Reforming the Contracting System: Defense

 

Reforming the Contracting System: Defense

Wednesday, May 12th, 2010 - 16:40
Wednesday, May 12, 2010 - 17:36
Congress created a bipartisan panel last year to examine and come up with solutions for fixing the largest buying system – the Defense Department. As a former Defense official noted, it was the latest in 130 different contract reform commissions. Will this one make a difference?
The buying systems in many federal agencies are widely seen as broken. The IBM Center sponsored a series of forums and reported modest, but actionable, recommendations last year. The new head of the Office of Federal Procurement Policy, Dan Gordon, is acting on five areas of presidential priority to reform the buying system:
 
  • strengthen contract management and internal review practices
  • maximize the use of competition in contracting
  • improve how contracts are structured
  • build the skills of the acquisition workforce
  • clarify the role of outsourcing
The Administration’s goal is to reduce contract spending by about $40 billion a year. But will it fix the broken systems?
 
Congress created a bipartisan panel last year to examine and come up with solutions for fixing the largest buying system – the Defense Department. As a former Defense official noted, it was the latest in 130 different contract reform commissions. Will this one make a difference?
 
Defense spends about $200 billion of the more than $500 billion the government spends on contract goods and support services. So fixing Defense would go a long ways toward fixing the overall system.
 
The House Armed Service Committee, Panel on Acquisition Reform, released its findings and recommendations in March.  Its findings are especially significant in light of the recent speech by Defense Secretary Robert Gates on the need to rein in inefficiency spending by rethinking core administrative systems – like contracting.
 
Defining the Buying Problem in Defense. The report points to several broken sub-systems in the Defense Department’s acquisition system. For example, the undersecretary for acquisition, a position created to oversee acquisition, actually oversees only a fraction of the department’s contract spending. The bulk is by the individual military services.
 
Defense spends in four categories: 
  • unique weapon systems (like F-22 jets),
  • commercial goods or commodities (like toilet paper),
  • military or commercial services (like air traffic control), and
  • information technology (like on-line travel systems). 
However, the oversight system is designed to track primarily the first category, weapon systems. The system does not work well for tracking services. The Defense Department spends about $200 billion a year on contract services and this is now the majority of the department’s acquisition budget. This is double the amount spent ten years ago. In fact, service contractors now comprise 39 percent of the Defense workforce (up from 26 percent ten years ago).
 
The report finds that “the weapon systems acquisition culture negatively influences other parts of the acquisition system.” In addition, the report notes that there is a “formal, even rigid, requirements process for weapon systems acquisition,” but “the requirements process for services contracting is almost entirely ad hoc.” In addition, both the users and the contract officials are not trained to identify what they want, and are largely unable to hold contractors accountable for poor performance.
 
The Special Case of Buying IT Services in Defense. Buying information technology services was a special focus in the report and it outlined some disturbing statistics on IT buying;
·         Only 16 percent of IT projects are completed on time and on budget.
·         31 percent are canceled before completion.
·         The remaining 53 percent are late and over budget, with the typical cost growth exceeding the original budget more than 89 percent.
·         Of the IT projects that are completed, the final product contains only 61 percent of the originally specified features.
 
While these statistics are ten years old, they are seen as still being relevant today.
 
Offering Solutions. The congressional report offers 27 recommendations, grouped into five areas:
  • Managing the acquisition system
  • Improving the requirements process
  • Developing and incentivizing a high quality acquisition workforce
  • Reforming financial management
  • Getting the best from the industrial base
Will this report – in the new environment of cost control – make a difference that the other 130 reports haven’t? I’ll provide highlights in the next blog post. . . .