With most senior positions still vacant, Pentagon must tell Congress how it plans to restructure itself

This story is part two in a Federal News Radio special report: Defense Acquisition at a Crossroads, exploring acquisition policy accomplishments in the last administration and challenges for the next one. Read part one of this special report.

Today is the due date for the Defense Department to turn in a report to Congress on how it will pull off the largest overhaul of its acquisition bureaucracy since the mid-1980s, when reforms accompanying the landmark Goldwater-Nichols Act created a powerful undersecretary in charge of everything the Pentagon buys, including the scientific research that goes into those systems. Effective next February, the position will cease to exist.

In the annual Defense authorization bill lawmakers passed in December, Congress split the office — what’s now called the undersecretary for acquisition, technology and logistics (AT&L) — into two, resurrecting the pre-1986 undersecretary for research and engineering and adding a separate undersecretary in charge of acquisition and sustainment. The rationale on Capitol Hill was that the department needs to sharpen its attention to restoring the U.S. military’s technological edge, and that most companies treat science and technology as a separate function from procurement.

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But the timing and nature of the restructuring leaves significant uncertainty as to how things will actually play out.

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Congress enacted the changes against the objections of the Defense Department, including Frank Kendall (who until Jan. 20 was undersecretary for AT&L), but then punted the mechanics on how to make the split work to DoD itself. Amid a tumultuous presidential transition, the department is setting about the task while all of its top acquisition leadership jobs are filled by temporary appointees and its workforce is subject to a governmentwide hiring freeze.

Michael Sullivan, a veteran acquisition expert at the Government Accountability office, said a lot could go right or wrong in the reorganization.

“To look at this optimistically, it’s true that they do need to spend more time and focus on science and technology. If you can focus on the technologies you need to provide capabilities like information technologies, power technologies and propulsion to platforms you already have, that’s a good thing because you’re retiring risk earlier,” said Sullivan, GAO’s director for acquisition and sourcing management. “And if you elevate that to an undersecretary level, perhaps you’ll get better and more mature technologies that are ready to go into one of these weapons systems when it begins. In the past, we’ve criticized the department a lot for not having mature technologies, so that’s one thing that I think is a positive.”

On the other hand, bifurcating AT&L creates two separate senior Defense officials who are responsible for very different,  but nonetheless inextricable portions of a program’s overall lifecycle.

“As a major weapons system transitions from technology development to product development, there will be a handoff between those two undersecretaries, and how they handle that is going to be crucial,” Sullivan said. “You have to have a good business case at that point. The technologies are one thing, but you have to have good contracting strategies, you have to have an industrial base ready, you have to have good timing on these things. That’s what the acquisition and sustainment side will be responsible for.”

Possible consequences for long-term logistics costs

Experts also said there was reason to worry that the new division of DoD’s acquisition oversight organization might lead to higher overall lifecycle costs for major systems.

Although the new undersecretary for acquisition will be responsible for negotiating contracts on a program’s purchase price, about 70 percent of the overall cost of a weapons system comes not from buying it, but from owning it. And many of the key decisions affecting sustainment costs will be made by the research and engineering undersecretary.

“The dilemma of the split into two separate undersecretaries is that the point in time at which you can do the most to reduce lifecycle cost is at the front end, during the design phases,” said David Berteau, a former assistant secretary of Defense for logistics and materiel readiness who’s now president of the Professional Services Council. “Setting up a situation where the person in charge of the design phase is not the person who has to live with the long-term cost consequences creates a real challenge. The best way to overcome that is better visibility into the cost consequences of those decisions from the get-go. It may well be that with the right people in charge, you can have an undersecretary for research that makes sure there’s a focus on lifecycle costs. That’s the most positive spin I can put on it.”

Andrew Hunter, a former senior Capitol Hill and DoD official who now leads the defense-industrial initiatives group at the Center for Strategic and International Studies, agreed that the success of the reorganization was highly dependent on the personalities of the two new undersecretaries.

“These two roles are inextricably linked in the acquisition process,” he said. “You’re going to need to have people who are comfortable working hand-in-glove together, all the time, because that’s what’s going to be required. The risk is that you’ll have folks who don’t work together well, and then I think the organization could really be in trouble. The best thing DoD can do is establish role clarity so that these offices are complementary but distinct, and not just a case of, ‘At moment in time X, I hand program Y off to you.’ The system needs to be clear on what each undersecretary is focused on, both for reasons of role clarity and because you get more bang for your buck that way.”

No such thing as a ‘perfect organizational structure’

Congressional officials say they understood that pulling off the reorganization — particularly in the middle of a presidential transition year — would be a tall order, which is why they delayed the changes until February 2018. Doing so, they said, would give Congress time to make any legislative tweaks that turn out to be necessary after DoD begins to examine the second-and-third-order effects of the AT&L changes. The DoD report that’s due to Congress today is an interim progress report, and the department must submit its final plans to implement the changes by Aug. 1.

“There’s no such thing as a perfect organizational structure to get rid of stovepipes,” a senior congressional staff member told reporters just before Congress passed the changes. “The seams between organizations are a leadership function, not a diagram function. We were looking for the right skill sets, the cultures, the right management structure.”

And Congress still needs more input from DoD before it decides on the future roles and reporting chains of large Defense agencies that currently report to the undersecretary for AT&L, including the Missile Defense Agency, the Defense Logistics Agency, the Defense Contract Management Agency and the  Defense Threat Reduction Agency.

“There’s a lot of non-homogenous stuff that was organized under AT&L that we still don’t quite know how to resolve, because they didn’t lend themselves to an obvious solution,” the staff member said. “We’re going to have to leave that to this next legislative cycle and the new administration because they don’t logically fit in one place or the other.”

DoD faces the additional challenge of crafting two bureaucracies out of one during a time when it’s also under a statutory mandate to reduce its overall headquarters staffing levels by 25 percent, plus a governmentwide civilian hiring freeze that allowed no exemptions for the acquisition workforce.

“The organization was already shrinking, now it’s being significantly reorganized at the same time,” Hunter said. “But in some ways, those two things are complementary, because you don’t want to just salami slice everything you have. You’re better off thinking about ways you can fundamentally change the workload so that you can do a really good job with the 75 percent of the workforce that’s left.”

Most of that rethinking is likely to fall to whomever is the final undersecretary for acquisition, technology and logistics, the person who will serve in what will be a transitional role until it is formally abolished next February. President Donald Trump has not yet nominated anyone to the position; in the meantime, the department’s acquisition apparatus is being led by James MacStravic, who until Jan. 20 was the deputy assistant secretary of Defense for tactical warfare systems.

Kendall, the last Senate-confirmed official to serve as undersecretary, said in no uncertain terms that he thinks the split is ill-conceived, and that he’s particularly worried that the Trump administration will appoint an undersecretary to the research position who has business experience, but no understanding of how the Defense bureaucracy works.

“The right model is to have one person who’s responsible for the total lifecycle of our programs. I’m not sure how this is going to work out, and I don’t think it’s a good thing,” he said in his final public speech as undersecretary Jan. 18. “One of the things we’ve worked very hard on over the last few years is to have my assistant secretary for research and engineering and my assistant secretary for research and engineering work very closely together and focus on the transition of technology into products. If we separate products from research, that’s going to be harder because it’s at a higher level in the bureaucracy now.”

Although the reworking of AT&L is by far the largest organizational change Congress ordered in the last Defense bill, the same legislation included nearly 100 other provisions affecting acquisition policy.

The NDAA, for instance, includes several provisions that attempt to push the department toward buying more commercial items and using commercial procedures in its acquisition processes. One change would let DoD sidestep the traditional procurement system to buy “unique commercial items” for up to $100 million; another would require DoD to use commercial standards and specifications, not military ones, for “programs in all acquisition categories, unless no practical [commercial] alternative exists to meet user needs.”

“I think a lot of those provisions were quite helpful,” Hunter said. “Commercial items are not a panacea to address all the department’s problems, but I think it’s pretty clear that the extent of commercial technology it’s going to want and need to acquire is growing. You’re still going to need to make sure that the minimum military requirements for sustainability and things like that are met, but I do think the commercial item acquisition system had gotten bogged down, and commercial item determinations were taking longer and longer to obtain.”

A win for vendors: Legal restrictions on LPTA contracts

The bill also addressed a longstanding industry complaint: the department’s alleged overuse of lowest price technically acceptable (LPTA) criteria in picking contract winners. Although that was never explicitly addressed as part of Better Buying Power, the internal DoD acquisition improvement initiative Kendall led, he did make clear in public speeches, interviews and memos that LPTA should generally only be used when the government has crystal-clear requirements and no need to pay for extra bells and whistles.

The NDAA provision created new guideposts for LPTA contracts worth more than $10 million, including requiring DoD to justify its decision to use LPTA in each contract file with proof that the lowest price reflects full life-cycle costs. The department also must “avoid LPTA to the maximum extent practicable” when it’s buying knowledge-based professional services such IT services, training or overseas logistics services.

“At PSC, we fought pretty hard for those provisions and we were successful in getting them in,” Berteau said. “But all they really do is take the internal guidance document that Frank Kendall himself had put out and put them in statute, because the guidance wasn’t being well-followed in DoD. You don’t want to cut off the flexibility of the department to manage itself, but on the other hand, if the guidance isn’t being followed, statutory language is sometimes the best way to make sure it is followed. I think that’s what they did with LPTA.”

Weeding out bureaucracy

Many of Congress’ other acquisition reforms are broadly themed on the notion that DoD’s acquisition system has become so encumbered by bureaucracy — some of its own making, and some imposed by Congress — that it is no longer capable of delivering modern technology to troops in a timely fashion.

As one fix, in the 2015 authorization bill, lawmakers sought to reinvigorate the use of “other transaction authorities (OTA),” a technique that lets DoD hire companies to build prototypes (and to some extent, production systems) without the complications involved in following each provision of the Federal Acquisition Regulation.

OTA authorities have been on the books for decades and have been used extensively in the past year by the Defense Innovation Unit-Experimental. But the fact that DIU-X — an organization personally sponsored and publicly championed by the secretary of Defense — has been only one of a handful of military organizations to use them is in some ways emblematic of the fact that DoD has become gun-shy about using the acquisition flexibilities it already has.

There’s an explanation for that, Sullivan said.

“It’s certainly true that the department needs to make more use of nontraditional contractors, but when that law first passed, it was thought of as a panacea for non-traditionals, and at one point DoD decided to use it to sign a contract with Boeing for Future Combat Systems,” he said, referring to an Army program, now widely-considered to be one of the Pentagon’s biggest acquisition mistakes, that spent nearly $20 billion before being cancelled. “It was a totally inappropriate use of OTA, but it seems like once one of those mistakes happens, these kinds of authorities get a bad reputation attached to them and people don’t want to use them anymore. But I really do think the Congress is trying to find ways to use them in the right way. If you can find a startup out there that can help us deal with some of our cybersecurity issues, you should be able to be flexible with them to get their capabilities into the government.”

Divergent approaches to acquisition improvement from Capitol Hill, Pentagon

Over the course of the past eight years, DoD and Congress, in many ways, had different ideas on what should be emphasized in acquisition reform. In the last two legislative cycles, the congressional armed services committees have pressed for ways to make the system work faster.

Although Better Buying Power sought ways to cut out unproductive processes and bureaucracy, Kendall’s tenure was marked by caution toward reforms that tried to work around the existing acquisition process for the sake of speed alone, preferring  find ways to make the system by which DoD buys the vast majority of its products and services more effective.

“There’s this idea out there that we have an old kind of acquisition and a new,  rapid kind of acquisition, and we just need to be doing more of the latter,” he said. “But rapid acquisition means high risk and low quality. When lives are on the line, it’s absolutely the right thing to do, but you end up sacrificing a lot of features when you’re in a hurry. Things like cybersecurity, reliability, maintainability and some of the cost-driving features like manufacturability or the ability to operate in all climates, all terrains. Those are things that our operators want, but they take more time, they take detailed designs, and they take testing.”

One area of common ground: both lawmakers and Kendall agree that many portions of the Federal Acquisition Regulation and DoD’s own supplements thereto have probably outlived their usefulness. He urged Congress to begin a clean-sheet review of all of the regulatory requirements involved in the acquisition system, and the 2015 NDAA established a panel of experts, currently-serving acquisition professionals and academics to do just that.

The “Section 809” panel, as it’s called, is due to deliver its final recommendations next year.

“As Secretary [James] Mattis looks at the challenge of having less tail and more tooth, the number of levels of review and the time it takes to have those reviews conducted are things that ought to be considered,” said David Drabkin, a longtime government procurement expert who is a member of the panel. “Time has to be valued in the department, and I don’t think it’s evaluated as a separate factor affecting how they do business. It takes them an incredible period of time to start an acquisition, and they don’t calculate the impact of that time on what it costs the government or what it does to the industrial base. In my time on the panel, I’ve heard from companies who say that the amount of time it takes the department to go from and RFP to award has been so long that the companies don’t want to be involved in the process. In that same amount of time, they can make two, three, four commercial sales, recover their costs and move on.”

This story is part two of a two-part Federal News Radio special report: Defense Acquisition at a Crossroads, exploring acquisition policy accomplishments in the last administration and challenges for the next one. Read part one of this special report.