Defense Acquisitions: How DOD Acquires Weapon Systems and Recent Efforts to Reform the Process
Released: 2014-05-23T00:00:00

Introduction

This report provides an overview of the process by which the Department of Defense (DOD) acquires weapon systems and briefly discusses recent major efforts by Congress and DOD to improve the performance of the acquisition system. For a discussion on the process for dealing with significant cost growth in weapon systems, see CRS Report R41293, The Nunn-McCurdy Act: Background, Analysis, and Issues for Congress , by [author name scrubbed].

Background

The Department of Defense acquires goods and services from contractors, federal arsenals, and shipyards to support military operations. Acq uisition is a broad term that applies to more than just the purchase of an item or service; the acquisition process encompasses the design, engineering, construction, testing, deployment, sustainment, and disposal of weapons or related items purchased from a contractor. From a policy perspective, federal regulations and federal law generally use the terms acquisition and procurement interchangeably. The term procurement, when used within the context of acquisitions, is different from the budget definition of procurement that generally references the Procurement budget appropriations account—a funding stream that is distinct from Research and Development, Operations and Maintenance, and other budget categories.

DOD's acquisition process is highly complex and does not always produce systems that meet estimated cost or performance expectations. Congress has been concerned with the structure and performance of the defense acquisition system for many years. For example, the House Armed Services Committee's report of the FY2007 defense authorization bill stated

Simply put, the Department of Defense (DOD) acquisition process is broken. The ability of the Department to conduct the large scale acquisitions required to ensure our future national security is a concern of the committee. The rising costs and lengthening schedules of major defense acquisition programs lead to more expensive platforms fielded in fewer numbers. The committee's concerns extend to all three key components of the Acquisition process including requirements generation, acquisition and contracting, and financial management.

Over the decades, congressional oversight has focused on many aspects of the acquisition process, from "micro-level" practices, such as characteristics of a particular contract, to "macro-level" practices, such as management and execution of the Joint Strike Fighter and other Major Defense Acquisition Programs (MDAPs). Congress has held oversight hearings and enacted legislation in an effort to improve the defense acquisition structure and its practices.

Statutory and Regulatory Foundation

Title 10 of the United States Code governs the organization, structure, and operation of the Armed Forces of the United States. Several sections within the title charge the secretaries of the military departments (Army, Navy, and Air Force) with responsibility to "equip" the armed forces. General procurement provisions, many of which apply to MDAPs and MAISs (Major Automated Information Systems), are spread throughout the title, including assignment of responsibilities, establishment of acquisition procedures, and requirements for reporting to Congress. The annual National Defense Authorization Acts are one of the principal mechanisms by which Congress modifies the defense acquisition structure, also set forth in Title 10.

DOD procurement activities are generally governed by three sets of federal government regulations:

The first set of regulations applies to the entire federal government (including DOD unless stated otherwise) and is found in the Federal Acquisition Regulation (FAR). The second set of regulations applies only to DOD and is found in the Defense Federal Acquisition Regulation Supplement. The third set of regulations applies only to individual DOD components and is found in component-unique FAR Supplements.

Procurement actions in DOD must adhere to the various regulations, and program managers must take the regulations into account during the planning and execution of their programs.

The Process for Buying a Weapon System

Every weapon system in the U.S. arsenal is intended to satisfy a specific military need (often referred to as a requirement ) , must be paid for by the federal budget , and is designed and built within an acquisition system . From concept to deployment, a weapon system must go through the three-step process of identifying the required weapon system, establishing a budget, and acquiring the system. These three steps are organized as follows:

1. The Joint Capabilities Integration and Development System—for identifying requirements. 2. The Planning, Programming, Budgeting, and Execution System—for allocating resources and budgeting. 3. The Defense Acquisition System—for developing and/or buying the item.

These three steps (each of which is a system onto itself), taken together, are often referred to as "Big 'A'" acquisition, in contrast to the Defense Acquisition System, which is referred to as "little 'a'" acquisition (see Figure 1 ).

The Requirements Process: Joint Capabilities Integration and Development System (JCIDS)

The Joint Capabilities Integration and Development System is the process by which DOD identifies, assesses, and prioritizes what capabilities the military requires to fulfill its mission. As such, JCIDS is often referred to as the requirements generation process. Requirements identified through JCIDS can be addressed in a number of ways, including changes in doctrine, training, and organization, or the acquisition of a new item, such as a weapon system.

The JCIDS process was created in 2003 in an effort to fundamentally change the way DOD developed requirements. Prior to 2003, DOD used a threat-based approach to identifying warfighter requirements. With the advent of JCIDS, DOD shifted to a capabilities-based approach to identifying warfighter needs. In other words, instead of developing, producing, and fielding systems based on specific perceived threats to the nation, DOD adopted a policy of identifying what capabilities it needs to meet the strategic direction and priorities set forth in high-level strategy and guidance documents such as the National Military Strategy, National Defense Strategy, and Quadrennial Defense Review.

Many analysts suggest that under the threat-based approach, each military service identified a threat, and in response to the threat developed its own independent weapons. The shift to a capabilities-based approach served to promote a more collaborative method of identifying capability gaps across services instead of each service developing its own response. As a result, weapon systems are expected to be developed jointly among services.

JCIDS is governed by the Chairman of the Joint Chiefs of Staff Instruction (CJCSI) 3170.01 H and utilizes the procedures described in the Manual f or t he Operation o f t he Joint Capabilities Integration and Development System . According to DOD policy, the first step in the process is to conduct a Capabilities Based Assessment (CBA), which analyzes the military's capability needs and gaps, and recommends both materiel and non-materiel ways to address the gaps. If, as a result of a CBA or a comparable study a materiel solution (such as a weapon system) is considered, an Initial Capabilities Document (ICD) is prepared. The ICD justifies the need for a materiel solution to satisfy the identified capability gap.

The Joint Requirements Oversight Council (JROC), the organization responsible for identifying and prioritizing warfighter requirements, must approve the ICD. To approve the ICD, the JROC reviews and validates

the capabilities required to perform the defined mission, the gap in capabilities required to perform the mission, and how the identified capability gap will be addressed (in whole or in part).

The JROC may approve an ICD and recommend a non-materiel solution to meeting the military need, such as a change to strategy or tactics. If the JROC approves a materiel solution, the program enters the Defense Acquisition System ("little 'a'"). The documentation developed during the JCIDS process serves as the basis for decisions throughout the acquisition process.

Despite its important role, the JROC does not have binding authority; it serves in an advisory role to the Chairman of the Joint Chiefs of Staff. The Chairman is responsible for advising the Secretary of Defense on "the priorities of the requirements identified by the commanders of the unified and specified combatant commands" and on the "extent to which the program recommendations and budget proposals of the military departments and other components of the Department of Defense" conform to the priorities established in strategic plans. Ultimately, the Secretary of Defense, as head of DOD, has authority, direction, and control over requirements and acquisitions (subject to the President and Congress).

The Budgeting Process: Planning, Programming, Budgeting and Execution System (PPBE)

The Planning, Programming, Budgeting, and Execution system develops DOD's proposed budget for all acquisitions, including MDAPs. The PPBE is intended to provide DOD with the best mix of forces, equipment, manpower, and support within fiscal constraints.

The PPBE is an annual process consisting of four stages: planning, programming, budgeting, and execution.

Planning: During this stage, a national defense strategy is defined and a plan is developed for executing the strategy. The plan sets forth priorities for developing programs (including military force modernization, readiness, and business processes and infrastructure support) and is published in the Joint Programming Guidance. This document helps guide the DOD components' efforts to propose or modify acquisition programs. Programming: During this stage, proposed programs are fleshed out and a Program Objective Memorandum (a document that outlines the anticipated missions and objectives of the proposed weapon system and anticipated budget requirements) is submitted. These memoranda are reviewed and, as deemed appropriate, integrated into an overall defense program. Budgeting: Budgeting occurs concurrently with the programming stage. Proposed budgets are reviewed in a different manner than proposed programs. Upon completion of a program decision or as a result of a budget review, Program Budget Decisions are issued. Execution: During execution, programs are evaluated and measured against preestablished performance metrics, including rates of funding obligations and expenditures.

The Defense Acquisition System

The Defense Acquisition System is the management process by which DOD develops and buys weapons and other systems. It is governed by Directive 5000.01, The Defense Acquisition System , and Instruction 5000.02, Operation of the Defense Acquisition System , and utilizes the procedures described in the Defense Acquisition Guidebook.

The Defense Acquisition System is not intended to be a rigid, one-size-fits-all process. Acquiring information technology systems is different than acquiring missiles, which is different than acquiring a nuclear attack submarine. As Instruction 5000.02 states:

the structure of a DOD acquisition program and the procedures used should be tailored as much as possible to the characteristics of the product being acquired, and to the totality of circumstances associated with the program including operational urgency and risk factors.

Despite these differences, and the variations of the process contained in the 5000.02 instruction, the general framework of the acquisition system remains the same. This section of the report outlines that framework (based on the hardware-intensive model), pointing out selected instances where deviations may occur.

Generally, the defense acquisition system uses "milestones" to oversee and manage acquisition programs (see Figure 2 ). The milestones serve as gates that must be passed through before the program can proceed to the next phase of the acquisition process. To pass a milestone, a program must meet specific statutory and regulatory requirements and be deemed ready to proceed to the next phase of the acquisition process. There are three milestones:

Milestone A—initiates technology maturation and risk reduction. Milestone B—initiates engineering and manufacturing development. Milestone C—initiates production and deployment.

Each acquisition program, such as the F-35, Littoral Combat Ship, or Joint Light Tactical Vehicle, is managed by an acquisition program office. The program office is headed by a Program Manager. Program managers can be military officers or federal civil servants. They are supported by a staff that can include engineers, logisticians, contracting officers and specialists, budget and financial managers, and test and evaluation personnel. Program managers usually report to a Program Executive Officer. Program executive officers can have many program managers who report to them. Like program managers, program executive officers can be military officers or federal civil servants. They, in turn, report to a Component Acquisition Executive. Most component acquisition executives report to the Under Secretary of Defense for Acquisition, Technology, and Logistics, who also serves as the Defense Acquisition Executive.

The official responsible for deciding whether a program meets the milestone criteria and proceeds to the next phase of the acquisition process is referred to as the Milestone Decision Authority (MDA). Depending on the program, the MDA can be the Under Secretary of Defense (Acquisition, Technology, & Logistics), the head of the relevant DOD component, or the component acquisition executive.

Entering the Defense Acquisition System—Materiel Development Decision

For a program to enter the Defense Acquisition System, it must pass a Materiel Development Decision review, which determines whether a new weapon system is required to fill the identified gap (or whether a non-materiel solution, such as a change in training or strategy, is sufficient). The Material Development Decision is based on the requirements validated by the JROC and set forth in the Initial Capabilities Document (or equivalent document).

To pass the Material Development Decision, the MDA must

determine that a material solution is necessary, approve the plan for developing an Analysis of Alternatives (described in the next section), designate the DOD component that will lead the program, and identify at which phase of the acquisition system the program should begin.

MDA decisions made at the Material Development Decision review are documented in an Acquisition Decision Memorandum.

Material Solution Analysis Phase—Determining the Right Solution

The Materiel Solution Analysis Phase is where competing systems are analyzed to determine which one is best suited to meet the validated requirements. This phase occurs prior to any of the milestones (see Figure 3 ).

During this phase, the Analysis of Alternatives is conducted. The Analysis of Alternatives explores the competing methods of meeting the identified requirement. This analysis should include the comparative effectiveness, cost, schedule, concepts of operations, overall risks, and critical technologies associated with each proposed alternative, including the sensitivity of each alternative to possible changes in key assumptions or variables. The Analysis of Alternatives also addresses total life-cycle costs. During this phase, a program manager is selected and a program office is established.

The materiel solution phase ends when the Analysis of Alternatives is completed, a specific solution is chosen to continue through the acquisition process, and the program meets the criteria for the milestone where the program will enter the acquisition system.

Milestone A and the Technology Maturation and Risk Reduction Phase

A program must pass through Milestone A to proceed to the Technology Maturation and Risk Reduction phase (see Figure 4 ).

To pass Milestone A,

the Milestone Decision Authority must approve the proposed materiel solution (based on the Analysis of Alternatives) and the Acquisition Strategy, the lead component must submit a cost estimate for the proposed solution (including life-cycle costs), the program must have full funding for the length of the Future Years Defense Program, and if technology maturation is to be contracted out, the program must have a Request for Proposal (RFP) that is approved by the MDA and ready for release.

MDA decisions made at this milestone are documented in an Acquisition Decision Memorandum.

The Technology Maturation and Risk Reduction phase is when nascent technologies and the system design are matured to the point that a decision can be made with reasonable confidence that a system can be developed to meet military requirements and fit within affordability caps. To meet these twin objectives, requirements are refined and cost caps are finalized.

During this phase, a Capability Development Document and Reliability, Availability, and Maintainability strategy must be developed and approved. These documents will inform the Preliminary Design Review, which is held during this phase to ensure that the preliminary design and basic system architecture are complete, and that there is technical confidence the capability need can be satisfied within cost and schedule goals. This phase is also where competitive prototyping occurs, which is when industry teams develop competing prototypes of a required system.

The Development RFP Release Decision Point is held during this phase. This is one of the critical decision points in the acquisition process because this is when the acquisition strategy is initiated and industry is asked to bid for the development contract. As the DODI 5000.02 emphasizes,

[P]rior to the release of the final RFP(s), there needs to be confidence that the program requirements to be bid against are firm and clearly stated; the risk of committing to development and presumably production has been or will be adequately reduced prior to contract award and/or option exercise; the program structure, content, schedule, and funding are executable; and the business approach and incentives are structured to both provide maximum value to the government and treat industry fairly and reasonably.

Milestone B and the Engineering and Manufacturing Development Phase

Most programs begin at Milestone B, the point at which a program becomes a program of record. A program must pass through Milestone B to proceed to the Engineering and Manufacturing Development Phase (see Figure 5 ).

To pass Milestone B,

a program must have passed the Development RFP Release Decision Point; requirements must be validated and approved; the program must have full funding for the length of the Future Years Defense Program; an independent cost estimate must be submitted to the MDA; all sources of risk (including cost, technology development, integration, and sustainment) must be sufficiently mitigated to justify fully committing to the development of the program; and the Milestone Decision Authority must approve an updated Acquisition Strategy.

Upon passing Milestone B, the MDA approves the Acquisition Program Baseline (APB), which details the performance, schedule, and cost goals of the program. The APB is signed by the MDA and the program manager, and serves as the basis against which execution of the program will be measured. MDA decisions made at this milestone are documented in an Acquisition Decision Memorandum.

The Engineering and Manufacturing Development Phase is where a system is designed and developed, all technologies and capabilities are fully integrated into a single system (full system integration), and preparations are made for manufacturing (including developing manufacturing processes, designing for mass production, and managing cost).

During the detail design effort, the office of Developmental Test and Evaluation tests the maturity and adequacy of the design and provides the results of its analyses to the Program Manager. During system integration, the various subsystems are integrated into one system and a development model or prototype is produced. For example, on an aircraft carrier, system integration would be when the aircraft launching system, radar, nuclear reactor, and other subsystems are all integrated onto the ship. Operational testing and evaluation also takes place during this phase, both at the subsystem and integrated-system level. Operational testing and evaluation is intended to determine whether a system is operationally effective, suitable, and survivable.

Milestone C and the Production and Deployment Phase

A program must pass through Milestone C to proceed to the Production and Deployment phase (see Figure 6 ).

To pass Milestone C,

the production design must be stable, the system must pass developmental testing and operational assessment, software must meet the predetermined maturity, the system must demonstrate that it is interoperable with other relevant systems and can be supported operationally, estimated costs must be within the cost caps, the program must have full funding for the length of the Future Years Defense Program, the Capability Production Document must be approved, and the Milestone Decision Authority must approve the updated Acquisition Strategy.

MDA decisions made at this milestone are documented in an Acquisition Decision Memorandum.

During the Production and Deployment phase, the MDA authorizes the beginning of low-rate initial production, which is intended to both prepare manufacturing and quality control processes for a higher rate of production and provide test models for operational test and evaluation. A program can enter full-rate production when it has completed sufficient operational testing and evaluation, demonstrated adequate control over manufacturing processes, and received approval of the MDA to proceed with production.

When enough systems are delivered and other predefined criteria are met, an Initial Operating Capability can be attained, allowing for some degree of operations. Full Operational Capability is achieved when the system is ready to operate as required.

Operations and Support Phase

Operations and Support is the final phase of a weapon system's life (see Figure 7 ). In this phase, the system is fully deployed, operated, supported, and ultimately retired. Up to 70% of the total life cycle costs of a system can occur in the operations and support phase.

Acquisition Categories

Programs are divided into acquisition categories (ACATs) based primarily on program cost. The level of management oversight of an acquisition program increases as the cost of the program increases. The most significant DOD and congressional oversight activities apply to MDAPs, which are categorized as ACAT I programs. Table 1 illustrates the thresholds and decision authorities for all ACATs.

Acquisition Reform

Concerns over defense acquisitions generally center around significant cost overruns, schedule delays, and an inability to provide troops in the field with the equipment they need when they need it. Many analysts believe that cost overruns and schedule delays have a debilitating effect on the nation's military and threaten America's technological advantage and military capabilities. For more than 50 years, both Congress and DOD have initiated numerous attempts to improve defense acquisitions. Despite the numerous initiatives, studies and reports (many of which echo the same themes and highlight the same weaknesses in the acquisition process), congressional hearings, and legislative fixes, DOD acquisition reform efforts have failed to rein in cost and schedule growth.

In recent years, DOD and Congress have taken another look at defense acquisitions and embarked on an effort to improve the process. Some analysts believe that the efforts currently underway are the most comprehensive in more than 20 years.

DOD Reform Efforts

In recent years, DOD has embarked on a number of initiatives aimed at improving the process for buying weapon systems. For example:

On January 10, 2012, DOD issued updated versions of the instructions Charter of the Joint Requirements Oversight Council and Joint Capabilities Integration and Development System. On January 19, 2012, DOD issued an updated version of the Manual for the Operation of the Joint Capabilities Integration and Development System . On November 26, 2013, DOD issued an updated "interim" instruction Operation of the Defense Acquisition System (5000.02).

DOD has also undertaken a comprehensive effort to improve the overall operation of the defense acquisition system. On September 14, 2010, then-Under Secretary of Defense for Acquisition, Technology and Logistics Ashton Carter issued the memorandum Better Buying Power: Guidance for Obtaining Greater Efficiency and Productivity in Defense Spending . The memorandum outlined 23 principal actions to improve efficiency, including making affordability a requirement, increasing competition, and decreasing the time it takes to acquire a system. In November 2012, Secretary Carter's successor, Frank Kendall, launched the Better Buying Power 2.0 initiative, an update to the original Better Buying Power effort, aimed at "implementing practices and policies designed to improve the productivity of the Department of Defense and of the industrial base that provides the products and services" to the warfighters. Better Buying Power 2.0 contained 34 separate initiatives, including reducing the frequency of senior-level reviews and improving requirements and market research. According to officials, Better Buying Power 3.0 is in development.

These and other related DOD initiatives generally focus on

rewriting the rules and regulations to create a more efficient and effective acquisition process, improving the culture and professionalism of the acquisition workforce, and improving the overall performance of the acquisition system.

Although these efforts are not aimed solely at weapon system acquisition, if such efforts succeed in improving acquisitions writ large , weapon system acquisitions should similarly improve.

Congressional Reform Efforts

In recent years, the primary mechanism through which Congress has exercised its legislative powers to reform the defense acquisition structure has been the annual National Defense Authorization Act (NDAA). Sections of the acts have prescribed requirements applicable to both specific acquisition programs and acquisition structure overall, the latter of which has typically been addressed in Section VIII, usually titled "Acquisition Policy, Acquisition Management, and Related Matters." Generally, the requirements prescribed in this section have focused on specific issues rather than a comprehensive overhaul of the entire defense acquisition structure. In the National Defense Authorization Acts for FY2008-2012, the titles dealing with acquisitions included more than 240 sections.

The most recent legislation that had a significant impact on weapon system acquisitions was enacted in May 2009, when Congress passed and the President signed into law the Weapon Systems Acquisition Reform Act of 2009 ( S. 454 / P.L. 111-23 ). Key provisions in the act included

the appointment of a Director of Cost Assessment and Program Evaluation within DOD who communicates directly with the Secretary of Defense and Deputy Secretary of Defense and who issues policies and establishes guidance on cost estimating and developing confidence levels for such cost estimates; the appointment of a Director of Developmental Test and Evaluation who serves as principal advisor to the Secretary of Defense on developmental test and evaluation and develops polices and guidance for conducting developmental testing and evaluation in DOD, as well as reviewing, approving, and monitoring such testing for each Major Defense Acquisition Program; the appointment of a Director of Systems Engineering who serves as principal advisor to the Secretary of Defense on systems engineering and who will develop policies and guidance for the use of systems engineering, as well as review, approve, and monitor such testing for each MDAP; a requirement that the Director of Defense Research and Engineering periodically assess technological maturity of MDAPs and annually report findings to Congress, requiring the use of prototyping, when practical; a requirement that combatant commanders have more influence in the requirements-generation process; changes to the Nunn-McCurdy Act, including rescinding the most recent milestone approval for any program experiencing critical cost growth; a requirement that DOD revise guidelines and tighten regulations governing conflicts of interest by contractors working on MDAPs; and a requirement that a principal official in the Office of the Secretary of Defense be responsible for conducting performance assessments and analyses of major defense acquisition programs that experience certain levels of cost growth.