Carter Urges Effective, Efficient, Realistic Procurement

By AMY L. WITTMAN, Editor in Chief

Government and industry acquisition officials are faced with an “enormous agenda” that must be executed in the face of “complex and changing threats and a large and definitely finite budget,” the Department of Defense acquisition chief said.

During his keynote address at the Sea Services Luncheon of the Navy League’s Sea-Air-Space Exposition May 4, Ashton B. Carter, undersecretary of defense for Acquisition, Technology and Logistics, focused on one of three key questions posed by Defense Secretary Robert Gates at Sea-Air-Space the day before: “How can we be sure that our procurement plans are cost effective, efficient and realistic?”

Carter approached this question from three perspectives – value for the taxpayer and the warfighter, the industrial base and people.

“How can we ensure that the American taxpayer and warfighter get the best business deal for each defense dollar we spend? How can we restore affordability to our investments? … How can we leverage the capacity of our industrial base most effectively to meet our operational needs? … How can we ensure that we recruit and retain the best and the brightest civilian and uniformed acquisition professionals?” he said.

Value, he said, is an “urgent undertaking."

“The challenge,” Carter said, “is how to modernize our forces responsibly, balance a set of competing but mutually independent priorities and do so within a realistic set of cost constraints.”

Government and industry must scrutinize costs, business arrangements, contracts and “ponderous processes,” which he said is a clear priority of Gates, President Barack Obama and Congress.

Getting better value is now an imperative. “We expect the defense base budget to continue to grow, in real terms, but not at the double-digit levels of the immediately post-9/11 years.”

At that time, money was available when difficult decisions had to be made. “The result is that we all fell into some bad habits – government and industry. And we now must relearn the discipline of affordability. Now we need to deliver the needed program for the same amount of money, or less.”

The Defense Department has many ways to improve how it delivers value to the taxpayer and the warfighter, “and the most powerful is competition. To enjoy the fruits of true competition, we sometimes have to be creative about tapping into it.”

Such was the case, he said, with the Littoral Combat Ship. The DoD changed its acquisition strategy from one of directed buys to one of ongoing competition. Such a pattern of incomplete competition is why a second engine for the F-35 Lightning II, or Joint Strike Fighter (JSF) is no longer being pursued. “There was not a good analytical case that the very real, up-front costs of an extra engine would ever be paid back,” he said.

Another way to prove value is to accurately estimate and aggressively control cost.
“When the cost analyses of JSF indicated that costs were growing, Gates took firm action to restructure the program. He directed a number of actions to restore the test schedule, upgraded program management to a three-star level and directed the budget and production ramp be adjusted to reflect the results of the independent cost estimates,” Carter said.

“Independent cost estimate describes what a program will cost based on performance to date and historical precedent. It can therefore provide a useful counterpoint to the programmer’s estimate and the contractor’s estimate, both of which are usually bottoms-up in methodology and success oriented. … By comparing the independent cost estimate – its will-cost forecast – to the program estimate, we can see what is driving cost and thus how to take managerial action to lower cost.

“The result might be termed a ‘should-cost’ analysis, as opposed to a ‘will-cost’ analysis. Will cost indicates what we will pay without managerial intention; should cost is what we will pay if we aggressively work to control costs, as we should do.” He said they will relentlessly pursue affordability “in the should-cost sense” in the JSF and all other programs to remove unnecessary costs.

Other ways to control costs include rigorous engineering trades to balance required capabilities against cost at the beginning of a program and throughout its lifetime, and thoughtful extension of the use of fixed-price contracting. “Fixed-price vehicles are appropriate when both sides of the transaction know what they are doing. The government knows what it wants and is holding its requirements stable. The manufacturer has a stable and predictable production process whose cost is under control and predictable. We are challenging our government acquisition officials to show the former kind of stability, and challenging our industry partners to perform to that standard and back up that stability with a fixed-price offer.”

Referring to the Indus trial base, the focus should not be on jobs alone, but on skills, “critical skills that if left to atrophy would be difficult to replace or that, because of their unique military nature, cannot be found in the larger global commercial technology base.”

As to his last focus point – people – he said they are essential to any successful acquisition process. “We are on track to meet growth targets for rebuilding the civilian acquisition work force in [fiscal] 2010 and beyond.” But quality of the work force “paramount.” The government is committed to build and sustain institutions “quality people will inhabit.”