The National Performance Review is a major reform initiative begun by the President in 1993 and was placed under the direction of the Vice President. A key part of that initiative has been the establishment of agency “reinvention laboratories,” which are designed to test ways that agencies can improve their performance by reengineering their work processes and eliminating unnecessary regulations. We reported in March 1996 that more than 2 dozen agencies and other federal entities had developed a total of 185 reinvention laboratories. DOD’s Reducing Oversight Costs reinvention laboratory consists of 10 participating defense contractor sites, as well as cognizant Defense Contract Management Command (DCMC) and Defense Contract Audit Agency (DCAA) offices, as shown in figure 1. Each site established a management council generally comprised of representatives from the contractor, DCAA, DCMC, and selected DOD program offices. The reinvention laboratory’s concept of operations was to have participants conduct cost-benefit analyses of oversight requirements, eliminate requirements that drive nonvalue added oversight, and use the regulatory relief authority granted to designated reinvention laboratories to deviate from the Federal Acquisition Regulation (FAR) or the Defense Federal Acquisition Regulation Supplement to experiment and test new approaches to oversight. To measure the laboratory’s progress, DOD requested that participants report on the projects that were being pursued, their potential savings, and the actual savings achieved. The participants were requested to group their results according to the cost drivers identified by the management consulting firm of Coopers & Lybrand in its December 1994 study. This study, which was prepared with the assistance of TASC, Inc., estimated that government acquisition regulations and oversight requirements added 18 percent to the cost of goods and services DOD buys. In total, the report covered more than 120 cost drivers. The report concluded that the following top 10 cost drivers accounted for almost half of the 18-percent cost impact: DOD quality program requirements, Truth in Negotiations Act (TINA), cost/schedule control system requirements, configuration management requirements, contract specific requirements, DCAA/DCMC interface, Cost Accounting Standards, material management and accounting system, engineering drawings, and government property administration. Appendix I provides more information about the 10 cost drivers. Many laboratory participants are also involved in the Single Process Initiative announced by the Secretary of Defense in December 1995. This initiative is aimed at reducing or eliminating multiple, government-unique management or manufacturing requirements to enable the establishment of common, facility-wide systems. Through July 31, 1996—the date of the last status report—laboratory participants estimated that if all their projects are approved and fully implemented, annual cost reductions of about $159 million could be achieved. As shown in appendix I, about $145 million, or 91 percent of the total amount, would be in the form of reduced contractor compliance costs. Of the $145 million in potential annual cost reductions, about $11 million has been reported as being realized from actions already implemented. Laboratory participants identified modest reductions—about $14 million—in direct government oversight costs. Finally, while both DCMC and DCAA are generally planning further reductions to its staff at the reinvention sites, DOD officials acknowledge these reductions are primarily due to overall budget constraints rather than laboratory efforts. Laboratory participants reported little success in addressing 9 of the top 10 cost drivers identified by Coopers & Lybrand, with the majority of the projected savings expected to come from changes in the contractors’ quality assurance systems. Changes in quality assurance processes generally reflect decisions to convert from a military to a commercially or internationally accepted standard that contractors believe improved their long-term competitiveness. These changes were greatly facilitated by the Secretary of Defense’s June 1994 decision to allow the use of commercial specifications or standards in lieu of military requirements unless no practical alternative existed. Participants identified a variety of factors as to why changes to the other nine cost drivers were not more successful. Some factors affected the laboratory at a more general level, while others had a more direct effect on individual projects. Requirements imposed by statute and non-DOD regulatory requirements precluded participants from pursuing some projects, while the inability to obtain approval from other federal agencies to test new processes also proved formidable. On other projects, differences in views between DOD and contractor personnel on the merits of certain oversight requirements slowed down or otherwise limited opportunities to make meaningful changes. Coordinating and obtaining approval for proposed changes among multiple customers—while generally not precluding a project from being pursued—also tended to be difficult. On a more general level, participants voiced frustration at delays in having projects or waivers reviewed and approved. Participants also noted that successfully implementing reform efforts requires high level attention and support within DOD. One participant noted, for example, that depending on the issue, there were relatively few officials that were empowered to approve a change, while many could reject or delay a proposal. Further, DCMC officials told us that the reinvention laboratory, a joint DCMC/DCAA initiative, tended not to get the highest level of support from other components within DOD and from service components. They said that the laboratory was not a “big attention grabber” for many of the military commands and buying offices. One senior official noted, for example, that when he would visit a command or buying office to talk about the laboratory and its potential, the response was often that they had other priorities. In contrast, this official noted that the Single Process Initiative has the attention and support of both the Secretary of Defense and the Under Secretary of Defense for Acquisition and Technology. Accordingly, the Single Process Initiative is receiving the type of attention where commands and buying offices are more cognizant of and receptive to reform proposals. Laboratory participants found that legislative and regulatory requirements affected their efforts on several cost drivers. Legislative requirements generally cannot be unilaterally waived unless an agency has specific legislative authority to do so. Similarly, federal agencies have promulgated regulations to accomplish their assigned responsibilities. Regulations under the control of non-DOD agencies cannot be waived by DOD without the approval of cognizant agencies. Participants noted that 3 of the top 10 cost drivers identified by the Coopers & Lybrand study—the requirements of TINA, government property administration and Cost Accounting Standards—fell into this category. Participants considered addressing the cost of complying with TINA by increasing the threshold over which they were required to submit certified cost and pricing data. While teams often disagreed on the merits of raising the threshold, the proposals generally could not be pursued since the threshold is legislatively established. Consequently, participants chose to pursue changes in the processes that they use to comply with the legislation’s requirements. For example, one team agreed to eliminate formal proposals for ordering production spares, while another laboratory site is evaluating the expanded use of parametric estimating techniques in lieu of preparing detailed cost data. A senior DCAA official stated that addressing the way in which contractors comply with TINA’s requirements can lead to reduced compliance costs while still providing the government the benefits associated with TINA’s requirement to have contractors submit current, complete, and accurate pricing data. Participants’ proposed changes to government property requirements encountered a combination of legislative and regulatory requirements. Nine of the 10 participants proposed efforts addressing requirements pertaining to government property in the possession of contractors. Several of the proposals involved requesting a waiver to increase the threshold to account for government property from $1,500 to $5,000 or to eliminate certain screening requirements for excess property. However, DOD generally disapproved these requests, in part because the waivers involved legislative requirements implemented through regulations under the control of the General Services Administration. DOD officials indicated that DOD did not have the authority to waive the regulatory requirements unilaterally and that the General Services Administration stated that it was precluded from law from approving the waivers. Overall, laboratory participants generally found that obtaining waivers to requirements controlled by other federal agencies was difficult. In addition to the 12 government property waiver requests disapproved by DOD, an additional 3 requests to waive requirements controlled by the Department of Labor were also disapproved. In notifying DOD that the Department of Labor would not approve the requests, a senior Labor official indicated that the proposed changes would hamper Labor’s efforts to enforce certain executive order provisions. Participants had some success in obtaining waivers from regulations that DOD had authority to waive unilaterally, as participants are implementing 13 waivers to various FAR or DOD regulations. However, these waivers—which DOD estimates could result in cost avoidances of about $2.3 million annually—account for only a small portion of the laboratory’s potential cost reductions. The third legislatively based cost driver—Cost Accounting Standards—was not addressed by laboratory participants. DCAA officials told us that none of the reinvention laboratory participants had identified any specific improvements or any nonvalue added oversight requirements that related to Cost Accounting Standards. One DCMC official noted that, in his opinion, the annual cost of maintaining a system that complies with the standards is relatively small for defense contractors. The official noted, however, that the cost for a company to establish a system that is in compliance may be significant and therefore may pose a barrier to do so. Given the nature of the defense industry, there are often differing views on the degree of oversight needed. We found examples of such differences in views over both cost and schedule control systems and government property requirements. For example, participants’ efforts to revise their organizations’ cost/schedule control systems, used by government officials to monitor contractor progress, illustrate the challenges of overcoming different perspectives on the merits of changing oversight practices and processes. Two contractors proposed implementing new systems that, in their view, were more reflective of the information they used to manage their production efforts. In one case, contractor officials told us that concerns raised by DCMC, DCAA, and their primary customers led them to withdraw the proposal and focus on less “radical” changes, such as reducing the amount or type of information provided.