Methodology In developing this issue, the Task Force conducted interviews with former DOD officials who served in the capacities of: Secretary of Defense, Deputy Secretary of Defense, Service Secretary, and Chairman of the Joint Chiefs of Staff. We also interviewed incumbent DOD officials, as well as private sector individuals knowledgeable in the area of DOD procurement. We also performed a comprehensive review of numerous pertinent published materials on the subject. Findings As the OSD Task Force analyzed the DOD acquisition process (see Issues OSD 16 through OSD 23), it became apparent that many of the acquisition-related problems are rooted in the department's organizational structure. In this issue, we provide a private sector perspective on possible solutions. The pro DOD's weapons acquisition system is massive. posed total obligational authority for fiscal year 1983 was more than $70 billion for procurement of aircraft, missiles, ships, combat vehicles, weapons and torpedoes. RDT&E accounted for another $24.3 billion. There are 65,000 people in DOD who are directly involved in the acquisition process. In addition, personnel in the various commands support the acquisition function. The number of support personnel is difficult to determine, but our research indicates that as many as 7.5 support personnel are required for each person directly involved, for a total DOD involvement of perhaps 500,000 people. In addition, an estimated 3,000,000 contractor personnel are affected by procurement decisions. The sheer dollar magnitude of the DOD weapons acquisition program ensures that the acquisition process is carefully scrutinized by private industry, the Congress, the press and the public at large. When a program incurs major cost overruns, DOD is soundly reproached by all of these groups, and the perception is reinforced that the acquisition process is largely inefficient and uncontrollable. Not only does DOD have to cope with meeting the need for weapons, but it must be recognized that there is also a strong push to sell to DOD. This push comes from vendors who market weapons systems as well as from private and public sector representatives of the areas where the weapons systems would be manufactured. As a general rule, each service prefers to have weapons that are unique, even though another service has developed a system for the same broad purpose. Further, as noted in Issue OSD 20, the overuse of military specifications can drive up the cost of weapons systems beyond what is reasonably necessary. OSD must pass judgment on each proposed weapons system. However, there is a considerable body of evidence to suggest that they are not in as full possession of data and the range of options available as they should be, since they are not as close to program planning as the services are. Critics of the current weapons acquisition process make the following points: DOD spends enormous amounts of money and time to obtain weapons that are on the leading edge of technology, but too few are available for use. The lead time between conceptualization and Inadequate attention is paid to long-term affordability. Therefore, the trade-off between alternative weapons systems is made too late. Whereas DOD personnel costs have somewhat more than doubled since 1974, and operations and maintenance costs have almost tripled, procurement costs are five times the 1974 level. Conclusions We have identified specific problems relating to the acquisition of major systems in the weapons section (Issues OSD 16 through OSD 23). It is difficult to isolate the conditions which contribute to a particular problem, due to the complexity of the acquisition process and the large number of personnel and procedures involved. In this issue we discuss the acquisition process in the context of the DOD organizational structure and the problems that organizational factors contribute to the procurement of major weapons systems. Organizationally, the major OSD policy functions involved in the acquisition process report to the Under Secretary of Defense for Research and Engineering. There are, of course, some arguments for tying research and engineering with procurement, particularly in the high technology world of defense systems. Probably the reason most often cited is that research and engineering are ongoing processes which continue into the procurementproduction phases. While this is undoubtedly true, as the DOD operates today, this organization is one of the principal causes of stretched-out delivery cycles and resultant cost escalation. The managerial skills employed by a research and engineering executive differ markedly from those needed by a procurement and production executive. It would be difficult for one manager to function effectively in both roles and to maintain the discipline needed at the interface between the two major phases of the acquisition process. A recognized authority, Dr. Jacques S. Gansler, supports this conclusion when he states that "effort must be made toward separating R&D and Production in business areas that would stand on their own. This change would give far more flexibility to the operation and structure of the defense industry."1/ In the existing process, major weapons systems are acquired by separate organizations in each of the three services. Each service maintains personnel to perform the same acquisition management and administrative functions in areas such as contract and other reporting requirements, data processing systems, requests for proposals, interface with industry, implementation of procurement regulations and contract administration. In addition to this massive duplication of effort among the services and between the services and OSD, the current organization discourages optimization of total DOD procurement spending. Procurement funds are distributed by program among the three services, each of which operates independently of the other. Each service speaks for itself and defends its weapons programs against those of the other services when necessary. 1/ Gansler, J.S. The Defense Industry. The MIT Press, Interservice rivalry for procurement funds compounds the problem. It appears that each service is inclined to underestimate proposed weapons systems costs, either to make its system appear more cost-effective than proposed systems of competing services, or to be allowed to start even more weapons. Theoretically, service-neutral advice to the civilian OSD management from the Joint Chiefs of Staff (JCS) should help in the priority setting process. In practice, however, the service affiliations of the JCS and the Joint Staff have created an environment that usually precludes the provision of truly neutral advice. Once selected, a weapons system develops a constituency within the service and within the Congress and industry. Therefore, it becomes very difficult to terminate a program, even if it experiences cost overruns or exhibits only marginal performance. Historically, neither the cost estimates generated by the services or by the Cost Analysis Improvement Group of the OSD Office of Program, Analysis, and Evaluation have been adequate as predictors of actual experience. Thus, they lend insufficient input into the process whereby the civilian management of DOD tries to establish program priorities in an environment of limited resources. in Cost underestimation in the early stages of the acquisition process generally leads to successive changes in the cost estimates as the program moves through the acquisition phases. This factor, along with continual changes in the quantity procured, in production rates, engineering designs and in available funding leads to overall program instability. It has been estimated that approximately 20 percent of the actual cost of a weapons system represents costs associated with program instability. The OSD Task Force suggests that a more centralized focus on the acquisition process at the OSD level would reduce instability in the process. OSD would be able to maintain the objectivity necessary to resist proposed instability changes in high priority programs. OSD's objectivity would allow the elimination of marginal programs from the DOD budget, something the services are generally not able to do because of their vested interest in their own programs. The OSD Task Force feels that consolidation of the management of the acquisition process at the OSD level would improve the focus and effectiveness of the DOD procurement effort. It would also create an opportunity for organizational restructuring of the acquisition process to eliminate many of the problems discussed in the OSD Task Force weapons acquisition issues. Our recommendation for consolidation is not a rejection of decentralization. Indeed, it may very well be beneficial to decentralize along functional, specialty or regional lines. The problem with the existing system is decentralization by service. Our recommendations for consolidation of the weapons acquisition process will result in an elevation of the importance of the acquisition function as a discrete process within DOD. As part of this process of reorganization, we are impressed by the arguments advanced for reform of the institutions that provide military advice to the civilian leadership of the department. Although our conclusions derive from our findings with respect to problems observed in the acquisition process, it should be noted that many respected military and civilian leaders believe that reform of the JCS and Joint Staff will improve the ability of the department to carry out its mission. (See U.S. Congress, House of Representatives, Reorganization Proposal for the Joint Chiefs of Staff, Hearings Before the Investigations Subcommittee, 97th Congress, 2nd Session, April-August 1982.) Recommendations - OSD 15-1: DOD should consolidate the acquisition function separate from the research and engineering activities in the acquisition process under a newly created position of Under Secretary of Defense for Acquisition. This new Under Secretary would be responsible for management of the procurement and production phases of the acquisition process. We believe that separating the procurement and production phases of acquisition from the research and engineering phases would bring much-needed discipline to the acquisition process within DOD. It would require that designs be completed and accepted before major procurement and production began. This could defer some ongoing improvements in technology, but would focus attention on changes and force an analysis of each proposed change on the basis of impact on timing and cost, as well as benefit to the user. Additionally, it would lead to an important focus on fast, economical delivery of systems designed for possible future retrofit with improved items of technology. |