Roberto Ortega Zloczewer Student number: 10616720 E-mail
address: [email protected]
Improvements in the Acquisition Process of the DoD Student
number: 10616720
Introduction& background context Substantial efforts have
been pursued to obtain efficiency in the acquisition process of the
Department of Defense, including ones such as The Single Process
Initiative or the Director of Acquisition Program Initiative (Jones
& McCaffery, 2007), the latter having proved to manage costs
and measure performance more precisely than before. However, there
are many steps in the process that continue being inefficient, and
in this paper I will propose some measures to maximize the output
of the DoD, especially in relation with its contractors.
Contractors are not liable for important differences encountered
between what the DoD demanded and the actual output. This could be
solved by directly changing the contractors liability or, possibly
better, modifying the competences and assigning clear roles to the
different Defense agencies in charge of supervising the contract.
Another topic discussed will be the future of public shipyards and
R&D laboratories, analyzing their supplemental cost to Defense.
These facilities have decreasing activity levels but are
maintaining the majority of job positions. This automatically
implies declining levels of efficiency, and as stated in the
Jones-McCaffery model, they should be eliminated. However, this
would affect an important stakeholder, the workforce, and is an
unpopular political decision to take.So, when is the right moment
to execute this measure? Finally, the last problem which will be
dealt involves stakeholders from the aircraft industry at a
worldwide level. Can the U.S government subsidize Boeing? And, most
importantly, concentrating on the DoD: what is the objective of the
latest massive defense contracts signed with Boeing: supply the
military with assets, or supply Boeing with liquidity?
In this paper, the Jones-McCaffery reengineering model will not
be modified in itself, as the initiatives presented in this essay
will build upon this model, giving its view on how to bring these
measures to light. The solutions will be devised through a
qualitative analysis, although some numerical data will be
available as well. The main goal of these reforms is to reduce not
only expenditures but also minimize project indicators such as
cost,lead times and risk associated to the acquired asset.
Data & Analysis In order to deal with the problem of
contractors liability, I will refer to the initiative stated in the
Jones-McCaffery model, which states that when the warfighter is not
satisfied with the performance of the asset that has been deployed,
the DoD can force the contractor to pay the U.S treasury a certain
portion of the total contract cost, therefore making the contractor
partly liable for the problems or underperformances found in their
asset. In the book, it is forecasted that contractors will not meet
this reform with their arms open (Jones & McCaffery, 2007).
However, even if they dont like the proposal, they wont be able to
turn their heads away from the DoD and start looking only for
contracts abroad, because of the downside their profits would
experience. For example, 84% of Lockheed Martins revenue comes from
contracts with the DoD (Wikinvest), who therefore has great
negotiation power to decide the rules which are to be followed. By
implementing this measure, contractors would be more engaged in
delivering the correct product, as they are partly liable for the
final outcome, both parties bearing the risks. This measure aims to
change the relationship between contractors and the DoD, in order
to distribute the liability between the two parties. However, what
if the original problem that causes the liability issue (the
difference between what Defense asked for in the contract and what
the contractor finally delivered), is caused by misinterpretations
among different agencies in the
DoD? Here comes in the second problem: the confusion of roles
among two important agencies that are part of the Under Secretary
of Defense (USD): the Defense Contract Audit Agency (DCAA) and the
Defense Contract Management Agency (DCMA). There is only one letter
that differentiates their acronym, and that seems to be done on
purpose: the two agencies have many overlapping roles. The DCAA
basically audits the contracts and gives financial advice regarding
these contracts, while on the other hand the DCMA surveys and
provides advice before the contract has been awarded, and once the
contract has been awarded it measures the performance of the
contractor in terms of cost, schedules and asset capabilities in
order to guarantee that everything is going as planned (Ford).
Therefore, their functions overlap before the contract takes place,
as they both give advice about it. The situation is aggravated by
the fact that although both agencies are part of the USD, the DCAA
is under the USD Comptroller, while the DCMA is in the USD AT&L
(Acquisition, Technology and Logistics), preventing direct contact
between them (Ford), which is crucial given the similar nature of
the roles they are undertaking. Their different stances on a yet
unsigned contract can confuse the potential contractor, as well as
delay the whole acquisition process, creating inefficiencies. These
can be detected by analyzing the results of Grant Thornton LLPs
16th Annual Government Contractor Industry Survey: 74% of private
government contractors found the government inefficient when it
came to resolving contract issues, and of these, 56% found the
inefficiencies within the DCAA (Hall, 2010). This unsettling data
calls for an urgent reform under the hood of the USD. The DCAA and
the DCMA could jointly analyze the potential contract and do the
auditing, and arrive together to a conclusion. Once the contract
has been awarded, the present procedure would continue, where the
DCMA monitors the performance of the contractor and see if the
interests of
DoD are aligned with what the contractor is actually producing.
This reform follows the principle of creating joint groups to take
certain decisions, which is underlined in the JonesMcCaffery model.
The third problem, alsotreated in this model, involves the
facilities owned or contracted by the DoD, which include shipyards
and out-of-date R&D facilities. In the book, it is recommended
that these public companies should be eliminated after analyzing
the little value which they create in comparison with the cost that
they represent. Many of these shipyards are not active, and those
that are operational produce aircraft carriers, which are, as Mark
Thompson from Time Magazine states, old fashionedand include
expensive manned aircraft that are not part of the present tendency
to go for less costly and more versatile weaponry and assets, such
as drones or cruise missiles, used recently in Libya (2011).
Therefore, eliminating these shipyards would also help the
reengineering process in changing from a push strategy (produce an
aircraft carrier and then see where it can be used, as is happening
today) to a pull strategy (initial question: do we really need an
aircraft carrier?). However, a question that remains unanswered is:
when is the moment to close them? Or, better said, when will
politicians abide to follow such an unpopular program as is
eliminating jobs? After analyzing thepresent situation, in which
both Democrats and Republicans are presenting different plans to
deal with the deficit over the following years, the moment is right
now. Obamas plan to reduce the deficit includes a cut of $400
billion over the next twelve years (ASMC, 2011), which should
include the elimination of these inefficient facilities. At least
for a politician, this is the right time to take this kind of
action without becoming too unpopular, as many citizens see the
budget savings as necessary. Finally, the fourth problem deals
again with private contractors, but in this case with one in
particular: Boeing. The question is: are the reasons behind the
DoDs massive defense
contracts with Boeing following a pull strategy (because the DoD
needs certain capabilities), as it should be, or is there a
secondary goal, to fund Boeing in its battle with Airbus? On
Thursday, March 31st 2011, the WTO confirmed as illegal the $5.3
billion subsidies which the U.S government provided to Boeing. But
what about DoDs $35 billion contract with Boeing to supply the Air
Force with new aerial refueling tankers? (Clark, 2011). Is that
really a need, or is it in part an excuse in order to disguise the
subsidies towards Boeing? The United States, as well as Europe
(with Airbus), Canada (with Bombardier) and Brazil (with Embraer)
(Doh, 2003) should stop subsidizing their aircraft companies, and
make of this highly subsidized sector a competitive and more
efficient one. At the moment, by looking at the delays and
technical problems present in the Boeing Dreamliner 787 and the
Airbus 380 (Moellenkamp, 2008), it could be said that the financial
safe net that governments offer to aircraft manufacturers dont go
hand in hand with efficiency.
Conclusions After analyzing the problems and offered possible
solutions, here are the 4 main conclusions reached:
1. The DoD has enough negotiation power, as the majority the
contractors revenue comes fromDoD contracts, to force contractors
to assume part of the liability if the asset delivered differs from
the expected, and should do so to diversify risks. 2. The DCAA and
the DCMA should jointly analyze potential contracts and reach
collectively to a decision about it. This would eliminate
overlapping decisions and inefficiencies.
3. It is necessary to shut down underperforming R&D
facilities and shipyards, and the moment to do so which will be
less politically damaging is now, when the possibility of a fiscal
crisis makes budget cuts a priority. 4. DoD should not sign massive
contracts with Boeing if one of the main reasons is to subsidize
the latter; reduces efficiency in Boeing (they have a safety net,
not a competitive market) and can distract DoD from following a
pull strategy (ordering what they need), creating the risk of
buying unnecessary assets.
Ultimately, these conclusions deal with achieving more
efficiency and reducing the risk of the assets acquired. These two
goals are the main pillars of capital budgeting (Jones &
McCaffery 2007), which is being gradually implemented in the
budgeting and acquisition process of the Department of Defense.
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