The Acquisition Reform Journey: Where have we been? Where should we go?

2. The Acquisition Reform Journey: Where have we been? Where should we go? Breakout Session #604 Charles D. Chadwick Vice President, Contracts and Business Conduct BAE Systems, Inc. April 7, 2009 2:30 – 4:00

3. President Obama has spoken… “The Federal Government has an overriding obligation to American taxpayers. It should perform its functions efficiently and effectively while ensuring that its actions result in the best value for the taxpayers.” “…the Federal Government shall ensure that taxpayer dollars are not spent on contracts that are wasteful, inefficient, subject to misuse, or otherwise not well designed to serve the Federal Government's needs and to manage the risk associated with the goods and services being procured. The Federal Government must have sufficient capacity to manage and oversee the contracting process from start to finish, so as to ensure that taxpayer funds are spent wisely and are not subject to excessive risk.” Memorandum of March 4, 2009

4. And given direction… By July 1, 2009, OMB shall issue government-wide guidance to assist agencies in reviewing…contracts in order to identify (those) that are wasteful, inefficient, or not …likely to meet the agency's needs, and to formulate appropriate corrective action in a timely manner.  By September 30, 2009, OMB shall issue government-wide guidance to: Govern the appropriate use and oversight of sole-source and other types of noncompetitive contracts and to maximize the use of full and open competition and other competitive procurement processes; Govern the appropriate use and oversight of all contract types, in full consideration of the agency's needs, and to minimize risk and maximize the value of government contracts generally; Assist agencies in reviewing the capacity and ability of the federal acquisition workforce to develop, manage, and oversee acquisitions appropriately; and Clarify when governmental outsourcing for services is and is not appropriate.

5. Sen. Levin’s FloorStatement, Weapon Systems Acquisition Reform Act of 2009 “…cost overruns happen because of fundamental flaws that are endemic to our acquisition system. We even know what these flaws are: DOD acquisition programs fail because the Department continues to rely on unreasonable cost and schedule estimates, establish unrealistic performance expectations, insist on the use of immature technologies, and adopt costly changes to program requirements, production quantities and funding levels in the middle of ongoing programs. “The key to successful acquisition programs is getting things right from the start with sound systems engineering, cost-estimating, and developmental testing early in the program cycle. Programs that are built on a weak initial foundation, including immature technologies, inadequate development and testing, and unrealistic requirements, are likely to have big problems in the long run. “

6. 130 separate studies since 1947 have assessed the acquisition system Source DAPA Report, 2006

7. Look back over the last three years (or even longer)… What were the major legislative trends? How about on the regulatory side? What were the general trends there? Do industry and Government acquisition professionals see these trends differently?

8. Key themes in Legislation and Regulation Pressure on the Government acquisition workforce Blended Workforce: OCI and Personal Conflict Issues Contractor ethics and accountability Transparency in procurement matters (intentionally or – more often – unintentionally) These have remained a constant in the new congress/administration

9. And It’s All Connected

10. Acquisition Workforce Issues “Many of today’s problems with defense and other agency acquisitions are the result of severe strains being placed on the Federal Government acquisition workforce, rather than a lack of appropriate rules and regulations.” (2009 ARWG Paper) Reductions in the DoD workforce mandated by Congress in the 1990s as the defense budget declined; continued efforts in successive Administrations to reduce the size of the military and of government overall; Moratorium on hiring of new personnel for a significant period of time; DOD obligations have more than doubled between FY 2001 and 2008 to over $387 billion; its contracting staff grew by only one percent during the same period. Increase in the use of services contracts to perform the missions and functions previously being performed by the military and civilian government workforce; Death of the LSI concept Contingency operations following Hurricane Katrina and in Afghanistan and Iraq; Competition in the global marketplace for qualified acquisition personnel.

11. Acquisition Workforce Issues The Gansler Report in October 2007 recommended: • increasing the stature, quantity, and career development of military and civilian contracting personnel, particularly for expeditionary operations; • restructuring organization and restoring responsibility to facilitate contracting and contract management; • providing training and tools for overall contracting activities in expeditionary operations; and • obtaining legislative, regulatory, and policy assistance to enable contracting effectiveness in expeditionary operations. The recommendations focused on the number of contracting personnel, how we retain them, how we use them and how we equip them.

12. What does all of this mean? High rates of government workforce retirement will result in less innovation, knowledge, and flexibility when challenges arise; delays in programs and increased oversight because of “stumbles” from an understaffed and resourced workforce There have been until recently very few proposals to either fund an increase to the acquisition workforce or create new incentives to recruit and retain the workforce (and those we have seen have been of questionable effectiveness)

13. What has been done? The FY ’08 DOD Authorization Act required establishment of a fund to ensure that there are resources available to recruit, hire, educate, train and retain members of the DOD acquisition workforce Funded with percent of the amount of the budget for services contracts Agencies therefore fund the workforce through unplanned cuts in authorized and appropriated programs not through direct budget authorization Section 4301 of the FY ‘09 Act, as passed by the House, would have added a created a similar fund for acquisition workforce in agencies outside of the Department of Defense. Was not retained in final bill.

14. And what has the outcome been? “We were deeply concerned this week to learn that the Department of Defense plans to spend some $3.0 billion allocated by Congress to rebuild the acquisition workforce over the next five years without any significant increase in the size of the workforce. This would be completely inconsistent with congressional intent for the use of those funds.” McCain-Levin Letter to Sec Gates (Nov 7, 2008)

15. But they keep trying… Waxman Bill (“Clean Contracting Act of 2008”) requires agency heads to Develop a 5 year plan to increase size of the acquisition workforce to appropriate size and skill necessary to effectively carry out the acquisitions programs of the agency Justify a plan with less than a 25% growth over five years in the size of the workforce Include a “sustainable funding model” in the plan

16. And let’s not just focus on the Government workforce… Recent research on services provided by industry contracts and procurement personnel, reported that what “customers” wanted was a workforce that was, inter alia flexible fast trustworthy collaborative The same study said that the “customers” reported that what they got was risk-averse confrontational suspicious slow bureaucratic

17. Blended Workforce: OCI and Personal Conflict Issues “…a blended workforce has allowed the government to extend and augment capabilities of the government team, quickly ramp-up or downsize based on workload, access specialized and experienced skill-sets, and provide a stabilizing influence in the performance of mission.” “The FAR allows federal agencies, on a case-by-case basis, to determine whether a potential OCI can be mitigated or must be avoided. This procedure has worked well over the years in protecting the government's interests while allowing the government to acquire services from the best qualified sources.” (2009 ARWG Paper) OCI and PCI have become one of the “hot” issues with the Congress and the media.

18. FY ’09 Defense Authorization Act directs OFPP to issue a standard policy to prevent personal conflicts of interest by contractor employees performing acquisition functions “closely associated with inherently governmental functions” Define “personal conflict of interest” and “inherently governmental function” Identify (in conjunction with OGE) contracting methods, types and services that raise heightened concerns for personal and organizational conflicts of interest Contractors will be required to identify and prevent personal conflicts of interest prohibit contractor employees who have access to non-public Government information from using it for personal gain report personal conflicts to the CO maintain effective oversight to verify compliance with safeguards have procedures to screen employees for potential conflicts take appropriate disciplinary action for violations create guidelines that agencies will use to identify positions exercising inherently governmental functions critical positions that should be restricted to performance by government employees to ensure effective and sustained control of agency missions and operations. Blended Workforce: OCI and Personal Conflict Issues – FY ’09 Defense Authorization Act

19. Blended Workforce: OCI and Personal Conflict Issues FAR Council issued two advance notices of proposed rulemaking (March 2008) Personal Conflicts of Interest (PCI): Should contractor service employees be subject to same rules that apply to Government employees regarding financial disclosures, misuse of information or property, use of apparent or real authority? Organizational Conflicts of Interest (OCI) Both notices request opinions on whether additional FAR coverage is needed and what approaches should be used

20. Blended Workforce: OCI and Personal Conflict Issues Potential impact to industry Increased restrictions on ability to pursue certain business because of conflicts Increase in bid protests on OCI and personal conflict grounds Potential Impact to government Increased pressure on workforce Loss of access to key skills Increase in bid protests on OCI and personal conflict grounds

21. Contractor Ethics and Accountability FY 08 Authorization Bill requires GAO to prepare a report on the ethics programs of the top 50 DOD contractors. Final FAR rule issued on Nov 12, 2008 requires Mandatory disclosure to the IG when you have “credible evidence” of violations of federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations or violations of the civil False Claims Act Mandatory disclosure to the Government when a “principal” has knowledge of  significant overpayments, other than overpayments resulting from contract financing payments Clinton Bill or one of many variants will probably return; would prohibit the award of federal contracts to any contractor that has not been determined by the C.O. to have a satisfactory record of integrity and business ethics, including satisfactory compliance with the law including tax, labor, employment, environmental, antitrust, and consumer protection laws (the “blacklisting regs” from the Clinton Administration)

22. Transparency FY ‘09 DoD Authorization Act mandates the establishment and maintenance of a database on contractor integrity and performance that would include information on contracts over $500K: civil, criminal, or administrative proceedings concluded in most recent 5 year period by the federal government or a state government that result in a finding of fault or liability by the contractor and payment of restitution to the government of $5,000 or more; federal contracts or grants that were terminated within last 5 years; federal suspensions or debarments imposed in last 5 years Data base not available to the public Contractors with more than $10M of contracts must self report above information on a semi-annual basis Contractor must be notified if data is put into data base about them with opportunity to submit explanatory information

23. So what should Congress be doing? Discuss… (Not too heatedly!)

24. According to Defense Secretary Robert Gates… Pentagon procurement is plagued by a "risk-averse culture, a litigious process, parochial interests, excessive and changing requirements, budget churn and instability….“ quoted in Time February 23, 2009

25. Defense Acquisition Performance Assessment (DAPA) Report (2005) Defense acquisition problems are “deeply embedded in many of the acquisition management processes that we use in the DoD and not just the traditional procurement system” Reduce government-induced instability through an integrated transformation of the major elements of the larger acquisition system Organization Workforce Budget Requirements Acquisition Industry

26. AIA Positive Acquisition Reform Agenda (Nov 2008) The Aerospace Industries Association (AIA) report suggests that additional improvements are needed in: Workforce productivity Organizational collaboration Realistic cost estimating Budget realism and stability Requirements definition and control Enabling broader access to commercial items in the defense market

27. Let’s do a little comparison… What’s happening Acquisition workforce pressure Blended Workforce: OCI/PCI Contractor ethics and accountability Transparency DAPA Organization Workforce Budget Requirements Acquisition Focus Industry Partnering AIA • Workforce productivity • Organizational collaboration • Realistic cost estimating • Budget realism and stability • Requirements definition and control

28. So which way should we turn? Why the disconnect? Are the root causes different from the “hot” issues? On which of these do we spend effort?

29. Some Positive Progress (FY ’09 Defense Authorization Act) Requires each military department to establish a Configuration Steering Board for major defense acquisition programs (commenced before, on or after effective date of the Act) Chaired by SAE of the department Will review and approve/disapprove any proposed changes to requirements or system configuration that have potential to adversely impact program cost or schedule Will review and recommend proposals to reduce program requirements that have potential to improve program cost or schedule consistent with program objectives May not approve any changes to requirements or system configuration that will increase cost of system development and demonstration by more than 25% or extend the schedule more than 15% between award of system development and Milestone C USD (AT&L) may certify to Congress that such a change will be in best interest of DOD and allow it

30. Assessment of Acquisition Legislation There has been substantial expansion of acquisition legislation in the NDAA acts over the past ten years AIA’s Acquisition Reform Agenda report encourages the Administration to commission a new panel to conduct a comprehensive evaluation of the costs and benefits of all acquisition legislation enacted over the past ten years Another way of saying, “Stop trying to legislate every detail?”

31. Nunn-McCurdy Reform § 802 of the FY2006 NDAA significantly changed the Nunn-McCurdy Act governing reporting of major defense acquisition program (MDAP) cost breaches The AIA report questions whether the additional requirements of the Nunn-McCurdy act will improve efficiciency and transparency of the acquisition process. Concern that expanded reporting may ultimately negatively impact programs, driving management focus away from performance and schedule and becoming overwhelmingly driven by cost. AIA recommended the DoD and the Armed Services Committee reevaluate the revisions to Nunn-McCurdy and supports proposals that would amend the law to: Develop a more comprehensive definition of the original baseline of major defense acquisition programs When there are mid-program quantity reductions or budget cuts allow DoD to reset the baselines for programs that have exceeded the acquisition unit costs/procurement unit costs by 30-50% due to such changes Permit an individual program’s scope to expand in the development phase due to validated mission requirements without having that count against the cost baseline of the original program

32. Consider the Levin-McCain Bill (selected proposals) Require DOD to assess the extent to which the Department has in place the systems engineering capabilities needed to ensure that key acquisition decisions are supported by a rigorous systems analysis and systems engineering process; and establish organizations and develop skilled employees needed to fill any gaps in such capabilities. Establish a Director of Independent Cost Assessment to ensure that cost estimates for major defense acquisition programs are fair, reliable, and unbiased Require consultation between the budget, requirements and acquisition stovepipes – including consultation in the joint requirements process – to ensure the consideration of trade-offs between cost, schedule, and performance early in the process of developing major weapon systems.

33. Consider the Levin-McCain Bill (selected proposals) Prohibit systems engineering contractors from participating in the development or construction of the major weapon systems on which they are advising the Department of Defense; and require tightened oversight of organizational conflicts of interests by contractors in the acquisition of major weapon systems. Establish an annual awards program – modeled on DoD’s successful environmental awards program – to recognize individuals and teams who make significant contributions to the improved cost, schedule, and performance of defense acquisition programs.

34. Consider the Levin-McCain Bill (selected proposals) Enhance the use of Nunn-McCurdy as a management tool by requiring MDAPs that experience critical cost growth: (1) be terminated unless SecDef certifies that continuing the program is essential to the national security and the program can be modified to proceed in a cost-effective manner; and (2) receive a new Milestone Approval (and associated certification) prior to the award of any new contract or contract modification extending the scope of the program. (Sen. McCain calls it “Nunn-McCurdy on dynamite”)

35. Some thoughts on where the emphasis should be Support, strengthen and expand the acquisition workforce Good people will make almost any system work Bad people (or not enough good ones) will defeat the best system Stabilize requirements early You can’t control costs without stabile requirements You can’t keep schedule without stabile requirements Make cost realism a priority In source selection When “selling” programs to the Hill Stop legislating oversight at the “quantum physics level”!

36. Some final thoughts…. “The Department compounds the chaotic nature of its financial model with a program oversight philosophy based on lack of trust. Effective oversight has been diluted in a system where the quantity of reviews has replaced quality, and the tortuous review processes have obliterated clean lines of responsibility, authority and accountability. The oversight process allows staffs to assume de-facto program authority, stop progress and increase program scope. The current system is focused on programs, not on improving and standardizing the processes of acquisition; it inhibits rather than promotes steady improvement in achieving program success.” “Complex acquisition processes do not promote program success -- they increase costs, add to schedule and obfuscate accountability.” Defense Acquisition Performance Appraisal Report, 2006