May 2009 Defense Horizons 1

Defense

government’s own scientific and engineering competence, a hallmark of the great successes in the past, is destroyed or bypassed 

as a result of the private sector’s ascendant role.

This paper, a sequel to The Silence of the Labs,

2

 examines 

how the loss of in-house scientific and engineering expertise 

impairs good governance, poses risks to national security, and 

sustains what President Dwight Eisenhower called “a disastrous 

rise of misplaced power.”3

A Sea Story

The new attack boat is undergoing sea trials. Shrouded in a 

gray summer haze, the remote coast of the homeland slowly fades 

away. The boat slips under the rolling ocean surface and angles into 

a routine deep dive. The crew moves with efficient military discipline. As the boat glides downward, hairline fractures crawl slowly 

across the muzzle doors to the torpedo tubes. Those doors, made 

from an unproven alloy, must stand firm against the sea’s relentless 

urge to claim the boat.

But the laws of physics are unforgiving. The waters gather their 

power as the boat descends. The fractures lengthen, propagate, and 

deepen. Without warning, two doors fail in rapid succession. Many 

miles away, a sonar station hears the metallic groans of the crushed, 

dying hull. The sounds echo in the deep and then cease. The submarine lies silent and broken on the dark ocean bottom—all hands lost.

But for luck, that fictional tale could have become reality for the 

USS Seawolf. During its construction, with approval from the Navy’s 

program office, the contractors chose a titanium alloy for the boat’s 

muzzle and breech doors instead of the usual steel. Because Seawolf’s 

torpedo tubes were larger than those of the older Los Angeles–class 

boats, the contractors, quite reasonably, wanted to use a material 

as strong as steel but only half the weight. The alloy, however, had 

another property—under certain conditions it is brittle.

Overview

In the middle of the last century, America became a 

superpower. It happened, in part, because of a well-balanced 

technological partnership between the Federal Government and 

commercial sector. After winning a world war against fascism, 

this public-private alliance went on to cure infectious diseases, 

create instant global communications, land humans on the 

Moon, and prevail in a long Cold War against communism. This, 

and more, was accomplished without bankrupting the Nation’s 

economy. The partnership’s record of service to the American 

people and the world has been remarkable.

A key element of this partnership has been Department of 

Defense laboratories. They helped make the U.S. military the 

most formidable fighting force in the world. Among their many 

achievements, the labs developed and fielded the first modern 

radar in time for duty in World War II; invented the first intelligence satellite, indispensable during the Cold War; pioneered 

the original concepts and satellite prototypes of the Global Positioning System, vital for all post–Cold War conflicts; created fundamental “stealth” principles and night vision devices, a lethal 

combination in the first Gulf War; and produced the thermobaric 

bomb, which spared U.S. troops the bloody prospect of tunnel-totunnel combat in the mountains of Afghanistan.

In recent years, however, the private sector has been 

increasingly tasked to carry out the labs’ functions on the belief 

that “through the implementation of free market forces, more 

efficient and effective use of resources can be obtained,” which 

the Defense Science Board asserted in 1996.1 As this development 

has progressed, there is a growing body of evidence that, rather 

than faster, better, and cheaper, the new approach is actually 

slower, less effective, and costlier. This is, in part, because the 

Breaking the Yardstick: The Dangers 

of Market-based Governance

by Don J. DeYoung

A publication of the

Center for Technology and National Security Policy

National Defense University

May 2009

Number 67

Horizons
2 Defense Horizons May 2009

contrast, there was high confidence in the private sector’s ability to 

deliver. Given industry’s soaring efficiencies, derived in part from the 

development and use of information technologies, its enormous production capability, and its more flexible nature, the idea of making 

government perform more like a business was understandable.

Market-based governance is the pursuit of public goals by 

exporting governmental functions to private firms and by importing 

commercial management methods into the government.13 Outsourcing is the chief tool for the first approach, whereas centralizing and 

downsizing are tools for the second. Historically, the government has 

used these tools successfully to fulfill its obligations while remaining 

accountable to the American people. So the merit of the tools is not 

the issue. At issue, however, is that excessive and inappropriate use of 

them destroys the government’s ability to preserve its internal competence and make use of that which remains.

The Federal Yardstick

The U.S. Government ultimately bears sole accountability for 

national missions and public expenditures. Decisions concerning 

the types of work to be undertaken, when, by whom, and at what 

cost should be made by government officials responsible to the 

President. Such decisions often involve complex scientific and engineering issues, a challenge made more difficult by the fact that the 

companies competing for Federal contracts can be very compelling 

advocates of their products.

The government must be a smart buyer and be capable of overseeing its contracted work. For this the government uses, or should 

use, its yardstick.

14 In technical matters, this measure is the collective competence of government scientists and engineers (S&Es). 

Their advice must be technically authoritative, knowledgeable of 

the mission, and accountable to the public interest. William Perry, 

before becoming Secretary of Defense, underscored that necessity 

when he stated that the government “requires internal technical 

capability of sufficient breadth, depth, and continuity to assure that 

the public interest is served.”15

More specifically, this “internal technical capability” is the 

cadre of government S&Es who perform research and development 

(R&D). Their hands-on expertise distinguishes them from the 

much larger acquisition workforce. The S&Es provide authoritative 

advice to the acquisition workforce, which is in turn responsible 

for managing procurement programs. The two communities serve a 

common purpose, but they operate within different environments, 

with different requirements and skills. As Wernher von Braun, 

then-director of the National Aeronautics and Space Administration (NASA) Marshall Space Flight Center, explained it:

In order for us to use the very best judgment possible in spending 

the taxpayer’s money intelligently, we just have to do a certain 

amount of this research and development work ourselves . . . otherwise, our own ability to establish standards and to evaluate the 

proposals—and later the performance—of contractors would not 

be up to par.16

A strong yardstick requires a competent S&E staff, which must 

include a small number of exceptionally creative individuals; adequate 

financial and physical resources; sound management practices; a sufficient degree of autonomy to sustain an innovative environment; and 

Some government scientists knew about the phenomenon, called 

stress corrosion cracking (SCC), and understood how cracks can 

form by the simultaneous action of tensile stress and a corrosive 

environment—such as seawater. If consulted, these experts could 

have warned that SCC will fracture some titanium alloys, at times 

fast enough for one to “stand there and watch it happen.”4 Acquisition 

commands within the Department of Defense (DOD) cannot be knowledgeable in all scientific and technical fields that bear on their areas 

of responsibility, but they should have procedures to find, within the 

government, the required expertise to meet their mission.

The Naval Research Laboratory (NRL) had quantified the sensitivity of titanium alloys to SCC in seawater many years before Seawolf

was designed.5 One paper written in 1969 cautioned that “no prudent 

program manager would schedule a program in which SCC of new 

materials might be a problem without provision for a sound experimental characterization of stress-corrosion properties in the pertinent 

environment.”6 Unfortunately, NRL experts were not asked their opinion on using this alloy, nor were they consulted until after the mistake 

was detected—by chance. The stroke of luck occurred when, during 

Seawolf’s construction, a hinge pin fractured while being straightened 

by a hydraulic press. It was made from the same titanium alloy as the 

muzzle door that it was intended to support.

Reacting quickly, the Navy formed a study team with “the best 

available experts on process and material technology.”7 This panel of 

government scientists determined that the contractor’s decision had 

indeed “placed a material with risk of unstable, catastrophic failure at 

the pressure hull boundary,” and they proposed improvements to the 

process of selecting materials.8 The Navy implemented the proposals 

and praised these “unbiased technical experts” for having “contributed 

to Seawolf’s safe and effective operation.”9

Market-based Governance

Seawolf’s troubles arose during a time of dramatic change within 

the Federal Government. In the 1990s, agencies were reinventing 

themselves by increasing their levels of contracting, downsizing their 

workforces, and importing commercial practices. By 1996, the year of 

the Seawolf investigation, more than 200,000 Federal jobs had been 

cut, and the government workforce as a percentage of the Nation’s was 

at its smallest since 1933.10 This campaign to reinvent government 

evolved, by 2001, into one of transforming governance itself.11

These efforts have produced a government that depends on a 

massive conglomeration of private interests to do its work. Private 

firms now manage defense acquisition programs, perform intelligence 

operations, deploy corporate soldiers, conduct background checks of 

civil servants, and, until recently, collected taxes. Contractors even 

prepare the government’s contract documents, recommend contracting actions, assist in negotiating the deals, and investigate alleged 

misconduct by other contractors.12

This market-based governance is, at least in part, a response 

to the public’s deep frustration with its government. Difficulties in 

solving problems and providing services made dissatisfaction with 

the Federal bureaucracy a bipartisan sentiment by the 1990s. By 

Don J. DeYoung is a Senior Research Fellow in the Center for Technology and 

National Security Policy at the National Defense University. He can be reached 

at deyoungd@ndu.edu.
May 2009 Defense Horizons 3

the ability to perform challenging R&D. But as the Seawolf revealed, 

preserving the yardstick is not enough. The government must also be 

willing to use it.

With its yardstick, NASA used an effective partnership of public 

and private talent to achieve its historic feats of space exploration. The 

government’s role was vital and its personnel were competent. John 

Glenn’s humorous remark about the Mercury missions and his ride into 

orbit hints at the importance of that competence: “We were riding into 

space on a collection of parts supplied by the lowest bidder on a government contract, and I could hear them all.”17

Glenn believed those low-bid parts would get Friendship 7 home. 

Some of that confidence came from a trust in the yardstick, the S&Es 

who provided authoritative and objective expertise to the mission. 

Because NASA’s workforce was insulated from market pressures to earn 

a profit, its only bottom line was accountability to the American people.

Fractured Yardstick

In 1986, the space shuttle Challenger exploded on liftoff, killing all 

seven crewmembers. In the 1990s, the Hubble telescope was launched 

with a misshapen mirror and three spacecraft were lost on missions 

to Mars—one of them because one team worked in centimeters while 

another used inches. In 2003, the shuttle Columbia disintegrated upon 

reentry, killing all aboard. Just 1 month earlier, an outsourcing panel had 

proposed that the shuttle program move toward a “point at which government oversight of human space transportation is minimal.”18

The loss of Columbia drew attention to NASA’s troubled yardstick when the investigators implicated both approaches of marketbased governance: exporting public functions and importing commercial processes:

Years of workforce reductions and outsourcing have culled from 

NASA’s workforce the layers of experience and hands-on systems 

knowledge that once provided a capacity for safety oversight. . . . 

Aiming to align its inspection regime with the International 

Organization for Standardization 9000/9001 protocol, commonly 

used in industrial environments—environments very different 

than the Shuttle Program—the Human Space Flight Program 

shifted from a comprehensive “oversight” inspection process to a 

more limited “insight” process.19

By contrast, the investigators paid homage to NASA’s Apollo-era 

culture, noting that it “valued the interaction among research and 

testing, hands-on engineering experience, and a dependence on the 

exceptional quality of its workforce and leadership that provided the 

in-house technical capability to oversee the work of contractors.”20

Barely a year after the investigators finished their work, inadequate 

oversight was again blamed when the returning Genesis satellite capsule crashed in the Utah desert. NASA’s administrator later announced 

that his agency “has relied more than I would like to see on contractors 

for technical decision-making at the strategic level.”21

Market-based governance also drives DOD, where its yardstick 

resides principally within the Service labs.22 The following sections 

suggest that in a market-based environment the tools of outsourcing, centralizing, and downsizing have had a destructive impact on 

the yardstick and yielded outcomes that have impaired good government, posed risks to national security, and sustained a rise of 

misplaced power.

Excessive Outsourcing

In 1996, the same year that Seawolf’s safety problem became 

evident, two Defense Science Board (DSB) reports asserted that outsourcing Federal work would yield savings of 30 to 40 percent. One of 

the reports advocated that DOD privatize its lab facilities, adding, “It is 

quite likely that private industry would compete heavily to obtain the 

DoD laboratories, particularly if they come fully equipped.”23

Eventually, a growing body of evidence yielded more sober assessments about the merits of outsourcing R&D. For example, the Government Accountability Office (GAO) found that the DSB estimate of $6 

billion in annual savings was overstated by as much as $4 billion.24

Nonetheless, an increasing amount of the yardstick’s R&D has been 

placed on contract over the years. Navy labs outsourced 50 percent 

of their workload in 2000, up from 26 percent in 1969. Army labs outsourced 65 percent, up from 38 percent.25 This was the situation prior 

to September 11, 2001.

After the 2001 terror attacks, DOD and other agencies were 

tasked with larger workloads. Federal contracting doubled by 2006.26

So, with smaller in-house S&E workforces, some turned to lead systems integrators (LSIs): a contractor, or team of contractors, hired 

to execute a large, complex Federal acquisition program. Commercial 

firms thus assumed unprecedented authority—but LSIs have produced troublesome results:

■ Army’s $234-billion Future Combat System (FCS). Costs more 

than doubled from $92 billion, and the program fell years 

behind schedule.27 Items to be acquired have been reduced 

for lack of technological feasibility, affordability, or both.

■ Coast Guard’s $24-billion Integrated Deepwater Systems. Six 

years after the project started, the GAO reported “cost breaches, 

schedule slips, and assets designed and delivered with significant defects.”28 Eight patrol boats failed seaworthiness tests.29

■ Navy’s $25-billion to $33-billion Littoral Combat Ship (LCS). 

Costs for two lead ships more than doubled and three ships 

were dropped from procurement. LCS did not have an executable business case or realistic cost estimates, which led to 

higher costs, schedule delays, and quality problems.30

■ Department of Homeland Security’s (DHS’s) $20-million Project 28. The 28-mile “virtual fence” along the Arizona-Mexico 

border was rejected because it “did not fully meet agency 

expectations.”31 DHS will replace the fence with new towers, 

radars, cameras, and computer software.32

These outcomes should not be a surprise. As far back as 1961, 

Harold Brown, then-director for Defense Research and Engineering 

(DDR&E), observed that “it is not always wise or economical to try 

either to have a large project directed by a military user who does not 

understand whether what he wants is feasible, or to let the contractor 

be his own director.”33 He believed that DOD labs were needed “to manage or help manage weapons system development.”

And as recently as 2002, 1 year before the FCS contract was 

awarded, the Army’s plans were briefed to a study team chaired by 

Hans Binnendijk, director of the Center for Technology and National 

Security Policy (CTNSP) at the National Defense University. The 

subsequent report stated that the team was “not comfortable with 

an approach that turns this much control over to the private sector,” 

and warned that there must be sufficient technical expertise within 
4 Defense Horizons May 2009

the government so that outside technical advice does not become de 

facto technical decisionmaking.34

The criticism of LSIs grew as price tags fattened and schedules 

stretched. In the wake of the Deepwater problems, the Coast Guard’s 

commandant stated, “We’ve relied too much on contractors to do the 

work of government.” While not addressing LSIs directly, the Institute 

for Foreign Policy Analysis went to the heart of the matter, stating, 

“Increasingly the Pentagon leadership is losing its ability to tell the difference between sound and unsound decisions on innovative technology and is outsourcing key decision-making as well.”35

Congress has now banned the use of new LSIs after October 2010, 

and it suspended the “competitive sourcing” of Federal jobs.36 In addition, there have been proposals to increase the size of the acquisition 

workforce and improve DOD cost estimating. Though these actions 

may be necessary, they are not sufficient. Procurement problems will 

persist until the executive and legislative branches strengthen the 

Pentagon’s strongest voice for independent, authoritative technical 

advice—its S&E workforce. In short, acquisition reform will not succeed without laboratory reform.

A healthy yardstick is vital for success in specifying the types of 

work to be undertaken, when, by whom, and at what cost, and for judging the quality of the work DOD places on contract. Excessive cumulative levels of outsourcing must be prevented. Contracts may be justified on their individual merit, but when taken together, they can break 

the yardstick, or erode the government’s willingness to use it, as in the 

case of the Seawolf.

Inappropriate Centralizing

DOD labs helped make America’s military the most formidable 

fighting force in the world. In addition to the innovations mentioned 

earlier, they more recently invented the hand-launched Dragon Eye 

surveillance plane, used by combat forces in Iraq and now exhibited in 

the National Air and Space Museum, as well as a novel biosensor that 

was deployed in time for the 2005 Presidential inauguration.

Talent is the lifeblood of a lab; facilities are its muscle. Lab contributions to military power were due, in part, to the way they were 

allowed to manage their people and facilities. Ironically, after the 

Soviet Union’s collapse, DOD adopted its adversary’s devotion to centralized administration and standard processes. That business model 

does not work well in a lab environment. Peter Drucker, who has been 

called the most important management thinker of our time, thought 

that R&D “should not have to depend on central service staffs” because 

those staffs are “focused on their functional areas rather than on performance and results.”37

Personnel Management. DOD is modernizing the Civil Service 

system. On balance, the features of the National Security Personnel 

System (NSPS) may work well for the general workforce. However, the 

one-size-fits-all system would destroy the personnel demonstration 

projects (“demos”) that have helped the labs recruit and retain talent.

In terms of flexibility and effectiveness, the personnel authorities offered by the demos exceed those under NSPS by a significant 

degree. There is no debate on that score. In 2006, the directors of eight 

labs—from across the Army, Navy, and Air Force—sent an unprecedented joint letter to the office of the DDR&E. It compared the NSPS 

and demo projects, confirmed the superior nature of the demo authorities, and requested DDR&E help in preserving the demos.38 The letter 

was not answered. However, a study on Army science and technology 

(S&T) examined the letter and concluded that “DOD should approve 

the request recently put forward by senior laboratory managers from 

each of the Services to the DDR&E.”39

Separate personnel systems for Federal labs were first advocated 

by a White House study, chaired in 1983 by David Packard.40 The idea 

was urged again in 1988 by the president of the National Academy of 

Public Administration, who testified to Congress that:

[t]he traditional “cookie cutter” approach—that all personnel 

issues impact all employees and all cultures alike and therefore 

call for mega-solutions across the board—should be abandoned. . . . 

The federal “cultures” that might warrant tailor-made personnel 

systems are not the Cabinet-level departments. They are . . . the 

military research laboratories, not the Department of Defense.41

The lab demos were finally established in 1994, and evidence 

shows that these systems have been crucial for attracting the best 

S&E talent. For example, when measured against non-Federal peer 

groups, the National Institutes of Health (NIH), National Institute 

of Standards and Technology (NIST), and NRL compare favorably to 

comparable private sector labs in terms of publications and National 

Academy memberships. In some cases, they set the bar for their private 

sector counterparts.42

NIH, NIST, and NRL may not be typical of all public sector 

institutions, but separate personnel systems suggest a primary reason for success. All three have unique systems tailored to their R&D 

missions. NIH is managed under Title 42 of the Public Health Service. NIST had a demo that was later made permanent by Congress. 

NRL has a demo now, but it may be pulled into the NSPS, along with 

eight other DOD labs. This would place them at a serious disadvantage in the coming years.

The government is facing a large-scale exodus from its workforce. 

By 2012, according to the Office of Personnel Management, more than 

50 percent of the current workforce, including a third of its scientists, 

will be gone.43 Replacing them amid the worrisome and widely reported 

global trends in science and engineering education means the government will be competing for talent at the same time the national S&E 

workforce is shrinking and foreign competition is strengthening.44

A recent CTNSP study outlines a strategy to rebuild the DOD S&E 

workforce over the coming years. However, it warns that if this workforce continues to decline relative to the size of the national workforce, 

“a point will be reached where it becomes irrelevant. . . . It will not be 

able to maintain competence in newly developing fields of science and 

technology while at the same time maintaining competence in the traditional fields that will continue to be important to DOD.”45

Facility Management. In the last 5 years, the Army and 

Navy centralized their facility management functions under single 

commands. The Navy led the way in 2003, when the Chief of Naval 

Operations (CNO) consolidated his organization from eight claimancies (facility-owning commands) down to one: the commander, Navy 

Installations (CNI). The CNO’s action applied to his organization alone, 

so the property and base operating support (BOS) functions of the four 

naval warfare centers were placed under CNI ownership.46 NRL was 

not included because it reports to the Chief of Naval Research, and 

ultimately to the Assistant Secretary of the Navy for Research, Development, and Acquisition (ASN [RDA]). Navy policy also mandates that 

NRL manage its own real property and BOS functions because of its 

“unique Navy-wide and national responsibilities.”47
May 2009 Defense Horizons 5

and 2000, DOD lab personnel were reduced by 36 percent, due in large 

part to BRAC.58

What stops the Pentagon from cutting too deeply? BRAC law 

prevents it by requiring that the Secretary of Defense base all proposals on DOD’s 20-year Force Structure Plan. This ensures that 

today’s cuts do not place tomorrow’s military in jeopardy. Data 

on Future Required Capacity were key to knowing if lab closures 

would support or undermine the Force Structure Plan, and it was 

the job of the Technical Joint Cross-Service Group (TJCSG) to 

derive those data.59

The TJCSG improved upon the analyses of earlier BRACs by adding the number of on-site contractor personnel into the calculations of 

capacity. Previously, the large numbers of contractors who work at the 

labs and use their infrastructure were not counted. The TJCSG’s complete account of all on-site personnel showed current excess capacity 

levels to be far less than expected—an average of 7.8 percent from 

2001 to 2003, and only 4.4 percent for 2003.60 Hence, small cuts would 

not affect today’s forces.

As for the law’s requirement to support tomorrow’s warfighter, 

the data on Future Required Capacity projected a future deficit of 

necessary infrastructure, which meant that closures and cuts would 

deepen the shortfall and, in the law’s language, “deviate substantially” 

from the Force Structure Plan.61 However, as revealed by a newspaper investigation, the data on Future Required Capacity were missing 

from the TJCSG’s May 19, 2005, final report to the BRAC Commission, 

though the data were contained in a draft 9 days earlier.62

Congress and the commission were unaware that the proposals deviated substantially from the Force Structure Plan, so the lab 

closures and realignments were approved. The resulting cuts to the 

S&E workforce could place future troops at risk by exacerbating a 

projected shortfall of technical support. Moreover, the cuts ensure 

gross waste. For example, the closure of Fort Monmouth, New Jersey, is estimated to cost more than twice the original projection and 

take as many as 13 additional years to reconstitute its capability 

at Aberdeen, Maryland.63 Lastly, the cuts apply more stress to the 

already fracturing yardstick.

Reform Works

Excessive outsourcing, inappropriate centralizing, and risky 

downsizing are endangering the Pentagon’s yardstick. The good news 

is that the yardstick was threatened once before, and the challenge 

was met successfully.

The year was 1961. President John Kennedy called it “a most 

serious time in the life of our country and in the life of freedom 

around the globe.” In April, the first human to reach outer space 

spoke Russian. Days later, the United States was humiliated in 

Cuba’s Bay of Pigs. In August, construction started on the Berlin 

Wall. And in October, the Soviet Union detonated a 58-megaton 

hydrogen bomb that sent an atmospheric shockwave around the 

planet three times, the most powerful manmade explosion in history. In the midst of these grave events, DDR&E Harold Brown 

announced that the Secretary of Defense would be strengthening 

the DOD labs.

Brown’s efforts were aided by a government-wide panel, led 

by budget director David Bell. Members included the Secretary of 

Defense, the President’s science advisor, and the leaders of NASA, the 

National Science Foundation, and the Civil Service Commission. They 

The CNI uses a management concept that it imported from General Motors (GM). Sometime earlier, GM adopted the original idea from 

McDonald’s and relieved its product divisions (such as Buick and Chevrolet) of their facilities, centralized their management, and standardized 

the delivery of services.48 The CNI describes its version of the concept 

this way: “The installation will be controlled by a central committee,”49

and it “will establish a standard level of service to be provided to all Navy 

funded tenant activities that is consistent across all regions.”50

Management of R&D facilities by central committee, with standard levels of service, is a mistake. A one-of-a-kind nanoscience facility 

requires a far higher level of service than one established for piers or 

base housing. The Center for Naval Analyses expressed similar misgivings in a report to the CNO: “There is a difference between RDT&E 

and upkeep and maintenance. . . . NAVAIR [Naval Air Systems Command] and NAVSEA [Naval Sea Systems Command] should retain 

their claimancies. They have laboratories and test ranges with technologically sophisticated, sensitive, and expensive equipment. Delays and 

errors are extremely costly.”51

The value of an imported process depends on how closely the 

government environment resembles the industrial one. This was 

underscored in a tragic way when the shuttle program adopted 

the inappropriate “insight” inspection regime. As for the similarity between the Navy and GM environments, the auto maker is “a 

single-product, single-technology, single-market business,”52 which 

also fairly describes McDonald’s. It does not describe the U.S. Navy, 

which requires efforts across a wide range of scientific disciplines 

and technology areas; and its operational environments, such as 

steel-crushing ocean depths, demand extraordinary levels of technical sophistication and reliability.

Cost reduction is a poor reason to import a risky commercial 

concept into a lab. By itself, successful innovation can save vast 

sums of money. For example, NRL developed an algorithm that 

allowed new and legacy military phones to work together.53 This 

meant that legacy phones did not have to be retired by DOD and 

North Atlantic Treaty Organization forces. Nearly $600 million was 

saved, nine times the CNI’s projected savings from consolidating 

global base operations.54

The Base Realignment and Closure (BRAC) Commission 

understood the risks of applying inappropriate management methods to R&D. In 2005, it rejected a proposal to absorb NRL’s facilities 

and BOS functions into a “mega-base” operated by CNI’s Naval District Washington region. The commissioners ruled that “NRL’s continued control of laboratory buildings, structures, and other physical assets is essential to NRL’s research mission,” and they endorsed 

the ASN (RDA) policy by codifying it in law.55 Unfortunately, neither 

the commission’s statutory ruling, ASN (RDA) policy, nor the CNO’s 

own directive has stopped CNI from asserting an inappropriate and 

unapproved authority to manage NRL facilities.56

Risky Downsizing

Closing unneeded infrastructure is good stewardship of taxpayer 

dollars. However, as the private sector’s role has increased, DOD labs 

have been marginalized and closed despite the urgent need for technology’s help on today’s battlefields. In March 2004, DOD certified to 

Congress that a significant level of excess capacity still existed within 

its base structure.57 This cleared the way for a fifth round of closures 

and realignments. Previous cuts had already run deep. Between 1990 
6 Defense Horizons May 2009

were tasked by the President to assess “the effect of the use of contractors on direct federal operations, the federal personnel system, and the 

government’s own capabilities, including the capability to review contractor operations and carry on scientific and technical work in areas 

where the contract device has not been used.”64

President Kennedy’s concerns were sparked by contracting abuses 

in the 1950s and by a growing realization that the increased outsourcing spurred by the Hoover Commission had not markedly improved 

efficiency. In fact, President Eisenhower’s Science Advisory Committee 

had concluded by 1958 that an extreme reliance on contracts damaged 

“the morale and vitality of needed government laboratories.”65

The Bell Report, as it became known, made a big impact. Salary 

scales were improved. Agencies were given the authorization to allocate, with no set limits, Civil Service grades 16 through 18 to positions 

primarily concerned with R&D.66 Appointments of exceptionally qualified individuals to steps above the minimum entrance step in grades 

GS–13 and up were allowed.67 More discretionary research funding was provided, and construction funds for new lab facilities were 

increased considerably. These and other reforms yielded “significant 

improvement in [the labs’] ability to attract first-class people.”68

The reforms were not born out of affection for government infrastructure. In fact, DOD conducted hundreds of base closures and 

realignments during the 1960s, proving that it is possible for the Pentagon to nurture a high-quality S&E workforce and cut infrastructure 

at the same time.69 It took only the commitment to do so.

Signs appeared in the 1980s that the in-house system was again in 

need of help. Scores of studies have analyzed the problems and offered a 

remarkably consistent set of solutions. In fact, a 2002 tri-Service report 

by the Naval Research Advisory Committee, Army Science Board, and 

Air Force Scientific Advisory Board noted that the subject “has been 

exhaustively investigated” and found the labs’ situation critical.70

Little has been done in the wake of these studies, with the notable exception of establishing the now-threatened lab personnel demos. 

The problems are well known, well understood, and solvable. Five solutions are listed below:

■ Divide the Senior Executive Service into an Executive 

Management Corps (EMC) and a Professional and Technical Corps (PTC). This change was proposed by the National 

Commission on the Public Service.71 Like the current Senior 

Executive Service, the EMC and PTC must be equivalent in 

rank to general/flag officers. Personnel within the PTC should 

run the labs.

■ Exclude the lab personnel demos from NSPS permanently—but 

do not freeze them in time. Empower them to pioneer additional 

personnel concepts. This can be done using legislated authorities that remain unimplemented or otherwise constrained by the 

DOD Office of Force Management and Personnel. One example 

is Section 1114 of the Fiscal Year (FY) 2001 National Defense 

Authorization Act, by which Congress placed the creation of new 

demo authorities in the Secretary of Defense’s hands.

■ Create a separate R&D military construction budget. The current process pits “tomorrow” against “today” by forcing R&D to 

compete with operational needs, such as hospitals or enlisted 

housing. R&D has not fared well since the reform period of the 

1960s. For example, NRL received $166 million (FY08 dollars) 

from 1963 through 1968, but only $154 million (FY08 dollars) 

over all years after 1968.

■ Restore to civilian lab directors all the authorities lost over the 

last two decades, including those to make program and personnel decisions, to allocate funds, and to otherwise manage the 

necessary resources to carry out the mission. One example is 

to return facility management authorities to the Army labs and 

naval warfare centers. Another is to reinstate the full strength 

“direct hire” authorities held by the labs until the 1980s.

■ Restore the dual-executive relationship of the military and 

civilian leadership at all labs where it has been weakened 

or eliminated. While difficult in practice, authority must 

be shared equally to meet the mission. The military officer 

assures continuing ties with the Services that the labs exist 

to support. The senior civilian assures stable, long-term direction of the organization and the tough technical oversight 

needed to protect the public’s interests.

Accountability-based Governance

The last two decades stand in stark contrast to the reform era, 

when the Kennedy and Johnson administrations, during a time at least 

as dangerous as our own, preserved the labs’ ability to perform longterm research and oversee contracted work. It is tempting to blame 

“bureaucracy” for the dismal situation, but doing so would miss the 

problem and its solution.

The Problem

America’s great technological achievements in the 20th century 

were born of a healthy partnership between the public and private 

sectors. By comparison, market-based governance has spawned 

great failures, and the costs have been dear in terms of wasted dollars, lost time, and unmet national needs. Less obvious is the diminished transparency of decisions, largely because companies are not 

subject to the Freedom of Information Act. Moreover, accountability 

erodes as the yardstick fractures and the government is forced to 

rely more and more on private sources. In time, private interests 

attain “unwarranted influence” and make public decisions through 

“misplaced power,” the very concerns voiced by President Eisenhower in his farewell address.

Private interests pose a threat to democracy when they gain a 

role in governance, a fear felt keenly in the early days of the Republic. The authors of the Federalist Papers believed private interests 

to be unresponsive to the public good. James Madison argued that a 

republican, or representative, form of government was the best way 

to control them and thereby save the new democracy from being 

destroyed by corruption. In The Federalist No. 10, he stated, “No 

man is allowed to be a judge in his own cause, because his interest would certainly bias his judgment, and, not improbably, corrupt 

his integrity.”

The Republic needs a strong yardstick. Without one, our government cannot govern well—not even if it retains the best and brightest on contract. The government’s own assets must capably bear the 

responsibility for decisions that affect the Republic’s interests, and 

they must maintain public confidence by the manner in which those 

decisions are made. This is vital. As Adlai Stevenson stated, “Public 

confidence in the integrity of the Government is indispensable to faith 

in democracy; and when we lose faith in the system, we have lost faith 

in everything we fight and spend for.”
May 2009 Defense Horizons 7

The Solution

In matters involving science and technology, competent government S&Es, in sufficient numbers, with sustained support from 

the executive branch, are the only means for tempering the private 

sector’s natural tendencies and for harnessing its formidable skills 

in ways that serve public purposes. A healthy balance was restored 

in the 1960s. It can be done again. The Bell Report’s central finding offers clear direction and should be endorsed as a global principle by the new administration: “No matter how heavily the Government relies on private contracting, it should never lose a strong 

internal competence in research and development.”

This is critical because market-based governance is accountable to a financial bottom line and to a well, or poorly, written contract. Without strong oversight, it injects political illegitimacy into 

the exercise of state power and risks the failure of national missions. By contrast, accountability-based governance contributes to 

making government safe for democracy. Our republic is more than 

a market, our government more than a business, and our citizens 

more than consumers.

However, given the demonstrated costs of market-based governance, one question still needs to be answered. If the problems of the 

government’s yardstick are so well known, well understood, and solvable, then what explains the persistent inaction?

Misplaced Power

President Eisenhower warned that “in the councils of government, we must guard against the acquisition of unwarranted influence, 

whether sought or unsought, by the military-industrial complex. The 

potential for the disastrous rise of misplaced power exists and will persist.” Our vigilance failed when economic and political interests converged after the Cold War in a way that is eroding the government’s will 

to support its yardstick—the S&Es who perform R&D within its defense 

labs. This is what makes recruiting high-quality talent, building new 

facilities, and eliminating burdensome bureaucracy so hard to achieve.

Power is misplaced when it is pulled away from the Pentagon 

into corporate boardrooms, where the Nation’s interests are at risk 

of being traded for private interests. Back when there was a healthy 

balance in the technological partnership between DOD and the commercial sector, the Pentagon could ensure that decisions were made by 

government officials who were publicly accountable. Furthermore, the 

contracted work was overseen by government S&Es who were knowledgeable and objective because they performed R&D in the relevant 

areas and were insulated from market pressures to earn a profit.

The so-called revolving door helps to sustain the problem. A 

recent GAO study found that between 2004 and 2006, 52 contractor 

firms hired 2,435 former DOD officials who had previously served as 

generals, admirals, senior executives, program managers, and contracting officers.72 Perhaps this is inevitable with the sharp disparity between private and public compensation. The average pay for a 

defense industry chief executive officer is 44 times that of a general 

with 20 years experience.73 More dramatically, in 2007, one private 

security firm’s fee for its senior manager of a 34-man team was more 

than twice the pay of General David Petraeus, then-commander of 

160,000 U.S. troops and all coalition forces in Iraq.74

The military-industrial complex is not a conspiracy; it is a culmination of historical trends. Those trends are the outcomes of our 

collective choices, which are in turn dictated by our needs and values. 

In his 1978 critique of Western civilization, the Soviet émigré Alexander Solzhenitsyn, who was no friend of communism, lamented the 

West’s “cult of material well-being” that depends on little more than a 

cold legal structure to restrain irresponsibility.75 Thirty years after his 

warning, not even the code of law could protect us from ourselves and 

the most fearsome economic crisis since the Great Depression.

Money plays too great a role in public policymaking, a fact that 

might alarm us more if it were not lost in the glare of the West’s passion for material well-being. This is the reservoir from which market-based governance derives its strength, and in turn it saps that 

of the government. The United Kingdom offers an example of the 

twisted priorities that can be caused by the commingling of societal 

choices, government requirements, and commercial interests. With 

public support waning, the Royal Navy’s budgets declined. Strapped 

for cash, it now rents naval training facilities to a contractor who 

teaches basic seamanship to crews of the world’s “super yachts.” 

These mega-boats of the rich and famous are the size of frigates, and 

taken together they require a larger workforce than all the warships 

flying the Union Jack.76

The Choice

When the sons of jihadism attacked America, the sons and daughters of democracy responded. The first to do so were public servants and 

civilians, such as the firefighters who entered the burning Twin Towers 

knowing they might not come out alive, and Flight 93’s passengers who 

died thwarting a larger massacre. Our Armed Forces then took the fight 

overseas and battled valiantly to liberate two societies from despotism.

But the storm that moves upon the West has not yet gathered its 

strength. We must develop new energy sources as oil is depleted, lessen 

manmade contributions to climate change, protect vital ecosystems, 

contain pandemics and drug-resistant infections, deter adversarial 

nations, secure our borders and seaports, and defend civilization from 

an opportunistic enemy that has apocalyptic goals and is not deterred 

by traditional means.

Our public sector labs exist to help meet such challenges. They 

have been there for us in the past. With reforms that restore a healthy 

partnership with the private sector, they will be there for us tomorrow. 

A broken yardstick is not fated. It is a choice.

Notes

1

 Defense Science Board (DSB), Achieving an Innovative Support Structure for 

21st Century Military Superiority (Washington, DC: DSB, 1996), II–48. 2

 Don J. DeYoung, The Silence of the Labs, Defense Horizons 21 (Washington, DC: 

National Defense University Press, January 2003), available at <www.ndu.edu/inss/

DefHor/DH21/DH_21.htm>. 3

 Dwight D. Eisenhower, Farewell Address to the Nation, January 17, 1961.

4

 Kathleen L. Housley, Black Sand: The History of Titanium (Hartford, CT: Metal 

Management Aerospace, 2007), 112. 5

 R.W. Judy and R.J. Goode, Stress-Corrosion Cracking Characteristics of Alloys of 

Titanium in Sea Water, NRL Report 6564 (Washington, DC: Naval Research Laboratory, 

July 21, 1967). 6

 B.F. Brown, “Coping with the Problem of the Stress-Corrosion Cracking of Structural Alloys in Sea Water,” Ocean Engineering 1, no. 3 (February 1969), 293. 7

 Assistant Secretary of the Navy for Research, Development, and Acquisition 

(ASN [RDA]) Memorandum, “Use of Titanium for SEAWOLF Torpedo Tubes,” April 

12, 1996. The panel scientists were from the Naval Research Laboratory and Office of 

Naval Research. 8

 Office of Naval Research Report, “Use of Titanium for SEAWOLF Torpedo Tube 

Breech and Muzzle Doors,” vol. I, May 28, 1996.
8 Defense Horizons May 2009

9

 ASN (RDA) Memorandum, “Use of Titanium for SEAWOLF Torpedo Tubes,” 

September 19, 1996. 10 Al Gore, address to the National Press Club, Washington, DC, March 4, 1996.

11 Office of Management and Budget, President’s Management Agenda, August 

2001, 17. 12 Government Accountability Office (GAO), “Army Case Study Delineates Concerns with Use of Contractors as Contract Specialists,” March 2008, 10–11. 13 The term market-based governance is adopted from John D. Donahue and 

Joseph S. Nye, Jr., eds., Market-Based Governance (Washington, DC: Brookings Institution Press, 2002). 14 This term was introduced by H.L. Nieburg, In the Name of Science (Chicago: 

Quadrangle Books, 1966), 218–243. 15 Department of Defense (DOD), “Required In-House Capabilities for Department of Defense Research, Development, Test and Evaluation,” 1980. 16 Wernher von Braun, Sixteenth National Conference on the Management of 

Research, September 18, 1962, 9. 17 John Glenn, John Glenn: A Memoir (New York: Bantam Books, 1999), 258. 18 Space Shuttle Competitive Sourcing Task Force, “Alternative Trajectories: 

Options for the Competitive Sourcing of the Space Shuttle Program,” December 31, 

2002, xlvi. 19 Columbia Accident Investigation Board Report, vol. I (August 2003), 181. 20 Ibid., 101–102.

21 Guy Gugliotta, “NASA Chief Sees Space as an Inside Job,” The Washington Post, 

June 27, 2005. 22 The term laboratories applies here to laboratories, R&D centers, and warfare 

centers. 23 DSB Report, II–48.

24 GAO, “Outsourcing DoD Logistics,” 1997, 4.

25 Office of the DDR&E, DOD In-House RDT&E Activities Report (FY69 and 

FY00).26 Scott Shane and Ron Nixon, “In Washington, Contractors Take on Biggest Role 

Ever,” The New York Times, February 4, 2007, 1. 27 William Mathews, “An End to Lead Systems Integrators,” Defense News, December 10, 2007, 8 28 GAO, “Coast Guard: Change in Course,” 2008, 1.

29 William Mathews, “The End of LSIs?” Defense News, May 28, 2007, 8. 30 Ronald O’Rourke, Navy Littoral Combat Ship (Washington, DC: Congressional 

Research Service, June 24, 2005), 1; GAO, “Realistic Business Cases Needed to Execute 

Navy Shipbuilding Programs,” July 24, 2007, 3, 10. 31 GAO, “DHS Has Taken Actions to Strengthen Border Security Programs and 

Operations,” March 6, 2008, 13. 32 “Government Will Replace Virtual Border Fence,” Government Executive, April 

23, 2008. 33 Harold Brown, “Research and Engineering in the Defense Laboratories,” October 19, 1961. 34 Center for Technology and National Security Policy (CTNSP), Section 913 

Report #2: Information Science and Technology and the DoD Laboratories (Washington, DC: CTNSP, July 2002), v. 35 Institute for Foreign Policy Analysis, “Missile Defense, the Space Relationship, 

and the Twenty-First Century,” 2006, 102. 36 Public Law 110–181, Sec. 802.

37 Peter F. Drucker, Management: Tasks, Responsibilities, Practices (New York: 

Harper and Row, 1974), 582, 585. 38 William C. McCorkle et al., letter to William S. Rees, Jr., “Authorities Necessary 

to Effectively Manage the Defense In-House Laboratories,” August 21, 2006. 39 Richard Chait et al., Enhancing Army S&T: Lessons from Project Hindsight 

Revisited (Washington, DC: Center for Technology and National Security Policy, 2007), 

84–85.40 Report of the White House Science Council’s Federal Laboratory Review 

Panel, 1983. 41 Judith Havemann, “Crumbling Civil Service,” The Washington Post, March 

25, 1988. 42 Timothy Coffey, Building the S&E Workforce for 2040: Challenges Facing the 

Department of Defense (Washington, DC: Center for Technology and National Security 

Policy, July 2008), 19–20. 43 Tony Dokoupil, “C’mon and Be a Bureaucrat,” Newsweek, March 10, 2008. 44 Committee on Prospering in the Global Economy of the 21st Century, Rising 

Above the Gathering Storm: Energizing and Employing America for a Brighter Economic Future (Washington, DC: The National Academies Press, 2007). 45 Coffey, vi.

46 CNO message 271955Z, March 2003.

47 ASN (RDA) letter to Deputy Chief of Naval Operations (Logistics), October 2, 

1997, stated: “NRL is a Secretary of the Navy corporate activity that has been assigned 

unique Navy-wide and national responsibilities. . . . Real property and BOS functions 

imbedded inseparably with the research and industrial functions at NRL will remain 

with the Commanding Officer.”

48 Lisa Wesel, “GM Adopts McDonald’s Approach to Facilities Management,” 

Tradeline, January 2001. 49 Eric Clay, “Rear Adm. Weaver Explains Role of CNI,” Homeport, September 1, 

2003, 2. 50 Commander, Navy Installations (CNI), “Guidance for Assimilating Divesting 

Claimant Activities into Regions,” May 22, 2003, 4. 51 Cesar Perez and Perkins Pedrick, Number of Shore Installation Claimants—

Revisited (Washington, DC: Center for Naval Analyses, September 2001), 2–3, 26–28. 52 Drucker, 521.

53 U.S. Navy, Office of Naval Research, 2001 Vice Admiral Harold G. Bowen Award 

for Patented Inventions to George S. Kang and Larry J. Fransen. 54 Robert Hamilton, “Savings is Only One of the Impacts of New Shore Command,” 

New London Day, December 7, 2003. 55 Defense Base Realignment and Closure Commission, Final Deliberations, 

August 25, 2005, 57; and 2005 Defense Base Closure and Realignment Commission Final 

and Approved Recommendations: A Bill to Make Recommendations to the President 

Under the Defense Base Closure and Realignment Act of 1990, Q–70. 56 Naval District Washington (NDW) message 071401Z, June 2003. Subsequent 

to this message, NRL property records were altered by CNI/NDW to reflect itself as the 

installation facility manager without notice to or consent of NRL, the Chief of Naval 

Research, or the ASN (RDA). 57 DOD, “Report Required by Section 2912 of the Defense Base Closure and 

Realignment Act of 1990,” March 2004. 58 Defense Manpower Data Center.

59 The author served with the Technical Joint Cross-Service Group (at times representing RADM Jay Cohen, the Navy’s principal representative), BRAC–95 Navy Base Structure Analysis Team, BRAC–95 T&E JCSG, and VISION 21 Technical Infrastructure Study. 60 Technical Joint Cross-Service Group, “Analyses and Recommendations,” vol. 12, 

May 19, 2005. 61 Don J. DeYoung, letter to Alan R. Shaffer (TJCSG executive director), “The 

Conduct and Lessons of BRAC–05,” November 29, 2005. 62 Bill Bowman, “Key Data on Future Needs Withheld,” Asbury Park Press, June 

17, 2007. An earlier draft containing the data was posted by the Federation of American 

Scientists. See <www.fas.org/sgp/othergov/dod/brac/tjcsg-complete.pdf>. 63 GAO, “Military Base Realignments and Closures,” August 13, 2008, 11, 17.

64 Report to the President of the United States on Government R&D Contracting, 

Annex 1, April 1962. 65 President’s Science Advisory Committee, Strengthening American Science, 1958. 66 Booz Allen Hamilton, Inc., Review of Navy R&D Management: 1946–1973 (June 

1976), 143. 67 Nieburg, 345.

68 Office of the DDR&E, Report of the Task Group on Defense In-House Labs (May 

1971), 22–23. 69 Defense Base Closure and Realignment Commission, 1995 Report to the President, July 1, 1995, chapter 4–1.

70 Naval Research Advisory Committee Report, “Science & Technology Community 

in Crisis,” May 2002. 71 National Commission on the Public Service, Urgent Business for America, January 2003, 20–21. 72 GAO, “Defense Contracting: Post-Government Employment of Former DoD 

Officials Needs Greater Transparency,” May 2008, 4. 73 Sarah Anderson et al., Executive Excess 2006: 13th Annual CEO Compensation 

Survey, 1.

74 Walter Pincus, “U.S. Pays Steep Price for Private Security in Iraq,” The Washington Post, October 1, 2007, A17.

75 Alexander Solzhenitsyn, commencement address, Harvard University, June 8, 

1978. 76 Stacy Meichtry, “Ahoy Billionaires: The Royal Navy Is at Your Service,” Wall 

Street Journal, February 28, 2008.

Defense Horizons is published by the Center for Technology and National Security Policy. CTNSP 

publications are available online at http://www.ndu.edu/ctnsp/publications.html.

The opinions, conclusions, and recommendations expressed or implied within are those of the 

contributors and do not necessarily reflect the views of the Department of Defense or any other 

department or agency of the Federal Government.

Center for Technology and National Security Policy

Hans Binnendijk

Director