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policy and monitoring be unified within each agency with a concurrent reduction in management and administrative layering between policymakers and program offices, and a counterpart reduction in industry staffing.

OVERVIEW OF REPORT AND RECOMMENDATIONS 1,2

Major system acquisition is an extended and complex process. It begins with the Government's determination that a certain capability needs to be strengthened and the premise that the technological base can support viable system concepts. It continues through development, production, and operation of a system to meet that need, with information flowing back at each stage to those who are responsible for comparing what exists with what is needed.

Well-known major systems are the space shuttle, Apollo spacecraft, Minuteman missile, Polaris fleet ballistic missile system, C5A transport, F-14 and F-15 fighter aircraft, Phoenix and SAM-D missile systems, Main Battle Tank, and Cheyenne helicopter. Hundreds of other major systems have been developed, many with lesser unit costs but in greater production quantities.

Evolution of Practice and Problems

Most difficulties in major system acquisitions, including cost overruns and overly sophisticated, expensive systems, arise from a few basic characteristics of the way Federal agencies have come to organize system acquisition programs and engage private sector participation. The evolution of the system approach—a comprehensive attack on a problem in the context of its total environment

1 Appendix B is a compilation of the 12 recommendations made in this part of the report.

In the discussion and recommendations that follow, "agency" refers to each executive department or agency whose head reports to the President, such as DOD and DOT. "Agency component" refers to the first major organizational divisions within the agency below the agency head, such as the military services and the Federal Aviation Administration. "Agency mission" refers to a function to be performed by the agency, either generally or specifically, in support of the agency's assigned responsibilities.

has caused radical changes in the Government procurement process.

Until after World War II, the usual practice was to develop and produce many system components and subsystems independently of their integrated use in a weapon system. The design of many major weapon systems was sufficiently stable to permit components and subsystems to be readily integrated. The military services were, in effect, buying major systems in bits and pieces.

Following World War II, there was greater awareness of the benefits that might be gained if advancing technologies could be stimulated and brought together to meet the escalating Cold War needs for national defense. But the new technologies presented problems. Each new component or subsystem, although it offered improved characteristics, had to work well with other new pieces in order for the total system to be effective. This called for stronger control over all the newly developing components and subsystems and the system itself.

The size of the emerging programs brought about a shift in Government-industry relationships so that the benefits of the system approach were not without some drawbacks. Companies could not be expected to develop major systems and subsystems on their own without the assurance that they would be able to sell enough of their products to recover development costs. The funds required and the technical risks involved were too great. As a result, an agency had to underwrite the development of new major systems.

DOD was the first to face these unusual buyer-seller conditions as it took the lead in developing the major system approach to meet defense needs. Although particular program practice varied in significant degree, the following is the general process that crystallized in the 1960's and remains the predominant pattern for communicating the Government's need, creating a system, and contracting for it.

The process began with a decision within one of the military services that its ability to perform an assigned mission should be strengthened by a new system. Policy and practice usually excluded the Office of the Secretary of Defense (OSD) and Congress

from these early deliberations on the need for a new system, although the military services were guided by Department of Defense plans and policies.

The agency would begin to describe the system so that it could contract for its development. The need would be communicated informally to industry, usually in terms of a product better than one currently doing the job. Goals typically would be for better system performance, such as more range and speed or less size and weight.

Companies would respond with their ideas on new systems, sometimes presenting different system concepts. The system concept that offered the most promise and was most compatible with the service's interest and operating doctrine had the best chance of being selected. The information used to select the concept and technical approach for development could come from industry (both informally and under study contracts) and from within the agency's own laboratories and technical staffs. The most desirable features received from these various sources, many of which required advances in the state-of-theart, usually would be combined into a total system description.

After the agency component had decided on the system concept and main technical features, a detailed system description would be issued to solicit industry proposals in formal competition for the award of the development contract. Upon receiving contractor proposals, the agency again would pick up the most attractive ideas, weave them into an updated system description, negotiate with the most promising contractors, and ultimately select one to develop and produce the system. The system often was an amalgamation of ideas from many Government and industry sources; no single public or private sector organization had the scope or depth of engineering knowledge to know if the system actually could be developed to perform as intended within planned time and dollar limits.

The agency often found it difficult to choose a clear technical winner because the technical approach and all main system features had been specified by the agency. The point scorings used to judge competitors often were close and awards sometimes were contested.

Price or estimated cost dominated final evaluation and pressured contractors to "buy-in” with a low price bid for an undeveloped system. A company's survival hinged, in large measure, on winning one of these major programs in which an increasingly large proportion of new military expenditures were being concentrated. Even if the agency could predict that it was accepting a "buy-in" price, realistically it could not justify paying a price higher than a major, experienced contractor had proposed and was willing to accept.

The winner of this so-called "design competition" received a contract to conduct a development phase that might span five years. Sometimes the contract would include production.

The date for a new system to become operational would be influenced by the desire to field it as soon as possible and the assumption that everything would proceed according to plan. Contractors would agree to this date in response to the terms and conditions of the competition. This often would necessitate starting production before the development and testing were completed (concurrency) and building up large organizations very quickly to handle all phases of a compressed development and production program with little room for learning or mistakes.

Some years later, when all did not go according to plan, the system did not measure up to initial expectations and costs grew unexpectedly. The contractor could be blamed for poor management of the development effort. In turn, the contractor could shift blame to the agency for imposing what turned out to be an inconsistent or impossible set of technical requirements on the system and for having forced premature performance, schedule, and pricing commitments under the heat of contrived competition.

At this point, the agency would find itself doing business with only one contractor with the background needed to carry out the protracted test and production phases. In this situation, the agency could not abdicate its responsibility to meet real defense needs or disregard the public funds already invested in the system; the agency often had to find ways to "bail out" the contractor from his technical and financial difficulties.

Pressure grew for increased agency en

gagement and control over system developments. Methods were developed within the Government to control the technical and management functions of both contractor and in-house organizations. The results have been a proliferation of staffs and multiple levels of review in both industry and Government; a proliferation of paperwork, management systems, and regulations; demands for much greater program detail by Congress; and increased reviews of major systems by the General Accounting Office. The proliferation of controls has contributed to many of the symptomatic problems and complaints re

ported in recent years by various Government, industry, and public sources.

Some of the most important problems discussed are summarized in the first column of table 1. DOD has recently made efforts to improve system acquisition practices, as shown in the second column, and has begun to implement its plans on some selected new programs. The third column highlights the changes recommended here that generally support recent DOD actions, but also extend into more fundamental aspects of the acquisition process. They should not be evaluated on an individual basis but as part of the

TABLE 1. COMPARISON OF PAST PROBLEMS, CURRENT CHANGES, AND RECOMMENDED ACTIONS (Department of Defense)

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acquisition structure presented earlier in figure 1.

The recommended acquisition structure does not eliminate the need for competent personnel to exercise sound judgment. It highlights the fundamental decision points that must be dealt with by each agency as a system moves through the acquisition process. It also identifies the kind and quality of information that should be available when each decision is made.

The acquisition structure is recommended as the best standard for conducting the process, but it is designed to be flexible. Intelligent and well defined variations can be made while achieving the necessary visibility and control. Standards for the most important variations and the responsibilities for authorizing such variations are presented in this chapter.

Establishing Needs and Goals

STARTING AND COORDINATING PROGRAMS

Establishing needs and goals for a new acquisition program is one of the most vital areas for improving system acquisition. Decisions on needs and goals have far-reaching effects on the formulation and direction of national policies and strategies. The resources required to develop major systems are a significant factor in an agency's total budget and in the allocation of funds among Federal agencies and components. In view of the resources consumed by major programs, the needs to be met and the goals to be achieved must receive close attention from the agencies and Congress. Both defense and civilian programs have suffered when well-defined and coordinated statements of needs and goals were lacking.

Program goals establish the capability needed, the money that can be spent to get that capability, and the date for achieving it. These goals set the tone of the program. Allowing one goal to improperly dominate may cause later distortions such as when urgency receives unwarranted emphasis, leading to compressed development and production activities.

Great sums have been committed to programs which, later, cannot respond to corrective changes in goals. Programs often have been begun with insufficient consideration of other programs underway that can collectively strain the limits of existing resources. Lack of additional funds requires a cutback in the number of systems, leaving unplanned disruptions in an agency's capability to do its job.

DOD policy currently delegates the responsibility for deciding needs and goals to each of the military services. They define them mainly in terms of the kind of hardware they "need," not in terms of the mission to be performed. Although new technological opportunities cannot be ignored, too often the focus has been on the system product and not on its purpose. The results have been pressures to lock-in to a single-system approach prematurely without giving adequate attention to why a new level of capability is needed in the first place and what it is worth before less costly system alternatives are created or eliminated.

The needs and goals that each military service sees for its acquisition programs are shaped by its own views of defense missions and priorities. They do not necessarily correspond to the perceptions of the other services or of the Office of the Secretary of Defense, frequently resulting in destructive interservice rivalry and overlaps in mission capabilities. Interservice rivalry has caused special complications for system acquisition programs because these programs have become the principal means by which the services can preserve and enlarge their roles, budgets, and influence. Interservice rivalry can be made to work to advantage if harnessed by a clear statement of common needs, an invitation for the services to compete openly when appropriate, and a formal recognition that we we cannot afford to finance all the systems sponsored by each of them. The objective should not be to eliminate all overlap or duplication in assigned responsibilities among or within the services; it should be to ensure that where such overlap or duplication exists, it is visible, controlled, and purposeful.

DOD has attempted to view new systems and programs on an agencywide basis through its mission Area Coordinating Papers (ACPs)

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