Less Money, But Still Business As Usual

As the dust begins to settle to reveal a leaner defense budget, Pentagon contractors are strategizing for the new business environment. They also will be parsing the latest batch of Pentagon policies designed to turn around failing weapon acquisition programs.

The latest guidance to Defense Department program managers and contractors, known as “Better Buying Power 2.0,” hammers home the need to cut costs, shorten the procurement cycle and ensure money is not wasted on irrelevant weapon systems.

The tenets of BBP 2.0 are hard to quarrel with. “From a taxpayer perspective, any initiative focused on doing more for less is beneficial,” says Kara M. Sacilotto, a partner in Wiley Rein’s government contracts practice. Some of the initiatives are also favorable to contractors, she writes in a BNA article. “BBP 2.0 proposes to engage industry on requirements or processes levied on contractors that can be eliminated because their costs outweigh their benefits,” she says. “Less bureaucracy is always popular.”

To many defense contractors, though, this is a movie they have already seen several times.

Executives for years have sought participation in the early stages of the Pentagon’s “requirements” process. Industry wants this, says Sacilotto, “for the simple reason that clear and achievable requirements are more likely to lead to successful programs and avoid disputes.”

One of the most common frustrations voiced by defense executives is that they often do not have enough insight into what their customers want. When the military wants a new piece of equipment, it publishes a request for industry bids. But companies that are seeking to make seed investments in technologies that they can later sell to the Pentagon find there is no mechanism for defense officials to communicate their broad challenges. As one executive put it, “We don’t just want to know the military needs a radio. We want to know what their communications problems are.”

But the Pentagon has not figured out a way to be able to bring contractors into early program discussions before a formal solicitation is published. It is mostly a legal issue. Procurement laws require that all potential contractors be allowed to compete.

Despite a budget crunch and a rollout of new efficiency-minded policies, it looks as if it will be mostly business as usual at the Defense Department.

The Defense Department’s top acquisitions official, Undersecretary Frank Kendall, recognizes that more regulations are not going to turn failing programs around, and that fixing current problems fundamentally comes down to having the right people in charge.

“My view is that at the end of the day, the professionalism and the capability of the workforce and how it’s supported, more than anything else, affects acquisition outcomes,” Kendall says. “The people who actually administer our programs, plan them, execute them to work with industry are really central to our success.”

Kendall’s predecessor, now Deputy Defense Secretary Ashton Carter, led a massive hiring effort to bulk up the acquisition management ranks. Even in these times of spending cutbacks, the Defense Department continues to fill acquisition jobs.

Quantity, however, does not make up for quality. “DoD needs people who can work the requirements process, who can manage competitions,” says consultant Jon Etherton. Those skills take years to acquire.

Retired Army Lt. Gen. David Fastabend, now vice president of ITT Exelis, says industry wants a more competent government workforce not only because it is good for taxpayers, but also because it benefits contractors’ bottom line.

“When you’re in industry, your most discouraging day is when the acquisition professional doesn’t seem to have his ducks in a row,” says Fastabend. “It costs everyone when requirements are not clear, complete or when acquisitions are delayed or canceled,” he adds. “It’s so extremely costly to put in a proposal and find out it’s going to happen 18 months later or not happen at all. Abrupt changes are what drives up cost.”

The irony here is that contractors have helped create this problem by luring government talent to the private sector.

Industry can’t have it both ways, says Ben Freeman, national security investigator at the Project on Government Oversight. “Those who know the acquisition system inside and out are the people industry wants and they head hunt them,” he says. “All the incentives encourage civil servants to become contractors, not the other way around. This at least partially explains the dramatic rise in the cost of doing business at the Pentagon we’ve seen during the past decade.”

To blame acquisition troubles on contractors that pay higher salaries might be an oversimplification, though, says industry consultant Ron Giuntini. Senior executive service officials tend to be underpaid compared to the private sector, he says. But mid-level GS-11 to 15 managers in many cases are overcompensated, says Giuntini. “For the salary they are paid, you would expect them to be more accountable for their actions if things go south, but the GS community primarily acts as though they were paid at a level of compensation that doesn’t require them to take responsibility.”

Industry officials, for their part, have argued that the government’s onerous conflict-of-interest and financial disclosure rules keep skilled corporate managers from jumping back into public service. One rule that has stirred controversy is online public access to financial disclosure reports submitted by executive branch employees. Industry attorneys insist that such requirements deter executives from seeking government work.

Although industry executives have lauded BBP 2.0 as a step in the right direction, most do not believe it can shake up the status quo to the extent that is needed to inject efficiency into defense programs.

The only way to change the system is to wipe the slate clean, says Steven P. Bucci, a former Pentagon official and now a fellow at The Heritage Foundation. “I don’t know why anybody would do business with the federal government other than you can make a lot of money,” he says. “It is the most arcane, insane system. It costs companies more money to write proposals to get a federal contract than it does to execute it.”

Decades of laws and internal policies piled on top of each other have created a thicket of rules — which individually all had some reason to be promulgated — that has led to the huge inefficiency that exists today, says Bucci. “We have to dynamite that. It’s going to be painful. It’s going to gore a lot of people’s oxen. But if you really want to save money in the Pentagon that is what you have to do.”

Topics: Defense Department, DOD Budget, Procurement, Acquisition Reform