Back to the Future: Devolving Acquisition to the Services

On May 12, the Senate Armed Services Committee (SASC) released a summary of its long-anticipated proposals for the reform of organizations and processes in the defense acquisition system. Taken together, these proposals would dramatically extend the devolution of acquisition to the services that was initiated in the FY 2016 National Defense Authorization Act (NDAA). The proposals come on top of earlier proposals by the House Armed Services Committee (HASC), Secretary of Defense Ash Carter, and Under Secretary of Defense for Acquisition, Technology, and Logistics (USD(AT&L)) Frank Kendall. While the House proposals include significant changes to acquisition policy, the Senate proposal represents a near-complete overhaul of the Department of Defense (DoD) organizations that manage and oversee acquisition. Here’s a quick look at the proposed legislation and its implications. (Note: the complete set of SASC “Goldwater-Nichols” reform proposals are covered in a companion Critical Questions piece.)

Q1: What is driving the current push for reform of the defense acquisition system?

A1: For the last several years, Secretary Carter and Under Secretary Kendall have worked within the framework of their successive Better Buying Power initiatives to incrementally improve the defense acquisition system. These initiatives came out of a recognition that DoD does not do a good enough job of managing cost, schedule, and requirements in acquisition, which has led to strained budgets and delays in getting war fighters the goods and services that they need. In a May 10 speech at CSIS on “The State of Defense Acquisition.” Under Secretary Kendall stated his view that this incremental approach to improving defense acquisition was the right one and that it was beginning to bear fruit, with data showing slowing growth in both program cost and program cycle time for Major Defense Acquisition Programs (MDAPs).

Congressional leaders in both the HASC and SASC, however, have shown a desire for more extensive changes, particularly shifting responsibility for major acquisition decisions from AT&L back to the services, due to their belief that greater involvement by the services would increase accountability for the performance of the acquisition system. In the FY 2016 NDAA, Congress significantly expanded the responsibilities and authorities of the service chiefs and service acquisition executives (SAEs) in the acquisition process, delegating Milestone Decision Authority to the SAEs and giving the service chiefs a greater role in setting requirements and in directing trade-offs between cost, schedule, and capability. Under Secretary Kendall has expressed reservations about this proposed shift. He believes that, after the FY 2016 NDAA, the service chiefs have a sufficient role in the parts of the acquisition process where their input is most needed, such as in setting requirements, and that decentralizing the system further could undermine the recent improvement in the performance of the acquisition system.

Q2: What did the SASC propose?

A2: While the final bill text of Chairman John McCain’s SASC markup language is not yet available, the summary lays out dramatic reforms that would almost completely reconfigure how DoD manages and oversees acquisition issues. Foremost among these changes is the elimination of the office of the USD(AT&L), as well as the assistant secretaries and deputy assistant secretaries under AT&L, and the dissolution of AT&L’s existing offices, responsibilities, and authorities to a number of different entities. The Senate proposals would establish the under secretary of defense for research & engineering (R&E), similar to the pre–Goldwater-Nichols director of defense research and engineering, which would take over responsibility for promoting defense technological innovation, as well as overseeing a number of existing innovation-related offices and agencies, including the Defense Advanced Research Projects Agency (DARPA) and the Strategic Capabilities Office. A new position, the assistant secretary of defense for acquisition policy and oversight, would be established under USD(R&E), with responsibility for “setting defense-wide acquisition and industrial base policy and overseeing the development of weapons and national security systems by the military services.” The remaining authorities and responsibilities from AT&L, focusing on key acquisition and business functions, would be moved under the purview of the soon-to-be-created under secretary of defense for business management and support, which builds off a new office scheduled to stand up in February 2017 as a result of provisions included in the FY 2015 NDAA.

The implications of these proposed changes are profound. USD(AT&L) was originally created to unify management of the full acquisition lifecycle in a single, clear acquisition chain of command. Even if the new USD(R&E) retains the USD(AT&L)’s statutory role as the senior acquisition executive for DoD, the diffusion of AT&L authorities and responsibilities will inherently limit the extent of that role relative to the services, particularly if responsibility for sustainment, more than half of a weapon system’s typical life cycle, are moved under the under secretary of defense for business management and support. If the USD(R&E) is not granted statutory authority as the defense acquisition executive, something which is unclear in the summary, the services would return to having the preeminent, and nearly unchallenged, role in managing defense acquisition that they had before Goldwater-Nichols 30 years ago. And while the exact responsibilities of the assistant secretary of defense for acquisition policy and oversight are not entirely clear, an assistant secretary position will have limited ability to challenge the service secretaries.

Aside from those massive shifts to the acquisition management structure, the Senate’s proposals make a number of other significant changes related to the defense acquisition system, including:

  • Placing new barriers on the use of cost-type contracts, reflecting Chairman McCain’s continued opposition to the use of such contract types and to the government-unique accounting mechanisms they require industry to adopt. These proposed barriers include the following:

o Establishing a financial penalty for the use of cost-type contracts in some instances over the next five years, to be paid for by the military department or agency that issues the contract, with the proceeds to fund “innovative prototyping programs.”
o Expressing a formal preference for fixed-price contract types.
o Establishing an approval mechanism for cost-type contracts over $5 million. According to CSIS analysis of publicly available DoD contracting data, if this provision had been in place in 2015, it would have applied to nearly 7,400 cost-type contracts, with a total value of nearly $74 billion.

DoD has normally favored cost-type contracts for development projects and other cases where requirements are uncertain. The department’s history with fixed-price development of major weapons systems is notably fraught, with high-profile failures such as the A-12.

  • Increasing the functions and responsibility of the office of the director of operational test and evaluation (DOT&E) by transferring to it the functions of the eliminated offices of the deputy assistant secretary of defense for developmental test and evaluation and the director of the DoD Test Resource Management Center.
  • Streamlining and reducing regulations on the classification and purchasing of commercial items, as well as allowing services provided by “nontraditional contractors” to be considered commercial items, and formalizing a preference for commercial services.
  • Improving rapid acquisition authorities, as well as rapid prototyping and fielding processes.

Q3: What has the House Armed Services Committee proposed?

A3: The SASC proposals were not made in isolation. The HASC has made its own proposals, which at least in regards to acquisition reform, are far more in line with Under Secretary Kendall’s stated preference for incremental change rather than revolutionary change.

Representative Mac Thornberry, chairman of the HASC, put out that committee’s proposals in early April and subsequently incorporated his bill and several other proposals into the House version of the NDAA that heads to the floor next week. He continued making proposals to decentralize the acquisition system:

  • Transferring Milestone Decision Authority (MDA) for joint programs from AT&L to the military services starting in FY 2020.
  • Allowing the Office of Cost Assessment and Program Evaluation (CAPE) to approve independent cost estimates (ICEs) performed by the military services, rather than conducting its own ICEs.
  • Requiring the military service chiefs to determine, in writing, that program requirements are “necessary and realistic” before submission for approval before the Joint Requirements Oversight Council.

At the same time, the bill includes proposals increasing the authority of the secretary and the under secretary for AT&L:

  • Requiring the secretary, or a designee, to “assign program cost and fielding targets” upon initiation of a MDAP. Currently, establishing a program cost target has been an MDA responsibility, and fielding dates have been left to the services discretion.
  • Requiring the under secretary for AT&L to conduct a technical risk assessment prior to program milestone decisions. This assessment would “identify critical technologies that need to be matured” at Milestone A, and evaluate the level of maturity for critical technologies at later milestones. This kind of assessment is currently an MDA responsibility.

In addition, he proposed:

  • Requiring all MDAPs initiated after January 1, 2019, to be “designed and developed with a modular open system approach (MOSA), to the maximum extent possible.” (In his May 10 CSIS speech, Under Secretary Kendall noted that Chairman Thornberry had changed the language in this section to make the requirement less rigid and allow for flexibility in cases where MOSA was not feasible or appropriate in response from feedback from Under Secretary Kendall.)
  • Expanding the government’s rights to technical data for design interfaces.
  • Requiring that, for MDAPs initiated after January 1, 2019, technology development that is determined to delay the fielding target for the program be split off from the program until sufficiently matured.
  • Allowing the use of funds for prototyping without starting a new major program, which will allow DoD to more rapidly develop capabilities and “keep pace with rapidly changing technologies and threats.”
  • Creating an “Acquisition Scorecard” for MDAPs at each milestone decision point, to improve transparency.
  • Requiring ICEs to assess risk and potential consequences, rather than reporting on confidence intervals, in order to encourage more detailed consideration of risk areas and risk mitigation strategies in the ICEs.
  • Expanding the definition of nondevelopmental commercial items, to allow more streamlined procurement of such items, and clarifying how DoD should determine price reasonableness.

Q4: What will happen next?

A4: Even with the full markups from both the HASC and the SASC, the exact parameters of the acquisition improvement provisions in the FY 2017 NDAA are still not set. Floor amendments and conference negotiations could substantially change the final bill. Conference negotiations will be particularly telling, given the dramatic differences in the scope of the acquisition reform proposals between the House and the Senate. It is unclear at this point if the SASC is charting its own course on acquisition reform, or if the HASC is in agreement that revolutionary change is needed to alter the fundamental structure of the defense acquisition system.

The impending election promises to make the process even more fraught; though it seems unlikely that the details of proposed changes to the defense acquisition system will become major political issues, the political climate may lead to other fights that could delay passage of the bill until the next Congress is seated. Even if the House and Senate are able to agree on final language, the bill must still be signed by the president, who has shown a willingness to wield his veto pen on past NDAAs if they contain provisions with which the administration strongly disagrees; given the drastic changes proposed by the SASC, that is not a possibility to be discounted.

Andrew Hunter is the director of the Defense Industrial-Initiatives Group and senior fellow with the International Security Program, and Jesse Ellman is an associate fellow with the Defense Industrial-Initiatives Group, at the Center for Strategic and International Studies (CSIS) in Washington, D.C.

Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2016 by the Center for Strategic and International Studies. All rights reserved.

Andrew Philip Hunter

Jesse E. Ellman