that

improved integration with industry is the critical element that will enable the acquisition system to

perform better, faster, and cheaper in support of the warf’ighter.

The recommended policy initiatives are that DOD should:

1 . Restructure its Research, Development, Test, and Evaluation (RDT&E)

organizations and associated workforce to enable the Department to make

better use of the capabilities of industry and other government agencies, to

concentrate in-house capabilities in areas where there is no external capability,

and to eliminate duplicative capabilities.

2 . Expand the use of price-based forms of contracting to reduce the cost of

doing business with Department of Defense (DOD) for existing Defense

contractors and to give DOD access to segments of industry that currently

choose not to do business with the Department because of the costs and

complexities associated with cost-based contracts.

3 . Expand the outsourcing of sustainment activities to eliminate duplicative

capabilities between DOD and industry, to enable the Department to capitalize

on industry’s advancements in applying technology to these functions, and to

provide better support to the user.

The Sub-Panel believes that these policy changes, and the specific actions that are detailed

in the report, will enable the acquisition system to deliver to the warfighter the systems and

equipment needed for success on future battlefields. The Sub-Panel acknowledges that some of its

recommendations represent dramatic departures from current ways of doing business, but is

nevertheless convinced that major change is necessary.
I endorse the recommendations in this report, and I encourage you to adopt both the

recommended policies and the specific actions based on those policies. The Board, as always,

stands ready to assist with the difficult but vitally important implementation process, I encourage

you to accept the Sub-Panel’s proposal that they be tasked to return in six months to provide you

with an independent assessment of the Department’s progress in acting on their recommendations.

Dr. Craig I. Fields

Chairman

’
DEFENSE SCIENCE

BOARD

THRU

TO

OFFICE OF THE SECRETARY OF DEFENSE

3140 DEFENSE PENTAGON

WASHINGTON. DC 20301-3140

March 16, 1998

Dr. Robert J. H

Chairman

Defense Scie

The Pentagon

Washington, DC

k Force o n Defense Acquisition Reform, Phase IV

Dr. Craig I. Fields

Chairman

Defense Science Board

The Pentagon

Washington, DC

Attached is the report of the Defense Science Board Acquisition Workforce Sub-Panel. The SubPanel was tasked to examine acquisition organizations and functions, with a special emphasis on

how the acquisition workforce should be reshaped to contribute to the objective of performing

acquisition better, cheaper, and faster. Our product is a proposed blueprint for change.

Before summarizing our conclusions and recommendations, we acknowledge that many of our

proposals call for sweeping, dramatic changes in the way the Department carries out acquisition,

and that implementing these changes will be tremendously challenging. To assist with the

implementation process, we suggest that the Under Secretary of Defense for Acquisition and

Technology (USD[A&T]), after determining which of our proposals he chooses to adopt, task

our Sub-Panel to reassemble in six months to provide him with an independent assessment of the

plans and progress that the Department of Defense (DOD) has made in carrying out the approved

recommendations. We believe that such an assessment would be exceptionally helpful to DoD

executives in maintaining their focus on the overall objectives of the changes, particularly as they

become immersed in the complex details of implementation.

Our primary focus has been on the warfighter, who is the ultimate user of the weapon systems

and equipment that the acquisition process provides. The objective of better, cheaper, and faster

acquisition must be defined from the war-fighter’s perspective. The acquisition process must be

+ better so that the warfighter has the high-quality, leading edge systems needed to

maintain technological superiority;

+ cheaper so that the acquisition process is carried out efficiently, enabling the

Department to make the best use of limited resources: and
+ faster so that systems go from system commitment decision to fielding more quickly

in order to be available for the warfighter when needed.

During our deliberations, the dominant theme that became clear to us is that DOD must take

aggressive action to more closely integrate itself with American industry. We reached this

conclusion first by recognizing, as stated in Joint Vision 2010, that information dominance will

be critical to our Nation’s success on future battlefields, and then by determining that most of the

technological advances that contribute to American superiority in information warfare arise in the

non-Defense sector of industry. Closer, more effective integration with the considerable

capabilities that industry possesses will give DOD access to these capabilities, and will also

eliminate the unaffordable duplication of capabilities that exists in today’s acquisition

environment. Also, by broadening the industrial base, closer integration with industry will allow

for far greater use of competitive market forces to assure best performance at lowest cost to DOD.

From this theme we developed three major policy recommendations, supplemented by a number

of specific recommendations. The policy recommendations are that DOD should:

+ Restructure its Research, Development, Test, and Evaluation (RDT&E) organizations

and the associated workforce to integrate them more effectively with industry. This

will eliminate duplication, permit DOD to remain on the leading edge of technology in

those key areas where industry’s investment is significantly more than DOD’S, and

free up assets to enable DOD to concentrate on technology areas that do not have

commercial analogues.

+ Expand the use of competitive, price-based contracting. This will give DOD access to

high-technology firms that presently choose not to do business with the Department

because of the cumbersome and costly procedures associated with cost-based

contracts. It will also reduce the cost of doing business with existing Defense firms.

These leading edge companies frequently possess the technological capabilities that

are essential to DOD’S success on future battlefields and by expanding the field of

play, we increase the impact of competitive, capitalistic forces.

+ Expand the outsourcing of sustainment activities that need not be performed in-house.

This will eliminate duplication of capabilities with industry in such areas as product

support of fielded systems, commodity support, and services. These represent areas

where industry in recent years has made dramatic progress, and where DOD could

significantly improve effectiveness and efficiency by relying on industry to perform

the functions.

Based on these principles, our report provides a number of recommended actions, five of which

are particularly critical to implementing our proposed blueprint for change. They are:

+ Restructure RDT&E. This recommendation fleshes out the first principle, and calls for

DOD to take direct action to eliminate any in-house RDT&E capability that can be

found in the private sector and to form cooperative agreements with industry and

2
other government agencies so that DOD can draw upon their capabilities.

+ Establish an all-Service development Command, Control, Communications,

Computers, and Intelligence (C4I) capability. In spite of the recognized need for

interoperable C4I systems to support joint operations, US forces continue to succeed

in spite of, rather than because of, our C41 systems. In order to provide a foundation

from which improved integration and interoperability can proceed, we recommend

that key Army, Navy, and Air Force program management teams responsible for C41

systems for which there is a joint warfighting requirement be collocated at a single

installation. This would be the first of several such integration actions.

+ Increase the use of price-based forms of contracting. Several contract vehicles exist

that do not carry the onerous overhead burden of cost-based contracts, and their use

must become the rule rather than the exception. The greatest management challenges

that must be overcome are to develop feasible price-based contracting options that are

both performance-based and competitive, and to educate the acquisition workforce in

these alternatives to cost-based contracts.

+ Give Program Executive Officers (PEO) and Program Managers (PM) full

responsibility for life cycle support of their systems, to include funding responsibility.

The current practice of terminating a program manager’s responsibility when a system

is fielded contributes to higher life cycle costs, because it gives the PEO/PM no

incentive to work on initiatives, during development or after fielding, that would

make systems easier and cheaper to maintain and operate.

+ Redesign the nature of acquisition work. Our recommendations will result in a much

smaller group of acquisition professionals who will be performing different jobs than

they do today. The members of the new acquisition workforce must become more

skilled as managers rather than as doers, more focused on systems engineering and

less on component development, and more capable of making business judgments

rather than being guided by rule-based thinking.

3
Impact of Policy Changes on As summarized in the

Acquisition Metrics . accompanying table, our

recommendations will

have a direct and

Policy Changes Better Cheaper Faster immediate impact on the

Restructure RDT&E l Commorcial . Duplication l Technology

technology between Services upgrade Department’s ability to

Expand Price-

. Gov’t lab product.

. Commercial

Snd with indurtry

l Contracting perform the acquisition technology

Based Contracting and faster.

Outsource Product l Operational - O&S costs

availability

l Parts delivery

l Duplication with

support l Reliability industry Implementation of our l Infrastructure costs proposals will reduce

Outsource l Quality commercial l Duplication with l Faster receipt

commodities industry IM 8nd acquisition costs and

Commodities . Variety distribution

. Easy to order - Infrastructure costs

. Inventory

total cost of ownership,

Outsource . Services with better l Economies of scale

technology will enable the

Services acquisition system to

deliver weapon systems

and equipment to the

war-fighter more quickly,

and will ensure that those systems and equipment give the warfighter technological superiority on

the battlefield. We strongly encourage DOD to view these recommendations with a bias toward

taking aggressive action. We are convinced that continued incremental improvements are not

what DOD needs, and that only bold actions will enable the acquisition community to make the

progress that is essential.

We welcome the opportunity to have undertaken this study, and would like to express our

appreciation to the many DOD personnel who assisted us. This includes the members of the

Senior Support Group, who participated in many of our meetings and provided valuable insights;

the members of the Joint Working Group, who did excellent work in providing staff support; and

the numerous individuals from the Office of the Secretary of Defense Staff and Services who

provided briefings or participated in the panel discussions that were tremendously helpful to us in

identifying issues and potential solutions.

4

process better, cheaper

. Inventory
~uapnn

William G. T. Tuttle, Jr.

ChairmanlLA2h4d& .

Richard L. Rumpf ’ 0

5

Foreword

The report summarizes the work of the Defense Science Board Acquisition Workforce SubPanel, which the Under Secretary of Defense for Acquisition and Technology (USD[A&T])

established to examine acquisition organizations and functions, with a particular emphasis on the

implications for the acquisition workforce.

Cognizant of the slow pace of change that has resulted from similar studies in recent years, we

determined that DOD must adopt a more aggressive course of action in order to more rapidly

achieve the overarching objective of making the acquisition system better, cheaper, and faster.

We believe major change, rather than incremental improvement, is needed, and the opportunity is

now. We encourage DOD to recognize that this is an opportune moment to bring dramatic and

long-overdue changes to the acquisition community, and to read this report in that light. We

suggest that executives adopt a bias toward bold, “outside the box” actions.

Table of Contents

Foreword

Executive Summary ............................................................................................................... ES-l

Section I: Tasking and Methodology

Requirement and Guidance .......................................................................................... I-2

Goal and Guiding Principles ........................................................................................ I-3

Study Methodology ...................................................................................................... I-5

Study Approach ............................................................................................................ I-7

Section II: Annotated Briefing

Restructure RDT&E .................................................................................................... II-2

Expand Price-Based Contracting ............................................................................... II-17

Outsource Product Support ....................................................................................... II-27

Outsource Commodities ............................................................................................ II-41

Outsource Services .................................................................................................... II-49

Refocus Acquisition Leadership Development ......................................................... II-54

Integration with PPBS ............................................................................................... II-60

Major Policy Changes ............................................................................................... II-62

First-Order Recommendations .................................................................................... II-63

Composite Impact of Policy Changes ....................................................................... II-64

Estimated Cumulative Impact of Proposals on Acquisition Workforce ................... II-65

Estimated Cumulative Funds Available for Reinvestment ........................................ II-66

Conclusion ................................................................................................................. II-67

Appendices

A

B

C

D

E

F

G

H

I

J

K

L

M

Glossary

Extract from the FY98 National Defense Authorization Act

Terms of Reference

Biographical Sketches of Sub-Panel Members

Members of the Senior Support Group

Members of the Joint Working Group

Topics and Participants for DSB Sub-Panel Meetings

Workforce Composition

Streamlining Opportunities

DCAA and DCMC Workforce Analysis

Materiel Management Performance Indicators

Product Support

Bibliography

Executive Summary

The Under Secretary of Defense for Acquisition and Technology (USD[A&T]) tasked the

Defense Science Board (DSB) to review the Department’s acquisition organizations and

workforce, and to recommend changes that would lead to better, cheaper, and faster acquisition.

This report is the result of that intensive assessment. It contains a proposed blueprint for change

which we believe will lead to Defense acquisition organizations and a workforce that can acquire

high quality products and services better, more quickly, and at lower cost.

Focus on the Warfighter

While our recommendations are directed at the Department’s acquisition infrastructure, they are

nevertheless designed to directly benefit the warfighter and contribute to improved mission

readiness. As the Department strives for an acquisition process that will perform better, cheaper,

and faster, we believe that the criteria should be measured from the warfighter’s perspective in

addition to any “business” perspective that might be considered. We suggest that better, cheaper,

and faster acquisition contributes to mission readiness, and thus to the warfighter, in a very direct

fashion:

+ Better acquisition ensures that the warfighter has the high-quality, leading edge

systems needed to maintain technological superiority on future battlefields.

+ Cheaper acquisition enables the Department to make the best possible use of limited

resources and ensures that the warfighter gets the greatest return from each dollar.

+ Faster acquisition enables systems to move from system commitment decision to

fielding more quickly in order to be available for the warfighter when needed.

Closer Integration with Industry

One overarching theme emerges from our assessment. That is the compelling need for Defense

officials and the Congress to recognize that the key to maintaining our technological edge on 21st

Century battlefields is to more closely integrate the Department of Defense (DOD) with

America’s dynamic, innovative and competitive industrial base. As the pace of technological

change continues to accelerate, it will become even more important for DOD to access the best

that US industry can provide, both in acquisition and support. Otherwise, without substantive

changes, the pervasive increase in technological complexity will either underwhelm or

overwhelm the Department.

ES-1
On the one hand, technological advances will likely pass by a DOD Research, Development, Test,

and Evaluation (RDT&E) structure that is unaware of the broad US industrial base and a

contracting system insensitive to commercial market forces. DOD will be underwhelmed by not

accessing the best the US can offer.

On the other hand, unless DOD can access the commercial industry infrastructure that supports

modern and rapidly changing technology, technological complexity will overwhelm the

Department’s support capabilities necessary to keep weapon systems at a high level of readiness

for longer useful lives.

At the same time, it has become clear that Defense priorities and budgetary pressures will no

longer permit DOD to retain the redundant capabilities of acquisition organizations that marked

the Cold War era -redundancies among Services and redundancies with industry capabilities.

While such duplications of RDT&E and sustainment capabilities may once have had

justification, they are no longer appropriate. The resources tied up in such redundant activities

represent lost opportunities for investment in modernization, training, and the quality of life of

the Nation’ s forces.

A prime example of the importance of keeping pace with technology is in the information

technology area. Joint Vision 2010 makes clear that information dominance will be the core of

the military’s war-fighting capabilities. Yet the technology advances that will enable such

information dominance are taking place largely in the non-Defense commercial sector, outside

the Defense industrial base and DOD’S own large RDT&E infrastructure.

Closer integration with America’s industry can produce continuing access to the leading edge

technology so necessary to achieving information dominance and other combat capabilities. And

closer integration can help to eliminate unnecessary duplication of RDT&E and sustainment

capabilities.

Three Policy Recommendations

Major Policy Changes

+ Restructure RDT&E organizations

- Use industry and other government capabilities

where equal to or better than DOD’S

w Concentrate in-house efforts on areas with no

industry analogue

- Eliminate internal duplication

+ Expand use of price-based contracting

+ Expand outsourcing of sustainment activities

- Product support

- Commodities

- Services

ES-2

The foundation of our proposed blueprint

for change is the combination of three

major policy initiatives, all resting upon a

cornerstone of closer integration with

industry.

1. Restructure RDT&E

organizations and the

associated workforce to

integrate them more effectively

with industry. This will enable

DOD to:
+ Use industry capabilities and other government capabilities (e.g., National

Aeronautics and Space Administration [NASA] and Department of Energy

[DOE]) where they are equal to or better than DOD’S, producing faster integration

of technology into DOD systems with less investment. The dynamic world of

information technology, software, and electronics is a commercially driven area

that DOD must fully exploit but not try to duplicate.

+ Concentrate DOD’S organic RDT&E capabilities on those areas where neither

industry nor other government agencies possess the required capabilities.

+ Eliminate duplication among the Services, thereby allowing more focused

investment in retained capabilities.

+ Shift the workforce toward managing RDT&E tasks rather than performing them.

2 . Expand the use of price-based contracting, reducing the need for cost-based

contracting, especially in RDT&E. This will allow Defense to take much greater

advantage of industry capabilities, particularly where the pace of technological change

is rapid and where companies avoid DOD work because of the high costs associated

with cumbersome cost-based contracting rules. This proposal extends the contracting

reform legislation and process changes of the last several years, which have permitted

already evident improvements in the acquisition of commercial products and services.

3 . Expand the outsourcing of the sustainment activities of the Services and DOD

Agencies. This has been a major recommendation of numerous DOD studies in the

last decade, but progress has been slow. It would eliminate large-scale duplication

with industry in product support of weapon systems and equipment; in providing

supplies, such as food, clothing, and common hardware; and in providing services in

base operations, information management, and other functions. Expanded outsourcing

would also enable DOD to take advantage of the explosive improvements in industry

in the last decade or so in harnessing information technology to improve

responsiveness, reduce inventories, and make technical assistance quickly and easily

available. DOD should take advantage of acquisition reform legislation by making

these sustainment services more easily attainable by DOD while still protecting the

Government’s interests in fair, responsible procurement.

Immediate Action

From a number of actions recommended as part of the three policy changes, we selected five that

we believe are essential to launching the blueprint for change that we propose.

ES-3
We strongly encourage the Department to use our Sub-Panel to assist with implementing our

proposals. Specifically, we recommend that our team be reconvened periodically to provide the

USD(A&T) with an independent assessment of implementation status. This assessment should

be conducted approximately every six months for the first 18-24 months and should address such

issues as the adequacy of the Department’s implementation plans to achieve the purpose we

envisioned, the timeliness of implementation actions, the extent to which cultural and other

barriers are impeding full implementation, and corrective actions needed to keep implementation

First-Order Recommendations

+ Restructure RDT&E activities

+ Establish all-Service C4I development

capability

+ Increase use of price-based forms of

contracts

+ Expand PEO/PM responsibility for life-cycle

support, to include funding responsibility

+ Redesign the nature of acquisition work

Recommend DSB Sub-Panel reconvene in six months

to review implementation

on track consistent with the USD(A&T)'s

guidance.

Restructure RDT&E

Maintaining in-house RDT&E capabilities

that essentially duplicate those found in

industry not only is unaffordable, but it

also keeps DOD behind the technology

curve, because the Department is

frequently not agile enough to periodically

reinvent the workforce in order to keep

itself staffed with sufficient numbers of

leading edge technologists. We therefore

recommend that DOD policies recognize the need to eliminate any in-house RDT&E capability

that can be matched by the private sector or other government agencies, and form the necessary

cooperative agreements with those industrial activities to enable DOD to take advantage of the

rapid technological change that is occurring, especially in information technology. The

restructuring will also facilitate DOD RDT&E project leaders coming in contact with these

technologies and optimizing their usefulness in DOD systems.

Establish all-Service Command, Control, Communications, Computers, and

Intelligence (C4l) development capability

Joint Vision 2010 makes it abundantly clear that future US military operations will be

increasingly joint in nature, and that information dominance will be critical to success on the

battlefield. To foster greater jointness and interoperability in C4I hardware and software, and to

achieve the goals of Joint Vision 2010, we recommend that DOD collocate to a single installation

elements of existing Army, Navy, and Air Force program management teams that have

responsibility for managing the development of C4I systems for which there is a joint

warfighting requirement. This recommendation maintains the warfighting interests and fiscal

responsibilities of the Services, yet provides the human environment to facilitate better long-term .

coordination and cooperation. We see this recommendation as the first of several such changes

that need to be implemented to improve the joint warfighting effectiveness of our 21st century

military forces. Other - and more fundamental - actions that would contribute to enhanced

joint C4I capabilities are to improve the joint process for determining system and support

ES-4
capability needs and to form a military systems engineering capability, as outlined by the DSB

Task Force on Command, Control, Communications, Computers, Intelligence, Surveillance, and

Reconnaissance (C4ISR) Integration in February 1997. We believe our collocation

recommendation will facilitate the accomplishment of those objectives.

Increase the use of price-based forms of contracts

Industry incurs considerable cost to comply with the rules associated with cost-based contracts,

and these costs are passed on to DOD, thus increasing cost and procedural burdens for both the

government and industry. In addition, these same cost and procedural obstacles deter many

leading edge technology firms from doing business with the Department. To minimize both these

effects, DOD should implement the second of our three major policy initiatives by making pricebased contracts, contracts under Federal Acquisition Regulation (FAR) Part 12, and “other

transactions,” the preferred method of buying technology. It should be DOD policy that pricebased contracts will be the rule rather than the exception. This will require extensions and

expansions of selected pieces of legislation, but the primary requirement will be a focused effort

to change the mindset of those contracting officials who prefer cost-based contracts. They should

come to understand that - through skillful use of business judgment - the public trust can be

maintained in a competitive environment without the imposition of costly oversight rules.

Give Program Executive Officers (PEO) and Program Managers (PM) expanded

responsibility for life cycle support of their systems

In today’s environment, most PEOs and PMs are responsible for developing and fielding weapon

systems and equipment, but their responsibilities generally end once the system is fielded. We

believe that this practice results in much higher life cycle costs than should be the case, because

the PEO/PM does not have adequate incentive or responsibility for taking action during

development or modification of the systems to invest in equipment features that will improve the

reliability and maintainability of the fielded system, and it divides the responsibility for system

support among many agencies. We recommend that the PEO/PM be given control of funding and

responsibility for the system throughout its life cycle (with the exception, of course, of those

funds normally provided to operational commanders for repair parts), and that annual personnel

performance evaluations/fitness reports include an assessment of how well the PEO/PM is

progressing toward achieving reduced life cycle costs.

We further recommend that the USD(A&T) direct the Services to implement this arrangement

for all fielded weapon systems and equipment. It will facilitate the outsourcing of systems

support and overseeing upgrades to counter obsolescence problems of fielded systems.

The result would be a single manager focused on maintaining a system’s operational readiness

and reducing its operating and support costs, a concept that has been successfully demonstrated

by the Navy’s Fleet Ballistic Missile Program over many years.

ES-5
Redesign the nature of acquisition work

The preceding recommendations call for greater reliance on industry to perform RDT&E, for the

development of a new jointness in the development of C4I and other systems, for a new

philosophy in the way DOD writes contracts with industry, and for an enhanced role of the

PEO/PM in managing a system through its life cycle. All of these signal our fifth major

recommendation, namely that the Department redesign the nature and character of the work that

its much smaller group of future acquisition professionals will perform. In this regard, members

of the DOD acquisition workforce must become more, and they must become less:

+ More manager and leader and less hands-on doer.

+ More focused on systems engineering and less focused on “black box” component

design.

+ More capable of making “business” judgments based on insightful understanding of

industry operations and technological change, and less guided by rule-based thinking.

A key workforce-related action that DOD should take is to implement the central management of

assignments and professional development of the acquisition professionals who will staff and be

groomed for the “Top 500” acquisition positions - PEOs, PMs of major systems, product center

directors, etc. - by the USD(A&T), Component Acquisition Executives (CAE), and other senior

managers.

Implementation - A DOD-Congressional Partnership

It is clear to us that the goal of these recommended changes - the creation of an even more

effective and efficient DOD acquisition organization and workforce that better meet future

defense needs - will not be realized without the full support and commitment of both the

Congress and DOD. It is clear from our own experiences, ratified in the briefings we received

from senior acquisition officials during this study, that without Congressional support, DOD

cannot implement even those proposals for which it already has legal authority. It is axiomatic in

Congressional-Executive branch relations that it is acceptable to add government jobs to a state

or Congressional district. But attempts to move functions or people away to another state or

district inevitably face a much more difficult approval process.

Most of the changes we recommend require restructuring to produce the changes we believe are

necessary to enhance the ability of DOD to make acquisition of the best available technology

affordable and to keep our armed forces in a position of dominance. However, the mere cutting

of people without the restructuring and other measures recommended will hollow out DOD’S

RDT&E and support capabilities, will retain only the most senior people regardless of skills and

technological knowledge, and will prevent DOD from bringing in fresh scientific, engineering,

and logistics management talent. And that can only lead to diminished capability for our

operational forces.

ES-6
It is our view that DOD and Congress can and must work as a team to ensure that these

recommendations can be implemented, making them as humane and caring as possible for the

adversely affected workforce members and as politically palatable as possible to Congress. We

suggest below the legislative changes needed to facilitate the implementation. They are essential,

but only the willing cooperation of the Congress will allow progress to take place. We believe it

is incumbent on both DOD and the Congress to make every effort to work together toward the

common objective of better, cheaper, and faster acquisition in support of the warfighter.

Legislative Changes Required

In addition to the partnership just described, implementation of our recommendations will

require support from Congress in the form of legislative changes. These are summarized here.

Reason

Open the “revolving door” in order to

+ Facilitate understanding of military needs in

industry as well as military knowledge of new

technology

+ Get technolony leading: edge into Defense

Allow better use of term employees

Expand use of Intergovernmental Personnel Act

(IPA) program to include participation by members

of industry

Allow for full realization of financial benefits

Realize full benefits of outsourcing product support

Allow greater use of micro-purchases

Continue/expand/amend “other transactions

authority”

~ Change

~ Rely on the Procurement Integrity Act (41 US Code

(U.S.C.) Section 423)

Repeal 18 U.S.C. Section 207

Amend 5 U.S.C. (various sections)

Amend Intergovernmental Personnel Act of 1970 (5

U.S.C. Sections 337 l-3376)

Enact Base Realignment and Closure Authority

(BRAC) authority

Omit annual limitations on in-house depot

maintenance in authorization and appropriation acts

Amend 41 U.S.C. Section 428 to increase threshold

to $l0K

Amend 10 U.S.C. Section 2371 to make OTA

permanent for prototype projects and to permit pilot

project for production

Benefits

Our three major policy recommendations will contribute to better, cheaper, faster acquisition, and

to improved battlefield capabilities for the warfighter.

Restructuring RDT&E will result in:

+ Faster technology delivery to the warfighter, by more effectively coupling needed

DOD technology with the innovative capabilities of industry.

ES-7
+ Reduced investment requirements and improved RDT&E efficiency, by using

industry capability where existing or feasible and eliminating cross-Service and

national laboratory duplicative capability.

Expanding the use of price-based contracting will result in:

+ Reduced cost of non-value added processes for Defense and

tailoring and eliminating current requirements of cost-based

commercial firms, by

contract vehicles.

+ Better, cheaper, and faster delivery of capabilities to warfighters, by facilitating

military use of non-Defense companies, particularly in areas where the pace of

technological change is rapid.

Outsourcing product support, commodities, and services will align DOD with commercial

practices and processes, and will result in:

+ Improved war-fighting capability.

+ A DOD infrastructure that stays on the leading edge of process technology.

+ Reduced cost through the application of cost-cutting competition.

Implications

The proposed policy changes will have significant implications for DOD’S acquisition

organizations and workforce.

Whenever workforce reductions and organizational changes are proposed, the question of BRAC

arises. We have not developed our recommendations at a level of detail that requires BRAC

actions - such as recommending the closing of a specific installation. However, we believe that

in order to fully realize the potential financial benefits associated with our proposals, the

Department will need BRAC authority. At the same time, we point out that BRAC authority is

not required to begin implementation of our recommendations, and that even without BRAC, our

recommendations will lead to meaningful improvements in the quality, speed, and cost of the

acquisition system

Implications for Acquisition Organizations

There will be a shift toward all-Service organizations and away from Service-unique structures as

development programs, labs, and test facilities are merged into DOD-wide centers of excellence.

While the precise organizational form must be tailored to each situation, we believe that these

consolidations should usually be accomplished by collocating the major elements and

ES-8
designating a lead Service. We do not believe that a Defense agency is necessarily an effective

solution in these cases.

While most of these all-Service centers of excellence are envisioned in the RDT&E community,

we also expect that similar organizational arrangements will be possible in other areas. For

example, in subsequent pages we recommend that many of the existing organizations that

perform product support be eliminated as the functions are outsourced to industry, with funding

control and oversight by system PMs. The PMs most likely would be part of the all-Service

centers of excellence, which could become life cycle “product centers.”

When our policy recommendations are implemented, the remaining organizations will have a

program management orientation, as opposed to their current development and production focus.

The hands-on “doing” of the acquisition process will be, to a large extent, turned over to

industry, and government managers will shift their focus to managing the contractors rather than

managing the actual development and sustainment programs.

The shift away from hands-on doing of functions to a higher-level management responsibility is

expected to bring a higher grade structure to DOD organizations, since the “doing” functions are

accomplished by lower grade engineers and technicians. At the same time, Defense acquisition

organizations will be smaller, and there will be fewer of them.

Implications for the Acquisition Workforce

Changing the mix of workforce skills for the future is a critical success factor in implementing

our recommendations. The future acquisition workforce must be populated by a greater

proportion of generalists who have a broad base of knowledge and experience in more than one

part of the acquisition process. New training and education programs, as well as new recruitment

and assignment policies, will be needed to enable the Department to develop such a workforce.

Our recommendations call for a substantial reduction in the current acquisition workforce1. The

RDT&E restructuring actions would reduce the requirement for current skills by nearly half. To

acquire the needed additional skills, technologists working under terms of the IPA should be

recruited, and new term employees should be hired. As additional members of the current

workforce reach retirement, the preponderance of the scientific and engineering management

talent would be in term appointments with relatively free movement between Defense

organizations and industry, universities, and other Research and Development institutions.

Similarly, the sustainment workforce would gradually be reduced to those skilled individuals

involved in overseeing industry-provided product support, commodity distribution, and services.

Term appointments should be used to attract promising talent from industry with acknowledged

1We decided to address only the civilian component of the acquisition workforce. The significant cultural

differences among the Services in how they manage military acquisition professionals made it difficult to develop

cohesive recommendations in the short time available for this study.

ES-9
free movement back to industry. In that way, sustainment managers would stay

the world class logistics expertise found in America’s competitive industry.

Implications for Leadership Development

The implications for leadership development represent

in capitalizing on the talents of our workforce.

better abreast o f

a particularly critical part of the equation

We recommend that the USD(A&T), CAEs, and other senior managers take charge of the

professional development and assignment of individuals who serve in, or are candidates to serve

in, the top 500 acquisition positions. The essence of this recommendation is that senior

acquisition executives should manage the professional development and assignments of these

selected individuals in much the same way that large corporations manage the careers of their top

executives. To achieve the objective of grooming and developing individuals to fill the Top 500

positions, this recommendation would require the management of a larger number, perhaps 700-

800, acquisition professionals. Once identified as a member of the Top 500, an individual’s

career should be managed so that he/she proceeds through successively broadening assignments,

with the payoff for the Department coming when the individual reaches the most senior levels of

the acquisition community.

We also recommend that some number, perhaps 75-100, of these Top 500 positions be

designated for position pay. This would not be performance-based compensation, but rather a

special compensation for the incumbents, recognizing that the positions carry special

responsibilities and that the individuals selected for them deserve at least the equivalent of the

highest warfighting proficiency pay. Such an approach would serve as an incentive to the Top

500 to actively seek out the more challenging and responsible assignments.

The increased expertise DOD needs at any point in time might very well reside in industry or

academia, particularly in fields where the pace of technology change is rapid. We recommend

that DOD actively recruit potential leaders from outside the Department. It is very important that

DOD seek legislative change to open the revolving door between government and industry, a

loosening of the rules governing IPAs, and the use of innovative approaches such as renewable

term contracts that allow an individual to return to industry after serving with DOD for four or

five years.

The training and education process must be a career-long effort that keeps each individual on the

leading edge of technological and business issues. While acquisition training has improved in

recent years, training programs are not focused on developing judgment skills. We need a new

approach to acquisition training, in which we provide less training on rules and procedures, but

more education on the development and application of judgment and case-based skills. The DOD

school environment might not be the only or best place to conduct such training. In-house

training can help new acquisition professionals learn procurement law and the FAR. But the main

thrust of acquisition learning should shift to education programs conducted for the Department

by universities and other organizations that specialize in executive education and development.

ES-10
Implications for the Size of the Acquisition Workforce

The following table identifies the projected impact that our recommendations will have on the

size of the four components of the acquisition workforce that we considered. The table shows the

FY98 civilian workforce, the size of the workforce programmed for FY03 in the most recent

Future Years Defense Program (FYDP), and the workforce that results from applying our

recommendations. The DSB figures include IPA and term employees who would be added to the

workforce under our proposals.

Workforce Category

FY98

Civilian Workforce (Thousands)

FY03 - August 1997 FY03 - Based on DSB

FYDP Proposals

RDT&E 78.2 64.0 42.1

Oversight 18.5 16.5 9.3

Product Support 97.6 90.2 49.5

Commodity Support 21.9 16.1 10.6

Conclusion

We conclude that if DOD makes the policy changes described in this report, initiated by the five

specific actions discussed above, acquisitions will be better, cheaper, and faster. Integrating a

smaller acquisition structure with industry will enable significant reduction of both RDT&E and

sustainment organizations and their workforces. The remaining structure can concentrate on

those tasks which only the Department can do, but the professional acquisition workforce will

have the tools to oversee industry’s production and sustainment of leading edge technology for

the Nation’s armed forces.

Our recommendations do not suggest that nothing has been done in these areas. But, due in large

measure to difficulties in achieving political consensus, DOD’S actions have been tentative and

incremental. Our recommendations are intended to encourage the Department and Congress to go

further and faster in implementing these concepts. Building on the initial steps that have been

taken, it is now time for DOD and the Congress to move out more aggressively and on a broader

front to reap the benefits of these proposals.

ES-l1
ES-12
Section I

Tasking and Methodology

This section explains the genesis of this study and describes the approach and methodology the

Sub-Panel used to conduct its deliberations.

I-l
Requirement and Guidance

+ FY98 Defense Authorization Act calls for an

independent study of acquisition organizations

+ USD(A&T) guidance:

* DSB Sub-Panel will lead the study, with a focus on the

associated workforce implications

- Changes in technology and in the role of government must

drive the size and activities of the acquisition workforce, to

include their skills, knowledge and behavior

- The product of the study will be a blueprint identifying

opportunities for changes in process, organizational design,

and the workforce transformation that leads to a better,

cheaper, and faster acquisition system

This study was prompted by the National Defense Authorization Act for FY98. Section 912(e) of

the act directed the Secretary of Defense to require that an independent body examine “the

missions, functions, and responsibilities of the various acquisition organizations of the

Department of Defense, including the acquisition workforce of the Department.” An extract of

the act is at Appendix B.

The USD(A&T) charged the Sub-Panel to review and assess the DOD acquisition system of the

future, with a special focus on how that emerging system will affect the workforce. The terms of

reference document for the study is at Appendix C.

I-2
L

Goal and Guiding Principles

Goal

An acquisition workforce that achieves better, cheaper, faster acquisition

Guiding Principles

l View acquisition as a full life-cycle process that includes S&T and sustainment

w For new and legacy systems

- To avoid narrow, limited perspectives that focus only on stovepipes

t To recognize connectivity of acquisition & sustainment; don’t lose sight of legacy system realities

+ Increase the acquisition system’s flexibility and responsiveness in introducing technology

- To keep pace with more ambiguous, changeable threat and the accelerating pace of technology

l Use industry and other governmental capabilities more effectively and focus DOD work on

minimum inherently governmental acquisition activities

+ To duplicate within DOD the capabilities of industry is unnecessary, wasteful, unrealistic

- Prefer private sector accomplishment of non-inherently governmental activities

+ Improve processes and reduce organizational barriers

+ Focus on output vice input metrics

When the USD(A&T) formed the Sub-Panel, he established his goal for the acquisition system

and its workforce. That goal is to have a process and a supporting workforce that achieve better,

cheaper, and faster acquisition.

To ensure that our study proceeded from a foundation that was compatible with the Department’s

overall objectives for the acquisition process, we began by developing a set of principles upon

which to base our analysis and recommendations. In an initial guidance session, the USD(A&T)

agreed that these principles provided a sound basis from which to proceed.

The first principle is that we should take a broad view of acquisition. The acquisition process

includes the Department’s science and technology activities at one end of the life cycle, and

extends into sustainment at the other end. We discussed at length the question of “how much” of

sustainment is included in the acquisition system. Our conclusion is that the critical activities of

providing product support are clearly part of the acquisition system, while the sustainment

functions that take place at organizational level in operational units are not.

We make a special point of including legacy systems in our definition. This inclusion has always

been appropriate, but has become even more important in recent years as the Department has

dramatically reduced its procurement of new weapon systems and equipment and has increased

its reliance on systems that were fielded decades earlier. To a large extent, the effectiveness of

the acquisition system will be determined by how well it deals with the challenges of legacy

systems, to include such issues as technology insertion and modernizing through spares.

Effective application of new and emerging technology is critical to most of DOD’S processes, and

acquisition is no exception. Technology enables the acquisition system to perform faster and

I-3
cheaper and is also a key element in enabling functional processes and organizations to operate

seamlessly together and to present a common interface to the end user, whether he be a

warfighter who needs to order repair parts for a weapon system or a contracting officer who

wants to order supplies from a “virtual” online catalogue.

Perhaps the toughest challenge we have given ourselves is in focusing on output or outcome

metrics rather than input metrics. Our basic metrics are found in the goal of achieving better,

cheaper, and faster, acquisition.

Determining whether the system is performing “better” leads us to metrics that tend to be

subjective and difficult to measure, but we know that this must be measured from the perspective

of the user - ultimately, the warfighter in most cases.

A ‘faster” acquisition process has different meanings at different points in the acquisition life

cycle. In the pre-fielding development of weapon systems, we want the acquisition process to

operate as quickly as it can to develop and field new capabilities for the user. But when we reach

the sustainment portion of the cycle, the need for pure speed is replaced by the need for

timeliness - the right goods and services delivered to the user when they are needed.

The most straightforward measure, of course, is “cheaper,” where total cost of ownership and

unit cost give us the best measure of performance.

I-4
Study Methodology

+ USD(A&T) marshaled extensive expertise to address

the issues

- DSB Sub-Panel to lead the effort

- Senior Support Group (SSG) -- acquisition and logistics

executives from across DOD

* Joint Working Group -- Military Department and selected

Agency representatives

+ Information gathering by Sub-Panel

* Conducted extensive discussions with experts from DOD

and other government agencies

* Considered previous DSB studies, Departmental initiatives,

GAO reports, other studies and analyses

The USD(A&T) designated two groups of DOD personnel to assist the Sub-Panel: a Senior

Support Group (SSG) and a Joint Working Group (JWG).

The SSG was composed of senior acquisition and logistics executives from the Military Services

and Defense Agencies, and representatives from The Joint Staff and OSD Staff. The SSG

members attended each of our meetings, at which they engaged in discussions with speakers and

panelists and also provided their considerable insights to assist us in defining the emerging

issues.

Asked to review a near-final draft of this report, the SSG members provided more than 80 pages

/ of thoughtful comments. We carefully considered all of these comments and incorporated many

of them into this final report. We note that the SSG provided numerous comments dealing with

implementation issues at a greater level of detail than we were able to address in our compressed

time schedule. We recognize that many details will have to be worked out to implement our

recommendations, but do not believe that any “showstoppers” have been identified to date.

The JWG members, composed of representatives from the Military Departments and selected

Defense Agencies, provided full-time support to the Sub-Panel and played a major role in

developing DOD’S answers to the questions posed in Section 912(d) of the FY98 National

Defense Authorization Act, an analysis that was conducted in parallel with our study to deal with

Section 912(e) of the same act.

The members of the Sub-Panel, the SSG, and the JWG are identified at Appendices D, E, and F,

respectively.

I-5
To make the best use of the limited time available for this study, the Sub-Panel conducted a

series of focused meetings, each addressing a particular phase of the acquisition process.

Representatives from DOD, other government agencies, and industry were asked to participate in

these meetings, either as speakers or as members of panels. Each of the discussions was

facilitated by the advanced preparation of “forcing questions” to guide the speakers and panelists.

Appendix G contains a list of the primary topics for each Sub-Panel meeting and the participating

speakers and panelists.

I-6
Study Approach

+ Examine the activities of the “Big A”Acquisition process:

* Conduct RDT&E

* Prove Out Advanced Technology

> Integrate Technology and Produce

- Sustain

- Product Support

- Commodity Support

- Services

* Integrate with Other Processes

+ Recommend policy changes

+ Identify implications for:

w Acquisition organizations

- Acquisition workforce

> Resources

+ Develop implementation plans

As noted, we used a broad, or “Big A” definition of the acquisition process. In studying the

process, we found it helpful to decompose it into the sets of activities shown here. The first four

major activities are the elements of the acquisition process, while the fifth represents the

interfaces that acquisition must maintain with other critical DOD processes.

As we studied the acquisition process in these major sets of activities, we developed our

recommended policy changes, and for each of those we identified the major implications for

acquisition organizations and the acquisition workforce. To support our analysis of the impact of

our recommendations, we categorized the workforce into four major components:1

1. The RDT&E workforce, whose members are in the RDT&E organizations of the

Services and Agencies.

2 . The product support workforce, whose members are involved with the support of

Defense equipment. This includes, for example, inventory management, part of the

distribution depots, and the maintenance depots. (We excluded - for now - the

non-deploying installation logistics workforce, which is nearly 100,000 military and

civilian personnel.)

3 . The commodity support workforce, whose members staff the Defense Logistics

Agency (DLA) supply centers and parts of the distribution depots.

1 See Appendix H for a more detailed description of the workforce segments we considered.

I-7
4. The oversight workforce, which consists of Defense Contract Audit Agency (DCAA)

and Defense Contract Management Command (DCMC).

The two other processes that we spent some time on are the requirements generation process and

THE Planning, Programming, and Budgeting System (PPBS).

We concluded that there are opportunities to improve the interface between the requirements

process and acquisition, but the improvements that might be made in this area would have

relatively little impact on the acquisition workforce. We therefore did not pursue these issues in

depth. But while the implications for the acquisition workforce might be not significant, we

believe that significant gains can be made that would benefit the warfighter - the ultimate

customer of the acquisition system -if the interfaces between requirements generation and

acquisition were improved. We therefore suggest that this interface be addressed in a follow-on

study.

On the other hand, it is clear that the interface between PPBS and acquisition does have

implications for the acquisition workforce, and we will address this issue later in the report.

I-8
Section II

Annotated Briefing

DSB Sub-Panel Study of DOD Acquisition

Organizations and the Acquisition Workforce

This section presents the main body of our analysis and rationale for our conclusions. For each of

our proposed policy initiatives we present our recommended actions, the implications of those

recommendations - in terms of acquisition organizations, the workforce, and resources - and

a timeline for initial implementation actions.

The section concludes with a summary of our recommendations and their overall impact on the

acquisition system.

II-1
Restructure RDT&E

+ Rely on industry and other government

RDT&E capabilities when available

+ Consolidate in-house labs with other

government labs and industry

Why Change is Needed

Joint Vision 2010, the Department’s conceptual template for improving the joint warfighting

effectiveness of our rnilitary forces in the early 21st century, depends heavily on DOD’S ability to

leverage new and emerging technological opportunities. Unfortunately, the rapid rate of

technological change, coupled with DOD’S inflexibility in being able to deal with the pace of

change, is about to leave the Department technologically overwhelmed. We note that this

inflexibility can be traced not to dedicated individuals working within the system, but rather to

the system itself.

We are convinced that the only way for DOD to provide the warfighter with the technologically

superior systems essential for battlefield success is to integrate its RDT&E capabilities much

more fully with those of industry, and to rely on industry to provide the preponderance of its

Research and Development (R&D) requirements. DOD spends millions of dollars annually to

maintain in-house capabilities that duplicate those of industry or other government agencies. Not

only is this unaffordable, but it gives the Department a task it cannot accomplish - keeping up

with the pace of change. Industry has demonstrated that it does a far better job of staying on the

leading edge of technology in all but a few areas - and especially in the critical information

technology area -than do DOD’S in-house RDT&E organizations.

This restructuring should also result in DOD’S smaller, more focused RDT&E structure doing the

right things.

II-2
Rely on industry and other government RDT&E capabilities when available

If the private sector has a research and technology development capability that is also maintained

by DOD, the Department should terminate the in-house effort and depend on industry to provide

the required capability. If no private sector capability exists in a given technological field, DOD

should next look to partnership arrangements with leading edge laboratories in other government

agencies, such as DOE and NASA, to fill its needs.

In cases where non-DOD agencies are on the leading edge of technologies, equipment, or

practices and are able to solve difficult development or prototyping problems, the Services

should use these resources in partnership with their organic capabilities and industry suppliers to

reduce development risk. This will allow for reduction of marginal facilities and personnel

support in the DOD acquisition structure. DOD should maintain an internal RDT&E capability

only in that limited number of cases where there is no industrial capability or where the industrial

base is so limited that DOD needs to retain the capability for national security reasons. Those

facilities would deserve focused modernization. These activities should seek to bring in scientific

and engineering talent from industry and universities to contribute to their technological

leadership.

Consolidate in-house labs with other government labs and industry

For those capabilities that DOD must retain in-house, numerous opportunities exist to restructure

organizations and facilities to capitalize on the unique capabilities, ranges and facilities of each

Service or Agency and at the same time to eliminate or significantly reduce duplicative

capabilities and excess capacity. The resulting all-Service “centers of excellence,” as we have

termed them, should be federated with industry and other government laboratories to make their

technological capabilities available for industry research and development projects. They should

also sponsor RDT&E projects in industry and other government facilities. One successful

example has been the consolidation under the Air Force as lead Service for RDT&E in aircraft

propulsion.

DOD should act quickly on our proposed initiatives for C4I and the major range and test

facilities, beginning with actions that can be implemented without BRAC authority. At the same

time, it should develop more comprehensive consolidation plans that would allow even greater

efficiencies through base closures and realignments. Major additional areas that DOD must

consider for cross-Service consolidations are electronic combat, directed energy, and munitions.

RDT&E centers will remain that have a single-Service focus, such as the Navy’s submarine

technology program. They, too, should follow the principles of closer integration with industry

where feasible.

We note that the National Research Council, in a recently-published assessment of a DOD

research laboratory, observed many of the same problems that we have identified. The Council

noted that the lab did not make optimum use of commercial research capabilities, did not focus

its efforts on military-unique problems, and needs to do a better job of integrating its efforts with

II-3
those of other government laboratories. We believe that the Council’s findings in this one lab are

symptoms that would be found throughout much of DOD’S lab structure, and we recommend that

Council assessments of other DOD labs be reviewed for specific areas to be addressed as this

action is implemented.

II-4
Acquisition organizations

Restructure RDT&E

Policy Implications

Acquisition organizations

- Creation of all-Service centers of excellence

- Elimination of duplicative RDT&E capabilities

- First phase:

- “All-Service” C4I development capability

- “All-Service” range command

Acquisition work-force

- Focus on systems integration vice “black box” design

- Business judgment vice rule-based thinking

- Recruit and develop technology leaders

- Transition to renewable-term workforce through addition of IPAs and term

employees

* Management focus on activity costs vice organizational costs

More than 45% reduction from current

RDT&E civilian end strength

Creation of all-Service centers of excellence/Elimination of duplicative RDT&E capabilities

Taken in concert, these two actions will result in a smaller number of in-house RDT&E

organizations. They will be highly focused on technology areas where they possess unique

capabilities, and their day-to-day operations will be characterized by habitual teaming and

partnering with labs and centers in both industry and other government agencies in order to bring

leading edge technology to bear on DOD’S requirements.

We recommend that DOD act promptly on two reorganizations that will bring dramatic

improvements in efficiency and effectiveness.

All-Service C4I capability

In virtually all recent US military operations, our forces have had to contend with C4I

capabilities that were not fully integrated across the Services. Even in the last 15 years, when

technological advancements should have contributed to enhanced interoperability, joint

operations have been hindered by the inability of forces to share critical information at the rate

demanded by modern warfare. To attack this problem, we recommend that DOD establish an allService C4I development capability. This consolidation would have several key features:

+ Elements of all three Military Departments’ C4I program management teams (the

Army’ s Communications-Electronics Command (CECOM), the Navy’s Space and

Naval Warfare Systems Command (SPAWAR), and the Air Force’s Electronic

II-5
Systems Center (ESC) that have responsibility for joint interoperability in the

development of tactical radios, theater communications systems, satellite

communications, surveillance, sensors, and other imbedded C4I systems should be

collocated at a single installation. Collocation would facilitate closer coordination in

developing the linkages necessary to achieving C4I interoperability, while

maintaining Service warfighting focus and fiscal responsibility in a long-term

environment that facilitates understanding and coordination. Note: IPT arrangements

may require some PMs to physically collocate with their prime contractors.

+ Moves of military personnel would be maximized. Moves of civilian personnel would

be kept below 300 per Service to avoid conflicting with legal limitations.

We envision this restructuring of C4I development responsibilities as the first of several similar

actions. Because this collocation of C4I capability is the one action most likely to have an

immediate payoff for the warfighter, it is the best opportunity for demonstrating that such

restructurings represent a sound approach to dealing with cross-Service requirements. The

Department should make this restructuring a matter of high priority, and should draw lessons

learned from the action that would be applied in the near term to other functional disciplines.

In an earlier study, the DSB Task Force on C4ISR Integration recommended other - and more

fundamental - actions that would contribute to enhanced joint C4I capabilities. That Task Force

recommended that DOD improve the joint process for determining system and support capability

needs, and that the Department form a military systems engineering capability. We support those

recommendations, and believe that our proposal to collocate C41 program management teams

would facilitate the accomplishment of those objectives.

All-Service range command

We believe that better use could be made of DOD’S ranges and test facilities if most facilities

were brought together eventually into a joint or all-Service range command. As a first step in this

direction, we recommend that a pilot project be conducted by forming the “Western Test Range

Command.” This new organization would bring together under one umbrella the ranges and

facilities at White Sands Missile Range, China Lake, Edwards Air Force Base (AFB), and others

if appropriate, with the objective of reducing any unneeded or duplicative capabilities or

capacities. Key features would be:

+ The organizational arrangement would include a flag officer commander that rotated

among the Services, reporting to a multi-Service board of directors comprising the

Service directors of testing and evaluation.

+ Expanded conversion to government-owned, contractor-operated facilities would

improve efficiency.

+ Funds for both operations and maintenance and investment would be converted to

Defense-level appropriations and managed by the board of directors. The conversion

II-6
of investment funds would enable senior managers to make better use of limited

investment resources and, thus, to address one of the most pressing problems faced by

range and test facility managers, namely the inability to sustain the level of

investment required to revitalize facilities.

As the Department gains experience with this new organization, lessons learned would be drawn

from the pilot project and applied to further consolidations of additional ranges and test facilities.

Acquisition workforce

As we begin this discussion of the implications for the acquisition workforce, we point out that

this is the area where the need for a genuine partnership between DOD and the Congress is most

essential to success. The Department can implement some of our recommendations on its own

authority, but without the support and cooperation of Congress, it can go only so far in effecting

the critical transformation of the acquisition workforce. The following paragraphs will

recommend that DOD and Congress embrace several personnel management policies that are a

significant departure from business as usual, but that we believe are critical to DOD’S success.

We encourage Congress to welcome this opportunity to dramatically improve the way DOD’S

acquisition workforce is structured and managed.

Focus on systems integration vice “black box” design

The nature of the work that government personnel do will change dramatically when our

recommendations are adopted. The DOD RDT&E workforce should focus more on systems

integration, and less on hands-on engineering and “black box” component design.

Business judgment vice rule-based thinking

As DOD moves to a performance-based business environment in which “insight” becomes more

critical than “oversight,” the acquisition workforce will need a new set of skills. The workforce

will no longer be able to depend on military standards and procurement rules. Rather, they will

need to understand, at a detailed level, the motivation and business aspects of industry.1 Their

skills should include “sourcing” analysis common to manufacturers and market research,

especially in rapidly changing technology areas. As DOD places greater reliance on performancebased requirements that describe “what” DOD wants as opposed to “how” to do it, the acquisition

workforce will need to be able to measure progress and status by developing and understanding

performance-based metrics. Allowing contractors greater flexibility in recommending trade-offs

among performance, cost, and schedule provides a mechanism for them to execute the most

effective and efficient program plan to achieve better results faster and cheaper. The workforce

will need to be more empowered to make the appropriate business decisions based on industry’s

recommendations and their impact on warfighting needs.

1 In this report, the words “industry” and “commercial” refer to all private sector firms. In cases where we mean to

differentiate between firms that routinely or traditionally do business with DOD and those that do not, we refer to the

former as “Defense firms” and the latter as ‘non-Defense firms.”

II-7
Recruit and develop technology leaders

Several of our recommendations depend on new or enhanced programs that will allow DOD to

bring on board experienced scientific and engineering management talent from industry who can

make valuable contributions as members of the workforce. To make this happen, the Department

will need more broadly written IPA rules, a significant easing of the limitations on the “revolving

door” between government and industry, and the establishment of policies to allow for term

employees who can shift easily between jobs in government and industry. These policies will

encourage entry into government of promising early- and mid-career technology managers from

industry. Allowing return to industry will guarantee a cross-fertilization between the all-Service

centers of excellence, other government R&D activities, and industry, promoting the greater

integration we recommend.

A number of legislative changes will be needed to implement this recommendation. The ClingerCohen Act provided some increased flexibility in the employment of former agency officials.

More relaxation is needed to attract scientific and engineering expertise from industry. The

Procurement Integrity Act and 18 U.S.C. Section 207 both contain post-employment restrictions

on government personnel moving into positions with government contractors. Those restrictions

need to be lifted, allowing the opening of the “revolving door” between government and industry.

The Clinger-Cohen Act revised significantly the Procurement Integrity Act. The new Act is

aimed at sanctions against wrongdoing (rather than occupying a particular position in the

government), primarily releasing or obtaining procurement information. The new Act provides

for civil and administrative remedies (and narrow criminal remedies) aimed at both employee

and government contractor activity. Section 207 of Title 18 (a purely criminal statute), on the

other hand, is primarily concerned with contacts or representations to an official’s former agency.

These undefined “contacts” have a profound chilling effect on the government’s ability to lure

the most competent people from industry to staff key upper-level positions. Consequently, there

is a considerable overlap between the new Act and Section 207 regarding post-employment. We

therefore recommend sole reliance on the use of the Procurement Integrity Act and the repeal of

18 U.S.C. 207. This reliance would place more discretion on the imposition of appropriate

sanctions for wrongdoing and would decrease reliance on the criminal justice system, with its

accompanying reluctance and baggage. We believe administrative remedies, in most instances,

can be sufficient. Likewise, repealing Section 207 would result in more decriminalizing of the

acquisition system and would contribute to streamlining the system. Moreover, other criminal

laws, especially the bribery statutes, will remain available to deal with egregious wrongdoing.

The Intergovernmental Personnel Program, which limits participation to personnel from nonprofit organizations and educational institutions, should be expanded to allow for participation by

industry personnel. In addition, once the Intergovernmental Personal Act is amended to enable

the exchange with industry, we strongly recommend that the implementing regulations be

structured in a fashion that would not affect the willingness of prospective critical experts or

specialists to accept government service by undue fettering through stock plans, retirement, etc.

with their employer.

II-8
In addition, proactive professional development programs will be needed to develop workers

once they are on board, whether they are recruited from industry or are among the dedicated

existing corps of acquisition professionals.

Transition to renewable term with mobility required

In addition to allowing the workforce to be mobile between government and industry jobs, we

also expect that individual employees will be asked to be more geographically mobile in order to

build the broad base of skills and experience that will be expected as in-house managers take on

their new role, involving less doing and more managing. New members of the acquisition

workforce should be given five-year renewable term appointments. Given the current average age

of the current workforce, over the next decade or so we would expect the majority of the

workforce to be composed of term employees. This will allow for necessary turnover to

continually refresh technology and management skills, and will provide incentives to maintain

skills in the smaller workforce. In addition, we recommend that DOD continue to move forward

on initiatives being tested as part of the Civilian Acquisition Workforce Personnel

Demonstration project, to include the realignment initiative that delinks separation incentive

from Reduction in Force (RIF), the integrated contribution-based compensation and appraisal

system, and critical skills training.

Management focus on activity costs vice organizational costs

The current DOD financial system was not designed to provide data on the cost of activities in

terms that are meaningful to functional managers. The Department needs to change this by

adopting activity-based costing tools, and then training managers in the use of these tools.

A proven restructuring technique

Many of our recommendations call for significant reductions in the civilian workforce. The

Department has recent experience with a procedure that, with careful planning, can achieve

I meaningful reductions with minimum hardship to the personnel involved. In this preferred

approach, the old organization is disestablished and a smaller, refocused organization is

established. The new organization is staffed with employees from the current workforce based on

matching their skills to organizational needs. The best qualified people are assigned to positions

in the new organization, and some jobs may not be filled initially. Employees not assigned to the

new organization are assigned to a “transition organization.” The transition organization is

funded for a period of time, for example 18 months. During this time, transition organization

employees can be assigned to the new organization if they acquire necessary skills, but are also

provided special assistance in finding employment elsewhere, both within government service

and within private industry. Voluntary Early Retirement Authority (VERA) and Voluntary

Separation Incentive Program (VSIP) are used to minimize adverse impacts if a RIF becomes

necessary when the transition organization is no longer funded. Under current law, people

assigned to the transition organization have the same retention rights as before and may in fact

bump an employee who was placed into the new organization if a RIF is necessary. Actual

II-9
experience with this management technique resulted in a significantly smaller organizations with

only a few people actually being involuntarily separated.

This approach should be applied in all functional areas, not just RDT&E.

II-10
Restructure RDT&E

Resource Implications

Impact on Civilian

Workforce (RDT&E)

64K

60

40 /

Includes IPA/Term

20 -- Workforce

-Programmed

--Proposed

0, r I I I I I I I

FY98 FY00 FY02 FY04 FY06 FY08

$1.14B available for reinvestment over 5 years;

$8.81B over 10 years

See Appendix H for a description of the workforce included in this analysis.

This chart summarizes our estimated resource implications that result from the recommendation

to restructure RDT&E. Our estimates are based on briefings we received, and our own

understanding of estimates made in the Reliance Study, Vision 21, and BRAC 95 analyses.

The line graph depicts two civilian acquisition workforce reduction ramps. The top line

represents the ramp in the Program Objective Memorandum (POM)99 FYDP, and the second

line represents the reduction ramp that we recommend, with IPA and term employees added

back. This ramp equates to an additional reduction of 24.9K in the permanent workforce by the

end of FY03. In that same period, approximately 3K IPA and term employees are added back to

augment the permanent workforce, which results in an in-house, steady state RDT&E workforce

of 42.1 K. This estimate is predicated on making the changes described in the implementation

plan that follows, to include meeting the dates identified in that plan.

Also in the steady state, a total of approximately 3.2K Full-Time Equivalent (FTE) personnel of

present R&D work would be done by industry (2.7K) and other government agencies (.5K) over

the same period. Our analysis projects a 25% workload reduction resulting from the elimination

of duplicative and redundant work. This projection is based on previous estimates in the BRAC

95 and Vision 21 studies. It could vary in either direction. Projections would need to be refined

as the recommended “Basic Technology Development Plans” proceed. Again, these are only our

best estimates and depend entirely on the extent to which DOD can implement the recommended

changes, and the pace at which implementation can be accomplished.

II-11
The pie chart summarizes our view of how DOD would be staffed to perform RDT&E work

functions in the end state (FY03). The FY98 staffing level is used to illustrate how staffing levels

will further shift overtime from in-house staffing to industry, other government agencies, and

augmentation of in-house staffing with IPAs and term employees. The chart also depicts the

percentage of work that would be eliminated over time through the reduction of duplicative and

redundant functions.

DSB Ramp 75.2 71.1 67.0 50.0 50.0 39.1 39.1 39.1 39.1 39.1 39.1

FTE:

Off the Rolls

POM99

Off the Rolls DSB

RAMP

Delta (DSB

Additional

Reduction)

Total

0 5.1 3.5 3.1 1.5 0.9 0.0 0.0 0.0 0.0 0.0 14.2

0 7.1 4.1 7.0 10.0 10.9 0.0 0.0 0.0 0.0 0.0 39.1

2.0 0.5 3.9 5.4 10.0 0.0 0.0 0.0 0.0 0.0 24.9

Dollar Estimates:

Delta (SM) Gross

Cumulative

$150 $208 $520 $1,192 $1,992 $1,992 $1,992 $1,992 $1,992 $1,992

Savings: note 1

Buy Back

IPA (Cumulative)

(SM): note 2

OGA (Cumulative)

(SM ): note 3

Industry

(Cumulative) (SM):

note 4

$19.2 $25.0 $62.4 $143.0 $239.0 $239.0 $239.0 $239.0 $239.0 $239.0

$3.5 $4.65 $11.4 $26.2 $43.8 $43.8 $43.8 $43.8 $43.8 943.5

$14.1 $18.3 $45.8 $104.9 $175.3 $175.3 $175.3 $175.3 $175.3 $175.3

Total Buy Backs

(Cumulative)

$47.8 $119.6 $458.2 $458.2 $458.2 $458.2

Yearly

Outplacements

Costs: note 5

Total Yearly Costs

5312.0 s500.0

$195.5 $95.5 $431.6 5945.2 $1,258.2 $455.2 9455.2 $455.2 $455.2 5455.2

Net Available for

Reinvestment

(yearly)

5 years & 10 years

Reivestment Total

($M)

-$37 $112 $88 $246 $734 $1,534 $1,534 $1,534 $1,534 $1,534

$1,143 $8,813

Notes:

1. Costed at 80K per person

2.12% buyback @80K

4.2% buyback 0 88K

4.11% buyback 0 54K

5. Outplacement: 50K charge to government in year of reduction

The table above summarizes the personnel and associated dollar impacts of our proposal over a

lo-year period. The following estimated rates were used to compute the dollar FTE estimates for

the RDT&E workforce:

+ One FTE = $80K

+ One IPA FTE = $80K

+ One Other Government Agency (OGA) FTE = $88K

+ One Industry FTE= $64K

+ Outplacement per FTE = $80K

At the top portion of the table is a comparison of the current FYDP ramp with the ramp that we

propose. The next two lines compare the actual number of FTE to be reduced by year.

In the next section of the table, our additional proposed reductions are costed (gross cumulative

savings) based on the above estimated rates. The cost estimates for buyback of IPA, industry, and

II-12
other government agency agreements follow. The buyback costs are subtracted from the gross

cumulative savings along with the one-time outplacement costs associated with workforce

reductions. The “net available for reinvestment line (yearly)” is the result of subtracting “total

yearly costs” from “gross cumulative savings.”

The “net available for reinvestment” that results from this costing methodology is $l,143M over

5 years and $8,813M over 10 years.

II-13
Restructure RDT&E

Timeline

Reconvene “Vision 21”

Recommend DOD Workload Transfers

Recommend Intra-Gov Transfers

Recommend Academia/Industry Trans

Publish Basic Plan by Technical Area

Establish All-Service C4I Capability

Identify Elements for Collocation

Collocate Elements at Selected Site

Establish Interoperability Coord Board

Establish All-Service Range Cmd

Identify Sites for “Western Range Cmd’

Form “Core” Organization

Move Program/Budget Responsibilities

Begin Unified Operations

Establish Add’l All-Service Cmds

Transfer Remaining Programs

(To Academia, Industry, Other Gov Labs]

We envision five components in implementing the restructuring of RDT&E. Three of those

components can begin immediately. The remaining two are follow-on activities stemrning from

and building upon the successes of the first three.

The three initial components are:

+ Building the foundation for restructuring by reconvening the Vision 21 study effort.

+ Focusing C4I RDT&E efforts through collocation of the Services’ capabilities.

+ Unifying the Department’s testing capabilities through consolidation of command and

control.

Reconvene "Vision 21"

We recommend that the USD(A&T) immediately reconvene the Vision 21 study, forming a

group of “veterans” of the original Vision 21 Study and others detailed to USD(A&T) for about

two years. The charter for the effort should call for the development of a Basic Technology

Development Plan for each of the 10 major technology areas in the Defense Technology Area

Plan2. These Basic Technology Development Plans should evaluate the capabilities of all

2 These areas are: Air Platforms; Chemical/Biological Defense and Nuclear; Information Systems Technology;

Ground and Sea Vehicles; Materials/Processes; Biomedical; Sensors, Electronics, and Battle Space Environment;

Space Platforms; Human Systems; and Weapons.

II-14
components of DOD, all non-DOD sectors of the government, industry and academia to conduct

the requisite RDT&E for the Department. Then the plans should specifically enumerate the best

place from among the capabilities identified for the work to be accomplished. The basic criteria

should be that if a facility outside DOD is capable of doing the work equally as well as, or better

than, DOD, then that capability should be the preferred one for use. DOD should disestablish

capabilities which do not survive this test. Where duplicate DOD capabilities exist, only the best

should be chosen, with the others being disestablished. Each of the Basic Technology Area Plans

should designate that RDT&E work which would be consolidated within DOD, that which would

be transferred to other governmental capabilities (e.g., NASA, DOE), and that which would be

transferred to industry or academia. The plans should be required by the end of the second

quarter FY99.

Establish All-Service C4I Capability

As a beginning step, we recommend the collocation of all the Services’ C4I capabilities at one

site. The study effort to identify specifically which elements should be collocated should begin

immediately, with a report due by the end of CY98. The necessary collocations should begin in

the third quarter FY99 and be completed by the end of CY99. When the study report is delivered,

the USD(A&T) should form an Interoperability Coordination Board to act as a governing board

of directors for both the collocation effort and subsequent DOD C4I RDT&E efforts.

Establish All-Service Range Command

A most effective way to aid the identification and elimination of duplication within a given

functional area is to unify the management for that area. We believe that the Department can

make excellent use of this technique with respect to testing and evaluation ranges. As a first step

toward developing a Department-wide command structure which can do this, we recommend that

the USD(A&T) immediately unify the testing sites in the western United States. A study group

should identify the specific sites and sub-sites that should be unified using the White Sands

Missile Range, Edwards AFB, and China Lake testing facilities as the base. This identification

should be completed by the end of CY98. At that time, a core organization should be established

to assume management responsibilities for this Western Test Range Command. This core

organization should have command and control, programming, budgeting, and base support

responsibilities for the included sites. This organization should begin exercising those

responsibilities at the beginning of FYOO.

Follow-on Components

Following the successes and lessons learned from establishing the All-Service C4I Capability and

the All-Service Western Test Range Command, the USD(A&T) should begin to expand the

concepts to other functional areas and the rest of the test ranges within the United States.

We believe that identifying other functional areas that would benefit from All-Service

consolidation can begin as early as the beginning of CY00, with implementation plans for each

area that would follow a timeline similar to that used in C4I. We recommend that these studies be

II-15
conducted within each technology area and be coordinated with the results from the reconvened

Vision 21 study effort.

The consolidation and transfer of RDT&E efforts within the basic technology areas can begin as

early the fourth quarter FY99, and should continue until all areas are appropriately consolidated

or divested as called for in the Basic Plans.

II-16
Definition

Expand Price-Based Contracting

+ Take advantage of source selection streamlining to

decrease sole-source awards

+ Increase use of and extend FAR Part 12 contracts

+ Increase use of and extend “other transactions”

agreements

+ Perform price analysis based on previous buys

+ Use parametric price analysis

+ Adopt best value-dissimilar competition

+ Use share-in-savings in contracting for services

Limit the use of cost-based contracts

We have found that the discussion of price-based contracting is a prime area for confusion and

misunderstanding, so we begin by defining the term.

Price-based contracting is the establishing of contract price by means other than

recourse to costs actually incurred, or costs expected to be incurred. Fixed-price

contracts may be either cost-based or price-based, depending upon the

methodology used to establish the contract price. When a fixed price is

established on the basis of cost proposals and cost analysis, the contract price is

cost-based. This is typically the case for annual production buys of major systems.

Why change is needed

There are three major deficiencies or problems associated with cost-based contracting.

First, cost-based contracting discourages efficiency. Basing contract price, and the corresponding

profit, on analysis of the seller’s costs is a disincentive for the seller to reduce costs. Over time,

cost reductions translate into reduced prices and reduced profit.

Second, cost-based contracts are administratively burdensome to the government as well as

industry. Cost-based contracts require tracking and allocation of costs in government-unique

accounting systems and reporting in government-unique formats. Associated with cost-based

contracting are

II-17
Certified Cost or Pricing Data. The foundation for cost-based contracting is buyer

visibility of the seller’s cost data. The Truth in Negotiations Act (10 U.S.C. 2306a)

contains the statutory requirement for offerors, contractors and subcontractors to

make certified cost or pricing data available to the government.

Cost Accounting Standards. The Government established the Cost Accounting

Standards (41 U.S.C. 422) to achieve (a) an increased degree of uniformity in cost

accounting practices among Government contractors, and (b) consistency in cost

accounting practices by individual contractors over periods of time. .

Cost Performance and Cost/Schedule Status Reports. Although not associated with

contract pricing, DOD imposes reporting requirements on its major system contractors

for monitoring cost and schedule status. For the largest contracts, DOD obtains the

Cost Performance Report. Its five formats (only those required are placed on contract)

provide (1) earned value performance status by product, (2) earned value performance

status by organization or function, (3) contractor baseline planning status, (4) labor

hour performance, and (5) variance analysis. On smaller contracts, an abbreviated

version called the Cost/Schedule Status Report is obtained, providing essentially the

first and fifth formats. We believe that requiring contractors to provide cost data could

discourage commercial firms from doing business with the Department. Similar

commercial earned value management systems do not require this type of cost

visibility among commercial partners.

Third, cost-based contracts present barriers to commercial fiis. Government-unique

requirements associated with collecting, tracking and reporting cost data are barriers that are not

easily overcome by firms that do not have Cost Accounting Standards (CAS)-compliant

accounting systems. A particularly onerous barrier to these firms is DOD’S use of costreimbursement contracts for most research and development efforts and many contracts for

services. Cost-reimbursement contracts require a CAS-compliant accounting system. The

Department recognizes the critical need for technology to give our forces battlefield superiority,

and we cannot afford to maintain the barriers that discourage key elements of American industry

from doing business with DOD.

Taken as a whole, these deficiencies work against the objectives of better and cheaper

acquisition. The acquisition system does not perform better because the requirements associated

with cost-based contracting lead many firms to reject DOD business, thus cutting the Department

off from potential sources of improved capabilities. The system does not perform cheaper

because, as noted above, for the firms that choose to do business with DOD, costs are

unnecessarily elevated for two reasons. First, cost-based contracts give firms little or no incentive

to reduce costs. Second, these companies must spend inordinate amounts of money on CAScompliant accounting systems. These elevated costs are, of course, passed on to the Department,

which results in DOD not getting the best possible payoff from its limited investment resources.

In this discussion of contracting issues, we should note that the Department has taken advantage

of the acquisition reform initiatives that have been implemented in recent years. Examples

II-18
include the widespread use of the International Merchant Purchase Authorization Card (IMPAC)

for small purchases and the use of electronic ordering systems to buy commercially available

aircraft parts from the non-Defense segments of the industry. Streamlining opportunities are

discussed further at Appendix I.

Alternatives to cost-based contracting

There are several alternatives to cost-based contracting. Some of these are currently in use, some

require increased emphasis, and for some, DOD will need to amend its policies. We are not

recommending that these techniques be used in situations where the risk of performance is high

and cost-based techniques are appropriate to protect the interests of both the contractor and DOD.

However, DOD should structure acquisitions to permit price-based contracting at the earliest

possible milestone in the acquisition cycle. The alternatives include

+ Decrease sole source awards. Awarding contracts on the basis of adequate price

competition avoids the problems associated with cost-based contracts. In the past,

delays associated with the procurement process gave program officials an incentive to

make sole-source purchases on the grounds of “urgency.” Streamlined procurement

techniques that make it easier to buy supplies and services quickly and competitively

are now available for a wide range of acquisitions. These include commercial items

under FAR Part 12, simplified acquisitions under FAR Part 13 for commercial items

up to $5 million, electronic catalogues, the expanded federal supply schedules, and

new flexibility under FAR Part 15. DOD should use these techniques to structure

competitive contract awards specifically to avoid cost-based, sole source contracting.

4 Increase use of FAR Part 12. FAR Part 12 contracts in FY97 represented 16 percent

of DOD contracts over $25,000, as measured both in dollars and in number of actions.

These actions are all fixed-price contracts awarded on the basis of market prices. DOD

should ensure that all items and services that fall within the extremely broad

definition of “connnercial item” enacted into law under the Federal Acquisition

Streamlining Act are acquired using the procedures in FAR Part 12. DOD intends to

reach out to creative commercial companies that normally do not compete for DOD

business by tailoring FAR Part 12 solicitations specifically to elicit offers from such

firms. These solicitations will be for development, but of sufficiently low risk that

offerors can realistically price it in a competitive, fixed-price environment using the

commercial terms and conditions.

+ Increase use of “other transactions.” DOD has been using other transaction authority

(OTA) in lieu of cost-reimbursement type contracts to avoid the accounting and

oversight barriers to contracting for research and development. DOD should use pricebased OTA whenever appropriate and necessary to acquire such services. The

authorization in 10 U.S.C. 2371 for the Defense Advanced Research Projects Agency

(DARPA) to use OTA for prototype projects should be made available to all DOD

activities and should be made permanent. 10 U.S.C. should also be expanded to

permit DOD to conduct a pilot program to test the use of OTA for production of items

II-19
developed under 10 U.S.C. 2371, when such agreements are in the best interests of

the government and exemptions from the Truth in Negotiations Act and Cost

Accounting Standards would not otherwise apply. Lessons learned from this pilot

should be gathered quickly and applied to further expansion of the approach.

+ Perform price analysis based on previous buys. Contract pricing can be based on an

analysis of acquisition histories, including prices paid, for agency purchases of similar

items and for similar purchases made by other agencies or organizations. An example

would be pricing a fiscal year’s production run of a weapon system that has enough

price data points to accurately predict the price curve for succeeding production runs.

+ Use parametric price analysis. Parametric price analysis is the rational, systematic

application of engineering, economics, mathematics, and statistics to the analysis of

price curves for modified, evolving or dissimilar products.

+ Adopt best-value dissimilar competition. This is a technique for introducing

competition into what had been considered a sole-source environment. It requires a

thorough bottom-up of analysis DOD’S need, which is followed by inviting

competition for a variety of solutions for meeting that need.

Use share-in-savings for services contracting. This technique, which is appropriate for

the procurement of services rather than hardware, gives the contractor an incentive to

reduce the cost of government operations by allowing him to keep a portion of the

savings he is able to effect. A typical example might be the provision of utilities

service to an installation. The Department would state its current in-house cost for

providing the service. The contractor might be paid a specified amount for providing

the service, and also be paid a specified percentage of the amount by which he is able

to reduce the cost of the service. Another typical situation would be found in cases in

which the Department will continue to perform a function in-house, but lets a contract

to have the function reengineered so that it costs less. For example, a Defense Finance

and Accounting Service (DFAS) office that is currently incurring an internal

processing cost of $2.00 for every check that it writes might let a contract to have the

check preparation process reengineered. The contract might call for the contractor to

be paid a set amount, plus a portion of the amount by which the new process reduces

unit cost below $2.00. Depending on the specific situation, in some cases the

contractor might be paid entirely out of the savings the contractor’s efforts generated,

resulting in payment only if savings are generated.

We spoke earlier of the need for a strong partnership between DOD and the Congress in order to

enable the Department to realize many of the benefits of our recommendations. Contracting

statutes represent a key component of that partnership, an area where Congress can build upon

the legislative initiatives of recent years to bring even greater enhancements to the acquisition

process. We encourage DOD to continue to aggressively pursue the needed legislative changes,

and likewise encourage Congress to embrace the opportunity to enact legislation that will give

the Department improved access to the best that American industry has to offer.

II-20
Expand Price-Based Contracting

Policy implications

+ Acquisition organizations

- Reduced DCAA oversight requirements

> Reduced DCMC oversight requirements

+ Acquisition workforce

* Training in price-based versus cost type analysis

* Training in best commercial practices

b Development of performance-based requirements

- Significantly reduced DCAA and DCMC workforce

Acquisition organizations

As noted above, cost-based requires an expensive oversight structure. That structure for the most

part is found in DCAA and DCMC. As DOD moves away from a cost-based contracting

environment and toward a price-based environment, the accompanying oversight requirements

will decrease dramatically.

This recommendation will also have an impact on the size of certain elements of DFAS, but we

were unable to quantify that impact.

Acquisition workforce

The transition to a price-based contracting environment will require new knowledge and skills in

the acquisition workforce.

Training in price-based versus cost type analysis

The acquisition workforce would have to be trained in the price-based contracting techniques

described above. DOD should continue and expand the training techniques it has used

successfully in the past - such as the traveling “road show” training sessions - to educate the

workforce on the techniques that have arisen from the acquisition reform initiatives. In addition

to imparting knowledge of price-based contracting vehicles, this training would help to shift the

current preference for cost-based contracts to a preference for price-based vehicles.

II-21
Training in commercial practices

The acquisition workforce needs exposure to and training in use of commercial marketplace

practices that would make Defense business more efficient. Adopting commercial practices

would move the Department toward a more performance-based business environment, would

dramatically reduce the costs incurred by current Defense contractors, and would allow DOD to

access the entire US industrial base. It would also give the workforce the different set of tools

needed to manage in a commercial type environment where DOD tells the contractor what it

wants, and lets the contractor determine how to do it.

Development of performance-based requirements

The acquisition workforce needs to understand and implement the “new way of doing business”

by establishing a Performance-Based Business Environment (PBBE). PBBE is a “state of being”

in which government/contractor relationships capitalize on commercial practice efficiencies to

improve the military acquisition and sustainment environment. In this new environment,

solicitations and contracts describe system performance requirements in a way that permits

contractors greater latitude than under current acquisition practices to use their design and

manufacturing ingenuity to meet DOD needs. Additionally, suppliers will compete and be

selected based upon their proposed approaches, process effectiveness, and prior performance.

Significantly reduced DCAA and DCMC workforce

The decreased use of cost-reimbursement contracts, along with related initiatives such as the shift

toward performance-based contract requirements, is expected to result in significant reductions to

the DCAA workforce and to portions of the DCMC workforce, since major portions of these two

organizations currently focus on activities associated with cost-based contracts. Most, if not all,

of DCAA’s workload is driven by cost-based contracts. Within DCMC, workload that is driven

by cost-based contracts is found in organizational elements dealing with quality, production,

contracts/pricing, engineering, and general management. Appendix J contains a more detailed

analysis of DCAA and DCMC staffing projections.

II-22
Expand Price-Based Contracting

Resource Implications

Impact on Civilian Workforce

(Oversight)

FY98 FY00 FY02 FY04 FY06 FY08

-Programmed

- Proposed

Workforce End-State (FY01)

I As a percent of FY98 Workforce

I $1.7B available for reinvestment over 5 years;

$4.6B over 10 years

See Appendix H for a description of the workforce included in this analysis.

This chart summarizes the resource implications that result from our recommendation to expand

price-based contracting, thereby reducing the number of government personnel involved in

administering a cost-based contracting environment and production oversight activities. The line

graph depicts two civilian acquisition workforce reduction ramps. The top line represents the

ramp in the POM99 FYDP, and the second line represents the reduction ramp that we

recommend. This ramp equates to an additional reduction of 7.2K permanent workforce by the

end of FY0l. Our analysis assumes a 50% workload reduction in oversight-related work in a

three-year period. We believe this steep reduction can be achieved in DCAA by the selective

elimination of low-risk, backlog work such as incurred cost audits. As DOD moves to a pricebased contracting environment, the requirement to audit contractor internal control systems will

be no longer be valid. In DCMC, production oversight of contractors who have demonstrated

low-risk accounting and production profiles can be drastically reduced, based on a government

risk assessment of contractor past performance. For a more detailed description of the proposed

reductions, see Appendix J.

The pie chart surnmarizes our view of how DOD will be staffed to perform oversight work

functions in the end state (FY0l). The chart depicts that in the end state the oversight workforce

in DCAA and DCMC will be reduced by 50% as the Department shifts from a cost-based to a

price-based contracting environment.

II-23
Price-Based Contracting FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08

POM 99 Ramp 18.5 17.9 17.1 16.6 16.3 16.5 16.5 16.5 16.5 16.5 16.5

DSB Ramp 18.5 15.5 12.5 9.3 9.3 9.3 9.3 9.3 9.3 9.3 9.3

FTE:

Off the Rolls POM99

Off the Rolls DSB RAMP

Delta (DSB Additional

Reduction)

0 0.6 0.8 0.5 0.3 -0.2 0.0 0.0 0.0 0.0 0.0 2

0 3.0 3.0 3.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 9.3

2.4 2.2 2.8 -0.3 0.2 0.0 0.0 0.0 0.0 0.0 7.3

Dollar Estimates:

Delta In Gross Cumulatlve

Savlngs (M): note 1

$192.0 $368.0 $588.0 $564.0 $580.0 $580.0 $560.0 $580.0 $580.0 $580.0

Buy Backs: None

Yearly Outplacement8

costs: not. 2

$192.0 $176.0 $220.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0

Net Available for

ReInvestment (yearly)

5 years & 10 years

Relvestment Total (SM)

$0 $192 $368 $564 $580 $580 $580 $580 $580 $560

$1,704 $4,604

Notes:

1. Costed at 80K per person

2. Outplacement: 80K charge to government In year of reduction

This table summarizes the personnel and associated dollar impacts of our proposal over a 10-year

period. The following estimated rates were used to compile the dollar FTE estimates for the

oversight workforce:

+ One FTE = $80K

+ Outplacement per FTE = $80K

At the top portion of the table is a comparison of current FYDP ramp with the ramp that we

propose. The next two lines compare the actual number of FTE to be reduced by year.

In the next section of the table, the additional FTE proposed reductions are costed (gross

cumulative savings) based on the above estimated rates. The one-time outplacement costs

associated with workforce reductions are subtracted from “gross cumulative savings to arrive at

the “net available for reinvestment line (yearly).”

The “net available for reinvestment” that results from this costing methodology is $l,704M over

5 years and $4,604M over 10 years.

II-24
Expand Price-Based Contracting

TimeLine

The two key components to success in this area involve overcoming the tendency within the

Department to over-rely on cost-based contracting and obtaining authority to expand the use of

OTA.

Policy to Prefer Price-Based Contracting

Implement Field Training Program

The first step in this process is to publish policy that makes it clear and specific that the preferred

way of doing business is to avoid using cost-based contracts unless no other alternative exists.

Implementation of such a policy will be difficult given the current tendency to over-rely on costbased contracting. One effective technique to overcome this might be to require a specific waiver

before a cost-based contract can be used. Another way to overcome the tendency to over-use

cost-based contracts is through comprehensive field training. A field training program should be

developed before the end of CY98. This program should cover at least a two-year training effort

during CY99-00 with the goal of not only reaching each contracting official, but reaching them

numerous times to ensure that the principles of, and tools available for, price-based contracting

are well understood and received by the field.

Expand Other Transactions

The current preference for cost-based contracting also inhibits the active pursuit of OTA as a way

of doing business with commercial entities. Before the use of OTA can be effectively pursued,

however, enabling legislation is required. The Department should vigorously seek the permanent

extension of OTA as a part of the FY99 enabling legislation. In addition, there should be a

concerted effort to expand on current authorities in this area, with the first step being the

authorization of a pilot project to extend an OTA into production.

II-25
After such legislation is obtained, the Department should nominate at least one pilot program.

The program(s) selected for the pilot should be capable of being started in FY99 and be limited

to the FY99-00 timeframe. If successful, the concept should be extended into other programs

where this type of working relationship is appropriate.

II-26
Outsource Product Support

+ Apply to new and legacy systems

> Adopt flexible sustainment/contractor logistics support

> Contractor-owned repair parts inventory with direct delivery to user

* lncentivize time-definite delivery standards and operating and

support cost objectives

- Task contractor to train military maintenance personnel

N Perform modernization through spares

+ Give PMs oversight and funding control of all life cycle activities

+ Apply to Advanced Concept Technology Demonstration

projects

11 The result: Improved readiness at reduced cost 11

Why change is needed

Support of weapon systems and equipment is the second area of concentration of acquisition

organizations and workforce. We have chosen to use the industry term, “product support,” to

describe this function. The workforce supports operating forces by buying repair parts from

industry, storing them, and distributing them to operating forces in response to requisitions (at

the purchase price plus a surcharge to cover infrastructure operating costs). For both components

and end items, this workforce does some repair actions itself, and contracts with industry for

other repairs. Other vital services such as technical training of military mechanics and technical

assistance to the operating forces are part of this support. The fact that the preponderance of

’product support -nearly all the buying, storing, and distribution of parts and 60-70% of the

repair -is done by the DOD workforce caused the Sub-Panel to question the value added by the

DOD workforce as “middleman.”

Logistics Costs

While the functions that DOD

performs as “middleman” represent

tasks that must be performed, it is

clear that DOD’S organization for

these tasks adds unneeded nodes and

transactions and, thus, delay time and

costs to the essential process of

getting parts from the industry

producer to the operating forces

consumer. The costs of the

“middleman” role are best depicted

II-27
in the accompanying chart, which shows the dramatic 40% reduction in logistics costs (as a

percent of sales) that commercial firms have achieved in the previous decade. Companies such as

Caterpillar, John Deere, and Cummings Engine, faced with competition from high-quality

Defense firms selling products in the US at 25-40% lower prices found ways to wring out

unnecessary logistics costs. DOD’S organic infrastructure, facing no such threat to its survival,

has not achieved similar cost reduction. (See the discussion on Page K-6.)

The simplest product support process has the operating forces order directly from the industry

producer using a catalog in much the same way as we order outdoor equipment from L. L. Bean

or an airline might order a part from Boeing. While there may have been reasons during the Cold

War to interpose a “middleman” into the producer-consumer relationship, the argument for

maintaining it in this era of instantly available information and worldwide package distribution

does not justify the high costs of keeping the large organic workforce. We believe that having

these tasks performed by industry would generate significant cost reductions. The outsourcing of

product support would, in our view, reduce the direct cost of product support (i.e., the cost of the

workforce performing the function) by several hundred million dollars per year, and would

contribute to even larger cost reductions by discouraging the maintenance of large inventories of

obsolete or unneeded parts and components.

The provision of product support by government personnel - an approach that operates without

the benefit of competitive market forces that could make it more efficient - represents an

example of how DOD’S failure to fully integrate with and capitalize on the strengths of industry

results in higher costs and less responsiveness. By having DOD personnel perform product

support function, the Department has kept itself overly involved in the “doing” of functions that

industry is well-qualified to handle, and has not streamlined the function as effectively as has

industry. In addition, the insertion of government middlemen in the product support process

makes it difficult for commercial firms to gain insights into how their products are performing,

and thus deprives them of information they could use to design better reliability and

maintainability into their hardware.

Furthermore, the Department has had great difficulties in providing responsive repair parts

support, taking 20-25 days to deliver depot-stocked parts. This poor responsiveness has caused

DOD to maintain unnecessarily large inventories, the management of which (at increased cost)

continues to make the General Accounting Office’s (GAO’s) list of “high risk” management

areas. Examples are shown in the excessive lead times and buying of unneeded stocks (Page K3). Based on a presentation given by Herbert W. Davis and Company at the 1997 Council of

Logistics Managers Conference, private sector delivery times are about eight days from the time

the order is received until it is delivered to the customer. A comparison of private sector and

DOD for internal (depot) processing time, from receipt of order until it is shipped, shows less

dramatic differences than in the overall order and shipment times - about 4.0 days for the

private sector compared to 5.7 days in DOD (see Page K-2). Segmentation between support

echelons in DOD accounts for the dramatic differences in overall order-receipt time. It

complicates and slows down both requisitions moving to the depot level of supply and materiel

flowing to the customer. Supply chain techniques employed in the private sector have produced

significant reductions in cycle times and improved customer satisfaction and dramatically

II-28
reduced logistics costs. Data from 1997 show private sector logistics costs at approximately 9%

of sales, while DOD surcharges range from 25% to 44%, indicating that in spite of differences in

calculation, industry performs more efficiently than does DOD. We believe these commercial

techniques can be applied to weapons system support to reduce customer response times and thus

to improve the mission readiness of our forces.

Another example of the product support performance gap between DOD’S organic support

infrastructure and industry’s is the difference in the time to repair components. DOD depot

maintenance repair cycle times for components being repaired for return to inventory or to

customers varied between 56 days and 130 days in fiscal year 1997, depending on the Service.

This can be compared to a sample of private sector repair times that varied from 5 days to 21

days (Page K-2). Although the DOD and private sector repair times are not directly comparable

because of DOD’S hierarchical repair levels, it does point out the emphasis that private sector

firms place on reducing all support cycle times. Long repair cycle times, lack of flexibility in

adjusting capacity, and large induction quantities make it difficult for the supply and maintenance

systems to adjust to changes in inventory requirement levels. See Appendix K for more

information on materiel management performance indicators.

Depot and installation maintenance workforce management, governed by civil service rules, is

largely inflexible when workload constantly changes. Elevating the technical skills of the

workforce is increasingly problematic in areas of rapidly changing technology, particularly

software maintenance. The very skills needed to diagnose and repair the technologically complex

components of DOD’S weapon systems are those skills most in demand by the thriving private

sector. These skills are not easily learned by new accessions to the military, nor can the

government compete successfully with private sector salaries in this tight labor market for skilled

civilian workers. Further, upgrading the skills is a difficult task and may even result in the loss

to the private sector of the most skilled. At the same time, most operating and support costs are

climbing as legacy systems age. Thus, the time is right to convert these systems to industryprovided product support as they are modernized, much the same as Boeing and Caterpillar

provide support for their products worldwide. Their response times for parts and their focus on

keeping costs under control, forged in conditions of rigorous worldwide competition, are features

that DOD badly needs.

Our recommendation to outsource product support builds on the policy that is already established

in DOD Regulation 5000.2. We propose that contractor support become the norm rather than the

exception, and that it be applied to both new and legacy systems. We note that numerous

examples of this approach already exist within the Services. The Navy has long outsourced

support of one of the most vital weapon systems in our Nation’s arsenal, the Fleet Ballistic

Missile Program, and has established contractor support as a key element of the DD-21 program.

The Army has outsourced product support of the Mobile Subscriber Equipment digital battlefield

communication system since its fielding nearly a decade ago, and is planning to outsource

product support of the recently fielded Paladin howitzer. The Services will have to manage crossplatform components (radios; Identification, Friend or Foe (IFF); etc.) to maintain the advantage

of commonality.

II-29
For new systems, contractor support should be established as part of the program’s acquisition

strategy. For legacy systems, we foresee contractor support being competed, not necessarily to be

awarded to the original equipment manufacturer. One option for legacy systems could the

teaming of a manufacturer, a contract field maintenance firm, an engineering services firm, and a

third-party logistics firm.

Appendix L describes the relationship between contractor logistics support and operational units.

Apply to New and Legacy Systems

Adopt flexible sustainment/contractor logistics support

We strongly believe that when industry is properly incentivized to provide sustaining support, it

will do so on a timely basis and, in the process, lower the total cost of ownership to the Service.

As shown at Appendix L, operating forces would continue to provide organic support, with the

contractor providing repair parts and technical assistance in accordance with a Commander in

Chief’s (CINC) support concept. Successful implementation of this recommendation would, of

course, require that Contractor Logistics Support (CLS) be transparent to the warfighter and

responsive to the uniformed logistician.

Contractor-owned repair parts inventory with direct delivery to user

By calling for contractors to own repair parts inventories, DOD could reduce the capital

investment and carrying costs associated with inventory and would empower contractors to

increase reliability. For items common to both DOD and non-DOD users, the inventory cost

would be shared with other users and not borne totally by DOD. With responsibility for carrying

these costs, and with better access to information on reliability and maintainability issues

associated with their products, contractors would have both the incentive and the means to design

better reliability into their equipment. Industry expertise would result in direct delivery, fast

transportation, asset visibility, and other best business practices to minimize inventory costs. For

q legacy systems, DOD can “consign” existing inventory to the contractor, allowing him to manage

its gradual reduction. One additional benefit is that by breaking the “middleman” role, DOD

would at last escape from GAO’s “high risk” list - at least for inventory management.

Incentivize time-definite delivery standards and operating and support (O&S) cost

objectives

Time-definite delivery offers DOD many of the benefits of commercial just-in-time inventory

practices, but is better suited to an environment with unpredictable requirements and potentially

dire consequences for not-quite-in-time delivery performance. Both DOD and commercial

providers must strive for time-definite delivery performance. Time-definite delivery reduces

uncertainty in replenishment cycle times, allowing users to lean out inventory and reduce safety

stock levels. It can reduce the mobility footprint for deployed units and reduce inventory costs.

II-30
O&S costs typically account for about 60% of a weapons system’s total life cycle cost. Thus,

identifying O&S cost objectives and incentivizing performance can generate significant cost

avoidance for the Department. Delivery time, back-order rates, and controllable O&S costs are

the significant metrics of product support, along with operational availability rates (an indirect

measure of performance).

Task contractor to train military maintenance personnel

Initial cadre training for maintenance personnel should be conducted by the vendor. Training for

follow-on personnel and recurring training would expose new mechanics to the latest vendorsupplied diagnostic and maintenance techniques. Private industry has a robust training services

sector and can make use of distance learning technology and continuous training processes.

Giving the contractor responsibility for training allows him to influence a significant part of a

system’s O&S costs.

Perform modernization through spares

DOD must initiate a more aggressive approach toward technology upgrades and modifications to

legacy systems.

Many DOD weapon systems are being retained and operated well beyond their originally planned

life spans, which tends to drive up O&S costs because of the higher failure rates experienced

with older systems. Modernization through spares can be an effective, efficient method to

introduce newer technology into weapon systems for better performance, enhanced reliability,

and a high potential for a reduction of O&S costs. The product support contractor can insert the

new components, from circuit boards to line replaceable units, into the normal parts flow or run a

modification program under the PM’s direction. Open architectures and modular systems make

modernization through spares easier.

The Military Departments have successfully used this approach to technology insertion and

demonstrated a high return on investment (ROI). For example, under the Navy’s Best Overall

Support Solutions (BOSS-III) program, the mechanical Global Positioning System (GPS) gyros

in the Inertial Navigation System (INS) for the F-14 had a Mean Time Before Failure (MTBF) of

40 hours. The Navy replaced the subsystem with a newer GPS that was functionally integrated

with the INS. The newer system is achieving a 4,500 hours MTBF. The newer system is initially

more expensive than the old replacement gyros. However, the extended MTBF is lowering the

O&S costs over time. The Navy expects to break even on its investment within five years.

The Army was experiencing excessive tire wear on its five-ton trucks that was traced to the front

axle U-joints. Replacing the U-joints with form-fitted compatible CV joints stopped the

excessive tire wear. The savings result not from higher reliability of the joints, but from

decreased tire wear. This program is achieving savings rapidly, with a break-even point in two

years.

II-3 1
While the Services recognize the potential cost avoidance of modernization and technology

insertion programs, financing has been problematic because of the up-front investment required.

These investments compete with many other programs that address pressing budget year needs.

Conservative ROI estimates project a 5 to 1 return, normally within five years. In spite of the

attractiveness of these estimates, the Services hesitate to commit substantial funding to these

programs. A policy that encourages modernization through spares, coupled with the expanded

authority for PMs that is discussed below, will help to address this dilemma, for the PM can be

expected to take a longer-term view of resources than the operational unit commander.

Give PMs oversight and funding control of all life cycle activities

Giving PMs oversight and funding control for life cycle sustainment is essential to making this

proposal work effectively. Rather than throw a project “over the transom” after it has been

fielded, the PM would be responsible for ensuring that contractors properly carried out the

product support function. PMs would control funds for sustainment engineering and depot

maintenance as well as modifications, but not for the repair parts purchased by operational units.

Program managers would be responsible for managing and supporting their program over its

entire life cycle. Responsibility for operating and sustainment costs is important to incentivize

proper trade-offs during development, acquisition, and modification, and to control total

ownership cost. Funding control contributes to program stability and allows PMs to optimize the

effectiveness of, and support for, their weapon systems. In addition, funding control gives the PM

the ability to apply periodic upgrades to counter the inevitable problems of obsolescence. The

payoff in terms of mission readiness and improved support to the warfighter should be direct and

dramatic. The performance appraisal or fitness report for each PEO/PM will address the progress

the individual is making in achieving reduced life cycle costs for his system.

Apply to Advanced Concept Technology Demonstration (ACTD) projects

ACTDs are designed to take advanced technologies and rapidly prove out their ability to meet

operational requirements. The primary focus is on rapidly applying technology, rather than life

cycle planning. Successful ACTDs may leave operationally useful assets in the hands of end

users, and operational commanders anxious to employ them and acquire additional assets.

However, ACTDs do not perform normal sustainment planning since the technology is not yet

known to be viable. Successful ACTDs must transition to an acquisition program, accomplish

logistics support analysis, and acquire sustainment support before full operational capability can

be achieved. With the proper planning, industry can provide product support for successful

ACTDs in the same way it does for traditional acquisition.

II-32
Outsource Product Support

Policy Implications

+ Acquisition organizations

* Reorganize inventory management and engineering

activities into equipment support teams operating under PMs

* Phase out depot maintenance and distribution activities

+ Acquisition workforce

* Change focus from managing supplies to managing

suppliers

* Develop and recruit additional world class logistics expertise

- Transition inventory management and engineering workforce

- Phase out organic depot maintenance workforce

Acquisition organizations

This proposal has major implications for acquisition organizations. When fully implemented, it

will lead to the streamlining of all repair parts inventory management activities, assigning them

to the PM offices within the all-Service centers of excellence, and the phasing out of the

maintenance and distribution depot structure.

Acquisition workforce

Change focus from managing supplies to managing suppliers

For the workforce, this recommendation would take DOD workers out of the role of middleman

for the maintenance and related supply systems. Rather than buying and managing supplies for

inventory, DOD people would be responsible for managing suppliers. This is a case where

industry already has the skills that are needed - the skills to buy, sell, and repair hardware -

and it is unnecessary for DOD to maintain the same skills internally.

Develop and recruit additional world class logistics expertise

The remaining DOD workforce would require some different skills, and the Department would

have to take steps to staff its organizations with logisticians skilled in overseeing contract

formation and performance metrics vs. item management and maintenance planning. Just as in

the RDT&E area, this would be accomplished by developing some managers internally, and by

expanding the opportunities for bringing in talented managers from industry. Traditional

inventory management skills will be replaced by the skills needed to operate and survive in an

II-33
environment in which there are multiple suppliers and techniques available capable of meeting

user needs. The challenging requirement will be to make the new procedures and techniques

transparent to the war-fighters -the crews of the battalions, ships, and air squadrons who are the

customers of the system.

Transition inventory management and engineering workforce/Phase out organic depot

maintenance workforce

Over time the Department will realize significant savings as the government-owned organic

depot maintenance and inventory management facilities and the government workforce are

replaced by industry. We estimate that this transition can take place over the next decade or so,

allowing many of the present workers to retire and younger workers who have the more

“portable” Federal Employee Retirement System pension benefits to fill skill shortages in

industry. Our estimate is that approximately 20% of the present systems/equipment support

workforce would be required to augment PM offices for weapon systems support oversight and

other uniquely governmental tasks once the transition is completed, and we project that this

staffing requirement will be filled with a mix of “conventional” employees, term employees, and

IPAs. Note that we do not recommend outsourcing depot maintenance per se. Rather, we believe

that a CLS contractor can determine the most responsive and economical repair and overhaul

strategy for the system being supported. Undoubtedly some of the depot infrastructure and

certainly the skilled workers will be in demand. But the recent experiences at Newark AFB and

the San Antonio and Sacramento Air logistics Centers (ALCs) suggest that these decisions might

be better made by the PM and CLS contractor who can assess the complete repair and overhaul

process and make operationally sound decisions, rather than by a piecemeal, politicized workload

allocation process.

II-34
Outsource Product Support

Resource Ir plications

Impact on Civilian Workforce

97.6K (Product Support)

Includes IPA/Term

20 -- Workforce

17.8K

0 I

FY98 FY00 FY02 FY04 FY06 FY08

-Programmed

--Proposed

Workforce End-State FY08

In-House

lndu

66

As a percent of FY98 Workforce

$.79B available for reinvestment over 5 years;

$7.13B over 10 years

Note: If 40% of current in-house work is eliminated, availability of

funds would increase to $1.6B over 5 vears and $10.1B over 10 vears

See Appendix H for a description of the workforce included in this analysis.

This chart summarizes the estimated resource implications that result from our recommendation

to further outsource product support functions over a 10-year period. The line graph depicts two

civilian acquisition workforce reduction ramps. The top line represents the ramp in the POM99

FYDP, and the second line represents the reduction ramp that we recommend, with IPAs and

term employees added back. This ramp equates to an additional reduction of 80.4K in the

permanent workforce by the end of FY08. In that same period, approximately 8K IPA and term

employees are added back to augment the permanent workforce, which results in an in-house,

steady-state product support workforce of 17.8K to augment PM offices and execute the

contracting and oversight of support for weapon systems and equipment. A total of

approximately 44.2K FTE are competitively sourced to industry over the same period. Our

analysis projects a 25-40% workload reduction resulting from a combination of efficiencies in

the reorganization and transfer of inventory management, maintenance, and engineering activities

to industry, and the elimination of duplicative capabilities. As was the case with the RDT&E

workforce reductions, this ramp is predicated on DOD’S ability, in partnership with the Congress,

to make timely competitive outsourcing decisions as recommended in our proposed timeline

(Page II-38). It does not depend upon BRAC (although BRAC would add to infrastructure

savings) nor upon A-76 actions. If the recommended timeline cannot be met, the rate of reduction

must slow down and savings forfeited so as not to jeopardize operational availability of weapon

systems and equipment.

In addition to the numbers shown here, at the end of FY96 there were some 48,000 active

military and 44,400 civilian employees identified with logistics activities in DOD’S “Installation

Support” infrastructure category. A large portion of this workforce would no longer be required

II-35
as the product support process expands. It should be noted that by the Services’ definitions, the

48,000 active military positions are not in deployable units. They may be part of a rotation base.

We suggest that the maintenance of a rotation base is a practice that DOD should consider

terminating or reducing, now that significantly fewer military positions are permanently forward

stationed than was the case during the Cold War.

We recognize the immense challenge of gaining Congressional agreement to removing depot

maintenance allocation rules, but we are hopeful that the Congress can be responsive to the

Nation’s security interests and to the need for DOD to modernize along the lines of the US private

sector industrial base.

The pie chart summarizes our view of how DOD would be staffed to perform product support

work in the future. The FY98 staffing level was used to illustrate how staffing levels will shift

further over time from in-house staffing to industry, other government agencies, and in-house

staffing augmentation with IPAs and term employees. The chart also depicts the percentage of

work that would be eliminated over time through efficiencies gained in the reorganization and

transfer of inventory management and engineering activities to industry, and, especially, the

elirnination of duplicative and redundant work.

II-36

reductions. The “net available for reinvestment

yearly costs” from “gross cumulative savings.”

line (yearly)” is the o f subtracting “total

The “net available for reinvestment” that results from this costing methodology is $791M over 5

years and $7,133M over 10 years.

Note that we did not attempt to estimate the benefits of inventory reduction, including the

avoidance of buying (or repairing) unnecessary inventory. Based on the results from existing

“prime vendor” contracts, we would expect these benefits to be significant. Clearly, the enhanced

system reliability that would result from modernization through spares should produce additional

savings. These estimated savings - or, more accurately, cost avoidances - should be developed

by each PM in preparation for the next sourcing solicitation.

II-38
Outsource Product Support

Timeline

Contract

Prep/Solicitation/Award

Top 10 CLS Begins

CLS on Second Group Begins

CLS on Additional Groups

A critical factor for success in this area is fixing responsibility for planning and resourcing for the

entire life cycle with the program manager. This is also the most difficult cultural barrier to

overcome. Once this is accomplished, implementation is a series of common-sense steps to

prepare, solicit and award the requisite contracts.

Give PMs Full Life Cycle Responsibility

The USD(A&T), in coordination with the Comptroller, should immediately promulgate a policy

that gives system PMs responsibility for the planning, programming, budgeting and execution of

full life cycle support for their systems. This directive should apply to legacy systems as well as

those in development or production. The PMs can then set about planning for the outsourcing of

support for the legacy systems.

Implementing the Top 10 Programs

Concurrent with publishing the policy for full life cycle support responsibility for PMs, the

USD(A&T) should direct that the Services designate their portion of DOD’S top 10 legacy

systems programs as measured by annual O&S costs for immediate implementation. These

programs should be ones which are implementable within the next year and which will have a

significant impact on reducing costs. The Service programs should be nominated by the

beginning of FY99. During FY99, the Service should designate contract development teams,

working under the supervision of the PM, to design, prepare, solicit and award product support

contracts for those 10 systems. Contractor logistics support should be started for these top 10

systems at the beginning of FYOO.

II-39
Implementing Follow on Programs

At the beginning of the third quarter, FY99, the Services should designate their next 10 programs

for implementation. The same contract development cycle followed with the top 10 should be

implemented for these programs, with contractor logistics support beginning at the end of the

second quarter FYOO. This six-month staggered cycle should be repeated until virtually all

systems are under contractor logistics support for their life cycle

II-40
Outsource Commodities

+ Expand “Prime Vendor”

* Use electronic catalogs for ordering

* Expand use of purchase cards for purchase and payment

+ Establish long-term, incentivized vendor

relationships. + Develop interfaces with strategic distribution

systems in theaters of operations

+ Retain inventory only at operating forces’ “retail”

activities

Why change is needed

Before the advent of the Prime Vendor program and its associated tools (such as electronic

catalogues and purchase cards), the process of providing commodities to users had too many

middlemen and cost too much, in terms of both dollars and time. The various nodes in the “old”

supply system added little value to the process, but did add to the cost of operating the supply

system and detract from the timeliness of support provided to the war-fighter.

The maintenance of inventories will undergo a dramatic change under this proposal, as

contractors will retain all inventories except for those in the hands of operational forces.

Government-held stocks will disappear, to be replaced by contractor-held inventories. Expanded

reliance on industry for commodity support will require the establishment and maintenance of

long-term relationships with contractors who are properly incentivized to provide reliable

delivery at affordable prices. It will also depend on effective interfaces with strategic distribution

systems in theaters of operation, to ensure that the supply system and the transportation system

work together to provide for timely delivery to deployed units.

Expand “Prime Vendor”

In the long run, the “Prime Vendor” concept should be expanded to include all commodities

except repair parts and ammunition. (Repair parts are included in the “product support”

recommendation previously discussed, but they should be placed under this concept as long as

DOD continues to manage them.) Current commodities managed by prime vendor include such

items as food, clothing, pharmaceuticals, and medical supplies. Prime vendor is a closed loop

electronic data interchange trading partnership with a commercial distributor of market-ready or

II-41
commercial products, using Electronic Data Interchange (EDI) from pricing and distribution

arrangements or corporate/long term contracts, or from vendor-provided subcontracts. DLA is

already planning to pursue this for “commercially ready” products, such as common hardware.

The Services also should expand their use of the technique to encompass items such as aircraft

and vehicle tires, batteries, and filters. We also recommend that the concept be expanded to

group military-unique components into compatible commodity groupings for contracting to a

prime vendor who will pursue the subcontractor base for support of legacy systems with a high

percentage of military-unique items - at least until the legacy systems are converted to

contractor logistics support.

DLA has pioneered the use of the cybermall or electronic marketing within DOD. DOD needs to

expand this electronic marketplace initiative to all Services and integrate those efforts to provide

a single access window for both customers and vendors. This single access point initiative will

go far to allow the integration of support from many sources by the war-fighter on the battlefield

or at sea and his forward support elements.

Establish long-term, incentivized vendor relationships/Develop interfaces

with strategic distribution systems

The warfighter logistician is appropriately concerned about the increased number of stovepipes

that might occur with the migration to a larger number of vendors providing support. DOD and

industry can address these concerns, and minimize the number of stovepipe distribution systems,

by using incentivized contracts to establish long-term relationships with prime vendors and by

integrating contractor support with the strategic distribution systems that provide forward

battlespace support in a theater of operations. See the Appendix L discussion of repair parts

support. The CLS contractor is the “prime vendor” for parts. The process described is also useful

for prime vendors of other commodities.

Retain inventory only at operating forces’ “retail” activities

Our recommendation calls for the Services to maintain commodity inventories only at the

organizational level. Necessary war reserve inventory can be negotiated with the support

contractors -who should also own the retail inventory -the principle being “the unit buys an

item when it is needed for use.” Thus, Operations and Maintenance (O&M) funds are used only

for operational/training support, not for buying inventory. This avoids buying too many of the

wrong items.

II-42
Outsource Commodities

Policy Implications

+ Acquisition organizations

- DLA form commodity management teams to select and

oversee prime vendors

* Reorganize inventory management activities

- Phase out distribution depot activities

+ Acquisition workforce

- Change focus from managing supplies to managing

suppliers

* Transition wholesale inventory management workforce

- Phase out distribution work-force

Acquisition organizations

The outsourcing of commodities would cause a reorganization and reorientation of DLA

elements, as the Agency forms commodity management teams to manage the increasing number

of prime vendors. At the same time, inventory management offices would undergo a transition

from managing supplies to managing suppliers. Finally, distribution depots would experience a

significant downsizing, leading to eventual elimination.

Acquisition workforce

Change focus from managing supplies to managing suppliers

As in the case of the outsourcing of product support, this recommendation means that

government managers would change their focus from managing supplies to managing suppliers.

We know this can work, because it is already happening in places where prime vendor has been

fully implemented. We have seen DOD managers who have developed the ability to elevate their

perspective from the hands-on management of items flowing through the supply system to the

higher level of managing the vendors who provide those commodities.

Some of the essential features of contractor commodity support, such as incentivized contracts

and the establishment of effective interfaces between suppliers and strategic transportation

systems, are indicative of the new skills that will be required of the DOD manager in this new

approach. So while some portions of the workforce will no longer be required, those workers

who do remain will have to be world class managers and logisticians, well-versed in functional

expertise and the supporting technologies. They must focus on managing vendors with more

II-43
partnership and less oversight, more performance focus and less detailed direction, more product

support focus and less direction of business processes. Training in the areas of price-based

contracting, negotiation techniques, and contractor motivation will be essential to the success of

the evolving government acquisition workforce.

Transition wholesale inventory management workforce/Phase out distribution workforce

Over time the Department will realize significant savings as the government-owned distribution

depots and inventory management facilities and the government workforce are replaced by

industry.

II-44
Outsource Commodities

Resource Implications

Impact on Civilian Workforce

(Commodities)

01 I I I I I I I I I I

FY98 FYOO FY02 FY04 FY06 FY08

-Prugnlmled

-Proposed

Work-force End-State FY08

As a percent of FY98 Workforce

$.29B available for reinvestment over 5 years;

$1.9B over 10 years

See Appendix H for a description of the workforce included in this analysis.

This chart summarizes the resource implications that result from the our recommendation to

further outsource commodity functions. The line graph depicts two civilian acquisition workforce

reduction ramps. The top line represents the ramp in the POM99 FYDP, and the second line

represents the reduction ramp that we recommend, with IPAs and terrn employees added back.

This ramp equates to an additional reduction of 12.8K in the permanent workforce by the end of

FY08. In that same period, approximately 1.3K IPAs and term employees are added back to

augment the permanent workforce, which results in an in-house, steady state commodity

management workforce of 4.6K. Also, in the steady state a total of approximately 3.2K FTE are

competitively sourced to industry. Our analysis projects a 50% workload reduction resulting from

efficiencies in electronic data interchange, the transfer of inventory management to industry, and

the elimination of duplicative and redundant work.

The pie chart summarizes our view of how DOD will be staffed to perform commodity support

work in the end state (FY08). The FY98 staffing level is used to illustrate how staffing levels will

shift further overtime from in-house staffing to industry and augmentation of in-house staffing

with IPAs and term employees. The chart also depicts the percentage of work that will be

eliminated over time through efficiencies in electronic data interchange, the transfer of inventory

management to industry, and the elimination of duplicative and redundant work.

II-45
Commodities

FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 Total

POM 99 Ramp 21.9 19.7 17.9 16.7 16.3 16.1 16.1 16.1 16.1 16.1 16.1

DSB Ramp 21.9 16.0 16.0 14.0 12.0 10.0 7.0 6.0 5.0 4.4 3.3

FTE:

Off the Rolls POM99 0 2.2 1.6 1.2 0.4 0.2 0.0 0.0 0.0 0.0 0.0 5.8

Off the Rolls DSB RAMP 0 3.9 2.0 2.0 2.0 2.0 3.0 1.0 1.0 0.6 1.1 18.6

Delta (DSB Additional) 1.7 0.2 0.6 1.6 1.8 3.0 1.0 1.0 0.6 1.1 12.8

Dollar Estimates:

Delta ($M) Gross Cumulative Savings: note 1 $87 $97 $138 $219 $311 S464 $515 $565 $596 $652

Buy Back

IPA (Cumulative) ($M): note 2

Industry (Cumulative) $(M): note 3

Total Buy Backs (Cumulative)

Yearly Outplacements Costs: note 4

Total Yearly Costs

$9.7 $13.8 $21.9 $31.1 S46.4 $51.5 $56.5 $59.6 $65.2

$19.4 $27.5 $43.8 $62.2 $92.7 $102.9 $113.1 $119.2 $130.4

$26.0 $29.0 $41.3 $65.7 $93.2 $139.1 $154.4 $169.6 $178.8 $195.6

$86.6 $10.2 $40.8 $81.5 $91.7 $152.8 $50.9 $50.9 $30.6 $56.0

$112.6 $39.2 $82.0 $147.2 $184.9 $291.9 $205.3 $220.6 $209.4 $251.7

Not Available for Reinvestment (yearly)

5 years & 10 years Reivestment Total ($M)

Notes:

1. Costed at 50.9K per person

2. 10% buyback @ 50.9K

3. 25% buyback@ 40.8K

-$26 $58 $56 $72 $126 $172 $309 $345 $387 $400

$285 $1,696

4. Outplacement: 50.9K charge to government in year of reduction

The table summarizes the personnel and associated dollar impacts of our proposal over a 10-year

period. The following estimated rates were used to compile the dollar FTE estimates for

outsourcing commodity functions:

+ One FTE = $50.9K

+ One IPA FTE = $50.9K

+ One Industry FTE = $40.8K

+ Outplacement per FTE = $50.9K

At the top portion of the table is a comparison of the current FYDP ramp with the rarnp that we

propose. The next two lines compare the actual number of FTE reduced by year. In the next

section of the table, the additional proposed FTE reductions costed (gross cumulative savings)

based on the above estimated rates. The cost estimates for buyback of IPAs and term employees

and industry follow. The buyback costs are subtracted from the gross cumulative savings along

with the one-time outplacement costs associated with workforce reductions. The “net available

for reinvestment (yearly)” is the result of subtracting “total yearly costs” from “gross cumulative

savings .”

The “net available for reinvestment” that results from this costing methodology is $285M over 5

years and $l,898M over 10 years.

II-46
Outsource Commodities

Timeline

Avionics

All others

This initiative builds upon programs already in place within DLA. We recommend that the

USD(A&T) accelerate DLA’s efforts in this area. Acceleration is required in the implementation

of the Prime Vendor and Virtual Prime Vendor programs, as well as in the restructuring of

Inventory Control Points (ICPs) and phasing out of distribution depots.

Expand Prime Vendor

The current programs involving Prime Vendors in the medical and subsistence should be

expanded beginning FY99 into maintenance, repair and operational materials. This expansion

should be accomplished by the end of that fiscal year. Currently, DLA is doing this in one test

region. This test should be thoroughly evaluated and national implementation should begin in

mid-CY99, certainly not later than the beginning of FY00. Part of this expansion has to do with

the incorporation of maintenance bench stock materials into the category of a commodity. This

effort is the overlap between outsourcing of commodities and outsourcing of product support. It

will require the participation of PMs and product support contractor alike to coordinate the

effective purchase and distribution of those stocks common to many systems.

Expand Virtual Prime Vendor

The current pilot program of on-line catalog purchasing for the C-130 Propeller System

represents a positive step in taking full advantage of these capabilities. The USD(A&T) should

require DLA to begin immediate expansion of this program into the avionics area by the

beginning of CY99, with other product groupings following at six-month intervals. At the same

time, commodity management teams should meet with Services’ PM offices to plan for

II-47
contractor access to vendors as PMs plan for transition to contractor logistics support of weapon

systems.

Transition ICPs

As products move into the Prime Vendor and Virtual Prime Vendor arenas, aggressive action is

required to begin transitioning the ICPs for these commodities from being purchasers of products

to being coordinators of suppliers. Since medical and subsistence have been under Prime Vendor

for some time, this restructuring should receive full attention in early FY99 and be completed by

the beginning of FY00. Restructuring of the avionics-related ICPs should follow at the beginning

of CY00, about one year after Prime Vendor starts. Subsequent restructurings should follow on a

one-year lag basis after the commodity group enters Prime Vendor status.

Phase Out Depots

Just as ICPs require restructuring, so do distribution depots require phased reductions. The lag

time for these should be between 18 months and two years after the beginning of the Prime

Vendor or Virtual Prime Vendor conversion. This means that the phase-out of the portions of

depots that handle medical and subsistence should begin not later than mid-CY99 and be

completed before the end of that calendar year. Avionics should follow in Mid CY00, with a sixmonth phase-out period. Others should follow as their products are converted.

II-48
Outsource Services

+ Adopt regional focus

* Multi-Services and Agencies

+ Omnibus contracts

> Base operations

w Communications and ADP support

+ Outsource centralized data processing

+ Outsource equipment disposal activities

Why change is needed

One of the largest elements of the cost of the DOD infrastructure is the provision of base

operations support and other commercial-type support services to the Department’s vast array of

bases and installations. DOD has traditionally provided these services by having the work

performed in-house by employees assigned to each installation, or by having each installation

separately contract for the required services. The Department has recently come to realize that

this approach is no longer affordable, and that significant cost savings are achievable by

providing support on a regional basis and by contracting the functions out to industry.

Regionalization of services is already being done in a number of areas, and additional

opportunities abound throughout the Department. We recommend that DOD move out more

aggressively in this area, and establish policies that would make the regionalize and outsourcing

of selected services the rule rather than the exception.

Adopt regional focus

A regional focus, in which a single command assumes responsibility for support services in a

given geographic area, coupled with the outsourcing of those services, can result in improved

service at reduced cost. This concept can be extended to cross-Service consolidations for base

support aligned along the same geographic areas as the recent TRICARE initiative that

regionalizes military health care. It can be applied to such activities as airspace management,

training facilities, facility engineering, demolition, installation logistics support, and, potentially,

to utilities, which could be a significant source of savings.

II-49
Omnibus contracts

Following the same theory of a regional focus for base support, commercial contracts could be

awarded on a regional basis for all functions common to base operations, taking further

advantage of economies of scale. An intermediate step (or a step to take where regionalization

may not be practical) is to combine all the many base operations services on an installation into

one omnibus contract. This approach would allow the contractor to reallocate resources as

temporary workload peaks occur in various functions, and gives the military commander a single

support organization to deal with. Similarly, instead of each operating command and/or base

pursuing its own contract for communications and Automatic Data Processing (ADP) support,

omnibus contracts could be awarded by region for such support.

Outsource centralized data processing

A great deal of ADP support has been regionalized in the Defense Information Systems Agency’s

(DISA’s) megacenters, but the question remains as to why this commercial function is still being

performed in-house. In our view, it need not be. The experience of industry is that outsourcing

ADP support not only saves money but also frees internal managers to focus more of their efforts

on managing their primary business and less on managing the support functions.

Outsource equipment disposal activities

DLA has already put in place plans to outsource a major portion of its reutilization and marketing

function. That effort should be expanded. Even for that equipment requiring special

demilitarization to eliminate unique military characteristics, we believe that a commercial firm(s)

should be contracted to handle the receipt, processing for reuse, necessary demilitarization, and

resale of such surplus equipment and materiel on a consignment basis. Funds generated through

commercial disposal would be shared between the government and the commercial contractor.

II-50
Outsource Services

Policy Implications

+ Acquisition organizations

- Restructure Defense Information Systems Agency

megacenters

* Restructure Defense Reutilization and Marketing Service

+ Acquisition work-force

- Improve services contracting skills and realign procurement

workforce

- Reduce DISA workforce

- Reduce disposal workforce to contract oversight

Note: Major reductions achievable in service delivery workforce

Acquisition organizations

Our recommendations to outsource the property disposal function and the DISA megacenters

will, of course, reduce those organizations to contract oversight elements. Depending on the

exact vehicle used to outsource these functions, many members of the current workforce might

very well become employees of the commercial firms that pick up the mission on a contract

basis.

In addition to those reductions, the regionalization and outsourcing of base operations support

will result in major reductions to that portion of the DOD workforce. Although much of this

workforce is technically outside the definition of the acquisition workforce, it is nonetheless an

action that makes sense from a business standpoint and will contribute to an overall more

efficient DOD organization.

Acquisition workforce

As the Department achieves the potential benefits attainable through contracting out serviceoriented functions, the need for workforce skilled in negotiating will become more and more

evident. The contracting staff that understands requirements and how to translate requirements

into performance-based terms where the results are measurable will be in great demand. Training

the acquisition workforce to think in terms of the desired outcome and not in traditional output

ways is a challenge that must be met. Simply transferring work and existing processes to industry

will not produce significant savings. Thus, one would expect to see the skills and grades of

contracting personnel increase as procurement technicians decrease - a result of both simplified

acquisition rules and contractor-operated services.

II-51
Outsource Services

Timeline

Rec. Streamlined A-76

Regionalize

Design Regions

Designate Lead Service/Agency

Develop BASOPS Requirements

Develop/Solicit/Award Contracts

Develop Comm/ADP Requirements

Develop/Solicit/Award Contracts

Develop Utilities Requirements

Develop/Solicit/Award Contracts

[199811999 ~2000~2001 12902

Megacenter Outsourcing

Review Requirements

Review Capabilities

Develop/Solicit/Award Contracts

DRMS Outsourcing

Review Requirements

Review Capabilities

Develop/Solicit/Award Contract

Recommend Streamlined A-76 Procedures

To achieve the benefits of outsourcing services in a timely manner, OMB Circular A-76 will

have to be streamlined. Although the procedures prescribed in the circular have been improved in

recent years, they still act as a disincentive to outsourcing and streamlining. The cumbersome

procedures make it difficult for the local commander to achieve savings while he/she is still in

command, thus giving the commander little incentive to initiate outsourcing actions. The

Department should work with OMB to develop new policies and procedures that would

+ raise personnel thresholds for study activation,

+ provide flexibility in the implementation of most efficient organization, and

+ shorten the timeline from study initiation to implementation.

There are three distinct categories of outsourcing that lend themselves to immediate action in this

category. These are:

+ Regional outsourcing of support to bases and omnibus contracts for single

installations.

+ Outsourcing of the Department’s computer megacenters.

+ Outsourcing of the activities of the Defense Reutilization and Marketing Service.

II-52
Regionalize

We believe this concept should be aggressively pursued throughout DOD. The process begins

with the immediate formation of an inter-Service team to study and recommend the grouping of

Defense installations along regional lines. For each region a lead Service/Agency should be

designated by the end of the second quarter CY98. The lead Service/Agency will then have

approximately nine months to develop requirements and develop, solicit, and award contracts for

the delivery of Base Operations (BASOPS) services for the region. These BASOPS contracts

should be effective at the beginning of FY00O. Where regionalization is impractical or as an

interim step, omnibus contracts for single installations should be created.

After completing the BASOPS requirements, the lead Service/Agency should begin developing

the communications/ADP support requirements with the goal of beginning contract development

on these by the end of FY99. Contract solicitation and award should then be accomplished so the

contracts can begin in FY0l. The development of regional contracts for utilities should be

conducted in parallel with communications and ADP.

Megacenter Outsourcing

The USD(A&T) should direct the immediate development of a requirements and capabilities

review of DOD computer megacenter capacity. This review should be completed by the end of

the second quarter FY99 and be used as the basis to develop, solicit and award a contract for the

delivery of computing capacity to the Department by commercial entities. The Department

should be out of the megacenter business by the beginning of CY00.

Defense Reutilization and Marketing Service (DRMS) Outsourcing

In the same manner as with the computer megacenters, the USD(A&T) should immediately

direct the completion of requirements review for activities conducted by the Defense

Reutilization and Marketing Service. The goal is to complete the review of requirements and

r capabilities by early-CY99, with the goal of contracting out all of these activities by the end of

that calendar year.

A small but meaningful example of outsourcing is DOD’S initiative to allow soldiers, sailors,

airmen, and Marines to arrange their own shipments of household goods when moving from

assignment to assignment. DOD managers believe that this initiative will improve service to the

Service member, reduce loss and damage of household goods, and reduce overall costs to DOD.

II-53
Refocus Acquisition

Leadership Development

+ Implement special management procedures for “Top 500”

positions

- Establish position pay for key positions

+ Recruit and develop technology leaders

- Increase use of IPAs with academia and industry

> Use renewable term contracts with ability to return to industry

- Seek legislative change to “revolving door” and IPA law

+ Expand the professional certification program

+ Establish “continuous learning” for all acquisition professionals

+ Outsource acquisition workforce education and training

- Focus on judgment skills

+ Tailor executive education programs

We believe that these implications for leadership development represent a particularly critical

part of the equation in capitalizing on the talents of our workforce.

Overview

We noted earlier the need to create more broadly-based acquisition generalists in the workforce,

generalists who will need to be highly skilled in understanding and dealing with technical

matters, the acquisition process, and the various government and industry practices and players

who become involved in the process. DOD program managers often have to deal with a wide

variety of government and industry players who have some compatible and some incompatible

goals. Reducing the number of DOD acquisition managers will place an even higher priority on

substantive acquisition training and skill development, particularly if PEOs and PMs are

expected to manage programs as well as serve as program advocates. In a perfect world, if all

acquisition programs were to proceed as planned, the job of an acquisition manager would be

fairly simple. But programs rarely proceed as planned, and the resulting challenges call for

managers who can deal with them effectively. The skills needed can be acquired through a

combination of years of experience in a proper progression of assignments, and the application of

a well-focused focused education and development program. This section addresses both parts of

this equation.

Implement special management procedures for “Top 500”

We recommend that the USD(A&T), along with the Component Acquisition Executives (CAEs)

and other senior managers, take charge of the professional development and assignment of

individuals for the top 500 acquisition positions. These would include assignments to critical

II-54
PEO positions, and other critical positions throughout the acquisition community. The intensive

management of these individuals would help to ensure some degree of cross-leveling, so that key

positions were always staffed with individuals with a broad base of skills and experience.

Implementation of this recommendation would entail identifying a larger number of acquisition

professionals - perhaps 700-800 -who occupy the Top 500 positions and who are considered

strong candidates for these positions in the near future.

The essence of this recommendation is that senior acquisition executives should manage the

professional development and assignments of these selected individuals in much the same way

that large corporations manage their top executives. Once identified as a member of the Top 500,

an individual’s career should be managed so that he/she proceeds through successively

broadening assignments, with the payoff for the Department coming when the individual reaches

the most senior levels of the acquisition community. The career development pattern should

include assignments to a number of disciplines within the acquisition field, so that each candidate

for a Top 500 position would be a broadly-based generalist, rather than someone who had spent

an entire career developing expertise in one narrow field of interest.

We also recommend that some number of these top 500 positions be designated for position pay.

The number of positions should be approximately 75-100, encompassing perhaps the PMs of

Acquisition Category (ACAT) 1 systems, directors of selected laboratories, and other key

acquisition positions. This would not be performance-based compensation, but rather a special

compensation for the incumbent, recognizing that the position carries special responsibilities.

Such an approach would serve as an incentive to the Top 500 to encourage them to actively seek

out the more challenging and responsible assignments.

Recruit and develop technology leaders

The expertise DOD needs at any point in time might very well reside in industry or academia,

particularly in fields where the pace of technology change is rapid. The Department is extremely

limited in its ability to bring these individuals into the Department, primarily by the rules that

make it difficult for senior DOD managers to work in the commercial sector upon leaving

Defense. We recommend that DOD actively recruit potential leaders from outside the

Department. DOD should seek legislative change to open the “revolving door” between

government and industry, a loosening of the rules governing IPAs, and the use of innovative

approaches such as renewable term contracts that allow an individual to return to industry after

serving with DOD for four or five years.

We might even want to take this so far as establishing a “technology reserve force,” a group of

selected individuals who return to industry after working in DOD acquisition, and who then

maintain a degree of currency with Defense policies through distance learning and other

approaches.

II-55
Expand the professional certification program

As DOD goes through the process of consolidating RDT&E and other elements of the acquisition

system, we expect that the Department will identify new mixes of job skills and performance

requirements. This might in turn drive the need for new or additional certification requirements

to ensure that the “new” workforce does not operate under the old rules for certification. DOD

should adopt enhanced standards for senior acquisition positions effective in FY00. Senior

positions would require Level III certification, a specified number of hours of management

training, a master’s degree or equivalent, multiple organization experience, and training in the

Leadership Effectiveness Inventory competencies. These provisions are currently being staffed

within the Department.

Establish “continuous learning” for all acquisition professionals

Regardless of whether acquisition professionals are recruited from industry or are “home grown”

within DOD, the training and education process must be a career-long program that keeps each

individual on the leading edge of technological and business issues. While acquisition training

has improved in recent years, training programs are not focused not on developing judgment

skills, but rather on teaching rules and procedures. The Department needs a new approach to

acquisition training, in which students are given less training on rules and procedures, and more

education on the development and application of business judgment skills.

Outsource acquisition workforce education and training

We believe that such training programs must be exceptionally fluid and adaptive, and that the

DOD school environment might not be the only or best place to conduct such training. Therefore,

a limited amount of in-house training, which can focus on the rule-based skills that are needed,

should be supplemented by education programs conducted for the Department by universities and

other organizations that specialize in executive education and development.

In developing these education programs, DOD should adopt successful executive education

models. For example, rather than classroom instruction, some of these programs could be

conducted in Web-based virtual classrooms, where students participate in training without

leaving their home stations. And such training will almost certainly be based heavily on case

studies that require and encourage innovative thinking on the part of the students, with much less

emphasis on rule-based solutions. Other programs would emphasize the team-building and IPT

approaches to project management and use small-group case study and role-playing models.

These groups could include industry members as well as government personnel.

II-56
Refocus Leadership Development

Timeline

gement

Develop Criteria

Designate Participants and Positions

Legislation for Position Pay

Begin Formal Management Program

Recruit Technology Leaders

Legislation for IPAs with Industry

Amend “Revolving Door” Legislation

Term Employee Legislation

Designate IPA/Term Positions

Recruit and Place Persons

Professional Certification

Review Requirements

Publish Program

Begin Implementation

DAU Outsourcinq

Design/Review Curriculum

Develop/Solicit/Award Contracts

There are four major areas in which the USD(A&T) can take immediate action to improve the

personnel management and training of the acquisition workforce. These are:

+ Establish a “Top 500” Management Program,

+ Begin recruiting technology leaders from industry,

+ Strengthen the professional certification program,

+ Outsource the majority of acquisition workforce education and training

Establish “Top 500” Management

The USD(A&T) should immediately direct the establishment of a focused management program

for the top 500 personnel in the acquisition workforce. Following this direction, the Department

should develop the criteria by the end of CY98 which would be used to select those individuals

who should be in the “Top 500.” During the second and third quarters of FY99, the Services and

Agencies would nominate their candidates for designation. At the same time, the Department

would prepare a legislative package that would include provisions for position pay for 75-100 of

the top acquisition positions. The goal is to have the enabling legislation be included in the FY00

authorization. Active career management of the Top 500 should begin in FY00.

II-57
Recruit Technology Leaders

The ability to recruit technology leaders from industry depends largely upon enabling legislation.

Three legislative packages need to be developed immediately with the goal of having them in the

FY99 authorization. These are:

+ Enabling legislation to allow implementation of Intergovernmental Personnel Acttype agreements with persons in industry,

+ Amendment of the “Revolving Door” legislation to allow for easy entry/exit from

temporary DOD employment to/from industry,

+ Enabling legislation to allow the expanded use of term employment contracts.

Concurrent with the development of these legislative packages, the Department needs to begin

designating those positions which will be converted from full-time government employees to

IPA/term employment positions. Upon securing the appropriate enabling legislation, DOD should

immediately begin actively recruiting and placing people in the designated positions.

Professional Certification

The Department should conduct an immediate review of the professional certification

requirements for the acquisition workforce. This review should be based on the requirements of

the future acquisition process as envisioned in the rest of this report, not on the requirements of

the process as it exists today. From this review should emerge a standard of certification

appropriate to the grade and level of responsibility of each position in the workforce. Provisions .

should also be made in this certification program for certification of individuals to be linked to

their personal achievement, rather than being assumed to be true because of their occupying a

position requiring certification. Publishing of the certification standards should be done before

the beginning of CY99, with implementation of the program beginning in FY00.

Defense Acquisition University (DAU) Outsourcing

In 1997 the USD(A&T) directed a full review of the structure, curriculum and course

development and delivery techniques for the entire Defense Acquisition University (DAU). In

addition, the DAU has been reviewing all courses for adaptability to Distance Leaning delivery

technology and has set ambitious goals for transition to distance learning for the majority of

DAU courses. Finally, the Defense Reform Initiative (DRI) Task Force has recommended

transfer of the DAU to a Chancellor of Education and Career Development within the National

Defense University (NDU) structure. We recommend that the Department carefully examine

these initiatives and studies with the perspective that, other than Defense-unique training, the

majority of acquisition education can best be achieved by taking full advantage of the training

capabilities that exist in the private sector. In this manner, the Defense workforce can have broad

exposure to the best policies and practices of commercial industry.

II-58
The principal focus should be on how to restructure the Defense Systems Management College

(DSMC) as the prime DOD institution of acquisition education. While DSMC has slowly moved

toward a more realistic case-based study orientation, it lacks a strong infusion of outside

expertise on the policies and practices of commercial industry. This must be a major effort and

will require a balanced government/industry team, directed by the USD(A&T), to examine and

reshape the curriculum, infusing a major insertion of commercial practitioners versed in teaching

industry’s best practices to the DOD workforce. The goal should be to restructure DSMC from an

OSD-only institution into a properly-balanced joint government/industry institution that

preserves necessary OSD-unique training but depends heavily on outsourcing to obtain the best

education and curriculum that the commercial world has to offer.

II-59
Integration with PPBS

+ Program instability results in non-value

added workload and program cost growth

+ Clear need exists for program/budget

community and acquisition community to

mutually develop cooperative procedures

+ Major impact on workforce

w Efficiency

w Morale

Why change is needed

Almost without exception, the PEOs, PMs, and other acquisition managers we talked to told us

that their number one difficulty with PPBS is the program instability that the system seems to

cause. Their view was that each time a new set of resource allocation decisions is made - which

happens at least three times a year and sometimes more frequently - managers must restructure

their programs to meet new funding profiles.

On the other side of this issue, programmers and budgeteers offer the view that program

instability often is a ripple effect that results when program managers have to “fix” programs that

’ were not properly resourced in the first place. They note optimistic cost estimates (much lower

than Cost Analysis Improvement Group (CAIG) estimates). Another factor has been optimistic

estimates of program savings in operating and support costs, which cause subsequent erosion of

the investment accounts when they are not fully realized. When managers adjust an under-funded

program or must pay O&S bills during a program or budget review, other acquisition programs

suffer instability.

It has also been noted, correctly, that the appropriation process can contribute to program

instability through such actions as non-programmatic, undistributed “taxes” on RDT&E and

procurement programs.

Clear need exists for cooperative procedures

We believe that real nexus of the program instability issue lies inside the Pentagon. One essential

step in attacking the problem of program instability is that the acquisition and resource

II-60
management communities must work more effectively together so that each understands the

other’s processes and can find ways to allow the processes to work together more smoothly. This

action has to proceed from a sense of mutual cooperation, in recognition of the fact that the

acquisition process and PPBS must coexist. This step can add to efforts already underway to

automate and unify programming and budget displays, reducing the amount of data required of

program offices, and to streamline supplementary data request from budget analysts.

We recognize that this is no panacea, so efforts to improve program realism must also be stepped

up so that false expectations of available resources for procurement and RDT&E and optimistic

program cost estimates are eliminated from POM and budget requests. The reinstitution of

affordability reviews as part of the DAB process, use of CAIG cost estimates, the implementation

of the programmed “Acquisition Stability Reserve,” and determined efforts - as proposed in

this report - to extract infrastructure savings, all can contribute to reducing program instability.

The Department also should continue its efforts to persuade Congress to raise reprogramming

thresholds.

Major impact on workforce

Whether caused by the PPBS system, Congressional action, or other factors, every requirement to

restructure or redesign a program’s resource profile results in added work for everyone involved.

Efforts to improve the teamwork among the financial management and acquisition communities

and the degree of program realism are the first steps in a journey that could result in the reduction

of major causes of program instability.

II-61
Major Policy Changes

+ Restructure RDT&E organizations

- Use industry and other government capabilities

where equal to or better than DOD’S

w Concentrate in-house efforts on areas with no

industry analogue

w Eliminate internal duplication

+ Expand use of price-based contracting

+ Expand outsourcing of sustainment activities

- Product support

w Commodities

> Services

This is a restatement of our three major policy recommendations, all of which are based on the

overarching theme of better integrating the DOD acquisition system with industry. Taken as a

package, these recommendations will, we believe, enable DOD to execute the acquisition process

cheaper and faster. More importantly, they will lead directly to an acquisition process that is

better for the warfighter, who in the final analysis is the reason the acquisition system exists.

II-62
First-Order Recommendations

+ Restructure RDT&E activities

+ Establish all-Service C4I development

capability

+ Increase use of price-based forms of

contracts

+ Expand PEO/PM responsibility for life-cycle

support, to include funding responsibility

+ Redesign the nature of acquisition work

Recommend DSB Sub-Panel reconvene in six months

to review implementation

Our proposed policy changes lead to a number of specific recommended actions. Summarized

here are the actions that we believe the Department should adopt immediately. These are actions

that can be begun quickly, and for which there is a high potential for early payoff.

We recognize that carrying out our proposals will not be easy, and that many real and potential

barriers - only some of which can be identified at this point - stand in the way of effective

implementation. We believe that we can contribute to the implementation process. To this end,

we recommend that the USD(A&T), after determining which of our proposals he chooses to

adopt, direct that our Sub-Panel reconvene in six months, and periodically thereafter, to provide

an independent assessment of the plans and progress that DOD has made in carrying out the

approved recommendations. We believe that such an assessment would be exceptionally helpful

to DOD executives in maintaining their focus on the overall objectives of the changes,

particularly as they become immersed in the complex details of implementation.

II-63
Composite Impact of Policy Changes

M = Major Impact S = Secondary Impact

This is a summary of the impacts that follow from our recommendations. Across the top are the

acquisition activities that we identified earlier, and the row headings are our five major

recommendations. The MS and Ss indicate whether a given recommendation will have a major or

secondary impact on that portion of the acquisition process. And in the last column we provide

an assessment of the impact on the acquisition workforce. Since our charter called for us to focus

on workforce issues, it is no surprise that most of our recommendations will have major

implications for the workforce. We believe that the implications are positive ones that will build

upon DOD’S outstanding workforce and make it an even more effective corps of acquisition

professionals.

II-64
Estimated Cumulative Impact of

Proposals on Acquisition Workforce

250

1 -Oversight

* Commodities

0

+ Program Support

-RDT&E

&::.7

4 Oversight I I

1998 2000 2002 2004 2006 2008

NOTES

- Staffing lines include permanent employees, term employees and IPAs

- To focus on critical functions, this study used the four acquisition categories shown here. These categories do

not directly correspond to previous workforce definitions.

This chart summarizes the overall impact of our proposals on the acquisition workforce that is

involved in RDT&E, product support, commodity support, and oversight. The segments are

displayed so that the top line represents the total impact on the workforce in the four areas that

we examined. The chart includes “conventional” government employees and the term employees

and IPAs that we recommend be added to the workforce. The net estimated reduction stemming

from our proposals is 47% over 5 years and 64% over 10 years for the affected workforce.

II-65
Estimated Cumulative Funds

Available for Reinvestment

24 - 22.5

19 -

$514Et

0

= - Oversight

n0 9- +-Commodities Product Support

- Program Support

- RDT&E

4-

-t- 998 2000 2002 2004 2006

Oversight

2008

This chart shows the estimated cumulative dollar impact of the workforce realignments we have

proposed. Additional savings or cost avoidance would result from reduced facility requirements,

decreased inventory management requirements, and other factors that we have not included in

our estimate.

Because of the first-year costs associated with personnel reductions, our initiatives do not

produce a positive dollar return until FY00. After 10 years, we project that our proposals will

make $22 billion available for reinvestment. To place this in perspective, this is less than 1% of

the projected Defense budget over that period. Thus, while we are confident that our proposals

will, in fact, generate cost avoidances, our recommendations are driven more by the need to

perform acquisition better and faster than by the need to do it cheaper.

II-66
Conclusion

+ Our recommendations have tremendous impact on the

workforce and organizations

+ Recognized need for a “Revolution in Business Affairs,” yet:

> Only incremental changes made since end of Cold War

> Acquisition funds drained to support infrastructure

+ Technology revolution threatens to overwhelm the workforce and

pass it by

+ The Acquisition Community provides the tools for America’s

Warfighters -they need our best

+ Now is the time for you to lead the Revolution - to transform the

organization and the workforce to produce better, cheaper,

faster acquisition

1 The Blueprint Supports the Warfighter 1

We do not offer our recommendations lightly, and are fully cognizant of the dramatic impact

these recommendations will have on the acquisition workforce and their organizations.

Much has been written about the need for a “revolution in business affairs,” a revolution to

remake DOD’S supporting infrastructure so that it can do a better job of providing our warfighters

the tools they need. But in spite of the consensus that such a revolution is needed, and in spite of

all the strides that have been made to reshape parts of the supporting infrastructure:

+ America’s operating forces have been reduced by a greater percentage than has the

support structure since the end of the Cold War,

+ there is a need for a fundamental change in the nature of the work that we ask the

support structure to do,

+ the Department faces a constant struggle to maintain adequate funding for acquisition

programs, and

+ the Department is not well-positioned to keep abreast of the pace of technological

change so that it can optimally apply technology both to weapon systems and to the

process used to acquire them.

Our recommendations are intended to provide acquisition managers with a set of actions that will

enable them, in partnership with the Congress, to lead the revolution - to achieve an acquisition

process that is better, cheaper, and faster - and at the same time to put in place a blueprint for

the future that will improve the level of support to the warfighter.

II-67
II-68
Appendices

Appendix

A

B

C

D

E

F

G

H

I

J

K

L

M

Title

Glossary

Extract from the FY98 National Defense Authorization Act

Terms of Reference

Biographical Sketches of Sub-Panel Members

Members of the Senior Support Group

Members of the Joint Working Group

Topics and Participants for Sub-Panel Meetings

Workforce Composition

Streamlining Opportunities

DCAA and DCMC Workforce Analysis

Materiel Management Performance Indicators

Product Support

Bibliography

Appendix A

Glossary

ACAT

ACTD

ADP

ALC

AT

B&P

BASOPS

BMDO

BOSS

BRAC

C4I

C4ISR

CAE

CAIG

CAS

C B

CECOM

CINC

CLS

CLSMC

CNA

COD

CONUS

CRAF

CY

DARPA

DAU

DCAA

DCMC

Acquisition Category

Advanced Concept Technology Demonstration

Automatic Data Processing

Air Force Base

Air Logistics Center

Advanced Technology

Bid and Proposal

Base Operations

Ballistic Missile Defense Organization

Best Overall Support Solutions

Base Realignment and Closure

Command, Control, Communications, Computers, and Intelligence

Command, Control, Communications, Computers, Intelligence,

Surveillance, and Reconnaissance

Component Acquisition Executive

Cost Analysis Improvement Group

Cost Accounting Standards

Chemical and Biological

US Army Communications-Electronics Command

Commander in Chief

Contractor Logistics Support

CLS Management Center

Center for Naval Analyses

Carrier Onboard Delivery

Continental United States

Civil Reserve Air Fleet

Calendar Year

Defense Advanced Research Projects Agency

Defense Acquisition University

Defense Contract Audit Agency

Defense Contract Management Command

A-l
DFAS

DISA

DLA

DOD

DoDI

DOE

DRI

DRMS

DSB

DSMC

EDI

ESC

EVMS

FAA

FAR

FASA

FEDEX

FSCATT

FTR

F Y

FYDP

GAO

GPS

ICP

IMPAC

INS

IPA

JDAM

JPATS

JTAV

JWG

LRU

MDSO

MOG

MTBF

Defense Finance and Accounting Service

Defense Information Systems Agency

Defense Logistics Agency

Department of Defense

Department of Defense Instruction

Department of Energy

Defense Reform Initiative

Defense Reutilization and Marketing Service

Defense Science Board

Defense Systems Management College

Electronic Data Interchange

US Air Force Electronic Systems Center

Earned Value Management Systems

Federal Aviation Administration

Federal Acquisition Regulation

Federal Acquisition Streamlining Act

Federal Express

Fire Support Combined Arms Tactical Trainer

Full-Time Equivalents

Field Technical Assistance Representative

Fiscal Year

Future Years Defense Program

General Accounting Office

Global Positioning System

Inventory Control Point

Identification, Friend or Foe

International Merchant Purchase Authorization Card

Inertial Navigation System

Intergovernmental Personnel Act

Joint Direct Attack Munition

Joint Primary Aircraft Training System

Joint Total Asset Visibility

Joint Working Group

Line Replaceable Units

Military Direct Support Organization

Maximum on the Ground

Mean Time Before Failure

A-2
NASA

NAVAIR

NDU

O&M

O&S

OGA

OPTEC

OSD

PBBE

P E

PEO

P L

P M

POM

POM

PPBS

R&D

RDT&E

ROI

S&T

SPAWAR

SSG

TAV

TRANSCOM

U.S.C.

UPS

USD(A&T)

VAMOSC

VERA

VSIP

National Aeronautics and Space Administration

US Navy Naval Air Systems Command

National Defense University

Operations and Maintenance

Operating and Support

Other Government Agency

US Army Operational Test and Evaluation Command

Office of the Secretary of Defense

Performance-Based Business Environment

Program Element

Program Executive Officer

Public Law

Program Manager

Preparation for Overseas Movement

Program Objective Memorandum

Planning, Programming, and Budgeting System

Research and Development

Research, Development, Test, and Evaluation

Reduction in Force

Return on Investment

Science and Technology

US Navy Space and Naval Warfare Systems Command

Senior Support Group

Total Asset Visibility

US Transportation Command

United States Code

United Parcel Service

Under Secretary of Defense for Acquisition and Technology

Visibility and Management of Operating and Support Costs

Voluntary Early Retirement Authority

Voluntary Separation Incentive Program

A-3

Appendix B

Extract from the FY98 National Defense

Authorization Act

Section 912 of the National Defense Authorization Act of FY98 states, in part:

(c) IMPLEMENTATION PLAN TO STREAMLINE AND IMPROVE ACQUISITION

ORGANIZATIONS.

(1) Not later than April 1, 1998, the Secretary of Defense shall submit to Congress a

report containing a plan to streamline the acquisition organizations, workforce, and infrastructure

of the Department of Defense. The Secretary shall include with the report a detailed discussion of

his recommendations based on the review under subsection (d) and the assessment of the Task

Force on Defense Reform pursuant to subsection (e), together with a request for enactment of any

legislative changes necessary for implementation of the plan. The Secretary shall include in the

report the results of the review under subsection (d) and the independent assessment of the Task

Force on Defense Reform pursuant to subsection (e).

(2) In carrying out this subsection and subsection (d), the Secretary of Defense shall

formally consult with the Chairman of the Joint Chiefs of Staff, the Director of Program Analysis

and Evaluation, the Under Secretary of Defense (Comptroller), and the Under Secretary for

Acquisition and Technology.

(d) REVIEW OF ACQUISITION ORGANIZATIONS AND FUNCTIONS. The Secretary of

Defense shall conduct a review of the organizations and functions of the Department of Defense

acquisition activities and of the personnel required to carry out those functions. The review shall

identify the following:

(1) Opportunities for cross-service, cross-functional arrangements within the military

services and defense agencies.

(2) Specific areas of overlap, duplication, and redundancy among the various acquisition

organizations.

(3) Opportunities to further streamline acquisition processes.

(4) Benefits of an enhanced Joint Requirements Oversight Council in the acquisition

process.

(5) Alternative consolidation options for acquisition organizations.

B-l
(6) Alternative methods for performing industry oversight and quality assurance.

(7) Alternative options to shorten the procurement cycle.

(8) Alternative acquisition infrastructure reduction options within current authorities.

(9) Alternative organizational arrangements that capitalize on core acquisition

competencies among the military services and defense agencies.

(10) Future acquisition personnel requirements of the Department.

future

(11) Adequacy of the Program, Plans, and

acquisition needs of the Department.

Budgeting System in fulfilling current and

(12) Effect of technology and advanced management tools in the future acquisition

system.

(13) Applicability of more flexible alternative approaches to the current civil service

system for the acquisition workforce.

(14) Adequacy of DoDI 5000.58 dated January 14, 1992.

(e) DUTIES OF TASK FORCE ON DEFENSE REFORM TO INCLUDE CONSIDERATION

OF ACQUISITION ORGANIZATIONS.

(1) The Secretary of Defense shall require that the areas of study of the Task Force on .

Defense Reform (established by the Secretary of Defense on May 14, 1997, and headed by the

Deputy Secretary of Defense) include an examination of the missions, functions, and

responsibilities of the various acquisition organizations of the Department of Defense, including

the acquisition workforce of the Department. In carrying out that examination of those

organizations and that workforce, the Task Force shall identify areas of duplication in defense

acquisition organizations and recommend to the Secretary options to streamline, reduce, and

eliminate redundancies.

(2) The examination of the missions, functions, responsibilities of the various acquisition

organizations of the department of Defense under paragraph (1) shall include the following:

(A) An assessment of benefits of consolidation or selected elimination of

Department of Defense acquisition organizations.

(B) An assessment of the opportunities to streamline the defense acquisition

infrastructure that were realized as a result of the enactment of the Federal Acquisition

Streamlining Act of 1994 (PL 103-355) and the Clinger-Cohen Act of 1996 (divisions D and E of

PL 104-106) or as a result of other acquisition reform initiatives implemented administratively

during the period from 1993 to 1997.

B-2
(C) An assessment of such other options for streamlining or restructuring the

defense acquisition infrastructure as the Task Force considers appropriate and as can be carried

out under existing provisions of law.

(3) Not later than March 1, 1998, the Task Force shall submit to the Secretary a report on

the results of its review of the acquisition organizations of the Department of Defense, including

any recommendations of the Task Force for improvements to those organizations.

B-3
B-4
Appendix C

Terms of Reference

This appendix contains the Terms of Reference for the DSB Task Force on Defense Acquisition

Reform, Phase IV. The third paragraph of the Terms of Reference was written to address the

responsibilities of the Acquisition Workforce Sub-Panel.

C-l
C-2
ACQUISITION AND

TECHNOLOGY

THE UNDER SECRETARY OF DEFENSE

3010 DEFENSE PENTAGON

WASHINGTON. DC 20301-3010

JAN 2 3 1998

MEMORANDUM FOR CHAIRMAN, DEFENSE SCIENCE BOARD

SUBJECT: Terms of Reference --Defense Science Board Task

Force on Defense Acquisition Reform - Phase IV

Over the past four years, the Defense Science Board (DSB) has

provided recommendations on useful techniques and actions for

reforming the acquisition processes of the Department of Defense.

Internal teams and study efforts have also provided recommendations.

Progress is clearly being made towards reform of the process but

much is yet to be done and we need better metrics for measuring our

progress. It would be useful to have an external perspective on the

current status of reform implementation and appropriate set of

metrics.

I request that you establish a DSB Task Force for Defense

Acquisition Reform - Phase IV to review the status of current

implementation and recommend further actions for the Department to

accelerate progress. You should utilize an encompassing definition

of acquisition reform, including R & D, logistics, the requirements

and budget process, and civil/military industrial integration- A

particular focus of this effort should be the development and

implementation of metrics that could be used by the DOD to

periodically measure success in the effectiveness of the overall

acquisition reform efforts.

In addition, the Task Force should also put a special focus on

reviewing the organization and functions of DOD acquisition

activities with a view towards streamlining those organizations, the

acquisition workforce, and the Department's infrastructure.

This Task Force should become a permanent sub-panel of the DSB

for the next few years and provide reports semi-annually. The Under

Secretary of Defense (Acquisition and Technology) will sponsor this

Task Force. Dr. Robert Hermann will serve as Chairman of the Task

Force. The Executive Secretary will be Mr. Ric Sylvester. LTC T.

Van Horn, USA, will serve as the DSB Secretariat Representative.
The Task Force will be operated in accordance with the

provisions of P.L. 92-463, the "Federal Advisory Committee Act," and

DOD Directive 5105.4, the "DOD Federal Advisory Committee Management

Program." It is not anticipated that this Task Force will need to

go into any "particular matters" within the meaning of Section 208

of Title 18, U.S. Code, nor will it cause any member to be placed in

the position of acting as a procurement official.
Appendix D

Biographical Sketches of Sub-Panel Members

Chairman: General William G. T. Tuttle, Jr., (US Army, Retired)

General Tuttle has served as President and Chief Executive Officer of the nonprofit Logistics

Management Institute since January 1993.

As the Army’s senior logistician, General Tuttle led 100,000 soldiers and civilians of the U.S.

Army Materiel Command from 1989 until his retirement early in 1992, a period encompassing

Operation Just Cause in Panama and Operations Desert Shield and Desert Storm. General Tuttle

also commanded the U.S. Army Logistics Center (now the Combined Arms Support Command),

the U.S. Army Operational Test and Evaluation Agency, the Eastern Area of the Military Traffic

Management Command, and both the Support Command and Supply and Transport Battalion of

the 3d Armored Division in Germany. He served in the Pentagon as the Army’s Director of Force

Management and at Supreme Headquarters Allied Powers Europe as Chief of Policy and

Programs Branch and representative to NATO’s Defense Review Committee.

General Tuttle is a 1958 graduate of the United States Military Academy and earned a masters

degree in business administration at the Harvard University Graduate School of Business

Administration. He holds the Defense, Army (three awards), Navy, and Air Force Distinguished

Service Medals as well as several other Defense, Army, and foreign decorations and awards. he

served as the 1992-1995 as a member of the Task Force on Peace of the Evangelical Lutheran

Church in America. He is a Director of the Procurement Round Table, a Councilor of the

Atlantic Council, and a member of The Council for Excellence in Government, the Association

’ of the U.S. Army, and the National Defense Transportation Association. Since 1995 he has been

a Consultant to the Defense Science Board, participating in the 1995 and 1996 Summer Studies

and chairing the Task Force on Logistics Modernization.

Mr. Gordon R. England

Gordon R. England is the Executive Vice President of General Dynamics. General Dynamics

Land Systems, Armament Systems, Information Systems, Computing Devices Canada, and

Computing Devices UK report to him. Gordon rejoined General Dynamics on March 1, 1997 as

corporate executive vice president of Combat Systems. Previously, he was president of his own

consulting company, GRE Consultants, Inc., that he started after retiring from Lockheed in

March 1995.

D-l
Mr. England had been the corporate vice president and president of the Lockheed Fort Worth

Company since March 1, 1993. He had been corporate executive vice president of General

Dynamics Corporation and president of aircraft systems for General Dynamics prior to the sale of

the Fort Worth Division to Lockheed. Prior to that, he had served as corporate vice president and

general manager of General Dynamics’ Land Systems Division. He spent the previous five years

as vice president of research and engineering at the division.

Mr. England earned his bachelor’s degree in electrical engineering from the University of

Maryland in 1961 and his master’s degree in business administration from Texas Christian

University in 1975.

He has been very active with the military services, the Department of Defense, the U.S.

Congress, and in the business community in helping formulate future defense industrial base

policy. He served as a member of the Defense Science Board and still serves on numerous DSB

panels and committees.

Dr. Steven Kelman

Dr. Kelman is the Weatherhead Professor of Public Management at Harvard University’s John F.

Kennedy School of Government. A summa cum laude graduate of Harvard College, with a Ph.D.

in government from Harvard University, he is the author of many books and articles on the

policy-making process and on improving the management of government organizations. His most

recently published books are a study on how to improve the government computer procurement

process, entitled Procurement and Public Management: The Fear of Discretion and the Quality

of Government Performance (AEI Press, 1990) and Making Public Policy: A Hopeful View of

American Government (Basic Books, 1987). He has also received a number of academic honors

throughout the years. In 1996 he was elected a Fellow of the National Academy of Public

Administration.

From 1993 through 1997, Dr. Kelman served as Administrator of the Office of Federal

Procurement Policy in the Office of Management and Budget. During his tenure as

Administrator, he played a lead role in the Administration’s “reinventing government” effort. He

led Administration efforts in support of the Federal Acquisition Streamlining Act of 1994 and the

Federal Acquisition Reform Act of 1995.

Mr. Richard L. Rumpf

As President of Rumpf Associates International since July of 1990, Mr. Rumpf has provided

technical, programmatic, and management services to a number of clients, including Hughes

Aircraft Company, 3M, Allied Signal Aerospace, Ball Aerospace, Colebrand Limited, The

D-2
Bridge Group, McKenna & Cuneo, Cambridge Research Associates, and Production Technology,

Inc. He has led or actively participated in a number of classic “Red Team” reviews of proposals

in process, as well as leading and/or actively participating in smaller strategic groups of experts

called upon to provide guidance to corporate officials earlier in the life of a program. Mr. Rumpf

has also participated as a principal on major studies such as the “Next Generation Carrier Study”

(CNA) and the “Surface Ship Self Defense Roadmap” (APL/JHU), and served on the Study

Groups for the Navy Research Advisory Cornmittee in the Summers of 1990, 1994, and 1997.

From April to December 1987 and from May 1989 to March 1990, Mr. Rumpf served as the

Acting Assistant Secretary of the Navy for Research, Engineering and Systems.

Mr. Rumpf joined the Office of the Assistant Secretary of the Navy (Research, Engineering, and

Systems) in March 1978 as the Staff Engineer for Missile Systems. In November 1981 he

became the Acting Director for Air Programs, and served as director for Air Programs from

March 1982 to June 1985. In June 1985, he assumed the position of Principal Deputy Assistant

Secretary of the Navy, with responsibilities covering the complete range of Navy and Marine

Corps weapons systems development. He played a key role as representative of the Secretary

with Congressional staff and members, other services and the Office of the Secretary of Defense

(OSD). He was head of the Navy’s Marine Mammal Program and was the principal Navy test

and evaluation representative to OSD.

Mr. Rumpf chaired the first Anti-Submarine Warfare (ASW) Master Plan Blue Ribbon Review

Panel and was largely responsible for the establishment of a Joint UAV Program Office and

Master Plan. He is a strong believer in joint service ventures, and worked closely with the other

services to develop the joint Air-to-Air Missile and Standoff Weapons Master Plans. He was a

key figure behind the Navy’s initiatives in international cooperative development strategy, having

initiated several memoranda of understanding with U.S. allies (for example, for the joint

development of Closed-loop Degaussing for surface ships and the joint development of a

Magnetic Anomaly Detector for airborne applications with the Government of France). He has

served as the principal Navy advisor to several Defense Science Board committees.

General Lawrence A. Skantze (US Air Force, Retired)

In 1987, General Skantze retired from the US Air Force as Commander, Air Force Systems

Command. Since then, he has served as Vice Chairman of the Board of Trustees of the

Aerospace Corporation; has been a regular contributor to Defense News; has been a consultant to

the Defense Science Board, the National Academy of Sciences, and a number of private-sector

firms; and has served on a number of other boards.

After graduating from the US Naval Academy with a bachelor’s degree in electrical engineering,

he flew as a tactical squadron pilot, served in planning and engineering assignments in Air Force

development programs, and was program manager for the Short Range Attack Missile (SRAM)

and the Airborne Warning and Control System (AWACS). Later, he was assigned as

D-3
Commander, Aeronautical Systems Product Division and as Vice Chief of Staff of the U.S. Air

Force.

During his active duty career and since, he has been involved in a variety of technological and

management activities including budget formulation, development of acquisition strategy and of

technical investment strategy (e.g., the Air Force Advanced Technology Fighter Program), and

program management and engineering work in the Nuclear Powered Aircraft and Manned

Orbiting Laboratory programs. He created, articulated, and negotiated the Air Force’s twobomber (B-l and B-2) program and defended it before Congress.

General Skantze holds a master’s degree in nuclear engineering from the Air Force Institute of

Technology.

D-4
Appendix E

Members of the Senior Support Group

The USD(A&T) formed the SSG to assist the Sub-Panel in its deliberations. The SSG, which

consisted of senior representatives (at the flag/SES level) of the Defense Components, The Joint

Staff, and selected OSD staff agencies, participated actively in the fact-finding meetings of the

Sub-Panel (see Appendix G for a list of these meetings) and assisted further by providing

comments and suggestions on the Sub-Panel’s conclusions and recommendations as they

emerged from the study.

The SSG members were:

OSD Acquisition

Gary Christle

Lance Davis

Spiros Pallas

Eleanor Spector

OSD Logistics Navy Acquisition

Jim Emahiser Dan Porter

OSD Comptroller

Caral Spangler

OSD PA&ED

Dave McNicol

OSD General Counsel

Bob Gorman

DOT&E

Tom Carter

The Joint Staff

COL Ron Logsdon

COL Jim Verity

Army Acquisition

Keith Charles

Armv Logistics

Eric Orsini

Navy Logistics

RADM George Yount

USMC Logistics

BGen Paul Lee

Air Force Acquisition

Blaise Durante

Air Force Logistics

Joe Black

DLA Acquisition

Brig Gen Tim Malishenko

E-l

Appendix F

Members of the Joint Working Group

The USD(A&T) formed the JWG to assist the Sub-Panel. The JWG, which consisted of

representatives of the Defense Components and selected OSD staff agencies, provided research

and analytical support to the Sub-Panel and assisted in the drafting of issue papers.

The JWG members were:

_Army

COL Bill Fast

Norma Brock

Brian Shortell

Jim Sullivan

Navy

Gerald Schiefer

Charles Borsch

Bob Knetl

Bill Neustadt

Mitch Waldman

Marine Corns

Mike Halloran

Air Force

Joe Diamond

Co1 Bob Kayuha

Co1 Don Wetekam

Co1 Bill Wilson

Defense Logistics Agency

CAPT Steve Brooks

Leonard Yankosky

Ballistic Missile Defense Organization

Janet Wolfinger

OSD Acquisition

Steve Cohen

F-l
F-2
Appendix G

Topics and Participants for Sub-Panel Meetings

To make the best use of the limited time available for its study, the Sub-Panel conducted a series

of focused meetings, each addressing a particular phase or issue of the acquisition process.

Representatives from DOD, other government agencies, and industry were asked to participate in

these meetings, either as speakers or as members of discussion panels. Each of the discussions

was facilitated by the advance preparation of “forcing questions” to guide the speakers and

panelists.

This appendix lists the primary topics for each Sub-Panel meeting, the speakers and panel

members who participated, and titles of the formal presentations that were made.

Meeting Dates and Topics

Date Primary Topics

13 January 1998

23 January 1998

28 January 1998

6 February 1998

Overview by Service Acquisition Executives

The DOD requirements process

Science and technology

PPBS

Transition of technology to systems

Engineering and manufacturing development

Production

Developmental and operational testing

Acquisition workforce issues

Sustainment

FAA management system and workforce

NASA system and workforce

DOD acquisition workforce demonstration project

G-l
Speakers and Panel Members

6 January 1996

MG Ronald E. Adams

Assistant Deputy Chief of Staff for Operations

and Plans (Force Development)

US Army

Keith Charles

Deputy Assistant Secretary of the Army for

Plans, Programs, and Policy

Honorable John W. Douglass

Assistant Secretary of the Navy (Research,

Development, and Acquisition)

LTC Ken Hawes

Force Development Directorate

Office of the Deputy Chief of Staff for

Operations and Plans

US Army

Maj Gen Gregory S. Martin

Director of Operational Requirements

US Air Force

Dr. Kenneth Oscar

Acting Assistant Secretary of the Army

(Research, Development, and Acquisition)

Co1 Richard W. Bates

Director

Program Analysis and Evaluation

USMC Systems Command

Col(S) Bob Dorsey

Directorate of Operational Requirements

US Air Force

CAPT Jim Hanna

Head, Acquisition and Requirements Support

Branch

OPNAV N810

US Navy

Co1 Edward J. Lesnowicz, Jr.

Director

Warfighting Development and Integration

Division

USMC Combat Development Command

Honorable Arthur L. Money

Assistant Secretary of the Air Force

(Acquisition)

COL Jim Verity

Chief

Acquisition and Technology Division

J-8

The Joint Staff

G-2
I 13 January 1998 I

Dr. A. Michael Andrews

Director for Technology

Office of the Assistant Secretary of the Army

(Research, Development, and Acquisition)

Dr. Lee Buchanan

Deputy Director

Defense Advanced Research Projects Agency

Dan Czelusniak Maurice Donnelly

Director Director of Investments

Acquisition Program Integration Office of the Assistant Secretary of the Army

OUSD(A&T) (Financial Management and Comptroller)

Joe Eash

Deputy Under Secretary of Defense (Advanced

Technology)

Co1 Bill Elliott

US Atlantic Command

Ms. Marguerite Frick

Force Development Directorate

Office of the Deputy Chief of Staff for

Operations and Plans

US Army

Alice Maroni

Principal Deputy Under Secretary of Defense

(Comptroller)

Joe McMichael

Office of the Assistant Secretary of the Air

Force (Financial Management and

Comptroller)

Tom Perdue

Principal Assistant Deputy Under Secretary of

Defense (Advanced Technology)

Irv Blickstein

Assistant Deputy Chief of Naval Operations

(Resources, Warfare, Requirements, and

Assessments)

US Navy

Dr. Craig College

Deputy Director

Program Analysis and Evaluation Directorate

US Army

Dr. Helmut Hellwig

Deputy Assistant Secretary of the Air Force

(Science, Technology, and Engineering)

Dr. Donald McErlean

Deputy Director

Air Vehicle Department

US Navy Naval Air Systems Command

Dr. A. Fenner Milton

Deputy Assistant Secretary of the Army

(Research and Technology)

Dr. Fred Sallfield

Technical Director

Office of Naval Research

US Navy

G-3
George Singley

Acting Director of Defense Research and

Engineering

Robert D. Stuart

Deputy for Budget

Office of the Deputy Assistant Secretary of the

Air Force (Budget)

Robert Soule

Acting Director

Program Analysis and Evaluation Directorate

OSD

I ~~ 23 Januarv 1998 I

RADM Stephen H. Baker

Commander

US Navy Operational Test and Evaluation

Force

Col Slade A. Brewer

Director

USMC Operational Test and Evaluation

Activity

Philip E. Coyle

Director

Operational Test and Evaluation

OSD

Col Jim Feigley

Direct Reporting Program Manager

Advanced Amphibious Assault Programs

USMC

John Manclark

Director

Test and Evaluation

US Air Force

CAPT John O’Connell

Acting Deputy Assistant Secretary of the Navy

(C4I, EW, and Space Programs)

David Borland

Vice Director for Information Systems for

Command, Control, Communications, and

Computers

US Army

RADM Jeffrey A. Cook

PEO

Tactical Air Programs

US Navy

COL Brent Crabtree

Chief of Staff

US Army Operational Test and Evaluation

Command

Dr. John Foulkes

Director

US Army Test and Evaluation Management

Agency

Dr. Margaret Myers

Director

C3I Acquisition Oversight

Office of the Assistant Secretary of Defense

C3I)

Maj Gen Robert F. Raggio

PEO

Fighter and Bomber Programs

US Air Force

G-4
RADM Richard A. Riddell

Director

Test and Evaluation and Technology

Requirements

US Navy

Dr. Pat Sanders

Director

Defense Test Systems Engineering and

Evaluation

RADM David P. Sargent, Jr. Carla von Bemewitz

PEO Chief Information Officer

Carriers, Littoral Warfare, and Auxiliary Ships Defense Logistics Agency

US Navy

Co1 Craig Weston BG Joseph L. Yakovac

PEO Deputy for Systems Acquisition

Warning, Surveillance and Control US Army Tank-Automotive and Armaments

US Air Force Command

1 28 January 1998

Pete Brown

Deputy Commander

Fleet Logistics Support

US Navy Naval Sea Systems Command

MG Charles C. Cannon, Jr.

Assistant Deputy Chief of Staff for Logistics

US Army

’ Bernie Clark

Executive Director

Naval Shipyards, Supship Management, and

Field Activity Support

US Navy

LTG Henry T. Glisson

Director

Defense Logistics Agency

Allan Burman

President

Jefferson Solutions LLC

Nat Cavallini

Jefferson Solutions LLC

Jim Emahiser

Acting Principal Assistant Deputy Under

Secretary of Defense (Logistics)

MG David R. Gust

PEO

Intelligence, Electronic Warfare, and Sensors

US Army

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VADM William J. Hancock

Deputy Chief of Naval Operations - Logistics

US Navy

Lt Co1 Brandy Johnson

Office of the Director of Acquisition

Education, Training, and Career

Development

OUSD(A&T)

John Kuesters

Deputy PEO

Surface Combatants

US Navy

Dr. James McMichael

Director of Acquisition Education, Training,

and Career Development

OUSD(A&T)

L. F. “Buzz” Milan

Deputy Director and Assistant Commander for

Logistics

US Navy Naval Air Systems Command

Assistant Deputy Chief of Staff for

Installations and Logistics

US Air Force

Ron Orr Eric Orsini

Deputy Assistant Secretary of the Army for

Logistics

Maj Gen Carlos Perez

Commander

Oklahoma City Air Logistics Center

US Air Force

Frank Weber

Director of Logistics

US Transportation Command

Maj Gen John D. Hopper

Vice-Director

J-4

The Joint Staff

Jeffrey Jones

Deputy Commander

Defense Logistics Support Command

Tony Laplaca

Director

Logistics Readiness Center

US Army Communications and Electronics

Command

MajGen Joseph D. Stewart

Deputy Chief of Staff for Installations and

Logistics

USMC

Roy Willis

Acting Deputy Under Secretary of Defense for

Logistics

6 February 1998

John Ablard

Director of Management and Administration

Defense Advanced Research Projects Agency

Ken Byram

Deputy Director for Acquisition

Federal Aviation Administration

G-6
Greg Giddens Dr. Paul Kaminski

Director Former Under Secretary of Defense

Acquisition Workforce Demonstration Process (Acquisition and Technology)

Action Team

OUSD(A&T)

Deidre A. Lee Dr. James McMichael

Associate Director for Procurement Director of Acquisition Education, Training,

National Aeronautics and Space and Career Development

Administration OUSD(A&T)

Bill Mounts

Office of the Deputy under Secretary of

Defense (Acquisition Reform)

Linda Reed

Science and Technology Division

Directorate of Contracting

Air Force Materiel Command

William H. Reed

Director

Defense Contract Audit Agency

Herm Reininga

Vice-President for Operations

Rockwell-Collins

Briefings and Presentations

This section lists the formal briefings and presentations that were given to the Sub-Panel.

6 January 1998

Army Acquisition, Army Acquisition Executive response to the DSB Sub Task Force Questions.

Overview by Dr. Ken Oscar, Acting Assistant Secretary of the Army (RDA), briefing by Mr.

Keith Charles, Deputy Assistant Secretary for Plans, Programs and Policy

Department of the Navy Briefing to the Defense Science Board Sub Task Force for Acquisition

Reform, Navy Acquisition Executive (AE) response to the DSB Sub Task Force Questions, Hon.

John Douglass, Assistant Secretary of the Navy (Research, Development, and Acquisition)

Preparing for the 21st Century, The Future of Aerospace Acquisition, Air Force Acquisition

Executive (AE) response to the DSB Sub Task Force Questions, Hon. Art Money, Assistant

Secretary of the Air Force (Acquisition)

Air Force Acquisition in the 21st Century, Paper discussing the reengineering of the acquisition

and sustainment processes by SAF/AQ (4 October 1996), presented by Hon. Art Money,

Assistant Secretary of the Air Force (Acquisition)

G-7
Section 912 - Defense Acquisition Workforce DDP Questions, response to the DSB Sub Task

Force Questions by Mrs. Eleanor Spector, Director of Defense Procurement

Joint Requirements Process, JROC response to the DSB Sub Task Force Questions on

requirements, COL Jim Verity, Chief, Acquisition and Technology Division, J-8, The Joint Staff

Briefing to the DSB Sub Task Force on Acquisition Reform, Army response to the Defense

Science Board (DSB) Sub Task Force Questions on requirements, MG Ronald Adams,

ADCSOPS (Force Development) and LTC Ken Hawes

Requirements Determination, A Navy Requirements Perspective to the Defense Science Board

(DSB) Sub Task Force on Acquisition Organization and Functions, Captain James Hanna, Navy

JROC; Head, Acquisition & Requirements Support Branch (OPNAV N810)

Questions for Requirements Determination, Air Force response to the Defense Science Board

(DSB) Sub Task Force Questions on requirements, Co1 (S) Bob Dorsey, Air Force/XOR

Marine response to the Defense Science Board (DSB) Sub Task Force Questions on

requirements, COL R. W. Bates, Marine Corps Systems Command and COL E. Lesnowicz,

Marine Corps Combat Development Command

13 January 1998

DOD Science and Technology, briefing prior to panel discussion of S&T Questions and selected

issues, Mr. George T. Singley, III, Acting Director, Defense Research and Engineering

(OSD/DDR&E)

Army Science and Technology, Defense Science Board Section 912 Discussions, morning

session, Dr. A. Fenner Milton, Deputy Assistant Secretary for Research and Technology

Navy Representative, DSB Sub Task Force on S&T, Questions and Answers, morning session,

Dr. Fred Saalfeld, Deputy Chief of Naval Research & Technical Director, Office of Naval

Research

Advanced Concept Technology Demonstrations (ACTDs), Mr. Tom Perdue, Principal Assistant

Deputy Under Secretary of Defense (Advanced Technology)

Warfighting Rapid Acquisition Process (WRAP), created by the Army to initiate the rapid

acquisition of successful battlelab experiments/ evaluations that meet urgent and compelling

needs as determined and recommended by CG, TRADOC, by Ms. Marguerite Frick from the

Office of the Deputy Chief of Staff for Operations and Plans (Force Development)

G-8
Army Representative, DSB Sub Task Force on S&T, Questions and Answers, afternoon session

on transition of technology to systems by Dr. Michael Andrews, Director for Technology, Office

of the Assistant Secretary of the Army for Research, Development, and Acquisition

Navy Representative, DSB Sub Task Force on S&T, Questions and Answers, afternoon session

on transition of technology to systems by Dr. David McErlean, Deputy Director, Air 4.0, Naval

Air Systems Command

23 January 1998

Presentation to the Defense Science Board (DSB) Sub Task Force on Acquisition Organization

and Functions, discussion of Development and Operational Testing by the Hon. Philip E. Coyle,

Director, Operational Test and Evaluation, Office of the Secretary of Defense

Defense Test and Evaluation, Briefing to the Section 912 DSB Sub Task Force, Dr. Patricia

Sanders, Director, Test, Systems Engineering and Evaluation

28 January 1998

Identification of the Department of Defense Acquisition Workforce by Jefferson Solutions,

Mr. Allan Burn-ran

Logistics in the 21st Century, Roy R. Willis, Acting Deputy Under Secretary of Defense

(Logistics)

6 February 1998

FAA Acquisition Reform, Personnel Reform, Briefing to the Defense Science Board Sub Task

Force (Acquisition Workforce), Ken Byram, FAA Deputy Director of Acquisitions

National Aeronautics and Space Administration, Briefing and Discussion by Ms. Deidre A. Lee,

Associate Administrator for Procurement

Acquisition Reform and Progress on Civil-Military Integration, Mr. William E. Mounts,

Director, International and Commercial Systems Acquisition, Office of Deputy Under Secretary

of Defense (AR)

Civil/ Military Integration, FAR Part 12, Commercial R&D Acquisition, Commercial Items,

Contractual Toolbox and IDCC Commercial R&D Project, Mr. John H. Ablard, Director of

Management and Administration, DARPA

G-9
Rockwell Collins Poised for Growth, Corporate Civil-Military Integration, Mr. Herm Reininga,

Vice President for Operations, Rockwell-Collins

Civilian Acquisition Workforce Personnel Demonstration Project, Mr. Greg Giddens, Director

Acquisition Workforce Personnel Demonstration Process Action Team

Contribution-Based Compensation and Appraisal System (CCAS), Mr. Greg Giddens, Director

Acquisition Workforce Personnel Demonstration Process Action Team

G-10
Appendix H

Workforce Composition

Numerous definitions of the acquisition workforce have been established for various purposes.

We did not consider it to be part of our charter to rationalize these various definitions or to

recommend that a specific existing definition be used for all purposes.

Since our objective was to assess the impact on the workforce that would result from changes to

the acquisition process, we chose to focus our view of the workforce on the major policy areas

that our recommendations embrace. We therefore defined the acquisition workforce of interest

for our purposes as the DOD personnel who are engaged in the following activities:

+ performing RDT&E,

+ providing product support to weapon systems and equipment,

providing commodity support, and

+ performing contract oversight.

We decided to refine this definition further by addressing only the civilian component of the

acquisition workforce. There are two reasons for this. First, there are significant cultural

differences among the Services in how they manage their officers, and these differences made it

difficult, in the short time available for this study, to develop recommendations that could be

implemented within the different cultures. Second, there are relatively few military officers in the

acquisition workforce, and the impact of any recommendations we might make would thus affect

a fairly small part of the population. (The Air Force has what might be considered a significant

number of military acquisition professionals, but it is the exception.)

To assess the resource implications of our proposals, we believed it would be useful to be able to

relate our recommendations to the FYDP, the Department’s official resource database. The

FYDP contains information on DOD’S resources from FY62 through the end of the POM period.

These resources include dollars, manpower, and forces. For purposes of this study, we focused on

civilian manpower, which the FYDP reflects as workyears.

The key data element for FYDP records is the OSD PE, a 10-character code that identifies

(among other things) the major defense program the record is associated with and the Defense

Component that spends the resources. To identify the manpower resources associated with the

four components of the acquisition workforce defined above, we used PEs as follows.

H-l
+ Performing RDT&E is defined as all civilian personnel associated with PEs in major

defense program 6 (RDT&E).

+ Providing product support is defined as the sum of

+ civilian personnel associated with PEs for depot maintenance,

+ civilian personnel associated with PEs for Service central supply functions,

and

+ 11% of the civilian personnel associated with DLA central supply PEs.

+ Providing commodity support is defined as 89% of the civilian personnel associated

with DLA central supply PEs.

+ Performing contract oversight is defined as all civilian personnel associated with PEs

for DCMC and DCAA.

The rationale for the 11/89 split of DLA central supply PEs is based on DOD data indicating that

11% of line items managed by DLA are reparables and 89% are consumables.

Given these definitions, the workforce composition for FY89 through FY03 breaks out as

follows:

H-2

H-4
Appendix I

Streamlining Opportunities

This is an assessment of the opportunities to streamline the Defense acquisition infrastructure

that were realized as a result of enactment of the Federal Acquisition Streamlining Act of 1994

(Public Law 103-355), the Clinger-Cohen Act of 1996 (divisions D and E of Public Law 104-

106), or other acquisition reform initiatives implemented administratively from 1993 through

1997.

The Federal Acquisition Streamlining Act of 1994 (FASA)

Commercial Item Acquisitions

Title VIII of FASA mandated the acquisition and utilization of commercial items, to the

maximum extent practicable, and the acquisition of those items in a manner similar to that used

by commercial businesses. Sections 8104 and 8203 of FASA created a preference for the

acquisition of commercial items by federal agencies, followed by a secondary preference for

nondevelopmental items “to the extent that commercial items suitable to meet the agency’s needs

are not available.” Sections 8003, 8105, and 8301 offered exemption from or modification of

statutory requirements that previously limited DOD’S flexibility and were a disincentive to

commercial firms wanting to do business with DOD.

Title VIII of FASA was implemented into FAR Part 12, which contains the rules governing

commercial item procurements. FAR Part 12 allows for significant exercise of business judgment

by the government contracting officer and provides broad authority for the contracting officer to

conduct a procurement action for commercial items in a manner determined to be consistent with

customary commercial practice. When using FAR Part 12, DOD can participate as a customer in

the marketplace, albeit one which may require quantities or response times that may differ from

those of other customers. FAR Part 12 contracts allow commercial industry to apply standard

practices and offer innovative solutions to defense requirements.

FAR Part 12 contracts in FY97 represented 16 percent of DOD contracts over $25,000, as

measured both in dollars and in number of actions. This indicates that DOD contracting officers

believe 84 percent of DOD procurements over $25,000 are DOD-unique and do not fall within the

broad definition of commercial items created by FASA. However, anecdotal evidence suggests

that the statutory definition of commercial items is frequently ignored, FAR Part 12 is being

applied sporadically, and that the workforce is generally untrained and unfamiliar with its use.

There is little indication that DOD has adequately retrained its acquisition workforce on the

application of FAR Part 12. A more vigorous retraining could have resulted in far greater use of

FAR Part 12.

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FASA Sections 8104 and 8203 identify market research as the first step in any acquisition.

Market research requires collecting and analyzing information about the marketplace. This

information is subsequently used to determine whether the need can be met by an item of a type

customarily available in the commercial market place; customary practices regarding

customizing, modifying or tailoring items to meet customer needs; customary terms and

conditions, including warranty, buyer financing, discounts, under which commercial sales are

made; and, the distribution and logistics support capabilities of potential suppliers. There is no

indication that DOD has adequately retrained its acquisition workforce or tailored its

infrastructure to effectively conduct market research.

Commercial Practices and the Defense Acquisition Pilot Programs

FASA Section 5064 afforded statutory relief for the Defense Acquisition Pilot Programs to serve

as vanguards in implementing acquisition reform to achieve acquisition goals of acquiring

systems responsively, efficiently, and smartly to meet user needs. These goals are characterized

by faster cycle times (contract award to first delivery), reduced contract costs, and more efficient

program staffing (compared to traditional programs). As such, the pilot programs demonstrate

the benefits of acquisition reform and serve as the benchmark for measuring the success of

acquisition reform across DOD. Furthermore, these gains in the acquisition process are extending

into the life cycle to reduce total cost of ownership on programs such as Joint Direct Attack

Munition (JDAM), Commercial Derivative Engine, and the C-130J. In 1997 DOD reported on the

results of the pilot programs to date and summarized the benefits and lessons learned from the

pilot program’s efforts. Since their designation as pilot programs, the pilot programs successfully

implemented numerous innovative acquisition techniques including:

+ Specification/Standards Streamlining - Employed by all the pilot programs to successfully

reduce the number of unique military specifications and standards from 80 to 100 percent

and, thus, to clear the way for innovative commercial practices.

+ Commercial Style Milestone Billing - Employed by the Fire Support Combined Arms

Tactical Trainer (FSCATT) program, in conjunction with a fixed-price engineering and

manufacturing development contract, to reduce Government and contractor

administrative effort associated with progress payments and to ensure appropriate

demonstration of technical progress.

+ Earned Value Management - Employed by the Joint Primary Aircraft Training System

(JPATS) program to reduce contractor and government management burdens associated

with cost/schedule reporting and to provide enhanced “insight” into program progress.

I-2
+ Reduced Oversight - Enabled by the use of integrated product teams and electronic data

interchange to provide for improved management decisions.

+ Commercial Practices - Employed by the Commercial Derivative Engine, NDAA/C-17,

C-130J Hercules, JDAM, and the Defense Personnel Supply Center including long-term

contracts, commercial logistic support, commercial R&D and electronic commerce.

+ Rolling Down-select - Employed by JDAM to evaluate competing Dem/Val contractors

during actual contractor performance with frank feedback and exchange. The approach

enabled JDAM to reduce Request for Proposal costs by 70 percent and B&P costs by 50

percent.

The pilot programs provide invaluable lessons learned related to implementation and cultural

change. Despite significant top-level management emphasis and enthusiastic program-level

support, the pilot programs encountered resistance from ingrained middle management and

functional managers within the Military Departments, OSD and their defense contractors. To

fully achieve the benefits of acquisition reform, a major cultural change must be effected. Despite

dramatic statutory and regulatory relief afforded to the pilot programs, DOD found that the

defense contractors involved did not flow much of that relief down to subtier suppliers. This

highlights the need for a cultural change to adopt acquisition reform and commercial practices

within the defense industry as well.

As the initial implementers of integrated product team concept, the pilot programs also

highlighted the need for a well-trained, stable acquisition workforce that possesses sufficient

multifunctional expertise. The pilot programs demonstrated the necessity of including “nonacquisition” members on the integrated product teams from communities such as DFAS, the

comptroller, and test and evaluation.

Micro-Purchase Procedures

FASA Section 4301 established the statutory micro-purchase authority. In FY97, DOD recorded

eight million IMPAC transactions totaling $3.5 billion. There has been an overall drop in

contract actions from 12 million in FY92 to 7.7 million in FY97. Although DOD has embraced

the expanded use of the government-wide purchase card, its use is spotty across the Department.

Both the Army and Navy had approximately 1.4 million procurement actions under $2,500 in

FY93. The Army now accounts for 45.8% of DOD purchase card actions and its contract actions

below $2,500 have been reduced by 80%. The Navy now accounts for only 23% of purchase card

actions and has reduced its micro-purchases by 68%. In FY97, the Defense Agencies, including

the Defense Logistics Agency, were responsible for only 4% of DOD purchase card actions. DLA

has reduced contract actions under $2,500 by only 6%.

I-3
The Clinger-Cohen Act of 1996

One of the more important provisions in Clinger-Cohen is in Title IV at Section 4201, which

provides an exception to the Truth in Negotiations Act for “the acquisition of a commercial

item.” This provision eliminates cost or pricing data requirements for commercial items. The

requirement for submission of cost or pricing data or documenting that a commercial item had

achieved adequate sales to be exempt from this requirement historically had a chilling effect on

the willingness of commercial firms to do business with the government. Commercial firms seek

to maintain their competitive advantage and closely guard sensitive business, marketing and

financial information. Customers and potential competitors are rarely afforded the opportunity to

review their suppliers’ books and records. These government-unique practices, in and of

themselves, have been historical barriers to commercial firms’ willingness to do business directly

with the government.

The changes to the Truth in Negotiations Act require training the acquisition workforce on the

use of contract pricing techniques for sole-source commercial items. To date, there has been little

effort to retrain a workforce that has been primarily engaged in cost analysis to make the

transition to price analysis techniques. The result is that members of the workforce do not

understand commercial market prices that DOD has, in iisolated instances, paid premium prices

for items and services that it does not need. An example is paying a considerable premium for

24-hour delivery of an item intended to be warehoused by the Defense Logistics Agency.

Section 4202 of Clinger-Cohen provides, for a three-year period, for use of simplified procedures

for the acquisition of commercial items up to $5 million. This provision will not change the

terms and conditions that apply to a government contract for commercial items. However, it

should simplify the internal procurement process the government uses to acquire commercial

supplies or services between the simplified acquisition threshold and $5 million.

Section 4203 of Clinger-Cohen provided the FAR Council with authority to exempt

commercially available off-the-shelf items from almost all government-unique procurement laws,

policies, procedures, and requirements for the procurement of supplies or services. ClingerCohen defines “commercially available off-the-shelf’ as any commercial item that has been sold

in substantial quantities in the commercial marketplace that is offered to the government without

modification. This could eliminate the use of the clause Contract Terms and Conditions Required

to Implement Statutes or Executive Orders - Commercial Items making a government contract

for commercially available off-the-shelf items look identical to a standard, commercial contract

for that item. The FAR Council has failed to implement Section 4203 of Clinger-Cohen.

Section 4103 of Clinger-Cohen provides for efficient competitive range determinations by

contracting officers. Previously, if there were any question as to whether a bidder should be

included, the bidder was kept in, in order to avoid a protest. Many contractors would continue to

incur bid and proposal costs and DOD was forced to expend resources evaluating bids that had no

real prospect of winning the award. Section 4103 enables DOD to expedite the procurement

process, and allows bidders who do not have a chance of receiving the award to save time and

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money by being removed sooner, rather than later, in the process. Federal Acquisition Circular

97-02, which implemented this provision of Clinger-Cohen, became effective January 1, 1998.

Single Process Initiative

In keeping with the goal of Department-wide adoption of commercial practices where

practicable, the Secretary of Defense encouraged contractors to move to single processes in their

facilities by concluding that DOD could not afford to continue to allow existing contractual

arrangements to further impede broader application of his earlier military specifications and

standards reform initiative. Additional guidance to implement the Single Process Initiative was

provided by the Under Secretary of Defense (Acquisition and Technology). The guidance sought

to replace multiple government-unique management and manufacturing systems with common,

facility-wide systems. By adopting world-class standards in this regard, where technically

acceptable to the government, DOD’S contract costs should be reduced, while permitting the

Department to take advantage of innovative manufacturing processes and business practices

currently in use in the commercial sector.

Re-Write of the DOD 5000 Series Regulation

Sections 8104 and 8203 of FASA require the head of each executive agency to ensure that

procurement officials in that executive agency, to the maximum extent practicable, revise the

executive agency’s procurement policies, practices, and procedures not required by law to reduce

any impediments in those policies, practices, and procedures to the acquisition of commercial

items. DOD has recently revised the 5000 series documents to implement this requirement.

Indeed, a recent article concerning the overhaul of the DOD 5000 series regulation was entitled

“New Pentagon Acquisition Guide to Institute Commercial Practices.” The re-write effort

highlights two major themes as a result of the 5000 series update: the increased reliance on

commercial products and the recognition of best practices by the Department. The Executive

’ Summary to the new 5000 series states that:

Integrating a constricting industrial base and a fast-paced

technology sector mandates that DOD fully implement the statutory

preference for the acquisition of commercial items by federal

agencies. Acquisition of commercial items,components, processes,

and practices provides rapid and affordable application of these

technologies to validated, DOD mission needs.”

The new 5000 series separates mandatory policies from discretionary procedures and practices.

DOD Directive 5000.1 establishes guiding principles for all Defense acquisition. DOD Regulation

5000.2-R specifies mandatory policies and procedures for Major Defense Acquisition Programs

and Major Automated Information System acquisition programs. DOD 5000.2-R also describes a

simplified and flexible management process, modeled on sound business practices. Major

I-5
defense acquisitions of the future must take into account customary commercial practices in

developing acquisition strategies and contracting arrangements.

Organizational Changes

Change has been continuous within DOD acquisition organizations since the inception of the

Department. Since 1994, acquisition organizations have been created, moved, consolidated,

realigned, absorbed and eliminated. Although current organizational change is described as

“acquisition reform,” it is not clear that has been due to FASA or the Clinger-Cohen Act. There

has not been a systematic reconsideration of acquisition requirements and the supporting

organizational structures of the type that resulted from enactment of the Goldwater-Nichols Act

of 1986 (Public Law 99-433).

An example of organizational change is the Air Force’s creation of the Air Force Material

Command in 1993 through the merger of the Air Force Systems Command and the Air Force

Logistics Command. This was perhaps not a true merger. Rather, it was a reinstitution of the

material command and the elimination of the system command. This action was intended to be a

paradigm shift that would create a seamless culture.

The Army has consolidated a number of functions. The Army Acquisition Executive reduced

program executive offices from nine to seven through consolidations and transfers of 19

programs to AMC. The Army consolidated contracting offices from 41 to 14 by establishing

contracting centers with satellite offices, thereby reducing the contracting workforce assigned to

those offices by 31%. The Army consolidated test and evaluation functions and responsibilities

within OPTEC. This realigned portions of the U. S Army Test and Evaluation Command, Army

Materiel Systems Analysis Activity, and the U. S Army Research Laboratory’s Survivability and

Lethality Directorate.

Other consolidations and realignments within the Army include consolidating functions that were

performed by many separate commands into the Army Medical Research and Materiel

Command. The Army also dissolved its Information Systems Command and realigned and

consolidated its acquisition of automated systems and its software development centers under

CECOM, a major subordinate command of AMC.

The Navy has consolidated within its systems commands. For example, in July 1993 Space and

Naval Warfare Command combined various acquisition organizations into one. This was

followed by a reengineering effort to ensure the organizational consolidation was more than a

cosmetic change. The combination of three diverse organizations required a detailed review of

missions, functions and processes, customers, priorities, and staffing. The result of the

reengineering effort was a flatter organization, increased employee to supervisor ratios, and

implementation of team processes.

In the logistics arena, the Naval Air Systems Command consolidated three logistics management

divisions into a single division responsible for logistics management of all NAVAIR

I-6
commodities. The consolidation encouraged sharing of best practices among commodities and

provided a single point of contact for all logistics management issues within NAVAIR.

The Navy also downsized headquarters and eliminated a number of commands. The Naval

Information Systems Management Center (NISMC) was among the commands disestablished.

Summary

Taken as a whole, DOD’S actions to streamline the acquisition infrastructure, particularly in

response to the opportunities provided by recent legislation, represent a mixed degree of success.

Some meaningful improvements have been made, but we believe that the Department could have

made even greater strides in streamlining and improving its operations if it had taken greater

advantage of the opportunities presented. To a large extent, the recommendations contained in

the main body of this report propose that DOD move out more aggressively on those

opportunities.

I-7

Appendix J

DCAA and DCMC Workforce Analysis

This appendix provides the rationale to support our projected reduction of 50% in the combined

civilian workforces of DCAA and DCMC.

The table shows the workforce for DCAA and DCMC, along with the estimated reductions we

believe could be achievable if DOD placed greater reliance on price-based (as opposed to costbased) contracts and took other actions recommended in this report. We emphasize here, as we

did earlier, that these numbers are estimates and that more concrete data should be developed

during implementation planning.

Notes:

Activity FY97/98 End

Strength

(Note 6)

DCAA I 4,670

DCMCI

Quality 4,049

Production 1,371

Program Integration 642

Contracts/Pricing 4,028

Engineering 1,197

Property 349

Transportation 290

Flight Safety 318

Other 1.873

Total I 18,787

Percentage reduction

2,000 I 2

1,000 2

1. DCAA’s activities are all cost-based activities. These include preaward audit of cost and

pricing proposals, Postaward audit of cost and pricing data (defective pricing audits), CAS

reviews, CAS noncompliance resolution, cost-incurred reviews and executive compensation

audits. None of these activities are required for price-based contracts awarded without

submission of cost data.

2 . Process overseers would no longer be required when DOD implements performance-based

requirements and moves away from detailed design specifications. Day-to-day cost, schedule,

quality and production oversight will be fully transferred from DOD to industry.

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Reduction I Note

2,335 I
3 . DCMC contracts/pricing personnel are involved monitoring cost and schedule status for

major systems, reviewing DCAA cost and CAS audits, reviewing contractor cost proposals,

reviewing subcontracting and purchasing systems, reviewing incurred costs. None of these

activities are required for performance-based, price-based contracts awarded without

submission of cost data.

4. DCMC’s engineering functions will no longer be required when DOD implements

performance-based requirements and moves away from detailed design specifications.

5 . DCMC did not report what percentage of the its workforce is engaged in the above activities

vs. the percentage engaged in DCMC management. However, October 1997 DCMC unit cost

data (provided to us in draft) identified 28.55% of DCMC’s time is spent on general

management. This category does not include travel (2.27%) or training (4.42%). We took

1,300 positions out of “other” to account for a reduction in DCMC’s general management

commensurate with a reduced mission.

6 . The total workforce shown here is 18,787, which differs slightly from the 18,500 shown in

Section II and in Appendix H. There are two reasons for the difference. First, the figures

shown in this table are end strengths, while the 18,500 figure represents FTE workyears.

Second, the figures shown in this table represent two different points in time. The DCMC end

strengths are FY98 data provided by DCMC. The DCAA end strength is FY97 data provided

by the Director of Defense Procurement. The differences are not significant, because the

purpose of this analysis is to demonstrate that the estimated 50% workforce reduction that we

propose is reasonable. The functions listed in the chart are those that DCMC identifies as

“Basic CAS." These functions account for 12,244 (87%) of DCMC’s positions. DCMC’s

October 1997 study identified that only 52.72% of DCMC’s time is spent on Basic CAS.

This indicates a potential for further efficiencies within the current DCMC mission.

J-2
Appendix K

Materiel Management Performance Indicators I

Comparing DOD with private sector companies is always difficult. Benchmarking information

from the private sector is based primarily on manufacturing enterprises, while DOD materiel

management functions support the repair of equipment. In addition, DOD must have resources,

both materiel and manpower, available to meet wartime surge requirements and other

contingency operations. Keeping these and many othjer differences in mind, we can compare

some measures of performance to identify what appear to be significant performance differences

between the private sector and DOD.

K-l
Comparative Measures for Supply

I I Private Sector 1

I DOD ‘1

Internal Processing Time 4.0 days 5.7 days

Product Availabilitv 87%+ 86%

Private Sector Repair Cycle Time 4

Truck Leasing 5

Source:

1 Herbert W. Davis and Company, Council of Logistics

Management Annual Meeting, 5-8 October 1997.

2 DoD’s Materiel and Distribution Management Fact

Book, FY96.

Nuclear Power Plant

ADP Equipment

21

9

3 Supply Management Working Capital Fund Budget

Estimate Submissions, September 1997

4 LMI Report AL614R1, August 1987

Customer Support

In Section II, we discussed opportunities associated with outsourcing product support. In that

section we point out that it takes 20 to 25 days to deliver depot-stocked parts to the customer. In

DOD product support time includes the time required for the customer requisition to reach the

depot, internal processing time at the depot, and the time to ship the materiel to the customer.

The “Customer Support” table above shows a segment of the total product support time, the

internal depot processing time, and compares it with the private sector. Internal processing times

for DOD and the private sector are comparable, but we know from personal experience and

industry performance data that the overall private sector product support time is not nearly as

long as the 20 to 25 days being experienced by DOD. The average total processing time as seen

by the private sector customer is about 8 days. The private sector has applied the concepts of

supply chain management to create a seamless interface between the manufacturer and the

customer. This approach is in sharp contrast with the DOD logistics system that purposely builds

intervening levels of support, owned or operated by different organizations. The private supply

chain management approach seeks to minimizes the number of support levels between the

supplier and the customer. If more than one level exists, the levels are highly integrated and

linked with information making them invisible to the customer.

Repair Cycle Times

Again, the repair cycle times shown in the lower half of the above chart are not directly

comparable. DOD cycle times are for the depot level only, which includes both repair and

K-2
overhaul of repairable components for inventory. The private sector repair cycle times probably

include the types of repair done at both the depot and intermediate levels in DOD. The kind of

repair done at the intermediate level has much lower repair cycle time than does the type of repair

and overhaul done at the depot level. However, these times show how the private sector has

collapsed intervening levels of support to increase responsiveness to the customer and minimize

the forecasting horizon for setting any inventory levels that might be required.

The private-sector supply-chain approach works to produce a seamless integration of support

providers and focuses on products and customers with the objective to maximize customer

support. The DOD approaches uses multiple levels of support and focuses on optimizing

processes within each level to maximize customer support. When a customer requirement must

cross several support levels, the time needed to fill the customer requirement increases.

Additionally, the hierarchical and functional (supply, maintenance, transportation) structure of

the DOD logistics system makes it difficult to focus on a specific weapon system or customer.

Each successive layer of the DOD support system serves to shield valuable consumption

information from the level above.

K-3
Materiel Management Problems

Long Lead Times l Buying Unneeded Inventory 2

FY 1997 ALT PLT Total

Days Days Days

Army 114 251 365

Navy 143 402 546

Air Force 168 462 629

DLA 106 194 300

1 Service WCF Budget Estimate Submissions, September 1997 2 Service Central Secondary Item Stratification Reports

Long Lead Times Result in Buying Errors

These charts emphasize the importance of reducing cycle times, integrating levels of support, and

minimizing inventory levels to reduce the risk of buying materiel that may not be required.

Outsourcing support moves much of this risk to the support contractor, who is often in a better

position than DOD to trade production capacity for inventory investment and to use other

commercial supply chain management techniques to minimize cycle times.

The Long Lead Time table shows dollar weighted average lead times for spare parts and

consumable materiel purchased by the Services for wholesale-level inventories. Because of the

long acquisition lead times, item managers are using past demand or failure rate information in

an attempt to predict customer requirements more than two years in the future. As can be

expected, these prediction are often wrong. The Buying Unneeded Inventory bar chart shows that

in 1996 13% of the materiel being ordered was no longer required before the contract could be

awarded (during the administrative lead time), and 25% was no longer required by the time the

materiel was received. Unneeded inventory is defined as inventory in the administrative process

of contracting or on contract that exceeds the total reorder objective. The Services and DLA

actively attempt to modify or cancel orders or contracts before unneeded materiel is placed on

contract or received. However, these efforts are resource intensive. Reducing the lead times -

industry’s practice -improves the accuracy of the procurement decisions saving both

investment dollars and personnel resources. But as the bar chart illustrates, DOD inventory

management activities have been unable to reduce the buying of unneeded inventory.

K-4
Materiel Management Problems

Inactive Inventory

90 91 92 93 94 95 96 97

Long cycle times contribute to inactive inventory

Source: DOD Supply System Inventory Report

Inactive Inventory

Inactive inventory represents $14 billion dollars of investment that, ideally, could be better

invested elsewhere. DOD’S inability to predict future demand over a long acquisition lead times is

one of the major causes of inactive inventory. Outsourcing product support reduces the risk of

holding large inventories and can make these investment dollars available for higher priorities.

Any investment savings depends on the logistics provider’s ability to use supply chain

management techniques to reduce overall cycle times and reduce inventory investment.

Inventory that exceeds the reorder objective plus two and a half years of projected demand is

considered inactive. The amount of inactive inventory has remain relatively constant until 1997.

DOD retains inactive inventory as long as it is more economical to hold it than to dispose of the

inventory and possibly have to buy it again. Inactive inventory is also held to support potential

foreign military sales. DOD disposes of significant amounts of inactive inventory each year when

holding it cannot be justified, but more becomes inactive. This is the result, in part, of the

inability to predict future requirements, over-long acquisition lead times, and the disconnected

nature of the multi-level support structure.

K-5
Product Support

Typical Private Sector Measures

+ Private sector average costs for 1997

Transportation

Warehousing

Customer Service

Administration

Inventory Carrying

Total Logistics Costs

DOD Working Capital Fund

surcharges vary from 25% to 44%.

Included costs and the sales base are

difference is striking.

Source: Herbert W. Davis and Company, Council of Logistics Management Annual Meeting, 5-8 October 1997.

Large Cost Reductions in the Private Sector

DOD could capitalize on process changes made in the private sector to reduce logistics costs by

outsourcing product support. Comparing private sector materiel handling costs with the similar

costs in DOD is difficult. However, the surcharge for the supply management business area of the

working capital funds (WCF) does provide a source for a rough comparison. The working capital

funds surcharge includes most of the costs listed in the private sector cost table above, but it is

not an exact match. The surcharge includes costs not specifically included in the private sector

costs shown above, and the private sector table includes costs that are not in the surcharge. The

surcharge is a rate based on the total costs divided by the sales. These sales are for repair parts

while the sales base for the private sector table is predominately finished goods. The surcharges

charge in the working capital funds vary from 25% to 44% compared to some what similar

private sector costs of about 9%. Although the comparison is difficult, the large difference

between the logistics costs suggests significant potential for reduction in the costs of repair parts

required by the operating forces.

One large and undeniable difference between the private sector and DOD is the significant cost

reduction made in private sector logistics during the early 1980s. The line graph above shows

that the private sector cut costs by over 40% compared to sales. Although the total cost of DOD

logistics support has decreased following the end of the cold war and the subsequent force

reductions, there has been relatively little change in the cost of logistics support as a percentage

of working capital funds sales.

K-6
Sector Characteristics

Private Sector

> Partnerships

> Small inventories

> Manufacturing centered

> High capacity utilization

> Small lots

> Supply chain reliant

> Flexible upgrades

>` Performance based

> Customer focus

l Government Sector

> Open competition

> Large inventories

> Maintenance centered

> Low capacity utilization

> Large lots

> Self reliant

> Configuration constrained

> Specification based

> Process focus

> Competitive Survival 

Competitive Survival as a Driving Force

The chart shows some of the differences between the characteristics of private sector supply

chain management and the DOD materiel management system. The most critical factor facing

private sector firms is competitive survival. Competitive survival was the driving force behind

the large logistics cost reduction experienced by the private sector in the 1980s. The challenge of

strong foreign competition and market deregulation during this time were among the factors that

forced companies to radically restructure logistics processes or go out of business. Although DOD

logistics activities have worked hard to reduce inventory investment and operating costs to keep

’ pace with force reductions, they have not had a set of comparable cataclysmic challenges

necessary to cause similar revolutionary changes in their support processes.

Outsourcing product support is the kind of radical change that can produce the magnitude of

savings that the private sector has experienced. Outsourcing product support means moving away

from the standard supply and maintenance systems that have evolved since the end of the Second

World War. It means changing the way DOD thinks about supporting weapon systems and

possibly even the way DOD has trained maintainers and operators. It means moving away from a

single requisition and distribution channel, from tightly controlled configurations, and from the

concept of “one-item-one-manager.” Outsourcing support can eliminate levels of support, reduce

inventory investment, make the use of commercial-off-the-shelf or non-developmental

equipment a practical alternative, enable the continuous upgrade of weapon systems through

spares, and reduce the problem of diminishing manufacturing sources.

K-7

Appendix L

Product Support

This appendix provides an example of how the contractor logistics support process might work

to support operating forces. The reader should refer to the diagrams at the end of the narrative.

Repair Parts

The deployed operational unit (battalion, ship, air squadron) with assigned or supporting

maintenance personnel does preventive maintenance on its equipment - major systems and

support equipment like generators. The unit’s maintenance technicians deal with equipment

failures by diagnosing the cause, isolating faults to line replaceable units (LRUs), removing the

faulty LRUs and replacing them with serviceable LRUs.

The operational unit, or its immediate support organization, e.g., supply squadron, forward

support battalion, combat logistics ship, carries a limited number of frequently used LRUs and

other parts. The CLS contractors would own the system peculiar LRU and parts. The operational

unit designated parts clerk issues the necessary LRU to the maintenance technicians-as at

present-orders a replacement from the CLS Management Center (CLSMC) via Internet

transaction and starts the process to ship the failed LRU to the supporting CLS Repair Center.

(Note: The CLSMC operates the Internet server for this process.)

Those transactions cause the CLSMC to ship the replacement LRU to the unit with the

appropriate urgency designation from the most appropriate source. For example, if the unit had

no serviceable LRU to fix the equipment, the CLSMC would designate its closest source,

perhaps the theater repair center or another organization with stock, to fill the requirement using

the fastest means available and notifying the unit parts clerk simultaneously. If the replacement

LRU was to be put in the unit’s stock - which had other assets - that less urgent requirement

might be sourced from the CLS main CONUS warehouse and take 7-8 days to reach the unit.

The CLSMC and its in-theater Repair Center would be in a position to monitor system-wide

availability of LRU and parts stocks and respond to unpredictable unit requirements.

The initiating order and subsequent shipping instructions are simultaneously made available to

the Service “Total Asset Visibility” (TAV) server and, thus, will be visible to the uniformed

logisticians in theater and the PM, etc. The order entry for the replacement of the stocked LRU

also triggers payment to the CLS from the operating unit’s account, and the Repair Center’s

receipt of the failed LRU would trigger the credit for its “carcass” value to the unit’s account.

As with commercial systems, all interested parties can use the Joint Total Asset Visibility

(JTAV) network to track the incoming LRU. The CLSMC likely would periodically query its

third-party logistics team member (e.g., FEDEX, UPS, etc.) for intransit visibility, reporting it to

L-l
TRANSCOM’s Global Transportation Network which automatically makes it available in JTAV

to those needing the information.

The CLS system will need to avoid the uncoordinated arrival at theater airfields of LRU and parts

on multiple carriers’ aircraft. One simple solution is to contractually require CLS contractors to

use the DOD “small package” carrier (currently FEDEX) to send materiel to deployed customer

units-or their theater repair centers. Air Mobility Command could then schedule (with the

theater airlift control element) the package carrier aircraft into the arrival airfields so as not to

conflict with other missions. The package carriers’ air pallets can then be trucked to the theater

distribution center and either “cross-docked,” e.g., a pallet headed for one supply squadron, or

repalletized along with other supplies heading for an Army forward support battalion, a Marine

support organization, or a Naval support activity. Repair Centers also would ship through the

theater distribution centers. Thus, the CLS flow of parts and LRUs would be integrated into the

normal flow of other packaged supplies through the theater distribution center. Note: This

distribution center process could be partially accomplished in CONUS to minimize the theater

logistics “footprint.”

Obtaining required parts from the CLS can be transparent to the operating units, but responsive

to the uniformed logisticians whose responsibility it is to assure maximum operational

availability of weapons systems and equipment. The parts clerk could order parts for all

supported systems and equipment from one computer using “point and click: Web-based

technology” with icons representing each of the systems supported - a “virtual shopping mall.”

Password and embedded funding controls -as in the commercial sector, minimize the

possibility of error or fraud. And the networking of CLSMC with the JTAV architecture will

provide nearly instant visibility of all components of the ordering and parts status processes.

The CLS Repair Center plays an important role in the process, repairing and returning to stock

reparable LRUs from operating units. It also maintains an inventory of LRUs and parts sized to

support the operating units in the theater. One of its main benefits is to validate the fault

diagnosis of operating units. It can catch misdiagnosed LRU (i.e., those for which there is “no

evidence of failure”) and alert the field technical assistance representatives (FTRs) to problems

of faulty diagnostic equipment in the operating unit or inadequate skill of maintenance

technicians.

Field Technical Assistance

The FTR role is essential to operating units’ maintenance of high operational availability. As

noted above, the experienced engineers and technicians, many of whom may have prior service,

can assist unit maintenance technicians in reinforcing diagnosis and repair skills and calibrating

diagnostic equipment.

The embedding of new technology can overwhelm the abilities of uniformed maintenance

technicians to keep up. As software and hardware upgrading of fielded systems continues, the

problem may become more acute making the back-up role of FTRs even more critical. Given the

L-2
constant rotation of military maintenance technicians, the FTR can be a stabilizing resource of

expertise and awareness of peculiarities of individual equipments (bad actors) buttressing

operational availability and reducing unnecessary removals (which itself is a frequent source of

failure or damage), and speeding the diagnostic and repair processes.

In the Navy’s case, FTRs might be assigned aboard larger vessels - carriers and large amphibs.

They can operate “mini” LRU repair centers as well as perform the functions described above.

One analysis of F18 avionics support indicates that such an activity would greatly lessen the offship parts flows otherwise required to maintain high system availability.

The traditional function of FTRs - to help with the fielding of new systems and new subsystem

upgrades - would evolve to one of continuous, available assistance to operating force

logisticians. FTRs also bring back to the CLS engineers first-hand knowledge of system

performance, failure modes and repair techniques and advice on design, manufacturing,

sustainment and training improvements - a technically competent communication channel from

user to industry.

To the extent their compensation is tied to the CLS’s incentives - operational availability, parts

response time and operating and support cost reduction, FTRs should actively support those

objectives. Since there is little incentive for O&S cost reduction in the present fragmented

sustainment process - only incentives to maintain high availability - the incentivized CLS

with their FTRs could produce many beneficial changes in practices. For example, expensive

depot maintenance requirements could be reduced by increasing the number of tasks performed

by units or with some CLS augmentation. Maintenance productivity improvements to tools,

diagnostic equipment, tech order/manual instructions should be more easily accomplished since

approval would lie with the CLS or PM, and not require a lengthy bureaucratic process. An

interesting proposal is to encourage their appointment to the reserve components with an

assignment to the PM’s office when activated for deployment in a conflict, e.g., the Gulf War.

PM Oversight Role

In our example, the PM can monitor operational availability through the Service’s theater

logistics information process. A PM probably would collocate an element of his office with the

CLS Repair Center to facilitate parts flows, FTR work and the innumerable interfaces required

between the CLS and theater military organizations. The Service TAV could produce response

time reports for orders, along with backorder rates, and the PM (and other authorized users in the

theater or on staffs) could monitor stock status through the CLSMC as well as CLS costs, system

problems, status of modifications or significant repairs or overhauls. In short, at long last the

Services could look to one person as responsible for supporting the operating forces’ sustainment

of a weapons system or item equipment.

L-3
A Suggested Support Process

Army, Air Force, Marine Corps

See the text of this appendix for an explanation of the diagram.

Legend:

S

R

CLS

serviceable parts

unserviceable parts

contractor logistics support (the firm performing the product support tasks

Footnotes:

1. MOG Control (aircraft scheduling) by TRANSCOM/Theater CINC; off-load, load

retrograde; offloaded CLS pallets to Distribution Center with Service pallets.

Proposed rule: CLS use limited number of air carriers for deployed systems. FEDEX

aircraft (current DOD package carrier) can be integrated into air flow by

TRANSCOM, as is CRAF.

2 . Cross-deck pallets or repalletize for MDSO.

3 . Air base supply and maintenance squadrons; Army corps/division, support battalion;

MARCORPS units ashore or afloat.

4. Repair centers repair system components and return to stock or MDSO. FTRs go to

MDSO or combat units as situation requires to provide technical assistance/repairs.

FTRs work from repair centers. Control of FTR entry into batlespace by Army

Division Materiel Management Centers, USMC Force Service Support Groups, Air

Force Wings. FTRs are POM-qualified (CB defense equipment, etc.).

L-4
5 . Total Asset Visibility - Service and Joint. Tracks stockage status and intransit status

of orders. CLS required to provide information on order fulfillment to Service TAV.

Notes:

+ Readiness oversight through Service component command. CLS and PM should

monitor “fleet” operational ready rate, status of inoperable equipment, frequent failure

modes through repair centers (theater-specific) and CLS management center.

+ Major metrics: Parts response time (order fulfillment cycle) with differential

standards (inoperable system, deferred maintenance, replace retail stocks).

+ Retail stock status (out of stock, back orders).

+ O&S costs - measured through the Visibility and Management of Operating

and Support Costs (VAMOSC) system and by CLS contractors (who feed into

VAMOSC).

L-5
See the text of this appendix for an explanation of the diagram.

Legend:

S

R

CLS

serviceable parts

unserviceable parts

contractor logistics support (the firm performing the product support tasks

Footnotes:

1. COD = carrier onboard delivery aircraft and combat logistics support ships carry

parts, retrograde to/from carrier, amphibs, and other combatants.

2 . Fleet supply point (e.g., Sigonella).

3 . Commercial airfield used by US air carrier or Navy air station.

4. Contract Field Technical Assistance Representative (FTR) in repair centers onboard

ships as required. Repair onboard to minimize off-ship support requirement. Repair

centers repair some components, return others to CONUS.

Note: Same readiness oversight and major metrics as Army/Air Force/Marine Corps chart.

L-6
Appendix M

Bibliography

This appendix lists the documents that the Sub-Panel and its support staff consulted in

conducting this study.

Congressional Reports

U.S. House of Representatives, A Review of Defense Acquisition in France and Great Britain,

Report of the Subcommittee on Investigations of the Committee on Armed Services, 101st

Congress, 1st Session, August 16, 1989.

General Accounting Off ice Reports

General Accounting Office, Outsourcing DOD Logistics- Savings Achievable But Defense

Science Board’s Projections Are Overstated, GAO/NSIAD-98-48, December 1997.

General Accounting Office, Air Force Depot Maintenance-Privatization-in-Place Plans Are

Costly While Excess Capacity Exists, GAO/NSIAD-97-13, December 1996.

General Accounting Office, Defense Acquisition-- Guidance Is Needed on Payments for

Conditionally Accepted Items, GAO/NSIAD-98-20, December 1997.

General Accounting Office, Defense Organization-- Advantages and Disadvantages of a

Centralized Civilian Acquisition Agency, GAO/NSIAD-87-36, November 1986.

General Accounting Office, Best Practices-Elements Critical to Successfully Reducing

Unneeded RDT&E Infrastructure, GAO/NSIAD-98-23, January 1998.

General Accounting Office, Army Logistics Systems-- Opportunities to Improve the Accuracy of

the Army’s Major Equipment Item System, GAO/AIMD-98-17, January 1998.

General Accounting Office, Best Practices-Successful Application to Weapon Acquisitions

Requires Changes in DOD’S Environment, GAO/AIMD-98-56, February 1998.

M-l
Department of Defense Publications

Memorandum for Assistant Secretaries of the Military Departments et al., from J.S. Gansler,

Under Secretary of Defense (Acquisition and Technology), Subject, Support for Review of

Acquisition Organizations and Functions, 1 December 1997.

The Bottom-Up Review: Forces For A New Era, Les Aspin, Secretary of Defense, September

1993.

Vision 21, Report to the President and Congress, Secretary of Defense, April 1996.

Joint Vision 2010, General John M. Shalikashvili, Chairman, JCS, May 1996.

Report of the Quadrennial Defense Review (QDR), William S. Cohen, Secretary of Defense, May

1997.

Concept for Future Joint Operations-Expanding Joint Vision 2010, Chairman, JCS, May 1997.

Defense Reform Initiative Report, William S. Cohen, Secretary of Defense, November 1997.

Defense Systems Management College, Glossary of Defense Acquisition Acronyms and Terms,

Eighth Edition, October 1996.

Defense Systems Management College, Introduction to Defense Acquisition Management, Third

Edition, June 1996.

Memorandum for the Secretaries of the Military Departments et al., from Dr. William Perry,

Secretary of Defense, Subject, Use of Integrated Product and Process Development and

Integrated Product Teams in DOD Acquisition, undated.

Office of the Under Secretary of Defense (Acquisition and Technology), DOD Guide to

Integrated Product and Process Development (Version 1.0), 5 February 1996.

Memorandum for Secretaries of the Military Departments et al., from Dr. Paul Kaminski, Under

Secretary of Defense (Acquisition and Technology), Subject, Reengineering the Acquisition

Oversight and Review Process, 28 April 1995.

Defense Systems Management College, LtCol Thomas R. Evans, USA, CDR Kathleen M

Lyman, USN, LtCol Michael S. Ennis, USAF, Modernization in Lean Times: Modification and

Upgrades, July 1995.

Strategic Plan, William J. Perry, Secretary of Defense, Defense Science and Technology Strategy,

May 1996.

MCM-14-95, Charter of the Joint Requirements Oversight Council (JROC), February 1995.

M-2
CJCS Instruction 3 170.01 (formerly MOP 77)-Requirements Generation System, June 1997.

Joint Service Guide for Post-Production Support Planning, October 1997.

Joint Logistics Commanders-Acquisition Initiatives, Sixth Edition, October 1995.

Department of Defense Basic Research Plan, Director, Defense Research and Engineering

(DDR&E), Office of the Secretary of Defense, January 1997.

Defense Technology Objectives of the Joint War-fighting Science and Technology Plan and the

Defense Technology Area Plan, Director, Defense Research and Engineering (DDR&E), Office

of the Secretary of Defense, January 1997.

Joint War-fighting Science and Technology Plan, Director, Defense Research and Engineering

(DDR&E), Office of the Secretary of Defense, January 1997.

Defense Technology Area Plan, Director, Defense Research and Engineering (DDR&E), Office

of the Secretary of Defense, January 1997.

Acquisition Workforce Personnel Demonstration Program, September 1996.

Defense Acquisition Career Development Council Charter, December 1996.

Letter from William S. Cohen, Secretary of Defense, to Congress, 18 December 1997 forwarding

the report Acquisition Workforce Reductions to Congress as required by Section 912(b) of the FY

1998 National Defense Authorization Act.

The Office of the Under Secretary of Defense (Acquisition and Technology), Right-Sizing the

Department of Defense Acquisition Workforce, A Report to the United States Congress, 28

January 1997.

Defense Systems Management College Executive Institute, Critical Issues in the Defense

Acquisition Culture, Government and Industry Views from the Trenches, December 1994.

United States Marine Corps Master Plan for the 21st Century (MCMP), October 1997.

United States Marine Corps Concept Modeling Project, MAGTF OMFTS Model and Marine

Corps Task List, May 1996, Version 2.0.

Marine Corps Chemical /Biological Incident Response Force, Concept Modeling Project Final

Report, April 1996.

DOD Directive 5000.5, Defense Acquisition Workforce, 14 January 1992.

M-3
DOD Directive 5134.1, Under Secretary of Defense for Acquisition and Technology (USD/A&T),

8 June 1994.

Professional Journals and Articles

Lt. Gen. John J. Cusik, U.S. Army, and Lt. Col. Carol D. King, USAF, “A Joint Logistics Vision

of the Future,” Logistics Spectrum, November-December 1996, pp. 7-9.

Dr. Deborah F. Frank, “A Theoretical Consideration of Acquisition Reform,” Acquisition Review

Quarterly, Summer 1997, Vol. 4, No. 3, p. 279.

Ronald E. Purser and Steven Cabana, “Involve Employees at Every Level of Strategic Planning,”

Quality Progress, May 1997.

Major James H. Lynch, USAF, “Rapid Research and Development, The Operational

Commander’ s Ultimate Smart Weapon,” Program Manager, March-April 1994.

Special Commission Reports and Documents

Report of the Defense Conversion Commission, Adjusting to the Drawdown, 31 December 1992.

Report of the Commission on Roles and Missions of the Armed Forces (CORM), Directions for

Defense, May 1995.

Report of the National Defense Panel, Transforming Defense, National Security in the 21st

Century, December 1997.

Studies and Reports by Research Organizations

LMI Report AR306R1, Management of Official Travel: A Time for Renewed Emphasis and

Integration by the Army, Matthew F. DiFiore, Patricia I. Hutzler, Michael D. McManus, August

1994.

LMI Report VA201R1, Win-Win Supply Support-Distribution Network Alternatives for the

Department of Veterans Affairs, George J. Basil, John B. Handy, Samuel J. Mallette, Richard T.

Nolan, James H. Perry, Jr., September 1992.

LMI Report PH80lR1, More Health Care for the Dollar-Improved HIS Material Support,

Richard Nolan, July 1990.

M-4
LMI Report VA201LN1, Strategic Distribution Alternatives for the Department of Veterans

Affairs-A Customer Perspective, James H. Perry, Jr., George J. Basil III, John B. Handy,

Samuel J. Mallette, Richard T. Nolan, June 1992.

LMI Report NI201R1, Transportation Services at the National Institutes of Health--A Review of

Internal Controls and Contracting Alternatives, Samuel J. Mallette, George J. Basil, Donald T.

Frank, June 1993.

LMI Report EC508-0lLNl, Outsourcing in Perspective-Toward a More Efficient and Effective

Defense Support Establishment, John D. Christie, William Fedorochko, Isadore M. Greenberg,

Myron G. Myers, October 1995.

RAND, Project Air Force, Strategic Appraisal 1997: Strategy and Defense Planning for the 21st

Century, Edited by Zalmay M. Khalilzad and David A. Ochmanek, 1997.

RAND, Performing Collaborative Research with Nontraditional Military Suppliers, Kenneth P.

Horn, Elliot I. Axelband, Ike Yi Chang, Paul S. Steinberg, Carolyn Wong, and Howell Yee,

1997.

RAND, National Defense Research Institute, Electronic Data Interchange (EDI): Using

Electronic Commerce to Enhance Defense Logistics, Judith E. Payne, and Robert H. Anderson,

1991.

RAND, Project Air Force, Lean Logistics: High-Velocity Logistics Infrastructure and the C-5

Galaxy, DRR-1024-1-AF (draft), Tim Ramey, October 1997.

RAND Summer Institute Issue Paper, Revamping the Infrastructure That Supports Military

Systems, George Donohue and Marygail Brauner, November 1993.

RAND Paper, Outlook for the Federal Laboratories, Christopher T. Hill, 1994.

RAND Defense Issues, QDR Conference Proceedings, Infrastructure Reform Golden Goose or

False Hope? CF-133, 1997.

Coopers & Lybrand, Acquisition Reform Implementation, An Industry Survey, October 1997.

Coopers & Lybrand and TASC, The DOD Regulatory Cost Premium: A Quantitative

Assessment, An Annotated Briefing, December 1994.

Defense Science Board Reports

Defense Science Board, Task Force on Defense Acquisition Reform, July 1993.

Defense Science Board, Depot Maintenance Management, April 1994.

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Defense Science Board, Task Force on Defense Acquisition Reform (Phase II), August 1994.

Defense Science Board, Task Force on Defense Acquisition Reform (Phase II), August 1994,

Annex D, Jet Engine Commercial Practices Panel Report, May 1994.

Defense Science Board, Task Force on Defense Acquisition Reform (Phase III), May 1996.

Defense Science Board, Task Force on Defense Acquisition Reform (Phase III), Supplement to

Report of May 1996, January 1997.

Defense Science Board, Task Force on Outsourcing and Privatization, August 1996.

Defense Science Board 1996 Summer Study Task Force, Tactics and Technology for the 21st

Century Military Superiority, Volume 1, 31 October 1996.

Defense Science Board 1996 Summer Study Task Force, Tactics and Technology for the 21st

Century Military Superiority, Volume 2, Part I, Supporting Materials, October 1996.

Defense Science Board Task Force, Command, Control, Communications, Computers,

Intelligence, Surveillance and Reconnaissance (C4ISR) Integration, February 1997.

Defense Science Board 1996 Summer Study, Achieving an Innovative Support Structure for 21st

Century Military Superiority-Higher Performance at Lower Costs, November 1996.

Foreign Government Documents

Australian Defence Science and Technology Organisation (DSTO), Derek E. Henderson and

Andrew P. Gabb, Using Evolutionary Acquisition for the Procurement of Complex Systems,

March 1997.

Other Documents

Jacques S. Gansler and Charles Paul Henning, TASC, European Weapon Acquisition Practices:

Implications for the U.S., February 1988.

Letter from Frank Horton, Vice Chairman, Procurement Round Table, to The Honorable Jacques

S. Gansler, USD (A&T), February 5, 1998.

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