Breaking the Mold: Forging a Common Defense Manufacturing Vision (1993)

The Weapons Acquisition Process: An Economic Analysis. 1962. Merton J. Peck and Frederick M. Scherer. Cambridge, Mass.: Harvard University Press. 736 pages.

This volume was the result of a three-year research project at Harvard Business School to investigate the development of advanced weapons. It was based upon comprehensive historical case studies of 12 weapon system programs and seven commercial product development programs and upon more limited investigations of several specific research questions. In Part 1, the book addresses the consequences of the unusual buyer-seller relationship in the nonmarket environment of the weapon acquisition process. A major conclusion is that, due to the great technical and strategic uncertainties in the weapons industry, the high expenditures in individual programs, and the difficulty of accurately predicting cost, development time, and end-product quality, the government commonly participates in managerial functions in the weapons industry that are performed exclusively by sellers in the rest of the manufacturing sector.

Part II examines the structure and dynamics of the weapons industry from both the buyer and seller sides. Thousands of firms, both large and small, serve as defense contractors, with the largest prime contractors showing a fairly high concentration of defense business at any one moment. However, turnover among the leading firms appeared considerably higher than in other sectors of the U.S. economy due to the more rapid rate of

technical change in weaponry at that time. Although an analysis of entry and exit trends over two decades (1940–1960) indicated that the incentives for participation in the national defense were adequate, there was a critical scarcity of engineers, scientists, and project managers.

Part III, on the execution of weapon programs, explored the nature of weapon system innovation and choice. Summaries of 12 weapon system programs showed that new program ideas generally were inspired by significant advances in conceptual and component technology. To the extent that basic and applied research continue to supply these advances, the crucial problems of weapon system choice involve selection of those programs that will afford the highest surplus of military value over acquisition cost, and achieve optimal tradeoffs among speed of development, cost of development, and end-product quality. A weapon system choice model demonstrates that only those programs that afford a very large surplus of value over cost should be conducted in the minimum possible time because reducing development time in an efficiently conducted program increases cost. Choices are made much More difficult by the uncertainties pervading program decisions. To some extent, however, the uncertainty problem is mitigated by the tendency for uncertainty to decline as expenditure rates increase. Thus, lack of urgency has been the most significant cause of development program delays. Program cost increases were found to be caused by technical uncertainties, unrealistic planning, and lack of urgency.

The book also points out the propensity for uneconomical qualitative features to be built into U.S. weapons and for weapon development programs to be overstaffed with technical personnel, leading to waste of national defense resources. Analysis suggested that the U.S. weapons industry had a superior record of efficiency in terms of process improvement, a slightly inferior record in wage and salary bargaining, and a slightly inferior record of overhead control and manpower productivity compared to U.S. industry generally. It also was found that additional contractor investment in basic and applied research, component development, and long lead time production items would benefit the weapon acquisition process.

The volume provides only one specific public policy proposal: the development of a top flight data gathering and analysis organization within the Office of the Secretary of Defense to provide the basis for improved program decisions. More generally, the volume concludes that there are no simple organizational and administrative solutions to the problems of advanced weapon systems acquisition. Neither standard business practices nor the pattern of decentralization used successfully in basic research are appropriate for weapons development. A system of buyer-seller relationships is needed to moderate the insecurity of defense firms who are focused on performing well in current programs rather than enhancing the probability of surviving future technical competitions.

Defense Resource Management Study: A Final Report. 1979. (D. B. Rice, Chairman). Washington, D.C.: U. S. Government Printing Office

The Defense Resource Management Study (DRMS) was commissioned by the Secretary of Defense in November 1977 in response to the President's request for alternative reforms in organization, management, and decision processes in the Department of Defense (DoD). The DRMS focused on five topics within the broad area of resource management:

1. Resource allocation decision process (Planning, Programming, and Budgeting System)

2. Weapon system acquisition process

3. Logistics support of combat forces

4. Career mix of enlisted military personnel

5. Military health care system

The authors of this report recommend an array of "new" ideas and processes that they believe to be conceptually sound, relevant to real problems, and in principle, implementable. The focus of the review is the Planning, Programming, and Budgeting System (PPBS), which encompasses the full range of activities that support DoD decision making on the allocation of defense resources. The DRMS proposals for change to the PPBS include:

• combination of the traditionally sequential program and budget reviews into a single annual review,

• establishment of a Defense Resources Board (DRB) to manage combined program/budget review,

• use of the time in the annual cycle freed by combining the program and budget reviews to focus additional attention on strategic and resource planning, including resolution of selected major issues prior to the program/budget review,

• greater integration of the internal PPBS and the Presidential resource allocation process, enhancing the DoD's capability to support Presidential decision making,

• closer relationship of the program/budget process to the acquisition process.

The centerpiece of the DRMS proposals is a conscious "destructuring" of the current planning, programming, and budgeting cycle through the creation of a planning window, extending from January to May, and a combined program/budget review extending from August to December. These

changes would enhance opportunity to focus on major resource questions that can be authentically zero-based, while recognizing that programming and budgeting are continuously incremental processes that incorporate selected fundamental reviews.

The DRMS found no major deficiencies in existing acquisition policies and procedures, only certain risks and weaknesses to be avoided in their implementation. For instance, to alleviate costly problems associated with the premature commitment of systems to a high production rate, the study recommends delaying the approval of high-rate production until the hardware has demonstrated both technical and operational adequacy, reliability, supportability, and readiness, and encourages the development of major, widely used subsystems independent of final weapon system development programs. The report recommends consideration of the following ownership issues during the acquisition process:

• Systems Availability:

Explicit and measurable system availability goals should be established once a system concept is accepted and the needed resources allocated.

• Testing and Evaluation:

Testing and evaluation should be required to verify "supportability" and measure progress toward availability goals.

• Support Analysis:

The Office of the Secretary of Defense (OSD) should establish a Support Analysis Improvement Group.

• Support Evaluation:

An integrated support evaluation should be conducted when adequate experience is accumulated on the fielded equipment and on the effectiveness of its full training and support system.

• Acquisition Process Support:

Increase top-level support for the acquisition process.

In addition to the PPBS and acquisition recommendations listed above, recommendations were offered in the areas of logistics, first-time career mix of military personnel, and health care issues.

The DoD Acquisition Improvement Program. 1983. Defense Systems Management College. Columbia Research Corporation. Washington, D.C.

In April, 1981 the administration launched a series of 32 major management initiatives to improve the defense acquisition process. The DoD Acquisition Improvement Program (AIP), also known as the Carlucci Initiatives after the then-Deputy Secretary, were intended to increase stability in the acquisition process. These initiatives included use of multiyear procurement, dual-sourcing for procurement, and more efficient production rates, as well as other means to improve management of the procurement process.

The DoD budgets have incorporated certain Carlucci initiatives in procurement of individual weapon systems. The Congress has already considered many of these proposals. For example, the Congress approved 21 multiyear programs for which DoD claims savings of $3.4 billion. See Office of Technology Assessment's Holding the Edge: Maintaining the Defense Technology Base, Volume 2, page 20.

Proposal for a Uniform Federal Procurement System. 1982. Office of Management and Budget, Office of Federal Procurement Policy. Washington, D.C.

The proposal for a uniform Federal Procurement System responded to Public Law 96–83 and is a compendium of the proposals for procurement system, management system, and legislative reform developed in response to that law. The effort was intended to put federal procurement on a more systematic, professional, and business-like basis to achieve substantial savings. The features of the proposed federal procurement system are integrated by a common objective—to satisfy agency mission needs effectively. Principal system features are:

• a streamlined management structure with clear lines of authority, responsibility, and accountability,

• decentralized agency procurement operations that are responsive, efficient, and free of cumbersome rules and regulations,

• a professional workforce with latitude for initiative and business judgement,

• understandable and measurable standards for management and operational performance,

• a control system that identifies problems early,

• organized feedback of information on system performance, and

• a means for adjustment of the individual components of the system.

Under the proposal, the procurement system would be simplified and made more responsive. The planned system called for agencies to plan procurement in sufficient time to analyze the market and attract competition. The professionalism of procurement personnel was to be enhanced. Since the availability of funds is essential to every procurement action, and legislative changes were suggested to make appropriations more timely, the proposal suggested increased flexibility in use of appropriated funds and expanded use of multiyear contracts. The proposal also recommended earlier advance procurement planning, since there was no government-wide requirement for long-range procurement planning.

The report describes a framework for management, evaluation, and modi-

fication of the system so that it would remain integrated, interactive, and responsive. The Office of Federal Procurement Policy, as part of the Office of Management and Budget (OMB), would provide a leadership and coordination role in implementing, maintaining, and improving the system. The proposal was to be implemented by:

• Issuing an Executive Order to initiate administrative actions to expand competition, simplify and streamline the process of doing business with the government, sharpen agency management systems, and develop performance standards and career development programs. (This was completed by President Reagan as E.O. 12352 on March 17, 1982.)

• Amending the existing statutory framework to introduce substantive fundamental changes.

• Putting the proposed system into place and certifying that procurement systems meet approved standards.

• Maintaining the system and making design improvements to meet system goals.

The President's Private Sector Survey on Cost Control (PPSSCC). 1982. The Grace Commission. (J. Peter Grace, Chairman) Washington, D.C.: U.S. Government Printing Office.

President Reagan established the PPSSCC by Executive Order on June 30, 1982. The commission's mandate was to identify opportunities for increased efficiency and reduced costs achievable throughout the federal government system by executive or legislative action. The study was led by an executive committee of 161 chief executive officers of major corporations and other private-sector experts. The commission's report contains 2,500 recommendations on 784 different issues which it claimed would save $424 billion over three years when fully implemented. The PPSSCC, better known as the Grace Commission, characterizes its recommendations as means for reducing program waste, correcting system failures, improving personnel management, and attacking structural deficiencies within the federal government. The PPSSCC was organized into 36 task forces, 22 of which were assigned to study specific departments and agencies, and 14 to study cross-cutting functions such as personnel, data processing, and procurement practices.

In subsequent analysis of the commission's findings, the General Accounting Office and the Congressional Budget Office reviewed nearly 400 of the PPSSCC recommendations that account for almost 90 percent of the potential three-year savings to determine which recommendations require administrative or legislative action. The majority of the recommendations selected for review are concerned with management issues, such as finan-

cial management, procurement practices, management of real property, and management of research and development programs. (See, Analysis of the Grace Commission's Major Proposals for Cost Control: A Joint Study by the Congressional Budget Office and the General Accounting Office, Washington, D.C.: Government Printing Office, February 1984.)

Cost savings were identified in diverse government operations such as federal income tax collection and administration, federal work force productivity, Social Security administration, and increased reliance on the private sector for support services (especially for the DoD and the Veterans Administration). The Congressional Budget Office (CBO) and the General Accounting Office (GAO) reviewed 112 different recommendations made by 12 separate PPSSCC task forces and in management office reports, all of which pertained to national security. The Grace Commission estimated that net savings in the national security area over a three-year period, after allowing for duplications and overlaps, would be $94 billion. However, the majority of the defense recommendations did not permit cost estimates because they lacked sufficient programmatic detail or because the nature of the recommendations did not lend themselves to savings estimation.

The GAO categorized the DoD recommendations into four areas: (1) procurement of weapon systems, (2) management of bases and base activities, (3) management of research and development programs; and (4) financial management. For example, the PPSSCC recommended that the DoD increase the use of common parts and standards in weapon systems, and establish a timetable for the consolidation of depot-level maintenance functions. The commission also recommended that the DoD take three steps to improve financing procedures for defense contracts:

1. review contract pricing, profit, and financing policies and simplify the entire process;

2. establish an integrated database management system for acquisition policy analysis, using the latest technology and tools; and

3. reduce cash progress payment rates on fixed-price contracts to February 1981 levels and establish the required contractor investment in work-in-process capital at 15 percent, rather than the then-current levels.

In addition, the commission recommended that the DoD increase the production rates for the individual weapons purchased each year and ameliorate the problems associated with altering planned purchases from year to year. The purpose of these proposals was to sustain highly cost-effective production levels for weapon systems. Specifically, the commission proposed that the DoD:

• Ensure that the proposed rate of weapons production is affordable before production begins. The weapons in production at any one time

should be restricted to those that can be afforded at production levels that ensure the lowest costs.

• Create a management reserve fund to meet financial emergencies and prevent production slowdowns (stretchouts) that raise costs.

• Establish a two-year budget cycle for major weapons to help prevent annual changes in production plans.

• Stabilize PPBS by issuing firm budgetary guidance at the outset of the annual budget cycle and by integrating the program and budgeting phases of the cycle.

• Present the best cost estimate for the entire weapon acquisition cycle, and provide key financial data for the affordability analyses suggested above. DoD also should provide estimates that identify separately the effects of inflation and quantity changes on weapon costs and establish a new baseline when a system undergoes a major change in its design.

• Establish an audit trail from each system acquisition report baseline cost estimate that would incorporate cost estimates into budget projections and calculations of unit cost growth.

• Allow greater reprogramming of appropriated funds from low-to high-priority projects in order to ensure funding of essential procurement programs.

• Analyze the effects of stretchouts on cost growth for each major system in order to establish procurement priorities.

The CBO-GAO review found that potential deficit reductions that might result in 1985–1987 from implementing most of the Commission's recommendations would be much smaller than the three-year savings originally projected. The majority of the Grace Commission recommendations can be characterized as proposals to change management to achieve greater efficiencies or to operate on a more business-like basis; however, the bulk of the projected savings were associated with proposals for changes in policies or restructuring of programs. All of the latter would require Congressional action.

The Affordable, Acquisition Approach Study (A3). 1983. Air Force Systems Command, Andrews Air Force Base, Md.

This study focused on the Air Force acquisition process and was undertaken in response to growing concerns over increasing costs and lengthening development and production times for major programs. The goal of the study was not to identify specific solutions, but to highlight key problem areas for later study. The principal finding of the study was confirmation that there had been a significant increase in the time required to develop new major weapon systems; at the same time, there had been a significant

decrease in annual production rates. Although significant performance gains had been achieved as new weapons were acquired, these gains had come with a significant increase in procurement cost as measured by total program unit cost.

The study examined 109 Air Force programs in five categories, only four of which had the necessary data to be analyzed statistically. The study team developed recommendations for improvement of the PPBS process and the acquisition process to alleviate the problems caused by funding instability and subsequent cost growth and schedule stretchout.

PPBS:

• A planning organization at the top level of the Air Force should develop 15-year investment plans that reflect realistic fiscal constraints. These plans would become the basis for Program Objective Memoranda (POM) and Air Force Systems Acquisition Review Council (AFSARC) decisions.

• All organizations involved with the programming process should redouble efforts to stabilize the budget, schedule, and technical baseline of high-priority programs, and limit new starts and cancel or defer programs that cannot fit into investment plans.

Acquisition:

• More emphasis should be placed on pre-full-scale development (pre-FSD) to include the proper balance of resources. Before entering FSD, program alternatives should be explored more fully and a well-defined baseline for cost, schedule, and technical performance should be established that reflects a total Air Force commitment.

• The approval to start FSD should be recognized as, or at least treated with the seriousness of, a commitment to production; plans, funds, and acquisition strategies should be developed to reflect this commitment.

• Continued emphasis should be placed on improving Program Management Tools. This includes timely implementation of the Defense Acquisition Improvement Program initiatives, development of enhanced cost management tools to ensure that program cost estimates incorporate most likely costs, and development of a comprehensive and realistic program baseline before proceeding into FSD.

The study established that program instability (large unplanned changes in program funding and/or schedule) is the major cause of cost and schedule growth.

A Quest for Excellence: Final Report to the President. 1986. President's Blue Ribbon Commission on Defense Management. (David Packard, Chairman). Washington, D.C.: U.S. Government Printing Office.

The Packard Commission was established in part because public confidence in the effectiveness of the defense acquisition system had been shaken by ''horror stories'' of gross inefficiency—overpriced spare parts, test deficiencies, cost and schedule overruns. A major task of the Commission was to evaluate the defense acquisition system, to determine how it might be improved, and to recommend changes that could lead to the acquisition of military equipment with equal or greater performance but at lower cost and with less delay. For this reason, the Commission formed an Acquisition Task Force. Major areas addressed by the task force and specific recommendations are noted below.

National Security Planning and Budgeting Recommendations:

• Strengthen five-year plans (by the National Security Council, OMB, and the Office of the President) committed to the "top line" budgets and broad strategy

• Two-year budgets

• Chairman Joint Chiefs of Staff (JCS) in resource planning system

• Chairman JCS to do annual net assessments (related to resource levels)

• Milestone authorizations and appropriations for major programs

• Mission area budgeting

Military Organization and Command:

• Chairman JCS as principal military adviser

• Joint staff under JCS

• Chairman JCS in command loop

• Establish vice-chairman

• Strengthen the Unified and Specified Commands (CINCs)

• Shorten command path for Special Forces

• Unified Transportation Command

• Overall emphasis on jointness

Acquisition Organization and Procedures:

• Establish Under Secretary of Defense for Acquisition

• Establish only one level between "Service Acquisition Executive" and Program Manager

• Reduction of acquisition personnel

• Simplify and resolve all conflicts in existing procurement legislation (one regulatory package)

• Strengthen acquisition personnel systems—political appointees, civilian professionals, procurement personnel.

• Establish Joint Resources Management Board

• Greater use of commercial components and systems

• Greater use of prototypes (including costs)

• Increased role of the Defense Advanced Research Projects Agency (DARPA), especially with regard to prototyping

• Greater use of Operation, Test & Evaluation (OT&E)

• Commercial-style competition (with emphasis on quality and proven sources)

• Institutionalize "baselining"

• Increased use of multiyear procurement

• Revise data rights (correct laws and DoD abuses)

• Strengthen industrial responsiveness (including funding)

Government and Industry Accountability:

• Strengthen civil and criminal laws (especially Civil False Claims Act and administration action on false claims)

• Establish self-governing codes of ethics for industry (especially regarding enforcement)

• DoD should remove barriers to contractor self-governance (e.g., subpoenas of internal audits)

• The Under Secretary for Acquisition should have responsibility for overall audit policy

• Remove abuses of suspension and disbarment (establish a consistent DoD policy; Federal Acquisition Register amendment)

Bolstering Defense Industrial Competitiveness. 1988. Report to the Secretary of Defense by the Under Secretary of Defense for Acquisition. Washington, D.C.: U.S Department of Defense.

This report identifies six strategic initiatives to address the fundamental causes of U. S. industrial competitiveness problems:

• forging the right relations with industry;

• improving the acquisition system;

• establishing strategic defense industrial plans that support U.S. strategic military plans;

• developing manufacturing capabilities concurrent with the development of weapon systems;

• laying the foundation for the technical skill base required for the defense needs of the future; and

• ensuring that industrial base issues important to U.S. defense benefit from a full spectrum of potential policy remedies when appropriate.

Addressing the first strategic initiative, the report concludes that the DoD's ability to meet the material needs related to U.S. security objectives is dependent on the private sector and is being impeded by an exaggerated adversarial relationship. Lack of trust on both sides creates an environment in which significant improvements are increasingly difficult. Regardless of the source of distrust, there is a powerful need to build a cooperative relationship between the DoD and industry that will lower barriers to improvements, enable more effective policy development and implementation, and contribute to the national goal of a strong industrial base.

The report suggests creation of a mechanism to enable senior industry managers to participate in the analysis of priority issues and alternative solutions, which would contribute to better understanding and consistency of effort. The report recommends establishment of two bodies, a Manufacturing Advisory Council and a Defense Manufacturing Board (DMB), to function in similar ways, but in different environments. The Manufacturing Advisory Council would focus on public policy issues and national economic issues relating to manufacturing, and would provide the DoD with essential input regarding civilian issues, programs, and policy options in these areas. The Council would be assembled by the National Academy of Sciences, as an objective third party between DoD and industry.

The Defense Manufacturing Board was established within DoD as a permanent entity to provide visibility to manufacturing and industrial base issues. The DMB was modeled after the Defense Science Board. Both advisory bodies played a major role in facilitating several other recommendations, such as advising the office of the Production Base Advocate on issues such as factory modernization investments, how to integrate commercial and military production, and how to achieve greater stability in major acquisition programs. (The DMB was disbanded in 1990.)

Report Outlining U.S. Government Policy Options Affecting Defense Trade and the U.S. Industrial Base. November 1988.

The Defense Policy Advisory Committee on Trade

This report of the Defense Policy Advisory Committee on Trade addresses the need for more coherent, long-term policy related to defense

trade and the defense industrial base and more cooperative industry/government relations, and suggests an outline for such a policy. Recommendations contained in the report fall under the following categories:

Enhancing Participation in Global Markets

• Increasing Government Support for Trade and Cooperation

  • Executive Branch Organization to Support Trade and Cooperation

  • Legislation to Enhance Trade and Cooperation

  • Technology Transfer Reforms

  • Financing Defense Exports

  • Middle East Arms Sales

  • Congressional Notification of Arms Transfers

• Improving the International Environment for Trade Cooperation

• Effect of the Multilateral Trade Negotiations on Defense

• Implications of a Unified Europe on U.S. Defense Industry

• U.S./Japanese Defense Trade and Cooperation

• Coping with Escalating Offset Demands

Strengthening U.S. Defense Industrial Base

• Responding to Globalization of the Defense Industry

  • Foreign Ownership of Defense-Related Firms

  • Implications of Foreign Sourcing

• Preserving U.S. Technology Leadership

  • Government Support of R&D

  • Effective Use of Competition to Encourage Innovation

  • Protection of Private Data Rights

  • Effective Communication of Future Requirements

  • Increased Use of Commercial Practices and Items

  • Education, Training, and Recruitment

• Ability to Modernize and Attract Capital Investment

  • Effective Government Industry Cooperation

  • Status of the U.S. Semiconductor Industry

Picking Up the Pace: The Commercial Challenge to American Innovation. 1988. Council on Competitiveness. Washington, D.C.

This report examines U.S. technological capability, particularly the ability of the United States to maintain its overall world leadership in science and technology development, and in the commercialization of that technology. The report argues that effective development and deployment of technology

are critical to America's ability to compete in world markets, that technological innovation is closely linked to systematic, incremental improvements that are driven by market needs, and that a variety of warning signals point to problems in the ability of the United States to commercialize technology rapidly. Industries cited as examples of deterioration in U.S. high-technology capabilities include consumer electronics and semiconductors. Recommendations regarding steps the federal government should take include:

• Improvement of the macroeconomic environment that affects the private sector's ability to develop and apply technology (reduce federal budget deficit, restructure tax policy to promote savings and long-term investment).

• Implementation of specific steps at the executive and legislative levels to improve the process for formation of technology policy.

• Increase investment in the education, facilities, and equipment that constitute the nation's technology infrastructure.

• Widening of the focus of national research and development efforts and streamlining, consolidation, and closing of federal laboratories until there is assurance that the missions and roles of the laboratories are relevant to the needs of the nation over the next 20 years.

Lifeline in Danger: An Assessment of the United States Defense Industrial Base. 1988. Washington, D.C.: Air Force Association.

This report, prepared by the Air Force Association and the U.S. Naval Institute Military Database, identifies a number of challenges to American industry and its support of national defense, and suggests primary areas of emphasis to ensure adequate industrial support in the future. The major issue addressed is the inability of the United States to meet needs for defense mobilization or a surge in production. It examines the increasing dependence on foreign sources for high-technology military components and points out that the impact on American jobs and businesses is an additional reason for concern. Major recommendations contained in the report include:

• Appointment of a Presidential commission to plan defense management reform and strategic modernization.

• Assembly (by DoD) of crucial information on the full extent of supplier and subcontractor relationships and the degree of foreign dependencies for critical weapons and components.

• Reexamination by the Presidential commission of incentives and disincentives in defense production, and development of a plan for reform of the tangled network of laws and regulations that have led to the current condition.

• Avoidance of hasty legislation.

• Adoption of a more objective DoD stance in its dealings with the defense industry.

• Nurture of the domestic supplier contractor base by prime contractors.

• The federal government should conduct a major command post exercise to diagnose and demonstrate the state of the defense industry.

The Defense Management Challenge: Weapons Acquisition. 1988. J. R. Fox and J. L. Field. Boston, Mass: Harvard Business School Press.

Fox and Field address two prevailing attitudes toward the government's role in their study of defense acquisition management. Those holding the "liaison manager" point of view believe the government program manager serves primarily to promote a program, prepare progress reports, negotiate with various parties within DoD, and resolve conflicts between parties and the contractor. Cost control is seen as the sole responsibility of the contractor and there is no need for the program manager to have excessive training or experience with industrial management or cost control methods. Program management is therefore a reasonable rotation for military officers between operational assignments. The alternative view is one of an "active manager." In this formulation, the program manager's role is one of planning, rigorous oversight, and negotiation with and control over the contractors. Fox and Field advocate the active manager view, where responsibility for cost control is shared between government managers and the contractor. By establishing and implementing incentives, both formal and informal, the program manager has significant opportunity to reduce costs throughout the life of the program. The existing system of staffing and training military program managers cannot produce individuals capable of taking this role.

On the civilian side, the authors recommend reforming civil service regulations to establish higher standards and permit removal of mediocre performers. According to Fox, absent these changes, "defense acquisition programs will appeal primarily to those satisfied with the present low level of responsibility."

Affording Defense. 1989. Jacques S. Gansler. Cambridge, Mass.: MIT Press. 417 pages.

Chapter 11 outlines seven major reforms needed to achieve cultural change in weapon acquisition. The objectives are to achieve higher quality weapon systems that fail less often and are easier to maintain. These weapon systems would be far less expensive and would still have the high perfor-

mance needed to maintain the technological leadership that is the essence of America's defense strategy. Another objective is more rapid fielding of new weapon systems so advanced technology can be brought to bear in sufficient quantity to make a difference in the outcome of a conflict.

Gansler advocates that these objectives be achieved through natural (i.e., market) incentives rather than through increased government regulation. These incentives would be geared toward improved quality and lower cost as well as toward the traditional goal of improved performance. To achieve the objective, two necessary conditions are outlined:

1. The government must create an environment in which both government employees and contractors have self-evident reasons for improving quality and lowering costs. Such incentives include promotion, profits, increased sales, and professional pride. Clear lines of responsibility need to be consistent with this approach (using incentives as a principle means of motivation). For this reason the Unites States should move toward far greater centralization of the process of making acquisition decisions by strengthening the authority of the Under Secretary of Defense for Acquisition and the Vice-Chairman of the Joint Chiefs of Staff.

2. In order to achieve the needed reforms, Congress must play a cooperative role. Although most of the changes recommended can be implemented within existing legislation, the full support of Congress will be needed and, in a few cases, new legislation will be required to allow the changes to take place.

The seven reforms necessary to achieve cultural change are:

1. Enhancing the quality of acquisition personnel

   • create clear career paths

   • retain top talent

   • increase promotion opportunities

   • increase salaries

   • increase knowledge of technical and production functions

2. Streamlining the acquisition organization and procedures

   • fewer but more qualified people making decisions

   • reduce oversight within DoD to two levels

   • develop simple government procurement regulations that give procurement personnel far greater freedom to exercise their management decisions (empowerment).

3. Achieving program stability

   • increase cost realism in planning programs

   • increase scrutiny in selecting programs

   • prove technology before production

• minimize changes in programs as they evolve (save for next generation)

• combine multiyear contracting and multiyear budgeting

4. Achieving a better balance between cost and performance in evaluating the initial requirements for a new weapon system

   • constant interaction between the users and developers

   • increased availability of information on production and support costs when design tradeoffs are being made

   • strong military involvement in the early operational testing of systems

5. The use of advanced technology to reduce costs

   • Redouble engineering effort devoted to the technology of manufacturing, as well as the weapon system itself

   • Emphasize the attainment of high quality through improvements in the production process

   • Establish cost as a design parameter throughout a product's evolution ("design to cost")

   • Make organizational changes to ensure that non-traditional uses of advanced technology are encouraged

6. Expanding the use of commercial products

   • take advantage of high volume in the commercial sector at the component level, subsystem level, and even the system level

   • rely less on military specifications, rely more on commercial specifications, and change procurement practices

7. Increase competition, with emphasis on quality and demonstrated performance

   • rely on market incentives where prior performance and quality are major decision factors

   • overcome hindrances such as higher up-front costs that promise savings later

A broad strategy for the defense industry is offered involving five major points:

1. Development of a research and development strategy geared toward advanced materials, components, and manufacturing technology.

2. Integration of the defense economy and the civilian economy at the plant level (with the DoD taking the necessary steps to remove the existing barriers to integration).

3. Increase the use of continuous competition, stressing quality and performance criteria as well as cost.

4. Consider explicitly the impacts of all the DoD's major policy, resource, and program decisions on industrial strategy and vice versa.

5. Recognize the defense industrial base as a critical part of the nation's overall national security capability, approaching the strategic and tactical forces in importance.

Holding the Edge: Maintaining the Defense Technology Base, Volume I, II. 1989. U.S. Congress, Office of Technology Assessment. Washington, D.C.: U.S. Government Printing Office.

This report focuses on the management of defense technology base programs and facilities, technology transition, and dual-use technology. It is divided into three sections. The first addresses strategic management of DoD technology base programs. It examines the system by which the goals of the technology base programs are identified, as well as the methods used to allocate resources in order to reach those goals. Emphasis is on the role of the Office of the Secretary of Defense (OSD) in guiding and coordinating the efforts of the Army, Navy, Air Force, and other DoD elements. The management of the laboratories run by the three services also is addressed. The second section analyzes delays in application of technology in the field. The final section is concerned with dual-use technology.

Volume 2 of this report contains detailed supporting material on selected topics, including the DoD acquisition system, summaries of studies on acquisition times, acquisition milestones and phases, the fiber optics industry, the advanced composites industry, the software industry, European research and technology, and Japanese strategic management. In the absence of recommendations, Chapter Two of the report presents issues and options for Congress, including:

• Reform of the Defense Acquisition System—If Congress is serious about making the system work better, it will have to face some hard choices.

• Independent Research and Development (IR&D) Recovery—The DoD needs to present a coherent position.

• Reform of the DoD Laboratory System—The Congress should reform the system itself, order DoD to reform it according to congressional guidelines, or leave the job to DoD.

• Reform of Strategic Planning of Research and Development Programs—If there are to be strategic planning and central coordination, these functions will have to be assigned to the OSD. Accordingly, OSD will need greater power to plan, coordinate, and oversee technology base programs.

• Reform of Government Personnel Practices—Loosening the rigid civil service salary structure is a fundamental step in reform of laboratory management. The ability to provide competitive compensation is a major prerequisite for converting laboratories to government-owned contractor-operated status.

• Fostering Greater Coordination Between Defense and Civilian Research and Development—Several steps Congress could take include: expanding the availability of commercial exploitation of the vast amount of research and development done in DoD laboratories and under DoD contract, coordinating the activities of defense laboratories more closely with other federal agency laboratories, moving technical personnel between government and industry, and reforming DoD acquisition to make it easier for DoD to do business with innovative companies.

• Dealing with International Trends in High-Technology Industry—Congress will have to formulate policy regarding foreign ownership of U.S. plants and foreign siting of U.S.-owned facilities, or encourage the administration to do so. The solution lies between the two extremes of buying defense components only from U.S.-based and U.S.-owned suppliers, and buying solely on the basis of the best business deal. Intermediary choices include buying from U.S.-based foreign-owned companies, U.S.-owned companies regardless of location, and nearby sources (i.e., Canada and Mexico) regardless of ownership.

New Weapons, Old Politics: America's Military Procurement Muddle. 1989. Thomas L. McNaugher. Washington, D.C.: The Brookings Institute.

Although huge sums are spent on defense systems, no one likes the process that brings weapons into existence. The problem, McNaugher argues, is that the technical needs of engineers and military planners clash sharply with the political demands of Congress. He highlights the extent to which strategies for developing arcane and uncertain technologies have come to be shaped more by the needs of American politics than by the needs of technology. The resulting acquisition process errs systematically in the way it chooses new technologies, develops them into weapon systems, and rushes them prematurely into the field. Worse, it operates largely beyond the control of policymakers and politicians charged with providing for the common defense. Repeated attempts to solve these problems with acquisition reform have not just failed, but often have made things worse. He offers reforms that would fundamentally reorganize the way the defense sector interacts with American business, such as:

• Extended competition. Because important parts of the design process unfold so late in development (even in the early stages of production), competition should continue longer than it does currently. Competition should end only after early operational models of competing new designs have been subjected to operational as well as technical testing. Extended

competition will require the use of less detailed technical and project financing requirements.

• Buying systems. Given the DoD's long procurement history and intimate knowledge of complex systems, McNaugher argues that the requirement for a new system should focus principally on a unit production cost the government finds acceptable. In financing systems, it should be possible to estimate the cost of development permitting more frequent use of fixed-price development contracts with minimum detail. Rather than basing prices on cost, the government should state the price it would be willing to pay for the final product and allow developers to base their costs on that price.

• Buying information. The government should spend more money fully exploring new technologies before making commitments. The DoD's goal should be to create a stable environment, over a reasonably long period (say, 5 years) during which development teams can explore and test a new device.

Deterrence in Decay: The Future of the U.S. Defense Industrial Base. 1989. Washington, D.C.: Center for Strategic and International Studies.

This study represents the final report of the Center for Strategic and International Studies (CSIS) Defense Industrial Base Project, which was co-chaired by Senators Jeff Bingaman and John McCain. The report analyzes the nature and causes of trends in the defense industrial base and argues that the U.S. defense industrial base faces significant challenges. These challenges include: (1) the U.S. defense acquisition system is grossly inefficient with the greatest cause of this inefficiency being unrealistic defense programming and budgeting, (2) U.S. firms are becoming increasingly unwilling to do business with the DoD, (3) the declining levels of investment and profitability in defense firms, and (4) the increasing import penetration and foreign dependence in the defense industry. The study measures the magnitude of the U.S. defense base problem. The report argues that present U.S. policies toward the defense industrial base do not address these problems. Following a ''smarter not richer'' strategy, the report recommends more productive oversight of defense industries in peacetime to reduce costs; more rational planning, programming, and budgeting in the context of U.S. national security strategy; and selective incentives for firms in industries that are particularly disadvantaged in globally competitive defense markets or for industries in which it is especially vital to have a domestic production base.

Integrating Commercial and Military Technologies for National Strength: An Agenda for Change. 1991. Report of the Steering Committee on Security and Technology. Washington, D.C.: Center for Strategic and International Studies.

The committee envisions a future in which the government maintains only a very few defense-unique sectors in the economy for technologies, like nuclear weaponry, that are specific to defense. For most of its needs government would cooperate with the commercial sector in research and development and in acquisition of materials, components, and equipment. Investments in technology and facilities would not be divided artificially by end user, but used synergistically to enhance both the security and economic competitiveness of the United States.

The report identifies the DoD's inability to reach easily beyond its captive defense industrial base as a central problem. The DoD procurement system virtually forces a separation of the private sector into two discrete economies: defense and non-defense. In a series of industry case studies, the committee found that, in most companies, defense products are designed, developed, produced, and supported separately in isolated plants or independent divisions. Many companies maintain separate engineering and production facilities for military work, much of which duplicates billions of dollars in capital and labor investments in the commercial sector.

This segregation of commercial and military work also is reflected in the federal research laboratories, where there is little attempt or desire to exploit the growing synergies between military and commercial technologies.

An integration strategy requires two types of actions: a total commitment to change by the DoD—fully supported by Congress—and a specific legislative and regulatory agenda for implementation. At the policy level the burden rests heavily with the DoD; it must be the task of the Deputy Secretary, the Under Secretary for Acquisition, and the service secretaries to reallocate and redirect resources, organizations, programs, and policies to this objective and continuously to monitor progress. The committee maintains that an integration strategy merits such priority because, without it, DoD will not be able to afford a viable military posture.

The committee identified four areas of regulation or legislation that are the dominant factors driving a wedge between commercial and military business. Listed in order of priority these are:

1. Accounting Requirements and Audits:

The committee's recommendation is to broaden the exemption from cost and pricing data for commercial products or products procured in competitive bidding. The committee suggested creation of exemptions for those corporate operations primarily

involved in the commercial market, and upgrade of training in market research for all DoD contracting officers.

2. Military Specifications and Standards:

The committee urged the DoD to create internal incentives, directives, and measures of successful implementation in each buying command for movements away from defense-unique processes or product requirements.

3. Technical Data Rights:

The committee's recommendations are intended to create a better balance between industry's proprietary rights and DoD's data requirements. The intent is to limit the government's demand for "unlimited" rights in data and software, which discourages companies both from incorporating commercial technologies into defense contracts and from exploiting commercial opportunities arising from defense investments.

4. Defense Procurement Regulations:

The committee's objective is to exempt commercial products and/or commercial suppliers from government-unique contractual obligations that are inconsistent with the Uniform Commercial Code (which governs the majority of transactions in the private sector).

Finally, the committee recommends that as the federal laboratory system is reduced in size (corresponding to cutbacks in defense), the laboratories also should shift their focus—consistent with broad movement toward integration. Thus, the government should implement more fully the provisions of the Stevenson-Wydler and Federal Technology Transfer Acts.

1979 Defense Science Board Summer Study on Reducing the Unit Cost of Equipment — March 1980. 155 pages.

A fundamental premise of this evaluation was that the DoD procurement account would increase only moderately in the next decade. With this basic assumption, the Board analyzed four significant alternatives for action: (1) reduce unit costs for both new and existing systems; (2) increase the capability of current platforms and major subsystems where needed to meet the changing threat; (3) reduce the number of new starts, buying more of current systems; or (4) reduce the number of systems procured. The Summer Study Task Force concentrated on the first two alternatives. A number of concepts were examined that showed promise for achieving cost reductions, including competition; use of commercial equipment; reducing the cost of current regulations, specifications, and the acquisition process itself; and minimizing the cost drivers inherent in the process of setting performance requirements.

Use of Commercial Components in Military Equipment — January 1987, 69 pages.

Following the Packard Commission recommendations to increase the use of commercially developed, off-the-shelf equipment, this DSB study panel was asked by the Under Secretary for Research and Engineering to evaluate the cost-effectiveness and performance trade-offs involved in commercialization and to recommend specific ways to accomplish it. This report documents successful examples of commercializations and makes recommendations on ways to do more. Specifically, the panel indicates that, although increased use of commercial equipment has advantages, the increased use of commercial procurement practices could augment these advantages.

Defense Semiconductor Dependency — February 1987, 103 pages.

The study addresses the impact of U.S. military dependency on foreign sources for semiconductor devices that are used in all advanced military systems. The report concludes that, while current dependency on foreign sources is modest, semiconductor manufacturing trends indicate that the United States will become highly dependent in the future if immediate actions are not taken. U.S. technological leadership in this critical area is rapidly eroding, with serious implications for the nation's economy and immediate and predictable consequences for the DoD. The report further concludes that actions must be taken to: (1) retain a domestic strategic production base and (2) maintain a strong base of expertise in the technologies of device and circuit design, fabrication, materials refinement and preparation, and production equipment.

Technology Base Management — December 1987, 55 pages.

This DSB study focuses on two main issues: (1) the effectiveness of DoD's Technology Base program in producing technology options for various users and operations; and (2) how effectively new technology is transferred to field application. The study evaluates the management of DoD's Technology Base Program, including the processes by which resource allocation decisions are made. The efficiency of employing available resources is addressed, but the adequacy of the present level of resources was not reviewed.

The Defense Industrial and Technology Base — October 1988 Vol. I, 55 pages, and Vol. II, 157 pages. Report completed by a Defense Science Board Task Force as requested by Secretary of Defense Frank Carlucci.

The objective of the Task Force was to recommend a strategy and specific actions for government and industry to adopt that would ensure the defense industry's capability to provide the support required to fulfill national strategy objectives. The industrial and technology base faces new and difficult challenges, including global interdependence on resources, an impending loss of technological leadership, and insufficient long-term investment by industry because of a propensity toward short-term planning. The result is a significant difference between industry's capabilities and the tasks that national security plans assume it can perform. The Task Force makes ten recommendations for steps to reverse this situation:

1. Establish a permanent Cabinet-level mechanism to determine industrial, and technology, base capabilities, compare capabilities with national security objectives, and develop national policy initiatives to reconcile the differences.

2. Improve the planning mechanism affecting surge capabilities by integrating those capabilities into the acquisition process and selectively funding high-priority surge items chosen by the Joint Chiefs of Staff or the services.

3. Because the DoD technology base is being weakened by its inability to attract and retain high-quality management and technical personnel, DoD should immediately implement those policies and procedures necessary to compensate and adequately reward highly qualified technical experts and should propose an organizational structure that could enable private sector operation of select facilities under government control.

4. The Under Secretary of Defense for Acquisition (USD(A)) should develop and implement centralized and integrated policies to develop the industrial base, improve acquisition processes, and coordinate service implementation.

5. USD(A) should implement a set of consistent and integrated acquisition policies. USD(A) should review the services' acquisition policies to determine inconsistencies and variances with DoD policy. Direct actions should be taken to eliminate these differences and to impose specific objectives for industrial, and technology, base needs.

6. Because independent research and development (IR&D) has profound influence on the ability of industry to satisfy DoD's evolving needs, the Secretary of Defense should: (1) reaffirm the importance of IR&D to DoD; (2) determine IR&D ceilings in the context of the long-term assessment of technology requirements, not in relation to specific budget levels; and (3) endorse the existing method of IR&D bid and proposal cost recovery.

7. To ensure that competition provides DoD with the best value for each defense dollar, the USD(A) should ensure that procurement policies and the competition advocacy process base competition principally on total product quality and good business practices, and not on simple price competition.

8. DoD should undertake to reverse the deterioration of the maritime segment of the industrial base to ensure the credibility of America's conventional deterrent.

9. Further improvements should be made to the policies governing the use of best and final offers ("BAFOs"). The task force strongly supports DoD's recent efforts to reform these policies, but suggests that a greater effort should be made to reduce the use of BAFOs and eliminate second-and third-time BAFOs. Pricing data should be included with all request for proposals (RFPs), including those that now call only for technical work effort definition. To the greatest extent possible, responses to RFPs should become "Best and only offers."

10. Because current allegations of misconduct are diverting attention from efforts to implement improvements to the acquisition process, DoD should undertake specific actions to reduce the probability of similar future incidents.

DoD Instruction 5000.38," Production Readiness Reviews (PRR)," 24 January 1979, sets forth general procedures and guidelines for conducting PRRs of defense systems. The objective of PRRs is to verify that the production design, planning, and associated preparations for a system have progressed to the point where a production commitment can be made without incurring unacceptable risk of violating established criteria regarding schedule, performance, cost, or other parameters. It is the policy of the DoD to require a PRR before production begins, including any limited production occurring during FSD.

DoD Directive (DoDD) 4245.6," Defense Production Management," 19 January 1984, is a DoD policy to plan production early in the acquisition process and to integrate actions ensuring an orderly transition from development to cost-effective rate production. The policy directive emphasizes the application of fundamental engineering principles during development and production, and calls for an assessment of production risks throughout the acquisition process. The directive also calls for a manufacturing strategy to be developed as part of the program acquisition strategy. Manufacturing technology projects are to be used to determine manufacturing voids,

deficiencies, and dependencies on critical foreign source materials during concept demonstration and validation. The directive states that producibility of each system design concept will be evaluated at the full-scale development (FSD) decision point to determine if the proposed system can be manufactured in compliance with the production cost and industrial base goals and thresholds. Formal assessments of production risks will be developed through industrial resource analyses and production readiness reviews. Risks shall be reduced to acceptable levels in accordance with DoDD 4245.7.

DoDD 4245.7," Transition From Development to Production," 19 January 1984, requires the application of integrated design and engineering disciplines in the construction and conduct of defense acquisition programs. Use of a formal risk-reduction program also is prescribed, along with a guidance manual (DoD 4245.7-M) containing 48 "templates." The templates cover the areas found through experience and by the Defense Science Board to be critical to success for the system. This "transition" manual treats acquisition as an ''industrial process'' and is a Total Quality Management (TQM) document in concept. It is written from both industry and DoD perspectives. Each template includes a timeline suggesting when the activity might best begin and be completed or operational.