A year from now, the top acquisition job in the Pentagon will split in two under a major reorganization imposed by Congress, even though there’s been tremendous progress in getting program costs and schedules under control in recent years.
The 2017 National Defense Authorization Act, which became law in December, calls for the abolition of the No. 3 job at the Defense Department. The post of undersecretary of defense (USD) for acquisition, technology, and logistics, or AT&L, will disappear in February 2018. It is to be replaced by two positions: undersecretary for research and engineering (R&E), and undersecretary for acquisition and sustainment (A&D).
Congress left it up to the Pentagon itself to spend that year sorting out how best to organize the various positions that will report to the two undersecretaries. But it also included language allowing the Trump Administration to implement the change immediately if it so chooses.
The existing AT&L position has been held by Frank Kendall since 2012 and, before him, by Ashton B. Carter, who became President Obama’s final Defense Secretary. Carter started a reform of the acquisition system called Better Buying Power, and Kendall ran with it when Carter became the No. 2 at DOD. Through several iterations, BBP aimed at applying more common sense to the Pentagon’s buying system, specifically proscribing “one size fits all” approaches to buying complex weapons systems and simple staples alike.
Kendall—who evolved BBP constantly, even though he held it out as a kind of new bible of purchasing—instructed acquisition officers to choose from a wide array of existing contracting methods to get the best deal on a given project, or innovate a new one if it seemed best. They were to take a sensible approach to risk, reducing it wherever possible, get the best price—preferably through competition—and get the materiel into the hands of the users as quickly as they reasonably could. Kendall met frequently with the press to discuss reform progress and adjustments to the system.
A 30-Year Low
Late last year, Kendall called the press in for what turned out to be one last wrap-up of acquisition improvements, offering up what he judged to be impressive results. With hundreds of pages of data culled from 19 years of case histories to back up the claim, he said that acquisition costs on major programs were headed down, that “six years of work” had paid off with cost growth at a 30-year low.
“We reversed a trend that was in the opposite direction,” he asserted. “That’s a pretty big deal.”
Given the numbers, Kendall said, “abolishing my position … is probably a bad decision.” He said his post has been successful at both managing acquisition and improving it in small steps rather than radical and disruptive broad overhauls. Moreover, he argued that the Secretary of Defense “needs someone … who can effectively oversee service acquisition programs for him.” Kendall, patting the 223-page report, told reporters that previous efforts at acquisition reform were “intuitive, not driven by data,” and the numbers on the whole speak for themselves.
Case in point: Nunn-McCurdy breaches—programs that suddenly report an egregious 25 percent spike in costs—or a schedule delay of 20 percent are down. There were seven Nunn-McCurdy breaches in 2009; there was one in 2016.
Kendall dryly observed that the biggest cause of such schedule delays is Congress.
Much of the challenge, he said, lies more in quickly obtaining funding to begin acquisition than a magical shortcut to developing and fielding systems. Kendall argued routinely and vigorously for repeal of the Budget Control Act that imposed unreasonable and unthinking automatic cuts on the Pentagon when Congress couldn’t agree on a budget. He complained that he spent much of his time working around those roadblocks, calling them dangerous and arbitrary.
Kendall was keenly aware at the time that congressional members and staffers were cooking up a restructuring of his office, and he had come out against proposals contained in earlier drafts of the legislation. In those previous iterations, the new A&D job was cast as the undersecretary for “management and support.”
Members of Congress—particularly Sen. John McCain (R-Ariz.), head of the Armed Services Committee—had tussled with Kendall, saying that the situation was not all roses. Critics pointed to the failure of the Army’s Future Combat System (FCS) and huge overruns on USS Gerald R. Ford aircraft carrier, Space Based Infrared System satellite constellation, and the F-35 fighter as examples of acquisition being “out of control,” a phrase newly elected President Trump borrowed in a December tweet complaining about the F-35.
Kendall, in annual testimony about acquisition reform, would respond that the FCS and F-35, for example, were in trouble before BBP initiatives took hold, and that the F-35 had turned the corner.
The contracting disasters of the 1990s have largely been laid at the feet of another contracting fad, Total System Performance Responsibility (TSPR), that left contractors largely in the role of policing themselves; and while the companies were supposed to be paid based on outcomes, TSPR wound up paying by calendar milestones. Thousands of Pentagon in-house contracting specialists and program management experts—including uniformed experts in the various services—were pushed out of those jobs, with a huge brain drain resulting. Kendall said he has labored to rebuild the acquisition workforce, and this has helped turn around programs in trouble.
Importance of Shared Risk
Still, McCain insisted that contractors were not being held to account on major programs. He wanted most, if not all, programs—such as the new B-21 bomber—to be contracted at a fixed price, with the contractor eating any overages.
Kendall countered that inventing technology on a fixed price—another contracting fad, this one in vogue in 1980s—had proved disastrous on the C-17 transport and A-12 attack plane, as just two examples. Kendall argued that this is not a good idea and that new programs, because of their uncertainty, should instead be structured with some shared risk and incentives that reward success. Risk is further reduced by ensuring the government owns the technical data, so future upgrades can be put out for competition—instead of the original contractor having an inside track on all future related work.
Congress hasn’t said exactly what the problem is at DOD that it’s trying to fix, but it appears to be a nebulous conglomeration of inefficiency, cost-growth, and schedule delays. Senate staffers have said they are trying to help the department by establishing a high-ranking “chief technology officer.”
They want someone whose sole focus will be shepherding promising technologies into production at an unprecedented speed. It’s a reaction, they said, to Deputy Defense Secretary Robert O. Work’s Third Offset idea that the Pentagon is going to have to be more agile in staying ahead of competitors like China and Russia, whose technical capabilities are growing by the day. It’s a mistake to weigh down a single individual with responsibility for science and technology, research and development, and acquisition and sustainment, they said. While R&D has to be about innovation and risky gambles, acquisition should be about getting good deals, the staffers argued.
Kendall has countered that it makes infinite sense to keep all those functions together, so that the ultimate care and feeding of a system is taken into account at its inception, to avoid mistakes that are costly to fix later. Although development costs garner the lion’s share of congressional and press attention, the bulk of a system’s cost is actually in its use and sustainment.
In a May article commenting on his efforts at reforming acquisition, Kendall noted the “limitations of legislative tools” in this regard, arguing that “lasting improvements must come from within” the Defense Department. He said success really boils down to four things: setting reasonable requirements, putting professionals in charge, giving them the resources they need, and providing strong incentives for success. He said the trick is finding the right “nuance” in each step.
“None of this is easy,” Kendall wrote.
The ultimate outcome of the National Defense Authorization Act (NDAA) language put many of Kendall’s fears to rest, however. The post of USD for acquisition and sustainment will keep those functions together—what the Air Force has called “cradle to grave” management. Meanwhile, the other post, R&E, will concentrate on basic science and technology (S&T).
At a conference in December, shortly after the NDAA was approved, Kendall said he wanted to keep the “three major phases of a life cycle”—development, production, and sustainment—together under a single overseer, and the final NDAA language does that. The R&E job will have oversight of S&T, the laboratory system, and prototyping, and he said he’s “fine with that.”
What’s unclear is who will actually have decision authority over milestones and perform functions such as certifying program costs, he said. Some of the NDAA reporting thresholds are fairly low dollar amounts, by Pentagon standards—$25 million, in some cases—and those decisions may be escalated up to the deputy secretary or even Secretary level, imposing a burden that should rightfully be driven down to lower levels.
Still, Capitol Hill staffers argue that they are trying to make the Pentagon work more like a business. Most companies don’t put their heads of procurement in charge of research and development as well, said one. The change will make it easier for the Pentagon acquisition leadership to “better interface” with contractors since they’ll be talking “apples to apples,” he said.
Kendall oversaw a tremendous bureaucracy with offices specializing in everything from combat aircraft to unmanned submarines to industrial policy. How those get divvied up between the two new undersecretaries will take time to figure out. Even then, given the remarkable overlap of some areas, turf wars are to be expected. In fact, to free up the two principal USDs to concentrate on the big stuff, legislators may, in the year to come, also have to shape a new organization and add some new positions—or even a third undersecretariat—to manage the various subdepartments.
Concluding the forward to his 2016 report, Kendall wrote that in his years of working in defense acquisition, “it has become clear to me that there is no ‘acquisition magic’—no easy solution or set of solutions that will miraculously change our results.” Most attempts at quick fixes “have been counterproductive and often only increased the system’s bureaucracy and rigidity.”
While he pointed out that programs are doing much better, Kendall acknowledged two items of concern among the data. One, competition is down—symptomatic of industrial vertical integration, industry consolidation, low budgets, and an often too-challenging bar for new entrants in the business.
With limited funds, it’s not always possible to pay double in development—for a second prototype or source—and production probably won’t justify a second manufacturer, he said. The F-35 was an example of putting simply too many eggs in one basket, he observed. DOD should not “put so much capability in the hands of one prime contractor.”
Second, there aren’t as many programs as there used to be or ought to be. Given the rapid technological progress of threat nations and nonstate actors, “I don’t think we’re putting as many new products into the new product pipeline as we should,” he said.
Senate staffers said putting the third-ranked Pentagon official in charge of rapid prototyping should give experimentation the attention and emphasis it deserves. Work has said experimentation has to become the state of mind in the Pentagon, and that if a defense organization is doing something the same way for more than a few years in a row, that way of doing things probably needs to change. Time—and the data—will tell if the changes to defense acquisition prove to be a help or hindrance.