____________________________________________________________________________
___
Title: Defense Weapons Systems Acquisition
Subtitle:
Report No.: GAO/HR-93-7 Date: December 1992
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Author: United States General Accounting Office
Addressee: High-Risk Series
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Overview
- The Problem
- The Causes
- GAO's Suggestions for Improvement
Persistent Problems in Weapons Acquisition
- Is the System the Best Solution to the Mission Need?
- Are the Program Cost and Schedule Estimates Reasonable?
- Can the Program Be Executed With Available Funds?
- Is the Program's Acquisition Strategy Reasonable?
- Is the System Suitable for Production and Fielding?
Fraud and Abuse in Contracting
Conclusions and Action Needed
- The Groundwork for Cultural Change
- The Prospects for Change Are Encouraging
Related GAO Products
High-Risk Series
- Lending and Insuring Issues
- Contracting Issues
- Accountability Issues
Figure
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Figure 1: Mismatch Between DOD's Planning and Budget Realities
Office of the Comptroller General
Washington, DC 20548
December 1992
The President of the Senate
The Speaker of the House of Representatives
In January 1990, in the aftermath of scandals at the Departments of Defense
and Housing and Urban Development, the General Accounting Office began a
special effort to review and report on federal government program areas that
we considered "high risk."
After consulting with congressional leaders, GAO sought, first, to identify
areas that are especially vulnerable to waste, fraud, abuse, and
mismanagement. We then began work to see whether we could find the fundament
al
causes of problems in these high-risk areas and recommend solutions to the
Congress and executive branch administrators.
We identified 17 federal program areas as the focus of our project. These
program areas were selected because they had weaknesses in internal controls
(procedures necessary to guard against fraud and abuse) or in financial
management systems (which are essential to promoting good management,
preventing waste, and ensuring accountability). Correcting these problems is
essential to safeguarding scarce resources and ensuring their efficient and
effective use on behalf of the American taxpayer.
This report is one of the high-risk series reports, which summarize our
findings and recommendations. It describes our concerns over the Department
of
Defense's annual expenditure of billions of dollars to acquire new weapons
systems. It focuses on weaknesses in the way major weapons requirements are
determined, planned, budgeted, and acquired. The report addresses process,
procedural, and internal control weaknesses, as well as underlying condition
s
and cultural attitudes that help foster these weaknesses. These issues are
addressed in more detail in our report _Weapons Acquisition: A Rare
Opportunity for Lasting Change_ (GAO/NSIAD-93-15).
Copies of this report are being sent to the President-elect, the Democratic
and Republican leadership of the Congress, congressional committee and
subcommittee chairs and ranking minority members, the Director-designate of
the Office of Management and Budget, and the Secretary-designate of Defense.
The Department of Defense (DOD) spends billions of dollars each year
developing and procuring major weapons systems. These expenditures have
produced many of the world's most technologically advanced and capable weapo
n
systems--as demonstrated during Operation Desert Storm. Nevertheless, the
process through which weapons requirements are determined and systems acquir
ed
has often proved costly and inefficient--if not wasteful. In addition, the
"high stakes" weapons acquisition process has proven vulnerable to fraud,
waste, and abuse. It was this high stakes process--and the absence of adequa
te
internal controls--that provided the breeding ground for the investigation a
nd
charges of influence-peddling known as "Ill Wind."
DOD has made some improvements in the weapons acquisition process over the
years. Major reforms recommended by the President's Blue Ribbon Commission o
n
Defense Management--the Packard Commission--in 1986 have been or are current
ly
being implemented. In addition, the diminished Soviet threat and correspondi
ng
budget reductions are also prompting major changes in the way DOD acquires
weapons systems. Top management within the Office of the Secretary of Defens
e
has taken steps in an attempt to make the acquisition process more disciplin
ed
and to redefine the basic strategy for acquiring weapons. Moreover, key
Members of Congress are calling for the military services to reevaluate thei
r
roles and functions.
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THE PROBLEM
Despite many efforts to reform and improve DOD's weapons acquisition process
over the years, a number of fundamental problems persist. For example, despi
te
an increased emphasis on the sound development and testing of weapons, we
still see major commitments to programs, such as the B-2 bomber and the
Airborne Self-Protection Jammer, without first seeing proof that these syste
ms
will meet critical performance requirements. Despite improved cost-estimatin
g
policies and procedures, we still see the unit costs of weapon systems, such
as the DDG-51 destroyer and the C-17 transport, double. Despite the increase
d
emphasis on developing systems that can be efficiently produced and supporte
d,
we have weapons, such as the Advanced Cruise Missile and the Apache
helicopter, that still encounter costly production and support problems.
Clearly, problems are to be expected in major weapons acquisitions, given th
e
technical risks and complexities involved, but too often we find
-- systems being acquired that may not be the most cost-effective solution t
o
the mission need,
-- overly optimistic cost and schedule estimates leading to program
instability and cost increases,
-- programs that cannot be executed as planned with available funds,
-- program acquisition strategies that are unreasonable or risky at best,
-- too much being spent before a program is shown to be suitable for
production and fielding, and
-- individuals seeking to improperly influence the outcome of the contractin
g
process.
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THE CAUSES
While there are many reasons for these types of problems, the underlying cau
se
of persistent and fundamental problems in DOD's weapons acquisition process
is
a prevailing culture that is dependent on generating and supporting new
weapons acquisitions. The culture is made up of powerful incentives and
interests that influence and motivate the behaviors of participants in the
process. Participants include the various components of the Department of
Defense, the Congress, and industry. Sometimes, these interests transcend th
e
need to satisfy the most critical weapons requirements at minimal cost. Such
interests may include protecting (1) service roles and missions, (2) service
budget levels and shares, (3) service reputations, (4) organizational
influence,
(5) the industrial base, (6) jobs, and
(7) careers.
Collectively, these interests create an environment that encourages "selling
"
programs--a process that may entail undue optimism, self-interest, and other
compromises of good judgment. In this environment, it may not be reasonable
to
expect program sponsors to present objective risk assessments, report
realistic cost estimates, or perform thorough tests of prototypes when such
measures may expose programs to disruption, deferral, or even cancellation.
The "culture" is not the cause of all the problems in weapons acquisitions.
Some problems can be attributed to basic errors in judgment or other
motivating forces. For example, the "high stakes"--that is, the big money
involved--in defense acquisitions can lead to influence-peddling and
contracting fraud and abuse--as found in the "Ill Wind" investigation.
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GAO'S SUGGESTIONS FOR IMPROVEMENT
If changes in the acquisition of weapons are to be of a lasting nature, they
must be directed at the system of incentives that has become self-sustaining
and very difficult to dislodge. Incentives and opportunities that produce
undesirable behaviors must be eliminated or minimized through effective
internal controls and/or offset by stronger--positive or negative--incentive
s.
Moreover, officials in top DOD management positions, as well as the
acquisition work force in general, must be held to the highest standards of
integrity and conduct. Specific suggestions for addressing several prevalent
undesirable behaviors or conditions are described below.
Several actions are needed to change incentives and conditions leading to
inter-service competition, self-interest, and the acquisition of unnecessary
,
overlapping, or duplicative capabilities. These actions could also reduce
incentives for overselling programs. First, a consensus must be reached
between the Congress and the administration on military strategy, the
services' roles and missions, and future funding levels. Uncertainty
surrounding current roles and missions encourages the services to acquire
weapons that will support and protect traditional or desired capabilities. T
heinability of DOD to accurately predict outyear funding levels has resulted
in
optimistic spending plans that cannot be executed under actual funding level
s.
Secondly, determining needed capabilities and the particular types of weapon
sto fill those needs should not be left with individual branches and warfare
communities within the services. The duplicative outcomes of the acquisition
process are an outgrowth of the fact that system requirements mirror the
traditions and self-preservation instincts of their sponsoring organizations
Making these decisions at the Office of the Secretary of Defense level could
enable competing demands, available resources, and the needs of theater
commanders to be more fairly assessed before a specific program is given lif
e.
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Discouraging the Overselling of Programs
A combination of internal controls and other forms of incentives and
disincentives is needed to reduce the tendency to sell weapons programs
through optimistic cost and schedule estimates and accelerated--
nd therefore, high risk--acquisition strategies. Under the existing culture,
the success of participants' careers is more dependent on getting programs
through the process than on achieving better program outcomes. Accordingly,
overselling "works" in the sense that programs get started, funded, and
eventually fielded. The fact that a given program costs more than estimated,
takes longer to field, and does not perform as promised is secondary to
getting a "new and improved" system to the field.
Research and technology efforts need to be freed from program association
until they mature to a specified level, such as the demonstration and
validation phase. This idea is already embodied in DOD's new acquisition
strategy, which calls for advanced technologies to prove their feasibility a
nd
producibility before they are incorporated into new or ongoing acquisition
programs.
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Limiting Opportunities for Fraud and Abuse
DOD must continuously review and ensure compliance with controls designed to
(1) ensure the free flow of current and accurate information from the
contractors and program offices to top decisionmakers and those with oversig
ht
responsibility and (2) prevent improper influencing of contract awards.
Today, the prospects for constructive change are quite encouraging. The demi
se
of the Soviet threat and declines in defense budgets have created a unique
opportunity to effect lasting changes in the weapons acquisition process. Bo
th
the Department of Defense and the Congress have acted upon this opportunity
and have shown a willingness to support the types of changes needed to impro
veacquisition outcomes. DOD must ensure that effective internal controls are
in
place to minimize cultural influences, incentives, and behaviors that are no
t
in the best interest of the taxpayers.
PERSISTENT PROBLEMS IN WEAPONS ACQUISITION
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Despite conscious attempts to improve the acquisition process, weapons still
cost more, take longer to field, often encounter performance problems, and,
in
many instances, are difficult to produce or support. The persistence of thes
e
problems reflects the fact that the design, development, and production of
major weapon systems are extremely complex technical processes that must
operate within equally complex budget and political processes. If a program
is
not well conceived, planned, managed, funded, and supported, problems such a
s
cost growth, schedule delays, and performance shortfalls can easily result.
Even properly run programs can experience problems that arise from unknowns,
such as technical obstacles and changes in the threat. In short, it takes a
myriad of things to go right for a program to be successful, but only a few
things to go wrong to cause major problems.
On the basis of our experience in reviewing weapons programs over the years,
we have noted that vulnerability to major problems can usually be associated
with decisions or determinations made in answering the following five key
questions as weapon systems proceed through the acquisition cycle:
-- Is the system the best solution to the mission need?
-- Are the program cost and schedule estimates reasonable?
-- Can the program be executed with available funds?
-- Is the program's acquisition strategy reasonable?
-- Is the system suitable for production and fielding?
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IS THE SYSTEM THE BEST SOLUTION TO THE MISSION NEED?
DOD acquisition policies require analyses of missions, mission needs, costs,
and alternatives to ensure that cost-effective solutions are matched to vali
d
needs before substantial resources are committed to a particular program. An
important objective is to minimize overlap and duplication among weapon
systems that perform the same or similar missions. This is of particular
concern when more than one service participates in similar mission areas. We
have found that, while the services conduct considerable analyses in
justifying major acquisitions, these analyses can be narrowly focused, not
fully considering alternative solutions, including the joint acquisition of
systems with the other services.
The consideration of alternatives to the Air Force's $3.5 billion Sensor Fuz
ed
Weapon program is an example of the narrow focus of some of these analyses.
In
an August 1991 report, we discussed the Air Force's plans to use the Sensor
Fused Weapon primarily to interdict enemy follow-on forces before they could
reinforce or replace troops at the front lines. We found that the Air Force'
s
cost and operational effectiveness analysis had not considered the full rang
e
of weapons available. Weapons such as Air Force mines and Army
surface-to-surface and air-to-surface missiles and rocket systems were
excluded. DOD said the Army systems had not been considered appropriate for
inclusion in the analysis because each service had a valid, complementary
requirement to engage enemy targets and should procure weapons to kill those
targets. We believe such a policy enables the services to pursue their own
solutions regardless of what the other services are doing, unnecessarily
increasing DOD's development, production, and support costs.
Similarly, in April 1992, we reported on DOD's determination of weapon syste
m
requirements for its close support mission. Again, we found that Air Force a
nd
Army analyses of alternatives to satisfy their mission needs have been limit
ed
to specific types of weapons within their purview. The analyses gave little,
if any, consideration to the contributions of other close support weapons,
especially those from another service branch.
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ARE THE PROGRAM COST AND SCHEDULE ESTIMATES REASONABLE?
Cost growth and schedule delays, two of the most prevalent acquisition
problems, are also among the oldest and most visible problems associated wit
h
weapon systems. Program cost increases on the order of 20 to 40 percent have
been common on major weapon programs, with numerous programs experiencing
increases much greater than that. These increases become more telling when
translated into unit costs. For example, the estimated unit cost of the
Comanche helicopter has more than doubled since May 1985. Similarly, schedul
e
delays are experienced on almost every program, with the accumulation of
delays on some adding up to 4 or more years.
The desire of program sponsors to keep cost estimates as low as possible and
to present attractive milestone schedules has encouraged the use of
unreasonable assumptions about the pace and magnitude of the technical effor
t,
material costs, production rates, savings from competition, and other factor
s.
In some cases, acquisition cost estimates have been kept low by excluding
relevant program costs--such as the cost of training equipment--which should
be included in program cost estimates. Moreover, cost and schedule estimates
are interdependent. A schedule delay, assuming program scope is not reduced,
will likely drive program cost up.
Program cost increases and schedule delays are often the manifestation of
other problems with a program. For example, it takes additional time and mon
ey
to accommodate an expansion in program scope, to overcome technical or
production problems, and to restructure a program to absorb funding
reductions. On the other hand, cost and schedule problems often result from
flaws within the estimates themselves.
We have reported on cost and schedule problems many times over the last 15
years. Our September 1991 report on missile acquisition programs provides a
good synopsis of these problems. We reviewed the 12 DOD missile systems in
production that had at least 5 years of production experience. Each had
encountered cost and schedule overruns, with the unit acquisition cost for 9
of the 12 having increased 20 percent or more over the planning estimates. A
detailed examination of eight systems found that the unit cost and schedule
planning estimates were often overly optimistic, not adequately reflecting t
he
risks associated with the missile system's design, development, and
production. Costs grew and delays occurred, reflecting the increased
technological development required and the greater-than-anticipated complexi
ty
of the production processes.
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CAN THE PROGRAM BE EXECUTED WITH AVAILABLE FUNDS?
DOD's tendency to overestimate the amount of future funding available for
defense, coupled with the tendency to underestimate program costs, has
resulted in more programs being started than can be executed intact--"too ma
ny
weapon systems chasing too few dollars."
We have reported and testified on what we call DOD's planning/reality
mismatch. We have noted that DOD's 5-year spending plan for 1986-90 was abou
t
$553 billion more than what was ultimately funded. The 5-year plans, based o
n
the assumption that real funding growth in the outyears would continue, show
ed
that DOD was able to afford "on paper" the cost of developing and producing
all the weapons in the pipeline at optimum and efficient rates. In other
words, program managers were making development and production plans and
schedules based on funding levels that ultimately would not be realized. Whe
n
DOD was finally faced with funding reality, it often reduced, delayed, and/o
r
stretched out programs--adding millions of dollars to their costs. Figure 1
shows the gaps between DOD's 5-year plan and funding realities beginning wit
h
the 1982-86 Five Year Defense Program.
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Figure 1: Mismatch Between DOD's Planning and Budget Realities
The following table represents the data for this chart in the printed versio
n
of the report. The actual figure appears in the printed report.
Although in recent years DOD has made significant progress in reducing this
gap, the spending plans have still not been able to keep pace with the rapid
changes in the national security environment. DOD is now required by law to
ensure that its spending plans and the President's budget match. However, we
have reported that planned spending levels contain billions of dollars in
savings and reductions that may not fully materialize. These include (1)
higher costs and less savings than expected from base closures and other
activities, (2) less savings than expected from the Defense Management Repor
t
initiatives, and (3) less savings than expected from the proposed terminatio
n
of some major programs that Congress continues to fund. Another important
factor in the affordability equation not captured in figure 1 is the widenin
g
effect that unplanned cost growth in weapon programs has on the funding
mismatch. That is, if program costs were reasonably estimated and the pace a
nd
quantities called for in the individual program plans were not changed, the
demand for funds would actually exceed the levels currently projected in DOD
's
program plans. Thus, cost growth will still provoke an affordability problem
,
even if funding projections are reasonable. Further, it appears that the
Congress intends to fund less than the planned amounts in the current spendi
ng
plan, thereby continuing the gap between proposed and actual funding amounts
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IS THE PROGRAM'S ACQUISITION STRATEGY REASONABLE?
The acquisition strategy, which is a comprehensive plan of how to achieve th
e
weapon system program's goals and objectives, is a major determinant of
program outcomes. It is the service's plan for developing, fielding, and
supporting a weapon, including the managerial, technical, and contractual
approaches. A key element of the strategy is the program schedule, which is
punctuated by major events such as testing and key decision points. The two
most basic demands an acquisition strategy must meet are inherently
conflicting--
eveloping and fielding the weapon as quickly as possible to counter the
threat, while minimizing technical and cost risks. A strategy optimized for
accelerated fielding will likely accept higher risk primarily through
concurrent development and production. Under such a strategy, major problems
are more likely to be discovered in production, when it is either too late o
r
very costly to correct them. On the other hand, a strategy optimized for ris
k
aversion will result in a prolonged development schedule and increased
developmental costs.
We have found that in striking these compromises, acquisition strategies
embody optimistic assumptions regarding the difficulty of the technical
effort; the outcome and timing of key events, such as testing; and, as
discussed earlier, the cost, schedule, and affordability of the effort. The
inevitable result has been acquisition strategies that are tightly strung,
being both sensitive and susceptible to perturbations such as funding
reductions and unanticipated technical problems.
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Concurrency in the Acquisition Process
Perhaps the most troublesome characteristic of acquisition strategies in the
1970s and 1980s was the high degree of concurrency between the development a
nd
production of weapons. "Concurrency" can be broadly defined as the practice
of
beginning production before completing development, testing, and evaluation.
Concurrency can be used to expedite the acquisition and deployment of weapon
systems, and a certain amount of it can make good management sense. For
example, proving out critical production technologies in development can ave
rt
major problems in production. However, the reason most commonly cited for
using a concurrent acquisition strategy has been to expedite development and
production so the weapon can be fielded quickly to counter the Soviet threat
Concurrency is also used to absorb delays caused by cost, funding, technical
,
or other problems. Such an approach increases program risk, particularly whe
n
complex or novel technologies are involved.
At the very least, a highly concurrent strategy forces decisionmakers to mak
e
key decisions without adequate information about the weapon's demonstrated
operational effectiveness, reliability, logistic supportability, and readine
ss
for production. Also, rushing into production before critical tests have bee
n
successfully completed has resulted in the purchase of systems that do not
perform as intended. These premature purchases have affected the operational
readiness of our forces and have quite often led to expensive modifications.
Among the most celebrated examples of excessive concurrency are the C-5A car
go
aircraft and the B-1B bomber programs. The C-5A entered production before th
e
aircraft was fully tested, which led to a 12-year wing modification program
costing about $1.3 billion to correct problems. On the B-1B, full-scale
development and production contracts were awarded on the same day for the
aircraft's defensive avionics system, which has since been plagued with
problems that have seriously impaired the aircraft's capability.
When weapon system development and production schedules become more concurre
nt
than planned, the critical function of independent operational test and
evaluation often suffers. Such tests are crucial for assessing mission
performance before making significant program dollar commitments. In May 199
0,
we reported that, based on our review of six weapon systems and other audit
work, operational test and evaluation results often were not available to
support decisions to start production because the military services failed t
o
plan for such testing. In June 1985, we reported on the testing and evaluati
on
of five weapon systems--the Air-Launched Cruise Missile, the B-1B bomber, th
e
Sergeant York air defense gun, the F/A-18 aircraft, and the AGM-88A High Spe
ed
Anti-Radiation Missile. We disclosed that DOD had not obtained operational
test results on any of the five systems before beginning production. On four
of the five weapons we identified negative effects, including expensive
retrofits or modifications. The Sergeant York program demonstrated the most
extreme consequence. After the Army had spent $2 billion and produced 64 of
the 614 gun systems, the Secretary of Defense terminated the program because
operational tests showed that the system was only a marginal improvement ove
r
the existing air defense system.
Even if the operational test and evaluation are timely, methodological
shortcomings can inhibit their effectiveness. Common weaknesses in the quali
ty
of such testing that we have reported include the lack of realism,
independence, and test resources in the planning, execution, and evaluation
of
the tests. We have also reported on long-standing problems with the
completeness and accuracy of test and evaluation reports provided by the
services to the Office of the Secretary of Defense and Congress.
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IS THE SYSTEM SUITABLE FOR PRODUCTION AND FIELDING?
Although operational effectiveness problems often attract the most attention
,
we have found that many weapons encounter significant problems on the
production line and in the field. It is DOD's policy to begin planning for
production early in the acquisition process to ensure that the weapon system
design not only meets performance objectives but also can be produced in an
economical and timely manner. Experience, however, has shown that new weapon
systems frequently encounter great difficulties as they begin production.
Problems on the production floor commonly result in high unit production
costs, late deliveries, high maintenance demands, and poor field reliability
Production cost increases on the order of 50 percent are not unusual and can
greatly disrupt funding plans, schedules, and program quantities.
In a May 1985 report, we analyzed the experience of six weapon systems as th
ey
made the transition from development to production. We found that, in varyin
g
degrees, production preparations, such as producibility studies and
manufacturing technology projects, for four of the programs--the Copperhead
projectile, Black Hawk helicopter, Tomahawk cruise missile, and High Speed
Anti-Radiation Missile programs--had been sporadic and underfunded and had
been largely compressed into the late stages of development and early stages
of production.
Despite increased recognition by DOD during the 1980s of the importance of
addressing producibility in the acquisition process, we have continued to
witness production problems on some of the very latest acquisitions, includi
ng
the B-2 bomber, the SSN-21 attack submarine, and the Advanced Cruise Missile
The technology that has made high-performance weapons possible has also
introduced new challenges to weapon system designers to make these weapons
suitable for field operations. To be operationally suitable, weapons must,
among other things, be able to be effectively operated, maintained, and
supported by the military forces. Our reviews have disclosed that design
considerations such as reliability, maintainability, and logistics support
have been compromised or otherwise not adequately considered during the
acquisition process. Performance and schedule requirements tend to take
precedence over operational suitability concerns, particularly when funding
shortfalls force trade-offs. The result has often been very high maintenance
and support costs and lower-than-expected availability for operations.
Although DOD took steps during the 1980s to place increased emphasis on
operational suitability considerations during the acquisition process, we
continue to witness weapon systems being deployed without reliable support a
nd
test equipment or with design problems that require retrofits and
modifications to make them suitable for field use. Examples include the Apac
he
helicopter, the Advanced Medium Range Air-to-Air missile, and various
electronic warfare systems, including their test equipment.
FRAUD AND ABUSE IN CONTRACTING
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The investigation and charges known as "Ill Wind," involving
influence-peddling, bribery, and fraud, provided a startling reminder that,
despite years of reforms and efforts to minimize the risk of such activity,
the vulnerability to such activities is present whenever powerful incentives
and opportunities for these behaviors exist.
Vulnerability to contract fraud and abuse is high in basically two areas. Th
e
first area is overpriced defense contracts, which cost the taxpayer billions
of dollars more than necessary. Overpricing practices include contractors' (
1)
failing to provide DOD with accurate, complete, and current cost or pricing
data at the time of negotiations (producing what is called "defective"
pricing) and (2) using inadequate methods to estimate costs. This
vulnerability is addressed in a separate high-risk series report entitled
_Defense Contract Pricing_ (GAO/HR-93-8).
Improperly influencing the outcome of the contracting process is the second
area of contracting vulnerability--which was the focus of the "Ill Wind"
investigation. The investigation involved search warrants and more than 250
subpoenas for documents and evidence on the activities of over 50 private
consultants and more than a dozen defense companies and industry executives,
as well as DOD officials. Convictions that resulted from the investigation
included those of (1) a high-ranking DOD official for selling his influence
for bribes and leaking government information to defense firms bidding on
weapons contracts, (2) a consultant for arranging bribery payments to two DO
D
officials, and (3) a large corporation for bribing government officials and
conspiring to defraud the United States.
A November 1991 congressional report entitled _Management Reform: A Top
Priority for the Federal Executive Branch_ identified a number of specific
issues related to the adequacy of existing procurement practices and the lac
k
of a management capability to address the procurement problem. These include
d
(1) a high dependency on the use of consultants to write specifications,
prepare cost estimates, and even monitor other contractors; (2) a highly
competitive contracting environment, which created a frantic market for insi
de
information; (3) the lack of properly trained government personnel; and (4)
"revolving door" opportunities for government personnel to obtain employment
with contractors with which they worked.
Despite the overall high integrity, ethics, and professionalism of the defen
seacquisition work force and those who manage it, the opportunity and incent
ives
for fraud and abuse are ever present. In the current high-stakes, highly
competitive environment of shrinking defense expenditures, the outcome of a
major contract award can often determine the continued survival of a company
Such high stakes increase the incentive for improper conduct. Also,
streamlining efforts are placing greater decisionmaking responsibility on
individuals and eliminating layers of review and oversight. While such
streamlining efforts are beneficial and necessary, it is important not to
overlook the value of internal controls.
CONCLUSIONS AND ACTION NEEDED
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THE GROUNDWORK FOR CULTURAL CHANGE
The opportunity afforded by the dissolution of the Soviet threat opens the
door to making needed changes; declining defense budgets demand them. By
themselves, however, even these compelling reasons may not be enough to upro
ot
an acquisition culture whose system of incentives has become self-sustaining
Acquisition participants hold the key to cultural change since they largely
determine the motives and incentives of the acquisition process.
The defense acquisition decisions made over the next few years will be
especially critical because they are intertwined with the rewriting of
national security policy and military strategy. Decisions on next-generation
weapons will define solutions to defense policy needs, dictate budgets for t
he
remainder of the decade, and, in the process, either take advantage of or mi
ss
the opportunity to improve the acquisition culture.
While DOD has revised the military strategy, congressional debate on issues
such as roles and missions suggests that a consensus has not been reached.
Long-term dividends could result if the Congress and the administration
refrain from making weapon system milestone decisions until they agree on a
military strategy, including how and where U.S. forces should be prepared to
fight; how the forces should be structured to accomplish national security
objectives; and how to preserve the research, technology, and industrial bas
e.These should be explicit choices; they should neither be dictated by
individual program decisions, nor be the tenuous byproduct of budget
compromises. With an agreed-upon strategy, consensus on the roles and missio
ns
of the services could be more easily reached, and weapon programs could then
be the result of clear decisions on how to implement policy, rather than the
result of incremental decisions that address individual interests.
If changes in the acquisition of weapons are to be of a lasting nature, they
must be directed at the system of incentives that has become self-sustaining
and very difficult to uproot. Incentives and opportunities that produce
undesirable behaviors must be minimized or eliminated through effective
internal controls and/or offset by stronger--positive or negative--incentive
s.
Specific suggestions for addressing key undesirable behaviors include (1)
elevating authority for determining weapons priorities, (2) defusing the nee
d
to oversell programs on the basis of performance and urgency,
(3) reducing technological risks prior to incorporating research efforts int
o
specific weapons development programs,
(4) discouraging unrealistic cost estimates, and (5) aligning career success
with better program outcomes.
____________________________________________________________________________
___
Authority for Determining Program Needs
To reduce the narrow service self-interest currently inherent in program
justifications, the authority for determining needed capabilities and the
particular types of weapons to fill those needs should not be left with
individual branches and warfare communities within the services. The
duplicative outcomes of the acquisition process are consistent with the fact
that system requirements mirror the traditions and self-preservation instinc
ts
of their sponsoring organizations. Moving this authority higher up in the DO
D
organization could enable competing demands, available resources, and the
needs of theater commanders to be more fairly assessed before a specific
program need is given life.
There appears to be a misunderstanding that such authority is currently bein
g
exercised by the Joint Requirements Oversight Council (JROC) and/or the
Defense Acquisition Board (DAB). The JROC, which must review, approve, and
revalidate each major weapon requirement before the weapon can proceed to th
e
next stage in the acquisition process, has revalidated every weapon system
requirement it has reviewed since 1989.
The DAB, which conducts milestone reviews of weapons programs at each stage
of
the acquisition process, has taken a limited role in managing overall weapon
s
acquisition, requirements, and affordability. Despite major changes in threa
t
and reductions in defense spending, the DAB has approved every program to
proceed to the next acquisition stage since January 1990.
There is not necessarily a "right" answer to the question of where the
authority for determining program needs should be vested. Possibilities
include the Defense Planning and Resources Board, which was established to
help develop stronger links between national policies and the resources
allocated to specific programs and forces; the Office of the Secretary of
Defense; or perhaps a high-level council/board within each service, followin
g
any realignment of their roles and missions.
It is also important that if a debate is to occur between DOD and the Congre
ss
over the need for a weapon, it should occur early in the process, before the
weapon gains too much momentum.
____________________________________________________________________________
___
Defusing the Need to Oversell Programs on the Basis of Top Performance and
Urgency
The dissolution of the Soviet Union, together with the current U.S.
inventories of highly capable weapons, presents opportunities to abate the
need to oversell weapon programs, the associated optimism in cost and
schedule, and the tendency to weaken acquisition strategies in favor of
schedule acceleration or preservation. DOD has made several proposals along
these lines, including limiting or terminating production plans for several
major weapon systems and reducing concurrency in new programs. However, thes
e
changes will not necessarily produce better program outcomes if overselling
performance and urgency still "work" in gaining program approval. Defusing t
he
need to oversell programs on the basis of performance and urgency will requi
re
decisionmakers to ensure that their decisions on individual programs are
consistent with military strategies, policies, and funding levels agreed upo
n
by the administration and the Congress.
____________________________________________________________________________
___
When to Define Programs
Carrying research and development efforts further before incorporating them
into specific weapon programs could reduce the tendency to overpromise
expected results. Weapons programs have traditionally relied on risky
technology development efforts. Such efforts, when drawn into a major progra
m,
not only become dedicated to the program but are subjected to the same
requirements for precise cost and schedule estimates, even though their
immaturity defies such precision.
Freeing research and technology efforts from program association until they
mature to a specified level, such as the demonstration and validation phase,
could be one element of an overall strategy to ensure that the nation nurtur
es
a healthy research and technology base in the face of declining weapons
production. Given sufficient funding, the efforts themselves would benefit
because they would be more able to explore the full range of results, rather
than being directed toward meeting program-specific goals. Under these
circumstances, testing could assume a "no fault" nature, whereby its main an
d
proper purpose would be to gauge and guide the progress of the work. In this
arena, test failures, problems, and redesigns would be part of a healthy
process, whereas the same results now represent potential disasters in major
programs.
When the need for a major program is determined, the program could pick from
mature research and technology projects, reducing the subsequent risks to th
e
program. In addition, the testing of a major weapon could then be more
properly focused on "how well" it performs, rather than on "whether" it will
perform. Many of these ideas are already embodied in DOD's new acquisition
strategy, which calls for greater demonstration of advanced technologies, to
prove their feasibility and producibility, before incorporating them into ne
w
or ongoing acquisition programs. The success of this strategy will depend on
the cooperation of all acquisition participants.
In weapon acquisitions, optimistic cost estimates are rewarded because they
help gain program approval, win contract awards, and attract budgetary incom
e.
The consequences of cost growth are not directly felt by an individual progr
am
because they are "accommodated" through stretch-outs and quantity changes an
d
by spreading the pain across many programs.
To discourage unrealistic cost estimates, the consequences should be tied ba
ck
to the program at hand. Such incentives could work the other way as
well--programs that are well-managed within estimates should be undisturbed
and should keep at least a portion of any cost savings they can achieve.
The Future Years Defense Program can be used as a tool to help decide how mu
ch
money can be afforded for an individual program and to confront the
consequences of program cost growth. The Future Years Defense Program could
force the arrangement of programs so they fall within reasonable funding
levels. The timing of major programs could be staggered to reflect financial
realities. Without some actions along these lines, DOD could, in the future,
be faced with a financial "bow wave" of next-generation weapons--a condition
that can bring out the worst in acquisition management. The funding plan cou
ld
also serve to discourage other sources of program cost growth, including
requirements increases and program redirections. When any participant--
ncluding the Congress--proposes an action that will change the funding profi
le
or timing of a program, that participant should also propose the trade-offs
in
the plan that will make the action fiscally possible.
____________________________________________________________________________
___
Aligning Career Success With Better Program Outcomes
One of the aspects of the acquisition culture that will be most difficult to
change is the fact that the success of participants' careers is more depende
nt
on getting programs through the process than on achieving better program
outcomes. The success of cultural change will depend on whether participants
are rewarded for taking actions that produce better outcomes. It is possible
that program managers' careers could be aligned with better outcomes if thei
r
progression is governed by the quality of their management and not by the
survival of their programs.
At this point, perhaps the most important step participants can take is to
recognize the broader implications of their individual actions. In July 1992
,
the Chairman of the Senate Armed Services Committee called for an overhaul o
f
military roles and missions. To make the difficult choices necessary in such
an overhaul, he suggested that the standard should be "what is best for
America," not what is best for the individual services. This standard should
govern the actions of participants at all levels in the weapons acquisition
process.
____________________________________________________________________________
___
Effective Controls and High Work Force Integrity Are Keys to Combating
Contracting Fraud and Abuse
Establishing and maintaining effective internal controls are essential to
minimizing the opportunity for improper conduct on the part of both governme
nt
and contractor officials. While adequate control mechanisms are often in
place, their effectiveness can quickly erode without a sustained commitment
to
adhering to and enforcing existing controls. Such erosion invites
circumvention and opens the door to fraud and abuse.
As DOD continues down the path of downsizing and streamlining its operations
,
as it must, we caution that due consideration must be given to ensuring that
the necessary internal controls and oversight are not lost in the process.
Moreover, the key ingredient to combating fraud and abuse is maintaining a
high degree of professionalism and integrity in the work force. In 1990,
Congress enacted the Defense Acquisition Workforce Improvement Act, which is
designed to improve the overall training, education, and experience of the
acquisition work force.
A commitment to establishing and maintaining a high degree of professionalis
m
and integrity will be necessary as DOD continues to streamline and downsize
its operations. The effect of such actions will be to place ever increasing
reliance on the sound judgment of individuals.
============================================================================
===
THE PROSPECTS FOR CHANGE ARE ENCOURAGING
We believe that the top management in the Office of the Secretary of Defense
and the Joint Chiefs of Staff has displayed the ability and conviction to
forge significant change. They have also done much to reestablish central
management of weapon acquisitions. In addition to DOD's recent reform
initiatives, these characteristics have been manifested in a number of ways,
including
-- the strong collective leadership of the Secretary of Defense and the
Chairman of the Joint Chiefs of Staff during Operation Desert Storm;
-- DOD's proposal to trade off weapon programs in favor of military personne
l
in an effort to make an orderly transition to a smaller force;
-- more realistic funding projections, coupled with an announced firm stand
not to allow programs to proceed if they are shown to be unaffordable in
the future; and
-- renewed commitment to the Packard Commission's recommendations and to
improving the quality and professionalism of the acquisition work force.
The Congress has also taken constructive actions and made proposals to impro
ve
weapon acquisitions. For example, the Joint Chiefs of Staff was strengthened
by the Goldwater-Nichols Act, enabling it to function more effectively in
situations such as Operation Desert Storm. Both the Senate and House Armed
Services Committees have been forthright in highlighting the need for a new
military strategy in light of the reduced threat and have put forth proposal
s
on such a strategy. The Senate Armed Services Committee has pioneered effort
s
to authorize funding for entire acquisition phases, so as to reduce program
instability. More recently, Members of Congress have proposed renewed emphas
is
on the "fly before buy" policy in weapon programs and have enacted the Defen
se
Acquisition Workforce Improvement Act to improve the quality of the work
force.
Today, the ingredients for making lasting improvements to weapons
acquisitions--the need, the opportunity, and the leadership--exist. To conve
rt
these ingredients into constructive change will require both the Congress an
d
the administration to take joint ownership of repetitive acquisition problem
s
and to take explicit steps to resolve them. The actions already under way ar
e
important to better outcomes. Also important, in our view, is the recognitio
n
of the cultural dimension of acquisition problems and the solutions it
suggests. Beyond directives and controls, acquisition participants will have
to pull together to make better outcomes the more natural products of a
healthier acquisition culture.
