Congress Deforms The Acquisition Process

In recent years, Congress has been on something of a crusade to reform the weapons systems acquisition process. Its efforts were sparked by a series of problems with high-profile weapons systems including schedule delays, cost overruns and performance issues. The centerpiece of these efforts is the Weapon Systems Acquisition Reform Act of 2009. The legislation creates a Pentagon office that analyzes the cost of new programs, requires additional testing of new weapons before they enter production, mandates consideration of trade-offs between cost, schedule, and performance early in the process of developing major weapon systems, encourages measures to maintain competition in the sustainment of weapons systems, requires tighter review of programs that breach budgetary ceilings and imposes severe organizational conflict of interest (OCI) standards on defense contractors.
Some of the provisions of the new act will improve the way the Department of Defense (DoD) does business and, hopefully, reduce the time and cost of developing and deploying new weapons systems. But in other cases, the legislation is more likely to deform the acquisition process, thereby reducing competition and increasing costs.

The desire to contain costs has produced some strange requirements for pending procurement contracts. For example, the proposal for the new Air Force tanker is based on a “best value” criterion that allegedly weighs price and non-price factors. However, having judged both teams to be equally qualified on all 373 mandatory requirements, what is left to compete over is cost. Moreover, the bidders are required to provide a firm, fixed price for the development portion of the procurement which will last eighteen years. This is something no commercial company would ever do. The winning contractor will eat any cost overruns. This means that the bidders must anticipate any possible problem that could occur over the next two decades and build that into the price. It also means that companies will reduce risks by freezing the aircraft’s design early. Any changes demanded by the government would come at additional cost to the Pentagon. So, rather than saving money, this approach is likely to increase the program’s overall cost and reduce the capability of the final product.

In addition, the Act would appear to increase the likelihood that weapons systems that experience a so-called Nunn-McCurdy breach, which is when they exceed their projected costs by 25 percent, will be terminated. Left out of the Act is any recognition that on program after program, from the VH-71 helicopter to the Littoral Combat Ship and the WIN-T communications system, the cause for the breach was the government making changes to the program, adding requirements, and/or imposing new conditions on the development of the weapons system that caused costs to rise. Perhaps Congress should pass a weapons systems buyers reform act.

The stringent new organizational conflict of interest rules are having some unintended and perverse effects as well. Despite the fact that defense companies have decades of experience in building firewalls between different parts of their companies and even design teams so as to protect against OCIs, the new rules could prevent major defense firms from bidding on procurements where an element of that firm is providing support or analysis to the office conducting the competition. DoD has yet to draft regulations based on the new law. There is concern that OCI could be defined so broadly as to prevent companies that provide any analytic support to DoD from also building weapons systems. Northrop Grumman already has spun of its analytical services unit to prevent problems in bidding on future defense and intelligence contracts. The result could be a less efficient and integrated defense industrial sector and greater costs to the government.