structure and report organization, the four basic steps in a system acquisition program, and the principal institutions that are involved.

The four steps do not immediately describe all the current complications of major system acquisition. The steps are not a simple sequence; there is feedback, iteration, and many important subsidiary decisions that must be made in order to accomplish each one. Nevertheless, these four steps form a framework for examining issues and options in systems acquisition in an orderly manner. They are all essential, and effective progress depends on what is learned in the prior step.

ESTABLISHING NEEDS AND GOALS

The system acquisition process begins when needs and goals are established by Federal agencies. These needs originate because new jobs must be done or old jobs must be done better through application of advancing technology.

Although a problem (the need) and a solution (the system) must be considered and understood separately, the need and potential solutions are linked by program goals. Goals are the end results to be achieved, that is, the objectives of an acquisition program.

When it has been decided that a need exists, the level of capability desired must be assessed in concert with the desired availability date and the ultimate cost or worth of that capability. These determinations set the

TECHNOLOGY BASE

Figure 2

goals to be achieved by the acquisition pro

gram.

A clear statement of goals is needed to guide the search for the best system and, later, to assess program success.

The first basic step of establishing needs and goals raises several key questions:

• Who identifies the need for a new acquisition program?

• How are these needs coordinated with the responsibilities of different organizations sponsoring acquisition programs?

• How are goals for new programs set and whose views of cost, schedule, and capability goals predominate?

• How are the need and goals reexamined in response to changes that occur as a program proceeds?

EXPLORING ALTERNATIVE SYSTEMS

In commercial dealings, the buyer usually can examine a variety of products that might meet his need and compare their attributes (for example, the size, weight, style, and gas mileage of different automobiles to meet a need for transportation). Federal needs that can be met only by major systems generally do not have counterparts in the commercial marketplace. Therefore, there may be few existing alternative systems for the Government (as a buyer) to examine and compare.

In the acquisition of major systems, if the

buyer wants alternative systems from which to choose, he must arrange to have them developed and offered; thus, when the Government wants a choice, it usually must pay not only for the chosen system but also for the creation, development, and presentation of alternative systems that it rejects.

Because creativity and imagination are the catalysts, it is difficult to describe how different systems for meeting a need are originally synthesized. Clearly involved is a blend of technological tools, innovative applications, and operational conditions.

In some cases, due to special capability goals or operating constraints, it may be clear from the outset that the acquisition process should be limited to the development of a single system concept. In other cases, limited testing of the critical pieces of competing concepts may be a worthwhile investment to buy information for that choice. There can be competing system alternatives based on different technical approaches and designs.

Choices of system concepts, technical approaches, and designs are made in every acquisition program; they cannot be avoided and each is important to the success of the program. The decisions do not necessarily follow a distinct sequential pattern. A choice of technology will depend on the ability to match it to the need. A choice of a technical approach will depend on the ability to translate it into a producible engineering design. These decisions progressively narrow the range of final system performance, what it will cost, when it can be available for use, and differences in these factors provide a basis for choosing among competing systems.

Some fundamental questions are:

How many and what kind of system alternatives are created in current acquisition programs?

• What levels of innovation, new technology, and risk are permitted to enter into competing system candidates from what industry and Government sources?

• What is considered a reasonable expense for evaluating alternatives before commitment to just one system concept, technical approach, or design?

• What organizations and individuals can opt to explore alternative system solutions?

CHOOSING A PREFERRED SYSTEM

The decision to select a preferred system must be made in every acquisition program. The alternative systems considered can be widely different or very similar in unit cost, performance, and delivery date. These are the important factors in determining how well each system matches program goals of mission capability level, total cost, and when the capability is provided.

The choice among systems will be affected by the amount of information purchased to help evaluate each one in light of the need and goals. Research and development buys the information needed to support the choice of system concept, technical approach, and design. However different kinds of information and different levels of confidence are associated with studies, laboratory tests, experimental prototypes, subsystem tests, and fullscale preproduction system tests (the last offering the greatest possibility that the choice among alternatives will be well founded). The key issues are:

• What kind of system choice is offered in an acquisition program and what are the criteria for choosing?

• What kinds of information will be used in choosing a preferred system and at what point in the acquisition process should the choice be made?

IMPLEMENTATION: FINAL DEVELOPMENT, PRODUCTION, AND OPERATION

The scale and complexity of major systems set their acquisition programs apart from other Federal procurements. Usually, the bulk of the resources consumed by an acquisition program goes to production and operation of system end products. To initiate these later phases, critical technical and business issues for source selection and contracting must be faced. The problems of program management stem from the complex engineering interde

pendencies of subsystems and components and from the variety of laboratories, contractors, and suppliers who contribute to the acquisition effort.

The final development and production phases of an acquisition program remain susceptible to technical uncertainties compounded by changes in needs and goals. If early decisions on technical approach were unsound, the problems of managing the system, the contractor, and the contract are greatly magnified. The fact that, in the final stages of acquisition, one contractor is usually the only realistic source for meeting the Government's need makes matters even more difficult.

The questions that arise in this last phase of acquisition are rooted in how the prior steps have been conducted:

• How well defined is the product when development and production commitments are made?

• What kinds of test and evaluation information are relied on for these commitments? • What information is used to make program cost estimates and congressional funding commitments? How do these estimates and commitments compare with ultimate system costs and procurement levels?

• How effective are contractual safeguards for the Government in dealing with a single source to meet its need?

• How is acquisition policy established and who monitors the results?

Institutional Considerations

Another primary factor to be considered in any attempt to improve major system acquisition is the role played by different organizations. As the acquisition process proceeds, a wide variety of organizations with different patterns of behavior, motivations, and incentives are called on to make key decisions, supply information for these decisions, and execute them.

Despite the great influence vested interests have over key acquisition decisions, some past acquisition studies tended to focus only on the procedural mechanics of acquisition. Others have dealt solely with organizational behavior. To improve system acquisition, not

only procedural impediments but also the roles, objectives, and motivations of participating organizations must be considered.

Congress, executive agencies, agency components (such as the military services), Government laboratories, Federal contract research centers, private sector contractors, technical specialists, and not-for-profit corporations all currently play roles as decisionmakers, information suppliers, and implementers during different steps in the acquisition process.

To analyze and improve major system acquisition, it is necessary to question which institutions should participate in each phase, and in what roles. Not only will the roles of different private and public groups affect the outcome of an acquisition program, but the pattern of assigned public and private responsibilities has a bearing on some broader issues of the structure of Government in the economy and the "free enterprise" character of major system suppliers."

In questioning which public and private sector organizations execute a step or decision, it is natural to ask which others might better perform in these roles. Congressionally chartered quasi-public corporations or Government arsenals for design and production might also be considered to carry out certain acquisition tasks. This part does not deal with these institutional options because these matters are considered elsewhere in the report.

System acquisition programs and their Government/industry relationships have provoked some observers to note that segments of the defense industry are already on their way toward nationalization, perhaps not by the measure of state ownership but on the basis of state management and control over the companies' products and practices.

A statement by Dr. Murray L. Weidenbaum summarizes this concern: "As I observe the cumulative effect of the close militaryindustrial relationship, I am struck by the extent to which the Government is taking on the traditional role of the private entrepreneur while the companies are acquiring many of the characteristics of a Government agency or arsenal. Policy changes supposedly designed to increase efficiency must take account of and, I should hope, avoid these unintended side effects." (Economics of Military Procurement, hearings before the Subcommittee on Economy in Government, Joint Economic Committee, 90th Cong., 2d sess., Murray L. Weidenbaum, Professor of Economics, Washington University, Nov. 11, 1968, Jan. 16, 1969, p. 63.)

See also:

Adams, The Military Industrial Complex: A Market Structure Analysis, paper presented at the Annual Meeting of the American Economic Association, Dec. 27, 1971.

Jewkes, Public and Private Enterprise, Lindsay Memorial Lectures given at the University of Keele, 1964, University of Chicago Press. Galbraith, "The Big Defense Firms are Really Public Firms and Should be Nationalized," New York Times Magazine, Nov. 16, 1969. Melman, "Lockheed: Is It Private Enterprise? Pentagon Controls 95 Percent of Sales," New York Times, June 5, 1971. Particularly in Part A, Chapter 6.

CHAPTER 3

BACKGROUND

Defining a need is a step common to all procurement. This step is especially crucial in major system acquisition programs because it results in the creation of new products to meet the need. Thus, the definition of the need itself greatly influences the kind of systems that will be proposed, designed, and later procured. The initial goals set for a new program can determine the size, cost, and complexity of the system eventually produced.

Current Defense Procedures

In the early 1960's, DOD developed a planning, programming, and budgeting system to improve the allocation of resources by grouping expenditures under national security objectives. Defense need (or "mission") areas include strategic forces, general purpose forces, airlift and sealift forces, and others. These mission areas outline the defense need hierarchy and are used as a frame of reference in the annual posture statement by the Secretary of Defense (see fig. 1).

DOD planning begins with an exchange of information between the Joint Chiefs of Staff (JCS) and the Office of the Secretary of Defense (OSD) on national defense policy, strategy, security objectives, and the military forces the JCS believes are necessary to achieve them.1 OSD does not present guidance in terms

1 The first document in the annual planning, programming, and budgeting cycle is issued by the JCS (the Joint Strategic Objectives Plan (JSOP), vol. 1, Strategy). It outlines the strategic and force judgments of JCS for attaining national security objectives. The Secretary of Defense then issues his "Policy and Planning Guidance"

of capabilities for supporting defense mission needs (such as amphibious assault, strategic airlift, or fleet air defense). These mission responsibilities are delegated to the military services and generally have been shared ever since the "Key West Agreement" provided for "primary" and "collateral" mission responsibilities.2

OSD does not allocate the total defense budget to a set of specific defense missions. Instead, each service is allocated a share of the budget, with an occasional restriction on how much can be spent in a special mission area. Within these fiscal limits, each service plans its own forces, systems, manpower, cost, and materiel requirements, all projected for a five-year period. All of these plans must be within the total dollar limits established by the Secretary for each service.

3

The plans of all the services, limited by allocated funds, are contained in a JCS document that presents the Joint Chiefs' best judgment on needed forces and weapons, and discusses the risk being run by reducing forces (and expenditures) from a "capability first"

using information from JCS, the National Security Council, and the President's defense policy. Policy and planning guidance, in general, deals with the goals and strategy for meeting top-level needs for national defense. It outlines the national security objectives the United States should be prepared to meet, the expected number and kind of conflicts, and other pertinent elements of defense strategy.

Using the Secretary's guidance without dollar limitations, JCS describes those military forces (and major systems for those forces) they feel can execute defense strategy "within the criteria of reasonable attainability and prudent risks." (JSOP, vol. II, Analyses and Force Tabulations).

2 The original attempt to define the roles and missions of the services under a civilian Secretary of Defense came in 1948. See "Functions of the Armed Forces and the Joint Chiefs of Staff," attachment to Office of the Secretary of Defense Press Release No. 38-48, Secretary Forrestal Announces Results of Key West Conference, Mar. 26, 1948.

3 The Program Objectives Memoranda (POMs). 4 The Joint Forces Memorandum (JFM).