One of the biggest challenges facing the new administration, as well as future administrations, is the effective acquisition of complex products. The federal government cannot eliminate the risks associated with complex products by simply avoiding procuring such products. As the difficulties confronting the federal government become increasingly complicated, so too will the types of goods and services needed to address those challenges.

The research team of Brown, Potoski, and Van Slyke examines the contracting for a complex product or its components by reviewing the U.S. Coast Guard’s experience with its Deepwater Program. The Deepwater Program was a major “system of systems” acquisition to upgrade and integrate the Coast Guard’s sea and air assets (such as boats and airplanes). Based on their analysis of the Coast Guard experience, the authors offer lessons for the future as the government continues to face the challenge of acquiring complex products. We hope that this timely and informative report will be useful to both the new administration and Congress.

The U.S. federal government is increasingly acquiring products that have qualities that cannot be easily and clearly defined in advance and that are difficult to verify after the product or service has been delivered. These products are called complex products. A federal government agency has three basic options for acquiring complex products:

• It can build the product itself.
• It can buy components of the product and then integrate them on its own.
• It can pay someone else—a general contractor—to buy the components and assemble them into the product.

This third option is often referred to as a system-of-systems (SoS) contracting approach in which a private firm serves as the product assembler, or lead systems integrator (LSI). In the second approach the government agency serves as the LSI.

This report highlights the risk of becoming locked in to or stuck in a contract with a vendor for a complex product or its components by examining the U.S. Coast Guard’s Deepwater program, a major SoS acquisition to upgrade and integrate its sea and air assets (such as boats and airplanes).

The Coast Guard’s experience with Project Deepwater suggests ways that government agencies can harness the benefits of complex contracting while avoiding its pitfalls. The Coast Guard experimented with a novel contracting approach and learned several lessons for future acquisitions of complex products:

• The effective acquisition of complex products requires an expanded and more highly skilled acquisition workforce.
• The effective acquisition of complex products requires a better understanding of risk.
• The effective acquisition of complex products requires an investment in learning.