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America’s Peace Dividend, by Ann Markusen (ed.)
Comments on Michael Oden, Laura Wolf-Powers, Ann
Markusen's
"Post-Cold War Conversion: Gains, Losses and Hidden
Changes in the U.S. Economy"
Katherine Schinasi
Oden, Wolf-Powers and Markusen's paper presents some useful information from the defense conversion era – a period when the U.S. economy moved from labor surplus to labor shortage, when the cycle of technological change dramatically accelerated and the role of the government in directly influencing technology diminished. It was also a period in which the defense economy was redefined. I particularly appreciate the data the authors have gathered on companies at the lower tiers of the defense industry, because determining what is actually happening at those levels is very difficult, but critical to drawing conclusions and shaping policy.
But, in my comments, I would like to take off from a point the authors raise in their conclusions; that is, more efficient and widespread conversion could have also led to a more supple, dynamic defense industry comprised of healthy, more diversified large firms and flexible small contractors. Because it is that characterization of the defense industry, or really of the larger supplier base that also includes commercial firms, to which DOD must have access to meet its goals of military modernization. DOD continues to be faced with the challenge of effectively managing its supplier base. Its focus on the primes during the industry restructuring was understandable but missed critical opportunities to affect the primes relationship with the tiers as well as to affect the tiers directly, where it is really possible to get change. But the fact that DOD looked only outward, jawboning the companies to change their behavior, points out the fatal flaw in the Department’s approach. That is, it ignored the need to look inward, to change its own behavior as a buyer. Through our work in applying best commercial practices to DOD’s acquisition process, we have developed an alternative model to DOD’s current practices that has significant secondary effects on the supplier base–how to manage the base that now exists and how to expand that base to allow the Department to take greater advantage of market–driven discipline. Let me just give you some basic tenets of our model, and refer you to a series of GAO’s reports for more details.
In DOD’s acquisition world, the pressures of competing for the funds to launch and sustain a weapon system program create incentives for starting programs too early, overpromising performance capabilities, and understating expected costs, schedules, and risks associated with developing and producing a weapon. Defense companies and the services’ product developers both engage in this behavior. In contrast, leading commercial firms have adopted a knowledge-based approach to developing new products that embody incentives that encourage realism, candor, and meeting product expectations. Making sure that new technology is mature–that is, demonstrating that it works–is the foundation for this approach. DOD’s variances from best commercial practices result in higher costs, compromised performance, and questionable cost benefit approaches. A knowledge–based approach can be used to reshape DOD’s acquisition process. By itself, such a process will not produce better program outcomes unless it influences the decisions made on individual weapon systems.
If DOD succeeds in applying knowledge-based practices to the weapons acquisition process, the benefits transcend the management of individual programs. First, the ability to execute a program more predictably, within cost and schedule estimates, would lessen the need to offset cost increases by disrupting other modernization programs. This would reduce one of the key barriers potential DOD suppliers face: the reluctance to invest their resources in a venture that can be canceled to provide more funds for some other program in trouble: reasons unrelated to the progress or value of the effort at hand. Decision-makers will also be more able to focus on a balanced investment strategy rather than continue the practice of making decisions about how much each program’s funding and quantities should be reduced so that all programs can continue to be funded. Second, the idea of a phased investment strategy for a program–with contracts tailored for more clearly defined phases of work, such as technology maturation, system integration, and system demonstration–can leave the potential for competition open longer, both across the defense and non-defense industries. Finally, limiting product development cycle times to 5 years or less would allow for more frequent assimilation of new technologies into weapon systems, thereby reducing obsolescence and allowing better management of the industrial base. Reduced cycle times, coupled with planned upgrades, could make for more frequent and predictable work in production, where contractors and the industrial base can profit.
DOD has embodied some of these principles in rewriting its acquisition regulations. Yet, the principles embodied in policy have proven difficult to apply on individual programs. Pressing circumstances are invoked as reasons for making exceptions for the program at hand. Thus, on a case-by-case basis, programs are approved despite knowledge shortfalls or the a failure to live up to advertised expectations. These decisions can be rationalized in a number of ways: an urgent threat needs to be met; a production capability needs to be preserved; despite shortfalls, the new system is more capable than the one it is replacing; the new system’s problems will be fixed in the future. The challenge for acquisition participants is to treat individual program decisions as more than the case at hand. They must weigh and be accountable for the broader implications of what is acceptable or "what will work" and be willing to say no to programs that run counter to best practices. In other words, they have to become better buyers. We have made recommendations along these lines to the Secretary of Defense and the Congress. Acting on them will be key to the success of an acquisition policy anchored in best practices.
The vibrant and disciplined industrial base that the authors of this paper wish for is necessary if DOD is going to continue to be able to meet needs that always seem to outstrip available resources. Companies have, and will continue to respond to the incentives set for them. By becoming a smarter buyer, DOD can allow the market to organize itself in a way that can more efficiently meet DOD’s requirements. But being a smarter buyer also means clearly and candidly estimating resource needs. And it also means being able to execute a stable budget, staying within the estimates of the budget. An actual peace dividend–the topic of interest for this study group – occurs when larger defense needs can be met within a given level of resources or when defined needs can be met by fewer resources. By changing its acquisition approach, DOD may be able to deliver that dividend.
Related GAO Reports and Testimonies Available at Error! Bookmark not defined.
NSIAD-00-199. Forthcoming. Best Practices: A More Constructive Test Approach is Key to Better Weapon System Outcomes.
T-NSIAD-00-137. April 26, 2000. Defense Acquisition: Employing Best Practices Can Shape Better Weapon System Decisions.
NSIAD-99-206. August 16, 1999. Best Practices: DOD Training Can Do More to Help Weapon System Program Implement Best Practices.
NSIAD-99-162. July 30, 1999. Best Practices: Better Management of Technology Development Can Improve Weapon System Outcomes.
T-NSIAD-99-116. March 17, 1999. Defense Acquisitions: Best Commercial Practices Can Improve Weapon System Outcomes.
NSIAD-98-87. March 17, 1998. Best Practices: DOD Can Help Suppliers Contribute More to Weapon System Programs.
NSIAD-98-87. February 24, 1998. Best Practices: Successful Application To Weapon Acquisition Requires Changes in DOD's Environment.
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