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THE ARMY RESEARCH LABORATORY: Alternative Organizational and Management Options 6 GOCO ARL Option One organizational form frequently mentioned in discussions of the options for military laboratories is the government-owned, contractor-operated (GOCO) laboratory, on the model of the U.S. Department of Energy 's (DOE's) national laboratories or the federally funded research and development centers (FFRDCs) that support the Department of Defense (Defense Science Board, 1987). The key characteristic of this option is that management and operation of the laboratory are taken out of the government sector and placed under contract with the private sector. ARL personnel would be removed from the federal payroll, and the contractor would be responsible for forming and directing the staff of the new organization. The contractor would also carry out research and development in the areas of interest to the Army, according to the broad policy directives of the Army and the terms of the contract. Salary and other personnel decisions, purchasing practices, and other aspects of management would be the responsibility of the contractor, subject to oversight by the Army. Facilities and equipment can be owned by the government, the contractor, or both. The ARL GOCO would have broad authority for management and operations contracting, and sufficient flexibility and discretion to operate like a modern corporate laboratory (Roussel et al., 1991). Only a small senior Army staff (i.e., less than 10) would be needed to oversee the laboratory, assess its performance, and facilitate technology transfer within the Army; a small procurement and contract staff would also be needed. The formal features of a GOCO organization are set out by the Office of Federal Procurement Policy (OFPP) in Policy Letter 84-1 (Office of Federal Procurement Policy, 1984). The contractor may be a university or university consortium, a for-profit corporation, or a not-for-profit corporation. Selection of the contractor could take place in an open competition, with all bidders welcome; in a restricted competition with a list of prequalified bidders; or through direct conversion of ARL to a not-for-profit corporation with no competition. The type of contract typically used is known as a management and operations contract (Office of Federal Procurement Policy, 1984).
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THE ARMY RESEARCH LABORATORY: Alternative Organizational and Management Options The choice of any particular combination of these alternatives would affect the organizational form, culture, governance, and management, which in turn would determine the laboratory's potential for excellence. But the initial major decision is whether to convert to a nongovernment entity. The decision has a broad set of advantages and disadvantages, as well as implementation issues. Once such a decision is made, the desired organizational form, contract vehicle and requirements, and conversion process can be chosen. The committee has addressed the major advantages and disadvantages of this broad option, without regard to the various alternatives discussed above. The federal government has a long history of contracting for the management and operation of government-owned R&D facilities. The U.S. Department of Energy and its predecessor agencies have relied on GOCO organizations for more than 40 years for nearly all research, development, and demonstration work and for management and operation of nuclear weapons production facilities (see Appendix E). DOD—and particularly the Air Force—has used various contract organizations, known as Federal Contract Research Centers, for vital R&D and engineering support, including critical technology assessment and procurement assistance. In 1984, OFPP Policy Letter 84-1 set out a formal federal definition and governing regulation for FFRDCs, taking in both the Department of Energy's GOCO laboratories and the Defense Department's Federal Contract Research Centers (Office of Federal Procurement Policy, 1984). Although a decade has passed since this redesignation, the older terms remain common. This report uses the term GOCO, under the assumption that the government would continue to own at least some of ARL's facilities. The conversion process itself must follow the requirements laid out for FFRDCs in general. In this option, 100 percent of ARL's R&D is assumed to be contracted out, compared with 20 percent for the ARL Enhanced and NIST options. The average annual salary of contract scientists and engineers is $70,000, compared with $52,700 for government-employed scientists and engineers, according to a cost study commissioned by the committee (see Chapter 7 and Appendix D). ENHANCEMENTS The flexibility, management efficiency, and technical leadership of a successful GOCO organization are potentially highly attractive. Such an arrangement can have, in a sense, the best of government and private worlds. A contractor can have the access to Army planning and security information of an insider. At the same time, it can have the management freedom of an outsider, especially with respect to the federal personnel and procurement
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THE ARMY RESEARCH LABORATORY: Alternative Organizational and Management Options systems, which are not well suited to the changing needs of research organizations (National Research Council, 1993). In this respect, the GOCO ARL option is superior to the ARL Enhanced baseline (and to any of the in-house options discussed in this report). A GOCO organization can use the management methods of the best commercial organizations, without hindrance by the many well-intentioned but nonetheless constraining requirements of government operations. It need not set aside contracts for small or disadvantaged business. Limited only by its total budget, it may hire, fire, and reassign employees as necessary to improve quality or meet new opportunities and changing demands. It can recruit exceptionally qualified personnel with high pay, without delay for approval from above, reward exceptional individual and group performance with higher pay and other incentives (such as the latest research equipment), and delegate its budgetary and hiring authority as necessary. Above all, it need not struggle with the cumbersome and sluggish government procurement system, which can tie up even minor purchases in months of paperwork. In reality, today's GOCO laboratories and military FFRDCs, notably those of the U.S. Department of Energy, are increasingly burdened with federal management controls as a result of both legislative and executive oversight. The ideal of the GOCO laboratory, with its freedom to focus on research, guided only by the broad directives of its government sponsor, has been eroded in recent decades by the accretion of well-intentioned financial audits, personnel controls (including direct salary caps), and environmental mandates from above (U.S. Congress, Office of Technology Assessment, 1989). In evaluating the GOCO ARL option, the advantages and disadvantages of existing GOCO organizations are used as a model. In converting ARL to a GOCO laboratory, the Army would need to take extreme care in creating the contract vehicle, the form of governance and organization, and the oversight measures to achieve desirable characteristics and mitigate potential problems. COMPARATIVE ASSESSMENT The committee assessed the GOCO ARL option according to six key criteria, which together encompass the Army's requirements for its technology base laboratories. The GOCO ARL option, when compared to the other options, shows strong advantages and disadvantages.
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THE ARMY RESEARCH LABORATORY: Alternative Organizational and Management Options Linkage to Army Strategies and Objectives By placing the laboratory outside the direct control of the Army, this option could make it more challenging to provide direct technical support to operating forces, to transfer technology to Army systems programs, and to carry out technology assessment on behalf of the Army. While none of these problems is insurmountable—many existing DOD FFRDCs and DOE GOCO laboratories manage them successfully—they will require extraordinary efforts on both sides. This fact must be regarded as a disadvantage of this option compared to any of the others considered by the committee. To encourage the relevance and quality of the research program and avoid conflict of interest, the Army and GOCO contractor would need to cultivate a relationship that encouraged objectivity and frankness on both sides. It would be important to specify properly who in the Army is the sponsor, and to whom technology products are delivered (the Army's RDECs, Program Managers, and Program Executive Officers, etc.). The laboratory would need a clear and unique mission, and the broad guidance and high-level access to Army planning that a long-range research organization needs. Its customers, to whom technology products must be transferred, would require confidence that their links to the new contractor laboratory were reliable and free of conflict of interest (Laslic, 1993; Meisel and Jacobs, 1979). World-Class Land Warfare Research Of all the options considered by the committee the GOCO ARL option offers the best chance for ARL to conduct, and be recognized for, superior technical work. One of the foremost potential advantages of a GOCO laboratory over a government laboratory is the ability to attract outstanding leadership at all levels of the staff. The laboratory's mission, the stimulating nature of the work, and the ability to contribute to national goals are attractive. In addition, pay and other incentives can be set competitively to attract and reward excellence in R&D personnel. A very important characteristic for R&D organizations aspiring to world-class status is the ability to maintain technical competency throughout the staff. An assessment by the U.S. Congress, Office of Technology Assessment (U.S. Congress, Office of Technology Assessment, 1989) noted that, Recruiting and retaining qualified scientists and engineers is a major problem for DOD laboratories. In the current sellers' market, government salaries and benefits for technically trained
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THE ARMY RESEARCH LABORATORY: Alternative Organizational and Management Options personnel are not generally competitive with either industry or universities. Many DOD labs have given up trying to recruit the best and the brightest. Loosening up the rigid civil service salary structure is a principal component of ideas to reform lab management, and being able to pay competitively—above civil service ceilings—is a major incentive for converting labs to GOCO status. The gap in average pay between government and private sector scientists and engineers has narrowed in recent years (see Chapter 7 and Appendix D). But the issue is not average pay; it is the availability of rewards for exceptional performance and leadership. Effective commercial R&D organizations tend to pay some R&D people highly, because success in developing a new technology depends on the extraordinary abilities and motivation of a few people. These people may not have excellent management and communications skills, but they may be paid more than some of the management personnel. In commercial organizations few feel that this is unjust. Additionally, many other motivational measures are used (e.g., opportunities to have more flexibility in directing their work, access to independent R&D funds to investigate their ideas, attendance at symposiums, etc.). Historically, GOCO laboratories have depended on such motivational measures with considerable success (National Research Council, 1993). In federal agencies, scope for such measures remains severely limited despite repeated initiatives to change this. The administrative burden on managers is also important. Well managed R&D organizations give their leaders enough administrative support and freedom from undue administrative detail to permit them to remain technically involved in laboratory projects. This involvement gives staff daily guidance and insight into the views of the leadership, enhancing the quality of the technical work accomplished. The need to administer federal personnel and procurement regulations tends to prevent senior ARL managers from participating in this way (Army Research Laboratory, 1993). Contract organizations are not bound by these regulations, and therefore tend to adopt management controls more like those of the private sector. (As already pointed out, government oversight—however desirable on other grounds—can weaken this advantage, thus it should be minimized.) Additional important features are the abilities to recruit high quality graduate students, to administer salary adjustments coupled to an effective R&D-oriented performance review system, and to have a mechanism for eliminating lower performance staff from the workforce. Many GOCO laboratories have excellent post-doctoral internship programs in which only a percentage are subsequently formally recruited into the staff. A number have practices of eliminating a fixed percentage of staff annually from their
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THE ARMY RESEARCH LABORATORY: Alternative Organizational and Management Options lower (not necessarily unsatisfactory) performers. This practice keeps performance expectations high, enhances productivity, and allows continuous hiring of new staff with fresh ideas, enthusiasm, and state-of-the-art skills and knowledge (Informal discussions with executives of various laboratories, 1993). In addition to the general governance issue of to whom ARL reports, other governance issues enhance their performance over typical governmental entities. Governance mechanisms vary widely among GOCO laboratories and FFRDCs, but they all take significant steps to augment the laboratory management. They generally have boards consisting largely of outsiders, who bring a broad and balanced view to policy formulation and management issues, as well as external evaluation of scientific and management performance. The Brookhaven National Laboratory, Argonne National Laboratory, and Sandia National Laboratories are examples of laboratories with such directly involved boards. Another pattern is seen in the three laboratories managed by the University of California, Lawrence Livermore National Laboratory, Los Alamos National Laboratory, and Lawrence Berkeley Laboratory; they are overseen by the regents of the University of California, a body that is rather remote from the main issues of the laboratory and has many other issues on its agenda. DOE is seeking to have each laboratory develop a high-level advisory committee patterned after those long used by several of these laboratories. A number of the DOD FFRDCs are independent corporations and have corporate boards heavily populated with senior executives with in-depth R&D and government policy experience (Aerospace Corporation, 1993; MITRE Corporation, 1993; RAND Corporation, 1993). Diversity and Quality of Research Sources A GOCO operation has the greatest flexibility of all the options considered in choosing its research sources. The GOCO ARL option could be monolithic and attempt to provide all skill and effort from within its own organization. On the other hand, it could contract for any amount of effort from as wide a variety of sources as it and the government agreed was best. An extreme example of the latter approach is the well regarded Electric Power Research Institute, which contracts out virtually all of its research. The key issue here is for the Army to provide the flexibility for this to occur within the contract vehicle, and to provide appropriate guidance to the GOCO contractor as to what it wants. Some GOCO laboratories have a wide spectrum of technical competency and others are quite narrow in scope. ARL is quite diverse. If better focused, it would become narrower technically but still quite broad. Also the mandate to focus on “leap-ahead” capabilities would require it to continually change its mix of technical competencies. A properly
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THE ARMY RESEARCH LABORATORY: Alternative Organizational and Management Options guided GOCO with a flexible contract vehicle could adjust its mix of university and industrial sources, and internal and external efforts over the life-cycle of any particular technology—much as the government does now. The primary distinction would be that once the Army decided it wanted ARL to develop a new competency or divest itself of one, this would be accomplished through a process lying outside the government. This should be more flexible and timely than governmental action in the other options. If the Army wanted to maintain some particular source of expertise—it could direct the GOCO to do so, just as it now directs ARL or the Army Research Office to do so. Technology Transfer to the Army The GOCO ARL option would have an inherent handicap in transferring technology to its customer organizations, RDECs, and thence to the program managers and program executive officers. As an organization outside the Army—indeed, one that owes its strengths to its outsider status—it would run the risk of isolation from the needs of the RDECs for technology. The personal contact on which technology transfer depends might be hampered by the difference in organizational culture between the two organizations. Modern concurrent engineering practices occur through the creation of project teams, which travel along the development path with the project, thus facilitating technology transfer. An initial impression might be that a GOCO ARL could be seen as irrelevant by its customers, who, it should be remembered, have the capacity and the funding to do 6.1 and 6.2 work themselves. However, an organization that practices total quality management would strive to rectify this problem. To counter this tendency, strong links would need to be built between the GOCO ARL and the RDECs to ease technology transfer. Personnel exchanges (including temporary assignments for government personnel at the GOCO ARL) would be one means of forming these links. Clarification of the two parties' roles and responsibilities would be essential. One vital function of ARL as presently constituted is procurement assistance (i.e., the analytical support function). A GOCO ARL could be either better or worse than a government laboratory at this function, depending on the entity selected as the contractor and on the mechanisms for protecting against conflicts of interest (mainly owing to the commercial interests of profit-making contractors). This issue would have to be considered carefully in selecting a contractor and in devising contract terms. There is good precedent for using the DOD FFRDCs to assist in military procurements; for example, personnel of the MITRE Corporation, an Air Force FFRDC, routinely participate in government source selection evaluation boards. However, most DOD FFRDCs are independent corporations with no
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THE ARMY RESEARCH LABORATORY: Alternative Organizational and Management Options other business than supporting the government. Similar assurance could theoretically be achieved with a profit-making company as contractor if the GOCO's work were properly segmented from the rest of the company (e.g., by establishing a separate corporate division with its own board reporting only to the overall corporate board, forbidding employees to exchange information across corporate divisions, and prohibiting the parent company from competing in technology procurements by the GOCO laboratory). The GOCO laboratories of the Department of Energy, several of which are managed and operated by divisions of for-profit companies, show that conflict of interest can be controlled. Nonetheless, today' s public and congressional concerns with fairness and perception of fairness in contracting must be taken into account when considering the GOCO ARL option. ARL today provides a significant amount of support to field forces, through quick response to technical problems in the field. While a GOCO laboratory could provide similar direct technology transfer to the ultimate users, it is likely again, that government personnel could provide this service more easily. Still, some GOCOs and FFRDCs perform such tasks quite well. For example, the Center for Naval Analysis routinely provides personnel for shipboard evaluations at sea; MITRE Corporation personnel flew on each flight of the prototype Joint Surveillance and Tactical Airborne Radar System during Operation Desert Storm; and the DOE GOCO laboratories have provided personnel for on-site inspection in Russia. Ability to Leverage Funds and Programs Reductions in budgets have raised interest in how ARL might take advantage of R&D done outside the Army, in commercial and academic laboratories, and in the laboratories of other government agencies. A wide variety of mechanisms are available, ranging from using commercial products directly to collaborative working arrangements. In short, the Army is interested in spin-on technologies for defense use, as well as spin-off from defense research to commercial applications. The GOCO ARL option, with its rich networks of contacts and its ability to exchange personnel easily with outside organizations, would be the most effective of all the options in forming the close relationships with outside entities on which spin-on and spin-off depend. As in all technology transfer, personal contact is essential. The best working partnerships offer channels for transfer in both directions. By sharing costs and information with external organizations, all parties win (Arrison et al., 1992; Ward, 1993). There continue to be major problems regarding intellectual property rights, differing goals, and objectives that affect willingness to share and cooperate. The reality is that many initiatives are confusing and often
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THE ARMY RESEARCH LABORATORY: Alternative Organizational and Management Options superficial. Nonetheless, it is clear that the Army, and hence ARL, must focus more on these issues and develop broader, more effective mechanisms involving more diverse sources. Many improvements that could be made in this arena can be taken with any of the options considered by the committee. There are two major issue areas that may provide some differentiation between options. Unfortunately neither is clear-cut, and they probably affect each option in opposite ways. These two areas are willingness and ability to share ideas and cultural willingness and ability to use and exploit the work of others. Some argue, for example, that industry is more willing to provide proprietary material to government entities than to contractors, even if they are FFRDCs. On the other hand, FFRDCs like MITRE have, and control access to, tens of thousands of industry proprietary documents. Also, there have been repeated complaints from industry that the government does not adequately protect their proprietary material and therefore they do not include them in responses to government agency Broad Area Announcements which seek innovative ideas, or submit them as unsolicited proposals. Thus, it seems that there are difficulties in this area for both government entities and GOCOs, but they may be somewhat more tractable for options that keep ARL within the government. The other problem area is one of creating a cultural attitude that keeps a broad external perspective, rapidly exploits external advances when applicable, and builds on what others are doing. In the past, government laboratories have tended to prefer in-house efforts heavily and even some private sector companies exhibit this behavior. This is antithetical to the cultural attitudes necessary to be successful in leveraging other's work. Currently, industry is putting much emphasis on improving in this regard, and many potential GOCO contractors have existing cultures that emphasize outward relationships and exploiting anything that gives them a competitive advantage. Thus, a judicious choice of contractor entity to manage the GOCO could provide the cultural environment and set of existing relationships with industry and academia needed for ARL to better leverage external funds and programs. One area of technology transfer in which GOCO laboratories have not excelled is in the development of CRADAs. The national laboratories have attracted much criticism for their slowness to conclude CRADAs, owing to their two-stage approval process (not only the laboratory, but the sponsor, must approve each CRADA [General Accounting Office, 1991]). DOE has taken steps to streamline the approval process; the Army could benefit from that experience.
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THE ARMY RESEARCH LABORATORY: Alternative Organizational and Management Options Recurring Costs and Productivity GOCO laboratories have direct incentives to satisfy their government clients. Their contracts can place a premium on getting the job done on schedule and keeping costs under control. If well-designed, the contract can provide for responsiveness to changing needs and circumstances. A GOCO laboratory has the potential to manage personnel and internal operations to the best commercial standards, including support functions such as personnel, finance, accounting, procurement, security, and facilities. With a GOCO organization, these activities could be tailored to the needs of the laboratory, far more easily and efficiently than attempting the same tailoring within the federal government. Also, there are greater opportunities for personal incentives to manage well and to be effective in executing the organization's mission. This includes not only financial rewards but also incentives such as scientific training, peer recognition, stimulating personnel exchanges with government organizations, and the recognition associated with being a member of a high-quality organization. In many instances, there might be opportunities for advancement in the parent organization. To capture these benefits, however, the Army must not overly restrict management through the contract vehicle, by requiring excessive government approvals of operations. The past decade, for example, has seen a clear trend toward increased technical control and oversight over both the DOE GOCO laboratories and the DOD FFRDCs; many senior managers at these laboratories believe that these well-intentioned measures have reduced research productivity. Today there is one DOE field employee for every 28 laboratory employees, not counting the oversight personnel at DOE headquarters (see Appendix C). A DOE task force is currently developing methods to enhance its GOCO partnership, but their draft report is not yet available. The key for the Army is to create effective government oversight of business practices without imposing the government's own management methods. There would be substantial pressure for productivity increases, because this option would entail substantial increases in recurring costs, owing to the higher pay scales of contract engineers. The GOCO ARL option would have only 1,357 scientists and engineers, compared with 2,021 for the ARL Enhanced and 1,779 for the NIST option, and 1,604 for the ARL Multicenter option. It is difficult to judge the import of this difference in staff. It would obviously be better to have more professional staff than fewer, all other things being equal. But all other things are not equal. In the GOCO ARL option, for example, projects could be staffed more flexibly than in a government laboratory, so that skills could be used more efficiently. It is also
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THE ARMY RESEARCH LABORATORY: Alternative Organizational and Management Options possible—although hard to prove—that well-motivated staff working outside the government system would be more productive. The cost can be assessed quantitatively in this case, but the potential offsetting benefits are generally subjective. The net effect can thus only be predicted by judgement. IMPLEMENTATION PROCESS AND ISSUES The regulatory processes that would have to be followed in converting ARL to a GOCO laboratory are well specified, but are subject to some uncertainties of interpretation. In addition to these hurdles, the Army could face a variety of other, nonregulatory implementation issues, such as dealing with the status of the federal employees. Establishing a GOCO Laboratory as an FFRDC To give a GOCO organization the “degree of access, beyond that normally characteristic of the contractual relationship, to government and/or supplier data, employees, and facilities needed to discharge its responsibilities efficiently and effectively, whether the data is sensitive/proprietary or not” (Office of Federal Procurement Policy, 1984), it is necessary to follow procedures set out by the Office of Management and Budget for forming an FFRDC. Thus, the transition of ARL to a GOCO would follow not only the procedures of establishing a GOCO, but also the procedures for establishing an FFRDC. The transition for the GOCO and the FFRDC would involve two major areas of concern for—complying with existing laws and regulations, and resolving political, personnel, facility, and contracting issues. The procedures for creating an FFRDC are set out in OFPP Policy Letter 84-1 (Office of Federal Procurement Policy, 1984). The head of a department (such as the Secretary of the Army) has the authority to create an FFRDC, if he or she determines that it is appropriate within the scope and specific criteria of Policy Letter 84-1. The department head is also required to notify Congress formally, to permit comment. Public notice and comment through the Commerce Business Daily and Federal Register are also required. The process could be politically contentious, but the Secretary of the Army has full authority to create a GOCO ARL. Establishing an FFRDC As prescribed in OFPP Policy Letter 84-1, the Army must ensure the following:
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THE ARMY RESEARCH LABORATORY: Alternative Organizational and Management Options Existing alternative sources for satisfying the Army's requirements cannot effectively meet the special R&D needs. At least three notices describing the scope and nature of the effort are placed over a 90-day period in the Commerce Business Daily and the Federal Register indicating the Army's intention to convert ARL to a FFRDC. There is sufficient government expertise available to adequately and objectively evaluate the work to be performed by the FFRDC. Controls are established to ensure that the costs of the services being provided to the Army are reasonable. The responsibility for capitalization of the FFRDC has been defined in such a manner that ownership of assets may be readily and equitably determined upon its termination, The purpose, mission, and general scope of effort of the FFRDC is stated clearly enough to enable differentiation between work which should be performed by it and that which should be performed by a non-FFRDC. Additionally, the Federal Acquisition Regulation, Part 35 (Federal Acquisition Regulation, 1990) directs that: The executive office of the President, Office of Science and Technology Policy, is notified. A reasonable continuity in the level of support to the FFRDC is maintained, consistent with the Army's need for the FFRDC and the terms of the sponsoring agreement. Office of Management and Budget Circular A-120 is complied with when applicable, and quantity production or manufacturing is not performed unless authorized by legislation. Approval must be received from the Secretary of the Army. The FFRDC must meet a special long-term R&D need that cannot be met as effectively by existing in-house or contractor resources. The FFRDC will generally have access beyond that which is common to the normal contracting relationship, to government and supplier data, including sensitive and proprietary data, and to employees and facilities. The FFRDC is required to operate in the public interest, and to be free from organizational conflicts of interest, and to have full disclosure of its affairs to its sponsoring agency. The FFRDC should not compete with the private sector. (In other words, it may not respond to competitive requests for proposals.)
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THE ARMY RESEARCH LABORATORY: Alternative Organizational and Management Options Requirements for Cost Comparisons There is no requirement in the Office of Federal Procurement Policy Circular 84-1 for cost comparisons. The focus in this circular is on whether alternate sources can more effectively provide support as compared to a GOCO. However, other legislation focuses on cost comparisons. According to Section 2462 of U.S. Code Title 10, DOD can procure supplies and services from sources in the private sector if those sources can provide the supplies and services at a lower cost than a government source. This policy is also described in regulations that deal with the Commercial Activities Program: Office of Management and Budget Circular A-76, DOD Directive 4100.15, DOD Instruction 4100.33, and AR 5-20. These require cost studies to establish the relative costs of internal performance and contract performance of existing or proposed commercial activities. AR 5-20, paragraph 4-1.b.(1), requires that an agency perform a cost study when proposing the conversion of an existing internal activity to a commercial activity (Gamboa, 1993). If applicable, these requirements could create an issue for the conversion of ARL, because conversion to the GOCO ARL option (or the ARL Multicenter option) would hopefully raise quality, but not lower the costs of laboratory operations. This study has assumed that the Army would convert ARL to a GOCO in a constant budget approach, reducing staff to meet the confines of a fixed budget. The required cost comparisons do not account for differences in quality of work. AR 5-20, paragraph 1-6.i, seems to provide relief from these requirements, because it exempts research, development, test and evaluation functions from the cost study requirements of the Commercial Activities Program. However, the exemption in AR 5-20 may not eliminate the issue. Section 2461 of U.S. Code Title 10 imposes certain requirements before a commercial or industrial type function of DOD being performed by DOD civilian employees as of October 1, 1980, can be converted to contract performance. Before such a conversion can be accomplished, Congress must be provided: notice of any decision to study such function for possible contract performance; a detailed summary of the cost comparison demonstrating that contract performance will result in certain savings and a certification that the entire cost comparison is available; certification that the government cost is based on the most efficient and cost effective organization; and a report containing information specified in the statute. Thus, if the Army found it desirable to convert ARL to a GOCO laboratory, it would need to make a determination as to the applicability of
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THE ARMY RESEARCH LABORATORY: Alternative Organizational and Management Options this statute. If it were determined to be applicable, an exemption would need to be sought on the basis of extraordinary action being necessary due to current downsizing and reorientation of defense R&D activities. Inherently Governmental Functions By statute, the government may not contract out “inherently governmental functions.” The OFPP issued Policy Letter 92-1 in an attempt to clarify this issue and seeks to spell out what are inherently governmental functions (Office of Federal Procurement Policy, 1992). The policy letter does not deal specifically with R&D, and is careful to say that its opinions may not be legally valid. If interpreted broadly and literally the statute would foreclose an enormous fraction of the work that the government already contracts out. Thus, a broad interpretation does not seem to be in the intent of Congress or the Executive branch. A GOCO ARL could not by itself take any official government actions. Therefore, any activity in which ARL today directs governmental action would have to be restructured so that the GOCO organization provided advice, while the appropriate government office determined whether the recommended action was appropriate and, if so, directed implementation. Such a two-stage process can be difficult in some circumstances (for example, it is the cause of the relative slowness in DOE laboratories creating CRADAs). The principal concern over this matter may be the system assessment work done by ARL (which some ARL leaders assume is an inherently governmental function, according to statements made during a June 1993 visit by committee members). Many DOE GOCO laboratories and DOD FFRDCs have long done technology assessments (although implementation of the results must be approved by the sponsors). The OFPP policy letter appears generally consistent with existing GOCO practices, which include both research and development and considerable highly classified intelligence evaluation, planning, and support. Nevertheless, a GOCO ARL would likely find it more difficult than a government laboratory to establish the necessary communications between organizations. While not technically a statutory issue, there is also an issue over whether the Army should contract out functions which are central to its future and mission accomplishment. The industry approach is not to outsource activities regarded as core competencies. The Army currently has its R&D activities split between the Army Research Office, ARL, and the RDECs. If it created a GOCO, it could do so in a way that it could be treated as an “organic” capability.
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THE ARMY RESEARCH LABORATORY: Alternative Organizational and Management Options Potential Problems of Implementation The implementation issues discussed thus far refer to regulations and public laws. Other issues and potential disadvantages are a result of attitudes and organizational culture, although they often take the form of procedural and contractual actions that could dilute the effectiveness of the GOCO ARL. Many pressures of this kind come from non-Army entities that would be involved in oversight functions affecting both the conversion to, and the operation of, the GOCO. Perceptions of Unfair Competition with the Private Sector Conversion of ARL to a GOCO laboratory could be perceived as unfair to the private sector (taken to include universities, not-for-profit institutions, and industry), which might thereby lose the opportunity to compete for some of the work themselves. However, private firms can compete to run the GOCO. Some in the private sector might object also to the specific features of the conversion process, such as the selection of the contractor. Such protests could slow conversion and make it more costly. The committee recognizes that the current Congressional mood seems to disfavor FFRDC funding. Such objection could be limited by the potential subcontracting activities of the new laboratory. ARL currently contracts out some work (20 percent possible, with a maximum limit of 30 percent), and could continue to do so as a GOCO organization. Left to its own judgment, the GOCO management might contract out even more, a move that would make the implementation of this option more attractive to the private sector. In any case, the contract should allow the GOCO contractor to seek the best source of research work. (In fact, an ARL GOCO could be modeled after the Electrical Power Research Institute, in which almost all of the work is done by contractors with only some highly specialized analytical activities carried out internally; this, in fact, is substantially the ARL Multicenter option discussed in Chapter 5.) Personnel Issues One major issue area would be the resolution of personnel issues—the termination of personnel from the civil service system, and whether and how they would be offered private employment in the new organization. Under contracting out procedures, in-house employees are given right of first consideration. Current regulations require that severance pay be granted to all employees, even those immediately hired by the new GOCO laboratory.
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THE ARMY RESEARCH LABORATORY: Alternative Organizational and Management Options Questions have also been raised about the transferability of, and potential losses from leaving, the civil service retirement and benefits systems (such as pensions, insurance, medical insurance, and leave). Many of these questions are contentious, and might add weight to objections from the civil service unions. ARL has only minimal union representation, but the unions might dislike the precedent set by the conversion. There is no way to judge in advance the union reaction, but the issue is not a legal obstacle. Choosing a Conversion Method and Creating a Contract As mentioned earlier, the Army has various alternatives in creating a GOCO ARL, like creating a new FFRDC as a private contracted corporation uniquely formed to manage ARL or to having an open competition to create and manage the laboratory strictly as a GOCO. Each of these alternatives raises its own issues. Fundamentally the Secretary of the Army can create a GOCO (or FFRDC) if he or she chooses, subject to notification of Congress and the Office of Management and Budget. He or she would also have to notify industry through the Commerce Business Daily and Federal Register, and respond to industry comments. It is also possible to go to an existing FFRDC (or small subset of FFRDCs) and invite them to submit a proposal to create a GOCO, circumventing some of the process of creating a new entity. However, FFRDCs are limited by their charters. There may be an option to transfer work from ARL to an existing FFRDC if it is within its charter. But this may raise cost comparison issues per 10 USC§2462. This approach would presumably generate protests from those excluded, but if the protests were managed successfully, could be the fastest and least costly. Most likely a new FFRDC would have to be created to run ARL. It is important that the Army take a broad approach to creating contract requirements so that the mission of the GOCO is properly focused on selected, important technology areas as well as specifying other work the GOCO would do. Also, careful deliberations must go into deciding in advance what organizational culture is desirable for an ARL GOCO, what key skills its management must have, and what type of governance it should have (such as an outside board of trustees). These determinations must be made before choosing a specific form of GOCO and conversion process, because they will have great influence on the choice. While the management and operation contracts for the DOE GOCOs are good models for the Army, they will need to be tailored significantly because a GOCO ARL would have a different customer relationship with the Army than DOE's GOCOs have with DOE.
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THE ARMY RESEARCH LABORATORY: Alternative Organizational and Management Options Time Required for Implementation Another important implementation issue is the time it would take. Any estimate must be highly uncertain, because it must include effects of possible resistance on the part of some members of Congress, the workers and worker's unions, and possibly parts of industry. However, such a conversion might generate support from the Office of the Secretary of Defense, which would facilitate the conversion. Considering these ambiguities and the necessary approval process, it seems reasonable to estimate that once the Army decides to convert ARL into a GOCO organization, it would take at least six months to gain the necessary approvals (first as a GOCO and then as an FFRDC under OFPP Policy Letter 84-1). If competition were desired, a request for proposals could be prepared in parallel and be ready for release. If at least 90 days were allowed for industry response and at least 90 days for contract award, a GOCO could begin operations in less than two years. If the Army created an FFRDC especially to operate an ARL directly, without competition, it might take 9 to 12 months to obtain the Office of Management and Budget approval, incorporate, create a board of trustees, have the board choose key executives, and negotiate a contract. It is quite likely, however, that a full competition would be required, to satisfy demands for equity and fairness; in that case, the schedule might be extended by an additional 6 months. Allowing an additional six months to develop staff assignments, and six months for personnel to become reasonably focused on their work, an ARL could be functioning reasonably well in two to two and one-half years of a decision to pursue this option. While some loss of productivity could be expected during this period, it might be tolerable, given the internal turmoil of the Army over the next several years, the reductions already contemplated, and the lack of an overwhelming external threat. These timelines are optimistic and faster than an average request for proposal process, but are feasible with total Army and the Office of the Secretary of Defense support. It would seem that if the executive leadership of the Army chooses the GOCO option and focuses on implementing it, these time estimates could be met. Costs Cost estimates must be accepted with caution. Government accounting systems are quite different from those of the private sector, making valid comparisons difficult. The committee commissioned the most comprehensive study yet attempted, which, despite its uncertainties, for the first time places
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THE ARMY RESEARCH LABORATORY: Alternative Organizational and Management Options the various options on a consistent basis for analysis (see Chapter 7 and Appendix D). A one-time conversion cost would also be incurred. This cost, estimated at $85 million, accounts for severance pay and other personnel costs, as well as contracting costs. As noted in Chapter 7, all government employees, even if offered jobs in the new GOCO ARL, would receive severance payments unless they find jobs elsewhere in the civil service. (The committee assumes, in making its cost estimates, that few would succeed, owing to general declines in government employment, but that some would retire; this assumption is thus a conservative estimate of these costs. See Chapter 7 for details.) The cost of severance pay is the major cost differential between the GOCO ARL option and others considered by the committee (see Chapter 7 and Appendix D). The question is whether the higher pay and other personnel incentives increase the value of individual research enough to offset these costs. The answer is a matter of judgment. Many have concluded that for similar work of comparable quality the cost comparison of contractor versus government research will show only marginal differences (Defense Science Board, 1987). Current metrics for measuring quality and output for R&D work are inadequate for the purpose of making a quantitative value comparison. Thus, a value comparison must be judgmental and made by informed persons. In any case, it is likely that there will always be perceptions that it is more expensive to contract for a GOCO ARL then to do the same work in the government. Perennial criticism of the GOCO on these grounds could be expected, complicating the Army's management problem. OVERALL EVALUATION The history of GOCO organizations and the broader class of FFRDCs shows that, if the Army decides that a nongovernmental entity is desirable, a combination of organizational form, contract features, and degree of competition can be developed and implemented to provide the Army with the results it seeks. There are difficulties in creating and managing a GOCO laboratory, however, that could result in a less than optimal outcome. The contract vehicle must provide broad authority for the contractor to exercise management judgment and flexibility (including in subcontracting), while allowing effective government oversight, auditing, and inspection. Otherwise, many of the benefits of a GOCO organization can be lost. The GOCO ARL option should be treated by the Army much as a corporate laboratory is treated by its industrial parent organization, with joint development of objectives, responsibility for performance in the hands of the
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THE ARMY RESEARCH LABORATORY: Alternative Organizational and Management Options managers and staff, and evaluation of results in terms of products (Roussel et al., 1991). The key ingredients for a GOCO contractor are to bring a blend of R&D innovativeness, technical managerial competency, operational understanding, and business skills to the table. This must be done in a way that no important conflicts of interest exist with any other business the parent may be in. One solution would be to organize the new GOCO ARL as an independent FFRDC, which did no other business, and recruit the necessary talent from a variety of outside corporate and university sources. It will also be necessary to continuously monitor and ensure that linkages to Army strategy and science and technology objectives, as well as mechanisms for technology transfer, exist and are effective. The major issues associated with achieving a GOCO ARL are possibly political controversy and the one-time cost of severance pay. The revenue-neutral assumption of this option underscores the need for the GOCO ARL to be more productive and better focused than today 's ARL. The one-time severance pay cost may seem high to some, but compared with the overall research, development, and acquisition budget of the Army and the current costs of downsizing, it is not large. It would also be small compared with the advantage to the Army of having a highly respected GOCO laboratory.
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THE ARMY RESEARCH LABORATORY: Alternative Organizational and Management Options REFERENCES Aerospace Corporation. 1993. Annual report. Army Research Laboratory. 1993. Meeting with the GOCO ARL option panel, Committee on Alternative Futures for the Army Research Laboratory. Adelphi, Maryland. June 29, 1993. Arrison, T.S., C.F. Bergsten, E.M. Graham, and M. Caldwell Harris, eds. 1992. Japan's Growing Technological Capability: Implications for the U.S. Economy . National Research Council. Washington, D.C.: National Academy Press. Defense Science Board. 1987. Report to the Secretary of Defense of the Summer Study on Technology Base Management. Washington, D.C. December. Gamboa, A. 1993. Briefing by Anthony Gamboa, Office of the General Counsel, to the GOCO ARL option panel, Committee on Alternative Futures for the Army Research Laboratory, Washington, D.C., June 28–30, 1993. General Accounting Office. 1991. Diffusing Innovations: Implementing the Technology Transfer Act of 1986. Washington, D.C.: Program Evaluation and Methodology Division. Federal Acquisition Regulation. 1990. Title 48 - Federal Acquisition Regulations Systems Chapter 1. Part 35. Volume I. Informal discussions with executives of various laboratories. 1993. Communication from executives from Sandia National Laboratories, Lawrence Livermore National Laboratory, Brookhaven National Laboratory, the MITRE Corporation, the Aerospace Corporation, and Lincoln Laboratories to the GOCO option panel, Committee on Alternative Futures for the Army Research Laboratory. Laslic, S.W. 1993. The Cold War and American Science: The Military-Industrial Academic Complex at MIT and Stanford. New York: Columbia University Press. Meisel, R.C., and J.F. Jacobs. 1979. MITRE, the First Twenty Years: A History of the MITRE Corporation , 1958–1978. Bedford, Massachusetts.
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THE ARMY RESEARCH LABORATORY: Alternative Organizational and Management Options MITRE Corporation. 1993. Annual report. National Research Council. 1993. Improving the Recruitment, Retention, and Utilization of Federal Scientists and Engineers. National Research Council. Washington, D.C.: National Academy Press. Office of Federal Procurement Policy. 1984. OFPP Policy Letter 84-1, Federally Funded Research and Development Centers. Washington, D.C.: Executive Office of the President, Office of Management and Budget. April 4. Office of Federal Procurement Policy. 1992. OFPP Policy Letter 92-1, Inherently Governmental Functions. Washington, D.C.: Executive Office of the President, Office of Management and Budget . RAND Corporation. 1993. Annual report. Roussel, P.A., K.N. Sand, and T.J. Erickson. 1991. Third Generation R&D Managing the Link to Corporate Strategy. Boston: Harvard Business School Press. U.S. Congress, Office of Technology Assessment. 1989. Holding the Edge: Maintaining the Defense Technology Base. OTA-ISC-420. Washington, D.C.: U.S. Government Printing Office. April. Ward, B.L. October 24, 1993. From weapons to widgets: it's Martin Marietta's turn to produce a peace dividend at the Sandia Labs. (Sandia National Laboratories to be managed by Martin Marietta, includes related articles). New York Times. F5.
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