New Pentagon Procurement Rules Seek to Create Culture of Innovation

The U.S. military is in a technology rut. American weaponry has ruled for decades, but that lead is at risk as countries like China continue to chip away. And although the Pentagon has far and away the world's biggest arms budget, military equipment is showing its age and efforts to modernize are sluggish at best.

These are the uncomfortable realities that shaped the latest update of the "better buying power" procurement rulebook the Pentagon unveiled Sept. 19. The new version, BBP 3.0, is a call to arms to engineers, researchers and technologists.

"It's motivated in part by my continuing concern with technological superiority and the fact that our capabilities in the world are being contested by others — people developing, modernizing, and building systems that threaten our superiority," said Undersecretary of Defense for Acquisition, Technology and Logistics Frank Kendall.

Kendall has been sounding alarms about the U.S. technology slump for years, and believes the Pentagon must rev up the innovation engine so it can deploy more advanced weaponry in the coming years. Alsobehind this new emphasis on technological achievementis Deputy Defense Secretary Robert Work, who is leading a separate study on military technology gaps that will shape future budgets.

Better Buying Power 3.0 is the third of a series that began in 2010 when Kendall's predecessor Ashton Carter unveiled BBP 1.0, followed by 2.0 in 2012. The first two iterations dealt with contracting methods and with the process of buying things. BBP 3.0 is less about how the Pentagon acquires products and services, and more about what it needs to buy.

In that vein, the Pentagon will more closely monitor the military services' research-and-development programs to ensure they are investing wisely, said Kendall. Deputy Assistant Secretary of Defense for Systems Engineering Stephen Welby will oversee long-term R&D plans for the entire department. "Given the resource constraints that we have, focusing our long-range R&D on the things that are the highest payoff and that are strategically significant to us is especially important right now," Kendall said during a meeting with reporters at the Pentagon.

One of the reasons the military is falling behind the technology curve is that weapons systems are not engineered for easy upgrades. So what might be cutting-edge technology at the outset of a program becomes outdated by the time it gets in the hands of military service members. Kendall does not see weapon development cycles getting much shorter, but he wants to be able to update weapon systems in response to emerging threats, without having to start over with new a design. He will direct procurement officials to stay in touch with the intelligence community and keep up with technology advances around the world that could potentially undermine U.S. weapons systems. Kendall will ask intelligence analysts to help Pentagon program managers understand what enemies might be doing to counter U.S. technology, "so we can anticipate that and account for that in our designs." Electronic warfare technology, for example, is advancing rapidly and U.S. systems should be designed to be easily retrofitted with new countermeasures. Navy warships, which stay in service for decades, should be modified as anti-ship weapons become more sophisticated. In hindsight, Kendall said, the Navy's littoral combat ships might have been designed with better survivability had there been more awareness of potential threats. "That's the type of change I'm thinking of," he said.

Other countries, especially China, have "watched very carefully what we had done and reacted to it. And they've been reacting for the last 25 years," said Kendall. The United States, meanwhile, continues to rely on technologies that, although still dominant, are several decades old. "So it's time to think about another cycle of capabilities."

Some of the buzzwords in BBP 3.0, such as “technology insertion” and “refresh,” are not new, but “need to be emphasized,” said Kendall. “We have pushed for modular, open systems for a long time.

We've had mixed success with that,” he said. “I think a lot of it has to do with successful management of intellectual property and managing design interfaces.”

To become more technologically agile, the Pentagon has to change its hidebound culture, Kendall said.

Productivity has to increase both in industry and government, he said. The Pentagon believes that competitive market forces motivate suppliers to improve products and lower prices. "We're going to continue to emphasize incentive-type contracts," said Kendall. "Whether they're cost-plus or fixed-price, you tend to get the same type of improved results in either case."

The Defense Department is often criticized for favoring a handful of top prime contractors and not opening up the market to outsiders. Kendall said one of the goals of BBP 3.0 is to "lower the barriers" to competitors. This is imperative as most of the R&D investment now comes from the private sector. "There are a lot of technologies that are moving more quickly in the commercial world than they are in the military-unique technology world," Kendall said. "We want to be able to capitalize on them as much as we can." He suggested it wouldbenefit the Pentagon to seek sources of technology globally and not just in domestic markets.

“I want to look at the barriers to people selling to the government,” he said. One is the fact that the Defense Department buys in small quantities. Another is the cost accounting system and contracting requirements. Defense buyers need to know what keeps suppliers from engaging with the government, said Kendall. “I would like to work with industry to understand those barriers and see what we can do to remove them where it's possible to do so.”

With the Pentagon's R&D budget on a downward slide — from $80 billion in 2010 to $63 billion in 2014 — officials are feeling pressure to show results. The Pentagon reimburses defense contractors about $4 billion a year for R&D projects, and the return on that investment is not clear, said Kendall. More oversight is in order, he said. Government-owned laboratories will be scrutinized, too. "We're going to take a hard look at the DoD laboratories," said Kendall. "We've spent a lot of money there and are trying to get a higher return out of our laboratories."

Many of the initiatives in BBP 3.0 aim to motivate the private sector to invest in military-relevant R&D and to help the Pentagon avoid costly procurement fiascos.

A long-standing gripe of defense contractors is that they have little time to respond to DoD solicitations, particularly those for complex systems. Kendall will be directing program officials to release requirements in draft form to industry early, to give contractors a chance to start to prepare for future acquisitions, “and also to give us some feedback on those requirements from the point of view of costs and technical feasibility and risk.”

Kendall insists that financial incentives are what ultimately influence contractor behavior. He insists the Pentagon will increase contract awards based on “best value,” as opposed to picking the lowest cost bid. “We're going to continue the practice of letting industry know what we're willing to pay for better performance so they can bid intelligently.”

The Defense Department has over the years wasted billions of dollars on programs that, from the outset, were doomed because the technology promised by the contractors was out of reach. Under the current system, contractors are rewarded for gee whiz Powerpoint slides rather than for being straight about the art of the possible. Kendall wants to change that by involving contractors earlier in the cycle and getting candid assessments of what is realistic and financially doable.

After the release of BBP 3.0, the Pentagon will allow two to three months for the public to comment before the document is finalized early next year.

Analysts and industry insiders are skeptical that documents like BBP 3.0 will substantially change the status quo. The tenets of BBP 3.0 are motherhood and apple pie, but turning them into actionable policies will be a tall order, they contend. The highly bureaucratic procurement system — which emphasizes oversight, monitoring, reporting and top-down direction — is a hindrance to innovation, said military analyst Daniel Gouré, of the Lexington Institute, a think tank funded by top defense contractors.

“Russia and China are catching up technologically not because they are smarter or more inventive but because they are unencumbered by an archaic acquisition system,” he wrote in a blog post.

“The real game changer would be if the Pentagon could acquire and field new capabilities in half the time and at reduced cost. Of equal significance would be using commercial best practices in maintenance, sustainment and supply chain management to lower the life cycle costs for military systems.”

He credits BBP 3.0 for promoting greater use of modular and open systems architectures and for suggesting contractors should be informed about military requirements earlier in the acquisition process. Gouré also gives Kendall kudos for seeking to remove obstacles to procuring commercial items from the global market.

“BBP 3.0 is a move in the right direction. But it is not a game changer,” Gouré said. “If we want a true defense revolution, get the acquisition system out of the way.”

Industry insiders have argued for years that, to be more nimble, the Pentagon should take a page from the book of one of its own organizations, the Defense Advanced Research Projects Agency. DARPA has been ahead of the rest of the Defense Department in recruiting new vendors and pushing the technology envelope, industry analysts point out. Its productivity also is significantly higher. With a $3 billion budget, DARPA can do the job with 1,000 people. The military’s major laboratories have smaller budgets but much larger workforces. Until the Pentagon tackles its bloated overhead, analysts said, it will be financially difficult to invest in equipment modernization.

Experts also question the Pentagon’s avowed commitment to market competition as the ticket to lower costs and better technology. Most of the Pentagon’s technology dollars are captured by a small group of prime contractors, and these firms likely will continue to have a stranglehold on the available budget. That puts greater pressure on the rest of the industry and on smaller firms that generate much of the innovative technology the Pentagon wants. Having the preponderance of defense R&D dollars concentrated in a handful of firms with huge overhead costs is unproductive, one executive noted.

Small businesses are now a hotbed of innovation, but getting their foot in the door is a Sisyphean climb. It is not clear how BBP 3.0 will change that reality.
Dealing with the defense procurement system is a “battle we face every day,” said Sean Varah, CEO of MotionDSP. The Silicon Valley firm develops image processing software used by military and intelligence analysts across the government.

MotionDSP’s software is an example of a product the government didn’t know it needed until it saw it. There are thousands of technologies funded by the private sector that might be of use to the military, if only government buyers knew where to look. “They need to be able to buy more readily available commercial products,” Varah said. The Defense Department pays contractors hundreds of millions of dollars to write government-owned software from scratch that becomes obsolete within months, while better and cheaper products already exist, he said. “Private funding is investing in commercial R&D and creating products, at no taxpayer cost.”

Topics: Procurement, Acquisition Reform, Defense Department, Science and Engineering Technology, DARPA