Category: DoD Budget

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Sewing Machines and DoD Acquisition

I saw an interesting article this morning on the NDIA Blog site which said Secretary Frank Kendall, the Under Secretary of Defense for Acquisition, Technology and Logistics  USD(AT&L), was unhappy that DoD did not meet the goal for having more competition for defense-related contracts.  Singer328 height= I’m not surprised at that because given the irrational focus of DoD on vendor profits, they have managed to make bidding on defense contracts so unattractive that fewer and fewer companies are making the effort to bid.  In my view, it’s not just one reason:

  • There are less contractors out there to bid
  • DoD rules and regulations limit profitability on contracts (only the big guys can survive at the margins expeced by DoD)
  • FAR requirements are so onerous (and increasing) that it’s too expensive to bid on many contracts
  • FAR requirement are so onerous that it’s too risky to bid on many contracts
  • The specter of having DCAA establish a parasitic site in your corporate HQ to monitor your finances is too distasteful
  • Uncertainty of funding streams, including the ability of DoD to cancel any contract for any (or no) reason
  • Too many ID/IQ contracts in order to avoid protests.  They are just beauty contests.

I think I will stop at those seven for now, but there are more.  What’s fascinating to me is that these reasons are ignored as DoD attempts to develop a fix for limited competition.  The DoD solution is to increase regulation, increase reporting frequency (so the bad news comes more quickly I suppose), and continue to monkey around with contractor profits, even on fixed-price contracts.  The best way, is to reduce the number of requirements, like those cited above, and let natural instincts and market forces drive competition.

 In order to have more bidders, it must become more attractive to bid!

Hello?  Did i just say that?  Why isn’t the leadership focused on how to make bidding and working on government contracts more attractive?  Can it be that simple?  I think the answer is yes.

So what does the sewing machine have to do will all of this?  This past weekend, the lovely Mrs. Crenshaw volunteered to do a little sewing to get one of our granddaughter’s uniforms ready for school.  In order to do this, she needed her sewing machine liberated from the darkest recesses of the attic.  I felt like I was in the basement of the Smithsonian as I rummaged throughout the boxes of brass plaques accumulated over the 32 years of my naval career (I’m not allowed to display them).  I found a medal I received from the Russians, a box of challenge coins, some old text books from the Naval Academy (why I still have a book on differential equations is beyond me), and various other flotsam and jetsam accumulated over 40+ year of marriage. I finally found the sewing machine, Singer Syle-o-Matic Model 328 (now listed on E Bay as “vintage”).  Setting it up after many years of disuse was challenging.  It’s a mystery to me why sewing machines work anyway, much like the DoD acquisition process.  I started fiddling around with the upper thread tension, adjusting the needle alignment, resetting the timing, changing the motor belt, tweaking the bobbin tension, etc.  Before you know it, I had adjusted just about everything on that machine and I had no idea of  what the original settings (which worked fine the last time we used it) were.  I should have left it alone, done some basic maintenance (a drop of oil perhaps) and let it do its thing.  But NOOOOOOOoo!  I had to fiddle around with every possible adjustable part and got it so far out of whack that the only option was to go back to basics and take it to a professional.  Now it works just fine.  I think the same is true in the world of DoD acquisition  We have monkeyed around with so many parts that we have lost sight of the original settings—-namely good, old-fashioned competition, unhindered by excessive regulation or government meddling in corporate finances. Why not turn over the management of corporate finances to the professionals (that would be corporate leadership) and let them do what they do best, COMPETE!

DoD ACquisiton

So my suggestion on how to increase comptetion is simple: make it more attractive to bid.  One does this by eliminating the barriers to bidding, not by adding more..  Take a look at my seven reasons above.  If we focused on fixing those, I guarantee you there would be more competition.  In the end, the government would get better value for the dollars it spends, not just cheap, mediocre work for which the government is becoming increasingly famous (or infamous, I suppose).

 

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The Devil is in the DoD-tails

A few weeks ago, Secretary of Defense Hagel published his list of six focus areas for the coming year. Here’s his list:focus

  1. Focus on institutional reform.
  2. Re-evaluate our military’s force planning construct.
  3. Prepare for a prolonged military readiness challenge.
  4. Protecting investments in emerging military capabilities
  5. Achieve balance
  6. Personnel and compensation policy

Really?  That’s what he’s focusing on?  You probably haven’t heard much about this list because it is sooooo uninspiring.  If this isn’t bureaucratic gobbledygook, I don’t know what is. Do you think these are his real priorities, or just the same type of feel-good rhetoric that his staff regularly generates. Ask yourself what the really big issues facing the DoD today are and see if this list scratches the itch. Let’s look at the priorities:

Focus on institutional reform.  The subheadings under this priority are reform and reshape our entire defense enterprise, direct more resources to military readiness and capabilities, and make organizations flatter and more responsive.  So what are the metrics to use to determine is progress is bring made?  As far as I can tell, this focus area should be part of the regular drumbeat of DoD, not some special focus area, implying that we will look at it, fix it and move on.  Does he serious think that he is going to reshape the entire defense enterprise?  Into what?  And does he really mean to direct  more resources into readiness, or just cut spending in other areas, only so they can become focus area next year?  This one just leaves me uninspired and wondering exactly what we are reforming?

Re-evaluate our military’s force planning construct. This one includes the classic example of Pentagon-speak, namely force planning construct.  In the interest of clarity, I believe he means develop a different way to decide how big the Army, Navy, Air Force and Marine Corps needs to be.  “Challenge assumptions” is a key part of this focus area.  When have you not been to some type of business course where they didn’t say “Challenge the Assumptions?”  Exactly what assumptions will we be challenging, who will challenge them and by what process will we evaluate the accuracy and efficacy of the assumptions? In my experience, DoD did a pretty good job translating the National Security Strategy into what wars and other missions we were supposed to be prepared for, turning that into war plans and then figuring out how many forces we needed to execute the plans.  The problem was always with the front end in defining what the military would be expected to do.  It always turned out to be too expensive.  When I first started paying attention to the war fighting expectations I was a policy wonk on the Joint Staff.  Back then we were supposed to fight and win two wars simultaneously.  That proved so expensive that we had to change it to win one war, while holding our own in another, swinging forces to the the second war once we triumphed in the first.  That, too, became too expensive, so we changed to win two wars, but one of them would be the war on terror.  Frankly, I’m just not sure what the overarching strategy is these days, but I think it can be found in the 2014 QDR (see QDArghhhhhh).  This is what it says:  “U.S. forces could defeat a regional adversary in a large-scale multi-phased campaign, and deny the objectives of – or impose unacceptable costs on – another aggressor in another region,” whatever that means.

Prepare for a prolonged military readiness challenge. This is Pentagon-speak for figure out how to do more with less.

Protecting investments in emerging military capabilities. Not sure why this requires the continued focus of SECDEF. Can’t he just say make sure we have enough money in R&D accounts?  By the way, here is where the grand plan is not to spend more DoD dollars in R&D, but push off the expense of R&D to industry.  That’s not going to work as long as DoD keeps putting pressure on industry to lower profit margins…..Let’s see.  I’m a Captain of industry; What’s my priority for where to put the profits I make? 1) Shareholders, 2) capital improvements, 3)cash reserves, 4) corporate jet 5)R&D.  Hmmmmm what am I going to cut first when my profits drop????

Achieve balance I guess this is the old “tooth-to-tail” argument that Secretary Rumsfeld was fond of.  How much redundancy do we need?  How much forcible entry capability do we need? HOw many forces do we station overseas?  How many fighters do we need and who gets them? and on and on.   We’ve tried this before and the Services resisted any balancing initiatives that left them with less.

Personnel and compensation policy The crux of this priority is to figure out how to have a world-class military force while implementing the lowest price, technically acceptable personnel and compensation schemes. That hasn’t worked so well in the acquisition world and I doubt it will work any better as a personnel policy. This is one I agree that’s needed, but not in its current fashion.

None of these priorities are necessarily bad or wrong, but they are lacking the detail necessary to figure out if they will really make a difference.  Is there someone tracking these priorities and providing monthly updates on progress.  None of these items are terribly original either.  We have all heard these things time and time again.  I can remember tackling the issue of balance way back in 1990 with the AC/RC study done by the Joint Staff.  I would rather see a list of 5 really vexing issues facing the department and put a concentrated effort into fixing them.  The current list has no sense of urgency and just seems like business as usual to me. They are so big, just about everything winds up in a focus area.  Why not focus on specific issues?

“OK, Smart guy.  What would your priorities be?” you are asking.  Here is my list:

  1. Make JSF affordable (It’s costing us big time and we will never cut it!)
  2. Rightsize the force, paying attention to Army and Marine Corps (Admit that they are both too big and fix it and stop worrying about hurting feelings)
  3. Develop a sustainable personnel compensation and benefits system by 2017(put together a comprehensive package and stop focusing on the margins)
  4. Accelerate and complete Service transition to ERPs, institute direct treasury disbursement and eliminate DFAS (It’s the 21st Century! Why doesn’t DoD join it with the rest of us?)
  5. Eliminate Department dependence on OCO by 2017. (said another way, produce one budget……..incorporate sequestration and stop pounding people into the dirt developing budgets which are dead on arrival)
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A-10 and Reality

I just reread the summary of the 2015 National Defense Authorization Act (NDAA) passed by the House on a vote of 385-98.  At the end of the day, it appears that the House was not interested in agreeing with many of the cost cutting proposals that DoD had hoped for.  Base Realignment and Closure (BRAC) is not an option (see Bric-a-BRAC) , and it looks like the Air Force can keep it’s A-10’s for now.  When all is totaled up, the bill accounts for just a shade over $600 Billion in spending.  That number is a far cry from what the sequestration number would have been, thanks to the BiPartisan Budget Agreement, but 2016 will be another story.  A-10s The Senate also affirmed its desire to keep the A-10s in the inventory in its version of the NDAA.

I happen to agree with the Air Force that it is time for the A-10 to go.  It’s expensive to maintain and operate and doesn’t really have a place in the 21st Century battlefield.  It pains me to say that, because it was a good airplane for the mission, tank killing and Close Air Support. Intruder in the Spagetti My airplane was also the victim of affordability cuts and the entire fleet was scrapped right after it had undergone an expensive and extensive rehabilitation effort.  I’m talking about the A-6 Intruder, retired in 1997.  No one came to its rescue unlike the A-10.  I’m not quite sure why the A-6 retirement didn’t kick up more dust back then except to say that times were tough, money was tight, and everyone recognized the an airplane like the A-6 was vulnerable at low levels against the threat and that with weapons improvements we just didn’t need an airplane that could carry twenty-two 500 pound Mk-82 bombs.  What’s the point?  With Tomahawks and Joint Stand Off Weapons there was just no need for the A-6.  The same is true for the A-10, in my opinion. With today’s technology, the threat environment where the A-10 would be operating would not be survivable.  The assumption is that in order to use the A-10, we would have to have Air Supremacy (meaning no enemy airplane flying) and completely neutralized the hand-held SAM threat on the ground.  That’s a tall order!

In today’s world with armed drones…..oooopppps….i meant to say Remotely Piloted Aircraft, there’s just no need to put aircrew at risk.  Add to that the expense in maintaining the A-10 and it’s just not worth it……at least not to the Air Force.  It IS apparently worth it to members on the Hill who have A-10’s flying in their districts, and the hundreds of airmen required to be in each squadron to maintain the A-10. Sometimes it’s hard to admit you are flying a dinosaur that just doesn’t have a home in the 21st Century.

 

 

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Motivate me!

I just finished plowing through the 2014 Performance of the Defense Acquisition report published by Office of the Under Secretary of Defense, Acquisition, Technology, and Logistics (AT&L).  ATL Report width= I was prompted to look at it when I saw this article in the Washington Post on what motivated contractors, according to the report.  Pardon my suspicion at a report bragging about how well the current crowd at AT&L is doing, but I’m suspicious.  First….there’s a lot of statistics included and my experience is that statisticians can twist the numbers to say anything.  As evidence, I note there wasn’t much bad about the JSF (perhaps the worst performing program of all time) in the report.  Oh sure, it appears, but if one were to just glance at the charts and graphs where JSF is mentioned, you get the impression that it’s just a middle-of-the pack program…..lots of programs perform worse, a few perform better.  EXCUSE ME?  This baby is already $160 Billion behind schedule and 10 years late in delivery (and still counting by the way, especially given the disastrous fire at Eglin Air Force Base last week). How DoD can publish a report on performance of the Acquisition system without including a chapter on why the JSF program is so gooned up is beyond me.  It’s like the YouTube video when the gorilla walks through the basketball game.  Am I the only one who noticed?

Another item I thought was interesting was the conclusion that although Firm Fixed Price (FFP) contracts do perform better and generally exhibit less cost growth, the report concludes it’s because most of those contracts are lower risk anyway.  Oh by the way, the evil part of FFP contracts is that the vendors who do a good job of managing cost and performance of their programs are probably making more profit and therefore gouging the Government.  I can hear the conversation in the Pentagon now, “That darn contractor actually delivered on-cost and on-time, so we must have given him too much money!”  That substantiates my belief that the Pentagon has the uncanny ability to take from good performing programs to pay for the sins of poor performing programs, thereby dooming all programs to some level of common mediocrity.

One other point I thought was interesting….there’s no mention of contracts that were awarded on a lowest price, technically acceptable (LPTA) basis.  Some in industry contend that DoD is so bent on doing things on the cheap, that quality has suffered when contracts are awarded on an LPTA basis. I don’t know if that is just sour grapes from the expensive losers or truth.  No one seems to care…….about the quality any way.

Back to the title…..What were the conclusions?

  • Not all incentives work. In order to work they have to be used, be “significant, stable and predictable,” and they must be tied to DoD objectives.
  • Cost-Plus vs Fixed Price contract debate is a “red herring.” It’s incentive-based contracts that matter.
  • Incentive Fee contracts work best.  The big plus here is that using them allows the Government to limit contractor profits. (My personal opinion is that DoD should spend less time wringing their hands over profits and more time on getting the requirements right to begin with.)
  • FFP contracting requires knowledge of costs.  (Once again, this one refers to limiting contractor profits)
  • Programs which realize better profits in production incentivize vendors to move quickly through the development phase (Of course, this implies that the Government does not change requirements in the development phase….Good luck with that!) and saves money in the end.

So there you have it.  My little list of what incentivizes contractor to perform better goes like this:

  • Well written Requests for Proposals which are clear on requirements.
  • No requirements creep during the process.
  • Regular and reliable funding streams…none of this Continuing Resolution, furlough, of OCO stuff (Oh, how I’m tempted to use a different word here).
  • Full and Open competitions
  • Procurement professionals who spend a lot of time on improving government processes and less on monkeying around with industry processes.
  • A Government that honors multi-year procurement deals.  No canceling in mid-stream.

To be fair, I think that there have been improvements in the acquisition process and those in the driver’s seat deserve a pat on the back.  But in the end,  the fundamental problem is that the requirements process never gets it right and we spend lots of time and money recovering.  Congress doesn’t help things with its inability to pass a budget either.

 

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DoD Audit: Is the Cure Worse Than the Disease?

I can’t let the recent articles in the press regarding DoD audits go by without commenting.  The headline on the Federal Times web site was “DoD falls behind audit goals – again”.  Again is the operative word here.  Some of the reasons cited for the slide (paraphrasing here): two wars in the last decade, overwhelming size and complexity, furloughs, shut-downs and the general “drain” brought on by an infectious STD in DoD (That’s Sequestration Transmitted Disease).  Preparing for audits has been on the DoD leadership’s plate for over a decade as is regularly cited as the reason for many fits and starts in DoD:  Lean Six Sigma, ERPs, Business Transformation, cost initiatives, process standardization, etc..

But in truth, there has been some progress.  Let’s not forget the US Marine Corp’s efforts in that regard (not mentioned in the article).  I have commented on the USMC progress a few months back in the Hall of Heroes and Auditors article. As of today, the USMC is the only Service to complete an audit of its Statement of Budgetary Activity (SBA), even if it’s only for one year.  We are still awaiting the results of the latest audit of the USMC SBA.  There is every reason to expect that it too will be “clean” and thus the USMC will have two successive years of clean opinions on their SBA.  This was done on purpose, because the previous years were so gooned up that it was pointless to spend the amount of time and money necessary to get things up to speed for water already under the budget bridge.  The SBA can be thought of as that part of the SBR that covers most appropriations and transactions, but not prior-year appropriations and therefore not affected too much by prior-year sins.  It is also accurate to say that DoD is focused on achieving an audit on only one part for the Department’s financials, the Statement of Budgetary Resources (SBR).

In many areas audit readiness is being achieved by manual work-arounds and other non-sustainable means instead of actually simplifying and consolidating the rat’s nest of kludged together systems and processes that have evolved over the ages.  The result of this type of preparation will be continued costly audits, with each one being just as costly as the next.  The only way to save costs is to move to reliance on internal controls instead of conducting on-site, manual inspection of paperwork, digital or otherwise.  (Most private sector audits move rapidly to reliance on internal controls because it’s cheaper and faster).  Reliable internal controls are a result of standard processes, interoperable systems, standardized data and legacy reduction, so the more we focus on the audit (at the expense of fixing internal controls) the more money we will spend.  This means that the 2018 audit is likely to be just as costly as the 2015 audit.  That, my friends, is unsustainable.

We haven’t  gotten around to auditing property records and equipment inventories (existence and completeness), for example. The plan is to do that later, after tackling the SBR.  The problem I have with all the DoD audit rumpus is that no one really understands DoD financial ops and the statements behind them outside a few budgetary monks within DoD.  Contrary to just about any commercial company, no one…not management, not customers, not investors, no one but a few accountant types at GAO and OMB look at these things.  We don’t measure the success of DoD or the desirability of investment in it by its financials.  In the real world, when a company releases its financial reports, stock prices either surge or shrink, depends on the results.  Not so in DoD. DoD Financial Statements do not reflect its performance or effectiveness.   If (almost) no one uses them, then why all the hype?

First things, first.  What the heck is a Statement of Budgetary Resources anyway?  Here’s the definition from GAO’s Financial Audit Guide, Auditing the Statement of Budgetary Resources, dated December 2001:

The SBR and related disclosures provide information about budgetary resources made available to an agency as well as the status of those resources at the end of the fiscal year. The SBR and related note disclosures serve as a tool to link budget execution data in an agency’s financial statements to information reported in the “actual” column of the Program and Financing (P&F) Schedules in the Appendix of the Budget of the United States Government (hereafter referred to as the “President’s Budget”). Coupled with the analysis of other budgetary data, the SBR’s linkage to the President’s Budget provides a means to help assess the reliability of budgetary data reported in the President’s Budget. 

Whew!  How about them apples?  Let me decode for you: The SBR makes it easier for OMB to aggregate the budget numbers.  For the “Show and Tell” crowd, here’s a copy of the Navy’s 2013 SBR.  By the way, don’t go looking for it because it is buried so far down in the paper stack that it’s impossible to find by mere mortals.
Navy 2013 SBR
WoW!  For you purists out there, here is the link to the complete set of Navy’s 2013 Financial Statements along with the accompanying footnotes. I suggest putting it in the bottom of your parrot’s cage so it can memorize the numbers and amaze your accountant friends when they visit.

This is what the little red guy with a pointy tail on my left shoulder says:  So far the Services have spent hundreds of millions of dollars to get this statement correct (Audit Readiness, financial system modernization, ERPs, etc).  But take a look at it.  Is this what really matters?  Our benefactor, the US Congress has never thought we do that bad of a job in accounting for the money.  The money just keeps coming and we are in little danger of Congress withholding the bucks because the SBRs don’t balance.  When we told them we spent $800 on a toilet seat, no one said, “Your accounting practices must be flawed.”  Nope, they believed us.  Why we spent the $800 is far more important than accuracy of the number.   DoD knows to the required degree of accuracy (you engineers will remember the significant digits drill) where the money is.  When you are dealing with half a Trillion dollars, what’s a few million among friends?  Is it worth paying the King’s Treasure to get to the finite level of detail demanded by auditors?  In my previous life as the Navy’s budget guy, I would have declared this a “Science Project for the Green Eye Shades.” There is no doubt that DoD can do a better job at managing the money, but is it really worth the Billions we will ultimately spend to get it THAT right? Maybe DoD audit is too big of a bite to make it worth the cost.  Why not focus on specific processes and make them right.  Get pay and allowance correct, get inter-service transactions right, get contract payments right, etc.  If the individual parts are good, why waste a lot of time and money messing around with trying to combine them.  Let’s spend that money somewhere else.

On the other shoulder, the little guy with the nightgown and halo says: Even if the financial processes in DoD are off by one-tenth of one percent, that’s a lot of money.  Anything we can do to increase confidence in the management of our national treasure is worth the effort.  If these things weren’t valued, why have a GAO?  Obviously the American people have made a judgment that accurate accounting is important.  Why should the DoD be exempt from the requirements levied on every other part of our government year after year after year?  Oh by the way, it’s the law of the land that all federal agencies will have auditable financial statements.  The DoD is not above the law, therefore they must do it (Never mind that DoD has ignored the CFO Act for many years, or at least failed to comply with no consequences!).  Finally, audits can save money.  In the case of the Marine Corps, correcting errors in accounting systems and procedures found during the audit resulted in identifying additional funds it could use.  It’s interesting that the Department almost never spends more money that it has been appropriated because the system is set to err on the side of caution.  Anti-Deficiency Act violations are low.  Just look at the amount of unobligated balances at the end of each year.  If our accounting procedures were better, we could spend that money.

So who’s right….left shoulder or right shoulder?  Hard to say, but the answer to this question falls squarely into the “Tough Decision” category and our leadership should seriously consider what to do.  I would not  push the “Audit” button just because it sounds like a good idea.   A lot of money rides on this decision.  It’s easy to say “It’s good business to spend money on audits,” but others will say, “At what cost?.  At the macro level DoD does an adequate job managing the money, so spend those resources on combating Cyberterrorism, readiness, R&D investments to ensure our dominance on the battlefield or on taking care of Wounded Warriors.”

In the end, I say we should focus less on the obsession with a clean audit opinion, and more on fixing the processes and systems, once and for all, that we use to manage the money.  I don’t think it’s nearly as good as it could be, but it’s certainly not as bad as some assert.

Thanks to BG Roger Scearce USA (Ret.) and Deb Delmar of Vanguard Advisors LLC  for their assistance on this article.

Disclaimer:  I’m sure I may not  have gotten some of the technical terms exactly right, but for the intended audience (non- DoD Budget Monks and Scribes) it’s close enough!

 

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Neglected Nightmares and Forgotten Dreams

I know.  I know.  You are asking what can this article possibly be about? Well, it’s all about the DoD budget (the Dream) and sequestration (the Nightmare).  I’ve been talking to a few budget folks over the past week and asking how is this year compared to others in terms of pain.  The universal answer has been “Not so bad this year.”  But soon all our dreams of finally getting some sanity in the budget process will give way to the nightmarish and forgotten process known as Sequestration.  It’s been quite a journey to get to where the DoD budget is today.  Despite all the dire warning about sequestration, all seems to be well for now.  There’s some squeaking from the fringes about cuts to force structure, BRAC, pay and benefit cuts, rising health care costs,  etc.  There are still some struggles going in within the Navy about how many carriers and other combatants the Navy can afford.  The Air Force is struggling to make ends meet by removing the A-10 from the battlefield, and the Army and Marine Corps are wrestling with end-strength reductions.  Seems like a normal day in DC.  I mentioned it’s been quite a journey to get here, and an improbable one at that.  Let’s just review the history in case visiting Aliens would like a quick briefing (Do you think they would believe it?) or you want to explain it to your grandchildren.

August  2011.  The President signed the Budget Control Act of 2011.  The debt ceiling debate was in full swing but the BCA saved the day ( or so we thought).  It did a few things:

  • Raised the debt ceiling to $14.694 Trillion (bumped up another $500 Billion in Oct 2011)
  • Cut spending for 10 years by about $917 Billion, roughly half for DoD
  • Set up the Congressional “Super Committee” to find another $1.2 Trillion in cuts over 10 years.  If they were unable to do so by December 2011, than a series of mandatory cuts would kick in.
  • Required a vote on a Balanced Budget Amendment (which failed)
  • Monkeyed around with graduate and professional student loans, although it increased funding for Pell Grants

December 2011.  Oooops.  The “Super Committee flopped” so the arbitrary cuts demanded by sequestration loomed for next year’s budget.

February 2012.  DoD Budget for 2013 ignores sequestration.

December 2012.  DoD finally starts planning for possible 2013 spending reductions demanded by sequestration.

January 1, 2013.  The American Taxpayer Relief Act of 2012 delays sequestration to March 1, 2013, and cuts some of the sequestration caps.

March 2013.  Continuing Resolution funds Government till end of September 2013

October 1-16, 2013.  Government Shuts down.

October 16, 2013.  Congress passes the Continuing Appropriations Act, 2014 which funded the Government through February 2014 (actually it extended the debt ceiling limit)

December 26, 2013.  President signs the Bipartisan Budget Act of 2013 which restored $45 Billion of sequestration cuts in 2014 and $11 Billion in 2015 by adding sequestration cuts to 2022 and 2023.

It this any way to run a railroad?  No wonder nothing works right and everything the government does costs more.  There’s no stability to allow for any sort of long-range plan.  But you all know that.  The point of all this is that through a series of improbable event, we have managed to kludge together funding to keep the US in business (such as it is).  But there’s nothing in the works that I know of to fix 2016, the budget that being build right now in the Pentagon.  And just like a scene out of Ground Hog Day, DoD is putting together a budget that ignores sequestration.  Here’s a chart right out of the DoD 2015 Budget Briefing.  Notice that there is no mention of sequestration (except to exclude it). DoD FY15 Budget Proposal Summary   Now here’s a rough chart (I’m sure the numbers are off slightly) of what sequestration funding levels are relative to the DoD budget.  Notice it’s $115 Billion out of round through 2019.  That’s how much money the Pentagon is stuffing into the budget over sequestration spending levels. DoD_Sequester_Comparison The only point of this little tale is to impress upon you how important it is that we get this fixed.  We can’t keep grinding our people into the dirt with endless budget drills which make no sense.  There are three possible strategies to deal with the situation IMHO:

  1. Business as usual. The politicians will fix it just like last time.  (The Hope gambit and our current vector)
  2. Force DoD to plan for Sequestration in 2016 and beyond. (The Defeatist gambit)
  3. 1 and 2 (The “Probably what’s happening in the Pentagon, but no one will admit it” gambit)

Where do I come down?…..What the heck….let’s go for number 1.  It worked last time and the politicians always fix it in the end, no matter how much pain gets inflicted in the process. And so it goes………..

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Acquisition: Practitioners vs. Pontificators

DoD Acquisition Process

The DoD Process Simplified

I ran across an article from the National Defense Industrial Association (NDIA) the other day by Sandra Erwin on Congressional frustration on how the Pentagon buys things.  Not being satisfied with the progress being made by the DoD Acquisition guru’s, Congress has decided that more legislation is needed to fix things (Really? Congress is going to fix something?).  The Congress has asked nine of the industry associations around the Beltway to provide comments on how to make it better, with inputs due in July.  I belong to several of those and I’m glad the Congress is asking for industry input, although I hope they remember that asking the people who make money as a result of inefficiencies is just one side of the argument. I think significant progress has been made since then Under Secretary of Defense for Acquisition, Technology and Acquisition (USD(AT&L)) Ash Carter launched his “Better Buying Power Initiative” in September of 2010. In his memo to acquisition professionals he provided a roadmap to improving acquisition within DoD.  He focused on five areas of interest:

  1. Target Affordability and Control Cost Growth
  2. Incentivize Productivity and Innovation in Industry
  3. Promote Real Competition
  4. Improve Tradecraft in Services Acquisition
  5. Reduce Non-Productive Processes and Bureaucracy

Details of this can be found at this link if you are interested.  All these are worthy goals, and they have made a difference.  A recent GAO report found that some progress was being made, but that cost and schedule growth remain significant; 39 percent of fiscal 2012 programs have had unit cost growth of 25 percent or more. The amount of money in the DoD acquisition pipeline is staggering;  86 major defense acquisition programs  estimated to cost a total of $1.6 trillion according to GAO. If you have any questions about a specific program click here.

Besides the modest, if not marginal, improvements in acquisitions, some not so nice things happened as well.  As is often the case in large bureaucracies, what the big guys at the top are saying and what the little guys in the field are hearing frequently don’t jive.  That was the case with the Better Buying Power Initiative.

Dr. Carter said “Increase the use of Fixed Price Incentive Fee contract type where appropriate…”, but the dudes in the field heard “More Fixed Price contracts, less Cost Plus Fixed Fee and Time and Materials contracts.”  Contracting officers were suddenly burdened with having to provide extensive justification for any non-Fixed Price contract.  Since they were busy enough, the Contracting Officers would rather just go with the flow and issue fixed price contracts, even though the work was not appropriate for them.  The words “where appropriate” were overlooked.  In the end, it wound up costing more money.  Here’s why.  When a contractor agrees to a fixed price contract, the contractor is assuming all of the risk.  Suppose the job was improperly scoped by the Government, or suppose a software glitch pops up that takes time (and money) to fix.  All those unexpected expenses are absorbed by the contractor.  Consequently, Fixed Price contracts tend to be more expensive in order to cover the risk.  This was certainly the case in my former life when a long-time client came to me and said, “The Boss says we have to do a Fixed Price contract” this year and it can only be for one year at a time.  This was not what the customer wanted, but the customer was at the mercy of the acquisition folks.  The work we were doing at the time was rather unpredictable and my team was never quite sure from day-to-day what they may be tasked with next.  In order to be responsive, it was a Time and Materials (T&M) contract, which allowed us to flex to the client’s requirements.  But with a fixed price contract, I was not able to flex without a contract modification (and that takes time and money).  I told the client that if we were going to do a fixed price contract, I would have to increase the price and that I would not be as flexible in doing new work.  That fell on deaf ears because it was going to be such a hassle to justify anything other than a fixed price contract.

Here’s another example.  Dr. Carter says “Promote Real Competition”, but the  folks in the field heard, “Use Lowest Price, Technically Acceptable (LPTA)” evaluation criteria for source selection.”  This caused all kinds of price wars in the community and the Government was feeling smug about how much money they were saving, but…………Turns out many Requests for Proposals were poorly written with vague and overly broad technical requirements, so that just about any old company with the resources to put together a proposal could win the contract.  And they bid ridiculously low rates, so in the end they were unable to deliver and customers began to fall back to other contact vehicles to get the work done, or just didn’t do the work.  I think it’s a little too early to actually get to the real statistics about how many customers are really satisfied with the results of LPTA winning vendors but the Congress should find out before attempting to come up with more legislation.

The current USD(AT&L), Frank Kendall,  issued an update to the original Better Buying Power, known around town as Better Buying Power 2.0.  In it Mr. Kendall says:

  1. Achieve Affordable Programs
  2. Control Costs Throughout the Product Lifecycle
  3. Incentivize Productivity & Innovation in Industry and Government
  4. Eliminate Unproductive Processes and Bureaucracy
  5. Promote Effective Competition
  6. Improve Tradecraft in Acquisition of Services
  7. Improve the Professionalism of the Total Acquisition Workforce

The result has been a much greater focus on costs of acquiring the systems and a recognition that perhaps the LPTA pendulum was swinging just a little too far over.  As in the original BBP, those in the field had some different interpretations about expectations from the top.  One of the initiatives within the Incentivize Productivity goals was to “Align profitability more tightly with Department goals.”  This translated into government auditors deciding they need to closely scrutinize contractors books to ensure vendor were not making “excessive profits,” even on fixed price work.  I just don’t think that’s in the government’s lane. If they are so concerned about profit margins, then why not issue Cost Plus Fixed Fee contracts where the Government essentially controls corporate profits?   Thus,  despite all their good, it seems to me a few fundamental flaws in the acquisition system have not been addressed in BBP or BBP 2.0:

  • There is still a lack of coordination and cooperation between those who generate requirements, those who pay to satisfy the requirements and those who buy the stuff with the money they are given.
  • There is still a disconnect between contracting officers and the customers for whom they buy products and services.
  • There is still a disconnect between what the leadership in the Pentagon says and what the people in the field do.
  • The uncertainties of funding from year to year drive programs to their most expensive procurement options.
  • Certain key programs get a “pass” from all the rhetoric about performance, affordability and life-cycle costs, overshadowing all of the progress made to reform acquisition. The top 10 acquisition programs still account for 65% of all the acquisitions according to the GAO.  The Joint Strike Fighter is 25% of all DoD acquisition alone!

So in the end, I doubt very much if legislation will fix the problem.  Four feet of  stacked up Federal Acquisition Regulations and Defense Federal Acquisition Regulations are not going to be much affected by another thousand pages or so of legislation.  Check out the recent testimony of Dr. Paul Francis, the Managing Director of Acquisitions and Sourcing Management at GAO.  He has some very practical steps on how to improve the process. In addition to those steps, I would like to see DoD actually evaluate each program on its own merit, not on investment levels or political support or not simply press on with a poor program because they managed (mismanaged is probably the better word here) to get into a position where there is no alternative.  It would also be nice if the people who are actually charged with executing the acquisition system at lower levels could have a say in how to make things better.  There’s too much Top Down and not enough Bottom Up built into the process in my humble opinion.  What if we asked the practitioners to come up with a series of reforms instead of the pontificators?

 

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Bric-a-BRAC

birc-a-bracThere’s lots of hot air blowing about on the subject of Base Realignment and Closure (BRAC) inside the Beltway.  I thought I put a few points out there as food for thought.  First of all, a quick explanation of the BRAC process is in order (Here’s a link to the 2005 BRAC web page).  BRAC is the process by which the Defense Department determines what US bases and facilities are no longer needed or facilities which should be repurposed, obtains Congressional approval to close those bases and goes about closing the bases  The determination process is done secretly within each Service based on criteria set in advance by OSD and the Services.   The Service data is then forwarded to OSD where the lists are “modified” to accommodate the desires of the OSD staff and SECDEF.  This list is then presented to an independent BRAC Commission.  The commissioners are appointed by the President, in consultation with the Congress.  The BRAC staff reviews the recommendations, conducts field visits and hearings around the country, and then the Commission produces a list of base closures.  This list is given to the President for review and approval who then forwards the list to Congress.  Congress has 45 days to vote “all or none” (no modifications allowed) on the recommendations.  If they do nothing, the recommendations become law and DoD has six years to close or realign the bases on the list.  In past BRACs the DoD has done a variety of disposal actions, including Federal real property  made available by public benefit conveyances for airport, education, and homeless assistance; federal transfers to native American tribes; economic development conveyances to local redevelopment authorities; and public sales.

Communities spend vast amount of money and effort preparing for BRAC, making sure the contributions to the local economy from local bases are well known, lobbying the Hill and Pentagon and generally stirring up dust in an attempt to “BRAC-Proof” their bases. That’s a big reason why the process is kept under wraps until released to the Commission.

The Defense Department says it needs BRAC to rid itself of excess infrastructure in order to reduce costs.  The big question is rather or not BRAC closures actually achieve the projected savings.  That’s a tough question because there is a fair amount of conflicting data out there.  The DoD uses a model (critics say it’s flawed and inaccurate) called COBRA (Cost of Base Realignment Actions) that projects closure costs and the modeling results are generally used for racking and stacking the recommendations. To my knowledge, the model has never be compared to actual costs in order to validate its results (partly because I doubt if the real costs are known). I just don’t know enough about it to have an opinion either way, but given that determining costs is involved I tend to agree with the critics.

There have been several problems related to BRAC which have limited savings or increased costs:

  • Environmental Clean up costs are often underestimated negating the savings anticipated.
  • Turnover from DoD to the receiving locality or other governmental agency has not progressed smoothly.
  • Unsafe building must be demolished before turnover
  • Local communities not prepared to accept the property and ensure security.

I just read today that the Navy’s Treasure Island Facility, BRACed in 1993, is now scheduled for radiation testing because high levels of radioactivity have been detected in the housing areas. YIKES!

The CNO has said that the Navy does not need another round of BRAC , but the Army and the Air Force maintain that it’s needed.  The Army’s position is certainly understandable  given the  personnel reductions they are facing.

Although great pains were taken to “de-politicize” the BRAC process, politics inevitably creep in.  Take for instance the Portsmouth Naval Shipyard located in Defense Committee Heavy New England.  Its main purpose was to refuel nuclear submarines.  The Navy’s newest version, the Virginia-class is designed to last 30 years without refueling.  The last of the submarines requiring refueling are long gone, but when the Navy tried to close it, the fan was clogged by politics and it was removed from the list.

So keep an eye out in the  Defense Budget debate over the next few months.  To Bric-a-BRAC?  That is the question.

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Food Stamps and Decisons

I’ve had the opportunity and honor to meet with Marines and Sailors in the field, working hard and doing the incredibly difficult things they do….all with enthusiasm and a smile. My first thought was, “It’s good to be way outside the Beltway!”  But that’s nothing new.  Somewhere in the attic filled with the boxes of all the command plaques and farewell pictures that I’m not allowed to put on the walls is my favorite, the ubiquitous “Pentagon in the Rear View Mirror” farewell picture, signed by all my shipmates who were so sorry to see me go.  My recent flight to freedom outside the Beltway has caused me to reflect on just how hard it is for many of the leaders in the Pentagon to leave their commands, far removed from the self-generated controversies  inside the Beltway, and plunge themselves back into the budget battles, policy proliferation and day-to-day crises that erupt in the Pentagon.  No wonder they are  happy  when they escape, even if only for a brief while.

 

 

So this is a round-about way to get to today’s topic, which is really all about decisions and an appreciation for just how difficult making them can be.  I remember listening to Bill Lynn, former Deputy Secretary of Defense, at a briefing where he was opining about some of the challenges he faced.  His point was that it’s really tough being the DEPSECDEF, because all of the easy decisions have be made by people below him in the chain of command.  He wasn’t complaining about that and I don’t blame him.  If you are in a leadership role and you find yourself making easy decisions, then I would submit something’s wrong.  Your value to the organization is in making those tough decisions that no one else can or wants to make.  That’s your “value proposition.”  I used to tell my staff that I was willing to make any decision they asked me to make, but the ground rules were once they came to me and I made a decision, they were stuck with it.  They were out of options.  That tended to weed out the easy ones. (I’ve always hoped that it wasn’t because my decisions were so egregiously bad, by the way) There’s a great book which has had a substantial impact (see my course on Ethical Decision Making) on my life as a leader entitled “How Good People Make Tough Choices” by Dr. Rushworth Kidder.  I commend it to you.  The basic premise is that just about anyone can decide issues of right and wrong, black or white, legal or illegal, but the ability of leaders to decide between two equally “right” options is essential and requires the special talents of a leader.  As a leader, you should strive to prepare yourself to make those types of decisions and reflect on the factors you consider when making them.  One example is a simple one.  It’s made every day in thousands of households every day:  Do I take the family out to dinner tonight, or do I save the money and put it in the college fund?  Both answers are equally good, I suppose.  I teach a class on ethical decision making based on Dr. Kidder’s book and I always ask the question,”When you are driving in the countryside eating an apple, do you toss the core out when finished?”  After all it’s biodegradable and some hungy creature might enjoy the treat.  It will actually help the environment.  Most people will say that they have done that.  But it’s always interesting when I ask if before they do it, do they wait until there’s no car behind them. Hmmmm. If it’s a good decision, why wait?

Here is an example of they types of tough decisions faced by the leadership: Do we cut Commissary subsidies to free up money for operations and procurement? The dilemma here is that DoD needs the money to fund and modernize weapons systems, but at the same time troops used over $103.6 Million in food stamps at base commissaries in 2013.  That’s a tough question to which either answer, yes or no, is correct.  Dr. Kidder points out that in the process one should first check and see it there might not be a third option that isn’t readily apparent.  Decision makers sometime get so focused on two options, they sometime overlook others.  For instance, with over $100 Billon in working capital funds throughout the DoD, if they set a goal to become just 1 per cent more efficient, they would generate the money for commissary subsidies.  I know our leaders have to make hundreds of these decisions each day.  I respect that and trust their judgement.  I only hope that in making their tough decisions they don’t become so focused on “yes or no”, that there might be a third alternative out there somewhere that was overlooked.

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The DoD Budget Deli: One Slice of Salami, Please.

There were several good articles in the papers regarding the DoD budget over the weekend. The Washington Post had a good one that provided a pretty good summary.  As an old Intruder guy I have to point out that the article notes the cancellation of the A6 Intruder, with a nifty link to some information on the Venerable Intruder. It’s not often one gets to scoop the vast reporting resources of the WaPo so here goes:A6 Intruder
Dear WaPo Editorial Board,

The Intruder was retired on 28 February 1997 and most of them are either in an underwater reef of the coast of St. Augustine (known as Intruder Reef), collecting dust at Davis-Monthan AFB or residing on a stick at some NAS front gate.  It is hard to believe  you confused the handsome, sleek Intruder with the Warthog, but to ensure future OpEds are factually accurate, I offer my services (at the standard rate!).

OK, that’s off my chest!  Back to the 21st Century. The Post article was entitled  “A  Defense Budget Based on Hope” and outlines some disconnects between rhetoric and reality.  As those of you non-military folks who read my musing know:  Hope is not a strategy, and that is just as true in the budget world as it is in the tactical world.  To be sure the building of the DoD budget is a complex spider web of interconnecting elements, each of which is generally independent of most others.  Each element is likely to have an evangelist associated with it (Congress, Combatant Commander, Contractor, Administration, Special Interest Group, Service Chief or Secretary, etc.) and each evangelist has some varying degree of  veto power.  Most decisions, especially the big ones, require consensus, so you can imagine how difficult it is to make  cuts to any one program.  That’s why the preferred method of budget cutting is the tried and true salami slice.  By the way, sequestration was just a salami slice, albeit a big one.  One of DoD’s points when countering sequestration was they weren’t allowed to make the decisions.  I contend that even if Congress had just handed DoD an undefined cut, given the decision making rules, in the end, DoD would have sliced the salami, just in a different way.  It’s the only thing that works because the “salami slice” method requires no accountability, affects all programs equally, doesn’t usually kill anything and makes all equally unhappy.  The art to surviving “Salami Slice” budgeting is to demonstrate that your program is so critical to national defense that it should be exempted  (usually personnel, health care, etc).  In the Navy, these were described as “Flagship Programs.”  Not only were Flagship Programs exempt from cuts, you generally had to plus them up.  Of course, all exemptions do is off-load a larger part of the bill to those programs who were not smart enough to come up with a reason for exemption.

As one of the old Dinosaurs, I was accused of always reverting back to the Salami Slice, despite the well-meaning intentions of all to make the budget process all about informed choices, analysis and supporting the strategy.  I tried but failed.  In the end the people who cried loudest about being allowed to make choices were unable to do so.  As the Head Miller of the Budget Grist Mill, I was required to grind whatever grist the mill required to submit the budget on-time (which is no longer apparently the case).  That required a trip to the deli, slicing the salami and living with unhappy people ever after. All in a day’s work.  Bob’s your uncle.  That’s that!!!!!!!

By the way, this isn’t what I wanted to write about today, but I got lost in the salami thing, so bear with me.  Tomorrow’s topic: Budget Risk and How I Learned to Love It.