Could The Air Force’s ‘Bend The Cost Curve’ Strategy Revolutionize Defense Acquisition?

Over the past seven years, the Department of Defense has tried just about every trick in the book to reduce the cost of defense goods and services and speed up the pace of the acquisition system. The book to which I am referring is Better Buying Power (BBP), three editions of which have now been published. The foundational assumption of BBP was that industry had too much power in the acquisition process and needed to be reined in.

Driven by the principle that undergirded BBP, the Pentagon tried one trick after another to force the private sector to reduce costs. First, there was insourcing — moving maintenance, sustainment and support activities away from the private sector and into the hands of government facilities and workers. Then there was the drive for more frequent competitions for contracts based on the theory that this would inject discipline into the system, put pressure on incumbents to cut costs and allow innovation to bubble up. Another page from the play book was awarding contracts based on the standard of lowest price, technically acceptable (LPTA). This approach might work if you were hiring someone to mow your lawn, but not if you were trying to select a heart surgeon. Recently, the Pentagon attempted to rewrite the commercial exception regulations in order to obtain more favorable pricing on items developed with private funding for the commercial marketplace but sold to the military.

Virtually none of these efforts have produced the desired result. In some instances, they have had perverse effects. The best example of this is LPTA. In essence, LPTA turned competitions for contracts into fire sales. Only price mattered, so companies stopped bidding advanced concepts, utilizing high priced talent or even investing in internal R&D, since they provided no advantage.  Not only did the LPTA standard not provide best value to the government, it created the inherent incentive for companies to underbid projects. Acquisition officials had the equally perverse incentive to keep dumbing down requirements so that price alone was the determining factor. Defense contracting became little more than a bureaucratic version of ‘The Big Short’.

The problem with DoD’s approach to reform as reflected in BBP was the assumption that industry is the culprit when it comes to cost increases, schedule slippages or performance problems. Hence, industry was not to be trusted. This lack of trust resulted, inter alia, in an increasingly arms-length relationship between the acquisition community and the defense industrial base.

But after years of taking an almost adversarial approach to the relationship between government and industry, the winds of change appear to be blowing, at least with respect to the U.S. Air Force. Breaking with recent practices, the Air Force is pursuing a new strategy under the title Bending the Cost Curve (BTCC). The new strategy recognizes that the Air Force had walled itself off from industry. According to Air Force Secretary Deborah James, the first principle of BTCC is an ongoing, positive relationship with industry. “Our goal is to establish a continuous and transparent dialogue between government and industry, rather than focusing on sporadic calls for input.”

BTCC embraces the idea that what is most important today, in an era in which the U.S. is losing its hard won technological superiority, is not lowest price but best value. But understanding best value means accessing the best and the brightest from the private sector. Early and continuous discussions between those writing requirements and the private sector not only creates a basis for defining the art of the possible in new platforms and systems, but allows the operators to understand the true costs associated with specific levels of performance.

An equally important insight driving BTCC is that time costs money and the longer it takes to develop a request for proposals and award a contract, the greater the cost to the government, even before a single dollar is awarded to a private company. As Secretary James explained: “We also worked with industry to slash our contract award time by 10 percent last year and are planning to reduce the timeline by another 12 percent this year. Our ultimate goal is to award sole source contracts in less than 10 months, from a starting point of more than 16 months.”

Even though it is the last year of the Obama Administration, Secretary James, Chief of Staff General Mark Welsh and the rest of the Air Force leadership are to be commended for their efforts to explore new and better ways of conducting acquisition. Clearly, in an era of growing threats and declining technological superiority, it is vital that the Air Force – really the entire U.S. military – figure out how to bend the cost curve, but in the right direction, towards best value at an acceptable price.