The business of defense has always benefited from the continuing dialogue and
cooperation between government and industry. Now, as we face rising challenges
and opportunities in the national defense arena, it is important that we strengthen
this collaboration, in an effort to meet the Defense Department’s ambitious
goals of transforming the military into an even greater fighting force.
As most of you in the defense community already know, streamlined acquisition
and rapid deployment of new technology have become top priorities at the Defense
Department. The services have taken on various reform efforts, aimed at shortening
the acquisition cycle and lowering the cost of procurement, operations and maintenance
of weapon systems.
Furthermore, as the United States confronts a growing price tag for the war
on terrorism and looming budget deficits, military programs are under mounting
pressure to get a bigger bang for the buck.
Industry’s role in these reform initiatives is critical and well recognized
by the Department of Defense. That point was made clear during the recent Navy-Marine
Corps Industry CEO Conference, hosted by NDIA in Norfolk, Va.
The conference, although focused on Navy programs, illuminated enduring issues
concerning defense acquisition that, for the most part, could be applied to
the other services as well. It was an outstanding conference, characterized
by carefully considered industry input and candid exchange between industry
leaders and Navy Assistant Secretary John Young, and his RDA staff. The breakout
sessions, which addressed a range of issues, were co-chaired by industry and
Navy representatives, followed by joint out-briefs.
Most of the issues I will outline are not new, but the Navy’s continuing
interest in a dialogue with industry is realizing progress and offers the promise
of more dialogue. One of the conference highlights in this regard was the Navy’s
report on issues from the previous year’s CEO conference, indicating progress
to date and work remaining.
This year’s concerns focused on profit, omnibus contracting, supply chain,
spiral development, partnering, international programs and improvement of Navy
In the profit area, one topic of discussion was funding stability. This is
a particular concern for industry, which must deliver a return on investment
to shareholders and relies on steady funding to maintain a healthy bottom line.
Also, there is little incentive for industry to invest in facility upgrades.
Discussion revolved around aligning risk with reward and trading requirements
to maintain cost. Recommendations were to stabilize funding with increased use
of multi-year contracts.
One cost-saving initiative in the Navy has been the use of “omnibus contracts,”
which consolidate multiple requirements into one. The conferees delineated several
issues: large numbers of highly fragmented contracts, failure to capture total
costs and effectiveness, mandatory subcontract levels and failure to obtain
credit for small businesses under prime contracts. This is another area where
industry and government have more analysis to do, including developing templates
and obtaining better data on these contracts.
Contractors also will be put to the test when it comes to providing services
in a performance-based logistics (PBL) arrangement. The Navy is searching for
the best way to rate contractors’ performance and how to set metrics for
PBL. One method suggested is to tailor performance-based contracts to weapons
systems and the operational environment. It was also observed that most contracts
of this kind worked well in Operation Iraqi Freedom.
The Navy also is grappling with efforts to modernize its business management
functions via “enterprise resource planning.” ERP will eventually
encompass finance, program management, maintenance, supply chain and wholesale
logistics. The technology is progressing rapidly, but the Navy and industry
must work together to figure out how best to transition from legacy systems
to the ERP world and, most importantly, how to migrate the data. It’s
a complex endeavor that will require continued cooperation between government
and industry. Partnering will be key to success.
The need to expedite the development and deployment of new systems was a topic
of much discussion at the conference. Under the spiral development concept,
the Navy intends to deliver increased capability in short increments without
defined end-states, permitting easier insertion of technology to the war fighters.
This process is characterized by multiple configurations, open architectures
and more complex support challenges. The resource and requirements processes
are not as compatible as they need to be, nor is there an adequate template
to adapt the testing process in support of this concept. Conferees suggested
the Navy designate several pilots and work with industry to design a successful
Further dialogue is expected in the area of partnering. Conference participants
agreed that government-industry partnering on specific projects can yield positive
results. But there are a host of issues that need to be explicitly addressed.
For example, effective partnering requires adequate provision for protection
of intellectual property and more stable programs. Also, potential conflict
of interest issues conceivably could preclude some government functions from
partnering agreements. It was recommended that Navy formalize the concept. Partnering
is one of those things that are easy to talk about, but hard to do.
The future competitiveness of the industry, meanwhile, hinges a great deal
on international programs. There was much discussion on the barriers of lengthy
disclosure and license reviews, as well as exportability constraints. Briefers
emphasized the need to continue the good fight in reducing disclosure and review
processes. They pointed out the benefits of using rules sets to expedite the
process. Finally, it was suggested that systems need to be designed for exportability
up front. This has potentially the best hope of promoting successful international
programs. All saw international programs as a requisite of a healthy industrial
A final group looked at the Navy acquisition as a whole. The goal is to move
toward an incentive-structured, multi-vendor environment. The objectives are
a smooth transition from experimentation to fielded capabilities and a way to
incorporate testing into spirals. Great value is seen in pilot programs, templates,
documentation of “how to” and a good incentive structure.
In summary, the healthy discussion that took place at the CEO conference, in
many ways, serves as a perfect example of what NDIA does on a daily basis to
facilitate the exchange of ideas between government and industry, in an ethical
and legal environment.
It is encouraging to see that, even though government and industry do not see
eye to eye on every issue, they can come together and engage in a productive
dialogue for the benefit of the nation’s armed forces and the health of
our industrial base.
NDIA salutes the Navy for sponsoring such an open forum and participating in
a candid dialogue with defense industry. We look forward to continuing the discussion
and to making progress on the issues that have been identified.