Air Force’s Plan To Open Up Major Platform Upgrade Market Carries Risks

The Department of Defense sits uncomfortably on the horns of an acquisition dilemma. It wants to reduce costs and time lines associated with acquisition of weapons systems, both new acquisitions and upgrades, while simultaneously preserving the unparalleled quality of U.S. military capabilities.  One of the primary ways it is seeking to achieve the former is by increasing opportunities for competition, if not in the production of major items then for the systems and subsystems they employ as well as sustainment of existing platforms and weapons systems. To achieve that objective, the Pentagon has been pushing the idea of open architectures so that a wide range of components and systems can be plugged into a network deployed aboard a platform. This approach mirrors that of consumer electronics such as smartphones and computers which can integrate new hardware and applications almost automatically.

The Air Force is the most aggressive of the services in looking for ways to open major platforms and weapons systems programs to greater competition. It is experimenting with the use of non-traditional acquisition authorities in order to speed up the process and reduce the burden of regulations and oversight, thereby saving both time and money. Most recently, the Air Force announced that it intends to allow companies other than the original primes to compete for block upgrades to the new Long-Range Bomber and possibly even the F-35 fighter.

Unfortunately, airplanes and missiles are not like smartphones and personal computers. They are remarkably complex systems. Integrating new capabilities is a challenging endeavor. The Air Force recognizes how hard this is. That is why one of the most important reform initiatives of the new Assistant Secretary of the Air Force for Acquisition, Dr. William LaPlante, called “Own the Technical Baseline” seeks to ensure that the government’s program team has, among other capacities, “a deep understanding of system and subsystem designs and architectures; the ability to conduct end-to-end performance models of the system combined with a continuous technical effort to update and validate system models using testing and engineering data; and the ability to understand and actively mitigate technology and system integration risks.” Without such an understanding and set of capabilities, LaPlante asserts, the Air Force risks not being able to make sound acquisition decisions.

This same depth of understanding, experience, data and technical skills is needed by private sector companies, not only the systems integrators, but the providers of subsystems and components. Acquiring such a deep understanding can be a matter of years. It can be quite costly, particularly if a company desires to develop the human capital and technical qualifications necessary to compete against an incumbent on a contract. This is one of the primary reasons why high-tech companies, particularly those in the aerospace and defense sector, focus so much attention on qualifying and training their subcontractors.  The customer may pay more for subsystems and parts, but can make up for this in greater reliability, smoother operation of the supply chain, more rapid responsiveness to changing requirements and reduced error rates.

It is noteworthy that while the Air Force may be leading the charge on expanding competition for upgrade work on major platforms, it also has the worst record in the DoD when competing its current contracts on sustainment and upgrades. According to the Government Accountability Office (GAO), in Fiscal 2014 less than half of all Air Force contracts were awarded based on a competitive procurement. The reason for this was the number of mature and aging systems.  The GAO notes that across the entire DoD, there is a growing challenge to the goal of increasing competition because often “only one responsible source” able to meet the requirements exists. When it comes to commercial items, the incumbent may also have invested in proprietary intellectual property which no competitor can duplicate.

Simply put, there are few incentives today for private companies, including those that specialize in defense products, to invest in the required know-how, personnel, equipment and management systems to compete against incumbents for sustainment and upgrade work. If they win such a contract, the new incumbents must deal with learning curve issues, vetting and managing their supply chains and developing the necessary understanding of the platform or system they are supporting while simultaneously meeting its corporate interests in a satisfactory return on the initial investment. Even if all technical issues can be addressed rapidly and smoothly, the period of performance for the new contract may not be sufficient for the winner to recoup its costs. These are some of the reasons that some defense companies also are foregoing  competitions for major new start programs.

If the Air Force is successful in creating a space for competition in upgrades to major programs, it will face potentially serious risks. Upgrades on major platforms are never plug-and-play; they require time, effort and testing to truly work compatibly. New suppliers have to be integrated with the rest of the supply chain which again requires time, effort and money. Who will certify that the proposed upgrades from alternative sources can be readily integrated on the platform? If the government doesn’t really own the baseline it will have to be the legacy contractor. Bringing new players into the mix may save money, but it can also cause schedule delays and increase technical risks.