Acquisition Business Reaches Inflection Point

Following a mishap such as an airplane crash, the military commissions an independent investigation of what went wrong and why. Similar probes occasionally are done with acquisition programs after they implode.

In one recent case, members of the Senate directed the Air Force to dig into the failure of a logistics information network that was terminated in 2013 after the service had spent a billion dollars over eight years. Officials discovered that the system was not working and would have required another billion to fix.

The details of the investigation, according to Assistant Secretary of the Air Force for Acquisition William LaPlante, make for “very, very sobering reading.”

LaPlante’s observations on the now-defunct expeditionary combat support system came in response to questions from Senate Armed Services Committee member Sen. Kelly Ayotte, R-N.H., during his confirmation hearing in January. LaPlante said the managers in charge of ECSS had been fired, although that far from guarantees that these blunders will not be perpetrated again. The conclusions of the probe led LaPlante to believe that, beyond managerial fumbles, the program failed as a result of endemic problems that are “baked” into the military procurement system and are difficult to solve.

This and other big-ticket acquisition flops over the past decade have put the fear of God into Pentagon leaders who now face the added pressure of having to ensure programs perform in a zero-tolerance environment, and with budget cuts to boot.

“We are having to be very careful about starting anything new,” LaPlante said.

Before any funds are committed to the procurement of new equipment, he said, the Air Force takes great pains to study whether it can, instead, make do by updating what it already has.

There is increasing angst about how to get the military on a path to modernize in a time of declining budgets. Some defense industry insiders have come to the conclusion that a string of troubled acquisition problems in recent years is just a symptom of a more serious ailment, which is that the Pentagon is still operating in a Cold War, Industrial Age mindset that served it well in the past but is now inhibiting technological innovation and efficiency.

 “We are now living on the fumes of that golden age and have not figured out where we go next,” observed a seasoned industry wag. The Defense Department is not yet sure how to cope with a confluence of events and trends, including the end of the post-9/11 wars, an explosion of technological innovation that the Pentagon doesn’t control and the advent of new competitors.

To move the acquisition business in a more productive direction, one immediate step the Pentagon could take is to accept that it no longer holds the key to the technology kingdom, analysts have said. They also suggest that the Pentagon must abandon its penchant for throwing money at problems.

“The old way — brute force and bushels of money to acquire things — is no longer practical or realistic,” said Tom Captain, vice president of Deloitte’s aerospace and defense sector. “The new way is represented by companies that invest their own money, developing new technologies rapidly, at dramatically lower cost.”

Following decades of acquisition reforms, the Defense Department is stuck in neutral, Captain said. Defense officials are taking a fresh look at how to improve the system with skilled acquisition staff — under a plan called Better Buying Power 2.0 — but this exercise is not likely to achieve much, he said. “The flawed down-select processes has led to all-time record protests. We have flawed requirements processes, burdensome regulations, compliance requirements, poor relationships and mistrust between acquisition officials and the defense industry.” It is a recipe for failure, he said. “We can’t afford what we need, and defense budgeting has become an affordability exercise instead of a requirements-driven process.” Despite the best of intentions, he added, Better Buying Power 2.0 has been catching flack for being ineffective.

The acquisition business is, indeed, at a major inflection point, Captain asserted.

Enterprising companies see an opportunity to deliver “more for less,” which should appear attractive to the Pentagon but also would upset the status quo. The defense acquisition system in many ways rewards contractors for adding cost, not removing it.

Ellen Lord, president and CEO of Textron Systems, recently questioned why the Pentagon is not shifting to fixed-price bids for equipment, which would save the taxpayer money. “We are not incentivized to leverage commercial technology because it’s too hard given the rigor of our acquisition environment,” she said. “I believe these are all unintended consequences” and not deliberate efforts to make the system more complex.

Some military contractors would like to see the Pentagon curb its appetite for customized technology that has a high risk of failure and, instead, adapt to what the marketplace has to offer.

An extreme example was the Army’s modernization program known as future combat systems, which the Pentagon terminated in 2010. That was a “bridge too far,” said Joe G. Taylor Jr., vice president for combat and mission systems at Northrop Grumman Corp. In complex systems and logistics networks, the Defense Department would benefit from a “healthy equilibrium” that blends military-unique systems with modern commercial technology, Taylor said.

“Big cradle-to-grave development programs are disappearing,” he said. The secret is to build systems with “open architectures” so ships, tanks and aircraft can be modernized at low cost. “Between now and 2050 the Army will be driving many vehicles that are currently in the inventory,” Taylor said. “As a company, we need to map out a business strategy that goes beyond delivering a vehicle to include adapting and upgrading vehicles with computers, sensors and weapons.”

The Pentagon’s top acquisition executive, Frank Kendall, has acknowledged that the procurement business is at a crossroads. Everyone agrees that things must change, but there is no consensus on the specifics. “I am on a long quest to make improvements in our efficiency and our effectiveness of our acquisition system,” Kendall told the House Armed Services Committee. “I think there have been a lot of attempts to solve acquisition problems with silver bullets, and none of them has ever worked.”

Topics: Business Trends, Doing Business with the Government, Defense Department, DOD Budget, Procurement, Acquisition Reform, Defense Department