{"id":10739,"date":"2015-06-26T12:48:31","date_gmt":"2015-06-26T16:48:31","guid":{"rendered":"https:\/\/lexingtoninstitute.org\/?p=10739"},"modified":"2015-10-26T09:31:06","modified_gmt":"2015-10-26T13:31:06","slug":"scott-chandlers-speech-rethinking-acquisition","status":"publish","type":"post","link":"https:\/\/www.lexingtoninstitute.org\/scott-chandlers-speech-rethinking-acquisition\/","title":{"rendered":"Scott Chandler\u2019s Speech: Rethinking Acquisition"},"content":{"rendered":"
This speech was given by Scott Chandler at Lexington’s Defense Acquisition Forum on June 24, 2015.\u00a0 Chandler is a Manager for Pratt & Whitney’s military engine business.\u00a0 The views here are his own, and do not represent his company.<\/em><\/p>\n <\/a><\/p>\n <\/p>\n I have nothing new here today to tell you.\u00a0 Nothing new is needed \u2013 except leadership.\u00a0 After decades of reform and hundreds of blue ribbon reports, it seems likely \u00a0that all that \u00a0could be known about defense acquisition must already be known.<\/p>\n It is nevertheless encouraging that the House, Senate, and the Pentagon are all today working to improve defense acquisition.\u00a0 But this has been going on for decades \u00a0with little \u00a0success. Since before the Packard Commission\u00a0in 1986, and in hundreds of studies and legislative efforts since that time, tremendous resources in and out \u00a0of government have been \u00a0applied to studying and improving our acquisition system.\u00a0 During all that time, the system has delivered goods and services that too often \u00a0take too long, and cost more than they \u00a0need to.<\/p>\n Nevertheless, the flawed US acquisition system endures – enabled by relatively unsophisticated recent threats, and the sheer economic strength of the United States \u00a0powering through each budget cycle \u2013 but that is becoming increasingly difficult.\u00a0 The nation is now mired in tremendous fiscal crisis.\u00a0 The current national debt exceeds<\/a> $18 Trillion\u00a0\u2013 more than $56,000 for each man, woman, and child in the United States. Just ten years ago, the national debt was less than half of this \u00a0amount.\u00a0 CBO predicts<\/a>\u00a0that by 2022, debt service alone will exceed defense spending.<\/p>\n That the current acquisition system is flawed seems without argument.\u00a0 The Highlights of the Thornberry Effort say that \u201cMore than being monetarily wasteful, dysfunction in the acquisition process is sapping America\u2019s technological edge and robbing our military of agility in the face of multiplying threats.\u201d\u00a0 The announcement of the SASC markup<\/a> of the 2016 NDAA was even more emphatic: \u201cOur broken defense acquisition system is a clear and present danger<\/u> to the national security of the United States.\u201d<\/p>\n Several improvements proposed for the 2016 NDAA are welcome but it also proposes new challenges, and new burdens.\u00a0 Together with new DoD and executive policy, they all only add to what former Deputy Secretary of Defense John Hamre calls <\/a>the \u201caccretion of laws, regulations, reporting requirements, and mandated procedures that are choking the system.\u201d<\/p>\n One of the most meaningful observations we can make about the inability of the current acquisition system to provide an efficient national defense is that whenever the situation requires immediate solutions to wartime realities such as IEDs, or greater speed or more innovation or access to the latest available technology, no one waits for the crippled acquisition system, and instead they bypass that system through various authorities and initiatives in order to get critical acquisition done.\u00a0 The Senate version of the NDAA would even provide several new ways to do this.<\/p>\n Currently proposed acquisition reforms in legislation and policy do not yet include solutions to fundamental drivers of dysfunction and inefficiency, nor are they convincing enough to conclude that they will in time, or are qualitatively different from acquisition reform from past decades.\u00a0\u00a0 That suggests it remains premature to be optimistic for meaningful relief from current inefficiency and dysfunction for the near future. MIT professor Harvey Sapolsky famously summarized this state of affairs in his oft-quoted 2009 article:\u00a0 Let’s Skip Acquisition Reform This Time:<\/em><\/p>\n The limited number of available reforms have all been recycles.\u00a0 You can centralize or decentralize.\u00a0 You can create a specialist acquisition corps or you can outsource their tasks.\u00a0 You can fly before you buy or buy before you fly.\u00a0 Another blue-ribbon study, more legislation, and a new slogan will not make it happen.<\/p>\n In addition to problematic acquisition, the system is burdened by a Department of Defense weak in basic management skills.\u00a0 As much as one third of procurement dollars<\/a> go to \u201coverhead\u201d.\u00a0Neither DoD nor any service has ever passed a financial audit, but they routinely counsel, audit, and penalize suppliers for their financial systems.\u00a0 In its latest biennial High Risk Report, on the issue of financial management the GAO reported:<\/p>\n \u201cSignificant financial and related business management systems and control weaknesses have adversely affected DOD\u2019s ability to control costs; ensure basic accountability; anticipate future costs and claims on the budget; measure performance; maintain funds control; prevent and detect fraud, waste, and abuse; address pressing management issues; and prepare auditable financial statements.\u201d (GAO High Risk Report)<\/p>\n Financial management is only one of seven systemic weaknesses GAO has documented within DoD management since inception of this list in 1990. The GAO High Risk Report has for many years included these areas requiring corrective action:<\/p>\n The Defense Business Board (DBB) adds<\/a> that \u201cDoD lacks sufficient understanding of business operating models and drivers of innovation.\u201d<\/p>\n While Secretary Carter is inviting <\/a>reluctant non-traditional suppliers in Silicon Valley to come to DoD and assures them of DoD\u2019s strong support for intellectual property rights, DoD acquisition leadership is counseling its organization to demand the full spectrum of supplier\u2019s intellectual property, and detailed cost and pricing data, even for commercial items, which per DoD guidelines is openly collected for competitive purposes.\u00a0 In this policy, DoD fails to understand that the purpose of respecting intellectual property rights, recognized in Article 1 of the Constitution, is not to protect innovators, but to ensure that innovation happens.\u00a0 Because of this failure, it is difficult to be optimistic that the DoD Defense Innovation Initiative, or the USAF Bend the Cost Curve program will attract the innovators they need.\u00a0 One also has to suspect that innovation in the traditional industrial base would grow significantly from today\u2019s levels if freed from the same oppressive acquisition rules the DoD proposes to waive for non-traditional suppliers.<\/p>\n DoD has a poor grasp of how to harness the power of the profit motive for its own purposes to attract suppliers to work on its problems, to compete with one another, to inspire innovation, and to reduce cost.\u00a0 Instead, supplier profit is anathema to government, and DoD forfeits that power.\u00a0 Pierre Chao of CSIS testified<\/a> in a 2013 HASC hearing that “Culturally we have evolved to a point where the system would rather pay $1 billion and 5% profit for a defense good, than $500 million and 20% profit.”\u00a0The fact is that multiple studies show that defense industry companies earn half the margin of S&P 500 companies.\u00a0 A simple manual survey of the top defense contractors compared to the Dow 30 shows that it is far more profitable making diapers or burgers than the world\u2019s best fighter jet. Loren Thompson told us “\u2026the idea weapons makers are generating excess profits is laughable.”<\/p>\n DoD is not skilled in the appropriate use of competition or partnership in achieving its goals.\u00a0 DoD\u2019s enthusiasm for increasing competition is effected merely through instructions to acquisition officers, but the essential element of competition is the ability to attract more than one supplier willing to do business with you. Thus increasing competition ultimately requires being a more attractive buyer.<\/p>\n While I respect the energy and sincerity of those engaged in the present acquisition reform, it is a struggle to be optimistic that Professor Sapolsky is wrong this time.<\/p>\n\n