Document created: 18 August 03
Air University Review, January-February 1975

The "How to" of Weapon Buying

Dr. J. Ronald Fox, the Assistant Secretary of the Army for Installations and Logistics in 1969-1971, is uniquely qualified to review the governments approach to acquiring weapon systems. During seven years with the Department of Defense, he was presented the Exceptional Civilian Service Award by the Secretary of the Air Force and the Distinguished Civilian Service Award by the Secretary of the Army for his achievements in improving the weapons acquisition process. While an Associate Professor of Business Administration at the Harvard Business School, Dr. Fox conducted and directed research in the area of Systems acquisition and conducted a course in project management and defense aerospace marketing. He has been a consultant to government and industry, with emphasis on systems acquisition.

Dr. Fox's new book, Arming America, is analytical and thought-provoking, a constructive analysis of how we acquire weapons.* It is a sequel to The Weapons Acquisition Process. An Economic Analysis (1962) by Merton J. Peck arid Frederic M. Scherer, and The Weapons Acquisition Process: Economic Incentives (1964) by Scherer.

*J. Ronald Fox, Arming America: How the U. S. Buys Weapons (Cambridge: Harvard University Press, 1974, $15.00), 484 pages.

Each year the Department of Defense spends approximately $25 billion to develop and produce the weapon systems essential to the security of the nation. This represents a significant commitment of the nation's resources. Competing alternatives for the use of these resources, the pressures of inflation, and the great uncertainty as to how much defense capability is enough all demand that constant attention be paid to the process of acquiring weapon systems.

In contrast with works such as A. Ernest Fitzgerald's The High Priests of Waste (1972), Dr. Fox's book is not an exposé. Rather, it is an attempt to pinpoint the most fundamental breakdowns in the acquisition process. Dr. Fox describes a multitude of key problems and deficiencies within the acquisition process. These fall in two categories: institutional and procedural.

Fox sees the most crucial problem in the systems acquisition area as the selecting, training, rewarding, and controlling of military and civilian personnel charged with the responsibility of procuring our weapon systems. In 1971 a General Accounting Office representative stated that only fifty percent of the professional personnel in one of the service's procurement and production offices were qualified to do their jobs. Very few of the senior military officers in program management possess the required experience and formal management training required for key program management activities. In 1962 Peck and Scherer observed that it usually takes one or two years for a person to obtain a thorough working knowledge of the technology and personalities involved in a complex weapon program.

Most officers believe that procurement assignments are detrimental to their careers. They look upon a procurement assignment as a liability, a "dead end" to the development of their careers. In addition, the personnel system appears to place most emphasis on scientific or engineering expertise as a prerequisite to key program management positions. A general officer in a large buying command commented that "one of the causes of our current problems arises from the fact that we failed to recognize that a program manager must be a business manager and need not be an expert scientist or an expert engineer." Dr. Fox quotes David Packard, Deputy Secretary of Defense, testifying in 1971 before the House Armed Services Committee:

A very crucial problem area in the past has been that project officers were not doing an adequate job. This resulted from many factors, including assignment of managers who were poorly selected or who lacked proper training for the job, inflexible service rotation policies which made it impossible for a manager to stay with a program long enough to be effective, and the effects of permitting too many people to get in on what the program manager should have been doing himself. Solution of this problem requires that we select more capable project managers and staffs and leave them on the job long enough for them to be effective. We also must give project managers the special training in development and procurement they need in order to do their job properly. (p.200)

The majority of the key positions in program offices are filled by civilian employees. Unfortunately, the Civil Service puts more emphasis on longevity than on expertise. Contractors describe many of the key civil servants who staff program offices as tired men who have worked their way up over a period of twenty to thirty years.

Our existing organizational structure for acquiring weapon systems requires that we have both an efficient system program office (SPO) and an equally responsive and efficient contract management activity whose mission is to insure that the terms and conditions of the contract are met. A March 1971 Air Force Association report indicated that the contract management offices are undermanned and staffed with inexperienced personnel, that military grades are too low to be effective, and that personnel have become contractor-oriented after long terms of duty at the same plant. (p. 220)

Fox indicates that better education and training are essential for both military and civilian personnel assigned to program offices and to the contract management function. Civil Service personnel are often sent to training programs as a reward for loyalty and longevity of service, not on the basis of capability or potential. Military personnel frequently are sent on the basis of their availability rather than the need for them. The Blue Ribbon Panel emphasized the urgency of upgrading contract negotiation personnel and the system for promoting and rewarding them.¹ Most defense procurement actions take the form of negotiated contracts. Department of Defense personnel who negotiate these contracts deal with negotiators from industry who are key personnel with much greater experience. Further, they are better trained and paid than their DOD counterparts. The Defense negotiator is thus at a disadvantage, to say the least. Government negotiators' skills obtained through experience are often wasted by the existing. system of rewards, which appears to promote the most capable negotiators to supervisory positions, thereby removing them from direct negotiating activities. Contract negotiation is a special skill, different from and often more difficult to develop or acquire than are administrative or supervisory skills. A system of rewards for negotiators should be developed which is commensurate with their skills and does not necessarily require their removal from active negotiations.²

According to Dr. Fox, one of the major problems in the area of sound contract management is that personnel assigned to this function become too concerned with the contractor's well-being. The existing reward and penalty structure within the Department of Defense normally results in program managers' and plant representatives' being motivated to maintain the cooperation of their contractors, to avoid problem identification, and to be cautious in their attempts to emphasize efficient program controls. The plant representatives frequently have become a buffer between the program office and the contractors. Often government representatives make a better case for the contractor than he can for himself Since the number of employees and promotion opportunities at a contract management office are determined by the amount and type of defense business at the plant, government representatives assigned to a plant for a number of years want the contractor to obtain new business in order to protect and further their own careers.

Civilian appointees at the level of Secretary and Assistant Secretary of Defense and corresponding positions in the Army, Navy, and Air Force control few of the incentives or penalties required to motivate senior military and civilian personnel. These appointed officials are dependent on good working relations with the military and career civilian employees and are reluctant to override or otherwise control these individuals for fear of being cut out of the information process, thereby losing any authority they may possess.

And Congress does not effectively review and control defense spending. The budget recommended by the Department of Defense is only slightly affected by Congressional debate. One reason for the poor performance by Congress is the committee members' lack of preparation. Congressmen and senators serving on authorization and appropriation committees rarely read the material gathered by their staffs in preparation for the hearings. The defense services underestimate the cost of the programs they request in the hope of obtaining approval to begin programs. Congress has very little capability to analyze and challenge service cost estimates. The detailed nature of annual authorization bills and the yearly incremental approach cause numerous problems and inefficiencies. The one-year budgeting system, for example, results in agencies that do not spend their entire appropriation being penalized in subsequent years. Costly delays result because Congress is so slow in providing funds. Congress seems much more inclined to concentrate on and interfere with the research and design phases of a program than to challenge defense witnesses who contend that a system is ready for production.

Parochial tendencies exist on the part of military planners in each of the services, resulting in the placing of their services needs above the well-being of the entire defense establishment. This frequently results in suboptimization. After originally underestimating the cost of a program, the service obtains additional funds through request for supplementary funds, and reprogramming from other less desirable programs.

The enormous size and complexity of defense programs, the need to negotiate thousands of contract changes, and the government's emphasis on timely completion--all contribute to a relationship of mutual dependence between the Department of Defense and its prime contractors. The DOD program management and contract management offices are frequently viewed as adjuncts of private industry. Yet the interests of government and its contractors are basically different.

The program manager is charged with two frequently conflicting roles. First, he is or should be a guardian of federal funds. Second, he must be the project’s strangest supporter, whether he sees the need for it or not. He must be optimistic in his role as the program advocate. The existing rewards and penalties structure causes the program manager to place more emphasis on his marketing role than on his program management role. Program managers are rewarded for making their programs bigger. No project manager was ever prompted for making his program smaller. An advocate cannot be an impartial judge, and yet the program manager is assigned both roles.

Dr. Fox has also identified several procedural problems that he, feels require attention. The source selection process comes in for severe criticism. It is not at all clear that the current process provides for selection of the contractor, who will provide the best product at a reasonable cost. Personnel associated with the source selection process appear to be extremely averse to risk. Based on experience, they have learned that selection of a contractor other than the one offering the lowest "proposed" price results in a great deal of extra work, possible protests, and program delays.

Defense personnel have sometimes been unwilling to penalize contractors who have failed to perform in accordance with the terms of their contracts. In the process we have allowed companies to become lax in achieving adequate control of our defense programs.

Industry has a tendency to promote engineers into key program management positions. Unfortunately, such managers consistently emphasize technological achievement, with minor attention to planning, budgeting, and control activities.

When a new weapon system is being acquired by a military service, the most technologically sophisticated components are usually incorporated into its design, whether or not they actually improve the system's performance. This is usually a matter of military pride and prestige rather than operational necessity.

Our current approach to pricing results in rewarding contractors for inefficiency. Typically, profits are based on cost, resulting in a reverse incentive to cost reduction. When the government is unable to determine how much a weapon system should cost, there is little pressure on the producer to reach the highest level of efficiency. His costs tend toward the government's upper budgetary limit. Past cost experience--often the most convenient standard for measuring efficiency--becomes a misleading indicator of future costs.

Many government and industry members are more concerned with controlling funds than controlling the cost of work. As a result, few program management officials measure cost performance and there is no way to tell during a program whether work is costing more or less than estimated.

Government specifications have become so detailed that we have provided industry with limitless opportunities to propose contract changes, thereby weakening the incentives provided in the initial contract agreement. With few exceptions, the control of changes during a program is so lax as to result in great inefficiency. The contractor has no incentive to control costs of changes when work is fully completed before negotiations take place. The services do not have enough trained personnel to make effective analysis of the impact of proposed changes. The net result is significant cost growth after award of our contracts.

Dr. Fox proposes several recommendations to deal with these problems. The first and most significant reform he recommends is the establishment of a procurement career field within the military services, with senior procurement managers controlling assignments and promotions. Advancement would be based on management capability and performance. Assignments and promotions would be controlled solely by senior procurement officials. A sufficient number of colonel/captain and general/admiral positions would be created to reward officers in this field for distinguished service.

A comprehensive training program should be established for military and civilian servants who wish to devote their careers to program management and procurement.

More and better-trained personnel must be assigned to pricing, negotiating, and contract management functions. (It should be noted that the Air Force has an aggressive program in this area known as "Copper Cap.")

A viable system of incentives, rewards, and penalties must be established so that civilian appointees to senior Pentagon positions have the power and authority to change direction of procurement management.

The year-by-year Congressional review process must be revised to aid and encourage long-range planning. Congressional staffs must be increased with qualified persons in order to make proper evaluations of Department of Defense proposals. The additional analytical capabilities required to perform the necessary Congressional review and analysis could be achieved in two ways: (1) the General Accounting Office could be authorized to expand the scope of its investigations and (2) the full-time staffs of the House and Senate Armed Services Committees and Defense Appropriations Subcommittees could be strengthened by a generous addition of trained analysts. And Congress must demand accountability from DOD officials and stress civilian control of the military.

Control of defense expenditures must be recentralized under the Secretary of Defense in order to temper the parochial tendencies of military planners, establish balance in defense priorities, and work toward an effective and efficient use of defense appropriations. Such a recentralization of control requires the reinstitution of a strong systems analysis organization in the Office of the Secretary of Defense.

A single position should be created within the Office of the Secretary of Defense and within each of the three military departments with responsibility for materiel acquisition.

Government members and government plant representatives must be sufficiently independent of the contractor to report inadequate performance to higher echelons of the Department of Defense, to instigate corrective action, and to enforce penalties.

Marketing responsibility (the advocacy of weapon systems required to meet defense needs) should be given to the using command or service headquarters, instead of the program manager.

The source selection process should be revised to require less time and less paperwork. Contract specifications should be significantly reduced. Further, the source selection process should be revised to select the contractor most likely to perform the project in a satisfactory manner under stated budgetary and time constraints. Price competition is not a feasible concept in selecting contractors for multimillion-dollar defense programs. The government should adopt a program where by a formal design and capability competition is held on major programs to determine which two producers will develop prototypes for selected parts of each new weapon system. The contractors will then engage in competitive prototype development. The company that develops the winning prototype will be awarded the production contract for the weapon system. In addition, both contractors will be retained for research and development leading to the next generation of prototypes. New development and production programs should begin every two to four years.

In addition to the institutional changes recommended, Dr. Fox advocates several procedural changes.

Industry should be encouraged to put business managers into project management in lieu of their present predisposition to promote engineers to such positions.

Every two years, small development programs should be authorized in the various areas, such as close air support, sea patrol, etc. The incremental improvements that have been satisfactorily developed and tested would then be incorporated into the appropriate weapon system. Since new development programs would begin at regular intervals, the sense of urgency would be minimized and there would be no need to pack unnecessary technology into every program. The outcome of such a low-keyed approach to acquisition would be a sense of stability and continuity.

In order to break out of the dilemma posed by cost-based profit determinations, the Department of Defense should place significant emphasis on the amount of contractor capital employed. This approach would result in profit being based on a combination of cost and capital employed.

The "should cost" approach should be mandatory on all large dollar procurements; thereby qualified industrial manufacturing and production engineers, together with procurement personnel, would review a contractor's approach to developing and producing a system and determining what the item should cost if developed and produced efficiently.

Program managers and their personnel and industrial managers must he trained and encouraged to emphasize cost control in lieu of funds control.

The Department of Defense should hire one or more independent organizations to conduct periodic audits of program performance.

Once contracts are negotiated, program managers should keep a tight rein on contract changes. Formal change boards staffed by cost specialists should withhold approval of each recommended contract modification until the contractor has prepared a revised cost estimate.

I believe that systems acquisition is the most challenging and most crucial function in our defense establishment. While appreciating the importance of the combat and training people, my logistics brethren, and the many others, I believe that, unless drastic improvements are made in how we determine and program for requirements, how Congress approaches the providing of funds, and how we acquire the needed weapon systems, we will not have the systems, needed to implement our national policies in the international arena. The best pilots, comptrollers, and maintenance personnel cannot long overcome a deficiency in the quality and quantity of our weapon systems.

I am familiar with most of the deficiencies which Dr. Fox cites, and in general I concur with his recommendations. We and many others--both military and civilian--are concerned with improving the weapons acquisition process.

1. Report of the Blue Ribbon Panel to the President and the Secretary of Defense on the Department of Defense, July 1,1970.

2. Ibid., p. 95.