Acquisition Reforms Reach Critical Overload

House and Senate conferees are in the final stretch of the debate over hundreds of provisions that will end up in the 2017 National Defense Authorization Act.

As lawmakers and staff continue to fine-tune the language, the Pentagon and its contractors are bracing for the coming avalanche of new directives that should affect all aspects of the defense business.  

Opinions diverge on whether the volume and pace of regulatory change will benefit the Pentagon and help unclog the much maligned procurement system. There is, however, a growing belief in the defense acquisitions world that reform efforts may have reached a point of diminishing returns as laws and executive rules have piled up over the years.

The new round of procurement and contracting reforms soon to be passed by Congress sets a 2019 deadline for the Pentagon to execute them. Considering that the Defense Department is still processing and putting into effect NDAA reforms dating back to 2012 and 2013, it could take the better part of the next decade to implement the measures that are already in law, let alone the many more that could come in this year’s NDAA.

Pentagon officials told me they have no reliable data on how long it takes to carry out NDAA provisions. But they are fairly certain that the regulatory churn in defense contracting has become a full-employment act for government and industry lawyers and consultants.

House Armed Services Committee Chairman Rep. Mac Thornberry, R-Texas, has been an avid proponent of reforms, especially those aimed at accelerating innovation and expediting weapon system developments. He has hinted that next year, his committee would continue the push for reform, taking aim at two major areas: the Pentagon’s arcane process for acquiring information technologies and the contracting of services from the private sector. It now appears that factions within the HASC believe the reform output should be slowed down next year to give the Pentagon some breathing room.

The Senate Armed Services Committee has been quiet on the issue, and likely will remain that way until we know who wins the Senate majority in November. The bulk of this year’s reforms originated from Chairman Sen. John McCain, R-Ariz., a persistent advocate of overhauling the defense bureaucracy and the procurement system across the board.

If the Senate flips to the Democrats, the SASC would be led by Sen. Jack Reed, D-R.I. Industry insiders speculate Reed would be far less aggressive toward the Pentagon than McCain. Reed’s spokesman Chip Unruh said any discussion on that topic now would be premature and far too hypothetical.

One of the problems with procurement legislation is that lawmakers, although well intentioned, do not always understand the issues, said retired Air Force Lt. Gen. Charles “CR” Davis, a former military adviser on acquisition programs. “If you haven’t managed programs, it’s difficult to write laws that are going to fix anything,” Davis said.

A case in point is a litany of laws that has been passed to require the Pentagon to seek technologies from innovative firms and protect manufacturers’ intellectual property rights. “No way are you going to fix this issue with additional report language in any authorization bill,” said Davis. “Unfortunately, the more this seems to be the pervasive method of thinking, the worse the problem becomes.”

From the Defense Department perspective, some laws cause more troubles than they solve, Davis noted. “DoD has to react to every provision. Before you know it, the oversight organizations continue to morph and grow,” clogging up the system with more red tape. “People can’t attack root causes of problems and are reacting to directives,” he said. When Congress passed the Weapons Acquisition Reform Act of 2009, it took the Pentagon two to three years to digest it before it could start implementing clauses.  

Government contracting lawyers continue to be astonished by the scope and depth of regulatory change in the defense sector. In addition to NDAA provisions, defense contractors have had to deal with a slew of new executive orders during the Obama administration. Some are labor rules, such as fair-pay and safe-workplace measures that require contractors to disclose violations or risk not getting paid.

The push since 2012 has been to require prime contractors to police subcontractors and enforce compliance of regulations across the entire supply chain. Rules to prevent human trafficking and counterfeit parts put the burden on prime contractors to ensure suppliers follow them. This has alarmed contractors, especially those that have suppliers overseas where it is harder to enforce U.S. laws, said John Chierichella, a partner at Sheppard Mullin’s government contracts, investigations and international trade practice.

In the cybersecurity arena, the government keeps changing the rules for monitoring, tracking and reporting cyber attacks, he said. “You have to flow requirements down to subcontractors and report violations.” Primes are having difficulties getting their arms around these rules, he added. Some third and fourth-tier suppliers are not dedicated Defense Department suppliers and don’t have the means to comply with these complex policies.

In the ever-expanding thicket of regulations, some have legitimate purposes. The U.S. government historically has used contracts as vehicles or instruments of social policies. But Congress and the executive branch also have to weigh the economic costs of imposing more regulations on government contractors, Chierichella suggested. Companies will absorb the added requirements but then turn around and bill those costs back to the customer in the form of higher rates. That may be acceptable to the government but it makes American companies less competitive in the cutthroat global economy. “How much can a contractor afford to actually include in the rate when they bid proposals?” asked Chierichella.

The takeaway: Regulations are necessary to prevent fraud, waste and abuse. But someone at some point needs to weigh the unintended consequences.

Topics: Defense Department