Lengthy timelines from solicitation release to contract award drives costs for DoD and industry, and has significant implications for supply chain competitiveness/condition. Industry incurs costs to maintain inactive personnel, plant and equipment, and DoD may need to award bridge contracts or find additional sources of goods and services to fill customer needs.
In industry. these costs reverberate down the supply chain, where they are magnified for lower tier suppliers that cannot afford to absorb these costs – driving companies not to bid or exit from the defense marketplace altogether. These delays are especially frustrating in the case of sole source awards, follow on awards and for commercial items and services where the terms, conditions and price are clear-cut.
Poorly-communicated contract requirements and transactional oversight requirements that devalue speed and customer satisfaction are leading causes of delays. DoD has the capacity and authority to improve these processes. All that is left is implementation and execution.
We have provided specific examples of challenges industry faces from the risk averse behavior of acquisition workforce and recommendations to support initiatives to improve the acquisition workforce. Some examples of this behavior include: imposing requirements and flow downs that are inappropriate given the contract type; reviews of prime contractor commercial item determinations for their subcontractors even if they have an approved purchasing system.
Without an experienced, trained and empowered acquisition workforce, efforts to improve the defense acquisition system will have been a waste of time. Risk aversion within the workforce is a symptom of an acquisition process buffeted by competing interest groups within Congress, and the imposition over decades of well-intentioned oversight meant to reduce risk in one or another part of the process.
Unfortunately, these piecemeal actions are usually taken without full consideration of systemic impacts, leading to insular, duplicative and non-value-added processes divorced from overall program performance. Such process-based and transactional approaches have driven a culture of risk avoidance rather than risk mitigation, with detrimental impacts on speed, lethality and innovation.
Regulatory Reform Task Forces have been created within each agency to review all regulations and more rigorous standards have been installed for dispensing new regulations. These initiatives provide DoD the opportunity to unleash enormous innovation, flexibility and speed in the procurement of vital defense capabilities.
Blanket regulatory requirements and reviews have created a bottleneck of regulatory cases that has stymied the implementation of key reform efforts. DoD should identify which acquisition regulations are necessary to fulfill its mission in support of national defense – and eliminate those that do not – to reduce regulatory burdens.
New technologies will enable new concepts of operations and capability for warfighters and improved business operations within DoD. Understanding the potential and dangers of new technology and its rapid pace of development, will require dynamic, risk-informed management and acquisition practices.
1. Robust Budgets
We have found studies provided further details on the impact of the Budget Control Act BCA and the defense drawdown on the industrial base. Specific supplier portfolios saw even more drastic cuts or experienced whipsaw effects. While information and conclusions below the prime contractor level are difficult to obtain, indicators show that the detrimental impact of budget cuts have been felt throughout the supply chain and are magnified for businesses with less capacity and diversification.
The consequences of decreased defense spending from the defense drawdown and BCA were compounded by the manner in which they were done – through overall spending cuts rather than informed investments and tradeoffs to achieve savings. DoD delayed modernization in favor of incremental upgrades to existing systems; decreased readiness by deferring maintenance; and cut force structure. In response to this behavior, industry has been forced to value short term efficiency and cost savings over long-term investment and resilience. Now, with an agreement for increased defense spending, DoD must rebuild readiness and force structure and make down payments on previously deferred modernization efforts, all at the same time.
2. Stable Appropriations
The breakdown in regular order within the Congressional budget process has made these conditions even worse. Although lapses in appropriations and use of continuing resolutions CR are not new, and have been more disruptive to DoD than other agencies because uniqueness of DoD purchases.
About half of DoD budget is typically spent on the purchase of goods and services, with significant portions dedicated to large, capital-intensive and multi-year programs. CRs and shutdowns have resulted in outright waste, disrupted major programs at key milestones and driven inefficient spending practices at DoD by decreasing time to obligate new funds. These effects have had demonstrable impacts on the industrial base, which are magnified at lower tiers of the supply chain.
3. Balanced Funding
Along with aggregate defense spending cuts, there have also been disproportionate reductions to DoD Research, Development, Test and Evaluation RDT&E and Procurement accounts, which by experience are most vulnerable to cuts. While early-R&D efforts were largely preserved as a portion of overall R&D spending, the period saw disproportionately greater cuts to later-stage R&D from budget constraints, program delays and program cancellations. Critical workforce talent in design and systems engineering within the industrial base cannot be maintained without sufficient RDT&E funding and new starts.
Defense spending is not a spigot you turn on and off … you need to keep money flowing in a predictable way so you can plan for the next war. ”Cuts to RDT&E shrink the pipeline for new programs, so even with a short-term budget agreement in place, DoD needs several more years of robust, balanced and stable budgets to recover from BCA cuts
4. Changing behavior of contracting process
The clearest validation for this priority is that DoD has repeatedly and successfully pursued efforts to circumvent its own acquisition system and behavior norms by creating specialized or rapid acquisition offices. These offices are still governed by the rules of the road, yet can leverage other transaction authorities and streamlined oversight structures. There is a need for special authorities to fulfill urgent operational needs; however, our national defense will be best served by streamlining the entire acquisition system. This requires a concerted reform effort and enduring commitment from Congress and DoD to apply lessons learned from streamlined acquisition structures and procedures throughout the entire system.
DoD and Congress also need to consider the compounding effect on the industrial base and supply chain of budget austerity and cost-based acquisition policies. Some acquisition practices aimed at controlling cost have merely established non-valued-added bureaucratic requirements, tied up cash flow, erected barriers to commercial technology and investment, and imposed a de facto lowest price, technically acceptable environment. Each of these trends serve to restrict the competitiveness of the supply base, crowd out and tie up resources for investment in R&D, personnel and facilities, and discourage new entrants and independently-funded technologies from being offered to DoD.
5. Improved DoD-industry dialogue to encourage innovation
DoD must optimize relationships with industry to drive higher performance and to identify benefits of proactive DoD communications with industry, including to establish policies and business practices that promote the long-term viability and competitiveness of the industrial base supporting defense.” We have attempted to correct popular misconceptions about communications with industry within the acquisition process. Communication must be a two-way street. Both parties should be held accountable for approaching engagements with openness and taking follow-on actions. Communication is also critical for DoD to understand the implications on innovation and the industrial base of their acquisition strategies and contracting procedures for specific procurements.
6. Intellectual Property and Investment in Innovation
Properly valuing and rewarding intellectual property is crucial to incentivizing industry investment and accessing new suppliers at the prime and subcontractor-level. DoD requirements for technical data and rights to tools, acquisition strategies and product support strategies often run counter to overarching DoD policies on innovation, such as blanket requests by DoD for de facto lowest price, technically acceptable source selection through evaluation criteria rewarding offerors who are more willing to part with their and their subcontractors technical data rights. Rogue contract clauses requiring technical data may not be the best way to bring new technology to DoD.
Industry incentives for investment in R&D is correlated with their ability to protect the rights to data and tools produced and their return on investment from goods and services sold using that IP. Too often DoD does not clearly communicate with industry what technical data is needed for a program and why it is needed – rather relying on blanket requests that serve neither party well.
DoD needs to establish an overarching strategy for IP that ensures its workforce is asking for the right IP for the right reasons based on a program’s acquisition strategy and sustainment considerations. This strategy also needs to take into consideration how new acquisition strategies and approaches to IP impact industrial base incentives to innovate and their overall business model. With the introduction of additive manufacturing and other new technologies, this strategy will be more and more valuable.
7. Line up defense and commercial trade policies to support industrial base condition
Too often the ramifications of commercial trade policies and practices for national defense are not fully considered and understood. Major contractors rely on a global supply chain, and their suppliers rely on domestic and foreign sales. Actions taken on commercial trade issues affect the competitiveness and resiliency of defense industry. Purpose of defense trade is to strengthen alliances and attract new partners and has benefit of strengthening the industrial base and enabling DoD to leverage greater economies of scale. The defense sector faces a fragmented interagency review process for potential sales and technology release, and lacks the advocacy and support foreign governments provide to their domestic industries. These issues undermine security cooperation objectives and the competitiveness of the industrial base.
8. Adapting business processes by embracing digital transformation
Digital transformation extends far beyond weapon systems and networks and will revolutionize business processes and operations for DoD and its supporting industrial base. With this expansive and disruptive potential, new policy and political challenges will need to be identified and addressed. For instance, a future environment in which the DoD logistics and sustainment enterprise can utilize additive manufacturing to produce spare parts on demand, use big data to inform preventative maintenance, and equip maintainers supported by powered exoskeletal suits and augmented virtual reality headsets to instruct repairs, will revolutionize infrastructure and human capital requirements and the supporting industrial base.
9. Fostering innovation technology and processes
Despite attention from DoD leadership on commercial technology and innovation hubs, the fact remains that critical defense-unique technologies and applications are essential for the most advanced military capabilities require defense-unique investment and solutions and a resilient and innovative supply base. Some programs require intensive investment in foundries and infrastructure – especially test facilities – that cannot be recouped outside of DoD. In these areas industry will largely rely on R&D funds, which support industrial base condition and national security objectives by enabling industry to take risk on defense-unique solutions. DoD should remove any barriers that directly or indirectly limit industry ability to flexibly utilize R&D and earn sufficient returns on those investments.
10. Invest more in all levels of training to develop critical skills
Just as defense spending has shown signs of increases and several major programs are coming into fruition, there is an impending wave of retirements in industry. Hiring is not able to keep pace with the rate of retirement, industry will be unable to leverage the knowledge and experience of its existing workforce to train and educate the next generation of workers. This is especially true in specialized disciplines requiring both on-the-job training and years to achieve subject matter expertise.
A deficit of new programs, and gaps in production between major programs, pose further challenges. For example, some ship builders would require workforce increases to ramp up and sustain higher production rates, while others require additional capital investment in infrastructure. Conversely, if production rates are slowed or gapped, hot production lines and supply chains quickly turn cold and result in decreased production learning, loss of skilled workers, significantly increased cost and longer production schedules